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COUNSEL: PA Keane QC and D Bates for the first and second appellants T Martin SC and M Burns for the respondents

SOLICITORS: Tucker & Cowen for the appellants Sparke Helmore for the respondents

McMURDO P: I agree with the reasons for judgment of Atkinson J and with the additional observations of Thomas JA. I agree with the orders proposed by Atkinson J.

THOMAS JA: I agree generally with the reasons prepared by Atkinson J which I have had the benefit of reading.

The appellants are a company (“Gymboree”) and Mrs Graham who was one of its directors. Gymboree is a franchisor company. At material times Mrs Graham was capable of acting in either or both of two capacities – one as a Gymboree franchisee in her own right with respect to certain areas of Brisbane, and the other as a director of Gymboree. In litigation between Gymboree and the respondents (Mr and Mrs Stewart) an injunction was obtained against Gymboree restraining it “by itself or by its servants or agents” from doing certain things in relation to the rights of Mr and Mrs Stewart who were franchisees in respect of another area. The order inter alia prohibited Gymboree (whether by itself or by its servants or agents) from notifying any person to the effect that the franchise agreement had been terminated or that the Stewarts were not entitled to carry on the business of a Gymboree franchise. In due course Mr and Mrs Stewart brought contempt proceedings against both Gymboree and Mrs Graham, contending that both were in contempt of the court order.

Having studied the evidence it seems to me that Mrs Graham reacted with understandable anger to some rather high-handed conduct by her adversary Mrs Stewart. Mrs Stewart’s letter to Mrs Graham of 20 August 1999 which indicated an intention to use one of Mrs Graham’s advertisements was to say the least presumptuous. As the evidence of Ms Biram clearly shows, Mrs Graham telephoned Ms Biram in a state of indignation at Mrs Stewart’s actions which she saw as an attempt to purloin her advertisement. Unfortunately in the course of this conversation she went too far when she added a comment to the effect that the Stewarts’ franchise agreement had been terminated and that they were not entitled to carry on the business of a Gymboree franchise. Such a reaction is only too credible, and there is every reason to accept the evidence of Ms Biram as the learned Chief Justice did.

It is reasonable to think that Mrs Graham’s main original concern in making the telephone call to Ms Biram was the protection of her own franchise business. This circumstance was heavily relied on by Mr Keane QC for Mrs Graham. However her company, Gymboree, against which Byrne J had granted the relevant junction, also had an interest in the content of advertisements by its franchisees (including the Stewarts). This is clear from clause 6.01 of the relevant franchise agreement. Mrs Stewart’s letter of 20 August 1999 (earlier mentioned) had been addressed to both Mrs Graham and Gymboree. Gymboree’s solicitor had responded to it by letter of 6 September 1999, and had asserted a connection between the attempt to insert the advertisement and Byrne J’s order. Mrs Graham then had a telephone conference with that solicitor immediately preceding her telephone call to Ms Biram.

It was open to his Honour to take the view that when Mrs Graham made the prohibited statement she did so both on her own behalf and on behalf of Gymboree. It is of course most unlikely that she adverted at the time to any particular capacity in which she was making any particular statement. But I think it perfectly plain that when she made this particular telephone conversation she was intending to use whatever powers she had in any capacity. In colloquial terms she was wearing both hats, that is to say her own and that of the company. When she strayed into the prohibited area she did so in both capacities. That critical finding, which was challenged on appeal, is in my view sustainable. The defence of “acting solely in personal capacity” or of “not shown to be acting as director” was rightly rejected.

If a company director, with knowledge of an order restraining her company from doing a certain act, knowingly causes the company to act contrary to the injunction, that director infringes that part of the order which prohibits the company’s agents from performing a specified act¹. She might also be held liable as a secondary party if she knowingly participates in the prohibited act². Here of course she was the agent who caused the company to breach the injunction. It is unnecessary to consider a further possible basis of liability against an officer of a company under UCPR Rule 898(2)(c)(i).³

In my view all necessary requirements are met in this case. Mrs Graham knew of the order and the prohibition. She saw fit as a director of the company to overstep the mark fixed by the court. Mens rea is established.

Penalty

The respondent failed to establish a substantial part of the charges that it alleged in its application against the company and Mrs Graham. It was submitted on behalf of the appellant that the learned Chief Justice erred in declining to order the respondents to pay the appellants’ costs of those issues, or to set off something against the costs of the sole issue found against the appellants. His Honour in fact ordered the appellants to pay the costs of that issue on an indemnity basis. Notwithstanding this it seems to me that his Honour deliberately did so as he was of the view that a standard order for costs would not be an adequate penalty having regard to the act of contempt that he had found. By increasing the costs of that issue payable by the appellants his Honour was able to avoid the imposition of any further penalty. In all the circumstances I am unable to see that his Honour’s discretion miscarried in any way.

Order

The appeal should be dismissed with costs.

ATKINSON J: The first appellant, Gymboree Pty Ltd, is the franchisor in Australia of the Gymboree programme, which is described as a sensory motor programme for young children. The second appellant, Andrea Graham, and her husband are directors of the first appellant. The respondents, Russell Stewart and Anne-Maree Stewart, are franchisees of the Gymboree programme in the South-East district which is in the Mt Gravatt area. In addition, the second appellant is herself a franchisee from the first appellant in the areas of Indooroopilly and McDowall/Everton Park.

On 2 July 1999, Byrne J made an order on the application of the respondents Mr and Mrs Stewart, against Gymboree Pty Ltd, which is the plaintiff in an action against Mr and Mrs Stewart. Those orders were:

“3. Until the trial of this action or further Order the Plaintiff be restrained, and an injunction be granted restraining the Plaintiff, whether by itself or by its servants or agents, or otherwise howsoever, from:

(a) Acting upon or implementing a ‘Notice of Termination’ dated 15 April 1999 of a franchise agreement entered into between the Plaintiff as franchisor and the Defendants as franchisees on 8 April 1994 (“the Franchise Agreement”);

(b)Within the territory assigned to the Defendants pursuant to the Franchise Agreement (“the Territory”);

(i) Establishing a ‘Site’ within the meaning of the Franchise Agreement in the Territory;

(ii)Operating a ‘gymboree programme’ within the meaning of the Franchise Agreement in the Territory;

(iii)Promoting or advertising the ‘gymboree programme’ by local newspaper, direct mailing (other than to members of the public currently on the Plaintiff’s mailing list or in response to specific enquiries from members of the public) or other form of local publication in the Territory of the Plaintiff’s business;

(c)Apart from responding to unsolicited enquiries of the Plaintiff, publishing, notifying or informing any person of information to the effect that:

(i) The Franchise Agreement has been terminated; or

(ii)The Defendants are not entitled to carry on the business of a Gymboree franchise.

Until the trial of this action or further Order, the Plaintiff shall not be obliged to promote or advertise the Defendants’ business described as Gymboree (South East) and conducted in the Territory;

Until the trial of this action or further order, the Defendants shall pay to the Plaintiff royalty fees in accordance with the Franchise Agreement.”

On 15 September 2000 after a hearing which lasted for two days on the application of Mr and Mrs Stewart, the Chief Justice made the following orders against Gymboree Pty Ltd and Mrs Graham:

“1. Each respondent is guilty of contempt of court in that, on or about 26 August 1999, [Gymboree Pty Ltd] through its agent [Mrs Graham], and [Mrs Graham] thereby aiding [Gymboree Pty Ltd], informed Raelene Kay Biram to the effect that [Mr and Mrs Stewarts’] franchise agreement with [Gymboree Pty Ltd] had been terminated, and that Mr and Mrs Stewart were not entitled to carry on the business of a gymboree franchise; thereby contravening the order of the Honourable Justice Byrne made on 2 July 1999.”

The Chief Justice ordered that Gymboree Pty Ltd and Mrs Graham pay the Stewarts’ costs of the contempt application so far as it related to the conversation with Ms Biram on an indemnity basis. His Honour also ordered there be no order as to the costs of the contempt application relating to advertising and that there be no separate penalty imposed in relation to the established contempt. Gymboree Pty Ltd and Mrs Graham have appealed from those orders.

The contempt, which was in breach of paragraph 3(c) of the order of Byrne J of 2 July 1999, was found to have occurred during a telephone conversation on 26 August 1999, during which the second appellant, Mrs Graham, informed Ms Biram, a director of a company that publishes a magazine known as “Brisbane Woman & Child”, that the franchise agreement had been terminated and that the respondents, Mr and Mrs Stewart, were not entitled to carry on the business of a Gymboree franchise.

The conversation was the subject of oral evidence given by Ms Biram and Mrs Graham at the trial. The Chief Justice set out in some detail in his judgment why he found Mrs Graham’s evidence unsatisfactory and preferred to accept Ms Biram’s evidence as to the conversation. Ms Biram’s evidence was not in conflict with facts incontrovertibly established nor was it glaringly improbable.⁴ Rather, as His Honour held, she was a reliable witness with “no particular ‘axe to grind’.” His Honour made findings of fact based on his assessment of the witnesses, an examination of the internal and external conflicts of evidence and his view of their demeanour. The critical findings were:

that Mrs Graham had informed Ms Biram that the Franchise Agreement had been terminated and that Mrs Stewart was not entitled to carry on the business of a Gymboree franchise;

that information was not given in response to an unsolicited enquiry by Ms Biram;

the information was given by Mrs Graham in her capacity as a director of the first appellant.

These findings were ones that the learned trial Judge was entirely justified in making. In doing so, His Honour had the advantage not enjoyed by an appeal court of observing the witnesses. Such findings can not readily be interfered with. Nor should they be. As the High Court held in Devries v Australian National Railways Commission:⁵

“More than once in recent years, this Court has pointed out that a finding of fact by a trial judge, based on the credibility of a witness, is not to be set aside because an appellate court thinks that the probabilities of the case are against – even strongly against – that finding of fact.⁶ If the trial judge’s finding depends to any substantial degree on the credibility of the witness, the finding must stand unless it can be shown that the trial judge “has failed to use or has palpably misused his advantage”⁷ or has acted on evidence which was “inconsistent with facts incontrovertibly established by the evidence” or which was “glaringly improbable”.⁸

The evidence of the plaintiff was not glaringly improbable. Nor was it inconsistent with facts incontrovertibly established by evidence.”

The grounds of appeal were summarised in the appellants’ written submissions as:

The learned Judge erred in finding that the respondents had proven, beyond reasonable doubt, that, at the time the second appellant spoke to Ms Biram on 26 August 1999, the second appellant was acting in her capacity as a director of the first appellant.

The learned Judge erred in finding that the respondents had proven, beyond reasonable doubt, that, at the time the second appellant spoke to Ms Biram on 26 August 1999, Ms Biram had not made an unsolicited enquiry to the second appellant in circumstances where the second appellant adduced evidence of an enquiry and Counsel for the respondents did not put, or suggest, the contrary to the second appellant.

The learned Judge erred in failing to:

decide whether or not the respondents were required to prove, beyond reasonable doubt, that the state of mind required of the second appellant (who was not a party to the Order) in aiding and abetting the first appellant’s contempt was of the higher degree of wilfulness, namely, that she was “flouting the authority of the court by doing something which he [or she] knows will prevent the undertaking given to the court achieving its intended object” or was “setting the Court at defiance, and deliberately treating the order of the Court as unworthy of notice”;

find that the respondents had not proven, beyond reasonable doubt, that the second appellant had acted with the higher degree of wilfulness required in order to be guilty of aiding and abetting the contempt of the first appellant.

(4)The learned Judge erred, after finding that the first appellant and the second appellant had no case to answer to the charges made in paragraphs 1(a), (b) and (c) and 2(a), (b) and (c) of the originating application, in failing to order that the respondents pay the first appellant’s and the second appellant’s costs of that part of the originating application.

The Second Appellant was acting in her capacity as a director of the First Appellant.

The second appellant, Mrs Graham, did not say, during her telephone conversation with Ms Biram on 26 August 1999, that she was acting in her capacity as a director of the first appellant.⁹ However, the learned trial Judge inferred that she did so act. His Honour was able to draw that inference as the only rational inference open¹⁰ from a number of factors. The context in which the inference was drawn is his findings as to the credit of various witnesses. Those findings are ones which a trial Judge is in the best, and in many respects, the only position to make.

In order to understand why the inference that the second appellant was acting in her capacity as a director of the first appellant was the only rational inference open,¹¹ one must consider precisely what the learned trial Judge found occurred.

The extent of the dispute between Gymboree Pty Ltd and Mr and Mrs Stewart is adequately demonstrated by the orders made by Byrne J on 2 July 1999.¹² The first appellant is, of course, a company and can only act by the actions of its directors, servants or agents.¹³ In addition to the orders of which it was found to be in breach, Gymboree Pty Ltd was restrained from implementing or acting upon a “Notice of Termination” of the franchise agreement that it had sent to Mr and Mrs Stewart dated 15 April 1999. Other orders related to advertising. The first appellant was restrained from promoting or advertising the “Gymboree programme” within the territory assigned to the respondent’s business by local newspaper, direct mailing (other than to members of the public currently on the first appellant’s mailing list or in response to specific enquiries from members of the public) or other local forms of publication. On the other hand, the first appellant was not obliged to promote or advertise the respondent’s business.

Mrs Graham has advertised her franchised business, which she conducts herself, for a number of years with Queensland Newspapers, Quest Newspapers, and the magazines “Brisbane News”, “Kids in Brisbane” and “Brisbane Woman and Child”. At times she carried on advertising with other franchisees, including the respondents. On other occasions, Mrs Stewart arranged the advertising and invoiced Mrs Graham. The franchisees had advertised jointly in “Brisbane Woman and Child” magazine as late as April 1999. In the August 1999 edition, Mrs Graham placed an advertisement in the magazine using a compact disc that belonged to her.

This advertising was consistent with the co-operative arrangements envisaged in the franchise agreement¹⁴ whereby Gymboree Pty Ltd was obliged to supply each franchisee with initial advertising material. Each franchisee could only use advertising material approved by Gymboree Pty Ltd. Gymboree Pty Ltd agreed to develop a co-operative marketing and public relations programme among all of its franchisees. Each franchisee would pay a proportionate share of advertising which covered an area larger than the area of each franchise.

On 20 August 1999, Mrs Stewart sent a letter by facsimile transmission addressed to “Andrea Graham”, the second appellant, of “Gymboree Pty Ltd”, the first appellant. The letter said that Mrs Stewart had recently been approached by “Brisbane Woman and Child” magazine about advertising in the September edition of the magazine. She said she had agreed to advertise with them but urgently needed to organise the advertising material. She then asked permission to use Mrs Graham’s compact disc. A tight time limit was placed on a reply.

Mrs Graham received the letter a few days later as she was at home ill. As soon as she read it, she telephoned her solicitor, Paul Lutvey at Mullins & Mullins, to ask what she could do to stop the use of her compact disc. She said under cross-examination that she rang Mr Lutvey in her capacity as director of the first appellant, to seek advice in respect of the order.¹⁵ Shortly after giving that evidence, however, she withdrew it. The learned trial Judge found, as he was entitled to do, that Mrs Graham had telephoned her solicitor in her capacity as a director. He also held that her unimpressive resiling from that evidence had an adverse effect on her credit.

When she spoke to her solicitor, Mrs Graham had just spoken by telephone to her husband, the other director of Gymboree Pty Ltd, as the trial Judge found, in the same capacity and about the same matter. Again Mrs Graham initially gave that evidence and then resiled from it and then said she was uncertain about the contents of the conversation and when it occurred. The Judge’s findings about these two calls are unsurprising in view of the assessment His Honour made of Mrs Graham’s credit and the fact that the order, about which Mrs Graham sought advice, as well as the franchise agreement between the first appellant and the respondents, covered the obligations of the first appellant and the respondents with respect to advertising, which was the very matter about which she was ringing.

After speaking to her husband (and co-director) and her solicitor, Mrs Graham rang Ms Biram. The learned trial Judge accepted the evidence of Ms Biram as to the contents of that conversation. His Honour inferred that having rung her husband and solicitor for advice as a director of the first appellant, Mrs Graham did not change the capacity in which she was acting when she rang Ms Biram.

Ms Biram’s evidence was that at 1.20pm on 26 August 1999, she received a telephone call from Mrs Graham. Ms Biram did not inquire of her about the current relationship between the appellants and respondent. The contrary to that was not suggested to her in cross-examination. Nevertheless, Mrs Graham volunteered to Ms Biram that Mrs Stewart was no longer associated with Gymboree; Mrs Stewart’s Gymboree franchise had been terminated in court; Mrs Stewart had no right to use any advertisement for Gymboree; Mrs Graham’s solicitor had already been informed about this particular matter; should the magazine proceed with any advertising for Mrs Stewart, they would find themselves being sued by Gymboree; and that Mrs Stewart was a liar. Ms Biram said that Mrs Graham was “very, very angry” that the magazine was intending to run an advertisement for Mrs Stewart. Mrs Graham told Ms Biram that she required the return of the compact disk containing the advertisement and for its deletion from Ms Biram’s hard disk. She required Ms Biram to write to her solicitors confirming that had been done. That letter was sent by facsimile transmission on the same day. The learned trial Judge took the view, as he was entitled to, that the terms of this conversation supported the second appellant’s having been speaking as a director of the first appellant since it dealt primarily with the court case between the first appellant and the respondents and with the interests of the first appellant.

Mrs Graham admitted that she had discussed the court proceedings with Ms Biram, saying in her evidence in chief, that she “tried to explain to her the Justice Byrne episode.” She said she told Ms Biram that Mrs Stewart’s franchise was “under termination”. Under cross-examination, Mrs Graham said she might have said, “We are trying to terminate them.” The learned trial Judge did not accept this account, preferring Ms Biram’s account but noting that Mrs Graham admitted that she spoke to Ms Biram about the court case between the first appellant and the respondents. She admitted that there was no need to say anything at all to Ms Biram about the franchise.

His Honour also concluded from Mrs Graham’s evidence that she was an active director of the company who regularly communicated with franchisees with regard to Gymboree programmes and marketing. Mrs Graham wrote to the respondents on 12 March 1998, for example, describing herself as the “founder and master franchisor” of Gymboree.

It can be seen that there was considerable evidence which supported the learned Judge’s conclusion that the second appellant, Mrs Graham, was acting in her capacity as director of the first appellant. It was not just a case of the judge drawing that conclusion because he rejected her evidence to the contrary,¹⁶ although His Honour was of course entitled to take his views as to her credibility into account in assessing whether he was prepared to accept her assertion that she was not acting in her capacity as a director when she spoke to Ms Biram.¹⁷

There was no error demonstrated in the trial Judge’s finding on the requisite standard that at the time Mrs Graham spoke to Ms Biram she was acting in her capacity as a director of the first appellant. In determining whether or not a contempt has been committed, His Honour appropriately applied the standard of proof beyond reasonable doubt.¹⁸

As the second appellant acted in her capacity as director when she breached the court’s order, the company was also liable for that breach of the orders.¹⁹

None of the other grounds of appeal were strongly pressed in oral submissions but it is appropriate, nevertheless, to consider the written submissions as to these matters.

Unsolicited enquiry

There was ample evidence for His Honour to be satisfied that the second appellant had not provided the information in breach of paragraph 3(c) of the order of Byrne J in response to an unsolicited enquiry from Ms Biram. Ms Biram said as much and her evidence was accepted by the learned trial Judge where it differed from that of Mrs Graham’s. This ground of appeal must also fail.

State of mind of second appellant

The learned trial Judge found that the second appellant spoke the offending words wilfully.²⁰ She was keenly aware of the constraints imposed upon her by Byrne J’s order and approached Ms Biram with angry determination. As the respondents submitted, these circumstances show that the second appellant, even though she was not in terms personally bound by the order of Byrne J, was “flouting the authority of the court by doing something which [she] knows will prevent the [order] achieving its intended object”²¹ or was “setting the court at defiance, and deliberately treating the order of the Court as unworthy of notice.”²² Furthermore, the factual findings show that the Chief Justice was satisfied of her state of mind beyond reasonable doubt.

Costs orders

The learned trial Judge, in making the costs orders, took into account that if the costs of the application were ordered only with regard to the part of the application where the respondents were successful, then that would be insufficient sanction. His Honour also properly took into account the order he made for indemnity costs in determining whether any further penalty was necessary.²³ The learned trial Judge was exercising a discretion and the appellants have not referred to any grounds which would justify interfering with its exercise.²⁴

Orders

The appeal should, in the circumstances, be dismissed with costs.