FEDERAL COURT OF AUSTRALIA

W Hoy Pty Ltd v W.T.H. Pty Ltd [2018] FCA 310

ORDERS

THE COURT ORDERS THAT:

1.    The application for interlocutory injunctions be dismissed.

2.    The question of costs be reserved.

3.    The parties to file written submissions on the question of costs, to be determined on the papers.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BARKER J:

1    The prospective applicant (W Hoy Pty Ltd) applies urgently for orders for interlocutory injunctions restraining the prospective respondents (Avis Australia and Budget Australia) respectively from:

(1)    terminating and (or) preventing W Hoy from operating the businesses trading under the name of Avis and Budget located at Perth International Airport until the trial of the action or further order; or

(2)    entering upon the business premises for the purpose of preventing W Hoy from operating the businesses pursuant to agreements dated 1 July 2016 until trial or further order.

2    While W Hoy commenced this application against Avis Australia alone, and not Budget Australia as well, the parties have proceeded on the basis that Budget Australia is also intended to be a prospective respondent and that the application and asserted relief and causes of action are intended to apply equally to Avis Australia and Budget Australia. The existing prospective respondent trades as Avis. Budget Rent a Car Australia Pty Ltd trades as Budget. Both companies are subsidiaries of Avis Budget Group Inc, which is a publicly listed company. For that reason these reasons for judgment refer to the prospective respondents in the plural, being Avis Australia and Budget Australia and not Avis Australia alone.

3    The evidence put on by the parties and read at the hearing, to which reference in these reasons will be made so far as is presently relevant, is to be found in the:

    Affidavit of Mr Warren James Hoy made 27 February 2018, and read on behalf of W Hoy.

    Affidavit of Mr Russell Ian Evans made 6 March 2018, and read on behalf of the prospective respondents.

    Affidavit of Ms Cathryn Emma Palfrey made 7 March 2018, and read on behalf of the prospective respondents.

4    The parties agree that in order to secure the injunctions sought the prospective applicant must show:

(1)    that there is a serious question to be tried or that it has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the applicant will be held entitled to relief;

(2)    that it will suffer irreparable injury for which damages will not be an adequate compensation unless an injunction is granted; and

(3)    that the balance of convenience favours the granting of an injunction: Australian Broadcasting Corporation v Lenah Game Meats Pty Limited (2001) 208 CLR 199 at 216-219; [2001] HCA 63; Castlemaine Tooheys Limited v The State of South Australia (1986) 161 CLR 148 at 153; [1986] HCA 58; Beecham Group Limited v Bristol Laboratories Pty Limited (1968) 118 CLR 618 at 622-623; [1968] HCA 1.

5    It is not necessary that the prospective applicant must show that it is more probable than not that at trial it will succeed; it is sufficient that the prospective applicant show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. How strong the probability needs to be depends upon the nature of the rights the prospective applicant asserts and the practical consequences likely to flow from the order sought: see, for example, Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 at 68-69, 81-84; [2006] HCA 46.

6    Notwithstanding some older authorities to the contrary, the test to be applied on an application for an interlocutory injunction is no different whether the application is for a mandatory injunction or prohibitory injunction. However, as the practical consequences of a mandatory injunction may incur irremediable prejudice to the respondent, the application of the normal test, may tilt the balance of convenience in favour of the respondent where a mandatory injunction is sought: see Mineralogy Pty Ltd v Sino Iron Pty Ltd [2016] WASCA 105 at [76]-[86].

Is there a serious question to be tried?

7    The very short background to this urgent application is that notwithstanding a long business relationship between W Hoy and Avis Australia, in particular, dating from about 1996, pursuant to the 2016 agreements with it, the related prospective respondents gave 30 days’ notice terminating the agreements pursuant to the cl 8 termination provisions in the agreements, without reason or explanation.

8    W Hoy contends that each of the agreements is, as was a predecessor 1996 agreement with Avis Australia, a franchise agreement for the purposes of the Franchising Code of Conduct contained in Sch 1 to the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Cth). As a result, W Hoy contends, on the facts and circumstances surrounding the termination notice, the purported termination by the prospective respondents of the two agreements on 4 October 2017 was ineffectual. Those facts and circumstances are set out in his affidavit, including the reliance he alleges he placed on the 2016 agreements.

9    While, by cl 8 the agreements provide for either party to terminate the agreement on 30 days’ notice, W Hoy first contends that the provisions of the Code alter the general law that might otherwise govern the private contractual rights of the parties arising under the agreements.

10    In particular, W Hoy contends as follows:

(1)    The 1996 Avis agreement and the 2016 Budget agreement are franchise agreements as defined by cl 5 of the Code.

(2)    The agreements satisfy each of the elements of the definition of a franchise agreement in the Code.

(3)    The prospective respondents have engaged in conduct that breaches the following Code provisions:

(a)    Clause 6 - Obligation to act in good faith;

(b)    Clauses 8, 9, 10 and 11 - Disclosure requirements;

(c)    Clause 28 - Termination of agreement where no breach by Franchisee; and

(d)    Clauses 34, 35 and 36 - Dispute resolution procedures.

11    W Hoy contends, secondly, that by the same conduct the prospective respondents have contravened s 21 of The Australian Consumer Law (ACL) contained in Sch 2 to the Competition and Consumer Act 2010 (Cth) (CCA) in that it constitutes unconscionable conduct.

12    Thirdly, W Hoy contends that the prospective respondents have breached implied contractual terms of good faith, reasonableness and fair dealing.

13    It also mentions equitable principles of unconscionable conduct and unjust enrichment as a basis for relief.

14    At the hearing before me it was primarily upon the alleged breaches of the Code and s 21 of the ACL that W Hoy relied in seeking the grants of interlocutory injunctions.

15    If the 1 July 2016 agreements are franchise agreements such that the Code applies to them, then the following obligation to act in good faith would arise under cl 6(1) of the Code:

Each party to a franchise agreement must act towards another party with good faith, within the meaning of the unwritten law from time to time, in respect of any matter arising under or in relation to:

(a)     the agreement; and

(b)      this code.

This is the obligation to act in good faith.

Civil penalty: 300 penalty units.

16    Clause 6(3) further provides that:

Without limiting the matters to which a court may have regard for the purpose of determining whether a party to a franchise agreement has contravened subclause (1), the court may have regard to:

(a)     whether the party acted honestly and not arbitrarily; and

(b)     whether the party cooperated to achieve the purposes of the agreement.

17    It should be noted that cl 6(6) is relevant to an understanding of a party’s obligation to act in good faith, in that it provides:

To avoid doubt, the obligation to act in good faith does not prevent a party to a franchise agreement, or a person who proposes to become such a party, from acting in his, her or its legitimate commercial interests.

18    As noted, W Hoy at a trial would also allege breach of the disclosure document provisions of the Code, set out in cll 8, 9, 10 and 11. At the hearing of the interlocutory injunction application, however, those provisions were not the subject of any particular submissions.

19    Clause 28 of the Code, however, was identified in the course of argument as pertinent in that it is one of the provisions in Pt 3, Div 5 of the Code dealing with termination of franchise agreements. Clause 28 provides:

28 Termination—no breach by franchisee

(1)     This clause applies if:

(a)     a franchisor terminates a franchise agreement:

(i)     in accordance with the agreement; and

(ii)     before it expires; and

(iii)     without the consent of the franchisee; and

(b)     the franchisee has not breached the agreement.

(2)     For subparagraph (1)(a)(iii), a condition of a franchise agreement that a franchisor can terminate the franchise agreement without the consent of the franchisee is not taken to be consent.

(3)     Before terminating the franchise agreement, the franchisor must give reasonable written notice of the proposed termination, and reasons for it, to the franchisee.

Civil penalty: 300 penalty units.

(4)     Part 4 (resolving disputes) applies in relation to a dispute arising from termination under this clause.

20    For reasons explained further below, I doubt that cl 28 has any relevance to the present agreements as neither contains an expiration date and are only capable of being determined on the 30 day notice provision referred to above.

21    To put the matter shortly, until a notice of termination under the agreements is given, the agreements have no expiry date and so there cannot, logically, be a termination of the franchise agreement by a franchisor “before it expires”.

22    However, if the agreements are franchise agreements, then the provisions for resolving disputes set out in Pt 4 of the Code and, in particular, in cll 34, 35 and 36 would appear to be applicable in the circumstances that have arisen in this case. I do not presently need to set out the terms of those clauses. It is sufficient to note that they exist.

23    The substantive question is whether it is arguable, and if so, how serious the issue to be tried is, that the 2016 agreements fall within the definition of a “franchise agreement” in cl 5 of the Code. In this regard, it is appropriate to set out in full the meaning of franchise agreement provided by cl 5:

(1)     A franchise agreement is an agreement:

(a)     that takes the form, in whole or part, of any of the following:

(i)     a written agreement;

(ii)     an oral agreement;

(iii)     an implied agreement; and

(b)     in which a person (the franchisor) grants to another person (the franchisee) the right to carry on the business of offering, supplying or distributing goods or services in Australia under a system or marketing plan substantially determined, controlled or suggested by the franchisor or an associate of the franchisor; and

(c)     under which the operation of the business will be substantially or materially associated with a trade mark, advertising or a commercial symbol:

(i)     owned, used or licensed by the franchisor or an associate of the franchisor; or

(ii)     specified by the franchisor or an associate of the franchisor; and

(d)     under which, before starting or continuing the business, the franchisee must pay or agree to pay to the franchisor or an associate of the franchisor an amount including, for example:

(i)     an initial capital investment fee; or

(ii)     a payment for goods or services; or

(iii)     a fee based on a percentage of gross or net income whether or not called a royalty or franchise service fee; or

(iv)     a training fee or training school fee;

but excluding:

(v)     payment for goods and services supplied on a genuine wholesale basis; or

(vi)     repayment by the franchisee of a loan from the franchisor or an associate of the franchisor; or

(vii)     payment for goods taken on consignment and supplied on a genuine wholesale basis; or

(viii)     payment of market value for purchase or lease of real property, fixtures, equipment or supplies needed to start business or to continue business under the franchise agreement.

(2)     For subclause (1), each of the following is taken to be a franchise agreement:

(a)     the transfer or renewal of a franchise agreement;

(b)     the extension of the term or the scope of a franchise agreement;

(c)     a motor vehicle dealership agreement.

(3)     However, any of the following does not in itself constitute a franchise agreement:

(a)     an employer and employee relationship;

(b)     a partnership relationship;

(c)     a landlord and tenant relationship;

(d)     a mortgagor and mortgagee relationship;

(e)     a lender and borrower relationship;

(f)     the relationship between the members of a cooperative that is registered, incorporated or formed under any of the following laws:

(i)     the Corporations Act 2001;

(ii)     the Co‑operatives Act 1992 (NSW);

(iii)     the Co‑operatives Act 1996 (Vic.);

(iv)     the Cooperatives Act 1997 (Qld);

(v)     the Co‑operatives Act 2009 (WA);

(vi)     the Co‑operatives Act 1997 (SA);

(vii)     the Cooperatives Act 1999 (Tas.);

(viii)     the Cooperatives Act 2002 (ACT);

(ix)     the Co‑operatives Act 1997 (NT).

24    The prospective respondents contend that, while it may be conceded that the arguments of W Hoy that the agreements may be considered franchise agreements are not hopeless, there is not a serious issue to be tried; or in any event, when the availability of damages as a remedy and the balance of convenience are taken into account, this is not an appropriate case in which interlocutory relief should go.

25    So far as para (a) of the cl 5 franchise agreement definition is concerned, (i) is satisfied in that there is a “written agreement” in the case of the two agreements.

26    So far as para (b) is concerned, the question is whether the prospective respondents have granted to W Hoy “the right to carry on the business of offering, supplying or distributing goods or services in Australia under a system or marketing plan substantially determined, controlled or suggested by [the prospective respondents] …”. In that regard, the prospective respondents contend that the agreements are plainly agency agreement under which Avis Australia and Budget Australia is the principal in each case and W Hoy an agent, and so, as a matter of law, it cannot be said that W Hoy has been granted the “right to carry on the business” of offering, supplying or distributing hire vehicles and related services in Australia. That belongs to the prospective respondents.

27    In my view, it is apparent that, even though an agent, W Hoy is nonetheless entitled under the agreement to conduct its own business of renting cars as an agent and it is arguable this also involves the business of offering, supplying or distributing goods (hire vehicles) and related services in Australia. The distinction suggested on behalf of the prospective respondents may ultimately prove to be a good one, but I do not think that it is a proposition that excludes the arguability of the proposition put on behalf of W Hoy.

28    For a similar reason, I do not think it can be said that the “business” to which para (c) refers cannot be the business actually carried out by W Hoy (whether as agent or otherwise) and plainly it is the business the operation of which substantially or materially is associated with the prospective respondents’ trademark, advertising and commercial symbols, and so (i) and (ii) appear to be otherwise satisfied.

29    The critical question over which the parties are primarily in dispute is whether para (d) can be said to be satisfied in the circumstances of this case. The prospective respondents contend that the agreements are simply agency agreements and are to be distinguished from franchise agreements. To say that, of course, is simply to assert a conclusion in the face of a statutory definition as to what a franchise agreement is. Form may not be permitted to triumph over substance.

30    W Hoy contends that the agreements involve W Hoy being obliged to pay or agreeing to pay to the prospective respondents “an amount”, the amount in question arising under the following clauses of the agreements:

(1)    Clause 4(k) of the agreements - indemnify and hold harmless Avis Australia against any and all demands, losses, penalties, fines, damages, judgments and costs.

(2)    2016 Avis and Budget Agreements: Clause 4(p) maintains at its expense the rental counter in a clean and neat manner so as to contribute to the goodwill of the Avis Australia and Budget name.

(3)    1996 Avis Agreement: Clause 4(p) - the location which shall be clean and neat so as to contribute to the goodwill of the Avis Australia name.

(4)    Clause 4(q) of the agreements - “...the business carried on at or from the Location ...shall indemnify and hold Avis/Budget harmless from any liability, fines or other penalties resulting from Operator’s non-compliance ...”.

(5)    Clause 5(d) of the agreements:

Without prejudice to cl 5(c), operator shall be responsible for and Avis Australia, at its option, may deduct from any commission payment under cl 5(a) the following amounts:

(a)    The total loss of revenue to Avis Australia, or $500, whichever is the higher as a result of conversion of a vehicle due to operator’s failure to follow customer qualification procedures specified or described in the operations material.

(b)    The total amount of repairs to a vehicle in an accident due to operator’s failure to follow established customer qualification procedures specified or described in the operations material and collection or recovery cannot be made from the responsible third party;

(c)    $100 per hire, or operator’s average revenue per hire, whichever is higher, on missing hires (defined as any of the operator’s rental agreements not received or accounted for by Avis Australia); and

(d)    $0.50 per kilometre on all missing kilometres (defined as any kilometres which are not recorded on an authorised non-revenue ticket).

31    As W Hoy notes in these submissions, para (d) of the Code enables a relevant agreement to be treated as a franchise agreement where, under the agreement, “before starting or continuing the business” the franchisee “must pay or agree to pay” to the franchisor “an amount”, including the various examples given.

32    The prospective respondents contend that none of the clauses relevantly identifies the payment of “an amount” of the type contemplated by para (d), in the examples given or at all. The prospective respondents submit that:

(1)    Clause 4(k) is an indemnity against loss arising from W Hoy’s breach, neglect or default and so forth. If there is no breach, neglect or default there is no requirement to indemnify.

(2)    Clause 4(p) is an obligation to maintain the rental counter. It does not require any payment from W Hoy to Avis Australia .

(3)    Clause 4(p) of the 1996 agreement is irrelevant (which I note in passing must be right).

(4)    Clause 4(q) is another form of indemnity from liabilities arising from W Hoy’s failure to comply with government regulations. Again, if there is no failing there is no indemnity.

(5)    Clause 5(d) is in the form of compensation for various failings of W Hoy to comply with its obligations under the agreement. Again, if there is no failing there is no requirement to pay.

(6)    The requirement to pay for telephone calls is a partial reimbursement in the case of local/national calls and a full reimbursement (at cost) of international calls. There is no mark-up. It is market rates.

(7)    The requirement to pay vehicle cleaning costs is at less than the cost of providing those services.

(8)    Payment for uniforms is at W Hoy’s cost. There is no requirement for W Hoy to pay Avis Australia.

(9)    The requirement to pay for damage to vehicles is, again, a requirement to pay for damage W Hoy causes to Avis Australia.

33    There is relatively little authority on the proper construction of the expression “an amount” as used in para (d). This has led W Hoy to refer the Court to some textual analysis by Giles S, Franchising Law and Practice (LexisNexis) (Vol 1) 30, 370 where the author observes:

The term ‘an amount’ is quite broad. Obviously even $1 would constitute ‘an amount’, and arguably an indemnity clause where a franchisee is obliged to pay a franchisor damages in certain circumstances could constitute such ‘an amount’. Although it is not clear precisely how a court will interpret this requirement, it does seem clear that Parliament intended that this would be a very low threshold test. (Emphasis added)

34    W Hoy also emphasises that payment of fees may be made by various forms of valuable consideration, as recognised by the Franchising Policy Council, Review of the Franchising Code of Conduct: Report of the Franchising Policy Council (Secretariat, Office of Small Business, Canberra, 31 May 2000) p 27.

35    It is not necessary for me finally to determine the question whether an indemnity clause of any sort or a particular indemnity clause of the type used in this case, constitutes a relevant example of an agreement to pay or agree to pay an amount. It might be observed, however, that the examples given in (i) to (iv) of para (d), suggest, as the prospective respondents submit, that the payments should be identifiable as payments in connection with the operation of a separate, standalone “franchise” business by the “franchisee”. Some support for this view may be found in the exclusions of what a franchise agreement is, that follow para (d)(iv).

36    The excluded transactions include (v) and (vii), being certain payments for goods or goods and services “supplied on a genuine wholesale basis”.

37    The excluded payments in (vi) and (viii) also contemplate that where an arm’s length payment for value is made, then it will not be a relevant amount.

38    What may be said to flow from the concept of “an amount”, in all these circumstances, is that the amount paid constitutes some element of profit in the hands of the other party, over and above cost price.

39    In all of these circumstances, I am inclined to think, at this preliminary stage, that the submissions made on behalf of the prospective respondents concerning the nature of these agreements, which on their face do appear to be true agency agreements, relevantly inform the nature of the indemnity and other payment obligations to which the agreements relate. None of them, including the payment for the cleaning of rental vehicles – especially in the circumstances described in the affidavit of Mr Evans, to which I need not, at this point, make any further reference – strongly suggests that the payments or indemnities are simply intended to enable the prospective respondents to recover the actual expenditure they have incurred (the cost price) without any relevant element of “profit”. To use the language, perhaps imprecisely, of the exclusions, the payments or indemnity are for services supplied on a “genuine wholesale basis”.

40    As I say, I need not make any final judgment on the amount question, but I do presently consider that the contention that the 2016 agreements are agreements under which W Hoy must pay or has agreed to pay a relevant “an amount” is not strong. To use the language of counsel for the prospective respondents in oral submissions, the proposition may not be hopeless, but it is not strong.

41    I should, at this point, also deal with an argument put on behalf of the prospective respondents that, even if there is a serious question to be tried, that the agreements are franchise agreements for the purposes of the Code, there has been no arguable breach of the Code.

42    First, I will deal with the question mentioned in passing above, concerning the application of cl 28 of the Code.

43    I have indicated that I accept the submission made on behalf of the prospective respondents that it has no application to these agreements.

44    As noted, I accept that cl 28 applies to franchise agreements that have a stated term – that is to say, a fixed term. These agreements do not have a fixed term, they expire on the face of it, without cause on notice, as provided for in cl 8(a).

45    It follows that the other provisions in cl 28 have no relevance to this case and there would be and can be no relevant breach of them.

46    In short, these agreements, to use their commercial descriptions, are “ever-green” in that they may be terminated on an agreed period of notice but otherwise continue indefinitely.

47    The prospective respondents further contend, however, that even if cl 28 did apply, they have, in the circumstances of this case, effectively provided more than five months – not 30 days – notice. This is because – and it is not a matter in contention – since the initial 30 days’ notice of termination was given, the parties by agreement have extended the period while they engaged in discussions to explore the resolution of the dispute.

48    I am not sure, at least at this preliminary stage, that the five months’ notice argument works. The simple fact is only 30 days’ notice was given. It has been the cause of the disputation and the subsequent discussions between the parties. I think, on balance, at this preliminary stage, it might be said that the five months’ hiatus in these legal proceedings being commenced since the original notice was given, may be something of a distraction or a legal irrelevancy. Be that as it may, I would not consider, at this point, that the fact that five months have elapsed since the initial 30 days’ notice was given, means that the original 30 days’ notice was not arguably unreasonable.

49    The further argument put is that the 30 day period is not reasonable in any event. The prospective respondents say that it is reasonable evidenced by the fact it has been in place for many years under the earlier Avis contracts, since 1996 and 1998, and so should not be considered unreasonable.

50    I would not, at this stage, form a final judgement that 30 days’ notice of the termination of an agreement, of an agency character, is reasonable. It may be.

51    I have also adverted to the good faith obligation in cl 6 of the Code. The question of good faith or unconscionable conduct has been raised in the written submissions of W Hoy in various contexts, including cl 6 of the Code, s 21 of the ACL and by way of general law implied contractual terms and equitable terms. Most attention orally was given to the breach of s 21 of the ACL.

52    As noted above, cl 6 imposes on each party to a franchise agreement an obligation to “act towards another party with good faith, within the meaning of the unwritten law from time to time, in respect of any matter arising under or in relation to” the agreements. The “unwritten law” is a reference to the general law, including equity. It arguably draws in the question of unconscionable conduct. If there is no general doctrine of “good faith” in contracts under the unwritten law, then cl 6(1) may not mean much.

53    Put perhaps simplistically, W Hoy contends that, in circumstances where it had a long relationship with Avis Australia, and a relationship since 2016 with the related entity Budget Australia, where W Hoy to the express knowledge of the prospective respondents has earned a productive income in the vicinity of $450,000–$520,000 gross per annum in recent financial years, to terminate the agreement on 30 days’ notice, without reason or explanation bespeaks an unconscionable, bad faith or arbitrary confiscation of its right to continue the business and the “goodwill” of its businesses.

54    The argument is perhaps more explicitly developed in the written submissions (with emphasis included) made by W Hoy in respect of s 21 and s 22 of the ACL, upon which it expressly relies:

    Section 21 of Schedule 2 of the Competition and Consumer Act 2014, Australian Consumer Law (ACL) states that:

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

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

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

(c)    engage in conduct that is, in all the circumstances, unconscionable.

    Section 22 of the ACL sets out the matters that the Court may have regard to for the purpose of section 21 of the ACL, including:

(a)    the relative strengths of the bargaining positions of the supplier and the customer: and (emphasis added)

(b)    if there is a contract between the supplier and the customer for the supply of the goods or services:

(i)    the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the customer; and

(ii)    the terms and conditions of the contract; and

(iii)    the conduct of the supplier of the customer engaged in, in connection with their commercial relationship, after they entered into the contract; and

(iv)     any conduct that the supplier or the customer engaged in, in connection with their commercial relationship, after they entered into the contract; and (emphasis added).

(c)    the extent to which the supplier and the customer acted in good faith.

55    W Hoy accepts the contestability of conclusions as to when commercial conduct is unconscionable, referring to Paciocco v Australia and New Zealand Banking Group Limited (2015) 236 FCR 199; [2015] FCAFC 50 and Australian Competition and Consumer Commission v Woolworths Limited [2016] FCA 1472. W Hoy accepts that an evaluation of business behaviour as to whether it warrants the characterisation of unconscionable, in the light of the values and norms recognised by the statute is what is required.

56    As far as implied contractual terms are concerned, at this point, a broad submission is made on behalf of W Hoy that the agreements include implied terms to act in good faith and to exercise contractual powers reasonably, referring to Burger King Corporation v Hungry Jack’s Pty Limited (2001) 69 NSWLR 558; [2001] NSWCA 187 at [152].

57    So far as the reasonableness of the relevant conduct is concerned, W Hoy also relies on the precedent authority of A & M Thompson Pty Ltd and Others v Total Australia Ltd [1980] 2 NSWLR 1; [1980] AR (NSW) 399.

58    W Hoy submits that:

61.    In A & M Thompson Pty Ltd v Total Australia Ltd [1980] 2 NSWLR 1; [1980] AR (NSW) 399, the parties were in an unequal bargaining position and the franchisee had been presented with a standard form contract on a ‘take it or leave it’ basis with no room to bargain. Total exercised its contractual right to terminate the franchise without compensation on 30 days’ notice, not because of any default by the franchisee, but because the site was to be developed as a self-service outlet operated by Total.

62.    The applicants had worked long hours and had gradually built up a profitable operation. They had been led to understand that the arrangement would continue as long as the site operated profitably. In an action under s 88F of the Industrial Arbitration Act 1940 (NSW) (now Pt 9 Ch 2 of the Industrial Relations Act 1996 (NSW), Watson J, in the Industrial Commission, ordered that no less than 6 months’ notice in writing be given of termination and awarded an amount representing the efforts of the applicants in increasing the goodwill from which the respondent benefited. The orders were upheld by the Commission in Court Session.

63.    On appeal, the Commission ordered that the Thompsons had an option for a licence for 12 months from the date of the decision and that Total pay a portion of goodwill to the Thompsons as per Perrignton J at (1).

64.    The Commission concluded that the Thompsons should be paid one third of the accepted figure for goodwill at (106).

59    The prospective respondents contend that the articulation of W Hoy’s good faith and unreasonableness arguments fails to indicate any relevant breach of any law.

60    The prospective respondents say that apart from identifying some of the relevant matters referred to in s 22(2) of the ACL, W Hoy’s submissions do not articulate the normative standard that it contends has been offended. Nor do W Hoy’s submissions identify the conduct that is contended to involve a departure from such standard.

61    The prospective respondents also say that, by way of example, the mere existence of an inequality in bargaining power and/or an unwillingness to negotiate terms are not indicative of a departure from any normative standard that meets the description “unconscionable”: see Paciocco v Australia and New Zealand Banking Group Limited (2016) 258 CLR 525 at 618-620; [2016] HCA 28.

62    They also say that, if it is asserted that the prospective respondents have taken unconscientious advantage of an inequality in bargaining power, that assertion requires the identification of a term disadvantageous to W Hoy and advantageous to Avis Australia or Budget Australia that it might be considered was extracted by virtue of an inequality of bargaining power. The right to terminate on 30 days’ notice does not meet the description of such a term. Further, the prospective respondents were not aware of the financial circumstances of W Hoy or its directors, shareholders and those dependent on them to which Mr Hoy refers in his affidavit.

63    In particular, the prospective respondents submit:

44.    First, it is not a provision that is one-sided. W Hoy also has the right to terminate on 30 days’ notice. In other words, should it suit W Hoy’s commercial interests, it had the right to bring the agency agreements to an end. Such a provision is mutually beneficial and mutually disadvantageous to the parties.

45.    Second, the right to terminate on notice without cause is a reasonable (and necessary) provision of a contract with no fixed term. In the absence of an express term, the law would imply a term permitting either party to terminate on reasonable notice. Here, the parties have agreed, in effect, that 30 days is a reasonable period.

46.    Third, the 30 day notice provision was a feature of the contractual relationship between W Hoy and Avis Australia from the outset. It was not a provision that was inserted into a subsequent agreement on a ‘take-it-or-leave-it’ basis. Also, it is a typical provision for an agency agreement of this character.

47.    Fourth, W Hoy was offered a second agency agreement for Budget in 2016. W Hoy had not been Budget Australia’s agent for arranging Budget rental agreements before 2016. It was to W Hoy’s advantage to increase its commission revenue on the terms that Budget Australia offered such an agency agreement. Thus, the arrangement viewed as a whole was advantageous to W Hoy.

48.    Likewise, demonstration of departure from normative standards requires more than a mere assertion of a failure to act in good faith. The usual content of the obligation of good faith is an obligation to act honestly and with fidelity to the bargain. It does not require the interests of a contracting party to be subordinated to those of the other. It is good faith and fair dealing between the parties by reference to the bargain and its terms: e.g., Paciocco v Australian and New Zealand Banking Group Ltd [2015] FCFCA 50; (2015) 236 FCR 199 at 273 [288]-[289]. A party does not fail to act in good faith by acting to promote its own ‘legitimate interests’. Principles of good faith do not block the use of terms that actually appear in the contract: Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187; (2001) 69 NSWLR 558 at 570 [171]-[172].

64    The prospective respondents submit that they terminated the agency agreements in accordance with an express provision of the agreements that permitted them to do so without fault. Moreover, the decision to terminate was not arbitrary or capricious. It was made in the promotion of Avis Australia’s and Budget Australia’s legitimate commercial interests, as Mr Evans explains in his affidavit. They say there is no foundation for the assertion that the termination of the agency agreements lacked “good faith”.

65    Likewise, the prospective respondents contend that W Hoy’s submission that termination in accordance with the provisions of the agreements results in “unjust enrichment” and, thereby lacks good faith, has not foundation in law or fact.

66    They add that the Avis and Budget rental businesses belong to Avis Australia and Budget Australia, not W Hoy. If and to the extent the business at Perth airport was increased it was to the mutual advantage of W Hoy and Avis Australia and Budget Australia. The revenue from rentals increased for Avis Australia and Budget Australia and the commissions that W Hoy earned increased in proportion.

67    The prospective respondents also submit that termination has not deprived W Hoy of the value of any goodwill in the Avis and Budget businesses. The goodwill belongs to Avis Australia and Budget Australia, not W Hoy. The circumstances of this case and statutory provisions are therefore entirely different to those under consideration in A & M Thompson.

68    The prospective respondents therefore say that W Hoy has not identified any conduct that could be described as failing to meet the norms of society

69    I might say at this point that so far as the question of goodwill is concerned, in oral submissions counsel for the prospective respondents did not deny that, even as an agent under an agency agreement, W Hoy may have developed some goodwill in its own business, as distinct from the business that the prospective respondents own and operate, through their agent.

70    I should add that to the extent that W Hoy produced in evidence an accountant’s letter to put a valuation on “goodwill”, I take little notice of the actual figures included. The assumptions upon which that piece of advice was made are not disclosed. It may be assumed that the accountant was led to understand that there was some security of tenure in the operation of the W Hoy business. The real difficulty, whether or not the Code applies, is that the question of tenure is quite uncertain. A person who might wish to purchase the “business” of W Hoy could also be faced with the terms of cl 10 of the agreements, which preclude transfer of the business. A separate agreement and understanding would necessarily need to be made by the vendor of the business, the purchaser of the W Hoy business, and the prospective respondents. Commercial arrangements could be made but it would, on the face of it, require the commercial cooperation of the prospective respondents.

71    In more direct terms, however, the prospective respondents submit that the termination of the agreement, whether one is approaching this in terms of good faith or reasonableness of the exercise of the power of termination, must take into account the entitlement of the party to exercise a contractual right in the promotion of its legitimate commercial interests. It says this was recognised in the Burger King case referred to above, as well as in the Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, and as noted in cl 6(6) of the Code.

72    They say the termination is explained in the affidavit of Mr Evans, in pursuance of those interests. They desire both to operate their business more efficiently at the Perth International Airport, by having their own employees operate the outlets and also to reduce the amounts paid to an agent, whereby they estimate they would stand to increase their annual profits by about $250,000 per annum.

73    Thus, the prospective respondents submit that, even if it could be argued that a right to terminate for no reason is conditioned by an implied obligation to the effect that the contract will be terminated in good faith and on reasonable grounds, such an obligation does not require the terminating party to subordinate its own commercial interests to those of the other party.

74    In my view, at this preliminary stage, while it might be said that the unconscionable, good faith and reasonableness questions, whether arising under the Code, under the ACL, or under the general law, are not, having regard to the particular factual circumstances of this case, unarguable, they are, as a matter of law and fact, not strong.

75    This then leads to the questions of whether damages provide an adequate remedy and as to where the balance of convenience lies in this case.

Would damages provide an adequate remedy?

76    W Hoy, in its written submissions, contends that W Hoy and Mr Hoy will suffer devastating consequences if the company is prevented from operating the Avis Australia and Budget Australia businesses.

77    W Hoy refers to Mr Hoy’s affidavit in which he deposes to his financial obligations and that he is not able to operate another business of a similar nature or of a similar scale.

78    It says that his goodwill in the businesses in Western Australia will be destroyed.

79    Finally, it says that a third party, such as Mr Hoy’s life partner, who relies on Mr Hoy for financial well-being, will be seriously affected. Reference is made to the difficult health circumstances of Mr Hoy’s partner.

80    As noted above, the prospective respondents, by Mr Evans, indicate that neither was aware of the financial circumstances of W Hoy or its directors, shareholders and those dependent upon them at material times.

81    Also, as noted above, they say that the goodwill in the businesses, as such, belongs to the prospective respondents; while acknowledging in the course of oral submissions by counsel that W Hoy may have some goodwill in the particular business that it operates as an agent. The value of any such goodwill, however, is directly contested, as noted above.

82    As to damages being an adequate remedy, the prospective respondents also emphasise that the losses that W Hoy refers to include those that Mr Hoy personally might suffer. But they point out that it is the harm to W Hoy to which the question of financial loss and harm should be directed, not Mr Hoy or his partner personally.

83    In that regard, the prospective respondents submit that the interests that W Hoy may seek to protect are the authority to enter into vehicle rental contracts for and on behalf of Avis Australia and Budget Australia and to be paid a commission based on a percentage of the rent of those vehicles; and that the loss of those rights manifestly sounds in damages.

84    They submit that there is, and will be, no difficulty quantifying the amount of commission W Hoy would have, or could have, earned from rental contracts made through the service counters operated at the Perth International Terminal, as Mr Evans has pointed out in his affidavit.

85    In those circumstances, the prospective respondents submit there is no irreversible harm that W Hoy will, or may, suffer that cannot be compensated in damages. Thus, there is no status quo that requires preservation.

86    They emphasise that the financial impact of termination on the shareholders, directors or employees is not a right that W Hoy is entitled to protect through injunctive relief.

87    Broadly speaking, I accept the analysis advanced by the prospective respondents.

88    It remains to consider what effect this has on the injunction issue, which I consider below.

Where does the balance of convenience lie?

89    The prospective respondents also contend that notwithstanding there may be arguable issues to be tried, the balance of convenience does not favour the grant of interlocutory injunctions in any event. In short, the prospective respondents submit that the courts have long been reluctant to grant injunctions (whether prohibitive or mandatory) that involve the personal performance of personal service contracts, in circumstances where damages is an adequate remedy.

90    It is appropriate here to note the careful written submissions put on behalf of the prospective respondents in this regard:

60.    Although the proposed order sought is framed as a prohibitory injunction in truth it is a mandatory injunction that would require Avis Australia and Budget Australia to remain in a contractual relationship and positively perform its obligations under the agency agreements.

61.    The agency agreements will terminate in accordance with the terms of those agreements at the end of the notice period as extended (12 March 2018). An order for an interlocutory injunction cannot prevent the termination of the agency agreements in that manner. Thus, W Hoy’s authority to enter into vehicle rental agreements for and on behalf of Avis Australia and Budget Australia will cease on 12 March 2018.

62.    It follows that the effect of an order restraining Avis Australia or Budget Australia from preventing W Hoy from operating the Avis and Budget businesses pursuant to the agency agreements is tantamount to an order declaring that the agency agreements remain on foot and would compel Avis Australia and Budget Australia to re-appoint or maintain its appointment of W Hoy as agent. Thereafter, W Hoy would be entitled to payment of commission in accordance with the provisions of the agency agreements. The orders sought do not preserve the status quo but amount to final relief (an extension of the agency agreements) for the period of the interlocutory injunction.

63.    Compelling Avis Australia and Budget Australia to perform the agency agreement also raises the spectre of constant supervision of the court or, at least, further dispute concerning Avis Australia’s and Budget Australia’s performance of their obligations or W Hoy’s performance of its obligations under the agency agreements.

64.    The continuing co-operation of Avis Australia and Budget Australia would be required to ensure that W Hoy and its director and employees have access (a licence) to enter onto the premises comprised of the Avis and Budget service counters. Avis Australia and Budget Australia would also be required to maintain W Hoy’s access to Avis Australia’s computer system: see Evans affidavit, paras 57-59.

65.    W Hoy is appointed as a non-exclusive agent [cl 2]. Each of Avis Australia and Budget Australia is to supply such quantity of vehicles to the agent that it in its sole discretion deems sufficient for the agency at the location [cl 3(a)]. Thus, if the agency agreements were to continue there would be the potential for dispute concerning the number of vehicles supplied to W Hoy and as to Avis Australia’s and Budget Australia’s ability to engage in the same business at the same location themselves or through other agents: see Evans affidavit, p 542.

66.    W Hoy has a number of obligations under the agency agreements [cll 4, 7, 9]: see Evans affidavit, pp 542-547 . Further, the extent of its authority is limited and subject to performance of the agency agreements [cl 6]: see Evans affidavit, pp 545-546. Also, Avis Australia and Budget Australia have a right to terminate for cause [cl 8(b)]: see Evans affidavit, pp 546-547. Avis Australia and Budget Australia have the right to audit and adjust commission and deduct charges [cl 5(b), 5(c)]: see Evans affidavit, p 545.

67.    Further, there is evidence that after the notices of termination were given, customer satisfaction with the service counters W Hoy operates has declined: see Evans affidavit para 55, pp 740-41. In the context of an on-going legal dispute the likelihood of further deterioration of customer satisfaction and harm to the Avis and Budget business and brands is not to be discounted. Also, quantification of any resulting harm would not be straight-forward.

68.    Avis Australia and Budget Australia should not be exposed to the possibility of inadvertent breach of the proposed interlocutory injunctions and the attendant risk of contempt of court in circumstances where the continued performance of the agency agreements require co-operation between the parties and the exercise of contractual rights that might be characterised as direct or indirect acts by which Avis Australia or Budget Australia has prevented W Hoy from enjoying the benefits of the agency agreements.

69.    The practical consequences to W Hoy if an injunction is refused are not significant. As submitted above, damages are an adequate and complete remedy. W Hoy would be fully and completely compensated by damages for lost commission. W Hoy’s asserted cause of action and relief does not have a sufficient likelihood of success to justify an interlocutory injunction in the circumstances.

91    Additionally, the prospective respondents say that the relevant “businesses” that W Hoy has operated belong to the prospective respondents and there is no goodwill in those businesses that belongs to W Hoy. W Hoy’s function, they say, is to arrange vehicle rental hire contracts between customers and Avis Australia and Budget Australia, and has no property or proprietary interest in any land, plant or equipment that is used to operate the Avis and Budget vehicle rental businesses.

92    They say W Hoy will lose nothing of capital value upon termination of the agreements. Rather, it would lose its contractual rights for which it paid nothing. They repeat that if the agreement are wrongfully terminated then W Hoy will be entitled to damages for breach of contract or damages or compensation pursuant to s 80 or s 82 of the CCA or s 236 or s 237 of the ACL. The prospective respondents have the capacity to meet any award of damages and that is not in issue.

93    The prospective respondents also put in issue the capacity of W Hoy to meet any award of damages made in their favour, resulting from any injunction being granted and the suit being dismissed on the basis that the undertaking as to damages is worthless. W Hoy has paid up capital of $2. It also has charges over its undertaking in favour of financial institutions, as set out in Ms Palfrey’s affidavit.

94    Thus, it is submitted damages are an adequate remedy and the balance of convenience favours the prospective respondents and so interlocutory injunctions should not go.

95    Broadly speaking, W Hoy refers to the derivative harm flowing to Mr Hoy and his partner; and asserts there is no reason why, pending trial, the parties cannot work harmoniously, as they have done over the past five months, in the continued operation of the W Hoy businesses.

Consideration

96    In the result, taking account of my assessment of the seriousness of the issues to be tried, the availability of damages as an adequate remedy, and my view that the balance of convenience favours the prospective respondents, I have concluded that this is not a case where interlocutory injunctions should go.

97    While I accept that some of the prospective causes of action may be arguable, I am inclined not to treat the franchise agreement contentions as at all strong.

98    That then leaves questions concerning unconscionable conduct under s 21 of the ACL and related fair dealing arguments more generally under law. While, again accepting these may be arguable, I do not consider that any presents a strong issue in law or fact.

99    There is also force in the prospective respondents’ argument that, for reasons of efficiency and financial self-interest – as explained by Mr Evans in his affidavit – the termination decisions taken under the agreements by the prospective respondents are explicable and not to be deprecated as a matter of law.

100    In this regard, as the prospective respondents contend, it is not altogether clear what the “norms” of practice in this area of commercial conduct are, on the evidence, and so it is not easy to conclude that what the prospective respondents have done by way of giving notice, pursuant to the contract, to terminate it, and the way or manner in which they have done it is unconscionable or contrary to any good faith or fair dealing principles. To so act, is, on the face of it, a contractual right.

101    In those circumstances, as unfair or unfortunate as the actions taken by the prospective respondents may be thought by some to be, they do not, of themselves, obviously bespeak unconscionable, bad faith or unfair dealing conduct.

102    Similarly, even if it is arguable that some duty of reasonableness attaches to the exercise of the right to terminate under cl 8, or that there is some broad ranging duty under the contract to act in good faith when exercising that termination power, again it is not obvious that those duties have been breached. There may be an arguable case, but it is not an easy one to advance in the factual circumstances of this case in any event.

103    When one then takes into account that damages would, in my view, be an adequate remedy for W Hoy should it be able to make out the causes of action intimated, then the case for granting an interlocutory injunction at this point is also greatly weakened. In that regard I accept that it is the interests of W Hoy that must be regarded and not what might be called the derivative interests of Mr Hoy or his partner or any director or shareholder of the prospective applicant.

104    I should add that this is not a case where a cause of action is foreshadowed (as was successfully pursued in the A & M Thompson case) where the applicant would rely upon other representations that might found a case for unfair dealing, unconscionable conduct or a breach of some other representation, contrary to the consumer law of Australia or State of Western Australia, or in equity. That has not been the subject of a foreshadowed pleading. Senior counsel, from the bar table, suggested in very general terms that implications could perhaps be drawn from the term of the contract and the course of dealing, but little was made of that proposition.

105    When one then turns to the question of the balance of convenience, I consider in the end it all lies in the one direction; and that is in favour of the prospective respondents. Courts have historically been cautious in granting interlocutory relief of an injunctive nature which might involve the Court in the constant or regular supervision of the continued relationship between parties. There are some areas where statute law has interfered, such as employment law, where a person might be reinstated as an employee following unfair dismissal. In broad terms, that is the concept employed here by W Hoy. On the one hand, as W Hoy would have it, if it were restored to its contractual position, pending a final resolution of the proceeding, it could be expected that the parties would continue to act in a sensible manner. On the other hand, as the prospective respondents point out, there are many circumstances in which there is, in my estimation, real potential for further disputation between them in the course of the performance of the agreements.

106    While the prospective respondents point to some, what I consider impressionistic, evidence to suggest that since the notice of termination was given last October there has been a decline in customer satisfaction with the operation of the W Hoy businesses, and which I do not pay any real regard to, the practical reality is that to order the effective temporary reinstatement of W Hoy for a period pending a final hearing of the matter, when damages would provide an adequate remedy in the case in any event and the potential for serious difficulties in the working out of that temporary relationship are real, has little appeal to it.

107    The practical, commercial and contractual reality is that, even if W Hoy were to be successful to some extent in its action, final relief would not be available that would result in the effective conversion of its presented limited tenure in operating its current agency-like businesses into anything like a permanent grant of tenure. Compare A & M Thompson. The businesses will always, even if the Code were to operate here, be broadly subject to the terms of the agreements that currently exist, subject to some potential variation. This emphasises for me that to force the parties, by injunction now, to remain in a business relationship is unwise, especially where damages will provide an adequate remedy if W Hoy were to succeed in its proposed actions.

108    In all of these circumstances, I am not satisfied that, in order to do justice in this case, interlocutory injunctions as sought by W Hoy should be granted.

109    I would therefore dismiss the application for interlocutory injunctions.

Conclusion and order

110    For the reasons given above, I would dismiss the application for interlocutory injunctions.

111    I will hear from the parties as to the terms of the final orders and on the question of costs.

Associate:

Dated:    13 March 2018