Socasen Pty Ltd v Caltex Australia Petroleum Pty Ltd

THE PRINCIPLES TO BE APPLIED 10 Section 80(1) of the TPA authorises the Court, where it is satisfied that a person has engaged, or proposes to engage, in conduct in contravention of s 51AC, to grant an injunction on such terms as it determines to be appropriate. Section 80(2) authorises the grant of an interim injunction pending determination of an application under subsection (1). Although it may be open to debate whether Socasen has as yet made an application under s 80(1) of the TPA, I am willing to proceed on the assumption that it has, or alternatively, that it could readily do so. 11 The discretion under s 80(2) to grant an interim injunction is conferred in wide terms. In this regard it is analogous to the discretion vested in the Court by s 838 of the Workplace Relations Act 1996 (Cth). It is therefore appropriate to note the following observations of the Full Court in CPSU, The Community and Public Sector Union v Commonwealth of Australia (2006)157 IR 470, 473 at [14]-[18]: '14 The Court's discretion under s 838 of the WR Act to grant an interim injunction is conferred in wide terms. Nonetheless, the discretion must be exercised judicially; that is, 'not arbitrarily, capriciously or so as to frustrate the legislative intent' (Oshlack v Richmond River Council (1998) 193 CLR 72 per Gaudron and Gummow JJ at [22]). Additionally, as the discretionary power to grant interlocutory injunctions has a long history, the discretion is to be exercised according to established principles (Australian Broadcasting Corporation v Lenah Game Meats Pty Limited(2001) 208 CLR 199 per Gleeson CJ at [10]). 15 It is well established that a proper purpose of an interlocutory injunction is to maintain the status quo until the rights of the parties can be determined at final hearing (ABC v Lenah Game Meats per Gleeson CJ at [9]‑[10]). 16 The principles governing the grant or refusal of interlocutory injunctions have recently been confirmed in Australian Broadcasting Corporation v O'Neill(2006) 229 ALR 457 ('O'Neill'). Gleeson CJ and Crennan J at [19] observed: "… in all applications for an interlocutory injunction, a court will ask whether the plaintiff has shown that there is a serious question to be tried as to the plaintiff's entitlement to relief, has shown that the plaintiff is likely to suffer injury for which damages will not be an adequate remedy, and has shown that the balance of convenience favours the granting of an injunction. These are the organising principles, to be applied having regard to the nature and circumstances of the case, under which issues of justice and convenience are addressed. We agree with the explanation of these organising principles in the reasons of Gummow and Hayne JJ, and their reiteration that the doctrine of the court established in Beecham Group Ltd v Bristol Laboratories Pty Ltd [(1968) 118 CLR 618] should be folIowed.' (footnotes omitted)" 17 In O'Neill Gummow and Hayne JJ at [65] stated: 'The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd. This Court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries, and continued: "The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief ... The second inquiry is ... whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted." By using the phrase "prima facie case", their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. … With reference to the first inquiry, the court continued, in a statement of central importance for this appeal: "How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks." (footnotes omitted) 18 At [70] Gummow and Hayne JJ make clear that they (like Gleeson CJ and Crennan J) have no objection to the use of the phrase 'serious question' if it is understood as conveying the notion that the seriousness of the question depends on the considerations emphasised in Beecham Group Limited v Bristol Laboratories Pty Ltd. At [71] their Honours emphasise that the governing consideration is that the requisite strength of the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory order sought.'

THE FACTS 12 As a Caltex franchisee Socasen is required to use a computer system linked to the Caltex computer network. Part of the computer system is a point of sale system known as 'On Q'. Attempts by Caltex to modify Socasen's On Q system during 2000 to accommodate the introduction of GST are claimed by Socasen to have led to serious problems. Socasen claims that between 1 July 2000 and 30 June 2003 it did not receive payment in respect of a significant number of credit card, and perhaps other, transactions on which it nonetheless paid GST and royalties to Caltex, with the result that its profits decreased and it experienced cash flow problems. As a consequence, as Socasen claims, it has been required to borrow monies from Mr Simpson and his family, to supplement its working capital. Socasen claims damages from Caltex for breach of contract and pursuant to the TPA in respect of its loss and expenses arising from the allegedly defective computer system. 13 Socasen also claims that Caltex has engaged in unconscionable conduct in respect of the making of what are known as REM payments. REM stands for Retail Economic Model. REM payments are made by Caltex, in its discretion, where a data base used by it indicates that profitability assistance may be appropriate in respect of a particular franchise site. An instance where a REM payment might be made is where Caltex has required a franchisee to match a low fuel price offered by a competitor service station. 14 Pursuant to a deed of settlement approved by this Court under s 33V of the Federal Court of Australia Act 1976 (Cth) on 27 August 2004, Caltex agreed to amend its REM model to increase the amount of assistance potentially provided to certain franchisees, including Socasen, who require profitability assistance. Socasen alleges that Caltex has not made REM payments to it in accordance with the deed of settlement. 15 Additionally Socasen claims that Caltex has acted unconscionably in refusing to allow it to be converted to a commission agent for Caltex, in refusing to permit it to cease trading on a 24 hour basis and in refusing to forego rent for a workshop on the North Richmond site. 16 It is not easy to determine the total amount of the loss and damage to which Socasen claims to be entitled but I proceed on the basis that it is not less than $1 million.

THE NOTICE OF TERMINATION 17 As mentioned above, on 9 May 2007 Caltex gave Socasen notice that it terminated the franchise agreement effective on 31 May 2007. The notice was given pursuant to clause 65 of the Franchise Agreement entered into by the parties on 9 February 2004 ('the Agreement'). The Agreement is for a term of five years expiring on 31 January 2009 subject to the provisions of the Agreement allowing for early termination or holding over. 18 Clause 65 of the Agreement authorises Caltex to terminate the Agreement on any of a number of grounds including that: (a) during any 18 month period the franchisee breached any one or more of the terms of the Agreement on three occasions, whether or not the breaches were rectified (cl 65.1 (r)); and (b) the franchisee breached a term of the Agreement and, where the breach was capable of remedy, failed to remedy the breach within 14 days of a notice from Caltex to do so (cl 65.1(t)). 19 The termination notice refers to seventeen 'recent formal breach notices'. Fourteen of the notices referred to concerned the dishonour of fuel payments. The remaining three notices concerned failures to conduct 'End of Day Rollovers'. The notice asserted, as it seems uncontentiously, that as at the date of the notice Socasen had 132 outstanding End of Day Rollovers. 20 In a letter dated 23 January 2007 from Caltex to Socasen, Socasen had been reminded of its obligation to perform the End of Day Rollover function each day in accordance the Agreement. The letter explained: 'The End of Day Rollover is a vital step in reconciling daily business activities and provides a flow of information to allow the franchisee and Caltex to monitor the financial performance of the site. In addition, it is a crucial step to ensure fuel dips and meters are reconciled to identify potential issues and it allows data to be backed up on a daily basis.' 21 Although the termination notice makes reference to other breaches of the Agreement, it purports to terminate the Agreement pursuant to clause 65.1(t) in reliance on Socasen's failure to remedy the breaches identified in the three breach notices that concerned failures to conduct End of Day Rollovers. Socasen has not challenged the accuracy of the assertion in the notice that it repeatedly failed to conduct End of Day Rollovers and that it failed to remedy the resultant breaches of the Agreement after receiving notice from Caltex requiring it to do so. It concedes that Caltex was legally entitled to give the termination notice. 22 It is appropriate to note that the letter of 23 January 2007 referred to above placed Socasen on notice that failure to perform End of Day Rollovers constituted a breach of the Agreement entitling Caltex to terminate the Agreement. It advised that Socasen would be allowed 14 days to meet its obligations and that if, after that date, it committed further breach of the Agreement, Caltex would give serious consideration to exercising its legal rights under the Agreement. 23 Further, in a letter dated 5 March 2007 addressed to Socasen's lawyers, Caltex advised: 'In the event that your client does not remedy it's [sic] breach and act to bring daily rollovers up to date by 5 pm March 13 2007, Caltex will give serious consideration to terminating your client's franchise agreement in consequence.' 24 Caltex later agreed to extend until 5 pm on 18 April 2007 the time within which it required Socasen to remedy its default in respect of End of Day Rollovers. 25 On 4 May 2007 Caltex provided to Socasen's lawyers a copy of the notice of termination that it proposed to serve on Socasen on 9 May 2007 and invited their response. The response provided by Socasen's lawyers did not include an offer to bring the End of Day Rollovers up to date. Significantly, however, on 24 May 2007 Socasen provided an undertaking to the Court to bring up to date all of its rollover obligations under the Agreement by 28 May 2007. I conclude that no serious difficulty would have attended the timely fulfilment of Socasen's rollover obligations. 26 Mr Simpson has sworn an affidavit in which he explains the conduct of Socasen in respect of its rollover obligations under the Agreement in the following way: 'The reason why [Socasen] has been behind in its rollovers with [Caltex] is that on completing the rollovers debts crystallise for the payment of royalties. Having regard to [Caltex's] conduct to [Socasen] and [Socasen's] financial position as to a result thereof and Caltex's ability to withdraw monies from [Socasen's] bank account, I was reluctant to bring the rollover up to date as that would have provided a trigger for Caltex to take away any surplus from [Socasen's] cash flow.'

LIKELIHOOD OF SUCCESS AT TRIAL 27 It is conceded by Caltex that there is a serious question to be tried as to Socasen's entitlement to an award of damages by reason of the pleaded problems with the On Q system and, possibly, by reason of underpayment of REM entitlements. 28 No such concession is made concerning any claim by Socasen for relief in respect of the termination notice. I use the expression 'any claim' because Socasen has not amended the claims for relief in its application following the service of the termination notice. I consider it appropriate to proceed on the basis that at trial Socasen will probably seek an injunction under s 80 of the TPA restraining Caltex from placing reliance on the notice of termination or, alternatively, an order under s 87(1) of the TPA effectively reinstating the Agreement (s 87(2)(b) and (ba)). 29 As noted above, Socasen's unfiled further amended statement of claim pleads the giving of the termination notice and then pleads that, by reason of a number of matters including the giving of the termination notice, Caltex has contravened s 51AC of the TPA. No allegation is advanced that the Agreement did not authorise the giving of the termination notice or that the notice itself was deficient in any way. No facts are pleaded in explanation of Socasen's failure to meet its rollover obligations under the Agreement. The particulars provided of the plea that Caltex has contravened s 51AC of the TPAmake no reference to the termination notice. The relief claimed by the unfiled further amended statement of claim is identified by reference to the relief claimed in the application. 30 Mr Simpson's affidavit evidence refers to his being 'reluctant' to bring the rollover up to date as this would have allowed Caltex to obtain payment of royalties under the Agreement (see [26] above). Mr Simpson has not deposed to a belief that Caltex was not entitled to royalties under the Agreement or that Caltex did not have a genuine commercial requirement for the information that the rollovers provided to it. He has not suggested that any difficulty attended compliance with the obligation imposed on Socasen by the Agreement to undertake End of Day Rollovers. As the evidence identified in [20] - [25] above shows, Socasen had more than adequate notice that Caltex was considering terminating the Agreement in reliance on Socasen's failure to comply with its rollover obligations. 31 I conclude that, as Socasen's case is presently pleaded and on the evidence presently before the Court, Socasen's case for injunctive or other relief at trial to restrain Caltex from terminating the Agreement, or alternatively, to reinstate the Agreement assuming it to have been terminated, is not strong.

DAMAGES AN ADEQUATE REMEDY 32 Socasen wishes the Agreement to remain on foot because it believes that the franchise business which it conducts on the North Richmond site is a valuable asset. Since being granted interim relief by the order made on 24 May 2007, Socasen has been attempting to sell the franchise business. It has so far been unsuccessful. If Socasen finds a purchaser of its franchise business it will require Caltex's written consent before it can assign the Agreement or any rights or obligations arising under the Agreement. I am not satisfied that Socasen is likely to be able to sell its franchise business. 33 Socasen argued that, while the franchise business remains unsold, the cash flow generated by the business will prove critical to Socasen's ability to meet is obligation to pay interest on its debt to Mr Simpson and his family. It further argued that Socasen's interest payments are critical to Mr and Mrs Simpson's capacity to meet their interest obligations in respect of borrowed funds. No affidavit evidence to this effect was adduced from either Mr or Mrs Simpson. Nor was evidence adduced from either of them as to his or her sources of income and the total amount of that income. 34 The evidence discloses that Socasen operates a Battery World business which is independent of the Caltex franchise. This business generated gross profit in the year ending 30 June 2006 of $139,708.44 leading to a profit figure from ordinary activities before income tax of $68,923.43. During the same period the two businesses operated pursuant to the Agreement (ie the service station and a workshop conducted on the North Richmond site) operated with a combined loss from ordinary activities before income tax of $275,272.97. In the circumstances it seems more likely than not that Mr and Mrs Simpson's interest obligations are met from funds generated by the Battery World business or other monies generated independently of the Agreement. 35 I am not satisfied on the evidence before the Court that the termination of the Agreement will necessarily result in Socasen being placed in liquidation, whether because Mr and Mrs Simpson will be unable to continue to provide it with working capital or for any other reason. Nor, to the extent that it may be relevant, am I satisfied on the evidence that Mr and Mrs Simpson will necessarily face bankruptcy if the Agreement is terminated. 36 It is appropriate to record that counsel for Socasen applied, perhaps faintly, to call Mr Simpson to give oral evidence as to his financial position. Caltex objected to such evidence being adduced without notice. Understandably, no application was made to adjourn the interlocutory hearing to allow Mr Simpson to swear an affidavit as to his financial position. I upheld the objection to Socasen adducing oral evidence from Mr Simpson at the interlocutory hearing. No argument was advanced that Socasen had not had adequate time to prepare its affidavit evidence or that it had not been aware of the need to demonstrate that damages would not be an adequate remedy. 37 In my view Socasen has failed to demonstrate, on the balance of probabilities, that damages will not be an adequate remedy should it establish at trial an entitlement to relief in respect of the service of the notice of termination. It is not suggested that damages are not an adequate remedy in respect of Socasen's other claims for relief.

BALANCE OF CONVENIENCE 38 In having regard to the balance of convenience I must give consideration to the practical consequences likely to flow from the interlocutory order sought. 39 On the evidence before me it seems that the practical consequences are likely to include that, at least until the hearing and determination of this proceeding, Socasen will continue to operate an unprofitable business. Additionally, Caltex will be frustrated in its endeavour to identify a new franchisee for the North Richmond site. 40 If the interlocutory order sought is made, the Agreement is likely to remain on foot notwithstanding that the evidence before the Court suggests that the relationship between Caltex as franchisor and Socasen as franchisee is strained to near breaking point. It seems likely that in this circumstance operational problems of the kind to which Mr Simpson has deposed in recent affidavits will reoccur. Those problems have resulted in Socasen having no supplies of fuel for weekend sale on two consecutive weekends. I am not confident that Socasen will not again find itself in breach of the Agreement. There is a risk that the interlocutory order sought might result in the Court being drawn into a supervisory role concerning the business relationship between the parties.

CONCLUSION 41 As I am not satisfied that damages will not be an adequate remedy should Socasen prove an entitlement to relief at trial, the application for interlocutory relief fails. Even if I were satisfied that damages will not be an adequate remedy, I would nonetheless refuse the interlocutory relief sought on the basis that the strength of the Socasen's case for relief in respect of the notice of termination is insufficiently strong to justify the grant of the relief sought having regard to the practical consequences likely to flow from the order sought. 42 I am, however, satisfied that this is a matter appropriate for early trial. I am willing to make direction accordingly should the parties invite me to do so. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson.

Associate: Dated: 2 July 2007 Counsel for the Applicant: Mr L Watts