Essential Beauty Franchising Pty Ltd v Essential Beauty

REASONS FOR JUDGMENT 1 This is an application by the respondents pursuant to s 48 of the Federal Court of Australia Act 1976 (Cth) and r 2.02 of the Federal Court Rules 2011 that this proceeding be transferred from the South Australian Registry to the Queensland Registry of the Court, and thereafter that it be heard by the Court in Brisbane. 2 There is no dispute as to the relevant principles applicable to the application. They were definitively expressed in National Mutual Holdings Pty Ltd v Sentry Corporation (1988) 19 FCR 155 at 162. The Full Court said: There is no onus of proof in the strict sense to be discharged by the party seeking to conduct or continue the proceedings elsewhere. […] The Court must, however, be satisfied, after considering all relevant matters, that there is sound reason to direct that the proceeding be conducted or continued elsewhere. Its starting point is that the proceeding has been commenced at a particular place. Why should it be changed? On the one hand, if the party who commenced the proceeding chose that place capriciously the Court would be justified in giving no weight to the choice of place. At the other end of the scale, a proceeding may have continued for some time at the place of commencement with many steps having taken place there, for example, filing of pleadings and affidavits, discovery and inspection. Due weight would be given by the Court to such matters before directing that the proceeding should continue at a different place. The balance of convenience is important, but its weight must vary from case to case. Ultimately the test is: where can the case be conducted or continued most suitably bearing in mind the interests of all the parties, the ends of justice in the determination of the issues between them, and the most efficient administration of the Court. It cannot and should not, in our opinion, be defined more closely or precisely. 3 The issue to be decided is a practical one. In Lamb v Hoggs Breath Co Pty Ltd (No 1) [2007] FCA 49 at [7], French J (as his Honour then was) observed: The question of the Registry from which proceedings should be conducted does not raise matters of high principle. It is essentially a matter of case management and proper recognition of the legitimate interests of each of the parties reflected, in part, in the balance of convenience as between them and, of course, the convenience of the Court and any economies and efficiencies that may attach to one choice or another. 4 To determine the application, it is desirable to have a broad review of the issues as they arise on the pleadings. 5 Essential Beauty Franchising Pty Ltd (EBF) carries on business as a franchisor in relation to a business format system (the System) under the name "Essential Beauty". EBF claims to be the licensee of the intellectual property rights in relation to the system including the trademarks referred to in [22] of the Second Statement of Claim owned by Essential Beauty (SA) Pty Ltd (EBSA). There is no dispute that EBSA is the owner of the relevant trademarks. 6 The first respondent, Essential Beauty (Qld) Pty Ltd (EBQ) was granted a Master Franchise Agreement in relation to the System for the State of Queensland by written document between EBF and EBQ on about 8 January 2009. The second respondent, Ann Marie Donnarumma (AMD) was also a party to the Master Franchise Agreement as the sole director and shareholder of EBQ. 7 The Master Franchise Agreement was terminated by EBF on 27 June 2011 by notice to EBQ. 8 In the period 8 January 2009 to 27 June 2011, EBQ as the Master Franchisee for the State of Queensland entered into various franchise agreements with "Essential Beauty" franchisees in Queensland (the franchise agreements). It also operated in its own right an Essential Beauty franchise in Kawana Shopping World at Buddina, Queensland for a period from about 14 March 2010 to 28 March 2011. 9 The third respondent, Essential Body Pty Ltd (EBody) was incorporated on 10 January 2011. It is the registered owner of the name "Essential Body Piercing & Jewellery", and the operator of a business trading under that name. 10 The fourth respondent, Mark Andrew Oliphant (MAO) is the spouse of AMD. He is the sole director and shareholder of EBody. There is a dispute as to the extent to which, if at all, AMD has been involved in the operations of EBody. 11 EBF and EBSA claim that EBQ and AMD breached various terms of the Master Franchise Agreement in various ways. In general, it is said that they were engaged in, or concerned in, the activities of the EBody business despite it being a "Restricted Business" contrary to cl 26.2.1 of the Master Franchise Agreement. 12 The defence asserts that cl 26 of the Master Franchise Agreement is void or unenforceable as being contrary to public policy, as well as disputing that the EBody business is a Restricted Business as defined in the Master Franchise Agreement. The pleadings address the matters which are said on the one hand to establish, and on the other hand to rebut, the proposition that the EBody business is a Restricted Business. The defence also disputes that AMD has been principally responsible for the establishment of EBody or the EBody business or its operations, including disputing that AMD was a director of EBody until 10 January 2011 or that she registered the name (other than at the request of MAO). It is common ground that she transferred the EBody business name to MAO on 19 April 2010. 13 The second way in which it is said that the Master Franchise Agreement is breached relates to the non-disclosure of confidential information by providing certain confidential information to EBody and MAO. The defence disputes those allocations, as well as expressing concern about the level of particularity of them in the Statement of Claim. 14 Thirdly it is claimed that EBody or MAO breached various clauses of the Master Franchise Agreement by misapplying the intellectual property of EBF or EBSA and by failing to notify them of the misuse of that property by MAO and EBody. The defence puts in issue the existence of the intellectual property rights asserted, and in addition disputes that any of EBody or EBQ and AMD caused or permitted the misuse of the intellectual property by EBody or by MAO. 15 Fourthly, it is claimed that EBQ on about 28 March 2011 entered into a franchise agreement with Kromkamp Pty Ltd (Kromkamp) for the grant of an Essential Beauty franchise in relation to the Kawana premises, but that they then breached the Master Franchise Agreement by not securing from the franchisee the payments and documents required. It is further claimed that at some later point EBQ and AMD formally arranged with Kromkamp to terminate that franchise agreement, but in reality simply agreed to allow Kromkamp to continue to conduct a substantially similar but differently named business from the same premises with the benefit of the System, and of the intellectual property and the confidential information of EBF and EBSA, when there were no adequate grounds to terminate that franchise and without complying with various provisions of the Master Franchise Agreement. 16 The defence disputes that the grant of the franchise agreement to Kromkamp was done by EBQ in any way in breach of the Master Franchise Agreement, and further disputes that the terms of that agreement were improper. It is also asserted that Kromkamp sought to terminate the franchise agreement by reason of EBQ and EBSA failing to comply with the requirements of the Master Franchise Agreement themselves or properly to disclose the obligations of the new franchisee under the franchise agreement. 17 Fifthly, it is claimed that EBQ did not promote the System or Essential Beauty franchise within Queensland, in essence for the reasons set out above, and that AMD as its sole director worked to promote the EBody business at the expense of the Essential Beauty business. That conduct is said to contravene cl 16.1.3, 16.1.5 and 16.1.6 of the Master Franchise Agreement. 18 It is claimed that EBQ has not accounted to EBF for royalty payments to which it is entitled under cl 25.2.1 of the Master Franchise Agreement, and that EBQ is liable to account for marketing contributions payable under the Master Franchise Agreement (as varied in this respect by an oral arrangement made in August 2010). 19 Those allegations are also disputed. 20 The second cause of action is based upon breach of the trademarks of EBSA. It is alleged that some time in 2010 until about April 2011, the EBody business with the approval of both AMD and MAO used signage and promotional material in support of its business which infringed the trademarks of EBSA. The Essential Beauty business name and logo has a significant reputation throughout Australia, including in Queensland, for the provision of beauty goods and services and that it has some 450 Essential Beauty outlets throughout Australia. The EBF name and reputation, it is claimed, has been extensively advertised and promoted throughout Australia. It is also asserted that EBody has, by the use of its name and in other ways, misrepresented that it is an entity which is associated with the Essential Beauty business and with EBF and EBSA. 21 The defence refers to the logo used by EBody from 6 June 2010 to 16 May 2011 and to its new logo used after that date. It disputes that any of its conduct amounted to passing off its business as that of Essential Beauty or that it made any representation that its business was in any way associated with the Essential Beauty business. It says that the name EBody as presented is not deceptively similar to the name Essential Beauty as presented, and it denies any trademark infringement. 22 The remaining causes of action alleged are: misleading and deceptive conduct, contrary to s 52 of the Trade Practices Act 1975 (Cth), and s 18 of Sch 2 of the Competition and Consumer Act 2011 (Cth); breach of fiduciary duty by EBQ and AMD; and that EBody from 12 May 2011, to the extent that it acted independently of AMD, was a party to the various tortious conduct or contractual breaches alleged against EBQ and AMD. It is not necessary to separately address those allegations for the purposes of the present application. 23 Those claims are based on elements of the conduct already referred to. 24 Separately it is also alleged that the same conduct amounted to an unlawful conspiracy between AMD and MAO and EBody to secure for the benefit of EBody the business it now operates in contravention of, and without any franchise agreement with, EBF and so in breach of cl 26.2.1 of the Master Franchise Agreement. 25 The respondents have brought to the Court's attention the following matters: (1) the respondents are resident in South East Queensland, and have instructed local solicitors at Nambour, Queensland; (2) the applicants are located in Adelaide, and have instructed solicitors in Adelaide; (3) the conduct complained of has almost all taken place in Queensland; (4) the applicants' records are located in Adelaide; (5) the respondents' records are located in South East Queensland; (6) the applicants do not suggest that they lack the financial resources to conduct the claim generally in the Queensland Registry, although (they accept) that may involve the applicants in some greater expense by the need to either engage counsel based in Brisbane or to incur costs of counsel and solicitors travelling to Brisbane for some interlocutory hearings, or perhaps to engage Brisbane based solicitors to act as their agents; although for much of the interlocutory work the applicants will be able to participate by video link or by telephone; (7) the hearing will be conducted much more efficiently in Brisbane as the respondents' witnesses are all in Queensland, and a hearing there will avoid travel and accommodation and undue waiting time for those witnesses; (8) the applicants' witnesses, according to the respondents, are less likely to be controversial or significantly so, because they will largely refer to documentary material; (9) the issue of subpoenas is more likely to involve witnesses or documents located in Queensland, so it is preferable that the subpoenas be returnable in Queensland; (10) no independent expert evidence has yet been specifically signalled, so any proposed independent expert engaged by the applicants could equally be engaged in Brisbane as in Adelaide; (11) given the stage of the proceeding, there is no special benefit in terms of case management in the retention of the existing docket judge. 26 It is not suggested that the South Australian District Registry was capriciously selected by the applicants for the commencement of the proceeding. Consequently, the transfer application is to be determined as a matter of practical judgment in the light of the factors discussed in the authorities. 27 It is also important to note that the proper place of the proceeding is not necessarily the place at which the hearing, or part of the hearing, must take place. The Court has separate power to direct that the hearing, or part of the hearing, take place in Adelaide or Brisbane. It can thus take account of the location of witnesses and the relative economics, efficiencies and convenience of the parties and the other witnesses at a later point in the proceeding. That is so whether the proper place of the proceeding is, or is not changed. Nevertheless, the convenience of the parties more generally - which would to a degree take into account the potential location of the place or places for the hearing - is a consideration on the present application. 28 The application for transfer of the proceeding has been brought in a timely manner, at the close of the pleadings. There is no element of delay on the part of the respondents which, in the exercise of the Court's discretion or the balancing of the relevant considerations, would weigh against granting the application. Nor has the proceeding advanced to such a stage that there is an especial case management benefit in its continued management being done by the existing docket judge. 29 I also consider that the need for the parties to confer with their chosen solicitors is also a neutral consideration in this matter. It is a matter for the parties to select their solicitors, and it is sensible to select solicitors (as they have done) readily accessible to them and their records. The opportunity for the parties to confer with their chosen solicitors conveniently and quickly is a relevant consideration, but it is an opportunity to which both the applicants and the respondents are equally entitled. The transfer of the proper place of the proceeding will not impede or advance the respective capacity to do so. It also does not follow that, because the respondents will be conferring with their solicitors in Nambour, including in relation to any interlocutory issues, the proceeding should be transferred to the Queensland Registry. The question about how and where interlocutory issues may better be resolved is, in my view, a separate one. 30 I do not consider that, for the purposes of further case management, including of any interlocutory issues, that there is reason to transfer the proceeding. Both the applicants and the respondents have, and will continue to have, ready access to their solicitors. They may participate in the case management processes through those solicitors or counsel of their choice. It is hard to see that there will be any additional costs incurred by any of them if, as is expected, the formal management processes largely are uncontentious and any contentious interlocutory issues are resolved either on the papers or by video link or telephone hearings. Subpoenas may be made returnable at a nominated Registry of the Court. There has already been an unsuccessful attempt at mediation of the claim, so there is no need to further consider the practical implications of a Court-ordered mediation. 31 I am not able to form a firm view about where the hearing of the claims should best proceed. The issues are extensive. If, as suggested by counsel for the respondents, the applicants' proposed evidence is largely uncontentious, then it will be clear enough that the hearing should, or should largely take place in Brisbane. However, the claims of the applicants are quite extensive, and I am not presently persuaded that the position is as simple as that. Counsel for the respondents disputed that assertion. I suspect that events will prove that the applicants' evidence may be more extensive than the respondents anticipate, and more contentious. However, that is yet to become clear. The short answer is that, when the position is clearer, a better decision can be made about where the hearing should take place. At present, I am satisfied that there will be significant contentious evidence adduced by or on behalf of the respondents and that probably that evidence should be heard in Brisbane. In expressing that view, I have taken into account the relative costs of the respondents' presently proposed witnesses giving evidence in Adelaide or Brisbane. Clearly, the latter would be more convenient and more economic. I also note in that context that the respondents, through their solicitors, assert that they "lack the financial capacity to pay the additional travel costs associated with the trial of this action occurring in Adelaide, rather than in Brisbane". 32 There is no evidence that, for the purposes of pre-trial management of this proceeding, either the applicants or the respondents will be at an economic disadvantage whether the proper place of the proceeding remains as it is or is changed. Given my comments above, that is not surprising. The proceeding was started in the South Australian District Registry for proper reasons. It involves parties in both South Australia and Queensland. The allegations of fact which are in issue, although they relate largely to events which took place in Queensland, extend more broadly including as to the reputation of Essential Beauty. The convenience of the parties in the pre-trial management of the proceeding is evenly balanced; in fact, for the reasons given, there is no special disadvantage to the applicants or the respondents where the proceeding is conducted from to the time of the trial. The convenience of the Court, likewise, is in my view a neutral consideration for the reasons given. The fact that one of the causes of action is based upon breaches of the Master Franchise Agreement and gives rise to issues as to its validity, and that that agreement nominates the laws of Queensland as the governing law, is in the circumstances only of minor significance: see National Mutual at 105. 33 For those reasons, I have come to the view that no sufficient reason has been shown to transfer the proceeding to the Queensland District Registry. I do not consider that the interests of justice lead to the conclusion that the proceeding should be so transferred. 34 The application for transfer presently is refused. The costs of the application to date are to be the applicants' costs in the cause, unless within seven days the respondents in writing submit that some other order for costs should be made. I have not ordered that the application for transfer be dismissed, so that - if circumstances change - the respondents may renew the application and in any event may use it as a vehicle to seek other interlocutory orders including as to the venue for the hearing. One of the possible change of circumstances which may be the foreshadowed is the possible addition of a further respondent, which is a Queensland based entity. 35 As arranged with counsel, this decision is delivered electronically and the matter will now come on for further directions at 9:30 am (9:00 am Brisbane time) on 19 January 2012. I note that the parties will file and serve the proposed further procedural orders they seek before that date. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.