Consideration Concerning Representative Proceeding
76 As to the applicant and other franchisees who fall into the group A category described above, namely those franchisees who have actually exercised the cl 3 option to renew their franchise agreements, it is plain enough, in terms of s 33C(1) that there are:
• Seven or more persons who have claims against the same person, namely the respondent.
• The claims of all those persons, as franchisees, are in respect of, or arise out of, the same, similar or related circumstances namely, the insistence of the respondent that it can require these franchisees to execute a new franchise agreement in terms different, even substantially different, from the current agreement under which each operates their franchise.
• The claims of all the franchisees in this group A category give rise to a substantial common issue of law or fact, the primary common issue of law being the proper construction of cl 3 of the Old Agreement. In that regard, the questions posed in claims 4(a), (b), (c), (d) and (e) of the proposed amended application reasonably identify substantial common issues of law that the persons' claims give rise to.
• There also appears to be a substantial common issue of fact or issues of fact concerning whether the conduct of the respondent towards these franchisees as a group constitutes unconscionable conduct.
77 Indeed the respondent, leaving aside its specific pleading objections to the amended statement of claim and relief sought in the proposed amended application, does not contend that the preconditions to a representative proceeding are not made out in respect of the group A franchisees.
78 Accordingly, I find that so far as the group A franchisees are concerned the preconditions to a representative proceeding specified in s 33C of the Federal Court Act are satisfied.
79 The real issue between the parties is whether or not the s 33C preconditions are made out in respect of the group B franchisees, that is to say, those franchisees who in broad terms operate under a current franchise agreement which contains cl 3 of the Old Agreement or its equivalent, but for whom the time has not yet arrived to exercise the option to renew the agreement. As stated above, the facts show that there are a much larger number - 28 or so - franchisees in this group B category. In some cases, the time to exercise the option to renew the agreement will not arrive until some time in the period 2010 to 2012.
80 For my part, I consider that these persons do in fact have relevant "claims" against the respondent. In my view it matters not, in the present circumstances, that these persons do not currently have the contractual right to exercise the option to renew the agreement under which they operate their franchise. Their current interests raise real issues with real consequences depending on their resolution.
81 Having regard to the general level of dispute between all franchisees, and particularly those in the group A category, the franchisees in the group B category are entitled to entertain real concerns concerning their legitimate contractual rights at this time. In that sense, the contractual concerns of the group B persons are not merely hypothetical. The issue of concern has already been identified as such by the position taken by the respondent with the group A franchisees. The applicant says there is no reason to believe, given the background to the proceedings set out above including the prior proceedings in the Federal Court involving the respondent, that the respondent's approach to the renewal of the franchise agreements of the group B members is likely to be any different from that currently evinced in relation to the group A franchisees. In my view, this observation has force.
82 The respondent contends that the "current franchise agreement" of the respondent, that it currently requires a franchisee to execute upon renewal of the agreement, has changed overtime and will continue to change, thus there is no particular agreement in respect of which litigation may occur. The point of the representative proceeding, however, is that the franchisees, as a group, who currently have an Old Agreement, have a common interest in seeing the contractual entitlement they have under cl 3 properly interpreted or construed. Whatever the terms of cl 3 mean, they currently mean the same thing in respect of all franchisees who operate under the Old Agreement. It matters not whether the franchisees within the group are in the A or B category in that regard. The issue is neither unreal or hypothetical in the circumstances.
83 Moreover, to the extent that the respondent suggests that the issues between the respondent and the group B franchisees can be determined in the fullness of time, I do not agree with that reasoning. The reality is that, from time to time, various persons or groups of persons within the group B category of franchisees will find themselves having to decide whether or not to renew their franchise agreements under cl 3 of the Old Agreement. If they were each required, as the time for election arrives, to freshly litigate the question, it would, in my view, having regard to the history of this matter, quite possibly place those franchisees at a disadvantage in their dealings with the respondent. They would, at the very least, be under time constraints, not to mention financial constraints to litigate the issue. If it were then said they could take "guidance" from the Court's earlier consideration of the issues that had arisen out of this proceeding at the instance of the group A franchisees, they would reasonably say - "But we were not permitted to be parties to that proceeding."
84 To the extent that the respondent says that because the current franchise agreement of the respondent may continue to evolve there is no real issue to try and there will be something in the nature of a factual "moving feast", I do not accept that submission. As stated above, all franchisees, whether in group A or group B have an interest in the clarification of their current rights to renew their franchise agreement (whether immediately having exercised the option to renew, or later when the time for exercising that option arrives).
85 It seems to me that the very purposes and objects of the representative proceeding provisions of the Federal Court Act were designed for a case such as this. A representative proceeding that includes both group A and group B franchisees enables a relatively inexpensive and efficient means of clarifying the contractual rights of the franchisees in both categories.
86 The respondent has focussed in particular on the relief sought in claim 3.12 of the proposed amended application as a way of demonstrating the premature or hypothetical nature of the proceeding in relation to group B members. In my view, the submissions of the respondent in that regard are based on a misconception as to what claim 3.12 is. Claim 3.12, which is merely an alternative form of relief in the event that the earlier constructional issues do not find favour with the Court, seeks to raise an alternative construction of the renewal right in the Old Agreement. While the relief sought in claim 3.12 might be contended to be not open, it is not a claim that actually depends upon developing factual scenarios. Rather, it claims in effect a formula for agreeing the terms of a renewed franchise agreement, which terms have regard to the factual circumstances as they may exist at particular times when a franchisee seeks to exercise the option to renew the franchise agreement. It is, when properly perused, merely another constructional argument - the last of them - put forward on behalf of the franchisees.
87 There is also a question whether there are facts that are sufficiently common to raise a substantial common issue of law and fact in relation to the relief sought on behalf of all franchisees in respect of the alleged unconscionable conduct of the respondent. For present purposes I consider that there is. The application on behalf of all franchisees relies upon the conduct of the respondent following the decision of the Federal Court in Hoy Mobile and seeks to attribute significance to the conduct of the respondent pleaded in the proposed amended statement of claim in respect of individual franchisees as relevant to all franchisees. Whether or not the cause of action is established and the franchisees are entitled to relief is another thing. However, I consider that there is a substantial common issue of law and fact in relation to the unconscionable conduct claims. In any event, to the extent it may be argued that there is doubt that the unconscionable conduct claims of the various members of the group of franchisees does not raise a substantial common issue of law and fact that does not disentitle the applicant to commence this representative proceeding in light of the constructional claims made on behalf of all members of the group that I consider to raise a substantial common issue of law.
88 I would not, in these circumstances, consider it appropriate to exercise the discretion under s 33N to discontinue the representative proceeding that has been commenced, upon leave being given to the amendment of the application and statement of claim.
89 While numerous authorities were cited by counsel for the respondent concerning the importance of the Court having before it a justiciable issue, claims that are not "hypothetical" and a "matter" that can be dealt with by a Ch III court, it seems to me that one way or another the issue comes back to the question whether or not the representative proceeding on behalf of all franchisees, both group A and group B members, raises real issues with real consequences depending on the outcome.
90 In Bass v Permanent Trustee Company Limited (1999) 198 CLR 334 Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ in a joint judgment at [59] were critical of the Full Court of the Federal Court endeavouring to answer questions without a proper factual basis having been established in relation to the questions. In the course of explaining that conclusion, the plurality emphasised a number of well established propositions:
• Central to the purpose of a judicial determination is the notion that such a determination includes a conclusion or final decision based on a concrete and established or agreed situation to change or quell a controversy: [45].
• A judgment of a court is an affirmation, by the approved societal agent of the state of the legal consequences attending a proved or admitted state of facts. It is a conclusive adjudication that a legal relationship does or does not exist. The power to render judgments, the so called "judicial power" is the power to adjudicate upon contested or adverse legal rights or claims, to interpret the law, and to declare what the law is or has been: [46].
• Because the object of the judicial process is the determination of the rights of the parties to an action, the Courts have traditionally refused to provide answers to hypothetical questions or to give advisory opinions. The jurisdiction with respect to declaratory relief has developed with an awareness of that traditional attitude: [47].
• A declaration will not be granted where the question under consideration is not a real question, by "not a real question" hypothetical or academic questions are identified. However the jurisdiction to grant declaratory relief includes the power to declare the conduct which has not yet taken place will not be in breach of a contract or a law and such a declaration will not be hypothetical in the relevant sense: [47].
• One crucial difference between an advisory opinion and a declaratory judgment is the fact that an advisory opinion is not based on a concrete situation and does not amount to a binding decision raising a res judicata between parties: [48].
91 In Bass at [49] the plurality was critical of the answers given by the Full Court and the declaration it made as they were:
not based on facts, found or agreed, they were purely hypothetical. At best, the answers do no more than declare that the law dictates a particular result when certain facts in the material or pleadings are established. What those facts are is not stated, nor can they be identified with any precision. They may be all or some only of the facts. What facts are determinative of the legal issue involved in the question asked is left open. Such a result cannot assist the efficient administration of justice. It does not finally resolve the dispute or quell the controversy. Nor does it constitute a step that will in the course of the proceedings necessarily dictate the result of those proceedings.
92 In Bass at [47] the Court referred approvingly to what Barwick CJ had said in Commonwealth v Sterling Nicholas Duty Free Pty Ltd (1972) 126 CLR 297 at 305 concerning the jurisdiction of the Court to declare conduct which has not yet taken place to be in breach of a contract or a law and that a declaration in such circumstances will not be hypothetical.
93 In Sterling the respondent company carried on the business of a duty free shop with a concurrence of the Department of Customs and Excise. In the course of the respondent dealing with customers and the delivery of duty free goods to an aircraft, two legal obstacles were said to have stood in the way of the completion of such delivery of goods to a departing passenger purchaser in the airport. First it was said that the delivery of the goods was in breach of the Airports (Business Concessions) Act 1959 (Cth), second it was said that only a delivery of such goods to a passenger purchaser in a holding room could lawfully be made in conformity with the control of Customs. The respondent brought proceedings for declarations that its delivery of goods within the airport to passenger purchasers was lawful. Barwick CJ at [305] said:
The jurisdiction to make a declaratory order without consequential relief is a large and most useful jurisdiction. In my opinion, the present was an apt case for its exercise. The respondent undoubtedly desired and intended to do as he asked the Court to declare he lawfully could do. The matter, in my opinion, was in no sense hypothetical, but in any case not hypothetical in a sense relevant to the exercise of this jurisdiction. Of its nature, the jurisdiction includes the power to declare that conduct which has not yet taken place will not be in breach of a contract or a law. Indeed, it is that capacity which contributes enormously to the utility of the jurisdiction.
94 While these observations were apparently not endorsed by the other members of the Court, as noted, in Bass they were referred to with approval, although Bass itself was not considered such a case.
95 In IMF (Australia) Ltd v Sons of Gwalia Ltd (administrator appointed) (2005) 143 FCR 274, Emmett J at [67] - 68] (with whom Moore J agreed at [16]), considered that in the circumstances of the case before the Court it may not have been open to grant declaratory relief because the relief sought would not relate to a "matter" within the meaning of s 75, s 76 and s 77 of the Constitution. In the primary proceedings, the appellant had sought a declaration in the Federal Court that its proposed use of certain information fell within an exception contained in s 177(1A)(a) of the Corporations Act 2001 (Cth). The primary judge (French J) had been prepared to grant such declaration because he considered the proceeding nor hypothetical nor contingent and contained a real question, namely whether IMF could lawfully proceed in using the information obtained from the register. In the event, by reason of the conclusion by the majority in relation to another issue, it was not necessary to deal with the issue. However, Emmett J at [68] said:
The fact that declaratory relief relates to the lawfulness of future conduct does not necessarily mean that such relief is beyond the power of the Court. On the other hand, a declaration in relation to a hypothetical situation or set of circumstances, which may never arise, borders on an advisory opinion and would therefore be outside the jurisdiction of the Court.
96 By focussing on the question whether or not there is a "matter" for constitutional purposes may be helpful but perhaps not always the most desirable way to determine whether the Court should exercise its power to entertain an application before a declaration in a particular case. So far as the word "matter" is concerned, Kirby J in Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd (2000) 200 CLR 591 at [156] observed:
It is undesirable that the word [matter] should be subjected to excessive refinement or submitted to inappropriate elaboration leading to unnecessary constitution rigidity.
97 In Australian Gas Light Company v Australian Competition Consumer Commission (No 2) [2003] FCA 1229 the applicant, in effect sought declarations that its proposed acquisition of an interest in an entity that would acquire the business and asset Loy Yang Power Station and associated transactions would not have or would not be likely to have the effect of substantially lessening competition in a market in breach of s 50 of the TPA. Amongst other points, the ACCC contended that the Court had no jurisdiction to grant the declarations sought as there was no "matter" in relation to the s 50 issue.
98 French J reviewed a number of authorities concerning the circumstances in which the Court has jurisdiction to grant declaratory relief and rejected the contention of the ACCC. At [40] French J stated:
The making of a declaration as to the lawfulness of future conduct has long been accepted as an exercise of judicial power. The fact that declaratory relief relates to future conduct does not place it outside the bounds of federal jurisdiction. If the claim for the declaration arises out of a contemporary controversy in which a party's freedom of action is challenged in some way, that controversy can constitute a matter for the purposes of the exercise of federal jurisdiction. Whether or not there is a real controversy is a question of judgment. In the present case, in my opinion, there is a real controversy about the right or freedom of AGL to proceed with the proposed acquisition in relation to the Loy Yang A power station and the coal mine. Its freedom to do so has been challenged in a very practical way by the regulator in correspondence and most explicitly in its defence where it denies that the proposed acquisitions would not contravene s 50 of the Trade Practices Act. Reservations about or opposition to a proposed acquisition expressed by the regulator can have very concrete commercial consequences and may in some, if not most, cases effectively prevent an acquisition from proceeding.
99 French J at [46] concluded that the Court was therefore apprised of "a real controversy with real consequences depending upon its resolution", thus the Court was not deprived of jurisdiction for want of a "matter" in that case.
100 The respondent submitted that a number of cases on the factual circumstances suggested that there was no real controversy or jurisdiction to grant declaratory relief, no "matter", thus no "claim" for the purposes of s 33(C) of the Federal Court Act to sustain a representative proceeding in respect of the class of the franchisees. In this regard the respondent likened the position of the group B franchisees, who are yet to have the opportunity to decide whether or not to exercise the option to renew their franchise agreements, to that of the unsuccessful applicants considered in a number of authorities.
101 For example, the respondent cited Draper v British Optical Association [1938] 1 All ER 115 where the plaintiffs unsuccessfully sought a declaration that the defendants had no right to compel him to behave in a particular way, when all they had done is to call a meeting to consider his conduct.
102 In Re Clay, Clay v Booth [1919] 1 Ch 66 the plaintiff also unsuccessfully sought a declaration that he was not liable under a particular deed not withstanding that no claim had been made under the Deed.
103 In Melstrom v Garner [1970] 2 All ER 9 a retired partner unsuccessfully sought a declaration as to the construction of the covenant against canvassing customers but did not possess the intention to pursue such activity.
104 These cases, it might be said, all rather speak for themselves. Either circumstances simply had not arisen that gave rise to any real issue or, in a related way, there were grounds for the Court to exercise its discretion not to entertain such peripheral issues.
105 The respondent also emphasised the decision in Dormer v Solo Investments Pty Ltd (1974) 1 NSWLR 428. The defendant vendor had sold certain land to a purchaser plaintiff knowing there was a real possibility that a gas pipeline might be built through part of the subject land and, that if this occurred, an easement restricting the use of the land might be granted. The defendant vendor did not inform the purchaser plaintiff of this prior to entering into the contract. After the plaintiff became aware that the proposed gas pipeline would pass through the subject land, he sought a declaration that he was entitled to rescind the contract on the basis of nondisclosure. Holland J observed at 434:
I should observe that, if I had been in the plaintiff's favour, I would have had doubts whether the jurisdiction of the court to make a declaration of relief ought to have been exercised in the present case. I am not the least inclined to find limits on the beneficial jurisdiction of this Court to make declarations of right, but it is one thing to declare present contractual rights of the parties, another to declare them contingently on the plaintiff electing to take some course that he has not yet taken is not bound to take and may not take. In the present case the plaintiff has said that, If I were to find that he was entitled to rescind, that he would rescind, but he would not in any way have been bound to do so if I had made the declaration that is sought.
It seems to me that, although the claim in the summons is for an order that the plaintiff is entitled to rescind, in substance, the relief that is sought is a declaration that, if the plaintiff elects to give a notice of rescission, that notice of rescission will be effective to terminate the contract.
I think the court ought to hesitate to make declarations as to the potential effect on the contractual position of the parties of events upon which a party has not yet acted and which would not alter the existing contractual rights unless he did so act.
106 Again it can be seen that the circumstances in which these comments were made by Holland J are not the circumstances currently before the Court. What the plaintiff wanted in Dormer was a declaration that, if he wanted to do so, he could act in a particular way. That suggests there is not a real issue with real consequences before the Court. At least, as a matter of judgment that is what the Court there decided, in my view.
107 The respondent here suggests that a real issue with real consequences is not presented because the group B franchisees have not yet been called upon to decide if they will in fact choose to exercise their franchise agreements. In my view, such a future consideration, while relevant, is not determinative in the present circumstances. What the group B franchisees would want to know, in my view, and are entitled to know, is what their present contractual entitlements are so that they are properly informed, in good time, to decide whether or not they should exercise their option to renew their franchise agreements. They have made no doubt, substantial investments in their businesses. The uncertainty that the group A franchisees are currently experiencing in their dealings with the respondent only serves to highlight the real value of the controversy and the real likelihood of consequences depending on the determination of the issues raised.
108 The respondent also makes reference to Pacific Brands Household Products Pty Ltd v Singan Investments Pty Ltd [2003] VSC 76. In this case, the plaintiff had taken assignment of the rights and obligations of the lessee under two leases pertaining to two lots of lands. The defendant was the lessor under those two leases. Both leases granted the lessee the option to purchase, at the "market value of the freehold", the land upon giving notice in writing at any time during the term of the lease. The plaintiff sought a declaration as to the meaning of the option to purchase clause. Habersberger J considered at [16] that the Court was being asked inappropriately to provide an advisory opinion. His Honour was of the view at [16] that:
Unless and until the plaintiff exercises the options to purchase there is no dispute in respect of which the Court can be asked to adjudicate.
109 In my view, whether or not in a given case, such as that thrown up by Pacific Brands, a court will consider that a declaration is improperly being called for, is a matter of judgment. One can understand, in such a case, that there was considered to be no relevant issue, certainly no real consequences flowing from a real issue, in relation to the meaning of the expression "market value of the freehold" until such time as the option to purchase is exercised.
110 However, in my view, the situation in which the group B franchisees find themselves in this case is quite different. I consider they are entitled to have the benefit of the construction of the existing Old Agreement in commercial circumstances where they know that the respondent has challenged the entitlement of group A franchisees to have their Old Agreements renewed in the same or similar terms.
111 In summary then, I am satisfied that the proposed representative proceeding on behalf of all the relevant franchisees, both within the so called group A and the so called group B, have "claims" within the meaning of s 33C(1)(a) of the Federal Court Act; that the declaratory relief sought in respect of those claims gives rise to real issues with real consequences depending on the outcome, so that the Court is not being asked to entertain a hypothetical proceeding; and that there is a relevant "matter" before a Ch III court.
112 I am satisfied that the other preconditions to a representative proceeding specified by s 33C(1)(b) and (c) are met in respect of the group B members. The claims arise out of the same or related circumstances and give rise to a substantial common issue of law and fact.
113 I also consider that the maintenance of a representative proceeding would serve the administration of justice, and the objects of s 33C by enabling a cheaper and more efficient means of resolving matters in dispute between all franchisees and the respondent.
114 I do not consider that this is a case where the Court should exercise its discretion under s 33N to discontinue the representative proceeding (at least on the basis of the material and issues currently before the Court).