United Petroleum Franchise Pty Ltd v Istanikzai

1. The case management hearing and the hearing of the respondents' interlocutory application listed for 9:30am on Thursday, 1 June 2023 be stood over to a date to be fixed.
2. Within 7 days of the hearing of the Amendment and Joinder Application in the Supreme Court of Victoria, the parties are to jointly notify the chambers of Justice Anderson of this so that the Court can fix a date for a case management hearing. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 The respondents in these proceedings - Fahim Istanikzai (Mr Istanikzai) and FNH United Pty Ltd (FNH) in VID 525 of 2021 (Istanikzai Proceeding), and Jaydeep Devjibhai Bhatti (Mr Bhatti) and Jigarkumar Bharatbhai Patel (Mr Patel) in VID 703 of 2021 (Bhatti Proceeding) - are the plaintiffs in a representative proceeding in the Supreme Court of Victoria (VSC): FNH United Pty Ltd & Anor v United Petroleum Franchise Pty Ltd & Anor, proceeding no. S ECI 2022 04261 (Supreme Court Proceeding). 2 By identical interlocutory applications dated 16 March 2023 (Transfer Applications), the respondents in each proceeding seek an order pursuant to s 5(4) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) that the Istanikzai Proceeding and the Bhatti Proceeding (collectively, the Federal Court Proceedings) be transferred to the VSC. The respondents further propose the Federal Court Proceedings run concurrently with the Supreme Court Proceeding. 3 The respondents have previously made applications (Stay Applications) by which they sought that the Federal Court Proceedings be stayed pending the determination of the Supreme Court Proceeding. I dismissed the Stay Applications on 2 March 2023: United Petroleum Pty Ltd v Istanikzai [2023] FCA 149 (Stay Judgment). 4 On 28 March 2023, the plaintiffs in the Supreme Court Proceeding served on the defendants a proposed amended statement of claim (ASOC). On 19 April 2023, the plaintiffs in the Supreme Court Proceeding made an application to file an amended writ and amended statement of claim and to join another party to that proceeding (Amendment and Joinder Application). 5 The Amendment and Joinder Application is presently listed to be heard on 18 July 2023. 6 The Transfer Applications were listed for hearing on 1 June 2023. 7 On 23 May 2023, my chambers wrote to the parties, requesting that they inform the Court of their attitude to the Court making orders standing over the Transfer Applications to a date after the outcome of the Amendment and Joinder Application is known. On the same day, the respondents informed my chambers that they agreed that the Transfer Applications should await the outcome of the Amendment and Joinder Application. On 25 May 2023, the applicants informed my chambers that they did not agree that the Transfer Applications should await the outcome of the Amendment and Joinder Application. 8 For the reasons that follow, I have determined that it is appropriate for the Transfer Applications to be stood over pending the hearing of the Amendment and Joinder Application.

The stay judgment 9 I summarised the claims made in the Federal Court Proceedings and the Supreme Court Proceeding, as formulated at that time, in the Stay Judgment at [24]-[36], and [40]-[42]. 10 In dismissing the Stay Applications, I had regard to a number of considerations, including that: (a) there was not, at that time, a sufficient overlap in the evidence that would be put on in the Federal Court Proceedings and in the Supreme Court Proceeding to warrant granting a stay of the Federal Court Proceedings: at [57]; (b) the determination of the Supreme Court Proceeding would not determine the issues in dispute in the Federal Court Proceedings: at [58]. (c) the second applicant in both of the Federal Court Proceedings (United Petroleum Pty Ltd or UP) was not, at that time, a party to the Supreme Court Proceeding: at [59].

Proposed ASOC 11 After I handed down the Stay Judgment, the plaintiffs in the Supreme Court Proceeding sought to file the ASOC in the VSC. On 29 March 2023, the VSC Registry rejected the ASOC for filing. On 19 April 2023, the plaintiffs filed and served on the defendants the Amendment and Joinder Application, by which they sought leave to file the ASOC and an amended writ. 12 One of the amendments in the ASOC is the purported addition of claims by commission agents (Commission Agents) within the network of licensed businesses operated by franchisees. The second applicant, UP, was the contracting party with Commission Agents. UP is also the party who is alleged in the ASOC to have retained the bank guarantees of the plaintiffs. In turn, the plaintiffs have sought to add UP as a proposed third defendant to the Supreme Court Proceeding. 13 In submissions filed in connection with the Transfer Applications, the respondents submit that if the VSC grants the plaintiffs leave to amend and to join UP as a party to the Supreme Court Proceeding, then the Commission Agents will have mirror claims to franchisees in all material respects, in particular, the allegations that the Pie Face franchise was introduced into their stores without their consent; that UP had no contractual basis to do so; that they were forced to purchase stock for which they were not reimbursed; that the unsold stock was recorded as wastage for which they were not reimbursed; that the costs and overheads of operating a Pie Face site rendered their sites unprofitable; and that United Petroleum Franchise Pty Ltd (UPF) was aware, or had access to sufficient information to be aware, that the model was causing Commission Agents to suffer loss. 14 The ASOC also purports to add claims under the unfair terms regime of Part 2-3 of Schedule 2 to the Competition and Consumer Act 2010 (Cth) (Australian Consumer Law). These claims allege that various clauses in the Franchise Agreement and the Commission Agency Agreement are unfair within the meaning of s 24 of the Australian Consumer Law.

Amended Concise Statement in Response in the Istanikzai proceeding 15 On 9 March 2023, UPF and UP filed a further amended concise statement in the Istanikzai Proceeding. 16 On 23 March 2023, the respondents in the Istanikzai Proceeding filed a further amended concise statement in response (FACSIR) which: (a) alleges that the statements said to comprise the "Istanikzai Representations" (and which the applicants allege are misleading or deceptive) are true; and (b) alleges that a number of the terms of the Franchise Agreement that are impugned in the Supreme Court Proceeding are unfair within the meaning of s 24 of the Australian Consumer Law.

Respondents' submissions concerning overlap of issues in the Federal Court Proceedings and the Supreme Court Proceeding 17 In their submissions on the Transfer Applications, the respondents submitted that, by reason of the proposed amendments to the ASOC and the amendments in the FACSIR, the central question of the profitability of sites for both Commission Agents and franchisees following the introduction of the Pie Face franchise and whether they could afford to operate their sites, including paying award wages is in issue in the Federal Court Proceedings and the Supreme Court Proceeding. 18 The respondents also submitted that the same terms in the Franchise Agreement that are impugned as "unfair terms" within the meaning of s 24 of the ACL in the ASOC are also alleged to be unfair terms by Mr Istanikzai and FNH in the FACSIR filed in the Istanikzai Proceeding.

Submissions on the timetabling of the transfer application 19 The parties have filed submissions on the issue of whether the Transfer Applications should await the outcome of the Amendment and Joinder Application. 20 The respondents submitted that the Court should make orders standing over the Transfer Applications to a date after 18 July 2023, when the outcome of the Amendment and Joinder Application is known. The respondents' submissions emphasised that the form of the ASOC, and the resolution of the parties to the Supreme Court Proceeding, were important matters relevant to the Transfer Applications. 21 In opposing the orders sought by the respondents, the applicants submitted that: (a) as the respondents had filed the Stay Applications in October 2022, the effect of the Stay Applications and Transfer Applications was that the Federal Court Proceedings had already been effectively stayed for a period of over 7 months; (b) the timeframe for the resolution of the Amendment and Joinder Application and the finalisation of the statement of claim in the Supreme Court Proceeding remained uncertain, given that: (i) there was a reference in correspondence between the parties in the Supreme Court Proceeding to the plaintiffs intending to prepare a further draft amended statement of claim; (ii) there was also a reference in that correspondence to the possibility that the hearing of the Amendment and Joinder Application (presently listed for 18 July 2023) will be delayed (a matter which was denied by the respondents); (iii) it was uncertain when the Court would hand down judgment in the Amendment and Joinder Application; (iv) there was the possibility of further amendments to the pleadings (including because the defendants in the Supreme Court Proceeding had foreshadowed potential strike-out applications) after the Amendment and Joinder Application was determined; and (c) if this Court proceeded to hear the Transfer Applications on 1 June 2023, and dismissed those applications, it remained open to the plaintiffs to bring further transfer applications if they were subsequently successful on the Amendment and Joinder Application. On the respondents' submission, the further transfer applications would also have the added benefit of likely being heard after the filing of at least some of the evidence in the Federal Court Proceedings.

Consideration 22 This Court has wide powers with respect to case management, as reflected in Part VB of the Federal Court of Australia Act 1976 (Cth) (Act) and provisions such as s 37M, s 37N and s 37P. Critically, s 37M of the Act requires that the powers and duties under the civil practice and procedure provisions of the Act and the Rules be exercised in a way that best promotes the overarching purpose of the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. 23 The key consideration militating in favour of standing over the Transfer Applications pending the hearing of the Amendment and Joinder Application is the overlap between the issues raised in the Federal Court Proceedings (on the most recent concise statements filed by the parties) and the matters pleaded in the proposed ASOC. In determining the Transfer Applications, I will be required to have regard to a range of factors, including (but not limited to) the efficient use of judicial resources, the likelihood of contrary findings of fact arising from the same material, and the likelihood that costs can be minimised: The President's Club Limited v Palmer Coolum Resort Pty Ltd [2019] QSC 209 at [148(2)]. Each of these factors directs attention to the extent of overlap between the cases pursued in this Court and in the VSC. It is difficult to properly assess this overlap without knowing whether the plaintiffs will, in the Supreme Court Proceeding, be granted leave to pursue the claims foreshadowed in the ASOC, and whether they will be granted leave to join UP - the second applicant in the Federal Court Proceedings - as a defendant in the Supreme Court Proceeding. That uncertainty will be resolved following the determination of the Amendment and Joinder Application. 24 It is apparent from the written submissions filed on the Transfer Applications by the respondents and the applicants that the outcome of the Amendment and Joinder Application is a consideration relevant to the Transfer Applications. The respondents' submissions emphasised that if leave to file the ASOC is granted in the VSC, the parties in both sets of proceedings will be identical with the exception of one party, who is not a party to the proceedings in this Court: Outline of Submissions dated 11 April 2023 at [7]. The respondents' submissions further emphasised the extent of overlap between the matters pleaded in the ASOC and the issues in dispute in the Federal Court Proceedings, in particular, the Istanikzai Proceeding: Outline of Submissions dated 11 April 2023 at [12], [15]. Notably, the applicants' submissions on the Transfer Applications did not appear to contest the respondents' submissions that there will be overlap between the issues in both sets of proceedings if the Amendment and Joinder Application succeeds. Instead, the applicants submitted that the Federal Court Proceedings are much narrower than the issues in the Supreme Court Proceeding: Outline of Submissions dated 26 April 2023 at [47]. The applicants also submitted that the additional parties and claims included in the ASOC were intended to make the Supreme Court Proceeding "more similar" to the Federal Court Proceedings: Outline of Submissions dated 26 April 2023 at [48]. 25 As set out above, the applicants' have contended that, if this Court, proceeded to hear the Transfer Applications on 1 June 2023, and dismissed those applications, it remained open to the plaintiffs to bring further transfer applications if they were subsequently successful on the Amendment and Joinder Application. In my view, this is a consideration which weighs in favour of standing over the Transfer Applications. The determination of the Transfer Applications requires, amongst other things, a detailed analysis of the allegations in the Federal Court Proceedings and the Supreme Court Proceeding. Requiring the parties to litigate such complex applications before the determination of the Amendment and Joinder Application, and then permitting them to re-litigate a similarly complex application if the Amendment and Joinder Application succeeds, will be unnecessarily duplicative and result in the parties incurring unnecessary costs. 26 For the above reasons, it is appropriate to stand the Transfer Applications over pending the hearing of the Amendment and Joinder Application. 27 Nonetheless, the applicants have contended, with some force, that this Court ought to guard against the risk of the Federal Court Proceedings stalling. Given this, I consider it appropriate to require the parties to attend a further case management hearing after the hearing of the Amendment and Joinder Application. With the benefit of knowledge about what transpired at the Amendment and Joinder Application hearing, the Court will be in a better position to assess the parties' submissions as to the future conduct of the Federal Court Proceedings.

Disposition 28 The case management hearing and the hearing of the respondents' interlocutory application in the Federal Court Proceedings have been stood over to a date to be fixed. 29 Within 7 days of the hearing of the Amendment and Joinder Application in the Supreme Court of Victoria, the parties are to jointly notify the chambers of Justice Anderson of those orders so that the Court can fix a date for a case management hearing. At that time, the Court will make further orders for the progress of the Federal Court Proceedings. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Anderson.