FEDERAL COURT OF AUSTRALIA
AA Shi Pty Ltd v Avbar Pty Ltd (No 2) [2010] FCA 427
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Citation: |
AA Shi Pty Ltd v Avbar Pty Ltd (No 2) [2010] FCA 427 |
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Parties: |
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File number: |
QUD 121 of 2010 |
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Judge: |
COLLIER J |
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Date of judgment: |
6 May 2010 |
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Catchwords: |
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Legislation: |
Trade Practices (Industry Codes – Oilcode) Regulations 2006 (Cth) ss 2, 4, 5, 35, 36, 44 Trade Practices (Industry Codes – Franchising) Sections 1998 (Cth) ss 21, 23 |
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Cases cited: |
Aura Enterprises Pty Ltd v Frontline Retail Ltd (2006) 202 FLR 435 cited Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 applied Custom Credit Corporation Ltd v Whitehall Holdings Pty Ltd (unreported, Supreme Court of Western Australia, Ipp J, No 1727/91, 7 April 1992) cited Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 cited Smith & Nephew Pty Ltd v Wake Forest University Health Sciences [2009] FCAFC 14 cited |
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Date of hearing: |
28 and 29 April 2010 |
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Place: |
Brisbane |
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Division: |
GENERAL DIVISION |
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Category: |
Catchwords |
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Number of paragraphs: |
67 |
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Counsel for the Applicant: |
Mr B O'Donnell QC with Ms P Ahern |
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Solicitor for the Applicant: |
Elliott & Harvey |
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Counsel for the First and Second Respondents: |
Mr P Dunning SC with Mr D Quayle |
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Solicitor for the First and Second Respondents: |
Clayton Utz |
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IN THE FEDERAL COURT OF AUSTRALIA |
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QUEENSLAND DISTRICT REGISTRY |
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GENERAL DIVISION |
QUD 121 of 2010 |
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AA SHI PTY LTD (ACN 100 459 667) Applicant
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AND: |
AVBAR PTY LTD (ACN 100 433 752) First Respondent
NIR INVESTMENTS PTY LTD (ACN 100 276 015) Second Respondent
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JUDGE: |
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DATE OF ORDER: |
6 MAY 2010 |
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WHERE MADE: |
BRISBANE |
THE COURT ORDERS THAT:
2. The respondents pay the applicant’s costs of and incidental to the application.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.
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IN THE FEDERAL COURT OF AUSTRALIA |
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QUEENSLAND DISTRICT REGISTRY |
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GENERAL DIVISION |
QUD 121 of 2010 |
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BETWEEN: |
AA SHI PTY LTD (ACN 100 459 667) Applicant
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AND: |
AVBAR PTY LTD (ACN 100 433 752) First Respondent
NIR INVESTMENTS PTY LTD (ACN 100 276 015) Second Respondent
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JUDGE: |
COLLIER J |
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DATE: |
6 MAY 2010 |
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PLACE: |
BRISBANE |
REASONS FOR JUDGMENT
1 In its application filed 13 April 2010 the applicant, AA Shi Pty Ltd (“the applicant”) seeks both permanent and interlocutory relief. In the present proceedings I am considering only the question whether the applicant is entitled to an interlocutory injunction, in effect continuing the interim injunction already in place in the applicant’s favour.
2 In summary, the applicant claims that the respondents (which are associated companies, controlled by Mr Nir Avrahami) have improperly terminated agreements subsisting between the applicant and the respondents, and that the applicant is entitled to interlocutory relief to preserve the status quo pending trial of substantive issues between the parties. In contrast, the respondents claim that they were entitled to terminate the relevant agreements, and that not only should the applicant be denied interlocutory relief but that the existing interim injunction preventing them asserting control over service station sites currently controlled by the applicant should be dissolved.
3 Specifically, the interlocutory relief sought by the applicant is as follows:
1. That until the trial of this proceeding or further order of this Honourable Court, each of the First and Second Respondents be restrained whether by itself, its agents or howsoever otherwise from:
a. entering upon; or
b. causing or procuring any other person to enter upon:
i. 235 Flemington Road, North Melbourne, Victoria; or
ii. 2282 Cunningham Highway, Yamanto, Queensland; or
iii. 414 Warrego Highway, Hatton Vale, Queensland; or
iv. 655 Deception Bay Road, Deception Bay, Queensland.
2. That until the trial of this proceeding or further order of this Honourable Court, each of the First and Second Respondents be restrained whether by itself, its agents or howsoever otherwise from acting upon or implementing the following purported notices of termination of agreements between the applicant and the first and second respondents:
a. Notice dated 12 April 2010 from the first respondent to the applicant, in respect of the “Oz Fuel” service station located at 2282 Cunningham Highway, Yamanto in the State of Queensland;
b. Notice dated 12 April 2010 from the first respondent to the applicant, in respect of the “Oz Fuel” service station located at 235 Flemington Road, North Melbourne in the State of Victoria;
c. Notice dated 12 April 2010 from the first respondent to the applicant, in respect of the “Oz Fuel” service station located at 4114 Warrego Highway, Hatton Vale in the State of Queensland;
d. Notice dated 12 April 2010 from the second respondent to the applicant, in respect of the “Liberty” service station located at 655 Deception Bay Road, Deception Bay in the State of Queensland.
3. The respondents pay the applicant’s costs of and incidental to the application.
4. Such further or other order or direction as this Honourable Court sees fit.
BACKGROUND FACTS
4 The following facts are common ground:
· For some years Mr David Yahalom, a director of the applicant, has had a business relationship with the respondents, in particular Mr Nir Avrahami, who is a director of the first respondent Avbar Pty Ltd and the sole director of the second respondent Nir Investments Pty Ltd.
· The applicant is a commission agent of the respondents within the meaning of s 4 of the Trade Practices (Industry Codes – Oilcode) Regulations 2006 (Cth) (“the Oilcode”) in relation to service stations of which the respondents appear to be the lessees. There are four relevant service stations – one in Victoria (at North Melbourne) and three in Queensland (at Yamanto, Hatton Vale and Deception Bay).
· The applicant operates general stores at each service station, hiring a total of 35 staff to operate the sites.
· There are one or more fuel re-selling agreements (as defined by s 5 of the Oilcode) between the applicant and the respondents. These agreements are oral. On the basis of such material as is before me, I infer that the parties were in a friendly relationship for many years, which may be a reason why they did not commit their business relationship to writing.
· There is very little in writing before the Court as to the terms of relevant agreements. Proper inferences to be drawn from written material as to the terms of the agreements between the parties are disputed.
· On 12 April 2010 the respondents purported to terminate the fuel re-selling agreements with the applicant in respect of the four service stations, effective immediately. On that day persons unknown to the staff at each site, claiming to have authority from the respondents, entered the sites and directed the staff to follow their orders.
· The grounds for termination were described in correspondence dated 12 April 2010 from Mr Avrahami to Mr Yahalom as follows:
Despite repeated requests made by or on behalf of (the respondents), both in writing and orally, Aashi has failed or refused to comply with its Fuel Sales Obligations, Competitor’s Pricing Obligations, Takings and Banking Obligations or the Licence Fee Obligation.
· The four alleged obligations of the applicant under the fuel re-selling agreements, which the applicant had allegedly breached, were described by Mr Avrahami in his letters of 12 April 2010 as follows:
o the applicant’s obligation to sell the fuel at the service station at prices and on terms and conditions specified by the relevant respondent, including making adjustments to the price of fuel as directed by the respondent in a timely manner (“Fuel Sales Obligations”);
o the applicant’s obligation at the times directed by the respondent to check the prices of fuel offered by the relevant respondent’s competitors and report those prices to the relevant respondent to enable the relevant respondent to compete in the market (“Competitor’s Pricing Obligations”);
o The applicant’s obligation to perform the banking tasks and remit the takings from all fuel sales in a diligent manner and as reasonably directed by the relevant respondent. In this regard the applicant was not allowed to withhold monies derived from the sale of fuel at the service station without the consent of the relevant respondent. Insofar as the banking of fuel takings was concerned:
▪ by 1.00 pm daily, the daily fuel banking was to be completed, and as soon as practicable thereafter the confirmation slip was to be sent by facsimile transmission to the relevant respondent; and
▪ by 1.00 pm daily, the daily paperwork was to be faxed by the applicant to the relevant respondent.
(“Takings and Banking Obligation”)
o The applicant’s obligation to pay a licence fee calculated at 10% of monthly convenience store sales, exclusive of GST (“Licence Fee Obligation”).
· Both the applicant and the respondents claim that the service stations and their respective businesses associated with the service stations are their only source of income.
INTERLOCUTORY RELIEF
5 It is also common ground that principles relevant to the grant of interlocutory relief are found in the High Court decision of Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57.
6 In that case, Gummow and Hayne JJ observed:
The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd. This Court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries and continued:
The first is whether the plaintiff 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 plaintiff will be held entitled to relief… The second inquiry is… whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted.
By using the phrase ‘prima facie case’, their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the Court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument… (at 82)
SERIOUS QUESTION TO BE TRIED
7 The first inquiry to be made by the Court is also frequently described as whether, on the evidence before the Court, there is a serious question to be tried (for example it was recently so described by the Full Court of this Court in Smith & Nephew Pty Ltd v Wake Forest University Health Sciences [2009] FCAFC 14).
8 In this case the respondents conceded that there are in fact serious questions to be tried between the parties, including:
· whether there had been a unilateral attempt by the respondents on 26 March 2010 to alter the terms of the agreements between the applicant and the respondents; and
· whether there was an agreement in place between the parties from late 2008 as to whether licence fees and commission agency fees were payable.
9 The respondents however contend that, in the circumstances of this case, these questions are of no substance in the deliberations of this Court as to whether the applicant is entitled to an interlocutory injunction.
10 This contention can be summarised as follows:
1. There is no serious question to be tried as to whether the respondents were entitled to terminate the agreements with the applicant without notice. This is because the respondents clearly were entitled to terminate the agreements with the applicant without notice because:
· there had been a failure of the applicant to bank fuel moneys belonging to the respondents generated from fuel sales made by the applicant under the agreement;
· there had been a failure by the applicant to provide information to the respondents as to competitors’ prices, and accordingly to change prices; and
· both of these defaults by the applicant entitled the respondents to terminate the relevant agreements without notice pursuant to s 36(1) of the Oilcode.
2. Accordingly:
· although the applicant may be able to establish that there are serious questions to be tried in respect of the fuel re-selling agreements which had existed between the parties;
· if by force of the Oilcode the fuel re-selling agreements have been validly terminated by the respondents;
then
· those other serious questions to be tried as identified by the applicant become irrelevant;
· the result is that there is no serious question to be tried; and
· there would be no basis for the applicant receiving interlocutory relief.
11 It follows from these submissions that if I am not satisfied that the respondents were entitled to terminate the agreements without notice, then the respondents accept that there are serious questions to be tried in this case for the purposes of the applicant’s claim for interlocutory relief.
12 Accordingly, I now turn to the question whether the respondents were entitled to terminate the agreements with the applicant without notice.
Were the respondents entitled to terminate the agreements without notice?
13 The case of the respondents in respect of this issue may be summarised as follows:
· section 35 and s 36 of the Oilcode create and impose both the power and the restrictions on the power of a supplier under a fuel-reselling agreement to terminate the agreement. Alternatively s 35 and s 36 regulate the supplier’s rights of termination. As a matter of law, s 36(1)(g), (h) and (i) entitle a supplier to terminate a fuel-selling agreement without notice in circumstances which fall within the scope of those provisions.
· the circumstances of this case fall within the scope of s 36(1)(g), (h) and (i), with the result that as a matter of fact the respondents were entitled to terminate the agreements without notice.
· “fails” within the meaning of s 36(1)(i) means omitting to do something one is obliged to do or doing something without permission.
· Correspondence exhibited to the affidavit of Mrs Lilly Avrahami sworn 23 April 2010 (FLA 2) shows that, from late March 2010, the respondents put to the applicant that it had failed to bank certain sums of money held by the applicant from the sale of fuel, which belonged to the respondents. Mrs Avrahami deposes that she is responsible for maintaining the books and records of the respondents.
· In his affidavit sworn 21 April 2010, Mr Yahalom swore at para 3(d):
The applicant has never withheld any monies. It has only ever set off monies owing by the respondents to the applicant, and paid all monies owing after reconciling each party’s obligation to each other.
· By his evidence in para 3(d) of his affidavit Mr Yahalom, and through him the applicant, accepts that the applicant failed to bank money belonging to the respondents under the agreements. However good the claim to a set-off, that failure entitled the respondents to terminate the agreements as they have done pursuant to s 36(1)(i).
· Mr Yahalom gave evidence in Court that all dealings in relation to monetary matters were put in writing, and there was no written evidence as to his right to set-off money from funds owing to the respondents.
· Further, evidence of Mr Avrahami, Mrs Avrahami, and Mr Mordecai Israel (the manager of the first respondent) was to the effect that the applicant suddenly and without lawful or logical explanation failed on multiple occasions to properly report competitors’ prices and carry out instructions in relation to price adjustments. This failure engaged s 36(1)(g) and (h) in relation to the agreements. Mr Yahalom offers no plausible explanation in respect of this issue.
14 In response, the applicant submits in summary:
· An event falling within the scope of s 36(1) does not give a supplier an entitlement to terminate an agreement.
· Section 36(1) merely makes inapplicable fetters on the power to terminate an agreement, as found in s 35. Accordingly, the respondents must establish they have a contractual right to terminate for such acts as failure to bank fuel moneys or failure to properly report competitors’ prices. The right to terminate is not derived from s 36(1).
· The respondents have not yet established that they have a contractual right to terminate the relevant agreements for reasons listed in s 36(1).
· Section 36(1) does not operate for the benefit of either party. It merely states that the inhibitions on the right to terminate imposed by s 35 do not apply in the circumstances contemplated by s 36(1).
· The language of s 36(2), which states that “a supplier may terminate a fuel re-selling agreement relating to particular retail premises” on the occurrence of either or the events listed in that section, suggests that s 36(2) gives the supplier the right to terminate, in contrast with s 36(1), which does not so empower the supplier.
· Neither party gave evidence as to whether the agreements give the respondents the right to terminate in the event that there is a failure by the applicant to bank fuel moneys. The best case for the respondents is that a contractual provision as to banking fuel moneys is an intermediate term as discussed by the High Court in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115, and the rights of the respondents in respect of breach of such a term are dependent upon the consequences of the breach. In this case the amounts retained by the applicant were relatively small in quantum compared to the overall fuel takings, namely less than $10,000 from a monthly turnover of fuel sales of approximately $2.5 million. Retention of such small amounts would not constitute a breach of the relevant contract entitling the respondents to terminate.
· The letter of 26 March 2010 from Mr Avrahami to Mr Yahalom identifies the amounts alleged to be wrongfully withheld as “float money” which had been retained by the applicant out of fuel takings, and evidences the previous practice of the applicant retaining float money out of proceeds from the sale of fuel. The evidence is that under the agreements the applicant was entitled to retain float money. Consequently there has been no breach of the agreements.
Consideration of section 35 and section 36
15 Section 2 of the Oilcode provides that the purpose of the code is to regulate the conduct of suppliers, distributors and retailers in the petroleum marketing industry. It is not in dispute in these proceedings that the agreements between the applicant and the respondents are subject to the operation of the Oilcode. The only source of contention for the purposes of the present proceedings is the application of s 36(1) in respect of the agreements.
16 Section 35 and s 36 are in Pt 3 Div 4 of the Oilcode. Division 4 is entitled “Termination of fuel re-selling agreement”. Section 35 and s 36 provide as follows:
35 Termination supplier – breach by retailer
(1) This section applies if:
a. a retailer breaches a fuel re-selling agreement; and
b. the supplier proposes to terminate the fuel re-selling agreement; and
c. section 36 does not apply.
(2) The supplier must:
a. give to the retailer reasonable notice that the supplier proposes to terminate the fuel re-selling agreement because of the breach; and
b. notify the retailer of what the supplier requires to be done to remedy the breach; and
c. allow the retailer a reasonable time to remedy the breach.
(3) For paragraph (2)(c), the supplier is not required to allow more than 30 days.
(4) If the breach is remedied in accordance with paragraphs (2)( b) and (c), the supplier must not terminate the fuel re-selling agreement because of that breach.
(5) Part 4 applies to a dispute arising from termination under this section.
36 Termination by supplier – special circumstances
(1) A supplier is not required to comply with section 35 if the retailer:
a) Dld no longer holds a licence that the retailer must hold to carry on the fuel re-selling business; or
b) becomes bankrupt, insolvent under administration or an externally-administered body corporate; or
c) voluntarily abandons the fuel re-selling business; or
d) is convicted of a serious offence; or
e) operates the fuel re-selling business, or an associated business conducted on the premises, in a way that is fraudulent or that endangers public health, safety or the environment; or
f) agrees to the termination of the fuel re-selling agreement; or
g) breaches the fuel re-selling agreement, otherwise than by behaviour described in paragraphs (a) to (f), at least 3 times; or
h) is likely, by continued occupation of the site to which the fuel re-selling agreement relates, to cause substantial damage to the business, property or reputation of the supplier; or
i) for a commission agency – fails to bank the supplier’s money under the commission agency agreement.
(2) A supplier may terminate a fuel re-selling agreement relating to particular retail premises if:
a) the whole or a substantial part of the premises is to be acquired by, or by a public authority of, the Commonwealth, a State or a Territory under a law relating to the compulsory acquisition of land; or
b) the sale of motor fuel at the premises is prohibited by or under a law relating to the use of land.
17 These sections do not appear to have been the subject of previous litigation, nor is there material in the Explanatory Statement accompanying the introduction of the Oilcode which can illuminate the intention of Parliament in respect of s 35 and s 36.
18 As was clear from the submissions of the parties, the first key issue for determination is whether s 36(1) permits the respondents to terminate the agreement without notice in the event of an act of the applicant falling within the scope of s 36 (1)(g), (h) or (i). It is also clear that the respondents’ primary contention was that the applicant had failed to bank moneys as contemplated by s 36(1)(i).
19 While Mr O’Donnell QC’s submissions are powerful, I consider that the proper interpretation of s 36(1) is that it permits a supplier to terminate a fuel re-selling agreement immediately upon the occurrence of an event which falls within its scope. I take this view for the following reasons.
20 First, the framework of s 35 and s 36 lends itself to this interpretation.
21 Section 35 clearly provides protection to a retailer from immediate termination of the agreement by the supplier in circumstances where the retailer breaches a relevant agreement. However the protection is limited – the supplier may still give the retailer notice that the supplier intends to terminate the agreement, but the supplier must give the retailer reasonable notice and notify the retailer of what the supplier requires to be done to remedy the breach.
22 In comparison, s 36(1) specifically provides that a supplier is not required to comply with s 35 – that is, the supplier is not required to give the retailer reasonable notice and, inter alia, allow the retailer a reasonable time to remedy the breach – on the occurrence of an event listed in s 36(1).
23 Somewhat ambiguously, s 36(1) provides that “a supplier is not required to comply with s 35 if the retailer” does an act within the scope of s 36(1), rather than plainly provide, for example, that a supplier is “not required to give reasonable notice” if the retailer does an act within the scope of s 36(1). However in my view the plain meaning of s 36(1) is that, on the occurrence of an event listed in s 36(1), the supplier can terminate the agreement without reasonable notice, and is not required to give the retailer reasonable notice and leeway to remedy the breach (as s 35 provides).
24 In summary, Mr O’Donnell QC submitted that in respect of acts listed in s 36(1), the legislature has, in essence, vacated the field, and left it in the hands of the parties to determine whether the supplier is entitled to terminate, and upon what terms, in accordance with the provisions of the relevant agreement. However I consider it unlikely that Parliament so intended.
25 Section 36 is headed “Termination by supplier – special circumstances”. Rather than vacating the field, s 36 appears to be legislative intervention in respect of termination in the events listed.
26 Further, the acts listed in s 36(1) appear to be a list of serious events following which a supplier might seek to immediately terminate the agreement because the status quo changes significantly and/or because the ability of the retailer to continue to perform its obligations is compromised. The list clearly includes events which the supplier would be unable to require the retailer to remedy, conviction of a serious offence in s 36(1)(d) being a prime example. Section 36(1) lists a mixture of acts which potentially go to the capacity of the retailer to perform the agreement (for example s 36(1)(b) and (d)), acts which potentially signify an unwillingness on the part of the retailer to comply with the agreement (for example s 36(1)(a), (c), (e), (f) and (g)), and acts which potentially harm the supplier in the conduct of its business (for example s 36(1)(h) and (i)). The logical conclusion to draw in respect of the acts listed in s 36(1) is that in the event of such an act Parliament intended that the supplier be entitled to terminate the agreement, without notice, to protect the supplier’s own position.
27 Section 36(1) may be compared with s 36(2), which provides that a supplier may terminate a fuel re-selling agreement relating to particular retail premises if:
(a) the whole or a substantial part of the premises is to be acquired by, or by a public authority of, the Commonwealth, a State or a Territory under a law relating to the compulsory acquisition of land; or
(b) the sale of motor fuel at the premises is prohibited by or under a law relating to the use of land.
28 The events identified by s 36(2) are distinguishable from those listed in s 36(1) because, inter alia:
· they are events the occurrence of which would potentially frustrate the contract between the parties; and
· they are events which relate specifically to the use of the land upon which the fuel is being sold, and the suitability of that land for use as retail premises for the sale of fuel, as distinct from acts of or relevant to the retailer itself (which are the subject of s 36(1)).
29 In my view the events listed in s 36(2) are further examples of “special circumstances” for which a supplier may terminate the contract. The fact that s 36(2) specifically states that the supplier “may terminate” the agreement, compared with the absence of such specific language in s 36(1), is curious, however I do not consider that it derogates from the overall intention of Parliament in enacting s 36(1) to enable the supplier to terminate the relevant agreement without notice in the circumstances identified.
30 Second, s 36(1) appears to enable the supplier to terminate the agreement on the occurrence of the acts listed, without reference to whether they are terms of the contract between the parties. There is nothing on the face of the legislation which links the events listed with the agreement between the supplier and the retailer or implies that, once an event listed in s 36(1) has occurred, the parties are required to have recourse to the agreement between them for reference to the power to terminate.
31 Third, I agree with Mr Dunning SC that the concept of “failure” in s 36(1)(i) contemplates an omission to do something one is obliged to do or the performance of an act without permission. Accordingly, a “failure” to bank the supplier’s money under the commission agency agreement must entail circumstances where the omission to bank the relevant monies was without the authority of the supplier. In my view the act identified in s 36(1)(i) is serious. I do not accept a suggestion that any failure in respect of banking the supplier’s money under the commission agency agreement is anything but serious. I agree with the respondents that, in respect of commission agencies, suppliers are entirely vulnerable to the retailer, and the purpose of s 36(1)(i) is to ensure that there is strict compliance in respect of the retailer’s obligation to bank.
32 Fourth, I am not persuaded that a retailer’s failure to bank for the purposes of s 36(1)(i) entitles a supplier to terminate the relevant agreement only in circumstances where the consequences of the breach are sufficiently serious as to justify termination of the contract as discussed in Koompahtoo (2007) 233 CLR 115. Nothing on the face of the Oilcode supports such an interpretation in respect of any of the paragraphs in s 36(1). Indeed, for example, the terms of s 36(1)(g) are inconsistent with such an interpretation in respect of any of the paragraphs in s 36(1). That paragraph refers to conduct of the retailer which “breaches the fuel re-selling agreement, otherwise than by behaviour described in paras (a) to (f), at least 3 times”. In my view s 36(1)(g) is concerned only with the questions:
(1) whether the retailer has breached the fuel re-selling agreement as described; and
(2) whether it has happened at least three times.
Section 36(1)(g) is clearly not concerned with the consequences flowing from the breaches, or their seriousness. The fact that the breach has occurred, at least three times, satisfies the paragraph. It follows, in my view, that the paragraphs in s 36(1) are to be interpreted according to their terms, and that a supplier is entitled to terminate the agreement in the event of an act falling within the scope of s 36(1).
33 Finally, while not directly on point, I note the analysis of s 21 and s 23 of the Trade Practices (Industry Codes – Franchising) Sections 1998 (Cth) (“the Franchising Code of Conduct”) by Brereton J in Aura Enterprises Pty Ltd v Frontline Retail Ltd (2006) 202 FLR 435. Section 21 and s 23 of the Franchising Code of Conduct are drafted in very similar terms to s 35 and s 36 of the Oilcode – they provide as follows:
21 Termination – breach by franchisee
(1) This clause applies if:
a. A franchisee breaches a franchise agreement; and
b. The franchisor proposes to terminate the franchise agreement; and
c. Clause 23 does not apply.
(2) The franchisor must:
a. Give to the franchisee reasonable notice that the franchisor proposes to terminate the franchise agreement because of the breach; and
b. Tell the franchisee what the franchisor requires to be done to remedy the breach; and
c. Allow the franchisee a reasonable time to remedy the breach.
(3) For paragraph (2)(c), the franchisor does not have to allow more than 30 days.
(4) If the breach is remedied in accordance with paragraphs (2)(b) and (c), the franchisor cannot terminate the franchise agreement because of that breach.
(5) …
…
23. Termination – special circumstances
A franchisor does not have to comply with clause 21 or 22 if the franchisee:
a) No longer holds a licence that the franchisee must hold to carry on the franchised business; or
b) Becomes bankrupt, insolvent under administration, or an externally-administered body corporate; or
c) Voluntarily abandons the franchised business or the franchise relationship; or
d) Is convicted of a serious offence; or
e) Operates the franchised business in a way that endangers public health or safety; or
f) Is fraudulent in connection with operation of the franchised business; or
g) Agrees to termination of the franchise business.
34 Interestingly, in Aura (2006) 202 FLR 435 Brereton J at 449 accepted that s 23(f) of the Franchising Code of Conduct “permits termination without notice if the franchisee ‘is fraudulent in connection with the operation of the franchised business’”. His Honour also considered that s 23(f) of the Franchising Code of Conduct permitted termination without notice in prescribed circumstances irrespective of the provisions of the agreement between the relevant parties.
35 In my view his Honour’s reasoning is equally applicable in the circumstances of the instant case and the Oilcode. I consider that the respondents would be entitled to terminate their agreements with the applicant without notice, in the event of an act falling within the scope of s 36(1).
Did the applicant engage in conduct within the scope of section 36(1)?
36 The second key question is whether the applicant has in fact engaged in conduct identified by s 36(1).
37 The respondents contend that, on the evidence before the Court, the applicant has clearly acted in such a manner as to bring its conduct within the events listed in s 36(1)(g), (h) and (i), by:
· Failing to bank money belonging to the respondents generated from fuel sales made by the applicant on their behalf under the agreements; and
· Breaching, on many occasions, without any attempt at explanation, apology or excuse, two fundamental obligations which are critical to the success of the businesses the applicant operates for the respondents; namely:
o to investigate, accurately catalogue and report to the respondents about the prices charged by competitors to the four service stations, so that the respondents in turn may plot, analyse and respond to that data with their own pricing structures; and
o the related obligation to receive instructions consequent upon the reporting of that data and activate them immediately.
38 It appears to be common ground that the applicant did not bank certain fuel moneys, and that the applicant did not, inter alia, report competitors’ prices to the respondents. However the key distinctions between the cases of the parties is that the applicant claims that it had permission from the respondents to do these acts, and therefore its conduct did not fall within the scope of s 36(1).
Banking fuel moneys
39 In relation to the alleged failure of the applicant to bank certain fuel moneys of the respondents, the respondents contend in summary:
· The question is whether, on the evidence before the Court, there is a probability that the Court would accept that the applicant had permission of the respondents not to bank relevant money. The respondents submit that the Court would not.
· Mr Yahalom’s evidence is unsatisfactory. In his first affidavit, supporting the interim injunction, he states that he has taken no money. In his third affidavit he states that he has omitted to bank money but this is because he is entitled to a set-off.
· A self-help remedy in the nature of a set-off would clearly constitute a failure to bank the relevant moneys.
· Mr Yahalom’s evidence was that on many occasions he had not banked petrol receipts, and that in respect of financial matters there were always written records.
· The only written material produced by the applicant was a set of documents relating to a small amount of money which had been given to a co-owner of one of the respondents, and a set of documents being the fuel sheets from early 2010 which provoked the correspondence from Mrs Avrahami and Mr Israel over the non-banking of money.
· The fuel sheets evidence no permission from the respondents to the applicant to set-off money, or otherwise omit banking it.
· It is no answer to the respondents claim for the applicant to say that it sought retrospective permission to omit banking the money.
· The fuel sheets exhibited to Mr Israel’s affidavit reveal that moneys were not banked because Mr Yahalom directed the employees not to bank them, and that in one case an employee had expressed some trepidation in relation to this conduct.
· The “float” moneys retained by the applicant for, inter alia, repairs and maintenance were never the applicant’s money. They were always the respondents’ money. Mr Yahalom’s oral evidence was that, when Mr Avrahami’s former business partner Mr Barkol took the float money from the relevant stores, Mr Avrahami had told Mr Yahalom to “minimise (his) damage”, and that as a result Mr Yahalom had moved “his” money (TS p 38 ll 17-32). However this is completely inconsistent with the fact that the float money was never Mr Yahalom’s or the applicants – it was always the respondents’ money.
40 In response, the applicant states that it did have permission from the respondents to retain money by way of float to pay for maintenance and repairs. In summary the applicant submits:
· In para 3(d) of his affidavit sworn 21 April 2010 Mr Yahalom deposes, so far as relevant:
o the applicant has never withheld any monies – it has only ever set-off moneys owing by the respondents to the applicant, and paid all monies owing after reconciling each party’s obligation to each other;
o when the agreement commenced between the parties in 2002, Mr Avrahami told Mr Yahalom that Mr Yahalom was permitted to pay for maintenance and/or repairs required to the service stations up to an amount of $20,000 without first needing to obtain specific permission from the respondents;
o since 2002 Mr Yahalom has paid for such works in the first instance, and has set-off such amounts from any moneys required to be paid by the applicant to the respondents. He had always provided the relevant tax invoices to the respondents, in relation to any such set-off.
· The respondents’ case that the daily sheet, produced by Mr Yahalom and tendered during his re-examination, did not constitute permission, did not answer the applicant’s claim that the applicant had prior permission to retain money in the float.
· The respondents’ submissions concerning the float money and the alleged inconsistency of Mr Yahalom’s evidence is answered by reference to para 27 of Mr Yahalom’s fourth affidavit sworn 28 April 2010, which states:
When Mr Barkol took over the Flemington Road service station site on 5 February 2010, he spent all the Applicant’s money which was in the till of the service station shop. To prevent this from occurring again, in mid February 2010 I arranged for the Applicant to keep float money in the shop tills of Flemington Road, Yamanto and Hattonvale, so that if an Avbar director took possession of the service stations again, the float money would be there for Avbar to use, instead of it using my money.
· Evidence of Mr Avrahami supports the applicant’s contention that it was entitled to retain moneys from the sale of fuel. In para 35 of his affidavit sworn 23 April 2010, Mr Avrahami deposed, inter alia, that the applicant was entitled to spend up to $500 on repairs and maintenance, and that Mr Yahalom was incorrect in saying that the “cap” was $20,000. This evidence is consistent with Mr Yahalom’s evidence that he was entitled to retain moneys from the sale of fuel – the only dispute between the parties is as to the quantum.
· The letter of 26 March 2010 from Mr Avrahami to Mr Yahalom supports the applicant’s contention that it had permission to deduct float moneys from fuel takings prior to that date. In particular, Mr Avrahami states in that letter that:
With effect from 26th March 2010 you are no longer required to perform the Management Services. In particular:
…
…
(e) you are not authorised to deduct monies from the daily fuel banking, unless authorised by Michael Israel to do so; and
(f) all float money is to be refunded into Avbar’s bank account, namely:
(i) for Hatton Vale the sum of $4,350.00
(ii) for Yamanto the sum of $4,025.00; and
(iii) for Flemington the sum of $1,000.
“Management Services” were also defined in that letter as, in summary, maintenance and other services for the respondents. The applicant submits that the fact that, according to the letter of 26 March 2010, the applicant was required to comply with paragraphs (e) and (f) from that date indicated that, until that date, deduction of moneys and retention of float moneys by the applicant had been occurring with the authorisation of the respondents.
Did the applicant “fail” to bank fuel moneys?
41 In my view there is evidence to support the applicant’s contention that, with the permission of the respondents, it did not bank fuel moneys, and that therefore there was no “failure” on its part to bank fuel moneys within the meaning of s 36(1)(i).
42 As the respondents submit, a self-initiated, “self-help” remedy in the form of a unauthorised set-off by the applicant would not satisfactorily answer a complaint by the respondents that the applicant had failed to bank their money. However in this case there is evidence that, for some time, the applicant and the respondents had had an understanding in relation to retention by the applicant of sums from the fuel moneys for a “float”, and for maintenance and repairs. Mr Yahalom’s evidence was that, since 2002, he had had an understanding with Mr Avrahami to the effect that Mr Yahalom would organise and pay for maintenance and repairs, and that Mr Yahalom would then recover those amounts paid from the fuel moneys. Mr Yahalom also deposed that he would inform the respondents in writing of recovery of such amounts from fuel moneys. Further, he gave evidence that his practice of using “float” moneys in the till at the service stations, which float moneys were fuel moneys, was authorised by Mr Avrahami following events involving Mr Avrahami’s former business partner, Mr Barkol. No evidence produced by the respondents satisfactorily answers this evidence of Mr Yahalom, or effectively negates the very real possibility that the applicant did have permission of the respondents to retain fuel moneys as Mr Yahalom claimed.
43 The respondents made demands of the applicant in respect of banking of fuel moneys, both in the letter of 26 March 2010 and, according to evidence of Mr Israel, in February 2010. However in my view it is not appropriate to infer from this evidence, untested as it is, that the applicant was retaining fuel moneys without authorisation of Mr Avrahami. Indeed I note Mr Israel’s evidence that Mr Yahalom told him that issues with respect to retention of fuel moneys were between Mr Yahalom and Mr Avrahami (affidavit of Mordecai Israel sworn 23 April 2010 para 6). This is consistent in my view with the evidence before the Court that Mr Yahalom and Mr Avrahami had had a business relationship over the last ten years, and a personal acquaintanceship over the past thirty years, leading to informal arrangements between them. It is also consistent with a more recent break-down in the relationship between the applicant and the respondents, for reasons unknown to this Court.
44 In relation to the alleged trepidation of an employee of the applicant in respect of omission to bank fuel moneys, as allegedly appears from a document exhibited as MI-2 to Mr Israel’s affidavit, I am not prepared, on the scant and unsupported evidence before me, to draw the inference sought by the respondents, namely that employees of the applicant were aware of the failure of the applicant to bank fuel moneys and considered that it was an improper course of action.
45 Finally, as observed by their Honours in O’Neill (2006) 227 CLR 57, it is sufficient that the applicant in this case show a sufficient likelihood of success to justify the preservation of the status quo pending the trial. There is evidence before the Court which supports the claim of the applicant that it had permission to retain fuel moneys. I do not consider that, in these proceedings, the respondents have demonstrated a case to the contrary.
Failure to report competitors’ prices
46 In relation to the question whether the applicant had failed to report competitors’ prices to the respondents, the respondents submit that it cannot be seriously contended that a commission agent for the sale of fuel was not obliged to communicate to its supplier what competitors were charging for fuel.
47 The evidence of Mr Yahalom however was that prior to 26 March 2010 the applicant had not reported fuel prices throughout the day to the respondents, because decisions as to the price of fuel at each service station had been his alone (affidavit of David Yahalom sworn 28 April 2010 paras 11-13). In the same affidavit, Mr Yahalom deposed:
Once I had seen the competitors’ prices, I would decide what fuel prices were to be charged. At approximately 7am I would telephone each service station site to instruct the staff as to the price to be set. I did that at about 7am because there is a shift change at that time for each site, meaning that there are two persons at each site at that time. One person can man the till of the service station, while the other person changes the fuel prices. (para 15)
48 Paragraph 15 was not the subject of disagreement by the respondents (TS pp 49-50).
49 Accordingly, the applicant contends that there is a strong case for claiming that the obligation of the applicant to report competitors’ prices to the respondents was an obligation sought to be imposed by the respondents in Mr Avrahami’s letter of 26 March 2010, but to which the applicant did not consent.
50 There is no evidence before me of industry practice as to whether it can be seriously contended that a commission agent would not be obliged to communicate prices charged by competitors to the supplier. In any event, Mr Yahalom has claimed that the arrangement between the parties was that he alone would set the prices for fuel at the relevant service stations. I consider that there is a serious question to be tried as to whether the applicant was required, prior to 26 March 2010, to check the prices of fuel offered by competitors of the respondents and report those prices to the respondents to enable them to compete in the market, and as to whether there was an attempt by the respondents to unilaterally vary their agreements with the applicant after 26 March 2010 to impose such an obligation.
Conclusion
51 I am not persuaded by the respondent’s submissions that, on the evidence before me, the applicant failed to bank fuel moneys belonging to the respondents, or that the applicant had an obligation to, in summary, report fuel prices to the respondents. It follows that there are serious questions to be tried for the purposes of considering whether the applicant is entitled to interlocutory relief.
BALANCE OF CONVENIENCE
52 Mr Dunning SC on behalf of the respondents conceded that the position as to the balance of convenience with respect to the parties in this case was very tight. However the respondents contend that the balance of convenience favours them because, in summary:
· The applicant’s loss, if its position were vindicated, would not be irreparable if interlocutory relief is denied. The applicant could be protected by suitably framed costs and damages orders, and it could return to operating the stores and service stations and be paid the net profit it would have achieved in the interim should it be successful.
· There is no likelihood that the goodwill of the relevant businesses would be injured if interlocutory relief is denied because the same employees would be offered ongoing employment by the respondents.
· On the other hand if interlocutory relief is granted the respondents will continue to be the subject of subversive and persistent defaults on the part of the applicant of its reporting and responding obligations, and can never know what loss they have suffered.
· The respondents are excluded from their sites, and prevented from dealing with a new retailer on those sites whose performance would be more satisfactory than that of the applicant.
53 In contrast, the applicant submits that the balance of convenience favours the grant of the interlocutory injunction because, in summary:
· The status quo between the parties has existed for many years.
· The applicant is the sole source of income of Mr Yahalom and his family.
· As sworn by Mr Yahalom in his affidavit sworn 16 April 2010 the applicant already reports in detail to the respondents about the service stations’ financial and other performance on a daily and weekly basis. Further, the applicant has offered further undertakings with respect to, inter alia, access by the respondents to the sites of the service stations and spot checks, and performance of tasks in the nature of fuel price reporting, adjustment of prices and banking of fuel monies as sought by the respondents, pending trial of this matter.
· It is appropriate to maintain the status quo until the parties participate in a dispute resolution procedure pursuant to Pt 4 of the Oilcode, and which is mandatory in light of s 44 of the Oilcode.
· Mr Yahalom has given evidence that when he left previous sites at Mr Avrahami’s request, the employees’ employment was terminated.
54 I consider that the balance of convenience clearly favours the applicant. I form this view for a number of the reasons submitted by the applicant, in particular that there is no evidence before me that disturbance of the status quo as appears to have existed for many years would lead to harm to the respondents and that the applicant is prepared to offer undertakings to the respondents as to management of the sites for the duration of the injunction. The grant of interlocutory relief to the applicant is in light of the undertakings offered by the applicant.
55 Second, I am not satisfied that the applicant has been in “subversive and persistent” default of reporting and responding obligations to the respondents.
56 Third, I consider that the injury the applicant and Mr Yahalom would suffer should the applicant be denied interlocutory relief would not be compensable by damages. It is not in dispute that the operation of the general stores at the sites is the only source of income of the applicant and, through the applicant, of Mr Yahalom and his family. Should interlocutory relief be denied, the applicant and Mr Yahalom would cease to have an income until, at the earliest, a decision is given in respect of the substantive action assuming Mr Yahalom were successful. The same, however, cannot be said of the respondents. On the material before the Court it appears that, should interlocutory relief be granted, the position of the respondents is that they cannot replace the applicant as retailer and commission agent. It appears that their stream of income would be undisturbed. No evidence of financial loss to the respondents has been quantified – only speculative damage caused by alleged “subversive and persistent defaults of the reporting and responding obligations” of the applicant, which can be overcome by either the undertakings of the applicant or the terms of the order.
57 Finally, the circumstances with respect to the employees of the four service stations appear ambivalent. Both parties claim that they wish to continue the employment of these staff, although Mr Yahalom deposes that he fears the respondents would dismiss them. In my view however it is unlikely that the respondents, even were they to regain control of the sites, would dismiss all employees in the near future. On the evidence before me I do not find the circumstances of the employees a factor relevant to the balance of convenience.
UNDERTAKING AS TO DAMAGES
58 Although I am prepared to order interlocutory relief, one matter remains outstanding in respect of the applicant’s undertaking as to damages. The applicant, and Mr Yahalom, have each offered an undertaking as to damages. During cross-examination by Mr Dunning SC, Mr Yahalom admitted that, personally, he had no assets (TS p 26 ll 36-39). Accordingly, it appears that Mr Yahalom’s personal undertaking as to damages is of little value to the respondents.
59 The respondents submit that the undertaking of the applicant is also of extremely questionable value. They submit further that the evidence of Mr Gregory Pedersen, who appears to be the applicant’s accountant, that the net profit of the applicant for the 2008-2009 financial year is likely to be approximately $394,000, is itself questionable. This is because, inter alia:
· Mr Pedersen offers no explanation for the sudden and convenient return to profit of the applicant despite years of losses;
· the documents relied on by Mr Pedersen for his opinions are self-generated, unaudited, and inaccurate.
60 Accordingly, in the submission of the respondents, it would not be surprising if the financial situation of the applicant suddenly returned to persistent losses.
61 During oral submissions Mr Dunning SC pressed the importance of an undertaking by a successful party in the event of interlocutory relief being granted. That as a general rule an undertaking of value must be provided by the applicant for the relief is not in doubt. This is despite observations in cases such as Custom Credit Corporation Ltd v Whitehall Holdings Pty Ltd (unreported, Supreme Court of Western Australia, Ipp J, No 1727/91, 7 April 1992) where Ipp J said that the fact that an undertaking as to damages had little or no value was not conclusive as to the result of an application for an interlocutory injunction, but rather it was only a factor to be borne in mind (at 23-25).
62 In the circumstances of this case, however, I am not persuaded that the present undertaking as to damages offered by the applicant is inadequate. I take this view because:
· First, there is no evidence before the Court as to the nature of any damage the respondents would suffer should interlocutory relief be granted. In each of their letters of termination dated 12 April 2010, the respondents stated:
Aashi’s conduct is in breach of the Agreement. Further, Aashi’s breach of the Agreement is causing, and is likely to cause further damage to the business or reputation of [the relevant respondent].
Further, in his affidavit sworn 23 April 2010 in relation to the respondents’ complaint that the applicant had failed to check competitors’ fuel prices and report those prices to the respondents, Mr Avrahami deposed at para 17:
This has caused damage to the business and reputation of both Avbar and Nir Investments.
The damage suffered, and likely to be suffered, is however vague and unparticularised. In any event, even were the applicant’s conduct as claimed by the respondents it is difficult to see how the reputation of the respondents has suffered or would suffer – Mr Avrahami deposed in his affidavit sworn 23 April 2010 that there is no customer loyalty when it comes to buying fuel, and customers generally look for the cheapest price (para 16). Accordingly, the goodwill associated with the businesses is questionable.
· Second, I note that Mr Yahalom conceded during cross-examination that the applicant would be unable to raise a bank guarantee to secure any undertaking as to damages (TS p 27 ll 1-2). However although Mr Yahalom stated during cross-examination that if he were forced to leave the sites the applicant would have nothing (TS p 26 ll 28-34), it appears that while the applicant occupies the sites and continues trading it has assets in the form of equipment and stock in the shops. Mr Yahalom deposed that the stock in the shops was worth $400,000 (affidavit of David Yahalom sworn 21 April 2010 para 10). This is a relatively sizeable amount, and there is no evidence before the Court that it would not adequately compensate the respondents for any damage consequent upon the grant of interlocutory relief to the applicant.
· Third, notwithstanding the respondents’ attacks on the evidence of Mr Pedersen, during the hearing I was informed that Mr Pedersen was no longer required for cross-examination (TS p 21 ll 25-27). Accordingly, Mr Pedersen’s evidence as to the profitability of the applicant remains unchallenged.
63 I also take the view that the undertaking as to damages offered by the applicant is not inadequate in light of the additional undertakings offered by the applicant as to, inter alia, inspection, banking and reporting to the respondents.
TERMS OF INTERLOCUTORY RELIEF
64 At the hearing counsel also made submissions as to the terms of interlocutory relief which might be granted. In summary, Mr Dunning SC submitted that the interlocutory relief should be no wider than the circumstances require, and that the progenitor of this application was the attempt by the respondents to give effect to their notices of termination and take over the premises. Accordingly, the submission concluded, any injunction granted should simply restrain the respondents from taking steps pending trial to give effect to the notices of termination by taking over the relevant service station sites.
65 There is considerable force in this submission. However it is also clear, as Mr O’Donnell QC submits, that the parties are now in conflict, and unregulated access to the service station sites by the respondents constitutes a potential recipe for fresh disputes between the parties. In its application the applicant has sought specific orders pending trial restraining the respondents from accessing the premises of the four service stations, and acting upon or implementing the purported notices of termination of the relevant agreements. However the applicant has also offered numerous undertakings to the Court, and Mr Avrahami has also made certain requests for access to sites. It follows that it is preferable that the interlocutory relief granted include orders regulating the interactions between the parties, both as to inspection, banking and reporting to the respondents (as offered in undertakings by the applicant in the form of Mr Yahalom’s affidavit sworn 28 April 2010 paras 6, 7 and 8, and the undertaking of the applicant tendered through Counsel in Court on 29 April 2010) and as to acceptable requirements of the respondents (as in the affidavit of Nir Avrahami sworn 28 April 2010 paras 6, 7 and 8).
66 Finally, I am not prepared to make an order that profits earned by the applicant in its business be to any degree quarantined, as submitted by the respondents. Such an order would create a fund in the nature of a security. The respondents are at liberty to make application to the Court for security for costs should they be so minded.
67 Finally, there are no reasons why costs should not follow the event in respect of the grant of this relief. The applicant has sought an order that the respondents be liable for its costs of and incidental to the application. Such an order is appropriate.
68 I will now hear further submissions from the parties as to the form of the interlocutory relief.
|
I certify that the preceding sixty-eight (68) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Collier. |
Associate:
Dated: 6 May 2010
