Dantal Pty Ltd v Independent Franchise Systems Pty Ltd [2001] VSC 139

8. Independent Franchise Systems Pty Ltd is the franchisor of a series of convenience stores which trade under the name "Night Owl". By a franchise agreement dated 8 November 1999 Dantal Pty Ltd became the occupier of the convenience store, the subject of this proceeding. The effect of the franchise agreement was to grant to Dantal Pty Ltd a licence to occupy the convenience store upon certain complex terms. Some of those terms required the licensee, Dantal Pty Ltd, to perform certain obligations which the tenant, the franchisor owed to the landlord, Nestor Nominees Pty Ltd.

11. Dantal Pty Ltd entered into possession and operated the convenience store until on 19 December 2000 a notice was served upon it alleging breaches which allegedly entitled Nestor Nominees Pty Ltd to regain possession of the premises. All of those alleged breaches were remedied with, it is said, the exception of two. Subsequently, on 9 February 2001 a further document entitled "Notice of Re-entry" was served upon Dantal Pty Ltd alleging two breaches: One, the failure by it to provide what is referred to as a bank guarantee in the sum of $60,000 and the second being a failure by it to pay for certain oil which it is alleged it purchased from the landlord.

14. The second of those two alleged breaches was remedied by the payment of the amount claimed although it was submitted by Mr Waller for the plaintiff that there was never any obligation under the lease to make such a payment and that the obligation arose purely on the basis of a contract for goods sold and delivered.

17. The other obligation which it is said constituted a breach was an obligation which arose under clause 9.12 of the special conditions attached to the lease in these terms:

"To guarantee payment of the moneys owing to the landlord from time to time the tenant will ensure that a franchisee or sub-tenant will give to the landlord in a form to be approved by the landlord or landlord's solicitor a bank guarantee of $60,000 which the landlord may apply towards any shortfall or default with respect to payment of the value of the sale of the landlord's products. This sub-clause is only applicable to a franchisee or sub-tenant of the tenant which is in occupation of the premises and is conducting the business at the premises".

21. It can be seen that there is no obligation on the tenant, Dantal Pty Ltd, to provide the relevant guarantee but rather an obligation on Independent Franchise Systems Pty Ltd to procure a guarantee to guarantee the performance of Dantal Pty Ltd in respect of its collection of money on behalf of or to be paid to the account of the landlord. That bank guarantee had not as at this morning been provided.

24. Shortly after giving the notice dated 9 February 2001, namely on 20 February 2001, the landlord, Nestor Nominees Pty Ltd, re-entered into possession of the premises by its servants or agents taking possession at an early hour of the morning. Shortly thereafter the plaintiff commenced this proceeding and sought interlocutory relief in the form of an injunction to permit it to re-enter the premises pending the determination of the matters raised in the proceeding.

27. The writ to which I have referred has a general endorsement of claim upon it. At the commencement of today's hearing the plaintiff sought to amend that endorsement and, at my suggestion, tendered a document entitled "Amended Endorsement of Claim" which I gave leave to file and to treat henceforth as a statement of claim in the action. That claim raises a number of significant issues concerning the lease, the occupation of the premises by Dantal Pty Ltd and, of course, the circumstances in which Nestor Nominees Pty Ltd retook possession.

30. By a summons issued immediately after the writ, Dantal Pty Ltd sought the interlocutory relief to which I have referred. This morning it sought to amend that summons by widening the relief slightly and by re-defining some of the matters to be contained in the injunction. I granted leave to the plaintiff to file an amended summons incorporating the changes to which I refer.

33. The interlocutory relief sought by the amended summons included an order requiring the first defendant to return certain goods which were left in the premises at the point at which possession was retaken by Nestor Nominees Pty Ltd and an injunction, in effect, reversing the act of possession by Nestor Nominees Pty Ltd and restoring Dantal Pty Ltd to possession. Certain other consequential orders were sought.

36. In the course of argument it became clear that the injunction concerning the goods was not required and was no longer pressed by the plaintiff. Accordingly, I now dismiss the application for the interlocutory injunction sought in para.1 of the amended summons.

39. The other interlocutory injunctions effectively restoring possession of the premises to Dantal Pty Ltd were pressed and the plaintiff's submissions were made both in writing and orally by Mr I Waller of counsel. The defendant, Independent Franchise Systems Pty Ltd was represented by Mr S Marantelli and Nestor Nominees Pty Ltd by Mr M Goldblatt.

42. The granting of interlocutory relief such as that sought in this case depends upon the Court being of the view that it is just, in all the circumstances, that the status quo ante be restored pending the determination of the matters raised in the proceeding. The courts have long held that two considerations must move the Court to grant such injunctive relief. The first is that the Court considers that there is a serious issue or issues to be tried raised in the proceeding and the second is that the balance of convenience (as it is called) should favour the granting of the injunction.

45. In the case of an injunction which might be said to be a mandatory injunction, it is sometimes said that there are further considerations, namely as to whether the strength of the plaintiff's case is such that the mandatory injunction should go.

48. In this case there was little argument that there are serious issues to be tried. Questions relating to the status of Dantal Pty Ltd in its occupation of the relevant premises, its relationship to Nestor Nominees Pty Ltd whether as sub-tenant, occupier under a licence or some other relationship raise what are, in my view, serious issues. Questions of whether there is any privity of estate between Dantal Pty Ltd and Nestor Nominees Pty Ltd or whether Nestor Nominees Pty Ltd's rights are purely contractual and then only against the first defendant, Independent Franchise Systems Pty Ltd are all raised for consideration.

51. Mr Goldblatt for the second defendant, whilst conceding that there were a number of significant matters which raised serious issues to be tried, submitted that as an interlocutory injunction in this case would require the restoration of a lease which his client had, in effect, forfeited and which forfeiture was not being contested by the tenant under the lease, meant that the issue of tenure in respect of the premises was already decided conclusively such that there was no issue which now admitted of argument.

54. He pointed to the fact that the plaintiff had not sought by its summons any relief against forfeiture if, indeed, it had the standing to make such an application. However, the proceeding itself seeks relief against forfeiture and it seems to me that there are serious issues not only in relation to relief against forfeiture but going to the very basis upon which Dantal Pty Ltd occupied the premises which require to be determined in a proper trial.

57. The second question, the balance of convenience, raises more difficult matters. The plaintiff is a company controlled by a Mr Michael Israel who with his wife operated the convenience store until Dantal Pty Ltd was ejected. He has deposed that the convenience store was the livelihood of him, his wife and his family and that it enabled him to provide for his family which consisted, apart from his wife, of five school age children. He deposed to the fact that he had no other livelihood and that his income depended upon the operation of the store.

60. Mr Marantelli for the first defendant relied upon a number of affidavits by various people who deposed to matters critical of the way in which Mr and Mrs Israel operated the convenience store. Some of those affidavits were by co-tenants of the complex, some were by other people who deposed that the store had been badly run and was not providing the service which it was required to provide under both the franchise agreement and perhaps also the lease. Various individual occurrences were pointed to including one in which the safety of the premises was allegedly jeopardised by a failure to properly turn off the electrical systems whilst LPG gas was escaping, uncontrolled, on the driveway.

63. The determination of an interlocutory injunction, in the circumstances where it has been fully argued such as today but where the degree of urgency is such that a decision must be given without any great time for reflection or consideration, means that the decision must, in a sense, be made as the material appears at first glance.

66. In my opinion, the balance of convenience here favours the granting of an injunction and the restoration of Mr and Mrs Israel and their company, Dantal Pty Ltd, to possession of the premises. I am fortified in that conclusion by the decision of J D Phillips J of this court in the case of Barber and Anor v Pure & Natural (Aust) Pty Ltd (unreported) delivered 21 October 1993, noted in Victorian Conveyancing Law & Practice under the citation (1994) V.Con.R.54.490.

69. In that case which had some similarities to the present, His Honour restored the operators of a convenience store to their premises in circumstances where they had been dispossessed similarly to the plaintiff in this case. In particular, His Honour dealt with the question of the granting of an injunction in the nature of a mandatory injunction and such restrictions as have traditionally been applied by courts on that exercise.

72. In the case His Honour was considering, the plaintiffs were in a not dissimilar position to Mr and Mrs Israel. His Honour characterised the act done by the defendant there of changing the locks on the premises as a reasonably simple act that was capable of being reversed.

75. Here, the act of the defendants may, in one sense, be slightly more complex in that they have regained full possession of the premises but, nevertheless, it is not a step which cannot be reversed and I propose to grant an injunction that it be reversed.

78. Questions arose in the course of argument as to conditions upon which an injunction might be granted in this case and other questions arose as to the undertakings as to damages. Mr Marantelli and Mr Goldblatt submitted that if an injunction were to go it should be on the basis that there be security to support the usual undertaking as to damages.

81. Mr Waller opposed such a position, pointing to the fact that the plaintiff had in the past met its financial obligations even if it had done so (at least in December of last year) only after receiving a notice.

84. I have been troubled by the appearance overall from the affidavits which I have read of at least the hint of financial difficulty which may surround the operation of this business. However, having regard to the fact that the condition upon which I propose to grant this injunction involves compliance by the plaintiff with the delivery to the second defendant of the bank guarantee contemplated by the clause to which I have referred, it seems to me that it would be inappropriate to add to that security any security to support an undertaking as to damages. However, I do propose to require as a condition of the injunction that there be undertakings as to damages, not only by Dantal Pty Ltd but also by Michael Israel and Judith Israel.

87. Accordingly, if the plaintiff is prepared to give the undertakings which I have indicated and if Mr and Mrs Israel are prepared to give like undertakings, I shall make orders in these terms:

90. Upon the plaintiff delivering to the second defendant a bank guarantee complying with the requirements of clause 19.2 of the special conditions of the lease between Nestor Nominees Pty Ltd and Independent Franchise Systems Pty Ltd dated 9 April 1998 by 12 noon on 1 March 2001; and Upon the plaintiff by its counsel and Michael Israel and Judith Israel undertaking to abide by any order the Court may make as to damages in case the Court should hereinafter be of the opinion the defendants shall have sustained any by reason of the making of this order which the plaintiff ought to pay, the Court will make the following orders:

1. The dcfendants deliver up and return possession to theplaintiff of the premises situate and known as 1150 Nepean Highway, Highett being a convenience store and being the premises the subject of the lease dated 9 April 1998 made between the defendants, by 2.00 p.m. on 1 March 2001.

2. Until the hearing and determination of this proceeding or further order of the Court the first defendant, its servants and agents be and are hereby restrained from taking any further action to terminate the franchise agreement between the plaintiff and the first defendant consequent on its notices dated 18 January 2001, 2 February 2001, 9 February 2001 or 26 February 2001.

3. Until the hearing and determination of this proceeding or further order of the Court the first defendant, its servants and agents be and are hereby restrained from taking any further action to forfeit the lease consequent on the Notice of Breach dated 19 December 2000 or the Notice of Re-entry dated 9 February 2001.

Your Honour, before we get to that. It's probably not so much a matter that affects me and I was going to have a quick word to my friend, Mr Goldblatt. Two o'clock tomorrow might be a bit soon because I anticipate there will have to be a stock take.

There are two issues that flow, Your Honour, and I can indicate to Your Honour that my learned friend, Mr Waller and I had discussions about the bank guarantee and just the excise of the offending words which aren't factually correct we're happy with the consent to the guarantee in accordance with 9.12.

That's a question for you. The reason that I gave that condition in the way that I did was to place the obligation on Mr Waller's client to comply and for you to accept the compliance.

And I'm merely pointing out to the Court because my client was accused of playing tactics and we certainly aren't. We just want the words that are factually incorrect to go out. We've only consideration, in any event. The stock take is the other issue, Your Honour.

Yes, I had forgotten that there would need to be a stock take. Can you discuss this matter, Mr Waller, with Mr Goldblatt.

You will need to get the instructions. Perhaps I should - well, we'll resolve this question first. What seems to be possible, Mr Goldblatt?

My learned friend suggested noon on Friday. I'm just seeking instructions. Your Honour, what we need to do just from a logistical point of view is get an independent stock taker in and we'll need to do that tomorrow because it will be closed today to find out.

Mr Waller, if I make the order operative from 2.00 p.m. on Friday.

I'm inclined to suggest that that would be a reasonable course.

There will be liberty to apply. The parties, of course, can also agree on something - an earlier time or a later time if they want to. I've made 12 noon tomorrow for the provision of the bank document. Is that doable?

The landlord and plaintiff are in agreement but it requires the bank to agree.

Yes. But once again, the parties can agree to extend that time as between themselves.

If Your Honour's minded to extend the other date, could we extend that date to 12 noon on Friday.

Yes, I'm quite happy to do that. Does that trouble you, Mr Goldblatt?

No, Your Honour, we will have two hours then between which is the same import as - - -

Yes. I will alter the undertakings to substitute 12 noon on 2 March 2001 for the provision of the bank guarantee and 2.00 p.m. on 2 March for the yielding of possession with an indication, of course, that if the parties come to an agreement for earlier or later performance of those obligations well they can do so. Was there anything else in relation to the orders?

There is, Your Honour. I didn't mean in anything I said during my submissions to abandon that part of the interlocutory relief that deals with certain goods that have not yet been returned and, in particular, the stock which is in the premises and certain amounts of money that are, in fact, identified in a letter from the landlord's solicitor to my instructors following the original orders made by Gillard J.

I can, for the purposes of this, just concede that as far as the delivery up of goods - and that's why I thought it was all academic. If Your Honour ordered the injunction we deliver up the premises with the goods then subject to what's been sold.

Yes, I will make it clear that my dismissal of the application under para.1 of the amended summons is without prejudice to any necessary application in relation to the same goods should that become necessary. So there's no problem about that. If there's a problem it can be brought back.

There were also four amounts of cash referred to in a letter of 23 February which were in the register or the safe.

They're deposed to by one of the defendants - one of the defendants' deponents so they're acknowledged as having existed.

I daresay if there's any problem about that that can also be the subject of further - - -

Indeed. Gillard J made orders of an interim nature that certain accounts be kept until 4.00 p.m. on the 27th and by agreement yesterday that was extended to 4.00 p.m. on 28 February. Those accounts will need to be provided to the plaintiff so that any consequential relief that may need to be sought in respect of balancing matters can be made.

I will reserve liberty to apply and if there's nothing else related to the substantive orders, what about the issue of costs?

First, I should say that I have instructions on behalf of the plaintiff and also on behalf of both Mr Michael Israel and Mrs Judith Israel to give the undertaking Your Honour mentioned.

And do you warrant a retainer on behalf of Mr and Mrs Israel which enables you to give that undertaking, Mr Waller?

I am not retained by them but one way around it may be for Your Honour to direct the question at them, they are in court.

Yes, I can do that. Have you explained to them the effect of - - -

My instructing solicitor has explained the nature and effect and ultimate consequence of giving such an undertaking.

Yes, all right. I will seek that undertaking from Mr and Mrs Israel. Mr Israel and Mrs Israel, would you stand up, please. Would you perhaps come forward, Mrs Israel and Mr Israel. Mr Israel first. Mr Israel, what is your full name?

Mr Israel, have you had explained to you by Mr Waller the seriousness of an undertaking as to damages to this Court should you give such an undertaking?

Are you prepared to give an undertaking to pay any damages this Court should hereafter be of the opinion the defendants have sustained by reason of this interlocutory injunction that I'm about to make?

Mrs Israel, have you had explained to you by Mr Waller the seriousness of an undertaking as to damages?

Mrs Israel, do you undertake to abide by any order this Court may ultimately make as to damages if the Court should hereinafter be of the opinion that the defendants have sustained any by reason of the making of this order which the plaintiff ought to pay.

On the basis of those undertakings I will grant the injunctions that I have outlined. I will reserve liberty to apply. I will order that this order be drawn up by the plaintiff's solicitors and signed by a judge pursuant to Order 64.01 of the Rules of Civil Procedure. And then the question of costs.

Your Honour, in my submission, an order should be made that the defendants pay the plaintiff's costs of this application for this reason: The step that was taken by the defendants in this case was an extreme one. It was done at a time and in a manner designed to take the plaintiff by surprise.

Yes, I think you can put it shortly that you rely on the circumstances under which the event occurred.

In my submission, it's discrete whether they win or lose at trial, they should have the costs of this application and, in my submission, because the serious questions that Your Honour's identified are, in my submission, clearly made out. They were justified in bringing the relief, they have succeeded, costs should follow the event. They should not suffer any further financial detriment by having to wait until trial for all issues and interlocutory costs to be worked out. If Your Honour pleases.

Your Honour, I'm a bit reluctant to say the invariable - but the very usual practice of the court

No, but it's the usual practice in 99 times out of 100. That in an application for interlocutory relief where the plaintiff is successful the costs are reserved. The normal procedure is if the plaintiff is unsuccessful the defendant has to pay the costs but if the plaintiff is successful then the costs are reserved for the very good reason that it may prove ultimately that the relief should never have been granted. And my friend cites the circumstances of the re-entry. The circumstances of this re-entry in cases of this nature is very commonplace.

Just very quickly responding to that, Your Honour. We gave the notice on 19 December about the bank guarantee. Two months later we went in and we get the bank guarantee in a form this morning and I think that probably speaks for itself. We do seek costs - I do on behalf of my client, Your Honour, seek costs of yesterday. The normal course in an injunction is if they are successful costs in the cause of costs reserved. Yesterday the costs were thrown away because they went to the Practice Court seeking relief, they didn't go to the Listing Master seeking a judge like Your Honour to hear the matter discreetly. My learned friend Mr Waller was on his feet for three to three and a quarter hours. Mr Marantelli, thirty minutes, I was 25 minutes but mainly because of the exigencies of time. The matter was clearly not appropriate to go in the Practice Court. Yesterday's costs were thrown away and only by virtue of the plaintiff's conduct. We were blameless in that regard because we were brought to the Practice Court. Beach J, in throwing it out of the Practice Court yesterday, has proved by the time of day today to have been totally justified.

The Listing Master did. I mentioned the issue of costs to His Honour, His Honour left it to the Listing Master and the Listing Master then reserved the costs of yesterday.

Beach J also said yesterday when calling on the case and going through the list and having a callover His Honour made a fairly obvious comment that he said "This is a case that should never have been in this court because of the volume of material" and the practice, Your Honour, is if a case is going to take more than two hours it oughtn't be returnable.

The remaining matter is what steps should be taken to progress this case as quickly as possible because that seems to me to be a matter of some importance? We've now got a statement of claim. Is there any reason why I shouldn't give directions now, as it were, having finished this hearing, move into a directions hearing and give some directions as to what should happen to this matter from now on?

There is no reason why Your Honour shouldn't make those directions.

I need a bit more time than that, Your Honour. Perhaps 14 to 21 days, Your Honour, something in that order.

Order the defendants to file their defences and any counterclaim by 16 March 2001.

Order the plaintiff to file any reply and defence by 30 March 2001.

I won't make any orders for any further pleadings. They can be dealt with by agreement or by the rules, if necessary.

What about discovery? Is discovery going to be required in this case and, if so, what sort of limited discovery is appropriate?

It certainly will be required - I can envisage a situation that there will be some financial type of discovery sought probably by all parties that might not yet become apparent to the extent of it. A lot of the documents that are in the affidavit material would be the bulk of the discovery in relation to the liabilities but there'll be some accounting stuff that needs to be - I would submit that we should - perhaps in this case adopt the Federal Court procedure where the parties exchange lists of categories.

Yes. I'm minded to order that lists of documents - I won't categorise them, I'll simply leave them as a general list of documents be exchanged - lists of discoverable documents be exchanged by - I think the issues will be reasonably defined by the time you've got the defences. What about if I say 30 March 2001? That's a month.

Your Honour, it may be that it's not until the pleadings are closed that the issues are defined finally. 14 April?

Yes, all right, 14 April 2001. And that the matter be then referred to the Listing Master.

Sometimes judges in the Practice Court attach the rider "with such priority as she can afford it".

Yes, well we can add that. With such priority as she can afford it. I think that gives some directions.

Does Your Honour want the substantive order to include those directions?

Well, it can, yes, I think it can. It can just follow on from the end of it. I don't think you need to do two documents.

Your Honour, we will re-engross the order and provide it do Your Honour's associate either this afternoon or first thing tomorrow.

I don't think there would be any point doing it this afternoon. If you do it tomorrow morning will be early enough. And if you provide it with a disk, if there are any amendments to be made we'll make them.

Your Honour, might I say on behalf of my friends and all the parties, we're very grateful for Your Honour sitting to this late hour. It saves us all the inconvenience and expense of coming back tomorrow and we're all grateful for that Your Honour.