GG Australia Pty Ltd v Sever

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1115 of 2015

JUDGE: GRIFFITHS J DATE: 18 september 2015 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 This is an application brought under r 7.01 of the Federal Court Rules 2011 (Cth) (FCRs). The applicants, who are in a franchise relationship with an American franchisor, are involved in building and operating gymnasiums. They use the brand name Gold's Gym. There is a Gold's Gym in Townsville which it seems was built by the first respondent. There is another Gold's Gym currently being built in Canberra at Tuggeranong, and there is an existing and operating Gold's Gym in another part of Canberra, in Fyshwick. 2 There has been a falling out of a commercial nature between the applicants and the respondents regarding the construction of the gym in Townsville. The second respondent contends that it is still owed $620,000 in respect of that building project. The debt is apparently disputed. I was told that on 8 September 2015, the second respondent had commenced proceedings in the Supreme Court of Queensland in respect of that $620,000 debt. 3 The application before me seeks an order before the start of a proceeding. The basis for the application is that the applicants contend that the respondents - particularly the first respondent, Mr Zoran Sever - have engaged in conduct which is misleading or deceptive, contrary to the relevant provisions of the Australian Consumer Law, and have also engaged in conduct which amounts to injurious falsehoods, tortious interference in contractual relations and defamation in relation to a director of the first applicant, namely, Mr Leigh Taylforth. 4 The application came before me late on Friday afternoon in my capacity as duty judge. The applicants relied on four affidavits. They are the affidavits of Mr Leigh Taylforth, who is a director of the first applicant; Mr Scott Taylforth, who is the project manager and works with Gold's Gyms in Australia; Mr Matthew Vozella, who is a club manager of the Gold's Gym in Fyshwick; and an affidavit of Mr James Smith, who describes himself as a builder and who works with the Oasis Construction Group, and deposes in his affidavit to some discussions that he had with Mr Sever in Canberra in relation to the Tuggeranong Gold's Gym. 5 In opposing the application, the respondents relied upon an affidavit of Mr Adam Brown, who is a solicitor who acts for the respondents. Mr Brown effectively summarises instructions he says that he received today from Mr Sever regarding various matters that are raised in the affidavits that are relied upon by the applicants. I will also need, in due course, to come back and refer to a letter dated 18 September 2015, which was written by the respondents' solicitors to the applicants' solicitors in relation to this application. That letter became Exhibit 1 in the proceeding. 6 I note at this point that there is a statement in that letter which is also reflected in Mr Brown's affidavit, to the effect that the first respondent denies that he has said or implied that the applicants are insolvent. That is one of the major complaints brought by the applicants and, perhaps, the most critical thing driving them to make this application. 7 In summary terms, the applicants' case is that Mr Sever and his company are disgruntled ex-contractors with the applicants. He has commenced proceedings in the Queensland Supreme Court, already mentioned, and the allegation is that he is engaging in conduct which is designed primarily to apply improper pressure to the applicants to settle or come to some arrangement in relation to that legal proceeding. 8 Apart from complaining that the respondents and Mr Sever in particular have claimed to various people that the applicants are insolvent and are trading while insolvent, the applicants also allege that Mr Sever has told third parties that the applicants will be closed down by ASIC; that he has told various people, including tradesmen and contractors who are currently working on Gold's Gym projects that they would not get paid and that they should walk off the job otherwise they would get "ripped off." It is also alleged that Mr Sever has told third parties that Mr Taylforth would soon become a bankrupt. 9 Mr Afshar, who appeared for the applicants, took me to various parts of the affidavits to which I have made reference above, with a view to establishing that there is a prima facie case of at least misleading or deceptive conduct in relation to the matters that I have described above. Of particular significance, at this interlocutory stage, are three letters or emails which the first respondent has sent. I will deal with them in turn. 10 The first is an email which does not bear a date, but apparently was sent in August 2015. It was sent by Mr Sever to the US franchisor of the Gold's Gym brand. Mr Sever described himself as senior director of Sphere Projects Pty Limited. In that email, Mr Sever drew attention to the fact that there was an outstanding debt of $630,000 and that he was in the process of commencing proceedings in the Supreme Court to recover his losses. 11 There is little or no doubt that Mr Sever's purpose in writing this letter was to seek to put pressure on the US parent to have its franchisee in Australia settle those proceedings. Mr Sever's letter contains the following passages (errors in original): But on end of the day, GGA and GGT is not looking good in public knowing they management hurting small businesses and Family businesses operators. I am not only one company GGA owning money to, it is other but smaller amounts of money. I just want to bring this to your attention GGA and GGT my operating insolvent in Australian market. 12 As is evident from those passages, Mr Sever's literacy leaves something to be desired, but it is at least arguable that what he was seeking to assert was that the relevant companies were operating when they were insolvent. That same letter concludes with Mr Sever saying (errors in original): I am shore GGUSA do not need this sort of marketing anywhere on the planet. 13 The second letter to which reference should be made is an email dated 10 September 2015, which Mr Sever sent to a receptionist at the Tuggeranong Hyperdome. The receptionist apparently works for the landlord of the Gold's Gym in the Tuggeranong Shopping Centre. Mr Sever's letter expressly requested that his email be passed onto the retail manager and leasing executive of that landlord company. The letter stated as follows (errors in original): Just to make you aware of Golds Gym Australia, Golds Gym Townsville and Leigh Taylforth Managing Director, Gold's Gym Australia Personally served in Supreme Court of QLD. Reason unpaid construction and supply invoice for Gold's Gym $ 622,643.35 plus legal cost. In my knowledge if company is not paying bills, that is insolvent operation and not legal. Just to help you to not to get in the same position as I am in 14 Again, despite the rather ungrammatical expression, there is little or no doubt that Mr Sever's intention was to state that the applicant companies were insolvent operations and that Mr Sever was seeking to apply pressure on those companies to settle the dispute in the Queensland Supreme Court by writing to the company's Tuggeranong landlord. 15 The third email is one dated 14 September 2015. It was sent by Mr Sever to a Natalie Taylor at Gold's Gym Australia. That email said, omitting irrelevant parts: Just to keep you posted what is happening in this stage with GGA, GGT and Leigh personally for $622,643.35. This is a reference to the sum that is in dispute in the Queensland proceedings. Mr Sever then proceeded in his email to say (errors in original): My understanding is if any company is not paying tax invoices for goods and services it is designated Insolvent operation. 16 The comments above about the construction of the similar statements in the earlier two items of Mr Sever's written correspondence apply equally here. 17 I was also taken to various other evidence relating to oral statements which Mr Sever has made to various third parties, including tradesmen and the like. It is unnecessary for the purposes of this application for me to set them out in any detail. I am satisfied that the three letters to which I have referred above present an arguable case that the statements made by Mr Sever assert that the companies are insolvent. 18 No material was placed before me by the respondents to suggest that there was any proper basis for those statements being made. Mr Leigh Taylforth, who is the sole director of GG Australia Pty Ltd (GG Australia), GG Townsville Pty Ltd (GG Townsville) and GG Tuggeranong Pty Ltd (GG Tuggeranong), swore in his affidavit that GG Australia and GG Townsville are both solvent and have, at all times, been solvent. He deposed that they are both able to pay and satisfy their liabilities as and when they fall due. 19 It is notable that the three pieces of written correspondence to which I have made reference are over the period from some time, it would appear, in late August 2015 through until as recently as the beginning of this week, namely, 14 September. There would appear to be a concerted campaign being conducted by Mr Sever to seek to advance his interests in the Queensland litigation by advising people whom he believes to be influential of his view that the applicant companies are insolvent. 20 I am also satisfied, having regard to those statements, together with the oral statements that Mr Sever has made to various other individuals, tradesmen and the like, that this is part of a campaign by him to bring pressure to bear on the applicants in respect of those Queensland proceedings. 21 Mr Travis, who appeared for the respondents, made a submission that the Court should not be persuaded at this interlocutory stage that it had jurisdiction to entertain the application. In particular, he submitted that the statements to which reference has been made could not be regarded as statements in trade or commerce, and he cited the High Court's decision in Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594. 22 I disagree. When the statements are looked at in their proper context, namely in the context of an ongoing commercial dispute between the parties arising from the building project carried out by the respondents in Townsville which has then led to litigation in the Queensland Supreme Court, it seems to me strongly arguable that the statements were statements that were made in trade and commerce. The fact that other causes of action are contemplated in respect of injurious falsehood, tortious interference in contractual relations and defamation are matters which could be brought in this Court under its accrued jurisdiction, as long as it has jurisdiction under the Australian Consumer Law which, on the face of it at least, it would appear comfortably to have. 23 I also accept that the evidence that the statements and oral communications to which I have made reference has caused loss and damage to the applicants and to their brand. The evidence of that loss is to be found, in particular, in the affidavit of Mr Leigh Taylforth. That damage includes the impact on the US franchisor as deposed to in Mr Taylforth's affidavit in [34] in particular: After this conversation, I received an email from Mr Hicks, a copy of which is behind tab 22 of LT-1. I was in the United States at that time and Mr Hicks asked me to meet him in person. During that meeting, we had the following conversation. Tim What's the update in this? Aaron, the company president, is very worried and concerned about the email we have received. What's your position concerning the operations in Australia? I Everything is fine. The business is running well. This guy is being really unreasonable. We have made a great effort to put the matter to bed. I know that there are accusations of insolvent trading and can assure you that we are not insolvent and are not trading whilst insolvent. 24 Mr Taylforth also gave evidence of the effects of the email which Mr Sever sent to his company's Tuggeranong landlord. That information is set out in his affidavit in [50]-[56]: At the time, the landlord had agreed to contribute monies to the fit-out of the gym at Tuggeranong. On or about 9 September 2015, the landlord had transferred $156,000 into our bank account. On or about 10 September 2015, I received an email from the Commonwealth Bank, a copy of which is behind tab 27 of LT-1. I immediately logged into my internet bank account and saw that the amount was no longer visible as part of my account balance. I then called Jodee Marques from the landlord and had the following conversation. I I just had $156,000 taken out of my account. I cannot see it there. Jodee Ah, Nathan, our leasing executive tried to call you this morning. We have received communications from Sphere Projects saying that you guys are trading whilst insolvent and that you are going to be shut down by ASIC, and that you guys are likely to use the fit-out money and not do the fit-out. I We have a 10-year lease and you have a guarantee from me. You know we have a long trading history and also know the position of my assets and liabilities. Jodee I suggest you call Matt Thomson. Then I called Matt and had the following conversation with him. Matt We have heard from Sphere Projects and obviously it's got everyone in our company worried. We wanted to talk to you about what the situation is. I There is a dispute with Sphere Projects about our Townsville gym. They are chasing variations to the design work and we want to offset those amounts with losses from late delivery and unfinished work. It's not related to the Tuggeranong job. Matt We are worried that if it has something to do with the Townsville job, it has something to do with you personally, and that would therefore affect the Tuggeranong Job. We are particularly worried about the allegation that the money for the fit-out contributed by us would not be used for the fit-out. I We are committed to the fit-out and paying that money towards the fit-out. We have spent more than that money on the fit-out and will make the payment of the money straight to the fit-out company. Matt Can you please put it all in an email? There was a delay in communications between me and Matt and I did not hear much from him until later on that day. He told me, "I have taken care of the matter and that the money will be released into your account tomorrow". I said to him, "I will give you weekly updates in relation to the work and payments". Notwithstanding that the landlord ultimately released the above payment to us, I am still concerned that we could not receive the two additional payments that the landlord is required to make towards the fit-out as a result of Mr Sever's untrue statements about us and our business. 25 I also accept that there is evidence which is sufficient at this interlocutory stage to demonstrate that there has been damage to Gold's Gym's brand, as set out in [61]-[64] of Mr Taylforth's affidavit: Gold's Gym is a new entrant in a very competitive gym and fitness market in Australia. I believe that Mr Sever's actions have damaged the brand of Gold's Gym, because of his contact with our franchisees, our staff and our franchisor. I believe that Mr Sever is on a campaign to sully the name of our companies and my name. I feel that it is very unfair that he has gone to others and has been spreading false rumours about insolvent trading and that ASIC is going to shut the businesses down. That has undermined my credibility. My credibility is central to my business operations. I feel that Mr Sever's actions have undermined me and my relationships. I am upset and concerned that he has gone and made false statements to Gold's Gym USA. Having the opportunity to use the Gold's Gym brand is an honour and a great opportunity. I feel that I have been forced into a position, given the falsity of Mr Sever's statements, to have to be pulled aside and spoken to by Gold's Gym executives. I feel that these actions have caused me reputational damage. My wife also works in the gyms. She has been approached by staff and has been told about the statements that Zoran has made. These statements have caused me the loss of staff and have potentially caused me franchise deals. All of these relationships depend on trust and credibility and I believe that Mr Sever's statements have been part of a campaign to hurt my reputation and credibility. 26 Finally, I also accept the evidence that was given by Mr Taylforth regarding the impact of the statements on the company's reputation in the eyes of builders and tradesmen as well as between the applicants and their staff, in that latter respect set out in [59] and [62] of Mr Taylforth's affidavit. The latter paragraph is set out above. Paragraph 59 stated: I was very concerned about the fact that Mr Sever was calling everyone and causing great difficulties for our business and, in particular, causing my staff members stress. Further, I was very concerned that my reputation was being attacked by Mr Sever with untruths and false allegations. 27 Also relevant to the issue of damage created by Mr Sever's statements are [9]-[11] of Mr Vozella's affidavit: I turned to Jen and Sean, whom I have known for some time. I observed that they looked rather shocked and worried. I was very concerned that Zoran's comments could have a negative effect on my staff members, especially because Zoran had said that the staff would not be paid. I said to Jen and Sean, "Don't worry about it. That was bullshit. Please also don't spread this around". A few days later, one of the Club's personal trainers walked up to me and said, "What was Zoran talking about the other day?". I said, "Don't worry about it". That personal trainer was not present when Zoran made the statements set out above. From this, it was evident that the staff had been discussing the details of Zoran's visit to the club. 28 For the reasons given above, I believe that there is a prima facie case on the basis of the existing material. 29 That brings me then to the second limb of the orthodox approach to whether or not the Court ought to grant interlocutory relief as laid down in cases such as the High Court's decisions in Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57 (ABC v O'Neill) and Beecham Group Limited v Bristol Laboratories Pty Limited [1968] HCA 1; (1968) 118 CLR 618. 30 On the balance of convenience, I am very conscious of what the High Court and other Courts have said about the need for "exceptional caution" in restraining the publication of defamatory and other unlawful statements. The perhaps best known statement on that matter in Australia is to be found in the joint judgment of Gleeson CJ and Crennan J in ABC v O'Neill at [32] (citations omitted): It is one thing for the law to impose consequences, civil or criminal, in the case of an abuse of the right of free speech. It is another matter for a court to interfere with the right of free speech by prior restraint. In working out the consequences of abuse of such freedom, the law strikes a balance between competing interests, which include an individual's interest in his or her reputation. When, however, a court is asked to intervene in advance of publication wider considerations are involved. This is the main reason for the "exceptional caution" with which the power to grant an interlocutory injunction in a case of defamation is approached. 31 Although those comments were directed to defamation, (and it is to be noted that there is an intention to bring an action for defamation vis-à-vis Mr Taylforth), it seems to me that there is equally a need for caution when one is dealing with other causes of action which have some impact upon free speech. 32 Although this issue has caused me perhaps greatest concern, I am, nevertheless, persuaded that this is an appropriate case where the balance of convenience favours the applicants and the granting of some of the relief which has been sought. A primary reason for reaching that view is substantially based upon the unambiguous and unequivocal statements repeated by Mr Sever in the three written materials that I have referred to above. Even allowing for a degree of relative illiteracy on his part, as I have already indicated, there is little or no doubt that his intention was to convey to the recipients of those emails that he was asserting that the applicant companies were operating when insolvent. 33 The statements were intended to enhance the prospects of Mr Sever coming to some sort of a resolution with the applicants by having third parties apply pressure to the applicants to resolve the dispute which he had with them in Queensland. It is also evident from the fact that these statements commenced in August and were repeated in September, as recently as 14 September, such that Mr Sever, unless restrained, may well continue to make these or similar very damaging and prima facie misleading or deceptive statements. It is significant to note that notwithstanding the clear terms of those letters, in the solicitor's letter of 18 September 2015 on page 2 express reference is made to Mr Sever's having given instructions to his solicitor that he had not said or implied that "your corporate clients [i.e. the applicants] are insolvent". 34 That claim cannot be reconciled with the terms of the three letters to which I have referred. 35 It is also notable that in Mr Brown's affidavit in [16(iv)] he records Mr Sever as having instructed him in specific relation to Mr Taylforth's affidavit sworn 17 September 2015 that "Mr Sever has never told anyone that the applicants are trading insolvent". 36 Even though one must approach such matters with considerable caution because of the interests of free speech, it seems to me that the statements that have been made by Mr Sever, particularly in those letters, indicate a preparedness on his part to make what prima facie are false or misleading comments in order to pursue or advance his own commercial interests. This is an appropriate case for an appropriate restraint to be placed upon him. I should also indicate for completeness that I accept what has been put to me by Mr Afshar that damages are not an adequate remedy. 37 That then brings me to the relief which the applicants seek, which is as follows (errors in original): GG Australia Pty Ltd (ACN 151 617 944) and others Prospective Applicants The Prospective Applicants apply, without notice and as a matter of urgency, for the orders set out in this application. … Orders sought 1. Order that the applicants be granted leave to file in court this document and the following affidavits: a. Affidavit of Leigh Taylforth sworn on 17 September 2015; b. Affidavit of Scott Taylforth sworn on 17 September 2015; and c. Affidavit of Matthew Vozella sworn on 16 September 2015. 2. Upon the applicants jointly and severally giving to the Court the usual undertaking as to damages, order, subject to further order, that each of Sphere Projects Pty Ltd (ACN 136 601 664) and Mr Zoran Sever (together, Respondents), by themselves, their servants and agents, be restrained from communicating, whether in writing or orally or in any way whatsoever, with: a. any staff member of any Gold's Gym club, or any other person who is employed by any of the applicants or any of the other Gold's Gym entities; b. any customer or member of any Gold's Gym club; c. any contractor or sub-contractor, or any one else doing any works at any Gold's Gym premises; d. any franchisor of Gold's Gym, whether located in Australia or otherwise; e. any person employed by or associated with Gold's Gym; or f. anyone else, in relation to: a. the financial position of any of the applicants or any other of the Gold Gym's entities, including their solvency; b. The ability by the applicants or or any other of the Gold Gym's entities to pay their employees or contractors; c. the conduct by the applicants or or any other of the Gold Gym's entities of their business; or d. any other matter concerning or pertaining to the conduct by the applicants or or any other of the Gold Gym's entities of their business. 3. Upon the applicants jointly and severally giving to the Court the usual undertaking as to damages, order, subject to further order, that the Respondents, by themselves, their servants and agents, be restrained from disparaging the applicants or any other of the Gold's Gyms entities or their business. 4. Order that this proceeding be listed before the Court's registrar at on September 2015. 5. Reserve all questions of costs. 6. Order that a copy of these orders, this document and all affidavits in support be served on the Respondents. 7. Order that service is to be effected on the respondents in the following ways: a. by sending by email a copy of the documents referred to in order 5 above to AXIA Litigation Lawyers, adamb@axialegal.com.au; b. by sending by email a copy of the documents referred to in order 5 above to Mr Zoran Sever, z.sever@sphereprojects.com.au; and c. delivering a copy of the documents referred to in order 5 above to the registered office of Sphere Projects Pty Ltd. Affidavit This application is accompanied by affidavits stating the facts relied on. Undertaking to Court The Prospective Applicant undertakes to the Court that the Prospective Applicant will start a proceeding in relation to the subject matter of this application within 14 days after this application has been determined. 38 The relief which is sought is too broad and needs to be more limited. In particular, it should be limited to the complaints made relating to Mr Sever's claims regarding insolvency and the ability of the applicants to pay their employees or their contractors. I am not prepared to give a restraining order in terms of (c) and (d) of [2] (second appearing). Nor am I prepared to make an order in respect of [3]. The Court will make orders sought in terms of [2], but not (c) and (d). As to [4], there is no need to make a direction at this stage as to a return date. I will reserve all questions of costs. There is no need to make orders 6 or 7 in the interlocutory application. 39 I make those orders, however, on the usual undertaking which is expressed not only at the beginning of [2], but also on the basis of the required undertaking which is given specifically with r 7.01 of the FCRs in mind, namely that the prospective applicants undertake to the Court that they will start a proceeding in relation to the subject matter of this application within 14 days hereof. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Griffiths.