FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v Simply No‑Knead (Franchising) Pty Ltd [1999] FCA 1842

PRACTICE AND PROCEDURE ‑ Franchisor’s proceeding against franchisees in State Court for breach of franchise agreement ‑ Later proceeding against franchisor by Australian Competition and Consumer Commission in Federal Court for contravention of s 51AC(1) of Trade Practices Act ‑ Commission’s application for interlocutory injunction restraining continuance of State Court proceeding ‑ Franchisor’s application for stay of Federal Court proceeding ‑ Whether Federal Court clearly inappropriate forum ‑ Relationship between injunction and stay applications

Trade Practices Act 1974 (Cth) s 51AC(1)

CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345 applied

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v SIMPLY NO‑KNEAD (FRANCHISING) PTY LTD and CAMERON BATES

V 318 OF 1999

SUNDBERG J

24 DECEMBER 1999

MELBOURNE

THE COURT ORDERS THAT:

1.                  The claim to the relief sought in paragraph 1A of the respondents’ notice of motion filed on 4 October 1999 be dismissed.

2.                  On condition that by 5:00 pm on 4 February 2000 the applicant shall have filed an undertaking by Lola Margaret Bult and Barry Francis Bult that they and each of them will not until the hearing and determination of matter V318 of 1999 in the Federal Court of Australia take any steps to prosecute their counterclaim in matter L02812203 in the Magistrates’ Court at Frankston, the first respondent its servants and agents be restrained pending the hearing and determination of matter V318 of 1999 from prosecuting matter L02812203.

3.                  On condition that by 5:00 pm on 4 February 2000 the applicant shall have filed an undertaking by Theresa Margaret Cornwell, Maree Anita Green and T M Cornwell and M Green Pty Ltd that they and each of them will not until the hearing and determination of matter V318 of 1999 in the Federal Court of Australia take any steps to prosecute their counterclaim in matter 9902265 in the County Court at Melbourne, the first respondent its servants and agents be restrained pending the hearing and determination of matter V318 of 1999 from prosecuting matter 9902265.

4.                  On condition that by 5:00 pm on 4 February 2000 the applicant shall have filed an undertaking by Walter William Keating and Margaret Olive Keating that they and each of them will not until the hearing and determination of matter V318 of 1999 in the Federal Court of Australia take any steps to prosecute their counterclaim in matter 9806016 of 1998 in the County Court at Melbourne, the first respondent its servants and agents be restrained pending the hearing and determination of matter V318 of 1999 from prosecuting matter 9806016 of 1998.

5.                  On condition that by 5:00 pm on 4 February 2000 the applicant shall have filed an undertaking by William Harold Stach and Gail Judith Stach that they and each of them will not until the hearing and determination of matter V318 of 1999 in the Federal Court of Australia take any steps to prosecute their counterclaim in matter 9806191 of 1998 in the County Court at Melbourne, the first respondent its servants and agents be restrained pending the hearing and determination of matter V318 of 1999 from prosecuting matter 9806191 of 1998.

6.                  The respondents pay the applicant’s costs of its application for the interlocutory relief described in paragraph B of its Application filed on 16 June 1999.

7.                  The respondents pay the applicant’s costs of their application for the relief sought in paragraph 1A of the said notice of motion.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

THE ACCC PROCEEDING

1                     In June 1999 the applicant (“ACCC”) made application to the Court for declarations that the first respondent (“SNK”) had engaged in conduct that contravened s 51AC(1) and s 51AD of the Trade Practices Act 1974 (“the Act”) and that the second respondent was involved in those contraventions.  ACCC also sought an order that SNK discontinue four proceedings it had commenced in the County Court at Melbourne and the Magistrates’ Court at Frankston against former franchisees of SNK.  By way of interlocutory relief, ACCC sought an injunction restraining SNK from taking any further steps in the State Court proceedings until the hearing and determination of the proceeding in this Court.

2                     ACCC’s statement of claim can be summarised as follows:

·        SNK was at relevant times the owner of a business that supplied training and materials for making bread in the home

·        Between 1993 and 1995 SNK entered into franchise agreements with four franchisees

·        By each franchise agreement SNK agreed, amongst other things,

(a)           that the franchise would be for five years

(b)          that SNK would grant the franchisee a further term of five years unless the franchisee gave prior notice that it did not want a further term

(c)           that SNK would use its best endeavours to supply all products necessary for the conduct of the franchise business

(d)          that SNK would not sell its products or conduct a franchised business within the franchisee’s territory during the term of the agreement

·        The franchise agreements were agreements concerning or in connection with the supply or possible supply of goods or services within s 51AC(1) of the Act

·        In July 1998 SNK determined to pursue a policy of ceasing to franchise the SNK business, preventing franchisees who ceased to operate a franchised business from operating in competition with SNK, and concealing those intentions from the franchisees (“the policy”)

·        Since July 1998 SNK has pursued the policy by engaging in conduct intended to lead to the cessation of the franchising of the SNK business to the franchisees

·        The conduct pursuant to the policy caused the franchisees to terminate or not to renew their franchise agreements, and contravened s 51AC(1)

·        Since the expiration or termination of the franchise agreements SNK, by commencing proceedings against the franchisees for injunctions restraining them from carrying on the business of providing instructions in breadmaking techniques, pursued the policy by seeking to prevent the franchisees from competing with SNK

·        The institution of the proceedings contravened s 51AC(1).

The statement of claim then alleges that SNK had done a number of things that amounted to contraventions of s 51AC(1) in that those things fell within one of the paragraphs of s 51AC(3).  The conduct included refusing to deliver franchised goods, deleting the franchisees’ telephone numbers from the directory, refusing to negotiate with the franchisees about matters in dispute, and competing with the franchisees.

THE STATE COURT PROCEEDINGS

3                     Between 19 November and 7 December 1998 SNK commenced proceedings against each of the four franchisees in the County Court or the Magistrates’ Court for damages or an account of profits for breach of clause 14(a) of the relevant franchise agreement, and damages for breach of the agreement generally.  Clause 14(a) provided that for a period of twelve months from the cessation or termination of the agreement a franchisee would not conduct or be concerned in the conduct of a similar business within the territory of the former franchise.  Each franchisee counterclaimed for damages alleging

·        breaches of the franchise agreement by SNK

·        misleading and deceptive conduct by SNK which induced the franchisee to enter into the agreement

·        repudiation of the agreement by SNK

·        that clause 14(a) is invalid as an unreasonable restraint of trade.

SECTION 51AC

4                     Section 51AC(1) provides in part that

“A corporation must not, in trade or commerce, in connection with:

(a)       the supply or possible supply of goods or services to a person …

…

engage in conduct that is, in all the circumstances, unconscionable.”

Sub-section (3) provides that in determining whether a corporation has contravened sub-s (1) the Court may have regard to various matters, including whether any undue influence or pressure was exerted on a business consumer by the supplier, the extent to which the supplier unreasonably failed to disclose to the business consumer any intended conduct of the supplier that might affect the interests of the consumer, and the extent to which the supplier was willing to negotiate the terms and conditions of any contract for the supply of goods or services with the business consumer.

THE APPLICATIONS

5                     The respondents have applied for an order staying the proceeding in this Court on the ground that it is vexatious, oppressive and/or an abuse of process.  ACCC has sought an interlocutory injunction restraining SNK from prosecuting the proceedings in the State Courts.  The relationship between interlocutory anti-suit injunctions and stay applications was considered by the High Court in CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345.  In that case there were proceedings in Australia and in the United States.  Six members of the Court said, at 397-398:

“In a case in which an anti-suit injunction is sought on equitable grounds, the central question is whether the court to which application is made or some other court should hear and determine the matter in issue ….  And when the courts concerned are, respectively, an Australian court and a court of another country, there is involved in that question a further question whether the Australian court is an appropriate forum in the Voth sense of it not being clearly inappropriate, for the determination of that matter.  The fact that there is that further question, the preclusive nature of an interlocutory anti‑suit injunction and the importance of comity combine to require an Australian court to consider whether it is appropriate, in the sense that it is not clearly inappropriate, for it to determine the matter in issue before granting an anti‑suit injunction.  If the Australian court decides that it is an inappropriate forum, that will be the end of its involvement and the occasion for considering whether to grant an anti‑suit injunction or other relief will not arise.  If the Australian court reaches the opposite conclusion, namely, that it is not a clearly inappropriate forum, then it must go on to determine whether to require the applicant to seek a stay or dismissal of the foreign proceeding or to grant an anti-suit injunction.”

STAY APPLICATION

6                     In reliance on the above passage from Cigna the respondents invited me to deal first with the stay application.  Although Cigna was a case involving proceedings in Australia and in a foreign country, I accept the respondents’ submission that it provides guidance in a case such as the present where the proceedings are in different Australian courts.  The respondents have the onus of convincing me that this Court is a clearly inappropriate forum for ACCC’s proceeding.  They have not so convinced me.  My reasons for concluding that this Court is not a clearly inappropriate forum are these:

·        This Court is the forum to which ACCC would naturally resort to have a case involving the ambit of s 51AC determined.  It is the Court in which ACCC customarily commences proceedings under the Act.

·        While ACCC could seek to intervene in the County Court and Magistrates’ Court proceedings, that would be inefficient and costly.  Not only are there four proceedings in different courts; the three in the County Court are at different stages of preparation, and it is not proposed that they be heard together.

·        ACCC wishes to challenge aspects of the decision of Mansfield J in ACCC v Leelee Pty Ltd [1999] FCA 1121 on the operation of s 151AC(6).  This Court is the most appropriate court to determine the correctness of one of its own decisions.  If the matter were left to the State Courts, different views could be arrived at in the various proceedings, or, more likely, those Courts would follow the decision of a superior court without entering upon its correctness.

·        This is not the typical stay case where the contestants are the same in two or more proceedings.  The franchisor and ex-franchisees are litigating in the State Courts.  ACCC is not involved.  The ex-franchisees are not parties to ACCC’s proceeding in this Court.  Accordingly, the determination of the State Court proceedings will not necessarily bring an end to or make unnecessary the proceeding in this Court.  ACCC has no control over the way in which the ex-franchisees conduct their cases in the State Courts.  The probability is that the proceeding in this Court will have to be resolved whatever the outcome of the State proceedings.

·        In exercise of the power in s 29(1B) of the Act to give directions, the Minister has directed ACCC to initiate proceedings in actions based on alleged contraventions of the Act for the purposes of establishing “legal precedent” under s 51AC in matters of special interest to small business.  In fulfilment of that mandate it was appropriate and natural for ACCC to commence its own proceeding in this Court.  As I have said, it would have been inefficient and wasteful for it to have attempted to intervene in the four State proceedings, and if successful then to raise s 51AC as an issue.

For the foregoing reasons, SNK has not persuaded me that the proceeding in this Court should be stayed because the Court is a clearly inappropriate forum in which to ventilate the application of s 51AC to SNK’s conduct vis a vis the ex-franchisees.

INTERLOCUTORY INJUNCTION APPLICATION

7                     I am satisfied that there are serious questions to be tried as to whether the conduct alleged in ACCC’s statement of claim occurred, whether if it did occur it was unconscionable for the purposes of s 51AC, and whether the relief sought can be granted under s 80 given that the franchise agreements came to an end before the end of 1998.  Determining the balance of convenience is more difficult, but I have concluded that it favours the grant of relief.  While restraining orders will delay SNK’s State Court proceedings, which have been on foot for over twelve months, this inconvenience is ameliorated by the fact that SNK seeks only damages.  If in due course it recovers damages against the ex‑franchisees, it will be compensated for the delay by interest or damages by way of interest.  On the other hand, if SNK is not restrained from prosecuting the State Court proceedings, the unconscionability issues, the ambit of s 51AC and the power to grant relief under s 80 will be raised in four cases with the possibility of differing results.  It is more appropriate that those matters be determined once and for all in this Court.  The ex‑franchisees are in poor financial circumstances, and have deposed to the stress of the legal proceedings and concern about costs.  However, to restrain SNK from prosecuting the State Court proceedings while leaving the ex‑franchisees free to prosecute their counterclaims would be unfair.  Accordingly, I will make it a condition of the grant of the restraints sought by ACCC that it file an undertaking to the Court by the ex‑franchisees in each State Court proceeding that they will not prosecute their counterclaim until the hearing and determination of ACCC’s proceeding.

CONCLUSION

8                     The respondents’ application for a stay is dismissed.  On ACCC’s application for interlocutory relief I will order, on the condition I have described, that SNK be restrained until the hearing and determination of the proceeding in this Court from further prosecution of each State proceeding.  The parties agreed that argument on the respondents’ application to strike out parts of ACCC’s statement of claim (which is made in the same notice of motion as the stay application) would be deferred pending the outcome of the stay and injunction applications.  That part of the notice of motion has been adjourned to a date to be fixed.

Associate:

Dated:              24 December 1999