FEDERAL COURT OF AUSTRALIA

Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 3)

[2008] FCA 967

HOY MOBILE PTY LIMITED (ACN 103 105 228) v ALLPHONES RETAIL PTY LIMITED (ACN 103 105 228)

NSD 1678 of 2006

RARES  J

16 JUNE 2008

SYDNEY

THE COURT DECLARES THAT:

1.                  It is and was at all times an essential term of the “Allphones” Franchise Agreement between the applicant and the respondent that that the Territory prescribed by that Agreement as the franchise territory is the area comprised within the suburb of Eastgardens, in the State of New South Wales.

2.                  It is and was at all times an essential term of the Agreement that on the 15th day of each calendar month or, if that be not a business day, then on the next business day, the Respondent shall (subject to the Applicant bearing the costs and bank charges of effecting such transfer) transfer to the Applicant by way of cheque or electronic funds transfer to such bank account as the Applicant may notify to the Respondent from time to time moneys equivalent to 72.5 per centum of:

2.1              the income received by the respondent from any mobile telephone network carrier (including but not limited to Hutchison 3G Australia Pty Ltd, Optus Mobile Pty Limited, Virgin Mobile Australia Pty Limited and Vodafone Australia Pty Limited) in respect of the activation of a mobile telephone customer on a mobile telephone network (“Mobile Telephone Sales Commission” or “MTSC”) facilitated by the operation of the Respondent’s “Allphones” business within the said Territory during the term of the Agreement; and

2.2              the income received by the respondent from any mobile telephone network carrier (including but not limited to Hutchison 3G Australia Pty Ltd, Optus Mobile Pty Limited, Virgin Mobile Australia Pty Limited and Vodafone Australia Pty Limited) relating to the proportion of call revenue received by the network carrier that is payable to the Respondent in accordance with its agreements with the network carriers (“Mobile Telephone Airtime Commission” or “MTAC”), resulting from an activation facilitated by the operation of the Respondent’s “Allphones” business within the said Territory during the term of the Agreement.

3.                  It is the obligation of the Respondent to account for and pay to the Applicant the said percentage of the MTSC and MTAC commissions, whenever received by the Respondent (whether during or after the term of the Agreement), in respect of activations facilitated during the term of the Agreement and that the Applicant’s entitlement thereto is an accrued entitlement which continues after the expiry or determination of the term of the Agreement.

4.                  The Respondent is not entitled to terminate the Agreement pursuant to clause 9.3(viii) of the Franchise Agreement or upon the grounds set out in the Respondent’s Notice of Intention to Terminate Franchise Agreement, dated 28 August, 2006 or any of them.

THE COURT ORDERS THAT:

5.                  The cross-claim be dismissed.

6.                  The Respondent, by itself, its servants and agents or otherwise howsoever, be restrained from acting upon the Notice of Intention to Terminate Franchise Agreement dated 28 August, 2006 and from terminating or purporting to terminate the Agreement pursuant to clause 9.3(viii) of the Franchise Agreement or upon the grounds set out in the Respondent’s Notice of Intention to Terminate Franchise Agreement dated 28 August, 2006 or any of them.

7.                  The Respondent pay to the Applicant the sum of $52,893.35.

8.                  The Respondent do within 14 days render a statement of account to the Applicant in respect of any unauthorised deductions from the applicant’s commission and profit payments since 1 September, 2007 and pay to the applicant the sums admitted due therein. 

9.                  Further consideration of the applicant’s claim for further declarations, further injunctions, profits, commissions, damages and enquiries in respect of the period since 1 September 2007, be reserved.

10.              The Respondent pay the Applicant 85% of its costs on a party/party basis.

THE COURT NOTES THAT:

11.              The Respondent, having elected not to enforce it, it is not necessary to determine whether the post term restraints of trade provided in clause 7.22 and Annexure “A” of the Agreement are contrary to public policy and void.

12.              The agreement between the parties that, without admissions, the Respondent will pay to the Applicant the sum of $5,782.98 in full and final satisfaction of the compromised claims referred to in paragraphs 3, 5, 6, 7 and 8 of Exhibit T and notes further that this sum has now been paid.

13.              That the amount in Order 7 comprises the amount found due accrued up to 31 August, 2007 and interest thereon up to today.

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

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

1                     The parties have agreed today on all of the orders which ought be made following delivery of my reasons in Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810, except the appropriate order as to costs.

2                     Initially Hoy Mobile argued that I should award it costs on an indemnity basis, although that position was moderated in the course of argument to an order for costs on the usual party/party basis.  On the other hand, Allphones argued that there should be no order as to costs on the basis that Hoy Mobile had failed on many of the issues which it had litigated, and these had taken considerable time in the course of the proceedings. 

3                     Two hearing dates were vacated, the first one in September 2007 was as a result of Allphones raising a plea that the franchise agreement was void in consequence of a decision of the Court of Appeal of the Supreme Court of New South Wales in Ketchell v Master of Education Services Pty Ltd [2007] NSWCA 161.  Later, in November 2007, a further hearing had to be vacated because of the delay by Hoy Mobile in serving expert evidence in accordance with the timetable that had been set down for the preparation of that hearing.  In substance the consequences of each party having occasioned the respective adjournments can be met by making no specific order in respect of those matters and allowing the costs order ultimately made in the whole of the proceedings to apportion responsibility for the burden of those costs.

4                     Allphones argued that the length of the hearing was significantly increased by reason of the conduct of Hoy Mobile in litigating, but failing on the following substantive issues:

(1)               the extent of the territory in the franchise agreement;

(2)               the conduct of Hoy Mobile, and in particular, Mr Hoy, in claiming that Allphones had condoned, from its inception, the fraud in which I found Hoy Mobile to have engaged by unlocking and selling unlocked mobile phones;

(3)               the assertion that Allphones had not sought to exercise its right of termination in good faith;

(4)               the assertion that Allphones had affirmed the franchise agreement and elected not to rely on Hoy Mobile’s fraud during the period between when Mr Quarmby made his complaints known to Allphones in late May 2006 and the time at which the notice of intention to terminate was served on 28 August 2006;

(5)               the claims by Hoy Mobile that Allphones ought to have paid it first, a co-op payment of $18,000 and secondly, commissions from the Randwick store’s activities.

CONSIDERATION

5                     In most proceedings where one party fails it will be usual and just to order that party to pay the successful party’s costs.  Often it will be unexceptionable for the Court to proceed upon the basis that the successful party should have the benefit of an order for costs in that party’s favour because the substantive decision of the proceedings warrants that outcome:  Probiotec Ltd v University of Melbourne (2008) 244 ALR 96 at 114 [73] per myself;  Finn J at [1] and Besanko J at [82] agreed with my reasons. 

6                     In Probiotec 244 ALR at 107-109 [45]–[52] I reviewed the authorities as to the discretion of the Court to make an order for costs under s 43 of the Federal Court of Australia Act 1976 (Cth).  The discretion under s 43(2) of the Act is unconfined and there is no automatic rule that costs always follow the event:  see also Foots v Southern Cross Mine Management Pty Ltd (2007) 241 ALR 32 at [26]–[27], [34] per Gleeson CJ, Gummow, Hayne and Crennan JJ.  Nor is there an absolute rule that in the absence of disentitling conduct, a successful party is to be compensated by an unsuccessful party under a provision such as s 43:  Probiotec 244 ALR at 108 [48].  The general power conferred by a provision like s 43 is not to be narrowly construed, but where there has been some delinquency on the part of an unsuccessful party, the Court also has power to order costs against that party, and sometimes on a greater scale than party/party costs:  Probiotec 244 ALR at 108 [48].

7                     As I observed in my principal judgment, this matter has the unusual feature that both parties were found to have been dishonest in their dealings with one another.  Ultimately, Hoy Mobile succeeded on the substance of its claims in the litigation.  This was because it established that it was entitled to resist Allphones’ attempt to terminate the franchise agreement, and that Allphones had underpaid commissions and other sums which it ought to have paid Hoy Mobile in accordance with the franchise agreement.  Nonetheless, I am satisfied that Hoy Mobile’s denial that it had committed a fraud on Allphones because Allphones had condoned that fraud and its assertion that Allphones had elected to affirm the franchise agreement during the period between May 2006 and 28 August 2006 were substantive issues during the course of the proceedings.  Hoy Mobile failed on these two issues and must bear responsibility for the costs incurred by its seeking to eschew the consequences of its own fraudulent behaviour.

8                     I am not satisfied that the other matters to which Allphones pointed have had the significance in the litigation which would require some departure from the usual outcome that parties who succeed in obtaining relief will often have failed on intermediate issues, even issues of some substance in the litigation, yet be entitled to an order for costs.  I think a fair outcome in the context of the way in which this litigation has been conducted should reflect that in seeking unsuccessfully to eschew the consequences of its own fraud, Hoy Mobile occasioned an expansion of the issues and the litigation by seeking to prove that Allphones was, in effect, knowledgeable about what it was doing at various times so as to disentitle Allphones from being able to terminate the franchise agreement. 

9                     I am of opinion that these matters warrant a proportion of the ordinary order for costs, to which Hoy Mobile would otherwise have been entitled, to be deducted from the amount I should order in its favour.  It is impossible to be scientific or precise about the quantification of the amount by which that order for costs ought to be reduced.

10                  Allphones argued that I should look at the number of paragraphs devoted to certain issues in my principal judgment, and take them as a guide to the amount of time occupied by those issues.  They involved somewhat complex issues of fact and law.  And there were overlaps, because some of the material dealing with affirmation also related to the issue of unconscionable conduct on the part of Allphones:   Hoy Mobile (No 2) [2008] FCA 108 at [406] and [407].  Indeed, the affirmation argument also raised considerable overlaps with the claims for a store refresh payment by Allphones, Mr Ilivesky’s demand on 30 June 2006 for Hoy Mobile to release a phone to Allphones for a retention customer, Allphones’ letter of 3 July 2006 placing Hoy Mobile on commission hold and stock hold and its subsequent conduct in lifting those holds:  see Hoy Mobile (No 2) [2008] FCA 810 at [222].  There were considerable periods of the hearing which focused on the question of fraud and Allphones’ knowledge of it, both from its inception, and at the time of the alleged acts of affirmation which Hoy Mobile failed in substance to persuade me amounted to conduct supporting its claim.

11                  Doing the best I can, I am of opinion that it would be fair in all the circumstances to order that Allphones pay 85 per cent of Hoy Mobile’s costs of the proceedings, so as to reflect its lack of success on the issues of fraud and affirmation.

Associate:                                                                     Dated:  25 June 2008