Narellan Franchise Pty Ltd v RBME Pty Ltd

JUDGMENT

1. THE COURT: The appellants, Narellan Franchise Pty Ltd and Narellan Pools Pty Ltd (together, "Narellan"), and the first, second and third respondents, RBME Pty Ltd and Messrs Tim and Matthew Ranieri, were parties to two similarly worded franchise agreements regulating the sale and installation of in-ground fibreglass swimming pools. It now appears to be common ground that the agreements came to an end on 31 May 2022. By summons filed on 9 June 2022, Narellan commenced proceedings seeking urgent interlocutory injunctive relief based on a post-contractual restraint of trade in each franchise agreement, on the basis that the second and third respondents through the fourth respondent, T&M Pools Pty Ltd ("TMP"), a company controlled by them, were carrying on a business in contravention of the restraints. Narellan also contended that RBME was not entitled, within the 12 month period of the restraints, to complete the installation of pools pursuant to contracts with customers entered into while the franchise agreement was on foot. There was evidence that there were some 188 such customers as at 31 May 2022, with work valued somewhat more than $10,000,000.
2. Following a hearing which occupied three days in June 2022, interlocutory relief was granted by Richmond J on 25 July 2022: Narellan Franchise Pty Ltd v RBME Pty Ltd [2022] NSWSC 988. That relief was narrower than what Narellan claimed, because excluded from its scope was an entitlement on the part of the respondents to complete the installation of swimming pools which customers had already entered into contracts during the pendency of the franchise agreements.
3. The matter was placed in the Expedition List and, seemingly by consent (although neither the order nor the documents leading up to it were in the appeal books), a separate question was identified on 10 October 2022 for the determination of prayers 1-5 of the original statement of claim, thereby excluding the claims for pecuniary relief, and a hearing was set down for the end of October. Once again the hearing occupied three days, with cross-examination of both sides' witnesses.
4. The orders identifying the issues to be determined separately and in advance of the remaining issues between the parties were varied on the morning of the third day of that hearing, so as to exclude any entitlement to injunctive relief based upon the allegations of breach of confidence. Leaving that aside, the orders now referred to separate determination of prayers 1-8 of the amended statement of claim, with the additional prayers reflecting the fact that additional injunctions had now been sought in the amended pleading. Relevantly for present purposes, these included final injunctions based on the restraints, and a declaration that the restraints in each franchise agreement "are valid and binding on the first, second and third defendants".
5. The primary judge, Parker J, reserved and delivered a substantial judgment three weeks later, on 22 November 2022, refusing all relief: Narellan Franchise Pty Ltd v RBME Pty Ltd (No 2) [2022] NSWSC 1590. The Court's orders dismissed prayers for relief 1-8 in the amended statement of claim.
6. The procedural complexity was summarised by the primary judge at [9]-[12] as follows: As well as the restraint obligations, the franchise agreements contained obligations to keep confidential any documents or other information emanating from the plaintiffs in the course of the franchise, and to return or destroy copies of them upon the termination of the franchise. The plaintiffs alleged that the defendants had failed to do so. This allegation included TMP. TMP was alleged to have come into possession of the plaintiffs' confidential information through the other defendants; the claim against it was based on the equitable doctrine of confidence. Before Richmond J, undertakings were given by RBME and the Ranieris reflecting their contractual obligations to return or destroy any documents containing the plaintiffs' confidential information. The proceedings were entered in the Expedition List and I made orders for the urgent claims to be determined in a separate hearing in that List. The remaining monetary claims by the plaintiffs were to be dealt with later. Those monetary claims were to include claims for damages for breach of contract. They also were to include a claim against the defendants for damages under the tort of conspiracy. Then, shortly before the hearing, it was alleged on the plaintiffs' behalf that RBME and the Ranieris had failed to comply, or to comply fully, with their confidentiality undertakings. An application was made to have RBME and the Ranieris dealt with for contempt. This resulted in a cross-application by RBME and the Ranieris to vary the undertakings. Originally, the claims for determination at the expedited hearing included a claim for injunctive relief against TMP concerning the confidential information. At the end of the hearing the parties agreed that that claim should be deferred. The contempt application, and the cross-application for variation of the undertakings, have also been held over. Whether they should be heard together with the monetary claims, or before them, can be considered in due course. The plaintiffs' claims for final injunctions by way of restraint of trade are now the only remaining claims for expedited determination.
7. It was not strictly accurate to say that the claims for final injunctions were the only remaining claims for expedited determination, but it is also apparent why his Honour in that introductory paragraph summarised the issues in that way. As will be seen below, whether or not his Honour was asked to determine the claims for declaratory relief became acutely significant following an amendment made by Narellan at the commencement of the hearing of this appeal.
8. The primary judge refused to order any injunctive relief on two bases. First, his Honour considered that "the Franchisor has failed to prove that it had a sufficient interest to justify a restraint on competition on the part of the Franchisee after the end of the Franchise Agreement": at [199]. Secondly, as a matter of discretion, his Honour would have declined relief. Two distinct aspects of discretion are presently relevant. One is that his Honour was not satisfied that the evidence warranted any advantage to an incoming franchisee for a period longer than the two week induction and three months' training described in evidence on which Narellan relied, and by the time of his Honour's judgment, almost six months had elapsed: at [210]. Secondly, insofar as an injunction would affect existing customers, his Honour considered (no differently from Richmond J) that as a matter of hardship no injunction would lie: at [232]-[233].
9. Although hitherto the proceedings had been listed with a high degree of expedition, that changed after Narellan's loss on 22 November 2022. Narellan filed a notice of intention to appeal, thereby extending the period within which it could appeal as of right to three months, and at the end of that extended period on 22 February 2023 filed a notice of appeal. By that stage, there were just over 3 months of the restraint period remaining. No effort was made to seek to have the appeal to be listed for hearing prior to 31 May 2023 when the period expired.
10. Until the commencement of the hearing in this Court, the only relief sought if the appeal were allowed was orders enjoining the respondents in accordance with the restraint for a period expiring on 31 May 2023. That accorded with the description given by the primary judge reproduced above that the only issue heard on an expedited basis was whether injunctive relief should issue based on the restraints.
11. Narellan's submissions recognised that in order to succeed in setting aside the orders made by the primary judge, Narellan needed to overturn both the finding of absence of legitimate interest, and the discretionary refusal of relief.
12. Shortly prior to the hearing, the Court invited the parties to address whether leave to appeal was required, noting that the 12 month period of the restraint had now expired. Narellan candidly and properly conceded at the outset of the hearing that the injunctions sought in its notice of appeal would not be made, even if it were wholly successful on its grounds of appeal. This Court would not, in June 2023, make a retrospective order for the period from 22 November 2022 until 31 May 2023.
13. By amendments supplied on the morning of the hearing Narellan sought declaratory relief, for the first time in this Court. It submitted that the declaration had been before the primary judge, that the prayer for declaratory relief had been dismissed, and it emphasised that this Court's resolution of the questions of construction and validity would have an impact on what has not as yet been determined, namely, the balance of the proceedings in the Equity Division concerning Narellan's claim to damages and the respondents' claim under the usual undertaking as to damages.
14. As noted above, the undetermined proceedings are not without their complexity, because Narellan alleges among other things breaches of confidence and of an implied and statutory obligation of good faith, and asserts a conspiracy by unlawful means. Additionally, there is an application for contempt and a cross-application for variation of the undertakings.
15. Contrary to the way the appeal has been prepared, and contrary to Narellan's submission at the commencement of the hearing, no appeal lies as of right. That is not because of the effect of s 103 of the Supreme Court Act 1970 (NSW), even though as a matter of form the judge (presumably consensually) ordered a "separate question" to be determined in advance of the balance of the issues in the proceedings. The orders from which Narellan appeals are not the answers to any separate question; they are orders dismissing prayers 1-8 of Narellan's amended statement of claim.
16. The reason why leave is required is because the decision is interlocutory for the purposes of s 101(2)(e) of the Supreme Court Act. Where orders are made separating the determination of some issues at a final hearing, then the orders reflecting the resolution of those issues may be interlocutory for the purposes of s 101(2)(e). That may be so despite the fact that the hearing was final for the purposes of the rules of evidence, and despite the fact that the nature of the relief was final (such as the declarations and final injunctions sought by Narellan). A separate determination of liability in an action for contract or negligence may take many days, and result in a judgment entered for the plaintiff, but the defendant cannot appeal as of right because the judgment is interlocutory for the purposes of s 101(2)(e). However, if the plaintiff's claim is dismissed following the separate hearing on liability, and judgment is entered for the defendant, then the plaintiff can appeal as of right (assuming none of the other provisions of s 101(2) applies). That is because in the latter case, but not the former, the determination of some of the issues has had the effect of wholly resolving the dispute between the parties.
17. As Gibbs CJ, with whom the other members of the High Court agreed, said in Computer Edge Pty Ltd v Apple Computer Inc [1984] HCA 47; (1984) 54 ALR 767, where final injunctions had been granted but pecuniary relief not yet determined, the orders were interlocutory, for the purposes of an appeal, "because [the judgment] left undetermined the question whether any, and what, damages were payable". That position is now well-settled: see Licul v Corney (1976) 180 CLR 213 at 225; [1976] HCA 6 (where Gibbs J noted the controversy on this issue); Carr v Finance Corporation of Australia Ltd (No 1) (1981) 147 CLR 246 at 248 and 253-254; [1981] HCA 20; Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498; [2012] HCA 7 at [73]. In this Court, where the issue arises more frequently than it does in the High Court of Australia, because appeals as of right are not uncommon, see by way of recent examples, Libra Collaroy Pty Ltd v Bhide [2017] NSWCA 196 at [7], Health Care Complaints Commission v Robinson [2022] NSWCA 164 at [6] and [24] and Cassaniti v Katavic (No 2) [2023] NSWCA 107 at [62]-[64].
18. The purpose underlying these well-settled rules is tolerably clear. It turns on the further fragmentation of process which is involved when an appeal is sought to be brought from a decision which does not resolve the entirety of the controversy between the parties. If there are undetermined issues, then the inevitable fragmentation of litigation which may flow from any order for the separate determination of some of the issues will be exacerbated by the possibility of multiple appeals. Fragmentation of litigation tends to mean greater costs, greater delay, and the possibility that issues will be determined which turn out not to be dispositive. That does not mean that it is never appropriate to grant leave from orders which do not resolve the whole of a controversy. It is often convenient where there has been a separate determination of liability and quantum to grant leave to a defendant who is found to be liable, in order to avoid the potential of a costly and time-consuming hearing on damages, and because the plaintiff if it had been unsuccessful would have enjoyed an appeal as of right. Much may depend on an evaluation of the time and cost involved in the prospective appeal and the time and costs involved in the damages hearing. The grant or refusal of leave in such cases is also informed by the consideration that if and when the remaining issues are determined, there will be a right of appeal, ordinarily extending to the decision on the separate question, if indeed that has any consequences for the final result: Michael Wilson & Partners Ltd v Nicholls (2011) 244 CLR 427; [2011] HCA 48 at [78].
19. The respondents did not oppose the grant of leave. Often that would be a powerful factor favouring the grant of leave. Further, there is a measure of force in the proposition that the determination by this Court of the questions of construction will tend to narrow the issues which the parties have not hitherto, despite six days of hearings in the Equity Division so far, had determined. Bearing that in mind, the Court proceeded to hear the entirety of the parties' submissions on the merits of the appeal and reserved the question of leave.
20. However, as the hearing in this Court progressed, the case for refusing leave became all the more compelling.
21. The primary judge declined to address certain issues, including of construction of the critical restraint, in light of the expedited way in which the litigation had proceeded.
22. The primary judge was able to take that course because his Honour concluded at [199] that Narellan lacked any sufficient interest to justify a restraint on competition, reaching that conclusion without resolving the proper construction of the restraint (and in particular, whether it extended to existing customers). However, his Honour went on to consider some questions of construction against the possibility he was wrong. When dealing with whether as a matter of construction the clause applied to performing contracts with customers which had been entered into but not completed during the term of the franchise agreement, his Honour declined to reach a conclusion, explaining that position thus at [217]-[218]: But I have some reservations about reaching any conclusion about these issues now, given the circumstances. As I have stated, there was little evidence on the actual steps taken by the parties in the period up to and immediately following 31 May in their dealings with customers. There may be a complaint about the inclusion of the Substitution Clause as well. I think that the construction issues, which were not debated at great length before me, are better determined in the context of specific factual findings. Given the conclusions which I have reached, it is not necessary to deal with those issues in this judgment. I will therefore pass over them, and deal with the reasonableness and enforcement issues on the assumption that [the clause] applies.
23. It was not suggested by either side that any aspect of those paragraphs was factually inaccurate.
24. It is to be borne in mind that no question of damages for breach of contract was before his Honour. His Honour had determined that none of the restraint was enforceable because of the absence of a legitimate interest, and then in the alternative reached the view that (a) he had not heard full submissions on the question of construction, (b) he had reservations about resolving the question in the absence of full evidence, and (c) if the restraint clause did apply to existing customers, injunctive relief would not issue as a matter of discretion because of hardship. We wish to emphasise that that was an entirely proper course for a judge in the Expedition List to take, in circumstances where no issue of damages had been listed before him.
25. This has consequences bearing upon the appropriateness of a grant of leave, which were exposed as follows, by reference to [217]-[218] of the judgment: LEEMING JA: … In that context, his Honour went out of his way to say, "I'm not determining what its proper construction is"; have I got that wrong? KNOWLES: No, your Honour. When I said "assumed", assumed in my favour. LEEMING JA: In your client's favour, yes. On any view of the matter, as favourably as you want to you, you were still going to lose. KNOWLES: Yes, that's what it -- LEEMING JA: Now, you want this Court to make a finding as to the construction of this clause. KNOWLES: I don't need the Court to make a finding as to construction in every possible factual circumstance that may arise. LEEMING JA: Normally, that doesn't happen in any contractual construction case. But you do want us to make a finding in relation to some of the facts that you say do apply. KNOWLES: Yes. And those facts are -- LEEMING JA: Just interrupting you one last time and then I'll pipe down. It's something which hasn't been determined to date and will necessarily arise in the undetermined proceedings in the Equity Division. And in fact, that's why you want us to do what the trial judge didn't do, because it's going to save time in the undetermined proceedings. KNOWLES: Yes, is the answer to your Honour's question.
26. Thus as reformulated, leave is sought to appeal not so as to alter the injunctive relief issued by the primary judge, but so as to obtain a declaration as to the proper construction and effect of the contractual restraint, in circumstances where that is a live issue between the parties in the proceedings in the Equity Division and has not hitherto been determined in the circumstances explained by the primary judge above. Nor was construction the subject of any written submissions in this Court. That is an unpropitious basis for seeking leave.
27. We are of the view that it was clearly correct that either because of construction or because of hardship, there was a sound basis for withholding injunctive relief which would have the effect of denying customers the performance of contracts entered into while the respondents operated a franchise, and place the first respondent in breach of contract. But it is a much more difficult to determine whether that is so merely as a matter of construction, as opposed to discretion. The construction of the clause turns on the text of a provision governing a franchise relationship which is all about supplying swimming pools to customers, but has relatively little regard to the commercial reality that there may be many executory contracts between franchisee and customers at the conclusion of the term. The proper construction will be informed by the commercial purpose, and may be affected by s 4 of the Restraints of Trade Act 1976 (NSW). We respectfully agree with the primary judge that that is best determined at a final hearing when all aspects of the contractual claim, including damages, are live. We bear in mind that it is the choices made by the parties in six days of hearings in the Equity Division which have led to the fact that, a year after proceedings were commenced, there has not been a hearing of those questions, and indeed, so the Court was told, no date has been allocated for a hearing and evidence on pecuniary orders has not as yet been served.
28. We return to the fundamental difficulty with the application for leave, namely, the fact that the 12 month post-contractual restraint period has expired. With that in mind, on the day of the hearing a proposed amended notice of appeal, accompanied by a summons seeking leave to appeal, was supplied. Narellan thereby abandoned its claim for injunctive relief, and sought relief in terms which went beyond anything that had been before the primary judge, in the form of a declaration that: the restraints on the first, second and third defendants in clause 12.5(b) of the franchise agreements dated on or around 12 May 2016 are valid, binding and were enforceable during the 12 month period ending 31 May 2023.
29. Before the primary judge, declarations in a slightly different form had been sought, namely, that the restraints were "valid and binding". In this Court, the respondent pointed to the additional word "and enforceable" which went beyond what had been sought at first instance, and seemingly gave rise to an issue whether they were intended to refer merely to pecuniary remedies or whether they extended to an amenability to injunctive relief. As Kirk JA pointed out in response to the respondents' submissions on this point, in circumstances where Narellan was never going to obtain injunctive relief based on a restraint for a period which has expired, the new declaration was to be understood as confined to whether the restraint was enforceable in the sense of sounding in damages. But that tends to reinforce that this Court was being asked to do something which was antithetical to what Narellan had asked the primary judge sitting in the Expedition List to do.
30. The primary judge did not give any declaratory relief at all. We have reproduced above the introductory statement that the relief before him was confined to final injunctive relief. Strictly speaking, declaratory relief was also sought, including, relevantly, prayer 1. However, at the conclusion of the hearing before the primary judge, his Honour asked, repeatedly, why any declaratory relief should issue. There ensued the following exchange: HIS HONOUR: Well, anyway, sorry. I mean, if you get that - well, sorry. First of all, why do you need that? If you succeed, then it will be implicit in your success that the contract remains enforceable. Is there any real dispute about the propositions reflected in the declaration in order - proposed order 1? … KNOWLES: I accept that, your Honour, and the declaration in 1 is unnecessary to the extent that the validity of the clauses are not in issue, and to the extent they are in issue, it would be determined by the grant of an injunction, save - unless your Honour were to - HIS HONOUR: Well, if I refuse the injunction - KNOWLES: --decline injunction on - only on some discretionary ground. HIS HONOUR: Yes. KNOWLES: Then a declaration may be valid, because that may then be relevant to, for example, Lord Cairns Act damages for damages in lieu. And I think the same - the same analysis would apply to prayer 2 for declarations sought there. HIS HONOUR: Thank you. KNOWLES: The crux of the dispute really goes to the remaining orders.
31. Once again, this highlights the difference between what had been litigated in the Expedition List and what was sought to be determined in this Court. Before the primary judge, it appears to have been accepted that only if Narellan succeeded on construction but lost on discretion would a declaration be appropriate, and the "crux of the dispute" was whether injunctions should issue. Before this Court, no injunction can issue given Narellan's delay in prosecuting its appeal, and the only relief it seeks is declaratory. Once again, these considerations tell against the grant of leave.
32. For those reasons, the notice of appeal should be dismissed as incompetent, and the application for leave to appeal should be refused. We favour the view that costs should follow the event and Narellan should pay the respondents' costs in this Court, and will so order, noting that if any party wishes to be heard in relation to a different order as to costs, application may be made within the period specified by r 36.16 of the Uniform Civil Procedure Rules 2005 (NSW).
33. The Court's orders are: In 2022/381924:
34. Notice of appeal filed on 22 February 2023 dismissed as incompetent.
35. The appellants to pay the respondents' costs of the proceedings in this Court. In 2023/198235:
36. Summons seeking leave to appeal dated 20 June 2023 dismissed.
37. The appellants to pay the respondents' costs of the proceedings in this Court.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 June 2023