Bingham & Anor v 7-Eleven Stores P/L [2003] QCA 402

Judgment (244 paragraphs)

[1]

EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INJUNCTIONS FOR PARTICULAR PURPOSES - TO RESTRAIN BREACH OF CONTRACT - NEGATIVE STIPULATIONS - GENERALLY - where appellant sought to terminate agreement with respondents on ground of alleged breach by respondents - where respondents commenced proceedings claiming permanent injunction restraining appellant from terminating agreement - where also brought application for interlocutory injunction - where interlocutory injunction granted by learned primary judge - whether was a claim seeking to enforce in equity a negative contractual stipulation - whether injunction involved supervision by the court of a relationship which had broken down - whether balance of convenience in favour of granting injunction - whether damages adequate remedy

[2]

PROCEDURE - SUPREME COURT PROCEDURE - QUEENSLAND - PRACTICE UNDER RULES OF COURT - PLEADING - DEFENCE AND COUNTERCLAIM - where appellants sought to amend their defence during course of trial - where allegations in defence vague - where insufficient evidence tendered at trial to support allegations in defence - where learned trial judge refused leave to amend defence - whether refusal of amendment deprived appellants of opportunity of a fair trial - whether was prima facie evidence available in support of the critical allegation

[3]

Active Leisure (Sports) Pty Ltd v Sportsman's Australia Limited [1991] 1 Qd R 301, considered

[4]

Ahmet v Pacific Seven Pty Ltd, unreported, Supreme Court of Victoria, No 998 of 1987, 30 April 1987, referred to

[5]

Axxess Australia Pty Ltd v Primus Telecommunications (Aust) Pty Ltd [2000] VSC 64, cited

[6]

Castlemaine Tooheys Ltd v South Australia [1986] HCA 58; (1986) 161 CLR 148, cited

[7]

Cowell v Rosehill Racecourse Co Ltd (1937) 56 CLR 605, followed

[8]

Cropper v Smith (1884) 26 Ch D 700, referred to

[9]

Dataforce Pty Ltd v Brambles Holdings Ltd [1988] VicRp 73; [1988] VR 771, distinguished

[10]

House v The King (1936) 55 CLR 499, cited

[11]

J C Williamson Limited v Lukey and Mulholland [1931] HCA 15; (1931) 45 CLR 282, followed

[12]

Lovell v Lovell [1950] HCA 52; (1950) 81 CLR 513, cited

[13]

Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia [1998] HCA 30; (1998) 195 CLR 1, considered

[14]

Sanderson Motors (Sales) Pty Ltd v Yorkstar Motors Pty Ltd [1983] 1 NSWLR 513, considered

[15]

State of Queensland v Australian Telecommunications Commission [1985] HCA 25; (1985) 59 ALJR 562, cited

[16]

State of Queensland v J L Holdings Pty Limited [1997] HCA 1; (1997) 189 CLR 146, considered

[17]

State Transport Authority v Apex Quarries Ltd [1988] VicRp 26; [1988] VR 187, cited

[18]

Thomas Borthwick & Sons (Australasia) Ltd v South Otago Freezing Co Ltd [1978] 1 NZLR 538, cited

[19]

Voskuilen v Morriset Mega-Market Pty Ltd [2002] NSWSC 63, cited

[20]

Hall Payne as town agents for Slater & Gordon for the appellant

[21]

[1] WILLIAMS JA: The background facts relevant to the resolution of each appeal are set out in the reasons for judgment of Muir J and they need not be repeated.

[22]

[2] Article 25 of each Franchise Agreement relevantly provided that the appellant could terminate the agreement by giving the respondents "not less than 72 hours prior notice of Termination upon the occurrence of any one or more of the following events ... owners [the respondents in this case] ... are fraudulent in connection with the operation of the franchised business." The appellant gave notices in purported compliance with that provision on 15 March 2002. By letter from the respondents' solicitors dated 18 March 2002 the respondents challenged the validity of the notices and sought particulars of evidence said by the appellant to constitute "the fraudulent action of stock transfer". The appellant's solicitors replied by letter of 19 March stating that the appellant was "not able at this stage to provide you with its material that evidences fraudulent operation by your clients." The respondents then commenced proceedings on 25 March 2002 relevantly claiming a permanent injunction restraining the appellant from acting upon or implementing each of the notices of termination. On the same day an application was brought seeking an interlocutory injunction; the hearing with respect to that application took place on 24 June 2002 and judgment was delivered on 25 June.

[23]

[3] For reasons which she gave Holmes J granted the interlocutory injunction sought. In her view the present respondents were invoking the equitable jurisdiction of the court to enforce a negative contractual stipulation in contracts granting a licence. She considered the relevant discretionary factors which might have resulted in a refusal to grant an injunction akin to ordering specific performance, and concluded that in the circumstances those factors ought not result in the injunction being refused. The reasons also addressed the issues of the likely success of the present respondents in the proceeding, and the balance of convenience, in particular whether damages would be a sufficient remedy; again her Honour came to the conclusion that such considerations did not establish grounds for refusing the relief sought.

[24]

[4] From that decision the appellant appealed in Appeal No 6635 of 2002.

[25]

[5] The principal submissions addressed to the court in that appeal by senior counsel for the appellant were as follows:

[26]

(i) the respondents did not have, by virtue of the licence agreements, a possessory or proprietary right of a kind capable of protection by injunctive relief;

[27]

(ii) the orders sought would compel specific performance of agreements in respect of which equity would not decree specific performance;

[28]

(iii) the orders sought were of a mandatory nature and there was not a high degree of assurance that the respondent's claim would succeed; and

[29]

(iv) the balance of convenience did not favour the granting of the orders sought.

[30]

[6] In my view Holmes J was correct in concluding that this was a claim seeking to enforce in equity a negative contractual stipulation. The High Court in J C Williamson Limited v Lukey and Mulholland [1931] HCA 15; (1931) 45 CLR 282 at 292 and Cowell v Rosehill Racecourse Co Ltd (1937) 56 CLR 605 at 628 clearly recognised that a court of equity had jurisdiction to restrain the violation of stipulations in contracts, particularly negative stipulations. The real question in this case was whether or not a negative stipulation was involved. Yeldham J had to consider a fairly similar factual situation in Sanderson Motors (Sales) Pty Ltd v Yorkstar Motors Pty Ltd [1983] 1 NSWLR 513. That case involved a distributorship agreement. The relevant clause provided that the distributor could terminate the agreement "with cause, by giving the Dealer written notice thereof, stating the Distributor's grounds for such termination. The grounds for such termination shall include but not be limited to ...". In the proceedings the dealer sought to restrain the distributor from acting on a notice given pursuant to that provision. At 515 Yeldham J said:

[31]

"What is sought by the plaintiff in the present case is an injunction to restrain the defendant from terminating the dealer agreement in breach of the contract between the parties in purported reliance upon a notice which I have held it could not validly give. The injunction is to restrain what is in substance the breach of a negative stipulation, namely that the defendant would not terminate the contract without cause except in the circumstances provided for in cl 10 of the main dealer agreement."

[32]

[7] That statement is particularly apposite here. The respondents were in substance seeking to restrain breach of a negative stipulation, namely that the appellant would not terminate the franchise agreements otherwise than on the proven occurrence of one of the events specified in Article 25.

[33]

[8] In my view that is the correct categorisation of what the respondents were asking for and obtained. If further authority is required it is to be found in my view in cases such as Axxess Australia Pty Ltd v Primus Telecommunications (Aust) Pty Ltd [2000] VSC 64, Thomas Borthwick & Sons (Australasia) Ltd v South Otago Freezing Co Ltd [1978] 1 NZLR 538, and State Transport Authority v Apex Quarries Ltd [1988] VicRp 26; [1988] VR 187.

[34]

[9] Counsel for the appellant relied on the reasoning in Ahmet v Pacific Seven Pty Ltd (unreported, Supreme Court of Victoria, 998 of 1987, 30 April 1987). Whilst there were some similarities to the present case, Hampel J did not consider whether the applicant was seeking to enforce a negative stipulation in the franchise agreement. Counsel also relied on the decision of Southwell J in Dataforce Pty Ltd v Brambles Holdings Ltd [1988] VicRp 73; [1988] VR 771. Again that case can be distinguished, if only because the performance of that agreement had not commenced prior to proceedings being brought.

[35]

[10] The appellant also contended on appeal that the interlocutory injunction ought not to have been granted because it involved supervision by the court of a relationship which had broken down. The fact that the granting of an injunction may involve a degree of supervision of conduct by the court is no longer as strong a factor against granting the injunction as it previously was. Brennan CJ, McHugh, Gummow, Kirby and Hayne JJ in Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia [1998] HCA 30; (1998) 195 CLR 1 at 46-7 made it clear that "`constant supervision by the court' by itself is no longer an effective or useful criterion for refusing a decree of specific performance". The judgment went on to say: "The courts are well accustomed to the exercise of supervisory jurisdiction upon applications by trustees, receivers, provisional liquidators and others with the responsibility for the conduct of administrations. The reservation of liberty to apply to the Federal Court in respect of certain of the orders to be made is in no way out of ordinary in the exercise of equitable jurisdiction."

[36]

[11] Given the fact that the franchises in question had many years to run, and given the nature of the investment of the respondents in those businesses, I am not persuaded that the learned judge at first instance was wrong in concluding that the balance of convenience was in favour of granting the injunctions and in specifically concluding that damages were not an adequate remedy.

[37]

[12] I agree generally with the reasoning of Muir J in relation to Appeal No 6635 of 2002; that appeal should be dismissed with costs.

[38]

[13] I now turn to consider Appeal No 2033 of 2003.

[39]

[14] The original defence of the appellant alleged in paras 9 and 10 thereof the basis on which it asserted that valid notices of termination were given with respect to the franchise agreement for the Morayfield store and the Bray Park store respectively. The paragraphs were in identical terms. Relevantly para 9(b) provided:

[40]

"The notice of termination was valid and based upon the plaintiffs' breach of the Morayfield Store Agreement by the fraudulent transfer of stock between the stores at Bray Park and Morayfield and actions of the plaintiffs calculated to reduce monies payable to the defendant pursuant to the Bray Park Store Agreement and the Morayfield Store Agreement.

[41]

(i) On or about 11 February 2002, Gavin Bingham notified the defendant's district manager, Michael McNamara, of a power failure which caused heat damage to confectionery at the Bray Park Store.

[42]

(ii) Mr Bingham was told that the stock loss would be an insurance claim by the defendant. The stock loss was audited.

[43]

(iii) The plaintiffs wrongly transferred heat damaged confectionery from the Bray Park store to the Morayfield store and sold and displayed that confectionery for sale.

[44]

(iv) Further, the plaintiffs made additional claims for bad merchandise on daily charge off summary sheets submitted to the defendant for the Morayfield store which included some of the heat damaged stock wrongly transferred from Bray Park.

[45]

(v) In the circumstances, the plaintiffs attempted to receive a credit for damaged confectionery from the defendant on the insurance claim and bad stock claims and to obtain value for the damaged stock by sale to customers from the Morayfield store.

[46]

(vi) Full particulars are set out in the affidavits filed by the defendant and relied upon at the interlocutory application on 24 June 2002."

[47]

[15] By letter dated 23 July 2002 the solicitors for the respondents sought further and better particulars of allegations contained in that paragraph. Amongst other things the appellant was asked to provide particulars of the basis for the allegation that the respondents "wrongly transferred stock between stores and/or displayed same for sale", details of "alleged additional claims for bad merchandise", and details of an "alleged attempt to receive a credit for damaged confectionary". That was followed by a further letter dated 30 July 2002 making a more specific request for further and better particulars of paras 9(b) and 10(b). It is not necessary to refer to that request in detail.

[48]

[16] The response of the appellant is found in a letter from its solicitor of 11 October 2002. From submissions made at a later stage in the proceedings it can be inferred that the respondents had to go to court to get an order that those particulars be supplied; it appears that an order of Moynihan SJA on 7 October 2002 is relevant thereto. The response by way of particulars was in narrative form and has been referred to by Muir J in his reasons. Reference was made in the course of providing the particulars to documents exhibited to the affidavit of Warren Wilmot, in particular the bundle of forms comprising "WW-6". That contained DCOS forms which became of significance as the proceeding progressed.

[49]

[17] Exhibit WW-6 comprises Daily Charge Off Summary sheets numbered 140610, 140611, 140612, 117099, 141628, 141630, 141631, 141632, 141633, 141650 and 141653.

[50]

[18] In the course of counsel's opening at the trial a document described as ex 3 was tendered; it would appear that it had been made available to the respondents prior to the hearing. It was headed DCOS Processing Details and was sub-divided into (i) losses not covered by Audit Report and (ii) losses covered by Audit Report. The latter was said to be the loss identified in a document prepared by the respondent Margaret Bingham, and dated 15 February 2002, for the amount of $4,686.75. With respect to losses not covered by Audit Report reference was made to DCOS numbered 141630, 141631, 117099, 140610, 140611, 140612, 140615, 140616, 140617, 140618, 140619, 140620, 140621 and 140622. At the end of the opening senior counsel for the appellant indicated that that document contained errors. In particular, he conceded that some of the documents had not been "processed". There was much reference in the course of submissions to the learned trial Judge as to documents not being "processed", without any clear indication of what was meant by that. In the circumstances I can only infer that it meant that the respondents had not received a credit for that item. Whether or not it also meant that an insurance claim was not made by the appellant with respect to damaged stock detailed in those sheets was not made clear by counsel for the appellant.

[51]

[19] Muir J in his reasons has set out what happened subsequently, leading to the application to amend paras 9(b) and 10(b) of the defence. He has set out in his reasons the proposed new wording for those paragraphs; I will not repeat that here.

[52]

[20] Paragraphs 9 and 10 of the defence were at all times obscure and, if anything, designed to confuse rather than enlighten. In the initial paragraphs of 9(b) and 10(b) an allegation was made that the notices of termination were valid because they were based on "actions of the plaintiffs calculated to reduce monies payable to the defendant". Nothing said in the opening before the learned trial Judge, nor appearing in the voluminous documentation contained in the appeal books, would suggest the existence of any evidence supporting such an allegation. In so far as one can distil from the opening the basis of the appellant's case, it has to be that there was a "fraudulent transfer of stock between the stores" in the sense that damaged stock for which the respondents were given a credit by the appellant was transferred to the other store for sale. That is not made clear by para (iii) of the particulars. I also note, without elaboration, that the meaningless particular (iv) was deleted belatedly.

[53]

[21] There were other significant changes in the appellant's case which are hidden rather than exposed by the proposed amendment. For example, in the original ex 3 DCOS 83937 was said to have been prepared by Mrs Bingham, whereas counsel made clear in the course of submissions in support of the proposed amendments to the defence that it was prepared by Mr McNamara on behalf of the appellant.

[54]

[22] In the opening, and in argument in support of the amendments to the defence, it was said that the relevance of the DCOS not "processed" was that they helped to identify all heat damaged confectionery. One might well think that if a claim was not "processed" (or credited) there was no obstacle to the respondents selling the goods as heat damaged stock. Further, and this is of significance, there is no allegation in the defence, nor any clear indication in the opening, that evidence was available to establish that all stock heat damaged to some extent was recorded in one of the DCOS forms.

[55]

[23] In order to succeed in establishing in accordance with the pleadings that the notices of termination were valid, the appellant would have had to prove that the heat damaged confectionary sold (or being offered for sale) at Morayfield was part of the stock for which the respondents obtained a credit from the appellant because that stock had been heat damaged whilst in the Bray Park store. Counsel did not detail any evidence in opening before the learned trial Judge, or in submissions at first instance or on appeal, which would support such a conclusion. All the DCOS documents are in the appeal books and they do no more than indicate what stock was identified as heat damaged when the form was prepared. There is no evidence of any representation by the respondents that all heat damaged stock had been recorded in one of those forms.

[56]

[24] It is not necessary to recount in detail the course of events before the learned trial Judge after leave to amend the defence was refused. It is sufficient to say that the refusal of the amendment did not in the context of the trial significantly prejudice the appellant. If the appellant had evidence to establish the critical proposition stated above which was necessary for it to be successful, it could have defended the proceedings on the pleadings as they stood. When counsel for the appellant said to the learned trial Judge that a consequence of the refusal to allow the amendment of the defence was that the appellant "cannot adduce the necessary evidence to prove that the Binghams initiated claims for credit and insurance in relation to all of the heat affected stock" he was overstating the position. In essence, whether with or without the amendment, it is clear that the appellant had no evidence identifying stock sold (or offered for sale) at Morayfield as being stock for which the respondents received a credit. If there was any such evidence it was not referred to by counsel in his opening or in any of the submissions dealing with the proposal to amend the defence.

[57]

[25] Of critical importance is the following concession made by senior counsel for the appellant at trial:

[58]

"Our position, therefore, is that we're unable, in the light of the rulings your Honour has made, to oppose the granting of the declaration sought which, of course, relate solely to the issue of the validity of the notices of termination, nor are we able to oppose the grant of the one injunction in each instance that I understand our learned friend will seek".

[59]

[26] It was in consequence of that concession that final judgment was entered in favour of the respondents. The only ground on which the appellant relies in seeking to have that final judgment set aside is that the refusal of the amendment deprived it of the opportunity of a fair trial. In my view in order to succeed on such a ground there is an onus on the appellant of demonstrating to this Court that there was at least prima facie evidence available in support of the critical allegation. As I have already demonstrated the voluminous material now before this Court does not indicate the existence of such evidence. It follows in my view that the appellant has not made out a case for setting aside the judgment.

[60]

[27] The appeal in No 2033 of 2003 should be dismissed with costs.

[61]

[28] JERRARD JA: I have had the considerable advantage of reading the reasons for judgment of Williams JA and Muir J, and those reasons helpfully describe the matters relevant in both Appeal No 2033 of 2003, the appeals against the interlocutory and final orders made in the trial held in February 2003, and in Appeal No 6635 of 2002, that being the appeal against the interim injunctive orders made 25 June 2002.

[62]

[29] The appellant relied upon article 25(e)(vi) of the respective Store Agreements to support the notices of termination. That clause relevantly entitled the appellant to terminate the agreement "upon the occurrence of" the (respondents being) fraudulent in connection with the operation of the franchised business. That was the variety of fraudulent conduct by the respondents which the appellant was endeavouring to prove, in the manner described by Muir J, at the trial. As His Honour's reasons describe, after the learned trial judge had refused the appellant leave to amend the particulars of their defence, their senior counsel submitted that the appellant needed to prove that the respondents had made a claim for credit from the appellant for the value of all the heat affected stock, in order to show that the heat damaged stock displayed for sale at Morayfield was the subject of such a claim; and that refusing leave to amend prevented the appellant establishing those claims for all heat damaged stock.

[63]

[30] Assuming that the appellant did establish that claims for crediting were made in respect of all the heat affected stock from the Bray Park store, and that some of that heat damaged stock was displayed for sale, and some of it was sold, at the Morayfield Store, that would not of itself establish the fraud actually pleaded or any fraud. The basis of the notice of termination pleaded in paragraphs 9(b) and 10(b) of the defence was that there had been a fraudulent transfer of stock between those two stores, and that there were "actions of the plaintiffs calculated to reduce moneys payable to the defendant pursuant to" the two Store Agreements. As to the latter claim, no circumstances are pleaded in the unamended pleadings, or as notionally amended, and no evidence appears in the record, which would result in the moneys payable to the appellant by the respondents (commission on sales) being reduced. The sale of heat damaged stock for which credit had been claimed or received would not produce that result.

[64]

[31] In respect of the pleaded fraudulent transfer of stock, the sale of heat damaged stock at Morayfield for which the respondents had claimed but not received a credit from the appellant would not per se establish fraudulent conduct. As Williams JA observed during argument, this would depend on when that stock was sold and in what circumstances. The respondents would presumably be entitled to sell stock in respect of which the appellant had received an application for credit and disallowed it, because (for example) the appellant considered the damage minimal; and obviously such a sale could lawfully occur after the appellant notified the respondents of the disallowance. The respondents could also honestly offer for sale stock in respect of which claims had been made and not decided upon, provided any claim was later withdrawn in respect of any stock actually sold. Accordingly, proof of the respondents seeking but not receiving credit, by the claims particularised in 9(b)(iv)(b) and 10(b)(iv)(b) of the particulars in the pleading as sought to be amended, would not be enough to establish fraud of any kind. The appellant would need to establish either that those claims were made, and persisted with after sales of that stock were made and without withdrawing those claims, or else that they were made with the dishonest intention of getting the benefit of both the credit and any sale proceeds. The latter conduct is particularised in 9(b)(v) and 10(b)(v), and perhaps the list of documents in 9(b)(iv)(b) and 10(b)(iv)(b) are really more detailed particulars of 9(b)(v) and 10(b)(v) than of 9(b)(iv) and 10(b)(iv).

[65]

[32] The disallowed amendments had the effect of preventing the appellants from leading evidence of the documents listed in the proposed amended 9(b)(iv)(b) and 10(b)(iv)(b), which are claims the appellant received but did not credit. Those claims are documents signed by at least the male respondent, and annexed to the latter's affidavit filed in the proceedings for the application for an interim injunction. As so annexed, they appear also to be claims by the respondents which were annexed to the appellant's notice of termination stated 15 March 2002, and relied upon to justify that termination. Their re-appearance in the particulars could not take the respondents by surprise. Further, all but one of the claims referred to in the proposed amended particular 9(b)(iv)(a) and 10(b)(iv)(a) had been originally notified to the respondents as particulars of the claims for credit on which the appellant relied.

[66]

[33] It follows this is not a case in which the respondents could have claimed surprise at the late proposed amendment, or any real need for an adjournment. They did not so submit to the learned trial judge, and the judge did not so hold. It was a case in which the appellant's pleaded case was sought to be changed very late in the day, but not in a manner that was claimed by the respondents to cause them any actual disadvantage, other than that they were now meeting a different case. The problem for the appellant is that even the amended case did not describe whatever actual merits there were in the circumstantial case potentially available to be made by it; and further that it was a pleading of fraud.

[67]

[34] If the appellant's submission on the appeal could be sustained on a trial, namely that the claims which were both credited and not credited were made in respect of so many items of allegedly heat damaged chocolate that they necessarily included all the heat damaged stock, and that some of that was transferred to Morayfield for sale and sold without later notifying the appellant and when claims were either outstanding or allowed, then the appellants may establish fraudulent conduct. But that is not the pleaded case in either its existing or notionally amended form. The appellant's (notionally amended) particulars 9(b)(iv) and 10(b)(iv) do not actually and unambiguously describe that the respondents both received credit for heat damaged stock and still offered that same stock at Morayfield for sale or sold it. Nor do they actually and unambiguously plead that the respondents sold any stock for which credit was later given. Instead those notionally amended particulars are artfully ambiguous, as were those particulars in their original form.

[68]

[35] The notionally amended particulars, strictly analysed, really advance only a case of intended and thus attempted fraudulent conduct, rather than one of successfully executed fraud. The documents added to the particulars by 9(b)(iv)(b) and 10(b)(iv)(b) are all relevant only to proof of intended and attempted fraud, whereas those listed in 9(b)(iv)(a) and 10(b)(iv)(a), being the claims credited by the appellant, are relevant to proof of both actual and attempted fraud.

[69]

[36] The amendments the appellant was refused leave to make are themselves inadequate, if either undisclosed sales of chocolate for which credit had been given, or claims for credit in respect of stock already sold, could be proved. If the appellant cannot prove the respondent did one or the other, as its notionally amended particulars suggest, then it is hard to see what fraud could be proved; it would be difficult to infer an attempt in the absence of proof of any actual or executed fraud. The conclusion seems unavoidable that the appellant would really rely upon such evidence as it might garner from the respondents in cross-examination to establish whether or not it could demonstrate fraudulent conduct, and of what type, and then argue that it fell within the deliberately widely worded 9(b)(iv) and 10(b)(iv) if claims for credit were allowed on chocolate which was sold, or 9(b)(v) and 10(b)(v) if claims were not.

[70]

[37] That is not how litigation alleging fraud should be conducted. The proposed amendments widened the net cast by the appellant to include evidence from which it would argue attempted fraud should be inferred, but still did not plead or particularise its real case, which I respectfully consider was accurately described in two sentences by Muir J in his reasons for judgment. It follows that I respectfully disagree with His Honour's later observation in those reasons that the appellant's case was known and was not altered, because I consider the appellant's real case has never been pleaded.

[71]

[38] I agree with Muir J that the quantification of the alleged fraud was irrelevant to the exercise of the learned judge's discretion whether or not to allow an amendment, but respectfully disagree that the record showed the learned judge did actually regard the amount allegedly fraudulently claimed as being relevant to that exercise. The learned judge's comments about the size of the fraud appear to me more a comment on the likely difficulty in actually proving fraud.

[72]

[39] It follows that I was not persuaded that the learned trial judge actually took into account any irrelevant consideration. Nor am I persuaded that the trial judge's decision not to allow, on the third day of a civil trial in which fraud was alleged, the party alleging fraud to amend its pleading in a manner irrelevant to its real case and which would simply extend the proceedings, was a wrongful exercise of that judge's discretion, or contrary to the observations of the High Court in State of Queensland v J L Holdings Pty Limited [1997] HCA 1; (1997) 189 CLR 146. The observations in the joint judgment in that case particularly remark that there was nothing that would indicate any personal strain (from allowing the amendments) on either party in that case; whereas in this one, and as the judge noted, the plaintiffs/respondents had clearly evinced a desire to have their claims resolved, had made a successful application to have the proceedings set down for trial, successfully resisted the appellant's application for an adjournment of the trial, and were small business people to whom unresolved allegations of fraud might be significant. Allowing the amendments would predictably increase their immediate costs and would bring them no closer to a decision on real issue. Further, disallowing the amendment did not shut the appellant out from raising an arguable defence; they had yet to plead their real defence.

[73]

[40] In those circumstances I respectfully disagree with the conclusion reached by Muir J in Appeal No 2033 and respectfully agree with the reasons and conclusions of Williams JA, although I have expressed my own.

[74]

[41] In this appeal I respectfully agree with the reasons for judgment of each of Williams JA and Muir J, and with the order proposed. I particularly agree with Muir J's construction of clauses 25(e)(g) and (h) and the rights those clauses give the appellant. I agree with Williams JA in his categorisation of the injunctive orders granted, as being ones which restrain breach of the negative stipulation he describes; and if that view be wrong, I express agreement with Muir J's remarks on the relevance of a "high degree of assurance". I add the comment that perhaps the high degree of assurance a judge should have before making injunctive orders, whether mandatory or prohibitory, is not that the applicant will succeed at trial but that a greater injustice would occur from a refusal than from a grant of the order, whatever the final outcome on a trial.[1]

[75]

[42] MUIR J: The appellant defendant appeals against interlocutory orders of a trial judge refusing leave to amend the appellant's defence and to add a counterclaim and against the final orders made at the conclusion of the trial of the action.

[76]

[43] That appeal was heard together with another appeal against the granting in the action on 25 March 2002 of an interlocutory injunction against the appellant in favour of the respondents.

[77]

[44] The appellant, as franchisor, and the respondents, as franchisees, entered into separate franchise agreements dated 13 June 2000 in respect of stores at Bray Park and Morayfield. The respondents were operating the stores when, on 15 March 2002, the appellant purported to give notice of termination in respect of each store pursuant to article 25 of the relevant franchise agreement. Each notice was unlawful and in breach of the franchise agreement. Unless restrained, the appellant will act on the notices.

[78]

[45] The only relief claimed was an injunction restraining the appellant from acting on the notices.

[79]

[46] The statement of claim was amended to include claims alleging breaches of the Trade Practices Act but those amendments were deleted at the commencement of the trial.

[80]

[47] The substance of the appellant's defence is contained in paragraphs 9(b) and 10(b) of its defence which are in identical terms and relate respectively to Bray Park and Morayfield.

[81]

[48] Mr Griffin QC, who, with Mr Anderson, appeared for the appellant at first instance, outlined in his opening the evidence intended to be lead on the appellant's case but gave no explanation of it. It is, of course, the role of the pleadings to define the issues between the parties but the allegations in paragraphs 9(b) and 10(b), which were central to the appellant's defence, were imprecise and obscure. The deficiency was compounded by the inclusion in the paragraphs of inappropriate allegations and assertions of fact under the guise of particulars. Further particulars given of the particulars did little, if anything, to assist the problem.

[82]

[49] It is desirable that one of the sub-paragraphs, including the amendments sought to be made by the appellant on the second day of the trial, be set out in full. The latter are underlined.

[83]

**"**9 (b) The notice of termination was valid and based upon the plaintiffs' breach of the Morayfield Store Agreement by the fraudulent transfer of stock between the stores at Bray Park and Morayfield and actions of the plaintiffs calculated to reduce monies payable to the defendant pursuant to the Bray Park Store Agreement and the Morayfield Store Agreement.

[84]

(i) On or about 11 February 2002, Gavin Bingham notified the defendant's district manager, Michael McNamara, of a power failure which caused heat damage to confectionery at the Bray Park store.

[85]

(ii) Mr Bingham was told that the stock loss would be an insurance claim by the defendant. The stock loss was audited.

[86]

(iii) The plaintiffs wrongly transferred heat damaged confectionery from the Bray Park store to the Morayfield store and sold and displayed that confectionery for sale.

[87]

[88]

(iv) The plaintiffs made claims for the crediting of merchandise evidenced by daily charge off summary sheets which included some of the said heat damaged stock which was transferred to Morayfield for sale.

[89]

(b) Claims which the defendant received but did not credit:

[90]

[91]

(vi) Full particulars are set out in the affidavits filed by the defendant and relied upon at the interlocutory application on 24 June 2002."

[92]

[50] On 30 July 2002 the respondents' solicitors delivered a request for particulars of the allegations in paragraphs 9(b) and 10(b) of the amended defence. The request was responded to by the solicitors for the appellant in a 2½ page letter. In giving particulars "sufficient to identify the nature and quantity of the heat damaged confectionery" referred to in paragraph 9(b)(iii), the appellant provided a brief narrative. It stated, inter alia, that there were approximately eight milk crates of such confectionery which had been damaged and taken from shelves at Morayfield.[2] Two crates were removed by a representative of the appellant on or about 14 February 2002, and the balance were left in the store. Reference was made to an "audit", details of which were exhibited to the affidavit of a representative of the appellant, Warren Wilmot and to a further audit at the Morayfield store on 15 March 2002, details of which are also exhibited to the affidavit of Wilmot. It is alleged that the further audit allowed a reconciliation to occur which showed "excess confectionery at the Morayfield store to the value of $2,679.44."

[93]

[51] In response to a request for particulars of the amount of credit the respondents attempted to receive in respect of the damaged stock as alleged in paragraph 9(b)(v), the appellant stated -

[94]

"The value of the claim for insurance is $4,686.75. The value of the claim for credit for bad stock is contained in DCOS forms as particularised in paragraphs (sic) 4 herein. DCOS claims actually credited amounted to $1,702.86. The total value of the retail credit amounted to $6,389.61."

[95]

[52] Paragraph 4 of the reply to the request stated -

[96]

"The DCOS containing the claims made by the plaintiffs are exhibited to the affidavit of Warren Wilmot sworn 21 June 2002 as "WW-6"...".

[97]

[53] The appellant's case, as it emerged over the three days of the hearing, was simple enough. It was that confectionery damaged by heat in the respondents' Bray Park store had been sent to their Morayfield store and sold there. The respondents had submitted or caused to be submitted to the appellant claims for the value of such stock without informing the appellant that it had been or was being sold.

[98]

[54] The pleaded allegation also encompassed a fraudulent insurance claim. Whether that claim was being pursued by the appellant is not apparent from the record.

[99]

[55] I now propose to explain in some detail the chain of events which led to the primary judge's rulings on the applications to amend the defence and add a counterclaim. This background is relevant to a proper appreciation of the correctness of the rulings.

[100]

[56] At the commencement of the trial on 4 February 2003, Mr Perry, who appeared with Mr Jarrett for the respondents, sought leave to amend the statement of claim by -

[101]

(b) deleting allegations of breach of provisions of the Trade Practices Act 1974;

[102]

[103]

[57] The amendments were opposed by Mr Griffin QC on the grounds that resolution of the respondents' claim, as amended, would not fully determine the matters in issue between the parties. It was asserted that a central issue was whether the terms of the franchise agreements were such that the respondents would not be able to get specific performance of them or any order restraining the appellant from taking possession of the subject premises, and whether its conduct in so doing was justified or not.

[104]

[58] For these reasons he sought amendments to the defence which included allegations to the effect that the nature of the respondents' interests in the franchise agreements were such that, even if the notices of termination were ineffective, the respondents would not be entitled to injunctive relief. The proposed amendments alleged also that damages were an adequate remedy and that the rights of the respondents (if any) sounded only in damages. Similar allegations were included in a proposed counterclaim which sought declarations that -

[105]

(a) the appellant, on giving 30 days notice, was entitled to possession of the subject premises;

[106]

(b) subject to the appellant giving such notice, the respondents were not entitled to restrain the appellant from taking possession of the subject premises.

[107]

[59] After hearing argument, the primary judge granted leave for the statement of claim and defence to be amended. She intimated that she would entertain an application by the appellant to add a counterclaim once its terms had been properly formulated. Mr Griffin then opened the plaintiff's case, accepting that as the appellant had the onus of proof in relation to the fraud allegations, it was appropriate that it present its case first.

[108]

[60] At the conclusion of his opening Mr Griffin explained that some errors had been detected in Exhibit 3, a document headed "DCOS processing details", tendered prior to the luncheon adjournment. It purported to be a list of DCOS[3] forms relating to the alleged fraudulent claims, including the dates on which the claims were credited and the amounts the subject of the claims. Later Mr Griffin observed that some of the forms listed in Exhibit 3, although lodged, had not been processed. He mentioned also that the forms which had asterisks beside them related to stock other than the confectionery the subject of the appellant's claims. After some argument, Mr Griffin said that he would strike those items from the Exhibit on the basis that, although they were not "entirely irrelevant", he did not rely on them as "supporting the notice of termination."

[109]

[61] The appellant's first witness, Mr McNamara, was then called. In the course of his evidence in chief, Mr Griffin, intimating that he was about to show the witness a bundle of DCOS forms relating to the damaged confectionery, said that, in addition to the foreshadowed alterations to Exhibit 3, there would be a need to add some additional DCOS forms to Exhibit 2.[4] Mr Perry then said that he would object, on the grounds of relevance, to the tender of any of the DCOS forms proposed to be put to the witness if they were not included in particulars previously provided by the appellant.

[110]

[62] A short while later, when the witness was being questioned about some DCOS documents, Mr Perry made his foreshadowed objection. It was explained by Mr Griffin that the documents were "a bundle of DCOS documents prepared by Mr Bingham which the [appellant] did not process." He conceded that the particulars did not contain reference to these documents but asserted, uncontroversially, that they had all been disclosed by both sides. Mr Perry, continuing with his submissions in opposition to the tender; pointed out that the allegations against his clients were of fraud; asserted that in such a case there was an obligation on the party asserting fraud "... to raise it early and raise it accurately" and traced the history of the particulars with a view to showing dilatory conduct on the appellant's part. After hearing Mr Perry, the primary judge raised with Mr Griffin deficiencies in paragraph 9(b)(iv) and listened to his explanation of the appellant's case. This exchange then occurred -

[111]

"HER HONOUR: Well, Mr Griffin, accepting for present purposes that what you say is correct, what it seems to come down to is this: the pleading needs amendment. The particulars need amendment. We have already commenced a fraud trial, in effect.

[112]

HER HONOUR: Now, as Mr Perry has submitted, these are very serious allegations and allegations that should ought properly be particularised. I'm not prepared to let this evidence continue until I have had a proper application for any amendments you seek to make to the pleadings and amendments you seek to make on particulars. I heard submissions from both sides on that application and I've ruled on it."[5]

[113]

[63] The primary judge made directions for the delivery of a counterclaim, the proposed amendments to the defence and of amended particulars and adjourned the matter to the next morning.

[114]

[64] At the beginning of the second morning of the trial, Mr Griffin produced a draft amended defence and counterclaim. Mr Perry informed the primary judge that a request for further and better particulars had been delivered and that there had been responses to the requests. Her Honour then considered the proposed amendments and the following exchange occurred after her Honour remarked that there was a substantial difference between the existing and proposed new form of paragraph 9(b)(iv) and observed that allegations of fraud had to be particularised.

[115]

"MR GRIFFIN: That's true, but that doesn't mean that it can't be excused from mistakes that are made in the particulars, particularly in a context in which the substance of the allegation is so clear.

[116]

HER HONOUR: Well, I'm not sure that you're correct there, but even where a defendant might be excused, it would only be on terms and pretty harsh terms against the defendant.

[117]

MR GRIFFIN: Yes. Your Honour, a lot of these facts are not in dispute. It's not in dispute that there was confectionary (sic) at the Bray Park store, it's not in dispute that it was heat damaged and it's not in dispute that the, as I understand it, that the plaintiffs made claims in respect of it. So the substance of it is not in dispute.

[118]

HER HONOUR: Well, that's not the substance of fraud.

[119]

MR GRIFFIN: It is if you add to that the proposition that having made no[6] claims in relation to that stock, they then sold it at another store.

[120]

HER HONOUR: Right, and that last part is the part that's contentious and the part that has to be properly particularised and should have been properly particularised months ago.

[121]

MR GRIFFIN: Your Honour, we can't particularise, and we've made it clear in our response we can't particularise and we never were able to particularise them and we never could exactly all of the stock that has been sold at the Morayfield store.

[122]

HER HONOUR: Well, that may be so, but you are now putting forward certain particulars different from those previously put forward.

[123]

HER HONOUR: Now, a party faced with an allegation of fraud is entitled to know well in advance of trial precisely what the allegation is, what the particulars of it are so that he can go away and prepare his case in defence to that allegation. It's a terribly serious allegation to make against anyone and particularly someone who's in business in a local district." (emphasis added)

[124]

[65] The primary judge then heard from Mr Perry in relation to the particulars. Mr Perry contended that an amended version of Exhibit 3 which he had been given by Mr Griffin still contained references to documents which Mr Griffin, the day before, had said would be deleted. The primary judge pointed out that Exhibit 3 should have been corrected overnight to which Mr Griffin responded that its amendment had been overlooked but that the amended document would be "precisely in the form of the proposed paragraph 9(b)(iv)" of the defence. Her Honour then stood the matter down so that the particulars could be put in order.

[125]

[66] After that was done, Mr Perry maintained his attack on Exhibit 3, pointing out that the proposed new Exhibit 3, for the first time, showed DCOS 83937 as being a document prepared by Mr McNamara, whereas the two previous versions of the document had credited Mrs Bingham with authorship. Her Honour then asked to be informed of the total amount involved in the alleged fraud. Mr Perry did not respond to the question immediately, preferring to continue with his criticism of the particulars. He asserted that, for the first time, the particulars contained a "date of processing, (i.e. date of crediting)". He said that "nothing else has been disclosed as to the means or mechanism or process or, indeed, the actual date as to which the credit was or was not given." A little later he added -

[126]

"What we don't have are any documents at all leading up to the processing or crediting process. Nothing. What we have in respect of these things is just this single sheet. We don't know, for example, by reference to any documents how the processing process is undertaken internally, what are the relevant criteria to accepting some and rejecting some because that's what seems to have happened here. What issue there may be about why some are rejected and some accepted although Mr Wilmot, apparently we're told, from Exhibit 3 is going to swear to the accuracy of it."

[127]

[67] Mr Perry then drew attention to the change in approach between paragraph 9(b)(iv) in its amended and unamended forms. That had been the subject of prior adverse comment by the primary judge. He then categorised the cases as "a case of fraud being manufactured on the run" and submitted, in effect, that to allow the amendment would be to sanction "a gross injustice" not only against the respondents but against "the system as a whole". The gravity of fraud allegations was stressed and it was pointed out that State of Queensland v J L Holdings Pty Limited [7] was not a case in which fraud was involved. He submitted that "... when we commence the trial an entirely different basis ... is relied upon as establishing the relevant culpability." There was then a discussion between the primary judge and Mr Perry concerning the manner in which the matter was set down for trial and mention was made that the appellant had sought an adjournment of the trial some time previously. The primary judge then remarked on the "size of the fraud that's alleged", noted that "it seems that at most it is the sum of the $4,686.75 ..." and observed, "this is Magistrates Court stuff."

[128]

[68] Mr Griffin, in reply, referred to a passage from The State of Queensland v J L Holdings Pty Limited.[8] He submitted -

[129]

"The particulars in question do not go to the heart of the fraud in this case. They simply go to the identification of what the plaintiffs claimed in relation to heat damaged stock. The heart of the fraud is the selling of heat damaged stock in another store when they had made claims seeking crediting of the same stock to the defendant."

[130]

[69] He said that Exhibit 3 was "directed at indicating what claims the plaintiffs made in respect of heat damaged stock" but that the appellant could not identify all the heat damaged stock with any precision. He said that the evidence would be that there was only one episode during which stock became heat damaged and that heat damaged stock was being sold in quite a large quantity in Morayfield. Questioned by the primary judge, Mr Griffin conceded that the appellant could not identify precisely what was sold at Morayfield as it was not "present at Morayfield for the whole of the time" but that a witness could give evidence as to the sale of some of the stock.

[131]

[70] Mr Griffin then addressed the relevance of the amount involved in the alleged fraud. Her Honour asked if the amount involved was relevant to her consideration of whether she would permit the amendment "and if so on what terms".

[132]

[71] After a further exchange in which the primary judge pointed out that the evidence of Mr Wilmot, who, at this stage, had not been called as a witness, was inconsistent with Exhibit 3. Counsel made lengthy submissions on the application to add the counterclaim and the primary judge reserved her decision overnight.

[133]

The primary judge's reasons for refusing the applications to amend the defence and add a counterclaim

[134]

[72] In her reasons the primary judge traced the history of interlocutory steps in the proceeding and noted that the appellant had applied unsuccessfully for an adjournment of the trial. She referred to the request for particulars made on 30 July 2002 and to the response of 11 October 2002 and then discussed the background to the application to amend paragraphs 9 and 10 of the defence. She then remarked that the fraud allegations "are very serious allegations which have to be pleaded carefully and with particularity." Attention was drawn to the fact that Mr Griffin had "indicated that his client could not and never would be able to particularise exactly all of the damaged stock sold at Morayfield."

[135]

[73] Mr Perry's arguments were then summarised, including his submission that the appellant could not particularise the heat damaged stock transferred to Morayfield and sold or the heat damaged stock in respect of which credits were given which were sold at Morayfield. Reference was then made to the fact that the largest fraud alleged is in respect of the claim in DCOS 83937 but that the evidence is no longer that this document was completed by Mrs Bingham.

[136]

[74] In a part of her reasons criticised by the appellant, the primary judge said -

[137]

"In my opinion, it would not be good enough for the defendant to allege the fraudulent transfer and sale of stock and then say it could not particularise that which was transferred and sold. In the present case, the best it can do is to say: `a large portion of the stock referred to in the DCOS claims.'

[138]

It is significant that the stock in question consisted of chocolate bars. The total value of the DCOS claims was less than $7,000, including the $4,686.75 credited in relation to 83937 completed and signed by Mr McNamara. On the other hand, any fraud, if proved, would be a matter for grave concern, and it would be a valid basis for notice to terminate.

[139]

In all of the circumstances, I think the particulars of transferred stock in themselves are adequate. Whether the defendant can come up to proof is another matter not for present determination.

[140]

But that does not resolve the question whether the defendant should be given leave to amend. The application was made after the commencement of trial. It relates to an allegation of fraud. It is fair comment that the defendant's case has been a shifting one. The plaintiffs ought not to be expected to respond to changing allegations of fraud in the course of a trial. They are entitled to know the case against them. To allow the amendment and to allow the trial to proceed would, in all of the circumstances, deny them that right." (emphasis supplied)

[141]

[75] The primary judge then stressed the desire of the respondents to have the matter resolved and the potential of an unresolved claim to adversely affect the respondents' business. She concluded "that an order for costs or an order for an adjournment and an order for costs would not be adequate compensation to them" and refused the application for leave to amend the defence.

[142]

[76] The application for leave to add the counterclaim was dismissed, largely on the basis that the issues raised by it were hypothetical. It is to be noted that her Honour did not focus attention on the proposed replacement of paragraphs 9(b)(iv) and 10(b)(iv). That was appropriate. It was not suggested by Mr Perry that the respondents had prepared to meet the case advanced by the original paragraph, whatever that was, and were unable to deal with the case raised by the amendment. It seems plain that the effect of the amendment would have been to make the appellant's case conform more readily with both sides' understanding of it.

[143]

[77] After the ruling was given, Mr Griffin said that in the light of it -

[144]

"7-Eleven cannot adduce the necessary evidence to prove that the Binghams initiated claims for credit and insurance in relation to all of the heat affected stock. Now, that is a necessary link in the chain of the fraud that the defendant alleges. We have to prove that they made a claim in relation to all of the heat-affected stock in order to show that the heat-damaged stock that was displayed for sale and displayed at Morayfield was the subject of a claim."

[145]

[78] He went on to inform the primary judge that the appellant's legal advisors had instructions to appeal against her ruling. He noted that the primary judge had indicated that she would not permit an adjournment of the trial and asked if the primary judge had "really determined" that an adjournment would not be permitted. Her Honour affirmed that she had.

[146]

[79] Mr Griffin then said that, because of the rulings, the appellant was unable to oppose the making of the declarations or the granting of the injunctions sought by the respondents. The primary judge then made the orders appealed against by the appellant.

[147]

Did the exercise of the primary judge's discretion miscarry?

[148]

[80] The appeal against the refusal to permit the addition of a counterclaim was not pressed and it is therefore unnecessary to do more than remark that her Honour's approach to it was unexceptionable. Apart from anything else, the counterclaim was based on hypothetical facts and sought an advisory opinion.

[149]

[81] The primary judge recognised that the principles to be applied on the application for leave to add the particulars were those expressed in the following passage from the judgment of Bowen LJ in Cropper v Smith, [9] which was referred to with approval in the joint judgment in State of Queensland v J L Holdings Pty Ltd - [10]

[150]

"Now, I think it is a well established principle that the object of Courts is to decide the rights of the parties, and not to punish them for mistakes they make in the conduct of their cases by deciding otherwise than in accordance with their rights. Speaking for myself, and in conformity with what I have heard laid down by the other division of the Court of Appeal and by myself as a member of it, I know of no kind of error or mistake which, if not fraudulent or intended to overreach, the Court ought not to correct, if it can be done without injustice to the other party. Courts do not exist for the sake of discipline, but for the sake of deciding matters in controversy, and I do not regard such amendment as a matter of favour or of grace."

[151]

[82] Their Honours also observed in the course of their reasons that principles of case management could not be employed "except perhaps in extreme circumstances, to shut a party out from litigating an issue which is fairly arguable."[11]

[152]

[83] In my view, the primary judge, although alert to these principles, failed to apply them and the exercise of her discretion miscarried in that and other related respects.

[153]

[84] I accept the appellant's submission that the primary judge erred in concluding that the appellant's case was deficient as a result of its inability to "particularise that [stock] which was transferred from [Bray Park] and sold [at Morayfield]". The appellant's case, subject to the qualification earlier expressed, was always a simple one. Mr Perry never suggested at any stage to the primary judge that the respondents had difficulty in understanding the case they had to meet. The fact that the appellant's case was, to a degree, circumstantial hardly meant that it was unable to succeed in proving it on the balance of probabilities. What it was obliged to do, and what it was actively, though belatedly and messily seeking to do, was to provide the best particulars available to it. Its inability to precisely identify product lines and quantities, although indicating that it would meet with difficulty in proving its case, did not establish that it would be unable to do so or that it should not be permitted to make the attempt.

[154]

[85] It is implicit in her Honour's reasons that, because the appellant alleged fraud, the respondents should not be put in the position of having to meet allegations which altered after the commencement of the trial. The reality, however, is that the appellant's case was known and wasn't altered. The appellant made a mistake in particularising, and in listing in Exhibit 3, the documents which it identified as containing the full extent of the claims made by the respondents in respect of damaged stock. The error, however careless, was far from fundamental. The documents had all been disclosed and, with one exception, were signed by one or other of the respondents. Moreover, all but four of the documents had been exhibited to an affidavit of Mr Bingham relied on by the respondents on the hearing of the application for an interlocutory injunction. The remainder had been disclosed by both sides and were thus not only deemed to be relevant, but admissible "as being what [they] purport(s) to be"[12].

[155]

[86] It is difficult also to resist the conclusion that the primary judge's concern about the modest sum potentially involved in the alleged fraud, apparent in the course of argument, formed part of her reasoning in deciding not to allow the application to amend. Mention was made in the reasons of the significance of the smallness of the sum in question. The reasons go on to acknowledge that any fraud, however small, might support the notices of termination. But the passage from the reasons quoted above shows that her Honour, despite that observation, regarded the size of the alleged fraudulent claims as being relevant to the exercise of her discretion. The quantification of the alleged fraud, beyond (possibly) a sum which might be regarded as de minimus, was not "significant". It was irrelevant. The question to be determined, relevantly, was whether there had been fraudulent conduct which enabled the giving of valid notices of termination.

[156]

[87] The conclusion that to allow the amendments would be to delay the trial does not appear to have been shared by the respondents' counsel who did not suggest in the course of his submissions that an adjournment would be needed if the amendments were allowed. He fulminated about the possibility that further disclosure might be required but, neither at first instance nor on appeal, was it shown that if further investigation and consideration was required as a result of the proposed amendment, that would necessitate a material delay in the trial or that the respondents would be prejudiced in the conduct of their case.

[157]

[88] It will be recalled that complaints had been made by Mr Perry in the course of argument about the new Exhibit 3 containing, for the first time, "a date of processing" of the DCOS forms and about a possible lack of disclosure concerning "the processing or crediting process." It is difficult to see the relevance of the internal workings of the appellant relating to the processing of the DCOS forms. How such matters might be relevant was never explained. The appellant's case was that the respondents had sold damaged stock whilst claiming (and in some cases receiving) payment for that stock from the appellant. The respondents denied doing any such thing. They did not allege that they had acted with the knowledge or express or implied consent of the appellant.

[158]

[89] If the respondents' case had been well prepared, as it appears to have been, it is likely that all DCOS documents relating to damaged stock claims would have been identified and considered prior to trial. Most of them had been identified and collated for the purposes of the injunction application. Indeed, it is difficult to resist the conclusion that the thing most likely to have surprised the respondents' legal advisors about the further particulars is that they had not been provided sooner.

[159]

[90] I conclude therefore that the evidence did not support the primary judge's unstated premise that if she allowed the amendment the trial would go off.

[160]

[91] The real problem with the case was not the relatively minor change in the list of DCOS documents in respect of credited claims or in the introduction of the additional list of claims made but not credited. It lay in the deficiencies in the defence to which I have already adverted. The introductory words of paragraphs 9(b) and 10(b) did not identify, with any clarity, the case which the appellant intended to mount. The material provided, purportedly by way of particulars, contained further allegations beyond the scope of the pleaded allegations as well as evidence. Paragraphs 9(b)(vi) and 10(b)(vi) had the effect of incorporating as particulars "the affidavits filed by the [appellant] and relied upon at the interlocutory application on 24 June 2002." On the hearing of that application, the appellant relied on at least four affidavits including that of Mr Wilmot to which was exhibited (as WW-6), the original incomplete list of DCOS forms referred to in the first set of particulars. From that morass the appellant's case had to be exhumed. Although the parties believed they understood what the case was about, there was ample potential for future disagreements and confusion.

[161]

[92] These so called "particulars" identified the respondents' claims "for credit of bad stock" as being the claims contained in the DCOS forms in WW-6. WW-6, however, contained only the claims which had been credited by the appellant. Although a document which is relevant does not cease to be admissible merely because it is not mentioned in the pleadings or particulars, I consider it probable, having regard to the way matters developed, that unless the appellant amended its particulars to include the latter category of DCOS forms (and also the DCOS form signed by Mr McNamara) it would not have been permitted to put those additional documents into evidence. On the appellant's particularised case, they would not have related to the fraudulent claims, and would thus have been irrelevant.

[162]

[93] It was important, from an evidentiary viewpoint, for the appellant to be able to put in evidence the totality of the claims for damaged stock. If it did not, it would be met with the assertion that as claims had been made for only some of the damaged stock, damaged stock sold at Morayfield could be damaged Bray Park stock for which no claim had been made.

[163]

[94] The deficient state of the pleadings and the unsatisfactory nature of the particulars are not matters, which ought give comfort to the respondents on this appeal. They elected, no doubt for good reason, to go to trial on the deficient pleadings with whatever consequences that entailed. In the circumstances I have outlined, the appellant's attempt to ensure that the particulars corresponded with the evidence it was proposing to lead was not something which should have been regarded as inherently wrong or prejudicial to the respondents. Instead, the primary judge (no doubt goaded by the lack of progress of the trial, and the interminable argument and seeming inability on the part of the appellant to correctly identify the relatively few documents critical to its case) adopted an unduly strict approach which did not accord with the principles expressed in J L Holdings.

[164]

Conclusion in relation to the application to amend the particulars

[165]

[95] The exercise of the primary judge's discretion miscarried for the above reasons. The consequence of the subject ruling was that the appellant was denied a fair trial. It would normally follow that the appeal would be allowed and the final orders would be set aside. There is, however, a question of whether that course is appropriate in the light of the appellant's election not to call further evidence and its concession that, in the light of the subject rulings, it could not resist the orders sought by the respondents. The appellant's approach, particularly in the light of the fact that the anticipated duration of the trial was four or five days, must be thought to be rather perilous. One consequence of it is that the respondents were denied the opportunity of demonstrating in the course of the trial that the appellant's prospects of success, even with the evidence it could no longer lead, were negligible. The appellant put it out of its power to prove its case, despite the limitations imposed by the ruling. It also lost the prospect of having the ruling changed in the light of changed circumstances. For reasons such as these, the course taken by the appellant is not to be encouraged.

[166]

[96] The appeal, however, was not argued on any such basis. One difficulty with the view that the appellant should have proceeded to advance its restricted case is that the primary judge's view of the evidence overall, including her conclusions as to credibility, may have been affected by the weakness in the appellant's case brought about by the subject ruling. It is also relevant that the trial progressed only to the stage where only part of one witness's evidence in chief was given.

[167]

[97] I would allow the appeal (in appeal 2033 of 2003) and set aside the orders made on 6 February 2003 with the exception of the order for costs. I would order that the parties' costs of the appeal be their respective costs in the cause. The reasons for the order for costs I propose are that the difficulties surrounding the application for an amendment largely resulted from the deficiencies in the pleading and in the appellant's presentation of its case. Furthermore, the appellant has been only partly successful on the appeal.

[168]

[98] The interlocutory order the subject of this appeal is that until the trial of the action or earlier order the appellant be restrained from acting upon the purported notices of termination. As the trial has been concluded the order is no longer in force. The outcome of the appeal thus has relevance only to costs which costs would have been modest had the appeal been discontinued at the conclusion of the trial.

[169]

[99] The appellant alleges that the primary judge erred in the exercise of her discretion and misapplied the law for the following reasons -

[170]

1. The franchise agreements confer a mere licence on the respondents. The licence so conferred is not a possessory or proprietary right capable of protection by injunctive relief.[13] Nor do the franchise agreements contain a negative contractual stipulation of a type capable of supporting the injunctive relief ordered.

[171]

2. Even if the franchise agreements contain a negative contractual stipulation capable of supporting injunctive relief, no injunction would be granted as damages are an adequate remedy. "Almost always", in such circumstances an injunction will be granted only if there are some "special factors" which make damages an inadequate remedy.[14] There are no special factors here.

[172]

3. The relationship between the appellant and the respondents under the franchise agreements was analogous to a contract for personal services. Having regard to this and the complexity of the contractual relationship, the grant of injunctive relief would put the court in the position of supervising the performance of contracts of personal services and of maintaining, against the will of the parties a personal relationship. That approach is contrary to principle.[15]

[173]

4. The orders sought by the respondents were mandatory orders for the continuation of the franchise agreements pending trial. They altered the status quo, which was the position of the parties subsequent to the service of the termination notices by the appellant on 15 March 2002. Such relief ought only be given in circumstances where there is a high degree of assurance that the plaintiff's claim will succeed.[16] That degree of assurance must be determined objectively rather than by a reference to the case of one side or the other.[17] It was impossible for the primary judge to have such a degree of assurance and the primary judge, in her reasons for judgment, made it plain that it was not possible for her to have "a high degree of assurance".

[174]

5. The balance of convenience did not favour the granting of the injunction. In assessing the balance of convenience, the primary judge failed to give proper weight to the effect on the "relationship of trust and confidence" between the parties of the "impact that a breach of that relationship would have".

[175]

6. The primary judge failed to appreciate that the notices of termination, under the terms of the franchise agreements took effect automatically upon the expiration of the period stipulated in the notices. Once they took effect the franchise agreements were at an end irrespective of whether or not the giving of the notices was legally justified.

[176]

[100] As the construction of the franchise agreements relating to termination is critical to the latter part of the appellant's argument, the relevant provisions are now set out.

[177]

(c) Subject to the provisions of paragraphs (f) and (g) of this Article, this Agreement may be terminated by 7-ELEVEN at any time by giving OWNERS notice of Termination, upon occurrence of any one or more of the following events (each of which events OWNERS hereby acknowledge constitutes good cause for Termination).

[178]

(i) a Material Breach (as defined in Exhibit E) of this Agreement by OWNERS, or where applicable, the NOMINATED DIRECTORS;

[179]

(e) Notwithstanding anything else herein contained this Agreement may be terminated by 7-ELEVEN at any time by giving OWNERS not less than 72 hours prior notice of Termination upon the occurrence of any one or more of the following events (each of which events OWNERS hereby acknowledge constitutes good cause for Termination) -

[180]

(i) OWNERS cease to hold a licence which OWNERS must hold in order to carry on the franchised business;

[181]

(ii) OWNERS become bankrupt, insolvent under administration or an externally administered body corporate;

[182]

(vi) OWNERS or if OWNER is a company a nominated director are fraudulent in connection with the operation of the franchised business.

[183]

(f) Where in consequence of a breach by OWNERS of this Agreement an entitlement on the part of 7-ELEVEN to terminate this Agreement arises under paragraph (c) of this Article, the notice to be given by 7-ELEVEN to OWNERS -

[184]

(ii) shall indentify (sic) and give particulars to the OWNERS of the breach giving rise to the Notice;

[185]

(iii) shall inform the OWNERS of the steps which are to be taken or the things which are to be done in order to remedy the breach ;

[186]

(iv) shall specify the time (not being less than thirty (30) days from the date of service of the Notice) within which OWNERS must rectify the breach; and

[187]

(v) shall stipulate that in the event of OWNERS failing to rectify the breach within the time limited by the Notice, the Agreement will, at the expiration of that time, terminate.

[188]

(g) Where an entitlement on the part of 7-ELEVEN to terminate this Agreement arises either under paragraph (c) or paragraph (d) of this Article and the event giving rise to such entitlement is not or does not constitute a breach by OWNERS of this Agreement, the notice to be given by 7-ELEVEN to OWNERS shall -

[189]

(ii) set out the reasons for the proposed termination ;

[190]

(iii) stipulate a date on which the Agreement is to terminate (being a date not less than thirty (30) days from the date of service of the notice, and

[191]

(iv) direct the attention of OWNERS to the applicability of the mediation procedure under the code to any dispute on OWNERS' part in relation to the proposed termination.

[192]

(h) Upon the expiration of the time set forth in any Notice of termination issued by 7-ELEVEN pursuant to this Article 25, the term of this Agreement shall automatically expire unless -

[193]

(i) such notice of termination is withdrawn or extended in writing by 7-ELEVEN;

[194]

(ii) OWNERS rectify any default identified in such notice;

[195]

(iii) where the notice is one to which paragraph (g) of this Article applies, OWNERS invoke the mediation procedure under this Agreement and the mediation of the dispute has not concluded." (emphasis added)

[196]

[101] Clause 25(h) provides that "upon the expiration of the time set forth in any Notice of termination ... the term of this Agreement shall automatically expire ..." Subclause (e), however, provides for the giving of a notice of termination "upon the occurrence" of one of the events specified in the subclause. A notice given under subclause (f) in consequence of a breach requires the notice to identify and particularise the alleged breach and, as well, to inform a franchisee of the steps "which are to be taken or the things which are to be done in order to remedy the breach".

[197]

[102] The substantive provisions conferring the right to terminate, relevantly for present purposes, are subparagraphs (e) and (f). They make it plain that the right to terminate arises, in the case of (e), "upon the occurrence" of a specified event and, in the case of subclause (f), upon breach of the agreement. Subclause (h) is a machinery provision which must be read in the light of and consistently with subclauses (e) and (f). It cannot be construed as effectively conferring a unilateral right of termination on the appellant. Support for that construction, if any is needed, may be had from the qualification in subclause (h) that the notice automatically expires unless default is remedied. That assumes that the notice may be given only in circumstances where default exists. Were it otherwise there would be no default capable of being remedied.

[198]

[103] I do not accept the appellant's submission that the injunctions, although framed in prohibitive language, should be regarded as mandatory orders "for the continuation of the (franchise agreements) pending" trial. The orders are directed only to reliance by the appellant on the contested notices. They do not alter the status quo, as the appellant's arguments suggest. On the contrary, they seek to maintain it. That conclusion follows from the rejection of the appellant's construction of clause 25.

[199]

[104] Furthermore, the granting of the injunctions is supported by the desirability of preserving the agreements and, through their continual existence, the respondents' two businesses, until trial.

[200]

[105] Even if the injunctions are, as the appellant contends, mandatory in substance, no error in the primary judge's approach to their granting has been demonstrated.

[201]

[106] There is continuing controversy as to whether an applicant for a mandatory interlocutory injunction is obliged to meet the "high degree of assurance of success" test propounded by Gibbs CJ in State of Queensland v Australian Telecommunications Commission.[18] The learned authors of Equity: Doctrines and Remedies, 4th ed, state in paragraph 21-395 -

[202]

"In truth, a judge hearing an application for an interlocutory mandatory injunction must apply exactly the same tests as he would in the case of an application for an interlocutory prohibitory injunction, not some different or more exacting test; nor is the fact that the relief sought is mandatory a ground for refusing relief; but in the application of the normal tests, often, but not always, the fact that the relief sought is mandatory will tilt the balance of convenience in the defendant's favour."

[203]

[107] That statement of principle is supported by the authorities to which the learned authors refer[19] and by a number of other single judge decisions.[20] The high degree of assurance test, however, was preferred by the Full Court of the Supreme Court of Queensland in Active Leisure (Sports) Pty Ltd v Sportsman's Australia Limited[21] and has been applied in a number of other decisions.[22]

[204]

[108] But the application of one test rather than another in the circumstances of this case cannot be shown to have had a material effect on the exercise of the primary judge's discretion. The "high degree of assurance" test, as applied by Gibbs CJ in the Australian Telecommunications case, is not a test divorced from a consideration of the balance of convenience, including consideration of the extent to which making or failing to make the order might result in irreparable harm to a party. Reference may be had in this regard to Active Leisure (Sports) Pty Ltd v Sportsman's Australia Limited,[23] in which there is discussion of the rationale for what is described as "the traditional test" for interlocutory mandatory injunctions.

[205]

[109] Reliance was placed by the appellant on ex tempore reasons delivered in Ahmet v Pacific Seven Pty Ltd.[24] In that case, Hampel J refused an application by a 7-Eleven franchisee to restrain the defendant franchisor until the trial of the action from entering into possession of the subject premises and from taking steps to terminate the franchise agreement. The relief was refused, principally on the grounds that the plaintiffs had no proprietary or possessory rights beyond "the mere licence". As Mr Keane QC, who appeared with Mr Anderson for the appellant, conceded, that ground of refusal would not appear to accord with principle.[25]

[206]

[110] Mr Keane, however, relied on Hampel J's findings that injunctive relief would have been refused in any event because the close business relationship between the parties had broken down and because damages would be a more appropriate remedy. Mr Keane further developed his argument that the same result should have followed at first instance by reference to Dataforce Pty Ltd v Brambles Holdings.[26] In that case an interlocutory mandatory injunction was refused on the grounds that to make such an order would be tantamount to ordering specific performance of a contract analogous in nature to a contract for personal services. The trial judge concluded also that the contract was one which would involve the court in constant supervision over a longer period.

[207]

[111] The facts of Dataforce are rather different from those now under consideration. The contract in Dataforce was wholly executory and the implementation of its terms would have required a drastic rearrangement of a substantial aspect of the defendant's business with consequent difficulty in restoring the status quo in the event that the plaintiff failed to succeed in the action. Additionally, the implementation of the contract (which had a five year term) would have required frequent and complex interaction between the parties.

[208]

[112] The question of whether damages would provide the respondents with an adequate remedy was hardly so clear that it gave rise to no triable issue. In the circumstances under consideration, it is a matter best suited for determination by a judge possessed of all relevant facts after the trial of the action. There is also the consideration that after trial the court may, in its discretion, conclude that an injunction should lie notwithstanding that its effect might be to order specific performance where equity would not do so.[27] And the fact that damages would provide the plaintiff with an adequate remedy is not necessarily conclusive of a plaintiff's rights.[28]

[209]

[113] The arguments in reliance on the nature of the relationship between franchisor and franchisee and those based on difficulties of enforcement do not demonstrate any error on the part of the primary judge. In this regard the appellant placed particular reliance on the following passage from the Dr Spry's work, The Principles of Equitable Remedies - [29]

[210]

"An agreement by which one of the parties is required to perform duties as an employee or an agent or a partner, or to maintain other personal relationships, is sometimes such that the court, in proceedings for its enforcement, will not be prepared to assume the possible burden of deciding on subsequent applications whether there has been a proper performance of the complex, and often uncertain, obligations in question, so that specific performance is refused on this and related grounds. But there is an additional basis on which specific performance of agreements of this kind is ordinarily refused, for, as was stated by Knight Bruce L.J. where proceedings had been brought by the plaintiffs for the specific performance of a contract for the provision of services, "The inconvenience and mischief to the defendants, to say nothing of the interest of society at large, would be greater if the court should interfere than anything that could possibly happen to the plaintiffs by declining to interfere". This further ground is based not merely upon inconvenience or hardship to a particular defendant, which may vary from case to case, but also upon a general undesirability, from the view of public policy, to force individuals to maintain certain personal relationships, even though they may have earlier freely agreed to do so, and ordinarily it is held that the proper course is to confine the parties to damages."

[211]

[114] The most obvious difficulty with the appellant's arguments in this regard is the limited scope of the injunctions. That point has been made earlier. The fact that the injunctions were granted only for a relatively short period also detracts substantially from any apprehended difficulties in supervision by the Court or arising out of the maintenance of personal relationships between parties who have fallen out.

[212]

[115] At an interlocutory stage, where the merits are unascertained, and where, if there is a failure of "personal relationships", it may be shown to have been brought about by the wrongful conduct of one of the parties, it may be desirable that the status quo be maintained until the true facts can be determined. Nor is it to be assumed that the conduct of the parties and their future relationship will be unaffected by any judicial determination of the issues in dispute. For example, why should it be concluded that if a franchisor's allegations concerning a franchisee, upon which notice of termination of the franchise arrangement is based, are held to be unfounded, that a useful business relationship will not be able to be restored? I use the expression "business relationship" as I doubt that the relationship between the parties under the franchise agreements is based on mutual trust and confidence or that it can be described accurately as "personal".

[213]

[116] Each agreement provides that the franchisee, in relation to the franchisor, is an independent contractor.[30] It contains extensive provisions designed to ensure that the franchisor has a high degree of access to financial information concerning the franchise business as well as considerable control over the running of the business. When, in the reasonable opinion of the franchisor, the franchisee fails over a sustained period of time to achieve a satisfactory operational performance of the franchised business, the franchisor may require the franchisee to sell its rights under the agreement.[31] In short, the relationship between the franchisor and franchisee is more accurately described as one based on business convenience.

[214]

[117] When considering whether an order should be refused on the grounds that it will involve the court in "constant supervision" of continued conduct "questions of degree rather than absolute restrictions upon the scope of curial relief are involved".[32]

[215]

[118] In Patrick Stevedores[33] the court, by implication, accepted that the concept of "constant supervision by the court" did not operate as "an effective or useful criterion for refusing a decree of specific performance". Rather, regard was required to be had to considerations such as the necessity for the person subject to a mandatory order to know with precision what was required under it and the undesirability of an order creating a situation giving rise to "repeated applications for rulings on compliance". The court observed in this regard, however -

[216]

"Reference to constant court applications should not be misunderstood. The courts are well accustomed to the exercise of supervisory jurisdiction upon applications by trustees, receivers, provisional liquidators and others with the responsibility for the conduct of administrations."

[217]

[119] Again, the fact that the order was for a relatively short period is a relevant factor as are its quite narrow terms. If the principle sought to be invoked has application, which I rather doubt, it has not been infringed.

[218]

[120] The appeal is from the exercise of a discretion in an interlocutory matter. As the foregoing discussion demonstrates, the appellant has failed to satisfy the test propounded in cases such as House v The King[34] and Lovell v Lovell[35].

[219]

[1] See the remarks of Hoffman J in Films Rover International Ltd v Canon Film Sales Ltd [1986] 3 All ER 772 at 780-81, cited with approval by Gummow J in Businessworld Computers Pty Ltd v Telecom [1988] FCA 206; (1988) 82 ALR 499 at 502, 3.

[220]

[2] The reference should have been "Bray Park".

[221]

[3] An abbreviation for forms described as "daily charge off summary sheets".

[222]

[4] A bundle of documents tendered by Mr Griffin which included a number of DCOS forms.

[223]

[5] The concluding sentence must be understood as stating that the evidence cannot continue until there is a ruling after submissions.

[224]

[6] This sentence should be read as if "no" was not included in it.

[225]

[7] [1997] HCA 1; (1997) 189 CLR 146.

[226]

[9] (1884) 26 Ch D 700 at 710.

[227]

[12] Uniform Civil Procedure Rules 1999 (Qld), r 227(2)

[228]

[13] Cowell v Rosehill Racecourse Co Ltd (1937) 56 CLR 605, Ahmet v Pacific Seven Pty Ltd, unreported, Supreme Court of Victoria, 30 April 1987 and Meagher, Gummow and Lehane_, Equity: Doctrines and Remedies_, 3rd ed, 1992 at 576-582.

[229]

[14] Voskuilen v Morriset Mega-Market Pty Ltd [2002] NSWSC 63 at para [21].

[230]

[15] Dataforce Pty Ltd v Brambles Holdings Ltd [1988] VicRp 73; [1988] VR 771, Equity: Doctrines and Remedies, (supra) at 502 and Spry on Equitable Remedies, 6th ed, 2001 at 119-130.

[231]

[16] State of Queensland v Australian Telecommunications Commission [1985] HCA 25; (1985) 59 ALJR 562 at 563.

[232]

[17] Castlemaine Tooheys Ltd v The State of South Australia [1986] HCA 58; (1986) 161 CLR 148 at 153 and Redland Bricks Ltd v Morris [1970] AC 652 at 665.

[233]

[18] [1985] HCA 25; (1985) 59 ALJR 562 at 563.

[234]

[19] Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670; Franconi Holdings Pty Ltd v Gunning (1982) 1 SR (WA) 341 and Businessworld Computers Pty Ltd v Australian Telecommunications Commission [1988] FCA 206; (1988) 82 ALR 499.

[235]

[20] Carson v Minister for Education of Qld (1989) 88 ALR 467, Racecourse Totalisators Pty Ltd v Totalisator Administration Board (Qld) (1995) ATPR 40,800; A V Jennings Ltd v First Provincial Building Society Ltd [1996] ATPR 41-494.

[236]

[21] [1991] 1 Qd R 301.

[237]

[22] Including Dataforce Pty Ltd v Brambles Holdings Ltd [1988] VicRp 73; [1988] VR 771.

[238]

[24] Supreme Court of Victoria unreported 30 April 1987.

[239]

[25] See Cowell v Rosehill Racecourse Co Ltd (1937) 56 CLR 605 and Equity: Doctrines and Remedies 4th ed para 21-330.

[240]

[27] See eg Thomas Borthwick & Sons (Australasia) Ltd v South Otago Freezing Co Ltd [1978] 1 NZLR 538; Sanderson Motors (Sales) Pty Ltd v Yorkstar Motors Pty Ltd [1983] 1 NSWLR 513; Axxess Australia Pty Ltd v Primus Telecommunications (Aust) Pty Ltd [2000] VSC 64 and State Transport Authority v Apex Quarries Ltd [1988] VicRp 26; [1988] VR 187 at 192-3.

[241]

[28] cf State Transport Authority v Apex Quarries Ltd (supra) at 193; Evans Marshall & Co Ltd v Bertola SA [1973] 1 WLR 349 at 379.

[242]

[32] Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia [1998] HCA 30; (1998) 195 CLR 1 at 46.

[243]

[34] (1936) 55 CLR 499.

[244]

[35] [1950] HCA 52; (1950) 81 CLR 513.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (244 paragraphs)

Parties

Cases Cited (10)