Bingham & Anor v 7-Eleven Stores Pty Ltd [2002] QSC 209

[1] The applicants are franchisees under two agreements by which they are licensed to operate two Seven Eleven convenience stores, one at Bray Park and one at Morayfield. They seek injunctions restraining the respondent franchisor from acting upon notices dated 15 March 2002 which purported to terminate the respective franchise agreements. The application was in fact filed on 25 March 2002 but has not proceeded earlier, in light of undertakings given by the respondent not to act upon the notices pending settlement negotiations, which were not in the event productive.

[2] It was conceded by Mr Griffin QC for the respondent that there was a serious question to be tried. The dispute between the parties arises in this way. The notices of termination of the franchise agreements were purportedly given in each case pursuant to Article 25(e)(vi) of the franchise agreement which permits the franchisor to terminate if the franchisee is "fraudulent in connection with the operation of the franchised business". The respondent alleges fraud on the part of the applicants which it says consists of their conduct when some chocolate supplied to the applicant's Bray Park store was spoiled as the result of a black out. The male applicant estimated the value of the spoilt chocolate at about $4,600. Such a loss would ordinarily be covered by the respondent's insurance. According to Mr McNamara, the respondent's district manager, he was advised of the incident and took away two crates of the spoiled stock for inspection. However, an employee of the applicants' Morayfield store has said that a quantity of the spoiled chocolate was in fact transferred to that store. She says she asked the male applicant where the chocolate had come from and was told that it had come from Bray Park. Subsequently he asked her to remove the most obviously heat damaged stock from the shelves. It is also said that an audit of confectionary stock sold at the Morayfield store supports the supposition that there has been an unexplained confectionary stock increase at that store.

[3] The male applicant says, however that he placed the damaged stock in the coldroom of the Bray Park store. Employees of the store allege that they saw Mr McNamara removing a number of crates of chocolate goods and were invited by him to do the same. There clearly, therefore, is a factual dispute as to whether the goods in question were taken by Mr McNamara or were moved by the applicants to the Morayfield store.

[4] Obviously the strength of the applicant's case will depend on evaluation of the witnesses' evidence. If the Bray Park employees' evidence were to be accepted, while that of the Morayfield employee and Mr McNamara was rejected, the applicants would be in a powerful position to contend that the notices of termination were given without basis.

[5] Mr Griffin QC for the respondent relied on an unreported decision of Hampel J in Ahmet v Pacific Seven Pty Ltd[1]. In that case his Honour concluded that injunctive relief could not be granted because the plaintiffs possessed no more than a mere licence. This conclusion, no doubt, was based on the proposition in Cowell v Rosehill Racecourse[2] that a licence which does not confer rights over ascertainable property does not create any proprietary interest. But since Cowell courts have taken the view that injunctions should issue to restrain breach of a negative contractual stipulation; that is, not wrongfully to revoke the licence in question. That view seems to be consistent with the statement in Dixon J in JC Williamson v Lukey[3]:

"But perhaps if a clear and negative duty is imposed even by such a contract [that is one the execution of which the court cannot superintend] an injunction may be granted when the remedy at law is inadequate to the right, at least when, by dissolving the injunction in the event of the plaintiff's own subsequent breach of condition, the parties may be restored to the relevant position they occupied before suit."

[6] Thus an equitable jurisdiction to enforce negative contractual stipulations in contracts of licence has been recognised and acted upon; see, for example, Playgoers Co-operative Theatres Ltd v Workers Educational Association of NSW;[4] McMahon v Rowston[5], Sanderson Motors (Sales) v Yorkstar Motors[6]. For a very recent affirmation of the proposition that equity will intervene to restrain a wrongful revocation of a contractual licence, see the discussion in Voskuilen v Morisset Mega-Market Pty Ltd[7], a decision of Young CJ in the Equity Division of the New South Wales Supreme Court.

Injunction where specific performance would not be granted

[7] The second objection to the grant of an injunction in this case was that it would in effect compel specific performance of the parties' agreement in circumstances in which equity would not decree specific performance. Like the agreement considered by Southwell J in Dataforce Pty Ltd v Brambles Holdings[8], the agreement was, Mr Griffin contended, analogous to a contract of personal services possibly requiring the supervision of the court over a long period. The relationship was of a much closer kind than, for example, distributorship agreements referred to in some of the authorities cited for the applicants.

[8] That is certainly the case. The franchise agreement provides, for example, for an open account to be conducted from which the franchisor is to pay for stock purchases and any operating expenses that the franchisor deems necessary, and into which the owners are required to deposit all sales receipts. The franchisees are required to comply with the franchisor's marketing directions and to operate pursuant to the system decreed by it; and the franchisees are required to prepare daily summaries and reports of receipts, time and wage authorisations for the franchisor, while the franchisor prepares financial statements. On my reading of the agreement in the time available, it does appear virtually every facet of the business is under the control of the franchisor.

[9] Mr Wilmot, the national operations manager for the respondent, observes that the relationship between franchisee and franchisor requires trust and confidence and that such a relationship would be breached if a franchisee had been involved in selling damaged stock, the subject of an insurance claim. That, no doubt, is correct and if such a breach were to be established one could understand the impact it might have. But the question of whether there has been such a breach remains to be resolved; and Mr Wilmot does not suggest any aspect of the day-to-day management of the stores which has been affected by the existence of the dispute.

[10] Mr Griffin pointed out that in Ahmet, Hampel J said that he would have refused injunctive relief, quite apart from the lack of rights capable of protection, on the ground that the close business relationship had broken down and damages would be a more appropriate remedy. However, in this case, although there is without any doubt an extremely close business relationship, I do not think the evidence demonstrates that it has broken down.

[11] The dispute between the parties involves a discrete subject matter and time period; that is, the dealing with the spoiled confectionary in February 2002. It is true that in a letter of complaint dated 5 March 2002 about Mr McNamara's alleged conduct the male applicant also made a number of complaints about inappropriate charges made by the respondent, but I do not consider that to demonstrate that the relationship between them has become unworkable. There is, I consider, considerable force in

Mr Jarrett's submission that the parties have managed to continue in their respective roles without apparent difficulty since March, when the termination notices were given.

Whether injunction mandatory - "assurance of success"

[12] Mr Griffin also submitted, citing the decision of Gibbs CJ sitting alone in Queensland v Australian Telecommunications Commission[9] that an injunction of the kind sought would be of a mandatory nature, and ought not be given without a high degree of assurance that the plaintiff's claim would succeed. It is to be noted however, that in Active Leisure (Sports) Pty Ltd v Sportsmen Australia Limited[10] in discussing the rationale for that test, Cooper J at page 314 observed:

"The reasoning behind the `traditional test' [i.e. that adopted by Gibbs CJ] is that where the mandatory interlocutory injunction will, or may, have the effect of finally determining the matter, a defendant ought not to be denied his prima facie right to a full trial if he raises on the material a trial-able issue."

In the present case the effect of the injunction is to preserve the status quo. There is no question of it finally determining the issue of termination of the franchise and, indeed, if there were any failure on the part of the applicants to perform their side of the agreement, the parties could by dissolution of the injunction be restored to the same position they previously occupied so far as the operation of the notices of termination is concerned.

[13] But if a high degree of assurance is required here, I should say this. I doubt one can, at this stage, do much in the way of trying to judge the likely outcome of the evidentiary conflict when the version to be acted upon depends so very heavily on the credit accorded to each side's witnesses, in circumstances where there is nothing inherently incredible in either account, and little by way of objective evidence to shed any light on the plausibility of the respective accounts. When one attempts such an assessment, one can only say, as I have already, that if the applicants' evidence is accepted, their case is strong. It is in that sense only, that I can say I have a high degree of assurance of their ultimate success.

[14] As to other factors affecting the balance of convenience, there is no doubt that refusal of the injunction would have a profound effect on the applicants. The two stores for which they hold franchises are their means of earning a living. Mr Bingham says in his affidavit that he and his wife, without that income, would be unable to pay their mortgage and would risk losing their house. He has neither savings nor any obvious prospect of alternative employment. It might be said that a damages award could redress those matters, although I am not convinced of that; but there arises also the difficulty of the applicants' having firstly the means, without their income, of pursuing their action against the defendants, and secondly, the means of establishing those damages, so far as loss of profit is concerned, if the business is no longer conducted by them. I am satisfied that the balance of convenience favours the grant of an injunction restraining the respondents from acting upon the notices of termination.

[1] Unreported, Supreme Court of Victoria 30 April 1987; number 998 of 1987

[3] [1931] HCA 15; (1931) 45 CLR 282 at 299.

[6] (1983) 1 NSWLR 513.

[7] [2002] NSWSC 63, a decision of Young CJ in the Equity Division of the New South Wales Supreme Court.

[8] [1988] VicRp 73; [1988] VR 771

[9] [1985] HCA 25; (1985) 59 ALJR 562.

[10] [1991] 1 Qd R 301 at 312.