Amalgamated Pest Control Pty Ltd v SM & SE Gillece Pty Ltd & Ors [2016] QCA 260

SUPREME COURT OF QUEENSLAND

CITATION: Amalgamated Pest Control Pty Ltd v SM & SE Gillece Pty Ltd & Ors [2016] QCA 260

PARTIES: AMALGAMATED PEST CONTROL PTY LTD / ACN 009 712 958 / (applicant) / v / SM & SE GILLECE PTY LTD ABN 32 382 330 855 AS TRUSTEE OF THE GILLECE FAMILY TRUST / (first respondent) / SIMON MATTHEW GILLECE / (second respondent) / SARAH ELIZABETH GILLECE / (third respondent)

FILE NOS: Appeal No 5812 of 2016 / DC No 1921 of 2016

DIVISION: Court of Appeal

PROCEEDING: Application for Leave s 118 DCA (Civil)

ORIGINATING COURT: District Court at Brisbane – [2016] QDC 134

DELIVERED ON: Order delivered ex tempore 12 October 2016 / Reasons delivered 18 October 2016

DELIVERED AT: Brisbane

HEARING DATE: 12 October 2016

JUDGES: Margaret McMurdo P and Gotterson JA and Jackson J / Separate reasons for judgment of each member of the Court, each concurring as to the order made

ORDER: Order delivered ex tempore on 12 October 2016: / The application for leave to appeal is refused with costs.

CATCHWORDS: EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – INTERLOCUTORY INJUNCTIONS – GENERALLY – where the primary judge dismissed an application for an interlocutory injunction to restrain breach of a contract in restraint of trade – where the primary judge concluded that there was a serious question to be tried, albeit only just, after following a logical reasoning process – where the primary judge concluded that the balance of convenience favoured refusing the interlocutory injunction, despite accepting that the respondents’ likely inability to pay any substantial damages award was a relevant consideration – where the applicant challenged the primary judge’s findings of fact as to the effect on the respondents’ business and financial circumstances of granting the injunction – whether leave to appeal should be granted / District Court of Queensland Act 1967 (Qld), s 118 / Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170; [1981] HCA 39, cited / Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46, applied / Blockbuster Australia Pty Ltd v Karioi Pty Ltd [2009] NSWSC 1089, cited / Cerilian Pty Ltd v Graham Fraser [2008] NSWSC 1016, approved / Coles Group Limited v Costin [2015] QCA 140, cited / Dooley v Scotney [2010] QSC 179, approved / EzyDVD Pty Ltd v Lahrs Investments Qld Pty Ltd [2009] QSC 227, cited / Henderson v Purairclean Pty Ltd [2013] NTSC 29, cited / Hermescec v Carcagni [2008] NSWSC 183, cited / Huhtamaki Australia Ltd v Botha [2004] NSWSC 386, cited / Jaddcal Pty Ltd v Minson [2011] WASC 28, cited / KA & C Smith Pty Ltd v Ward (1998) 45 NSWLR 702, cited / Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533, cited / Raine & Horne Pty Ltd v Adacol Pty Ltd [2006] NSWSC 36, cited / Reed Business Information v Seymour [2010] NSWSC 790, cited / Skids Programme Management Ltd v McNeill [2013] 1 NZLR 1; [2012] NZCA 314, cited / Workplace Access and Safety Pty Ltd v Mackie [2014] WASC 62, cited

COUNSEL: D de Jersey for the applicant / C Tam for the respondent

SOLICITORS: Thynne & Macartney for the applicant / Doyle Wilson Solicitors for the respondent

MARGARET McMURDO P: I joined in this Court’s order of 12 October 2016 refusing this application for leave to appeal with costs, for the reasons given by Jackson J.

GOTTERSON JA: I have had the advantage of reading the reasons prepared by Jackson J justifying the orders made on 12 October 2016. I would respectfully adopt them.

JACKSON J: This proceeding was brought as an appeal from an order dismissing an application for an interlocutory injunction to restrain breach of a contract in restraint of trade.¹ The application was dismissed on the discretionary ground that the balance of convenience favoured not granting the interlocutory injunction and refusal would result in a lower risk of injustice occurring.

On 12 October 2016, this court made an order dismissing the applicant’s application for leave to appeal with costs. These are my reasons for joining in those orders.

The context of the restraint of trade clause in the present case is a franchise agreement styled as the “Licence Agreement” (“contract”).

Leave to appeal

The order dismissing the application was an “interlocutory judgment of the District Court” within the meaning of s 118(2) of the District Court of Queensland Act 1967 (Qld). Under that subsection the applicant had a right of appeal from such an order if it related to a claim for or relating to property that had a value equal to more than the Magistrates Courts jurisdictional limit.² The claim in this proceeding is for injunctions and damages. It is neither a claim for any property nor a claim relating to any property of a value more than the Magistrates Courts jurisdictional limit of $150,000.³

Accordingly, the applicant applied for leave to appeal under s 118(3) of the District Court of Queensland Act 1967 (Qld).

The contract

The contract is in the form of a sub-licence agreement, with the applicant as head licensor and the first respondent as licensee.⁴ The second and third respondents were both the principals of the first respondent, and guarantors under the contract.

The contract recites that the applicant “has developed certain business procedures and systems together with a distinctive and valuable name, image and reputation associated with pest control.”

By cl 2.1 of the contract the applicant granted to the first respondent the non-exclusive right “to operate the Licenced business within the territory, using the image, the manual, the Amalgamated Operating System and the system”, and “to participate in the network” for the “term” on the terms and conditions set out in the contract.

By cl 1.1(40) the “territory” is defined to mean the territory in the Schedule. The Schedule provided that the reader should refer to Annexure A, which is a map of Goondiwindi and surrounding areas that showed the territory as an area bounded by highlighting. The area included Bungunya and Talwood to the west, Moree, Inverell and Glen Innes to the south, Texas to the east and a point south of Moonie to the north.

A central concept is that the “approved products” and “the services” are defined in cl 1.1(5) to mean “the range of goods and services to be supplied by the [first respondent] to customers including general pest control work in domestic, commercial and industrial situations as specified and agreed” in the contract. The “Licensed business” is defined in cl 1.1(24) to mean the activities of the first respondent delivering the approved products and the services to the customers.

Clause 21 provides that the parties acknowledge and agree that the respondent’s business shall only include work in the nature of “General Pest Control Work” in domestic, commercial and industrial situations within the Licenced area. However, the expression General Pest Control Work does not appear to be defined even though it is expressed in a capitalised form.

The clause the subject of the dispute is cl 34 as follows:

“34.Protection of the Head Licensor’s goodwill

34.1The Sub-Licensee and the Guarantor (if any) acknowledge and agree that:

the Head Licensor has considerable and recognised goodwill in the conduct of its business of developing and promoting the system and the network;

the Head Licensor is entitled to protect that goodwill for its own benefit and the benefit of the Licensor and all the network by restricting the Sub-Licensee's ability to damage that goodwill by competing with the Head Licensor, the Licensor or any of the network; and

each of the restraints imposed upon the Sub-Licensee under clause 34.2 is fair and reasonable and is no greater than is reasonably necessary to protect this goodwill.

34.2The Sub-Licensee and the Guarantor (if any) jointly and severally agree with the Head Licensor and the Licensor that neither the Sub-Licensee nor any Guarantor will, during the Restraint Period, directly or indirectly do any of the following things:

within the Restraint Area engage or be concerned or interested in any business that:

supplies the:

the approved products and services; and/or

products or services the same as or similar, to those at any time supplied in the Licensed business.

competes with the Head Licensor, the Licensor or any of the network; or

could be reasonably regarded as a market competitor of:

the Head Licensor;

the Licensor;

any of the network; or

the system.

canvass or solicit with a view to supplying any product or service the same as or similar to those at any time supplied in the conduct of the Licensed business, any person who is or has been in the 24 months before the end of the Licensed business a customer of:

the Licensed business;

the Head Licensor;

the Licensor;

the Amalgamated Group; or

any of the network.

employ or engage any person who is or has been in the 12 months before the end of the Licensed business employed by the:

the Head Licensor;

the Licensor;

the Amalgamated Group; or

any of the network.

without first obtaining the Head Licensor's written consent.

34.3The agreement by the Sub-licensee and the Guarantor in clause 34.2 applies to any of them acting:

either alone or in partnership or association with another person;

as principal, agent, representative, director, officer or employee;

as member, shareholder, debenture holder, note holder or holder of any other security;

as trustee of or as a consultant or adviser to any person; or

in any other capacity.

34.4Nothing in this clause 34 prevents the Sub-licensee or any Guarantor from:

owning less than 5%, by value, of securities in a listed corporation; or

engaging or being concerned or interested in the Business in accordance with this Agreement.

34.5The Sub-licensee must ensure that any of its key employees nominated by the Sub-licensee enter into service or employment contracts before they receive or are granted access to any of the Confidential Information, in a form approved by the Licensor or the Head Licensor which contain a similar reasonable restraint as imposed on the Sub-Licensee and Guarantor pursuant to clause 34.

34.6Each of the provisions of this clause 34 operates concurrently and independently. If any separate provision is unenforceable, illegal or void that provision is severed and the other separate provisions remain in force.”

The term “Restraint Period” is defined in cl 1.1(35) to mean the period specified in the Schedule. The Schedule identified the Restraint Period as three years.

Accordingly, the applicant’s case is that the contract contains a contract in restraint of trade that the first respondent will not during the period of three years:

either by themselves or through any other corporation or entity in which they may be a shareholder, director, partner or investor, conducting any business that supplies any products or services which are the same as or similar to those at any time supplied by the plaintiff under the Licence Agreement dated 1 July 2009 (the Licence Agreement) in the Territory (as defined in the Licence Agreement);

competing with the applicant or any other members of the network (as defined in the Licence Agreement) in the Territory (as defined in the Licence Agreement) without the consent of the plaintiff;

conducting any business in the Territory (as defined in the Licence Agreement) which would be reasonably regarded as being a market competitor of the applicant or any other member of the network (as defined in the Licence Agreement) without the consent of the plaintiff;

canvassing or soliciting any person who was, in the 24 months before the end of the Licence Agreement, a customer of the applicant or of the Licensed business (as defined in the Licence Agreement) conducted by the plaintiff under the Licence Agreement, with a view to supplying those persons with any products or services the same as or similar to those which were supplied in the conduct of the Licensed business (as defined in the Licence Agreement) conducted under the Licence Agreement without the consent of the plaintiff.

The rights and obligations of the first, second and third respondents under cl 34 are joint and several. Accordingly, references in these reasons to the obligations of the first respondent include the other respondents.

Proceeding before the District Court

It is not in dispute that the Licensed business was terminated by 10 May 2016 and that the first respondent commenced to trade a new pest control business from on or about that date. It is also not in dispute that if the restraints in cl 34 of the contract are valid the first respondent is in breach of contract.

The learned primary judge dealt with the application by considering the conventional steps: whether there was a serious question to be tried or prima facie case that at trial the applicant would obtain a final injunction restraining the respondents from breaching cl 34 and, if so, whether the balance of convenience favoured or disfavoured the grant of an interlocutory injunction.⁵

Upon the question whether there was a serious question to be tried or prima facie case, the issue was whether cl 34 was a valid contract in restraint of trade as reasonable in the interests of the parties and the public interest. Several points were raised against that conclusion, namely:

failure to specify the Restraint Area in the Schedule had the consequence that either the restraints were uncertain or too wide;

if the Restraint Area was the territory, that area was too large; and

the term of the Restraint Period was too long.

The learned primary judge followed a logical order in considering whether the applicant had established a prima facie case.

First, his Honour considered the nature of the goodwill that the applicant sought to protect and concluded that the applicant had a legitimate interest that it was entitled to protect by reducing the number of potential customers of any future franchisee and from otherwise damaging its business opportunities and reputation. Some points may be added to this conclusion. First, the primary judge was referred to Raine & Horne Pty Ltd v Adacol Pty Ltd.⁶ But there is ample support in authority for the proposition that the interests of a franchisor under a franchise agreement may support as valid a contract in restraint of trade to protect those interests.⁷ For present purposes, it is enough to observe that there is no generic or central conception of a franchise agreement that necessarily will support a whole range of different extensive restraints as reasonable.

Second, his Honour observed, without making any final finding, that the Restraint Period of three years appeared to be “excessive”.⁸ There was a basis for this provisional observation in the evidence. The first respondent’s Licensed business was a mobile business servicing customers over a significant geographical area in country Queensland and New South Wales. There were no business premises separate from the second and third respondents’ home. It was a one man operation. The receipts of the business were paid into an account controlled by the applicant who remitted a percentage of the gross receipts to the first respondent. The first respondent was required to contribute another percentage of gross receipts to the applicant’s advertising expenses without any control of the advertising, and little or no particular advertising was made in the first respondent’s area. The Restraint Period was equal to the initial term of the franchise held by the first respondent.

Third, his Honour observed, again without making a final finding, that the failure to identify the Restraint Area in the contract “might well prove fatal” to the applicant’s case and would be a matter of “serious legal debate at the eventual trial”.⁹

Fourth, his Honour observed that he had “real reservations” about whether the extent of the alleged Restraint Area was reasonable (if it was the area of the territory).¹⁰

For those reasons, his Honour expressed reservations about whether or not the applicant had made out a prima facie case but proceeded on the basis that it had, “albeit only just”.¹¹

From that point, the primary judge proceeded to consider whether the balance of convenience favoured or disfavoured the grant of an interlocutory injunction.

First, he considered whether damages were likely to be an inadequate remedy. The applicant had made submissions on the footing that damages might have been adequate but for the respondents’ inability to pay any damages that might be awarded. The primary judge accepted that was a relevant consideration and continued:

“The statement of claim as presently formulated claims damages not exceeding $750,000. While I was not taken to any evidence about the value of the franchise or the extent of the damages likely to be sought by the applicant, it seems to me highly unlikely that damages would be anything like the amount presently claimed.

The financial circumstances of the second and third respondents are set out in the first affidavit of the second respondent. It would be fair to say that as at today’s date the first and second respondents might find it difficult to meet any substantive judgment. On the other hand, no attempt was made to try and identify what loss and damage the applicant might sustain as a consequence of the alleged breaches. While Mr Farr identified what he described as a ‘dramatic’ reduction in the number of customers renewing their services, no attempt was made to quantify in monetary terms the financial damage attributable to the actions of the respondents that might cause to the applicant’s business. In this context it is noted that while a potential franchisee has expressed some concerns about the value of the franchise, it was not suggested that that potential franchisee considered the franchise to be worthless. I was not taken to any probative evidence that the applicant’s reputation and brand was in any way being materially damaged, nor that the respondents were unlawfully using confidential information.

In such circumstances I am not prepared to draw the inference against the respondents that they would be incapable of meeting any award for damages against them. In this regard there was also evidence that the respondents were owed some $30,000.00 from ‘outstanding accounts’.”¹²

In this passage, his Honour analysed some of the evidence about the extent of the applicant’s claim for damages in assessing the extent of the likelihood that the respondents would be unable to pay any award of damages at trial. In my view, that was a relevant and appropriate thing to do given the applicant’s position that damages would not be an adequate remedy because it was highly unlikely that any judgment would be successfully enforced.

The applicant seeks to challenge some of the primary judge’s findings of fact made in the course of that reasoning, which are discussed later in these reasons.

Next, the primary judge considered the effect of the first respondent’s business upon the applicant’s franchise operations. He held that the first respondent’s current business was likely to “erode the customer base of any future franchise” but would not bring to an end the applicant’s franchise operations in the area.¹³ There are two other sub-contractors operating in the Goondiwindi area under the Amalgamated Pest Control banner.

Against that, the primary judge made the finding that if the first respondent’s current business would be brought to an end forthwith that would likely result in “potentially catastrophic personal and financial circumstances” for the respondents.¹⁴

In particular, the primary judge made findings that the first respondent’s new business introduced a new competitor into the area but the applicant retains a brand presence in the district. Further, the business in this case is “not locational but highly mobile”.¹⁵ Last, the subject business is not concerned with operating within a metropolitan suburb but provides a wide range of services over an extensive area incorporating semi-rural areas and substantial farming enterprises.

Again, the applicant seeks to challenge some of these findings of fact and submits that the primary judge failed to make further findings that ought to have been made. In particular, the applicant submits that the primary judge should have found that the respondents could have operated their new business notwithstanding an injunction restraining them from doing so in the area of the territory.

The primary judge also did not accept the applicant’s submission that the consequences for the respondents should raise little concern because they are but a direct consequence of their breach of contract. The applicant submits that the primary judge should have taken into account that the respondents’ breach of contract was brazen. That submission must be based on the assumption that the applicant will succeed at trial. No account is taken of the possibility that the applicant may be unsuccessful. Deliberate or brazen conduct is of no consequence if it is not conduct in breach of contract. In my view, arguments of this sort do not assist greatly in circumstances like the present case where, as previously stated, the primary judge concluded that the applicant established a serious question to be tried, but “only just”.¹⁶

Finally, the primary judge made a finding as to a question of public interest. Apart from any advantage provided by competition, his Honour adverted to the second respondent’s affidavit evidence that pests were a significant problem in the area (particularly rodents and termites) and that other service providers in the area probably did not have the capacity to deal with all the demand. His Honour referred to the possibility that an additional operator under the applicant’s banner together with the existing operators might have the capacity to deal with demand. However, he found that would not seem to provide “a total solution to what is an immediate and high demand to deal with a mouse plague”.¹⁷

The applicant also challenges that finding as insufficiently supported by the evidence.

On the question of public interest, the primary judge concluded by finding that it fell in favour of the respondents, although on balance he considered it to be of only marginal significance.

Having regard to those factors the primary judge concluded that the balance of convenience favoured refusal of the application because that would result in a lower risk of injustice occurring.

Inadequacy of damages

The applicant’s submission that damages are an inadequate remedy in this case focussed on the likely inability of the respondents to meet a significant damages award.

This is not a typical presentation of an argument that damages are an inadequate remedy in a restraint of trade case. The reasons why damages are often inadequate in such cases include:

the difficulty of detection of breaches of the obligations;

the difficulty of establishing causation between any loss of business with customers and any actions of the ex-employee; and

the difficulty of the calculation of the quantum of any damage arising from loss of business.¹⁸

However, collectability of a damages award is a relevant factor.¹⁹ It is a risk of damage to the applicant if an interlocutory injunction is not granted. As such it is to be weighed against the risk of damage to the respondents if an interlocutory injunction is granted.

That is what the primary judge did.

Effect of final relief

The respondents’ case before the primary judge was that an interlocutory injunction would, in effect, destroy the business that the first respondent was seeking to re-establish after termination of the contract and would bring an end to the respondents’ ability to finance and conduct that business.

That outcome would have the same effect as if the applicant were granted final relief. In those circumstances, it is desirable for the court to evaluate (if it can) and take into account the strength or weakness of the applicant’s case for final relief.²⁰ Also, in those circumstances, the court may refuse an interlocutory injunction even if the applicant has a strong case for a final injunction for breach of contract in restraint of trade.²¹

These were powerful potential factors against the grant of an interlocutory injunction.

Public interest

The applicant did not challenge that the public interest in the availability of pest control services to meet the demand in the context of a mouse plague in the area was a relevant consideration for the primary judge. It is uncontroversial that public interest of that kind is a relevant consideration upon the balance of convenience.

The applicant’s challenge is to the finding by the primary judge that there would be an unmet need or demand for pest control services to control the mouse plague. However, his Honour appears to have acted on evidence to that effect that was led by the respondents, in circumstances where it was not challenged in cross-examination and not answered by the applicant.

Nature of the appeal

If leave to appeal were granted, the appeal would be from an interlocutory order on a matter of practice and procedure. Accordingly, this court would exercise particular care in reviewing the decision.²²

Conclusion on leave to appeal

The challenges made by the applicant to the factual findings made by the primary judge were not of findings made at trial on full evidence but findings made in the context of an interlocutory application where the evidence and the reasoning to reach a particular conclusion may reasonably be expected to be not so fulsome.

Having regard to the matters mentioned above, I was not disposed to grant leave to appeal. There is no question of general importance involved. There is no obvious error of such a kind that would demonstrate that it is in the interests of justice that this court should grant leave to appeal, in any event.

Footnotes

1. Amalgamated Pest Control Pty Ltd v SM & SE Gillece Pty Ltd [2016] QDC 134. ↩

2. District Court of Queensland Act 1967 (Qld), s 118(2)(b). ↩

3. Coles Group Limited v Costin [2015] QCA 140, [60]-[66]. ↩

4. The original sub-licensor was a licensee from the applicant as head licensor. However, the applicant now holds the rights of the sub-licensor as assignee. For simplicity, in these reasons I will ignore the difference between the sub-licensor and the applicant in describing the contractual provisions. ↩

5. Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57, 81-82 [65]. ↩

6. [2006] NSWSC 36. ↩

7. Skids Programme Management Ltd v McNeill [2013] 1 NZLR 1, 12-14 [43]-[49]; Henderson v Purairclean Pty Ltd [2013] NTSC 29, [98]; Blockbuster Australia Pty Ltd v Karioi Pty Ltd [2009] NSWSC 1089, [138]-[141]; EzyDVD Pty Ltd v Lahrs Investments Qld Pty Ltd [2009] QSC 227; KA & C Smith Pty Ltd v Ward (1998) 45 NSWLR 702, 722. ↩

8. [2016] QDC 134, [21]. ↩

9. [2016] QDC 134, [26]. ↩

10. [2016] QDC 134, [26]. ↩

11. [2016] QDC 134, [32].