Applicants Oppose Termination of Franchise Agreement
Lanhai Pty Ltd v 7-Eleven Stores Pty Ltd [2021] VSC 587 (16 September 2021)
The plaintiffs applied for a mandatory injunction for franchisor to maintain lease with third parties and to restrain termination of franchise agreement. The plaintiffs further assert that there was misleading and deceptive conduct on the part of the defendant. The defendant, on the other hand, asserts that the balance of convenience favoured retention of status quo. The Court, in ruling upon this dispute, relied upon applicable principles.
Facts:
By lease dated 20 September 2011 (‘the Lease’), the defendant leased the property at 103-107 Campbell Street, Heathmont, Victoria 3135 (‘the Heathmont store’) from Loder Agricultural Enterprises Pty Ltd for a period of 10 years with an option for one further term of five years exercisable by 4 April 2021.
Mr O’Hara, the defendant’s Victorian Franchise Development Manager, gave Ms Li, the second plaintiff and Mr Wang, the third plaintiff, a document entitled ‘Franchise Opportunities: VIC’, dated June 2014, and detailed different 7-Eleven franchise stores.
Mr O’Hara gave Ms Li and Mr Wang another document entitled ‘Franchise Opportunities: VIC’ but instead dated August 2014. The bottom of the document stated that options are not guaranteed and lease extensions will be decided on a case by case basis at the sole discretion of 7-Eleven and franchisee Fees are subject to change. The plaintiffs allege that Ms Li and Mr Wang did not see the notation and it was not drawn to their attention.
By further amended summons filed on 13 August 2021, the plaintiffs applied for interlocutory injunctions against the defendant terminating the Franchise Agreement between the defendant and the plaintiff dated 4 June 2015 by reason of the expiry of the franchise term or Lease of the Premises at 103-107 Campbell St, Heathmont, Victoria 3135. The licence granted by the defendant to the plaintiff pursuant to the Franchise Agreement to occupy the Premises is sought to be revoked by reason of the expiry of the franchise term or Lease.
The continued operation of the business conducted by the plaintiff is also sought to be prevented. The causes of action relied upon by the plaintiffs in support of this application for interlocutory relief is misleading or deceptive conduct, failure to explain the effect of art 24 of the document titled ‘Store Agreement’ between the defendant and the first plaintiff (‘the Franchise Agreement’), failing to give six months’ notice before the end of the term of the Franchise Agreement, and etc.
Issue:
Whether or not the plaintiffs are entitled to interlocutory injunctive relief.
Applicable law:
Australian Consumer Law s 18 - where an injunction is an available remedy to prevent damage arising from a contravention of provisions in this law, particularly in a case such as the present where no damage has yet been suffered by reason of the alleged contravening conduct.
Competition and Consumer Act 2010(Cth) sch 2 - prohibits misleading or deceptive conduct as well as unconscionable conduct pursuant to s 21 of the Australian Consumer Law.
Australian Broadcasting Corporation v O’Neill[2006] HCA 46; (2006) 227 CLR 57 - provides the principles for establishing an entitlement to interlocutory injunctive relief.
A Saraya Nominees Pty Ltd v National Australia Bank Ltd[2014] VSC 524 - where the requirement that the applicant must prove prima facie a sufficient likelihood of success to justify preservation of the status quo is to be understood as whether there is a serious question to be tried as to the applicant’s entitlement to relief and it is not necessary to establish that it is more probable than not that the applicant will succeed at trial.
Beecham Group Ltd v Bristol Laboratories Pty Ltd[1968] HCA 1; (1968) 118 CLR 618 - provides that the requisite strength of the probability the applicant must establish depends upon the nature of the rights it asserts and the consequences likely to flow from the injunction sought.
Tymbook Pty Ltd v State of Victoria; Bradto Pty Ltd v State Of Victoria[2006] VSCA 89; (2006) 15 VR 65 - where the Court must ‘take whichever course appears to carry the lower risk of injustice if it should turn out to have been “wrong”, in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial’.
Belgrave Nominees Pty Ltd v Barlin-Scott Airconditioning (Aust) Pty Ltd [1984] VicRp 75; [1984] VR 947 - Kaye J suggested that the question on whether or not damages would provide an adequate remedy for the injury that the applicant is likely to suffer should be reformulated as "s it just, in all of the circumstances, that a plaintiff should be confined to his remedy in damages?"
Transonic v Tilakee[2021] VSC 413 - where in considering where the lower risk of injustice lies, all relevant factors are to be weighed in the balance. In particular, the strength of the applicant’s case may be a relevant matter in assessing the balance of convenience.
Tymbook Pty Ltd v State of Victoria; Bradto Pty Ltd v State Of Victoria[2006] VSCA 89; (2006) 15 VR 65 - provides that to restrain the defendant from treating the Franchise Agreement as at an end and to require the defendant to maintain the Lease of the Heathmont store, is a relief in the nature of a mandatory injunction.
Australian Securities and Investments Commission (ASIC) v Dover Financial Advisers Pty Ltd[2019] FCA 1932; (2019) 140 ACSR 561 - where in the circumstances, viewed as a whole, there is a serious question to be tried about whether the defendant’s conduct, relied on by the plaintiffs, was misleading in the sense that it had ‘a sufficient tendency to lead a person exposed to the conduct into error (that is, to form an erroneous assumption or conclusion about some fact or matter)’.
Lyschrome Pty Ltd v Swire Cold Storage Pty Ltd[2009] QSC 187 - provides that an injunction is an available remedy to prevent damage arising from a contravention of s 18 of the Australian Consumer Law, particularly in a case such as the present where no damage has yet been suffered by reason of the alleged contravening conduct.
Analysis:
The principles to establish an entitlement to interlocutory injunctive relief are the following:
(a) The applicant must prove prima facie a sufficient likelihood of success to justify preservation of the status quo pending trial.
(b) The balance of convenience must favour the grant of the injunction.
(c) The Court will also consider whether or not damages would provide an adequate remedy for the injury that the applicant is likely to suffer.
The plaintiffs submit that the Franchise Opportunities documents misrepresented that the Franchise Agreement had a 10 year term, without informing the plaintiffs that the term would expire if the defendant did not exercise the Option to renew the Lease. Furthermore, it was written in legalese in circumstances where the defendant knew Ms Li and Mr Wang’s comprehension of English was poor.
The defendants submitted that the matters relied upon by the plaintiffs could not support an allegation that the defendant, in making the decision not to exercise the Option, was motivated by a purpose unconnected with the financial position of the business and was actuated by some exterior or collateral purpose.
The plaintiffs submitted that the balance of convenience favoured the grant of the injunction because the closure of business would negatively impact the plaintiffs' employees, third parties, the value of their business and ongoing revenue.
The defendant submitted that damages would be an adequate remedy and that the defendant will continue to lose money during any further period of the operation of the Heathmont store and it is very unlikely that the first plaintiff will be able to ‘turn around’ its poor performance.
It was asserted that the balance of convenience favoured retention of status quo. However, the continuation of the business represents the status quo and the refusal of the injunction would bring the plaintiffs’ business to an end. The defendant does not submit that the plaintiffs’ proposed undertaking would not be adequate to allow it to recover any losses it may suffer. The termination of the plaintiffs’ business would stop the plaintiffs’ sole source of income.
Conclusion:
The Court concluded that the balance of convenience favours the grant of the injunction for the reasons submitted by the plaintiffs. Any injunction should relate only to the maintenance of the Lease and the Franchise Agreement, and should not extend, as the existing undertaking does, to generally restraining the defendant from preventing, obstructing or hindering the continued operation of the business. The parties are to be heard regarding the appropriate form of orders, including further directions for the conduct of this proceeding to advance it to an expedited trial.
