FEDERAL COURT OF AUSTRALIA

SPAR Licensing Pty Ltd v MIS QLD Pty Ltd (No 3) [2012] FCA 1318

THE COURT DECLARES THAT:

1.    The first cross-respondent, by not providing an updated Disclosure Document to the first cross-claimant which contained prescribed financial details in respect of the financial year ended 30 June 2010 after 21 July 2010 and before entry into the Franchise Agreement between the first cross-respondent and first cross-claimant, engaged in conduct in contravention of s 51AD of the Trade Practices Act 1974 (Cth).

2.    The cross-respondents:

(a)    by representing to the first cross-claimant in about December 2010 that, if the cross-claimant entered into the Franchise Agreement, the first cross-respondent would agree to the first cross-claimant resigning from the conduct of the SPAR franchised store business and withdrawing from the Franchise Agreement so that the first cross-claimant could join the IGA franchised supermarket business; and

(b)    by representing to the first cross-claimant in about December 2010 that the only penalty that the first cross-respondent would enforce against the cross-claimants in the event that the first cross-claimant resigned from the conduct of the SPAR franchised store business and withdrew from the Franchise Agreement was the payment by the cross-claimants of the sums referred to in clause 20.6 and the Schedule to the Franchise Agreement to the first cross-respondent; and

(c)    subsequent to December 2010:

(i)    by refusing to permit the cross-claimants to resign from the SPAR franchised store business or to withdraw from the Franchise Agreement; and

(ii)    by insisting that the cross-claimants continue to be bound by the Special Offer Agreement; and

(iii)    by seeking specific performance by the cross-claimants of the Franchise Agreement and the Special Offer Agreement; and

(iv)    by seeking and obtaining an injunction to prevent the cross-claimants from giving effect to their resignation from the SPAR franchised store business and their withdrawal from the Franchise Agreement; and

(v)    by obtaining an injunction that requires the cross-claimants to continue to be bound by the Special Offer Agreement,

    have engaged in misleading and deceptive conduct in contravention of s 18 of the Australian Consumer Law.

THE COURT ORDERS THAT:

3.    Subject to order 12 below, orders 1-4 made by Perram J on 15 September 2011 be vacated.

4.    The applicants’ amended originating application filed 10 February 2012 be dismissed.

5.    The cross-claimants have judgment on the cross-claim against the cross-respondents in the amount of $59,935.00.

6.    Pursuant to s 87 of the Competition and Consumer Act 2010 (Cth), the Franchise Agreement entered into between the first cross-claimant and the first cross-respondent be varied by the insertion of the following term “The Franchisee may terminate this Agreement at any time and such termination will be effective upon the payment by the Franchisee to the Franchisor of the monies specified in clause 20.6 and the schedule to this Agreement” and it is declared that the Franchise Agreement as so varied shall have effect from 1 February 2011.

7.    Pursuant to s 87 of the Competition and Consumer Act 2010 (Cth), the Special Offer Agreement entered into between the first cross-claimant and the first cross-respondent on 14 December 2010 be varied by the insertion of the following term “In the event that the Franchisee terminates the Franchise Agreement this Special Offer Agreement shall cease to have effect from the date of the termination of the Franchise Agreement” and it is declared that the Special Offer Agreement as so varied shall have effect from 14 December 2010.

AND IT IS FURTHER DECLARED THAT:

8.    Upon the first cross-claimant’s termination of the Franchise Agreement (as varied by order 6) and the cross-claimants’ termination of the Special Offer Agreement (as varied by order 7) the cross-claimants are liable to pay the first cross-respondent break costs of $73,154.00.

9.    The first cross-claimant’s termination of the Franchise Agreement (as varied by order 6) and the cross-claimant’s termination of the Special Offer Agreement (as varied by order 7) is effective to terminate such agreements as at 19 August 2011 upon the condition that the first cross-claimant pay the first cross-respondent the sum of $19,219.00 (being break costs of $73,154.00 less damages of $53,935.00 awarded pursuant to order 5).

AND IT IS FURTHER ORDERED THAT:-.

10.    The applicants pay the respondents’ costs of Application No. NSD 1501/2011, including all reserved costs and the costs of the interlocutory application dated 16 November 2012, the costs to be taxed or as agreed. The costs are ordered on a party-party basis, save for the respondents’ costs thrown away by the adjournment of the first day of the hearing (1 May 2012), which costs should be paid on an indemnity basis.

11.    The cross-respondents pay the cross-claimants’ costs of the cross-claim, including all reserved costs.

12.    On the applicants giving the usual undertaking as to damages and also undertaking that they will prosecute any appeal diligently and expeditiously, order 3 above be stayed until:

    (a)    7 days hereof if no notice of appeal has been filed by that time;

(b)    if a notice of appeal is filed within 7 days hereof, until the hearing and determination of that appeal by the Full Court of the Federal Court; or

(c)    further order.

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

REASONS FOR JUDGMENT

1    On 15 October 2012 I handed down reasons for judgment in this matter (SPAR Licensing Pty Ltd v MIS QLD Pty Ltd (No 2) [2012] FCA 1116). I deferred the making of final orders to enable the parties to confer and seek to agree the terms of those orders in the light of the reasons for judgment.

2    The parties have been able to agree most of the terms of the final orders, but two matters remain in contention. First, whether the applicants should be ordered to pay all or any of the respondent’s costs on an indemnity basis. Secondly, whether any or all of the orders should be stayed pending the hearing and determination of a proposed appeal.

3    I shall deal with each of those matters in turn.

Indemnity costs

4    In circumstances where the respondents/cross-claimants have been successful in resisting the originating application and in establishing their cross-claim, they seek costs on an indemnity basis.

5    The Court’s power to award costs derives from s 43 of the Federal Court of Australia Act 1976 (Cth) (the FCA Act). The Court has a discretion whether to award costs, including on an indemnity basis, which discretion has to be exercised judicially. Part 40 of the Federal Court Rules 2011 (the 2011 FCRs) is also relevant. Rule 40.01 provides that, if an order is made that a party pay costs, without any further description of the costs, the costs are to be costs on a party-party basis. Rule 40.02 provides, however, that a party who is entitled to costs may apply to the Court for an order that costs be awarded in their favour other than on a party-party basis. This rule effectively confirms the Court’s power to order in an appropriate case that costs be paid on an indemnity basis.

6    The relevant principles guiding whether the Court should award costs on an indemnity basis are relatively well settled and are not seriously disputed by the parties. The relevant principles are set out in cases such as Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225; Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd [1991] FCA 225 (unreported, Federal Court of Australia, French J, 3 May 1991); Ragata Developments Pty Limited v Westpac Banking Corporation (unreported, Federal Court of Australia, Davies J, 5 March 1993); NMFM Property Pty Ltd v Citibank Ltd (No 11) (2001) 109 FCR 77; Oshlack v Richmond River Council (1998) 193 CLR 72 at 89-90 per Gaudron and Gummow JJ; Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 616 per Mason P; Marks v GIO Australia Holdings Ltd (No 2) (1996) 66 FCR 128 and Australian Federation of Consumer Organisations Inc v Tobacco Institute of Australia Ltd (1991) 100 ALR 568 at 570).

7    The principles which have some potential relevance to the circumstances here, as drawn from the authorities cited above, can be summarised as follows:

    the discretion to award indemnity costs is a judicial one which must be exercised in accordance with principle;

    each case needs to be looked at carefully with a view to determining whether it is appropriate to make such an order, as was stated by Lindgren J in NMFM Property at [53]:

… it is important not to treat descriptions in past cases of circumstances in which a court has found it proper to make an order for payment of indemnity costs as if they were the language of a statute or as if they mandated the making of an order in any future case to which the same description may be literally applicable.

    indemnity costs may be appropriate where the case involves some relevant delinquency on the part of the unsuccessful party, but ethical or moral delinquency is not an essential condition of the valid exercise of the power;

    while the categories of case in which the discretion to award indemnity costs are not closed, Sheppard J in Colgate-Palmolive at 233 identified the following circumstances which have been found to warrant the exercise of the discretion (omitting references);

… the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud…; evidence of particular misconduct that causes loss of time to the Court and to other parties…; the fact that the proceedings were commenced or continued for some ulterior motive… or in wilful disregard of known facts or clearly established law…; the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions…

    the difficulty or otherwise of the litigation cannot itself be the basis for awarding indemnity costs, as complex litigation often occurs and it is insufficient that a particular piece of litigation raises difficult questions of law which require elaborate preparation or presentation;

    in determining whether to award indemnity costs the Court must measure the relevant litigant’s conduct against the facts then known or which ought to have been known, the enquiries which the litigant ought reasonably to have made and the legal advice which the litigant ought reasonably to have obtained;

    the mere fact that a case has been found ultimately to lack merit does not provide a basis for an indemnity costs order, because in most litigation which results in a concluded hearing the claim of one of the parties will by definition have been found to lack merit;

    the mere fact that a party fights the proceedings vigorously and leaves no stone unturned is not a basis for an indemnity costs order (although I would add that account also now needs to be taken of ss 37M and 37N of the FCA Act); and

    the fundamental question is whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party-party basis.

Outline of respondents/cross-claimants’ application for indemnity costs

8    The respondents/cross-claimants filed lengthy submissions in support of their claim to be awarded indemnity costs. In broad terms, the claim is based on the following three principal matters:

(a)    an allegation that the position adopted by the applicants in respect of their contract and competition law claims were untenable and doomed to fail and that their defence of the cross-claim was also untenable;

(b)    various aspects of the applicants’ conduct of the proceedings is said to amount to misconduct or delinquency on their part so as to warrant an indemnity costs order; and

(c)    it is alleged that the applicants brought the proceedings for an ulterior purpose which amounted to an abuse of process.

9    I shall deal with each of those matters in turn.

(a)    Whether the applicants’ conduct of the proceedings was indefensible

10    The respondents argue that, because the outcome of the applicants’ contractual claim was closely tied to the aspect of the cross-claim raising allegations of misleading and deceptive conduct, the applicants should have abandoned their contract claim when they received Mr Sichter’s letter dated 5 September 2011, which described the alleged representations.

11    In my view, it was not unreasonable of the applicants to proceed to defend this aspect of the cross-claim on the basis that they did not accept the truth of Mr Sichter’s allegations. When the proceedings were commenced, Mr Gale (the author of the representations) was no longer associated with the applicants. Mr Ruberto, who was present for part of the meeting during which Mr Gale made the representations, had no recollection of them. In those circumstances, I do not consider that it was unreasonable of the applicants to put the cross-claimants to proof in establishing that the alleged representations were in fact made and that they were misleading and deceptive.

12    The respondents/cross-claimants say that the applicants should also have interviewed Mr Carson and Mr Costanzo to ascertain whether or not the alleged representations had in fact been made. I cannot accept that submission in circumstances where neither of those persons was present at the meeting at which the representations were made. Even though, as matters turned out, the representations were consistent with policies about which Mr Carson and Mr Costanzo gave evidence, they were not in a position to confirm or deny the truth of the representations as pleaded. In my view the applicants were entitled to put the cross-claimants to proof.

13    In addition, and in any event, I accept the applicants’ submission that they were entitled to press their claim in contract in circumstances where any relief granted under s 87 of the Competition and Consumer Act 2010 (Cth) (the CC Act) was discretionary. Although an order will be made under that provision varying the terms of the Franchise Agreement and Special Offer Agreement, the applicants correctly point out that, in circumstances where the respondents/cross-claimants derived benefits under the Special Offer Agreement, the Court had a discretion whether or not to vary the agreements. There was no certainty how that discretion would be exercised if there was a finding of contravention.

14    The applicants’ prosecution of their competition law claims may present different considerations. The respondents submit that the exclusionary provision (s 45) case was hopeless because it was patent that MIS and Metcash/IGA were not competitors in any market, including the Macleay Island Retail Market. As to the second limb of the competition-law claim, the respondents submit that:

    there was no basis at all for the exclusionary provision case conducted by the applicants;

    the second limb of the s 45 case had no chance of success in circumstances where the applicants knew that the MIS store on Macleay Island accounted for no more than one percent of SPAR’s entire wholesale sales of dry groceries in Queensland. Moreover, the respondents submit that the case was persisted with even though the applicants must have known that MIS and Metcash were not participants in the Macleay Island Retail Market. The respondents say that the hearing and determination of the applicants’ competition claims “significantly increased the volume of documents that had to be disclosed, increased the number of witnesses that were called and significantly lengthened the trial”.

15    The applicants submit that there was no relevant delinquency or misconduct on their part in conducting their competition law case.

16    There were, of course, two aspects to that case, both of which relied on s 45 of the CC Act. The first limb required the applicants to establish that MIS and Metcash/IGA were competitors in the Macleay Island Retail Market (see [30] of the reasons for judgement). As noted there, SPAR acknowledged that its evidence in support of its claim that those entities were competitors in that market was “limited”. Moreover, SPAR accepted that there was no evidence which contradicted the proposition that Metcash/IGA were wholesalers, not retailers, and did not themselves operate any supermarket in Queensland at a retail level. In my view, this aspect of the applicants’ competition law case was hopeless and doomed to fail. It involved allegations which ought never to have been made and it contributed to the case being prolonged, not the least in the fact that the respondents had to deal with the allegations. In my view, however, this aspect of the applicants’ case did not result in any “undue” prolongation of the case. In the wider scheme of things, it was a relatively minor matter. Otherwise I would have been inclined to order the applicants to pay indemnity costs in respect of it.

17    As to the second limb of the applicants’ competition law case (i.e. that the agreement between MIS and Metcash/IGA had the purpose or likely effect of substantially lessening competition in one or more of the seven pleaded markets), the applicants say that they attempted to prove that the respondents had come to some arrangement with IGA in which IGA promised not to redevelop the FoodWorks site. The applicants accept that they failed to prove that IGA itself would operate any new supermarket on Macleay Island, but they submit that this was merely an “evidentiary deficiency” which did not foreclose the possibility of the claim being upheld. They submit that the Court might have concluded that the apparent arrangement with IGA offended the CC Act by preventing vigorous competition between MIS and some prospective IGA retailer in a redeveloped site formerly occupied by FoodWorks. The applicants further contend that, having regard to the complexities of this area of the law, it could not be said that their competition law case was brought in wilful disregard of clearly established law.

18    There is some force in the applicants’ submissions insofar as they relate to the Macleay Island Retail Market, which is the only one of the seven pleaded markets admitted by the respondents and upon which most of the case focused. The applicants adduced scant evidence to support any of the other six pleaded markets, yet none of those other markets was abandoned by them. Forensically, the respondents were left with no option but to deal with those other markets. Because of the paucity of the evidence supporting the existence of any of those other markets, that task proved to be not a particularly challenging one. In all the circumstances, and not without some hesitation, I conclude that this aspect of the applicants’ case did not unduly prolong the proceedings.

19    I shall now deal with the cross-claimants’ application that the cross-respondents/ applicants be ordered to pay their costs of the cross-claim on an indemnity basis. I will deal first with the applicants’ defence of that limb of the cross-claim relating to the contravention of the Franchising Code, and then deal with the misleading and deceptive conduct limb of the cross-claim.

20    As to the applicants’ defence of the cross-claim, the applicants correctly contend that the limb which related to their contravention of the Franchising Code involved construction of complex statutory provisions which were being analysed in detail for the first time. I also accept that the applicants did not act unreasonably in defending this limb of the cross-claim in circumstances where there were difficult issues concerning relief in the event that a contravention of the Code was established.

21    The respondents also claim that the applicants should not have persisted with their defence to this limb of the cross-claim in circumstances where they were aware from their own business records that SPAR’s financial situation was in a much more serious state than portrayed in the Disclosure Document which had been provided to the cross-claimants. That is true but, in my view, this does not provide a basis for ordering indemnity costs in circumstances where the parties joined issue on the core legal question, namely whether the Disclosure Document had to be updated or supplemented in the particular circumstances here. In other words, there was a critical threshold legal issue which had to be determined.

22    The applicants contend that their defence of the second limb of the cross-claim (concerning misleading and deceptive conduct) was not unreasonable or otherwise deserving of an indemnity costs order. They say that it was not inappropriate for them to deny that the representations as pleaded were ever made in circumstances where Mr Ruberto had no recollection of them being made by Mr Gale at the meeting held in early December 2010 and, further, Mr Gale was not interviewed by the applicants because he had left SPAR’s employment “in acrimonious circumstances”. They also say that they were not required to interview Mr Carson and Mr Costanzo on the subject (as to which see my findings and observations in [11] above). SPAR further contends that it was reasonable to defend the cross-claim because its ultimate success turned on Mr Costanzo’s opinion being accepted under the expert witness exception to opinion evidence.

23    With some hesitation, I accept the gravamen of the applicants’ submissions on these matters. I should make it clear, however, that I do not accept the submission relating to the alleged “acrimonious circumstances” in which Mr Gale left SPAR’s employment. No evidence was placed before me to support that submission. I accept, however, that Mr Gale was no longer associated with SPAR when the proceedings commenced.

24    The primary reason for my hesitation in respect of this aspect of the matter relates to the manner in which part of this aspect of the case was conducted by SPAR during the hearing. Accepting as I do that it was reasonable for SPAR to put the cross-claimants to proof in establishing that the representations were made in the terms in which they were pleaded, I nevertheless consider that it was unreasonable and recalcitrant of SPAR to instruct its legal representatives to offer no assistance to the Court to support SPAR’s submission to the effect that there was a gap between the representations as pleaded and the evidence which was said to demonstrate that the representations had been made. On this issue, I reiterate what I said in [201] of my earlier reasons for judgment. However, on balance, I do not consider that this particular aspect of SPAR’s conduct of its case warrants a partial indemnity costs order. The position may have been different if this was not an isolated incident of its character, or if the practical consequences of SPAR’s recalcitrance had been more profound.

25    For all these reasons, therefore, I decline to order the applicants to pay indemnity costs on the basis that their conduct of particular aspects of the proceedings was untenable or otherwise deserving of disapprobation as contended by the respondents.

(b)    Allegations of misconduct

26    The applicants candidly acknowledge that there is substance in some of the matters raised by the respondents in support of their submission that the applicants conducted the proceedings in a manner which caused loss of time and prolonged the litigation. They add, however, that the same could be said about aspects of the respondents’ conduct. They deny that there is any reasonable foundation for some of the respondents’ other allegations of misconduct. The applicants also submit that, to the extent that some of their conduct was delinquent, it was not of a sufficient magnitude as to warrant an order for indemnity costs.

27    The applicants also submit that, in assessing their conduct, it is important to take into account that the hearing was fast-tracked after the matter was transferred to Logan J’s docket. In my view, it is hardly surprising that the hearing was brought on expeditiously in circumstances where, on 9 September 2011, the applicants had obtained an interlocutory injunction from Perram J and it was important that the disputes between the parties be resolved on a final basis as soon as was practicable.

28    Dealing with each of the particulars of the applicants’ alleged misconduct as identified by the respondents, I make the following findings and observations.

29    Failure to include certain prayers for relief in the originating application and statement of claim:    These matters were agitated by the respondents before Jacobson J on 1 December 2011. After hearing the respondents’ complaints, his Honour declined to grant any relief. I see no reason why any greater significance should attach to those omissions now, such that they should attract an indemnity costs order.

30    Not answering a request for particulars in a timely fashion:    On 10 November 2011, the respondents issued a 9 page letter of requests for further and better particulars. The letter was answered on 25 November 2011. I accept the applicants’ submission that a delay of 15 days in responding to a 9-page letter does not involve undue delay.

31    Various pleading deficiencies:    The respondents rely on various pleading deficiencies in respect of the originating application and initial statement of claim, the applicants’ failure to remedy those deficiencies and the applicants’ resistance to the respondents’ successful interlocutory application striking out portions of the statement of claim. Justice Jacobson dealt with those matters in his interlocutory decision on 1 December 2011. His Honour struck out parts of the statement of claim and ordered that the costs of the interlocutory application be costs in the cause, I do not see any basis for viewing those matters as now warranting an indemnity costs order.

32    Change of venue:    The respondents allege that the applicants failed to agree to the venue being changed from Sydney to Brisbane and point to the fact that on 2 February 2012 the Court ultimately ordered the transfer over the applicants’ resistance. The applicants dispute the respondents’ description of the facts. They say that they offered to agree to the hearing being transferred to Brisbane but case managed by Jacobson J as the docket Judge in Sydney. They say that they did not resist the respondents’ proposal to change the venue to Brisbane but merely “sought to compromise”. There is some support for the applicants’ position on this issue at pages 13, 26-28 of the transcript of the proceedings before Jacobson J on 2 February 2012 concerning the possible bifurcation of the contract and competition law claims. Having regard to the disputed facts, I do not consider that the respondents have established a basis upon which I can be satisfied that the relevant matters warrant an indemnity costs order.

33    Breach of Logan J’s order concerning discovery:    The respondents allege that the applicants breached Logan J’s order dated 26 March 2012 by failing to file and serve by 3 April 2012 a list of documents. In response, the applicants say that they only had five working days to attend to these matters and that their solicitors were provided by their clients with more than 11,000 documents on 3 April 2012. An unverified list was apparently provided on 6 April 2012, after the respondents had been notified on 3 April 2012 of the expected delay. Again, I do not consider these matters to be sufficiently serious or otherwise of a character as to warrant an indemnity costs order.

34    Applicants’ alleged oppressive discovery:    In my view, the respondents have not produced sufficient evidence to doubt and reject the applicants’ claim that they “earnestly and diligently produced all documents where there was a reasonable basis to do so”.

Necessity for a further directions hearing on 11 April 2012 arising from the applicants’ failure to meet deadlines and make proper discovery

35    The respondents rely on observations made by Logan J at the directions hearing on 11 April 2012, where his Honour said:

I really don’t have any – what looks to be the case here is that there is to be what there should have been to start with really, which is a duly advised cull of an amorphous mass and that is something that can be done on advice. Is it intended thought that the list be verified in some way if I’m not disposed to have the solicitor for the applicants do that?

36    I do not consider that either those observations or the applicants’ related complaint warrants an indemnity costs order. Each case must be looked at individually, but I do not consider that the need to have a further directions hearing as part of the ongoing case management of these complex and fiercely contested proceedings should attract indemnity costs.

37    Failure to serve summaries of evidence by 23 April 2012:    The applicants reject this complaint of late service because, while they accept that their summaries of evidence were served on 24 April 2012, they also say that the respondents served their summaries of evidence on the same day. It would appear that, at times, both parties struggled to comply with the Court’s timetabling which was designed to have the matter brought on expeditiously for a final hearing. The unfortunate reality is that such lapses are not uncommon in complex commercial litigation. Whether such conduct is deserving of disapprobation and warrants an indemnity costs order must depend upon the particular facts and circumstances. In my view, there is an insufficient basis for ordering the applicants to pay indemnity costs arising from their tardiness on this matter.

38    Inadequacies in applicants’ summaries of evidence:    The applicants reject the respondents’ claim that their summaries of evidence did not provide a fair summary of the evidence to be given by their respective witnesses. They say that the Court had indicated that the summaries need not exceed one page and, in any event, the respondents were already in possession of affidavits from most of the applicants’ witnesses arising from the injunction application before Perram J. In my view, the respondents’ complaints on this matter do not warrant an indemnity costs order having regard to the matters raised by the applicants.

39    Failure to provide applicants’ list of witnesses by 27 April 2012 as directed by Logan J:    The applicants accept that their witness list was served one day late. This transgression seems to me to be relatively minor in the scheme of things.

40    Failure to file and serve objections to evidence by 27 April 2012:    Again, the applicants acknowledge that they served their objections to any witness statement two business days late. This transgression is not sufficiently serious to warrant an indemnity costs order.

41    Failure to submit a draft chronology by 30 April 2012:    The applicants again concede this failure, but it seems to me that the transgression is minor and insufficient to attract an indemnity costs order.

42    Preparation of trial books and compliance with Practice Note CM7 concerning expert reports:    Again, the applicants appear to acknowledge these deficiencies but say that neither caused any loss of time or prolonged the litigation. I agree.

43    Late delivery of further summaries of evidence:    The respondents complain that they did not receive the applicants’ further summaries of evidence until 7:30 pm on the night before the commencement of the hearing and that the respondents had delivered their summaries of evidence by 23 April 2012 (although the applicants assert that the respondents filed their summaries of evidence on 24 April 2012, being the same day when the applicants served their summaries). The respondents also point out that the late receipt of those further summaries of evidence, coupled with the applicants’ discovering further documents on the morning of the first day of the hearing (some of which were said to be potentially relevant to cross-examination), necessitated the trial being adjourned so as to commence on the next day, thus wasting an entire Court day with consequential extra costs for the respondents. Further, they draw attention to the fact that they were not served with a copy of amended summary of evidence of Mr Carson until the second day of the hearing.

44    The applicants do not contest the factual foundation for these complaints (save for the date upon which the respondents filed their summaries of evidence which does not bear upon the respondents’ central complaints of late receipt of further summaries of evidence and late discovery of further documents). Not surprisingly, having regard to the applicants’ responsibility for the situation, they did not oppose the respondents’ application to have the commencement of the trial hearing adjourned for 24 hours to enable the late-served material to be reviewed. In my view, the applicants must accept full responsibility for the hearing being deferred by one day. Moreover, no adequate or acceptable explanation has been offered by the applicants for their conduct which necessitated the adjournment. I consider that their conduct contributed to the proceedings being unduly prolonged, in the sense that the hearing could not proceed on the first appointed day and virtually that entire hearing day was lost. In those circumstances, I consider that it is appropriate to order the applicants to pay the respondents’ costs of the first day of the hearing on an indemnity basis.

45    Late discovery of certain documents:    See [44] immediately above.

46    Inclusion of thousands of pages in Court books not ultimately utilised: The applicants do not deny this allegation but they make the following submissions:

    they paid for all the documentation to be included;

    they say that the documents were relevant and had all been discovered and no objection was taken that they were irrelevant; and

    it is difficult to predict prior to the trial the level of proof in detail that will be required or the extent to which it will prove necessary to jog witnesses’ memory by reference to business records.

47    I accept the thrust of the applicants’ submissions on this matter. In the particular circumstances of this case, I do not consider that the applicants’ conduct warrants an indemnity costs order.

48    Finally, the respondents express “serious concern” regarding other aspects of the applicants’ conduct in preparing and delivering summaries of evidence. Those complaints include the claim that Mr Ruberto was not shown the summaries of evidence of Messrs Aplin, Gale or Sichter and that he was not shown his own summary of evidence until the night before he gave evidence. They also complain that they were provided with a copy of Mr Ruberto’s summary of evidence on the evening of 30 April 2012, in advance of it being shown to Mr Ruberto. Again, I do not consider that any of these matters is of a character which warrants an indemnity costs order being made in relation to them.

49    For completeness, I should also record that, in considering whether or not to make an indemnity costs order against the applicants, I have taken into account both individually and cumulatively the respondents’ various criticisms of the applicants’ conduct of the proceedings. Apart from the applicants’ responsibility for losing the first day of the hearing, for which they should bear the respondents’ costs on an indemnity basis, I do not consider that any of the other matters, either individually or collectively, warrants a wider indemnity costs order. In expressing that conclusion I would not wish to create an impression that I consider the respondents’ various claims for indemnity costs to be far-fetched or misconceived. On the contrary, their claims for a wider indemnity costs order were seriously contestable, but having regard to the particular facts and circumstances of the matter here I have not been persuaded to make a wider indemnity costs order in respect of any of the other matters raised above.

50    I shall now turn to deal with the final basis upon which the respondents have sought a wider indemnity costs order, namely that the applicants’ conduct of the proceedings involved an abuse of process.

(c)    Abuse of process

51    The respondents rely upon certain evidence given by SPAR’s chief financial officer (Mr Stephens) as revealing that the proceedings were brought by SPAR for an ulterior and improper purpose which amounted to an abuse of process. The evidence in question was to the effect that, if MIS moved from SPAR to IGA on Macleay Island, SPAR’s credibility would suffer because “if we start to lose key customers again moving forward, that will again place in jeopardy the confidence our customers have with us as an ongoing business and therefore, could result in further customer losses”. The respondents argue that the purpose of SPAR bringing the proceedings was to demonstrate to the market that SPAR was “commercially hard-headed so as to discourage both other SPAR franchisees from trying to exit and to discourage Metcash from attempting to procure their exit”.

52    In my view, neither this evidence nor any other material relied upon the respondents establishes that the proceedings amounted to an abuse of process. In particular, I do not consider that the commercial purpose in bringing the proceedings, as described by Mr Stephens, constitutes an abuse of process in circumstances where SPAR’s purpose in bringing the proceedings was to procure a result for which the law provides if they were successful i.e. holding MIS to the Franchise Agreement. There is no proper basis upon which I could conclude that SPAR’s purpose in initiating the proceedings was not to prosecute them to a conclusion, but rather was to use them as a means of obtaining some advantage for which they were not designed or to achieve some collateral advantage beyond which the law offers (see the observations of Mason CJ, Dawson, Toohey and McHugh JJ in Williams v Spautz (1992) 174 CLR 509 at 526).

53    For all these reasons, therefore, I order that the applicants should bear the costs of the proceedings of the respondents/cross-claimants on a party-party basis, save that those costs should be borne on an indemnity costs basis in respect of the first day of the hearing.

54    The applicants also submitted that they should not have to bear the costs of the respondents’ claim for indemnity costs. I disagree. Not only have the respondents/cross-claimants succeeded in obtaining a partial indemnity costs order in their favour, I consider that it was entirely appropriate for them to seek a wider indemnity costs order. As is apparent from the reasons given above, I consider that several aspects of the applicants’ conduct of the proceedings came very close to attracting a broader indemnity costs order.

Stay of final orders

55    By interlocutory application filed on 16 November 2012 and supported by an affidavit of Carl Hagon affirmed on the same day, the applicants seek orders which, if granted, would have the effect of:

(a)    continuing the interlocutory injunction made by Perram J on 9 September 2011; and

(b)    staying the execution of my final orders, until either the determination of an appeal to the Full Court of the Federal Court or, alternatively, 7 days after the making of final orders in the event that no notice of appeal is filed by then.

56    As I pointed out when the hearing began on 19 November 2012 to finalise the orders, the Court expected that any application for a stay would have been accompanied by some indication of the proposed grounds of appeal. Mr Moore SC (who appeared with Mr Kirby for the SPAR parties) said that it was not possible to prepare a draft notice of appeal until the terms of the final orders were known. Notwithstanding that submission, however, it emerged that shortly before the hearing commenced on 19 November 2012, a draft notice of appeal had in fact been provided to the respondents (although not to the Court).

57    Having regard to the fact that the applicants’ interlocutory application and supporting affidavit were not served until late on Friday, 16 November 2012, and also having regard to the very late provision of a draft notice of appeal, on the respondents’ application I adjourned the hearing of the interlocutory application until Friday, 23 November 2012. I indicated to the parties on 19 November 2012 that the Court would welcome submissions on the question whether, if the case was otherwise an appropriate one for a stay order to be granted, all the final orders should be stayed.

58    The relevant principles concerning stay orders are well settled. Those principles are conveniently set out in the decision of the Full Court of this Court in Philip Morris (Australia) Ltd v Nixon [1999] FCA 1281 at [17] per Sackville, Hely & Gyles JJ:

The general principles governing an application for a stay pending the determination of an appeal or application for leave to appeal are not in doubt. The party seeking a stay must demonstrate a reason, or an appropriate case, to warrant the exercise of a discretion in his or her favour. This requirement is not satisfied by the mere filing of an appeal or an application for leave to appeal: Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 (CA), at 694. The Court has a discretion whether or not to grant the stay, and if so, as to the terms that will be fair. In the exercise of the Court's discretion, it weighs consideration such as the balance of convenience and the competing rights of the parties, in particular whether prejudice will be caused by reason of the grant or withholding of a stay: Alexander, at 694; Jennings Constructions Ltd v Burgundy Royale Investments Pty Ltd (1986) 161 CLR 681 (Brennan J), at 685. Within this framework, the Court exercises a broad discretion, and the party seeking a stay does not have to establish "special" circumstances: Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65 (FC), at 66, per Burchett J. In general, a party which has succeeded at the trial is entitled to the benefit of a judgment and thus to commence with the presumption that the judgment is correct: Powerflex, at 66. The question on the present application is how these principles apply to the unusual circumstances of the present case.

59    The decision of the NSW Court of Appeal in Alexander (which is referred to in the passage immediately above) also supports the following two additional principles:

(a)    a stay will normally be granted if, unless it is not granted, the appeal will be rendered nugatory (see Alexander at 695); and

(b)    although courts will not generally speculate about the appellant’s prospect of success, this does not prevent a preliminary assessment as to whether the applicant for the stay has an arguable case as opposed to simply hoping to gain a respite against immediate execution of the judgment at first instance (see Alexander at 695).

60    As noted above the SPAR parties belatedly produced a draft notice of appeal, which I have reviewed. The applicants propose to appeal from all of the Court’s orders and draft grounds of appeal have been articulated in respect of various findings relating to the following causes of action:

(a)    the applicants’ contract claim and the respondents/cross-claimants’ misleading and deceptive conduct case;

(b)    contravention of the Franchising Code; and

(c)    the second limb of SPAR’s s 45(2) CCA case (i.e. purpose or likely effect of substantially lessening competition).

61    It is also proposed to appeal against various aspects of the final relief, including certain findings regarding loss and damage and the orders varying the terms of the Franchise Agreement and Special Offer Agreement.

62    Briefly stated, the applicants’ primary position is that all the orders should be stayed because:

(a)    otherwise, the appeal would be rendered nugatory because MIS intends to enter into a long term supply agreement with Metcash/IGA;

(b)    all SPAR’s proposed grounds of appeal are arguable; and

(c)    the balance of convenience favours SPAR.

63    During the course of the hearing on 23 November 2012, Mr Moore SC seemed to acknowledge that there was some scope for the Court to make a partial stay order. He accepted that different considerations arise in respect to the staying of declaratory orders generally and, in the circumstances here, also the proposed orders relating to costs and damages.

64    On the issue of balance of convenience, the applicants argue that the respondents will not suffer any prejudice if a stay is granted. By contrast, they contend that if a stay is not granted their prejudice would be substantial, particularly in circumstances where MIS has indicated that it will contractually align itself with Metcash/IGA and damages would not be an adequate remedy. Further, the applicants adduced evidence to the effect that, absent a stay, they will be obliged pursuant to clause 18 of the Franchising Code to write to all their current franchisees and potential franchisees within 14 days of the entry of the orders and disclose the Court’s findings regarding the contravention of the Franchising Code. They say that this would have a very significant adverse impact on their reputation which would be impossible to quantify.

65    The respondents’ primary position was to oppose the grant of any stay. In the alternative, they submit that only a partial stay should be granted, which should be confined to staying the orders concerning the Franchising Code contravention. That approach was said to be justified on the basis that, while not conceding that there was an arguable case on an appeal in respect of the Franchising Code contravention, the applicants’ unsuccessful defence to that matter did not fail because of a lack of evidence. As noted above, during the course of the hearing on 23 November 2012 the applicants only faintly pressed their application for a stay order in respect of the Franchising Code contravention.

66    The respondents argue that none of the proposed grounds of appeal is arguable. Briefly stated, they contend that the proposed grounds of appeal directed to the findings on misleading and deceptive conduct raise matters which were not argued at the trial. In particular, the respondents contend that the misleading and deceptive conduct case was not conducted on the basis that the representations made by Mr Gale constituted a representation as to a future matter, yet most of the relevant proposed grounds of appeal seem to assume the contrary. The respondents/cross-claimants correctly point out that the trial was conducted on the basis of their pleadings by which they alleged that Mr Gale’s representations constituted a then presently binding promise by SPAR to the cross-claimants upon which they could rely if they executed the Franchise Agreement.

67    Mr Moore SC conceded that no reliance was placed upon s 51A of the Trade Practices Act 1974 (Cth) during the course of the hearing. In brief terms, he said that the applicants’ position now is that this aspect of the cross-claim as pleaded by the cross-claimants did not disclose an actionable wrong because the pleading is now said to have been bad in law. Relying on cases such as Fubilan Catering Services Limited (Incorporated in PNG) v Compass Group (Australia) Pty Ltd [2008] FCAFC 53 at [91], Mr Moore SC contended that [16] of the cross-claim was bad in law on the basis that, merely to make a promise which is not performed is not, without more, misleading or deceptive. He readily acknowledged that his clients had not raised this objection during the course of the trial, but he contends that this is immaterial and that the proposed grounds are arguable.

68    It is far from clear to me how the applicants will overcome the evident difficulty of seeking to conduct the appeal on an entirely different basis from that on which the trial was conducted, but I am not prepared at this stage to say that the relevant proposed grounds of appeal are unarguable.

69    The respondents also contend that none of the other proposed grounds of appeal concerning the Franchising Code contravention, the applicants’ competition law case or the relief granted is arguable. It is important to note in this context that, although the applicants carry the onus of demonstrating why a stay should be granted, it has generally been accepted that a “low threshold of arguability” will suffice (see, for example, Deputy Commissioner of Taxation v Ansett Resources & Industries Pty Ltd [2010] FCA 833 at [12] per Reeves J and Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd [2008] FCA 1867 at [40] per Greenwood J). I consider that that threshold has been reached here.

70    As to the balance of convenience, the respondents draw attention to the fact that the individual respondents are a family group and that MIS is a small family company controlled by the three individual respondents. They also rely upon observations made by Logan J at a directions hearing held on 23 March 2012 regarding his concerns about the respondents’ resources to fund such complex commercial litigation. I have taken those matters into account in determining that this is an appropriate case in which to make a partial stay order.

71    I am prepared to accept that all the proposed grounds of appeal are at least arguable. Furthermore, in circumstances where, if no stay was granted, the appeal would be rendered nugatory and it would be almost impossible to unscramble matters if MIS converted to Metcash/IGA if the appeal succeeded, I consider that this is an appropriate case in which to order a stay of some of the orders. In particular, I consider that Perram J’s interlocutory orders should continue, which will have the effect for the time being of preventing MIS from exiting the SPAR Franchise Agreement and converting to Metcash/IGA. It is appropriate, however, that any such stay be conditional upon the SPAR parties giving the usual undertaking as to damages and also undertaking to prosecute the proposed appeal diligently and expeditiously.

72    Although I believe that it is appropriate to make orders which would have the effect of continuing Perram J’s interlocutory orders pending the hearing and determination of the proposed appeal, I see no reason why the appellants should not be liable to pay the respondents’ costs and damages forthwith. The applicants have neither contended nor adduced any evidence to suggest that, in the event that the costs orders are enforced and/or the damages are enforced and the appeal is successful, the respondents/cross-claimants would not be able to repay these amounts. I understood Mr Moore SC to accept that this was the position and he did not resist those particular orders not being stayed. I am conscious of the fact that the respondents/cross-claimants operate a small family supermarket business on Macleay Island and that they have become involved in complex and expensive commercial litigation initiated by SPAR and pursued by it since September 2011 with an avowed objective of preserving customer confidence in SPAR’s franchise arrangements. In those circumstances, I consider that it is appropriate that the respondents/cross-claimants have the option of seeking immediately to enforce the orders in their favour for costs and damages should they so wish.

73    The applicants have not persuaded me that any stay should be granted in respect of any relief concerning the breach of the contravention of the Franchising Code. Indeed, the matter was only faintly pressed by Mr Moore SC at the hearing on 23 November 2012. He made no submission based upon the applicants’ evidence on this subject. While I accept that the proposed grounds of appeal in relation to this matter are arguable, I do not accept that the balance of convenience favours the applicants on this issue. In my view no weight should attach to the applicants’ stated concern that their reputation will suffer if they are required to disclose the Court’s findings to their current and prospective franchisees. In my opinion, such a submission cannot be reconciled with the transparent nature of the proceedings in the Court. The public generally, including SPAR’s existing and prospective franchisees, have access to these reasons for judgment and those handed down on 15 October 2012. SPAR’s commercial reputation is adequately protected in my view by the acknowledgement of the fact that they propose to appeal, including in respect of the Franchising Code contraventions.

74    That brings me to the question of the costs of the interlocutory application. Although the applicants have been successful in obtaining a partial stay, I consider that this is an appropriate case in which they should bear the respondents’ costs of and incidental to their interlocutory application. In coming to this view, I have taken into account the conduct of the SPAR parties in relation to their stay application. The reasons for judgment were handed down on 15 October 2012 and a timetable was set which addressed the process for finalising orders. The SPAR parties indicated on 15 October 2012 that they intended to seek a stay at an appropriate time, yet they waited until 16 November 2012 (i.e. late on the last business day before the scheduled hearing to finalise the orders) to file and serve their interlocutory application and supporting affidavit. They further waited until a couple of hours before the scheduled hearing on 19 November 2012 to provide the respondents with a copy of their proposed notice of appeal. Understandably the respondents were not in a position to respond to the interlocutory application on 16 November 2012. The application had to be adjourned. Accordingly, through no fault of their own, the respondents were subjected to additional and unnecessary costs in responding to the interlocutory application at the adjourned hearing held today. In all these circumstances, it is appropriate that those costs be borne by the applicants on a party-party basis.

75    For all these reasons, I make the following final orders:

THE COURT DECLARES THAT:

1.    The first cross-respondent, by not providing an updated Disclosure Document to the first cross-claimant which contained prescribed financial details in respect of the financial year ended 30 June 2010 after 21 July 2010 and before entry into the Franchise Agreement between the first cross-respondent and first cross-claimant, engaged in conduct in contravention of s 51AD of the Trade Practices Act 1974 (Cth).

2.    The cross-respondents:

(a)    by representing to the first cross-claimant in about December 2010 that, if the cross-claimant entered into the Franchise Agreement, the first cross-respondent would agree to the first cross-claimant resigning from the conduct of the SPAR franchised store business and withdrawing from the Franchise Agreement so that the first cross-claimant could join the IGA franchised supermarket business; and

(b)    by representing to the first cross-claimant in about December 2010 that the only penalty that the first cross-respondent would enforce against the cross-claimants in the event that the first cross-claimant resigned from the conduct of the SPAR franchised store business and withdrew from the Franchise Agreement was the payment by the cross-claimants of the sums referred to in clause 20.6 and the Schedule to the Franchise Agreement to the first cross-respondent; and

(c)    subsequent to December 2010:

(i)    by refusing to permit the cross-claimants to resign from the SPAR franchised store business or to withdraw from the Franchise Agreement; and

(ii)    by insisting that the cross-claimants continue to be bound by the Special Offer Agreement; and

(iii)    by seeking specific performance by the cross-claimants of the Franchise Agreement and the Special Offer Agreement; and

(iv)    by seeking and obtaining an injunction to prevent the cross-claimants from giving effect to their resignation from the SPAR franchised store business and their withdrawal from the Franchise Agreement; and

(v)    by obtaining an injunction that requires the cross-claimants to continue to be bound by the Special Offer Agreement,

have engaged in misleading and deceptive conduct in contravention of s 18 of the Australian Consumer Law.

THE COURT ORDERS THAT:

3.    Subject to order 12 below, orders 1-4 made by Perram J on 15 September 2011 be vacated.

4.    The applicants’ amended originating application filed 10 February 2012 be dismissed.

5.    The cross-claimants have judgment on the cross-claim against the cross-respondents in the amount of $59,935.00.

6.    Pursuant to s 87 of the Competition and Consumer Act 2010 (Cth), the Franchise Agreement entered into between the first cross-claimant and the first cross-respondent be varied by the insertion of the following term “The Franchisee may terminate this Agreement at any time and such termination will be effective upon the payment by the Franchisee to the Franchisor of the monies specified in clause 20.6 and the schedule to this Agreement” and it is declared that the Franchise Agreement as so varied shall have effect from 1 February 2011.

7.    Pursuant to s 87 of the Competition and Consumer Act 2010 (Cth), the Special Offer Agreement entered into between the first cross-claimant and the first cross-respondent on 14 December 2010 be varied by the insertion of the following term “In the event that the Franchisee terminates the Franchise Agreement this Special Offer Agreement shall cease to have effect from the date of the termination of the Franchise Agreement” and it is declared that the Special Offer Agreement as so varied shall have effect from 14 December 2010.

AND IT IS FURTHER DECLARED THAT:

8.    Upon the first cross-claimant’s termination of the Franchise Agreement (as varied by order 6) and the cross-claimants’ termination of the Special Offer Agreement (as varied by order 7) the cross-claimants are liable to pay the first cross-respondent break costs of $73,154.00.

9.    The first cross-claimant’s termination of the Franchise Agreement (as varied by order 6) and the cross-claimant’s termination of the Special Offer Agreement (as varied by order 7) is effective to terminate such agreements as at 19 August 2011 upon the condition that the first cross-claimant pay the first cross-respondent the sum of $19,219.00 (being break costs of $73,154.00 less damages of $53,935.00 awarded pursuant to order 5).

AND IT IS FURTHER ORDERED THAT:-.

10.    The applicants pay the respondents’ costs of Application No. NSD 1501/2011, including all reserved costs and the costs of the interlocutory application dated 16 November 2012, the costs to be taxed or as agreed. The costs are ordered on a party-party basis, save for the respondents’ costs thrown away by the adjournment of the first day of the hearing (1 May 2012), which costs should be paid on an indemnity basis.

11.    The cross-respondents pay the cross-claimants’ costs of the cross-claim, including all reserved costs.

12.    On the applicants giving the usual undertaking as to damages and also undertaking that they will prosecute any appeal diligently and expeditiously, order 3 above be stayed until:

(a)    7 days hereof if no notice of appeal has been filed by that time;

(b)    if a notice of appeal is filed within 7 days hereof, until the hearing and determination of that appeal by the Full Court of the Federal Court; or

(c)    further order.

Associate:

Dated:    23 November 2012