BEDSHED FRANCHISING PTY LTD -v- BATTERSBY [2015] WASC 224 | Case summary

Supreme Court of WA|2015-06-26|Before: Beech J

1 The defendants are parties as guarantors to franchise agreements entered into between the plaintiff, Bedshed Franchising Pty Ltd, as franchisor, and companies associated with the respective defendants, as franchisees. Each franchise agreement includes cl 6.2 which provides that:

The Franchisee and the Guarantor further agree that they will not, ... during the Term have any interest as an owner (except of publicly traded securities), director, officer, employee, consultant, lender, representative or agent, or in any other capacity whatsoever, in any other business (except other Bedshed Franchises) which in any way competes with the Franchisor or its franchisees, or which is similar to the Business without the prior written consent of the Franchisor.

2 In this action, Bedshed Franchising alleges that the defendants are in breach of cl 6.2 because they each have an interest in a competing business known as Beds n Dreams. It seeks an injunction restraining them from contravening cl 6.2 in this way.

3 In this application, Bedshed Franchising seeks an interlocutory injunction in the same terms, restraining the defendants from:

[H]aving any interest as an owner, director, officer, employee, consultant, lender, representative or agent, or in any other capacity whatsoever, in any company, partnership or other business structure or association carrying on business anywhere in Australia under the business name 'Beds n Dreams'.

4 The following background facts are not controversial.

5 The first defendant, David Battersby, and the second defendant, Diane Battersby, are husband and wife. They are directors of, and shareholders in, Bridlewood Adelaide Pty Ltd (Bridlewood Adelaide).

6 Bridlewood Adelaide operates, as a franchisee of Bedshed Franchising, the Bedshed store located in Mile End, South Australia. It does so under a written franchise agreement between Bridlewood Adelaide and Bedshed Franchising, to which the first and second defendants are also party as guarantors (the Mile End Franchise Agreement).

7 The third defendant, Geoffrey Cooper, is a director of, and shareholder in, GNC Investments Pty Ltd (GNC). GNC operates, as a franchisee of Bedshed Franchising, the Bedshed store located in Hoppers Crossing, Victoria, pursuant to a written franchise agreement between GNC and Bedshed Franchising dated 3 June 2015 (Hoppers Crossing Franchise Agreement). Mr Cooper and his wife, Nicola Cooper, are parties to the Hoppers Crossing Franchise Agreement as guarantors.

8 GNC is also party to another franchise agreement with Bedshed Franchising dated 22 September 2010. That agreement relates to a Bedshed store located in Chadstone, Victoria (Chadstone Franchise Agreement). On 9 December 2014, Bedshed Franchising terminated, or purported to terminate, the Chadstone Franchise Agreement on grounds that GNC had been fraudulent in connection with the operation of its Chadstone franchise by intentionally failing to pay marketing rebates payable by it and conspiring with suppliers to avoid payment of these rebates. That termination or purported termination is the subject of proceedings in the Supreme Court of Victoria.

9 In midJuly 2014, Mr David Battersby and Mr Geoff Cooper had (separate) conversations in which they each informed Mr Gavin Culmsee, general manager of Bedshed Franchising, that Mr Battersby's son Craig and Mr Cooper's sister Michelle were going to be operating Beds n Dreams stores. I will say more about the details of those conversations later in these reasons.

10 Like Bedshed, Beds n Dreams is a retailer of bedroom furniture and bedding products.

11 In these proceedings, Bedshed Franchising alleges that the defendants have an interest in a Beds n Dreams business operating from premises in Osborne Park and in a Beds n Dreams business shortly intended to commence operating in Dandenong, Victoria.

12 The Beds n Dreams Osborne Park store is operated by Hullavoo Pty Ltd (Hullavoo), of which Craig Battersby is the sole director and shareholder.[1] Hullavoo is lessee of the premises.

13 Beds n Dreams Dandenong is to be operated by Plan C Investments Pty Ltd (Plan C), of which Michelle Cooper is the sole director and shareholder.[2] Hullavoo (not Plan C) is lessee of the Dandenong premises, and Craig Battersby is the guarantor under the lease.[3]

14 Bedshed Franchising's amended statement of claim dated 27 May 2015 (the Statement of Claim) pleads the background facts set out in the previous section of these reasons.

15 Bedshed Franchising alleges that in breach of the Mile End Franchise Agreement, David Battersby has an interest, within the meaning of that term in cl 6.2, in one or more businesses trading in Australia under the business name Beds n Dreams that compete with Bedshed Franchising, one or more of its franchisees, or both, and which are similar in nature to the Mile End business.[4]

16 The Statement of Claim sets out detailed particulars of that allegation, from which Bedshed Franchising says it is to be inferred that David Battersby has the interest alleged. These particulars mirror the effect of the evidence relied on by Bedshed Franchising, which I will outline in detail later in these reasons. In broad summary, the particulars are:

(a) a telephone conversation on 16 July 2014 between David Battersby and Bedshed Franchising's general manager, Gavin Culmsee;

(b) a telephone conversation on 17 July 2014 between Geoff Cooper and Gavin Culmsee;

(c) a statement, said to have been made on 6 August 2014, in which David Battersby said to a franchisee of Bedshed Franchising with reference to Beds n Dreams that 'we've looked at sites' and 'we're looking at a location in Osborne Park';

(d) an email of 25 August 2014 from Geoff Cooper to Gavin Culmsee in which Mr Cooper said that his sister and Craig Battersby had signed a lease for premises in Osborne Park in which they intended to operate a Beds n Dreams store;

(e) Mr Battersby and Mr Cooper's presence and conduct at a furniture exhibition in Shanghai on 10 September 2014;

(f) Mr Battersby and Mr Cooper's presence and conduct at Beds n Dreams premises in Osborne Park on 9 December 2014;

(g) Mr David Battersby's presence at the Osborne Park premises on 10 December 2014;

(h) Mr David Battersby, Ms Diane Battersby and Mr Geoff Cooper's presence and conduct at the Osborne Park premises on 27 February 2014;

(i) Mr Battersby's membership of a class of beneficiaries of a discretionary trust of which Hullavoo is trustee.

17 The Statement of Claim also alleges that the second defendant, Diane Battersby, has an interest in the meaning of that term under cl 6.2 in one or more businesses trading in Australia under the business name Beds n Dreams that compete with Bedshed Franchising, one or more of its franchisees, or both, and are similar in nature to the Mile End business.[5]

18 The particulars of that allegation assert that an inference to that effect is to be drawn from certain facts. These facts are, relevantly:

(a) Ms Battersby's presence and conduct at the Osborne Park premises on 27 February 2015;

(b) Ms Battersby's membership of a class of beneficiaries of a discretionary trust of which Hullavoo is trustee.

19 Bedshed Franchising alleges that Mr Cooper also has an interest in one or more businesses trading in Australia under the business name Beds n Dreams that compete with Bedshed Franchising, one or more of its franchisees, or both, and which are similar in nature to the Hoppers Crossing business.[6]

20 Again, the particulars of this allegation set out a number of facts from which Bedshed Franchising says it is to be inferred that Mr Cooper has the interest alleged. The matters relied on in relation to Mr David Battersby are repeated. Further, Bedshed Franchising relies on the following additional matters:

(a) an email of 22 December 2014 from SCI Australia said to be concerning a delivery for 'Beds n Dreams Chadstone';

(b) the fact that Mr Cooper's residential address was, from the date of Plan C's incorporation until 1 May 2015, the registered address for Plan C;

(c) mattress products ordered by GNC for sale at Bedshed Chadstone and mattress products bearing Bedshed Franchising's Dreamsense trademark were located at the Dandenong premises of Beds n Dreams on 1 May 2015;

(d) the store manager employed by GNC to manage Bedshed Chadstone is now employed to manage the Beds n Dreams business in Dandenong.

21 The Statement of Claim seeks an injunction in the same terms as the interlocutory injunction, set out earlier in these reasons.

22 The primary evidence relied on by Bedshed Franchising is surveillance evidence of the Osborne Park premises of Beds n Dreams. It also relies on evidence of a small number of conversations and a small amount of email correspondence. I will outline the effect of the evidence relied on by Bedshed Franchising in chronological order.

23 On about 16 July 2014, Mr David Battersby called Mr Gavin Culmsee. Mr Battersby informed Mr Culmsee that:

(1) his son, Craig Battersby, and the third defendant's sister, Michelle Cooper, as partners, had signed master franchise agreements with Beds n Dreams, and intended to open and operate Beds n Dreams stores;

(2) he, David Battersby, had no involvement in the Beds n Dreams franchises; and

(3) although he had earlier been considering joining Beds n Dreams, he no longer intended to do so, as he considered that his business with Bedshed was making 'too much money'.[7]

24 On 17 July 2014, Mr Culmsee returned a call from the third defendant, Mr Geoff Cooper. In the course of that conversation, Mr Cooper confirmed with Mr Culmsee that:

(1) Mr Cooper's sister had signed an agreement with Beds n Dreams;

(2) in effect, she had done that with Mr Craig Battersby, saying that David Battersby and his (Mr Cooper's) relatives had signed agreements with Beds n Dreams;

(3) Mr Cooper was not involved at all, whether financially or businesswise;

(4) Mr Cooper was not looking at leaving Bedshed and joining Beds n Dreams as he '[has] two good businesses'; and

(5) if he were to leave Bedshed, he would only want it to be on his terms.[8]

25 Mr Leslie Sevel is National Merchandise Manager of Bedshed Franchising. On 6 August 2014, he attended a meeting in Victoria of the Victorian Franchisees of Bedshed Franchising. During lunch he sat next to David Battersby. Michael Brown, who operates the Bedshed store in Dandenong as franchisee, sat opposite Mr Battersby. Mr Sevel says that he overheard a conversation between David Battersby and Michael Brown, during which David Battersby was talking about Beds n Dreams and said words to the effect of 'we've looked at sites in Joondalup and elsewhere in WA' and 'we're looking at a location in Osborne Park'. He says David Battersby did not mention his son Craig during that conversation.[9]

26 Mr Sevel does not give evidence of any other part of the conversation which he says he overheard.

27 There was a further discussion between Mr Geoff Cooper and Mr Culmsee on 25 August 2014.[10] That discussion primarily concerned the possibility of Mr Cooper and his company exiting the franchise. Mr Culmsee said the board would need a written submission setting out what was proposed.

28 Later on 25 August 2014, Mr Cooper sent Mr Culmsee an email about release from his franchise agreements.[11] In that email, Mr Cooper stated that he wanted to confirm with the board that his sister and David Battersby's son had signed a lease with Beds n Dreams in Osborne Park. He said that he felt obliged to inform them that as there is also a Bedshed store in the location, so it may have appeared to be a conflict of interest, although there was no involvement on the part of Mr Cooper's company. The email set out proposed terms on which Mr Cooper's company could be released from the franchise agreements.

29 In early September 2014, Mr Culmsee, Mr Sevel and a number of Bedshed franchisees went on an overseas buying trip to Shanghai. David Battersby and Geoff Cooper did not stay with other Bedshed franchisees. Further, they spent some parts of the trip with one or more Beds n Dreams franchisees.

30 In circumstances where relationships between Messrs Battersby and Cooper, on the one hand, and Bedshed Franchising management, on the other, were so strained, in my view nothing can be drawn from this evidence to support the plaintiff's claim in this action.

31 By its solicitors, Bedshed Franchising instructed Pace Henley Investigation Services to conduct surveillance of the business premises of Beds n Dreams at 501 Scarborough Beach Road Osborne Park. Surveillance was conducted at the premises on a total of 13 days from November 2014 to early March 2015. On three of those days, 9 December 2014, 10 December 2014 and 27 February 2015, one or more of the defendants were seen at the Osborne Park premises.

32 Counsel for the defendants objected to a substantial portion of the evidence relating to the surveillance relied on by Bedshed Franchising. In particular, objection was taken to evidence from the principal and other employees of Pace Henley about the process and procedures within that organisation for the recording of surveillance information. In broad summary, each operative inputs details of their observations into a typewritten daily running sheet or log, emails them to Pace Henley, and downloads video footage or photographs taken. Surveillance logs are prepared by case managers derived from or extracted from the daily running sheets created by operatives.[12] The defendants objected to evidence of this character, and objected to the admission of the surveillance logs.

33 I overruled those objections. I ruled that the evidence as to process was admissible because it relates to the conditions of admissibility of the surveillance log under s 79C of the Evidence Act 1906 (WA). Further, I ruled that the surveillance logs were admissible both under s 79C(1) and under s 79C(2a). The surveillance log reproduces or is derived from information in one or more statements, each made by a qualified person. Each qualified person was called as a witness. Further, the daily running sheet input by operatives and surveillance logs are both business records, in that they are documents prepared in the ordinary course of Pace Henley's business for the purpose of recording matters relating to that business.

34 On 9 December 2014, David Battersby and Geoff Cooper were present or in the vicinity of the Osborne Park premises for the entirety of the period, 9.00 am to 5.45 pm, during which surveillance occurred. Surveillance was undertaken from outside the premises only. Mr Craig Battersby, and his then fiancée KatieLee Carter, were not observed. Given that surveillance was conducted only from outside the premises, that does not mean that they were not inside the premises.

35 At 11.18 am David Battersby and Geoff Cooper were seen leaving the front door of the premises. Mr Porteous, surveillance operative, asked when the store was opening, to which Mr Battersby replied 'on Saturday I heard'.[13]

36 For a couple of minutes at around 11.48 am, Mr David Battersby was seen taking some items from his car and carrying them into the Osborne Park premises.

37 At about 12.15 pm, Mr David Battersby and Geoff Cooper purchased some items from a nearby Harvey Norman store and returned to the premises, taking them inside.

38 At about 12.45 pm, Mr David Battersby spent some minutes speaking with three former Bedshed franchisees of another store.

39 Mr Culmsee also says that he saw Mr Cooper on 9 December 2014 standing on the loading dock of the rear of Beds n Dreams 'holding a ream of paperwork' and talking on his phone.[14]

40 On 10 December 2014, Mr Porteous again conducted surveillance of the Osborne Park premises. He observed Craig Battersby and KatieLee Carter arrive before 9.00 am. At 10.25 am David Battersby was observed walking towards and entering the Osborne Park premises. He left via the front entrance at 10.31 am. He was seen again at the premises at just after 12.30 pm. He was seen again getting into a vehicle, apparently his, at 1.15 pm. That vehicle was at the premises at 4.45 pm when surveillance ceased.

41 On 22 December 2014, SCI Australia sent an email to the email address chadstone@bedshed.com.au. The subject of the email was 'schedule delivery 24/12-Beds n Dreams Chadstone ...'. Bedshed Franchising suggests that the sending of this email to Mr Cooper's email address at his Chadstone store is some evidence that he had involvement or an interest in Beds n Dreams. In my view, the sending of that email does not advance Bedshed Franchising's case. The email was sent to the Chadstone Bedshed email address. The subject matter of the email was a delivery proposed for two days later. There is no evidence of any contemplation or proposal for a Beds n Dreams store at Chadstone. In my view, the only sensible inference is that the reference to Beds n Dreams in the subject matter was an error on the part of the sender.

42 That view of things is reinforced by the fact that, immediately upon receipt of the email, Mr Cooper sent an email pointing out the error.[15]

43 On 27 February 2015, Mr Middleton of Pace Henley conducted surveillance, including taking video footage, inside the Beds n Dreams premises at Osborne Park. The presence and conduct of all three defendants in the premises on that day can fairly be said to be the high water mark of the plaintiff's case.

44 All three defendants were present in and around the Osborne Park premises in the period that surveillance was undertaken from about 10.00 am to 4.00 pm. Craig Battersby and KatieLee Carter were also present.

45 The aspects of the defendants' conduct on that day emphasised by the plaintiff are as follows:

(a) at about 10.05 am, Mr David Battersby and Geoff Cooper had a discussion with the general manager for Western Australia of Sleepeezee, a mattress supplier, inside the premises. The conversation, as seen, lasted for a period of something less than 30 seconds;

(b) for a few minutes at around 10.10 am, Mr Cooper was seen apparently reviewing a substantial volume of documentation contained in what appeared to be a purple Beds n Dreams file. In the course of doing that he spoke with Craig Battersby, pointing to parts of those documents in the file and to a computer monitor;

(d) Mr Middleton's evidence[16] is to the effect that Diane Battersby walked towards him and they had a conversation to the following effect. He was looking at a bed and asked a question about a feature of it, to which she responded. He asked her how much the bed was and what mattresses suited it, and she responded. She referred to payment plans and he said he would look further. He asked her whether she worked here and she said she did. This exchange, or most of it, can be seen (but not heard) on video footage recorded by Mr Middleton; and

(e) Diane Battersby was seen using the telephone behind the sales counter to make telephone calls.

46 On 17 April 2015, Mr Alex Gismondi of CBRE sent an email concerning a possible Beds n Dreams showroom in Cockburn.[17] The email had the salutation 'Hi Craig and David'. There is no evidence from Mr Gismondi or any other source about the email, or about why it was addressed to Craig and David.

47 On 1 May 2015, Mr Marwan Zeitoune attended the Beds n Dreams store in Dandenong. He observed a mattress with a 'Bedshed Chadstone' label, and a mattress with a 'Dreamsense' label.[18] Dreamsense is a trademark of Bedshed Franchising.[19]

48 The registered address for Plan C was, from its incorporation on 9 April 2015 until 1 May 2015, the residential address of the third defendant, Geoff Cooper.

49 Bedshed Franchising also relies on evidence, more recently obtained, to the effect that the Beds n Dreams business is being undertaken jointly between Craig Battersby and Michelle Cooper. I will say more about that evidence later in these reasons.

50 Each defendant has sworn an affidavit in opposition to the application. Craig Battersby has also sworn an affidavit.

51 The affidavit of David Battersby includes the following:

(a) a different version of the telephone conversation between Mr Culmsee and him on 17 July 2014. It is not necessary to detail this version of the conversation;

(b) Beds n Dreams Perth is operated by Hullavoo, of which Craig Battersby is the sole director and shareholder;

(c) Craig Battersby was a lawyer. In January 2014 he said he wanted to resign, work at David Battersby's Bedshed store, and then set up his own store;

(d) Mr Wegenaar, of Beds n Dreams, said there was a franchise opportunity in Perth if Craig and his then fiancé were willing to move to Perth;

(e) Craig and his fiancé moved to Perth in November 2014 and set up the Osborne Park store;

(f) David Battersby has no legal or beneficial interest in the Beds n Dreams store operated by Hullavoo. He is not a director, officer, employee, consultant, lender, representative or agent of Hullavoo. He has not guaranteed any commitments of Hullavoo. Whatever profit or loss is generated by Hullavoo will be Craig's;

(g) he has visited the Osborne Park premises three times: 9 December 2014, 27 February 2015 and 4 March 2015;

(h) on 9 December 2014, he transported some materials which Craig had purchased from Harvey Norman and asked him to collect. He collected them with Geoff Cooper. He did not make any purchases for the Osborne Park business and has not done so. The three former franchisees of a different Bedshed franchise came to see Craig. They spoke for 10 or 15 minutes;

(i) on 27 February 2015, David and Diane Battersby came to Perth because of Craig and his fiancé's wedding scheduled for 7 March 2015 in Adelaide. They wanted to spend time with Craig and speak with him and his fiancé, partly to discuss arrangements for the wedding and the reception;

(j) on 4 March 2015, he came to Perth to attend a mediation with Bedshed in a different dispute.

52 Diane Battersby's affidavit includes the following:

(a) she gives a different account of her interaction with Mr Middleton on 27 February 2015, pointing out that she was dressed in a tshirt, shorts and sandals at the time;

(b) she says she made a phone call on the shop phone regarding wedding logistics and made one or more other calls on her mobile phone;

53 Craig Battersby's affidavit includes the following:

(a) by early 2014 he was working long hours and was not satisfied with the stress and hours involved in his job and what he was earning;

(b) having seen his father's success in the Bedshed Mile End store, he spoke to his father about working with him and then moving to his own Bedshed franchise. His father warned him not to get involved with Bedshed;

(c) he subsequently met Rees Wegenaar who was involved with a new franchise known as Beds n Dreams. Mr Wegenaar said that there was an opportunity for a new franchise at Perth if he was willing to move;

(d) after discussion with his fiancé, they decided to move and take up that opportunity;

(e) he managed the fit out of the Osborne Park premises and made the decisions relating to it;

(f) the capital for the set up costs came from payments made to him of loan accounts with the Bridlewood Adelaide Trading Trust, monies he borrowed from his siblings reflecting what they were owed on their loan accounts, and the proceeds of the sale of a property in Adelaide;

(g) Hullavoo executed the agreement to lease the Osborne Park premises. He is the sole guarantor under the lease;

(h) he is the sole director and shareholder of Hullavoo. Hullavoo is trustee for the Hullavoo Trust which is a discretionary trust of which he is the primary beneficiary. Under the trust deed there is a wider class of additional eligible beneficiaries including his wife, their children, his parents and his siblings;

(i) his parents have had no involvement in the Beds n Dreams business apart from visiting him a couple of times;

(j) on 9 December 2014, his parents and Geoff Cooper visited Perth. They looked around at what was happening. His father ran an errand for him, collecting a computer and printer he had ordered from Harvey Norman, and Mr Cooper went with him;

(a) Mr Cooper puts a different version of his conversation with Mr Culmsee on 17 July 2014;

(b) on 9 December 2014, he was at the Osborne Park premises while the fit out for the proposed store was in progress. He was interested to have a look at it as it was a new lay out and he had not seen a Beds n Dreams store previously. He also wanted to catch up with the Battersbys;

(c) on 9 December 2014, he was sent a notice that Bedshed Franchising had terminated the franchise agreement for his Chadstone store. Following that he had a number of phone calls;

(d) during 2014 he spoke with his sister Michelle about the possibility of her getting involved in the bedding industry. He suggested she should not get involved with Bedshed, given the problems he had experienced, and that she get in touch with Rees Wegenaar from Beds n Dreams. Later she said that she would be moving from Sydney, where she had lived for the previous 20 years, to Melbourne to start a business in Dandenong;

(e) before she moved she asked Mr Cooper if she could use his home address as her mailing address and as the registered office for a company she was setting up, and he agreed;

(f) Mr Cooper has watched the surveillance footage of the events on 9 December 2014 and 27 February 2015 and gives a detailed explanation of various parts of the footage in which he is shown;[20]

(g) he says he visited Craig Battersby and his fiancé on 9 December 2014 at their Beds n Dreams store and stayed over with them at their house the following few nights. This visit arose after discussions he had with David Battersby who said he was going to visit Craig and suggested that Mr Cooper come as well. Mr Cooper was interested in a new business venture and the fit out. He thought Beds n Dreams could be of interest to him if he was to leave Bedshed, as he had contemplated in his discussions with Mr Culmsee and given the conflict he has had with Bedshed;

(h) he visited Perth again on 27 February 2015. One reason for that visit was to meet up with Craig Battersby and his fiancé to wish them the best for their upcoming wedding the following weekend, which he was unable to attend;

(i) while in Perth he visited Craig and Katie's Beds n Dreams store, several Bedshed stores, and some Forty Winks and Snooze stores as well;[21]

(j) he is not involved in any capacity in any Beds n Dreams store;[22]

(k) the fact that a former employee of Bedshed Chadstone now works at the Beds n Dreams Dandenong store arose because after the landlord terminated the lease of Bedshed Franchising Chadstone the employee's employment with Bedshed Chadstone was terminated. Mr Cooper then referred the employee to his sister;

(l) Mr Cooper has no interest in the Beds n Dreams store at Dandenong and is not involved in it as an owner, director, officer, employee, consultant, lender, representative or agent.[23]

55 Following an inquiry from the court, David and Diane Battersby indicated a willingness to disavow any rights or interests as potential beneficiaries under the Hullavoo discretionary trust.[24] The settlor and the trustee have subsequently, with David and Diane Battersby's consent, executed a retrospective amendment of the trust deed, by which they have been removed from the class of potential beneficiaries.[25] Craig Battersby has undertaken to the court in his affidavit that so long as Bridlewood Adelaide is a franchisee of Bedshed Franchising, he will not reinstate his parents as beneficiaries of the Hullavoo Trust.[26] Counsel for Bedshed Franchising makes submissions about the efficacy of the purported amendment and the enforceability and efficacy of the undertaking. I will deal with those submissions later in these reasons.

56 The defendants raise a preliminary objection to this application, based on cl 16.1 of the Franchise Agreements.

57 Clause 16.1 of each Franchise Agreement provides a mandatory scheme containing detailed provisions for a dispute resolution process between franchisor and franchisee. The process involves a notice of dispute, followed by negotiations between the parties for 21 days, at the end of which, if the matter is not resolved, a mediation process is undertaken.

58 The defendants contend that because Bedshed Franchising has not complied with this process, the application for an interlocutory injunction must be dismissed.

59 Clause 16.1 is qualified by cl 16.2. Clause 16.2 provides that nothing contained in cl 16.1 denies either party the right to seek injunctive relief from a court where failure to obtain such relief would cause irreparable damage to the party concerned or to the Bedshed System.

60 For the reasons that follow, I am satisfied that, to the extent that Bedshed Franchising succeeds in establishing its claim for an interlocutory injunction, cl 16.2 permits Bedshed Franchising to bring this application notwithstanding the dispute resolution provision in cl 16.1.

61 Bedshed Franchising claims an injunction restraining each of the defendants from having an interest in Beds n Dreams. Beds n Dreams is a direct competitor of Bedshed stores. Clause 6.2 prohibits franchisees and guarantors from holding an interest in Bedshed's competitors and thereby protects Bedshed Franchising in several respects. The holding of such an interest by a Bedshed franchisee, or guarantor, could lead to a less than wholehearted commitment to the Bedshed business on the part of the franchisee. It would also give rise to risk of leakage of confidential information relating to Bedshed to a rival. Moreover, it would be liable to constrain open communications between Bedshed franchisees and the franchisor. Prejudice to Bedshed Franchising arising from any of these matters would give rise to substantial difficulties in making any claim by it for damages. It is an object of any interlocutory injunction in favour of Bedshed Franchising to prevent such prejudice. These forms of prejudice to Bedshed Franchising are irreparable damage for the purposes of cl 16.2.

62 For these reasons, I do not accept the defendants' preliminary objection based upon cl 16 of the Franchise Agreement.

63 The relevant legal principles are not in dispute.

64 I apply the principles I set out in Twinside Pty Ltd v Venetian Nominees Pty Ltd.[27]

65 The principles were explained by Gummow and Hayne JJ in Australian Broadcasting Corporation v O'Neill.[28] Their Honours stated that the relevant principles are those stated in Beecham Group Ltd v Bristol Laboratories Pty Ltd.[29] In Beecham, the two main inquiries were said to be whether the plaintiff had made out a prima facie case and whether the balance of convenience favours the grant of the injunction. The phrase 'prima facie case' does not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed. It is sufficient that the plaintiff show a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending the trial. How strong the probability needs to be depends upon the nature of the rights the plaintiff asserts and the practical consequences likely to flow from the orders the plaintiff seeks.[30] The apparent statement by Lord Diplock in American Cyanamid Co v Ethicon Ltd[31] that, provided the court is satisfied that the plaintiff's claim is not frivolous or vexatious, there will be a serious question to be tried, is not to be followed. The governing consideration is that the requisite strength of the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory orders sought.

66 The strength of the plaintiff's case and the balance of convenience are to be considered together.[32] As the apparent strength of the applicant's case diminishes, the balance of convenience moves against the making of an order.[33] Where the balance of convenience weighs strongly in favour of an injunction, a prima facie case that is not particularly strong may nevertheless sustain the granting of an interlocutory injunction.[34]

67 However, even an overwhelming balance of convenience in favour of an injunction cannot overcome the absence of a prima facie case. In Perron Investments Pty Ltd v Tim Davies Landscaping Pty Ltd [35] Newnes JA (McLure and Pullin JJA agreeing) explained the position in the context of a caveat. In that context, his Honour observed that:

The potential seriousness of the consequences of refusing relief must not, however, distract attention from the obligation that lies on a party seeking to maintain a caveat to show a sufficient likelihood of success to justify in the circumstances the maintenance of the caveat. A party who fails to show any likelihood of success does not overcome that by showing that they would suffer very severe consequences if relief were refused.

68 The same applies to a party seeking an interlocutory injunction.

69 The authorities favour the position that the question of adequacy of damages is not an independent requirement, but rather is best considered as part of the balance of convenience.[36]

70 The grant of an injunction involves balancing the injustice which might be suffered by the defendant if the injunction is granted and the plaintiff later fails at trial, against the injustice which might be suffered by the plaintiff if the injunction is not granted and the plaintiff later succeeds at trial.[37]

71 While the court takes into account the apparent strength of the plaintiff's case, the court does not undertake a preliminary trial or attempt a forecast of the ultimate result. Moreover, an application for interlocutory injunction is not an occasion to determine contested questions of fact and conflict in affidavit evidence.[38]

72 In a passage recently cited with approval by the Full Federal Court,[39] Mahoney JA made observations in Shercliff v Engadine Acceptance Corporation Pty Ltd[40] about the use to which the defendant's evidence can be put in determining an application for an interlocutory injunction:

But there are limitations upon the extent to which a judge is to take into account such evidence as the defendant may tender upon an interlocutory application. It is not his function to conduct a preliminary trial of the action, nor is it, in general, to resolve the conflict between the parties' evidence, and grant or refuse the application upon the basis of such findings. Where there is conflict of evidence, the use which may be made of the defendant's evidence in determining whether the plaintiff has made out a prima facie case is a limited one. For example, the plaintiff's evidence, considered alone, may be such a prima facie case as would be acceptable if submitted to a jury in a trial. But, when considered in the light of the defendant's evidence, it may be explained away so as no longer to be such. Or the defendant's evidence, when juxtaposed to that of the plaintiff may show that there is in reality no such case, no real question between the parties, appropriate to warrant preserving the status quo until the hearing.

73 In this case Bedshed Franchising submits that the balance of convenience is overwhelmingly in favour of the grant of an injunction, with the result that the threshold for establishing a prima facie case is low. In that light, it is convenient to begin by considering the balance of convenience.

74 In my view, the following matters support the conclusion that the balance of convenience lies strongly in favour of the grant of the injunction.

75 First, both at trial and in this application, Bedshed Franchising claims an injunction to restrain conduct which, if engaged in, would be a breach of contract by each defendant. Prima facie, subject to discretionary considerations, a court will grant an injunction to restrain conduct that is in breach of a covenant to refrain from specified conduct.[41]

76 Secondly, the holding by a defendant of an interest in Beds n Dreams is liable to give rise to risks to Bedshed Franchising of various kinds of losses. Such losses would include the adverse consequences of a less than wholehearted commitment from the Bedshed franchisee in question, and the consequences of leakage of confidential information relating to Bedshed to a rival.

77 Thirdly, difficulties in establishing causation of losses mean that damages is likely to be an inadequate remedy for any breach by a defendant of cl 6.2.

78 Fourthly, the injunction requires no more of the defendants than adhering to their contract.

79 Fifthly, in circumstances where the defendants say they do not have, and do not intend to acquire, any interest in a Beds n Dreams operation, an injunction restraining them from having such an interest will not cause them any practical detriment of which they can legitimately complain.

80 Sixthly, if, contrary to their denials, the defendants have an interest in Beds n Dreams, their conduct in having such an interest must be viewed as a deliberate breach of a contractual obligation of which they are well aware.

81 The defendants submit that the terms of the injunction are unacceptably uncertain and militate firmly against its grant.[42]

82 In the context of proceedings relating to contempt, in R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd[43] Owen J stated that the order sought to be enforced must be clear. It must be expressed in terms that are 'sufficiently precise to admit of its ready or convenient enforcement' and are such that 'the person to whom it is directed should be able, by reading it without more, at once to know what it is that he must do, or refrain from doing in order to comply with its terms'.

83 There is a distinction between the extent of the requirements of clarity of orders at the stage of deciding whether an injunctive order should be made, or at the later stage of determining a contempt application.[44] There are limits to the application of the principle that an injunction ought to make clear what it is that the defendant is required to do. It has been described as 'a counsel of perfection rather than a mandatory standard'.[45] Dr Spry, author of The Principles of Equitable Remedies (9th ed, 2015), expresses the principle in terms that 'care is taken by the court to ensure that the terms of decrees or orders are expressed in as clear and unambiguous language as the circumstances reasonably admit'.

84 In Maggbury Pty Ltd[46] Callinan J cited the following passage from Meagher, Gummow and Lehane's Equity: Doctrines & Remedies[47] with approval:

In some cases, the practicalities of the facts may make it impossible to frame an injunction in anything but the most general terms; and, in any event, the danger of an order couched in overly particular terms is that it may leave the defendant at liberty to indulge in reprehensible conduct which is almost but not quite enjoined, without committing any contempt.

85 In my view, the defendants' complaints about the generality of the terms of the proposed injunction must be viewed in the context of their denial of having any interest in Beds n Dreams of any kind whatsoever. In those circumstances, I do not accept the defendants' submission that the terms of the proposed injunction would leave their position unacceptably uncertain. If, contrary to their position in their affidavits, one of the defendants had a connection or involvement with a Beds n Dreams operation which was capable of being viewed as an 'interest' within cl 6.2, and the defendant had a concern in that respect, the defendant could invoke the liberty to apply that would be ordered at the time of the grant of any injunction.

Is there a prima facie case? General observations

86 Clause 6.2 prohibits the defendants from having an 'interest' in a competing business. The word 'interest' is used in cl 6.2 in a different and wider sense from its ordinary, legal usage. That is clear from the specification of various capacities or relationships constituting an interest; being an owner, director, officer, employee, consultant, lender, representative or agent constitutes having an interest.

87 Broadly, an 'interest' in cl 6.2 encompasses an ownership interest, a financial interest (lender), or substantial involvement in the business (director, officer, employee, consultant, representative or agent). I think an interest in any other capacity would be one falling within one of these three broad categories.

88 The sufficiency of the strength of the plaintiff's case must be judged on the evidence it has adduced, not on the speculative possibility of what further or other evidence might become available by the time of trial. As it was put in the seminal passage in Beecham Group Ltd v Bristol,[48] the question is whether there is a probability that the plaintiff will be entitled to relief at trial 'if the evidence remains as it is'.

89 Bedshed Franchising's case (as pleaded) involves the drawing of an inference from certain facts that each defendant has an interest of some relevant kind. Counsel submits that it is not possible for Bedshed Franchising to identify the nature of the defendants' interest, as that is a matter known only to the defendants, and they have denied any interest.

90 In my view, in assessing whether and to what extent the primary facts are capable of sustaining an inference that a defendant has an interest, it is necessary to give some attention to the nature of the interest to be inferred. To my mind, the logic involved in the process of drawing an inference requires that.

91 In determining whether an inference may be drawn, regard must be had to the whole of the evidence. It would be wrong to assess each of the facts relied on by Bedshed Franchising in isolation. Although the different standard of proof in a criminal case means that there is a different test for when an inference can be drawn, that feature of the reasoning in considering inferences in a criminal case[49] applies equally in a civil case.

92 The question is whether Bedshed Franchising has demonstrated a prima facie case capable of supporting an inference that each defendant has an interest, within the meaning of cl 6.2 of the Franchise Agreements, in a Beds n Dreams business. The question is not whether there is room for suspicion in that respect.

93 Whether Bedshed Franchising has shown a prima facie case capable of supporting an inference of an interest must be considered separately in relation to each of the defendants. I begin with the first defendant, David Battersby.

94 Bedshed Franchising's case against David Battersby relies primarily on his presence and conduct at the Osborne Park premises on 9 December 2014, 10 December 2014, and 27 February 2015, on what Mr Battersby said, in the hearing of Mr Sevel, on 6 August 2014, and on evidence that Craig Battersby and Michelle Cooper are conducting a joint enterprise involving Beds n Dreams stores in Osborne Park and Dandenong.

95 I start with the evidence concerning David Battersby's presence and conduct at the Osborne Park premises during three days over the space of several months. There is evidence that he was present from 9 am to 5.45 pm on 9 December 2014. As surveillance on that day occurred only outside the premises, there is very little evidence as to what Mr David Battersby did on that day. There is evidence that he collected some items from Harvey Norman and took them inside the premises. There is also evidence that he had a discussion with some former Bedshed franchisees.

96 In itself, in my view none of this is at all suggestive of David Battersby having an interest in the Beds n Dreams operation at Osborne Park. The discussion with some former Bedshed franchisees seems to me to be neutral. I do not think it tends in favour of the existence of any interest. The collection and delivery of some items is, of itself, an insubstantial and isolated act of assistance of his son.

97 There is evidence that, on 10 December 2014, Mr David Battersby was present at the Osborne Park premises for some hours. That presence at premises with his son is in itself not suggestive of any interest.

98 On 27 February 2015, there is evidence that Mr David Battersby was again present at the Osborne Park premises through the course of the day. There is evidence that he had a short discussion with a Sleepeezee manager. In circumstances where he (David Battersby) is in the bedding industry, that does not advance the case for the drawing of an inference of an interest. There is also evidence that, for a short period, Mr David Battersby was looking at a computer screen behind the sales counter while Geoff Cooper reviewed some documents.

99 In my view, taken by itself, the evidence of presence and conduct on these three days, considered as a whole, is not sufficient to support an inference that Mr Battersby has a relevant interest. I will consider below its effect when it is considered with the evidence of the conversation in August 2014 overheard by Mr Sevel.

100 Bedshed Franchising also relies on evidence said to support the conclusion that both Beds n Dreams stores are part of a joint enterprise between Craig Battersby and Michelle Cooper.

101 I accept that there is evidence to support such a conclusion. That is the effect of what both Mr David Battersby and Mr Geoff Cooper told Mr Culmsee in their conversations in July 2014. It is also the effect of what Mr Cooper stated in his email of 25 August 2014. Hullavoo is the lessee of the Dandenong premises.[50] Craig Battersby is the guarantor. Craig Battersby signed the disclosure statement in respect of those premises on behalf of Hullavoo.[51]

102 However, I do not think that this conclusion of itself provides any significant assistance to Bedshed Franchising's case.

103 Bedshed Franchising submits that it contradicts the affidavit evidence of the defendants.[52] I do not accept that submission. Although Hullavoo's involvement in the Dandenong premises is not specifically mentioned in the defendants' affidavits, there is no direct statement in those affidavits that the Beds n Dreams operation at Dandenong was owned and operated only by Michelle Cooper and no one else.[53]

104 Further, Bedshed Franchising submits that the conclusion of a joint enterprise makes it more likely that the defendants will be found to be involved in the joint business operations.[54] I do not accept that submission. Whether the Osborne Park premises and the Dandenong premises are run, respectively, solely by Craig Battersby and Michelle Cooper, or by them both jointly, does not, to my mind, affect in any significant way whether there is evidence capable of supporting an inference that Mr David Battersby (or another defendant) has any ownership or financial interest or substantial involvement in either or both of the businesses.

105 The evidence of Mr Sevel is that on 6 August 2014, at a meeting of Victorian franchisees of Bedshed Franchising, he overhead David Battersby say to Michael Brown, in reference to Beds n Dreams, that 'we've looked at sites in Joondalup' and 'we're looking at a location in Osborne Park'. The use by David Battersby of the word 'we' in reference to Beds n Dreams directly suggests that he has some form of ownership interest or substantial involvement in Beds n Dreams.

106 In his affidavit, Mr David Battersby denies saying the words alleged by Mr Sevel, or anything to that effect.[55] An application for interlocutory injunction is not an occasion to resolve a conflict of evidence.

107 There is no evidence from Mr Sevel of any other part of the conversation that he overheard. At trial, such lack of detail and lack of context would certainly detract from the weight to be given to the evidence.

108 It is clear from Mr David Battersby's conversation with Mr Culmsee in July 2014 that he was aware of his obligation not to have an interest in a competing business. He asserted that he had no interest in the Beds n Dreams businesses to be started by Craig Battersby and Michelle Cooper. In those circumstances, at trial there may be room for a question as to the likelihood that David Battersby would have spoken in the terms alleged by Mr Sevel at a Bedshed event, with Mr Sevel sitting close to him.

109 However, an application for an interlocutory injunction is not an occasion to conduct a preliminary trial. For the purpose of this application, in my view the observations made in the three preceding paragraphs do not detract from the fact that there is evidence that Mr David Battersby referred to the Beds n Dreams business using the term 'we'.

110 Mr David Battersby's evidence is that he has no legal or beneficial interest in any Beds n Dreams store, is not a director, officer, employee, consultant, lender, representative or agent of Hullavoo, and has not guaranteed any of its commitments. The effect of Craig Battersby's evidence is that his parents have no involvement, financial or otherwise, with the Beds n Dreams business.

111 In my view, it is not appropriate to resolve this interlocutory injunction application on the basis of an assumption that David Battersby and Craig Battersby's evidence in these respects will be accepted at trial. Nor is the application to be resolved by an attempt to forecast the probability that their evidence will be accepted. Rather, whether their evidence is accepted is a matter to be resolved at trial.

112 The necessary strength of Bedshed Franchising's case in order to establish a prima facie case sufficient to sustain an interlocutory injunction is affected by consideration of the balance of convenience.[56] I have found that the balance of convenience strongly favours the grant of an interlocutory injunction. As a result, in my view, the threshold of what is a prima facie case on this application is a low one. But it remains a threshold.[57]

113 In the end, after some hesitation, I am satisfied that the evidence of what David Battersby said on 6 August 2014, and the evidence of his presence and conduct at the Osborne Park premises on 9 and 10 December 2014 and 27 February 2015, gives rise to a prima facie case arguably capable of supporting an inference that he has an ownership interest or substantial involvement with Beds n Dreams.

114 Counsel for Bedshed Franchising conceded that being a member of a class of potential beneficiaries under a discretionary trust was not in itself an interest within cl 6.2.[58] David and Diane Battersby have indicated their willingness to disavow any potential interest under the Hullavoo Trust. Steps have been taken with the aim of removing them as members of the class of potential beneficiaries. Bedshed Franchising submits that these steps are inefficacious, and that, if they are efficacious there is nothing to prevent Hullavoo exercising a power of amendment to make them members of the class again. I do not think it is necessary to determine whether those submissions should be accepted. In the circumstances just outlined I do not think that the fact that David and Diane Battersby were, and arguably still are, members of the class of potential discretionary beneficiaries is a factor weighing significantly in favour of an injunction. If the steps already taken to remove David and Diane Battersby have not succeeded, or if there remains an opportunity for them to be reinstated, the position can be rectified.

115 Any remaining uncertainty can be resolved in the course of refining the orders to be made on this application.

116 The evidence against Ms Battersby is very limited. Bedshed Franchising relies on her presence and conduct at the Osborne Park premises on 27 February 2015. Taken at its highest from Bedshed Franchising's perspective, her conduct is no more than a few minutes' interaction with one potential customer, and the making of a couple of telephone calls using the telephone at the premises. Ms Battersby is Craig Battersby's mother. Unlike staff at the premises, she was not dressed in a Beds n Dreams uniform. In my opinion her presence at the premises for a day, and her conduct in dealing with one potential customer, falls well short of being capable of leading to any inference that Ms Battersby has an ownership interest, financial interest or any substantial involvement in the Beds n Dreams business at Osborne Park.

117 I find that Bedshed Franchising has not established a prima facie case against Ms Battersby.

118 Bedshed Franchising relies on four major matters in support of its claim that there is a prima facie case against Mr Cooper.

119 First, Bedshed Franchising relies on Mr Cooper's presence and conduct at the Osborne Park premises on 9 December 2014 and 27 February 2015. In that respect, it is to be noticed that, unlike the other defendants, Mr Cooper is not a parent of or otherwise related to Mr Craig Battersby, although he is friends with the Battersbys. Nevertheless, in my view, in itself the evidence of Mr Cooper's presence and conduct on the relevant days is not capable of supporting an inference that he has any interest in any Beds n Dreams business.

120 As to Mr Cooper's conduct on 9 December 2014, I repeat my observations about Mr David Battersby's conduct on that date.[59]

121 On 27 February 2015, surveillance footage shows Mr Cooper considering or reviewing a substantial volume of documentation contained in what appears to be a purple Beds n Dreams file. In the course of that process he spoke with Craig Battersby, pointing to parts of the documents in the file and to a computer monitor. Mr Cooper says that the documents he was looking at were his documents, relating to Bedshed Chadstone, which Mr Craig Battersby had printed for him, and placed in the file, at Mr Cooper's request.[60] In any case, even if, contrary to Mr Cooper's evidence, the documents are Beds n Dreams documents, this interaction of no more than five minutes duration is entirely consistent with a conversation in which Craig Battersby asked Mr Cooper if he had any comments on draft franchise documents. Given the family friendships, a response to a request for comment is, in itself, well short of an involvement sufficiently substantial to constitute an interest and does not support an inference of a wider involvement.

122 Secondly, Bedshed Franchising points to evidence that, as at 1 May 2015, a former manager of Bedshed Chadstone was working at the Beds n Dreams store at Dandenong.[61] In my view, that evidence provides no support for an inference that Mr Cooper has any interest in Beds n Dreams. The Bedshed store at Chadstone was terminated. That meant that the former manager of the store would be looking for work. The fact that Mr Cooper referred the manager to his sister as a potential employee is unsurprising.[62] In my view, it is in no way indicative of or supportive of an inference of any relevant interest on the part of Mr Cooper.

123 Thirdly, Bedshed Franchising points to evidence[63] that on 1 May 2015, a mattress bearing a Bedshed Chadstone delivery label and a mattress bearing a Dreamsense label (Dreamsense being a registered trademark of Bedshed) were present at the Dandenong premises.

124 Fourthly, there is evidence that from its incorporation on 9 April 2015 until 1 May 2015, the registered address for Plan C, the company that is said to be operating Beds n Dreams Dandenong, was the residential address of Mr Cooper.

125 Whether these facts are capable of supporting an inference that Mr Cooper has a relevant interest is influenced by any explanation of these facts by Mr Cooper. Mr Cooper says that the mattresses at the Dandenong premises had been used at Chadstone to cover a bed but were not for sale. When Bedshed Chadstone was closed he sold his excess stock to his sister. At the same time he gave the two mattresses in question to his sister.[64]

126 Further, as to the registered address, Mr Cooper says that his sister was moving from Sydney where she had lived for the previous 20 years. In that context, before she moved she asked Mr Cooper if she could use his home address as her mailing address and as the registered office for a company she was setting up, and he agreed to that.[65]

127 Bedshed Franchising submits that Mr Cooper's explanation in these respects is implausible and should not be accepted as a credible answer to the serious question to be tried raised by Bedshed Franchising's case. Whether Mr Cooper's explanation in these respects is to be accepted is a matter for trial. Clearly, Bedshed Franchising intends to challenge his explanation, and in my view there is a basis to do so. In the circumstances, this application cannot be determined on the assumption that Mr Cooper's explanation will be accepted. Whether it is accepted will be determined at trial.

128 I repeat my observations at [112] as to the relatively low threshold, in the circumstances of this application, for establishing a prima facie case.

129 If unexplained, these facts relied on by Bedshed Franchising, together with Mr Cooper's presence and conduct on 9 December 2014 and 27 February 2015 are, in my view, arguably capable of supporting an inference that Mr Cooper has some form of ownership interest or substantial involvement in the Beds n Dreams businesses at Osborne Park and Dandenong.

130 Given that there is evidence that the stores at Osborne Park and Dandenong are part of a joint operation of Michelle Cooper and Craig Battersby (see [101] above), evidence connecting Mr Cooper to the Dandenong store can be considered together with evidence connecting him to the Osborne Park store.

131 For these reasons I find that there is a prima facie case arguably capable of supporting an inference that Mr Cooper has an ownership interest or substantial involvement with Beds n Dreams Osborne Park and Dandenong.

132 The defendants submit that delay on the part of Bedshed Franchising in commencing these proceedings should constitute a discretionary reason to decline to grant relief in favour of Bedshed Franchising.[66] The defendants point to the passage of several months after the surveillance in the first half of December 2014 before the proceedings were commenced or threatened in the middle of April 2015.

BEDSHED FRANCHISING PTY LTD -v- BATTERSBY [2015] WASC 224 (26 June 2015)

At a glance

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Judgment (259 paragraphs)

Cases Cited (8)