Bytan Pty Ltd v BB Australia Pty Ltd [2012] VSCA 116

2 The appellant seeks a stay of the trial judge's order that the appellant close the video store commencing from 11 May 2012, being Order C referred to in para 17 of the judgment of Pagone J of 4 May 2012.[1]

3 The purpose of the closure, as the judge made clear, is to facilitate the purchase by the first respondent of the assets used in the store pursuant to the terms of the franchise agreement.

4 The principles governing the grant of a stay upon appeal are well understood and were recently restated in David Neate and Tara Farm Pty Ltd v Thoroughbred International Marketing Pty Ltd[2] by Mandie JA and Cavanough AJA. Most relevantly they are:

(a) the power to stay is discretionary, with the onus of demonstrating that a stay is justified resting upon the moving party;

(b) the power to order a stay is to be exercised only where special or exceptional circumstances exist;

(c) such special or exceptional circumstances will exist where there is a real risk that the appeal, if successful, would be rendered nugatory;

(d) special circumstances will exist where, for whatever reason, there is a real risk that it will not be possible for a successful appellant to be restored substantially to its former position if the judgment against it is executed;

(e) even in such circumstances, however, the grant of a stay remains discretionary.

5 In Break Fast Investments Pty Ltd v PCH Melbourne Pty Ltd,[3] Maxwell P made this observation:

As to the contention by [the respondent] that the appeal is of little merit, that is, of course, an argument which can be made against a stay, but it is only ever likely to succeed at an interlocutory stage if there is something palpably weak about the grounds or if they are obviously without substance.[4]

6 It is submitted that it is seriously arguable that Pagone J's reasons for the order in issue were flawed in two fundamental respects:

(a) His Honour, it is said, misdirected himself as to the characterisation of the assets which the franchisor was required under the franchise agreement to purchase upon termination of the agreement in the event that it elected to purchase any assets. In particular, it is contended that those assets included the land upon which the store is located;

(b) The power to require closure of the store and to compulsorily purchase the assets was exercisable, it is said, only for the purpose of facilitating replacement of the franchisee with a new franchisee so as to effect a continuation of the franchise business. That purpose, it is said, could not be given effect in the present case, and for that reason, it is said, the exercise of the power was invalid.

7 For present purposes, it is sufficient to say that I accept that the second point is seriously arguable.

8 If the store is closed, it is apparent that the appellant will suffer immediate and irreparable harm because its business will be peremptorily shut down. In addition, some 11 employees will lose their positions and there will be other consequential losses to third parties which will not be readily compensable. Conversely, if the closure of the store is stayed, the franchisor will potentially suffer a loss of value in the stock and other assets it claims to be entitled to purchase for their present market value. In addition, it may suffer consequential losses if it were precluded from using that stock and those assets to establish another video store in the vicinity.

9 Because of these risks, it seems to me that any grant of a stay must be accompanied by the usual undertaking as to damages on the part of the appellant.

10 The franchisor also asserts that it will be prejudiced if, by reason of the stay, it were placed in a position where it would be too late for it to include the land within the assets covered by its exercise of the contractual option to purchase the assets of the business. This concern assumes that the Court might ultimately uphold the appellant's claim that the land was required to be included in any valid exercise of the option under the relevant provision of the franchise agreement.

11 In answer to this concern, counsel for the appellant has indicated that the appellant accepts that the relevant option should be extended to a date seven days after the hearing and determination of the appeal, in effect mirroring an extension which was agreed to in the course of the trial before Pagone J.

12 The franchise agreement also contemplates that the assets will be valued independently in order to facilitate their purchase. The franchisor submits that this valuation should proceed in order to protect the benefit to which his Honour the trial judge concluded it was entitled in the event that the appeal fails.

13 Once again, counsel for the appellant has agreed that the valuation should proceed in accordance with the franchise agreement and that, in the first instance, the valuation should take place on the basis that the costs are borne equally by the appellant and the first respondent.

14 In all the circumstances, I am persuaded a stay should be granted of his Honour's order with respect to the closure of the business, subject to appropriate terms. The balance of discretionary factors significantly favours a stay, provided it is offset by appropriate conditions. More particularly, if no stay is granted, the appellant is at risk of substantial and irreparable loss which would, in effect, render the outcome of a successful appeal nugatory in practical terms. On the other hand, the respondent can be protected against any consequential loss flowing from a stay if the appeal is ultimately unsuccessful.

15 Accordingly, I would make orders upon, in the first instance, undertakings being given by the appellant to the following effect:

16 Firstly, that the appellant give the usual undertaking as to damages, being an undertaking by its counsel to abide by any order that the Court may make as to damages in case the Court shall hereafter be of the opinion that the respondent shall sustain any by reason of this order which the appellant ought to pay.

17 Secondly, that the appellant agree that the option to purchase the assets used in the store including the land known as 8 Eastern Road, Turramurra in the State of New South Wales and contained in folio identifier 4/12905 and 5/12905 be extended to seven days after the hearing and determination of this appeal.

1. That orders C and D referred to in para 17 of the judgment of Pagone J dated 4 May 2012 be stayed until the hearing and determination of this appeal or further order of the Court.

2. That the assets used in the store forming the subject matter of the orders of Pagone J made 4 May 2012 be valued in accordance with clause 18.16 of the agreement referred to in the said orders and that the costs of such valuation be borne equally in the first instance by the appellant and the first respondent.

3. That the appeal, which is estimated at half a day, be fixed for hearing with such expedition as the Registrar of the Court of Appeal sees fit to accord it.

4. That liberty to apply be reserved with respect to the above orders and generally.

5. That the costs of this application be costs in the appeal.

19 I should add, by way of clarification, that insofar as the valuation is to be with respect to the assets forming the subject matter of the orders of Pagone J, what is intended is that this will not include the land.

20 I agree that the orders proposed by Osborn JA should be made for the reasons his Honour has given.

[1] [2012] VSC 171.

[2] [2012] VSCA 65, [5]-[8].

[3] [2007] VSCA 118.