Murray Pest Management Pty Ltd v A & J Bilske Pty Ltd & Ors [2009] NTSC 68

[1] The Defendants have applied by Interlocutory Summons seeking orders for particular discovery pursuant to Order 28.08 of the Supreme Court Rules.

[2] By the time the matter was argued, the extent of the dispute between the parties had been narrowed to documents which fell into two broad groups.

[3] The first group, being the documents described in 1(a)-1(d) of the Summons, relate to the allegation in the Statement of Claim that the First Defendant owed the Plaintiff various fiduciary duties.

[4] The second group, comprising documents described in subparagraphs 1(e)-1(h) of the Summons, relate to the allegation in the Amended Statement of Claim that the Defendants breached the restraint of trade provisions contained in the subject franchise agreement coupled with the pleading in the Defence that those provisions are unenforceable.

[5] The claim in this matter arises out of the terms of a franchise agreement ("the Agreement") entered into between the Plaintiff and the First Defendant. The Third and Fourth Defendants are the directors of the First Defendant and, together with the Second Defendant, are sued for their alleged part in the breaches of the Agreement by the First Defendant. The Third and Fourth Defendants are also sued as guarantors of the First Defendant.

[6] The purpose of pleadings is for a party to set out the material facts on which the party relies to make out the claimed cause of action. This is to enable the other party to know exactly what case that party needs to meet at trial. It also serves to identify the questions in dispute. The relevance of evidence at trial is primarily assessed against the pleadings and therefore, to the extent that a matter is not pleaded, the party is not entitled to lead evidence in relation to that.

[7] Discovery is linked to the pleadings by reason of Order 29.02. Discovery having an obvious connection to evidence, Order 29.02 sits well with the object of pleadings. That Order obliges parties is to discover all documents that are or have been in their possession "relating to a question raised by the pleadings". What is a matter relating to a question raised by the pleadings is well established at common law. Compagnie Financiere du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 is the oft cited authority. Succinctly this states that documents to be discovered are not only those required to be put in evidence to prove or disprove any matter in question but relates also to matters in the action which is reasonable to suppose contains information which may directly or indirectly either advance a party's case or damage the case of the other, or may lead to a train of enquiry which may have either of those consequences.

[8] Order 29.02(3) modifies this in part as it removes the requirement to discover documents which are only relevant because they may lead to a train of enquiry, at least absent a specific order to that effect. No order pursuant to that rule has been made in these proceedings.

[9] Dealing firstly with the documents relating to the restraint of trade issue, the starting point is the Agreement, in particular clause 102 of the Agreement. The Agreement is in evidence as annexure PGM1 to the Affidavit of Paul Gerard Maher sworn 18 September 2009. That, and a number of other clauses of the Agreement have been pleaded in the Amended Statement of Claim and, subject to the objection by the Defendants to the form of the pleading, those terms are deemed admitted by the operation of pleading rules.

[10] Clause 102 purports to restrain the First Defendant from involvement in a similar business within the 'territory' as defined, or the 'territory' of 'another of the franchisor's franchisees' or within a radius of 5km from the nearest point of any of those territories. The term 'territory' for the purposes of the Agreement is described in the Schedules to the Agreement and it is fixed by reference to a map. The territory applying to the First Defendant is a large part of the northern portion of the Northern Territory. It is centred on Katherine and extends as far north as a point approximately midway between Adelaide River and Pine Creek, as far south as Daly Waters and is bordered to the east of the Gulf of Carpentaria and to the west by the Western Australia border.

[11] The temporal aspect of the restraint of trade is fixed by clause 103 which typically stipulates alternative periods subject to severability in the event of unreasonableness. The maximum period is two years from the end of the term of the Agreement. The Agreement commenced on 14 September 2002 and expired on 30 September 2007. The maximum possible restraint period therefore ended on 30 September 2009.

[12] It is therefore clear from the pleadings that documents evidencing the extent or identification of the territories of any other franchisee of the Plaintiff at the very least are discoverable. The First Defendant alleges that the extent of the restraint makes it unenforceable, in part at least, on the grounds of reasonableness. The enforceability of the restraint provision is therefore clearly in issue on the pleadings. Likewise clause 103 of the Agreement is also a basis for making it an issue. That clause is a typical provision providing for severance of any of the alternative restraints found to be unreasonable. Reasonableness is a factor in determining the enforceability of a restraint of trade.

[13] Likewise clause 104 of the Agreement extends the operation of the restraint by making the First Defendant liable for the actions and inactions of other persons, a liability that is also reinforced by clause 105 of the Agreement. Lastly, by clause 106, the First Defendant is taken to acknowledge both the reasonableness and necessity of the restraints in the Agreement.

[14] Mr Maher for the Defendants argues that the franchise agreements for all other franchisees of the Plaintiff in the Northern Territory are discoverable. Mr Ross-Smith for the Plaintiff has, or is prepared to, discover a part of those franchise agreements, specifically the maps depicting the territories for all other franchisees of the Plaintiff. He argues that anything beyond that could only be relevant on a train of enquiry basis.

[15] I do not consider that discovery of only the maps depicting the territories of all other franchisees of the Plaintiff to be sufficient. I do not agree that anything beyond the maps is only relevant on a train of enquiry basis. I am of that view because of all the issues raised on the pleadings by reference to the various clauses of the Agreement relating to the question of reasonableness of the restraints referred to above.

[16] The issue raised on the pleadings by the Defendants is the unenforceability of the restraint of trade provisions. Although not particularised beyond a more or less bare allegation to that effect, the combination of that pleading, the common law of restraint of trade and the assertion of reasonableness of the restraints in the Amended Statement of Claim, all put the reasonableness of the restraints in issue in the proceedings. Reasonableness of the restraint in the Agreement, linked to other franchisees by clause 102 of the Agreement, depends on the specific provisions in the franchise agreements of other franchisees. It depends on the extent and basis of of the restraints placed on other franchisees. That is not a train of enquiry situation. It sits squarely in the first limb of the Peruvian Guano test in my view.

[17] Although I would expect that the terms of the franchise agreements for other franchisees would be similar, if not close to identical, to the Agreement, the Defendants are nonetheless entitled to discovery of those documents. Provisions in other franchise agreements relating to the nature, extent and entitlement of other franchisees in the use of confidential information, copyright and intellectual property are directly relevant to the question of the reasonableness and consequently, the enforceability of the restraints in the Agreement.

[18] Accordingly I propose to make orders in terms of subparagraphs 1(a) - 1(d) of the Summons but limited to franchise agreements for other franchisees of the Plaintiff which were in force at any time between 14 September 2002 and 30 September 2009. Confidentiality concerns of the Plaintiff may be able to be addressed by approval for masking out of various particulars. It is difficult to see how the names, addresses or other identifying features of other franchisees might be relevant and possibly also the locations of offices and the like. I will hear the parties further in relation to that.

[19] I now turn to the claim by the Defendants for particular discovery of documents related to the issue of the various fiduciary duties claimed by the Plaintiff. The provisions of the Amended Statement of Claim in relation to each of the four alleged fiduciary duties are very similar. For the purposes of these reasons it will suffice to consider the provisions in relation to one of the duties as representative of all of the alleged duties. Looking at the first of the claimed duties for this purpose, i.e., in relation to intellectual property, this duty is pleaded in paragraphs 17, 18, 44-44D, 87, 88, 93 and 97 of the Amended Statement of Claim. As pleaded, I think it is sufficiently clear that the claim to the existence of a fiduciary duty is made based only on the terms of the Agreement.

[20] The pleadings contain very detailed particulars in relation to this claim. The argument of the Defendants on this aspect relies on, as a starting point, the decision in Breen v Williams 138 ALR 259 where it was held that fiduciary duties arise from only two sources. One source is agency. The other source derives from a relationship of ascendancy or influence by one party over another or dependence or trust on the part of that other.

[21] The first category can be quickly dealt with. I am not aware of any authority, nor has one been advanced, to the effect that the relationship between the franchisor and franchisee falls within this category. Indeed the Agreement contains a provision to the contrary. Clause 104 of the Agreement specifically states that the Agreement does not create a fiduciary relationship between the parties.

[22] Mr Maher asserts that based on the authority of Breen v Williams, the only possibility for the existence of a fiduciary relationship is the ascendancy, influence or dependence basis. However, that is not the claim that has been pleaded. Although the pleadings do not rule out reliance on ascendancy, dependence and the like, as the role of pleadings is for a party to set out its case, the party's case is necessarily limited to that as pleaded. Applying that to this particular case, it is not necessary for the Plaintiff to plead the negative i.e., that ascendancy and the like is not relied upon. That is the default effect unless the pleadings positively assert that those matters are relied on.

[23] The various pleadings in relation to the fiduciary duties are very specific. The terms of clause 104 of the Agreement may well be a major impediment to the success of the claim for the Plaintiff. However, I do not think that Mr Maher is entirely correct in his submission that the Plaintiff will need to create new law to succeed. The particulars upon which the fiduciary duties are said to be based are set out commonly in relation to each of the claimed fiduciary duties. They are based essentially on three matters. Firstly, an allegation that the First Defendant was not free to act solely in its own interest. Secondly, that the First Defendant was required to put the interest of the Plaintiff ahead of the First Defendant's own interest (I am not convinced that this adds anything to the first). Lastly, and most relevantly, that the First Defendant was in a position of trust in relation to the Plaintiff. A position of trust is one aspect of the second source referred to in Breen v Williams. That it is pleaded without reference to the other aspects of the second source in Breen v Williams would necessarily exclude the operation of those aspects i.e. ascendancy, influence and dependence.

[24] In my view therefore any documents relevant to the alleged position of trust are discoverable. The current application seeks an order for discovery of financial documents specifically in relation to the aspect of possible ascendancy and influence. As possible ascendancy and influence are not issues on the pleadings, such documents are not relevant and therefore are not discoverable.

[25] The Plaintiff's application for orders pursuant to subparagraphs 1(f)-1(i) of the Summons is refused.

[26] I will hear the parties as to costs and ancillary orders.