Punchbowl Casual Dining Pty Ltd v Rashays Cafes & Restaurants Pty Ltd

JACKMAN J 1 The first applicant (Punchbowl Casual Dining) is the operator of a "Rashays" restaurant franchise in Punchbowl, New South Wales (Punchbowl Site). The second applicant (Wajahat) and third applicant (Rahaman) are shareholders of Punchbowl Casual Dining, with Mr Rahaman also being the director of the company. The respondent (Rashays) is the franchisor of the "Rashays" franchise. 2 The franchise agreement was entered into between Punchbowl Casual Dining and Rashays on or about 16 December 2019. On the same date, Rashays granted Punchbowl Casual Dining a licence to occupy the Punchbowl Site. The Punchbowl Site is owned by a third party (RAM Property), which leases the Punchbowl Site to Rashays. The terms of the franchise agreement include obligations on the part of Punchbowl Casual Dining to pay a recurring monthly royalty based on 12 per cent of gross turnover (cl 3.2), pay rent associated with occupation of the restaurant premises (cl 4.20), comply with all laws including workplace laws under Fair Work legislation (cl 4.21), pay creditors within 21 days (cll 9.1(e) and 4.22), and pay creditors related to the franchisor within seven days (ibid). 3 The substantive proceedings involve allegations that, in 2022 and 2023, promises were made to Mr Wajahat and Mr Rahaman that if they purchased a Rashays franchise at Bankstown, New South Wales (Bankstown Site), or paid certain amounts to Rashays, Rashays would provide them a new or renewed agreement for the Punchbowl Site, which was otherwise due to expire on 4 December 2023. The evidence of Mr Wajahat, which is corroborated by the evidence of Mr Rahaman, establishes, at least at a prima facie level, that: (a) on or about 30 June 2022, Mr Wajahat had a telephone conversation with Mr Krayem, the general manager of Rashays, during which Mr Krayem promised that if Mr Wajahat and Mr Rahaman agreed to purchase Rashays Bankstown, they would be given either an extension of the existing franchise agreement or a new franchise agreement at the Punchbowl Site for a period of 10 years; (b) at a meeting on 4 July 2022, Mr Wajahat indicated to Mr Krayem that they would agree to purchase the Bankstown Site at a price of $1.6 million plus GST, and also requested confirmation regarding the provision of a new lease and franchise agreement for the Punchbowl Site as part of the deal, to which Mr Krayem responded affirmatively; (c) on 13 July 2023, Mr Wajahat had a telephone discussion with Mr Krayem in which he was assured by Mr Krayem that if they paid the outstanding sum of $36,500 owed for suppliers' fees to Rashays, they would be provided with a new franchise agreement for the Punchbowl Site with a term of 10 years; (d) in reliance on that promise, on or about 22 July 2023, the applicants paid $36,500 to Rashays; and (e) in September 2023, Mr Deveson, chief executive officer of Rashays, advised Mr Wajahat that the new franchise agreement and lease for the Bankstown Site was conditional upon the sum of $112,907.23 being paid to the landlord, RAM Property. That amount included rental back-charges for the new lease which arose from Rashays having negotiated a new lease with the landlord of the Punchbowl Site, with the result that the rental amount increased from $22,375 to $26,617. That amount was subsequently paid by way of four instalments. The above conversations are disputed by Rashays. 4 There is also evidence that the applicants paid a total of $365,000 towards the Bankstown Site. That appears to have been applied by Rashays for debts which Rashays claims were owing in relation to the Punchbowl Site, although there appears to be a dispute about that matter. 5 As to the balance of convenience, the applicants have been operating their business since 2019, which provides Mr Wajahat and Mr Rahaman with the wherewithal to pay their living expenses. There is evidence that: (i) many patrons who attend are local members of the Punchbowl community and surrounding suburbs; (ii) the shareholders of Punchbowl Casual Dining are involved in local community activities; and (iii) the shareholders regularly attend the restaurant on a daily basis. Punchbowl Casual Dining claims to have generated substantial goodwill in the restaurant on the Punchbowl Site, although Rashays for its part also claims to have a share in the goodwill associated with the site through the use of its brand name and other franchising features. 6 Rashays points to a history of non-payment or late payment of various amounts due to itself and to the landlord and other third parties, and draws attention to the commercial inconvenience of having to chase payment and keep Punchbowl Casual Dining up to the mark in relation to these obligations. 7 When the matter came before me on an ex parte basis on 4 December 2023, I was satisfied that there was a serious question to be tried, and that the balance of convenience favoured restraining Rashays from seeking to take possession of the Punchbowl Site that day or the following day when the franchise agreement expired. I was satisfied that the balance of convenience favoured the grant of an injunction and I made an order in the following terms that day: Upon the applicants proffering the usual undertaking as to damages, and until further order, the respondent be restrained from: (a) taking any step to evict the first applicant from [the Punchbowl Site]; (b) taking possession of the Punchbowl Site; and (c) taking any step to interrupt the business operations of the applicant at the Punchbowl Site. 8 There were further hearings on 6 and 20 December 2023. On 20 December 2023, the duty judge made directions to prepare the matter for a hearing as to whether the injunction should be continued, and fixed that matter to be heard by the duty judge on 23 January 2024. On that day, by consent, the injunction was continued until further order. The respondent, Rashays, now seeks to have the injunction discharged. 9 While this application was generated to a large extent by a concern as to breaches of duty by Punchbowl Casual Dining with respect to its employees, I have rejected the evidence on which that aspect of the application was based. The application is now based on Rashays' contentions that Punchbowl Casual Dining continues to operate in breach of the franchise agreement by: (a) not paying rent on time, resulting in breach notices from the landlord being sent to Punchbowl Casual Dining; (b) paying rent late and in an instalment fashion; (c) not paying royalties on time or at all; (d) not making certain payments to third parties, namely Ruomky Pty Limited (Ruomky), a company related to Rashays which is a supplier to Punchbowl Casual Dining, in the amount of $26,704.43, and Sydney Freezers in the amount of $17,937.31; and (e) failing to honour a right to reimbursement of an amount of $190,000 which Rashays says was wrongly credited to Punchbowl Casual Dining by reason of an internal accounting error. 10 There appears from the evidence to be a bona fide dispute as to whether there are unpaid amounts in relation to those claims. In particular, Punchbowl Casual Dining claims that: (a) there were no moneys owing to Rashays or its related supplier, Ruomky, as invoices were only issued after two weeks; (b) the landlord provided additional time to pay the December rent; (c) the 4 December 2023 royalty payment bounced back because Rashays attempted to deduct significantly more than had previously been advised to Punchbowl Casual Dining; (d) the royalty payment due on 11 December 2023 in the amount of $6,882.52 was paid; (e) Ruomky has been paid upfront since 27 November 2023; (f) Rashays was paid $40,440 on 11 February 2024 in respect of rental payment; (g) the $190,000 "accounting error" of Rashays is a matter that requires further investigation; (h) although there is money owing to Sydney Freezers, a payment plan is in place in relation to that debt; (i) it paid RAM Property $26,617.03 on 15 February 2024 (a matter which is supported by exhibit A, at least on the balance of probabilities); and (j) it has, as at the date of the hearing of this application, instructed its bank to pay Rashays the amount of $36,747.52 (exhibit A). 11 Punchbowl Casual Dining submits, and I accept, that there is a bona fide dispute as to whether there are any outstanding amounts which are due and payable, but have not been paid by it, either to Rashays or to the various third parties. 12 Rashays also relies on the delay in bringing the original application for an injunction on 4 December 2023. Rashays points out that on 13 July 2023 it notified the applicants that the franchise agreement would come to an end and that it did not intend to enter into a new franchise agreement, and a reminder to that effect was provided on 29 September 2023. It was not until 29 November 2023 that the applicants, by their solicitors, wrote to Rashays' solicitor seeking undertakings not to terminate the existing franchise agreement or to take possession of the Punchbowl Site or to interfere with the business at the Punchbowl Site, and on 4 December 2023 the applicants then approached the court on an ex parte basis for relief on the last day of the franchise agreement, according to its terms. 13 I accept that the delay by the applicants does weigh against the continuation of the injunction, but I do not regard it as being determinative in and of itself. I can well understand the applicants' reticence to engage in expensive and time-consuming litigation until they felt that they had no choice but to do so. No complaint or submission has been made concerning the applicants' ability to honour the undertaking as to damages. 14 In my view, there remains a serious question to be tried. Further, in view of the bona fide nature of the disputes concerning the allegations of unpaid debts, and despite the delay of the applicants in seeking the interlocutory injunction originally, I regard the balance of convenience as favouring the continuation of the injunction. The best course in the present matter is that it be prepared for the earliest final hearing that the court can accommodate. I have thus fixed the three days commencing 29 May 2024 for the final hearing of the proceedings. Accordingly, I dismiss Rashays' application to discharge the interlocutory injunction. The injunction which I granted in order 5 of the orders dated 4 December 2023 will continue until further order. 15 As for the matter of costs, there was a reasonable basis for Rashays to bring the present application, and also a reasonable basis for the applicants to have resisted it. Much of the material that has been prepared for the present application is likely to be deployed at the final hearing, and the present application has served to crystallise some of the issues which will be central to that hearing. In those circumstances, I regard the appropriate costs order as being that the costs of this application should be costs in the cause. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.

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Judgment (2 paragraphs)

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