Consideration when bringing legal proceedings
By Alicia Hill, Principal, MST Lawyers
In the case of PA &FA Services Pty Ltd v Fisher & Paykel Customer Services Pty Ltd (2016) VCC 1384, Fisher & Paykel Customer Services Pty Ltd (Fisher & Paykel), franchisor, was being sued by PA & FA Services Pty Ltd (franchisee) who bought a franchise which had 20 months left to run. The franchise contract was then renewed on 7 February 2014, to service and repair Fisher & Paykel goods.
On 10 September 2014, Fisher & Paykel decided to change its system from a franchise model to a system of employees and authorised service centres. The franchisees were informed of this decision in November 2014.
The franchisee started proceedings against Fisher & Paykel alleging breach of the disclosure obligations on the basis that the system change was under consideration and should have been disclosed to the franchisee. Not disclosing this information was alleged to be misleading, deceptive and unconscionable conduct.
Fisher & Paykel brought an application that the franchisee pay an amount as security to cover its costs should it be successful in defending the claims made against it.
The franchisee admitted it had no assets and the director also stated in an affidavit filed in court that:
A. he did not have a significant amount of money to provide by way of security;
B. he had funded the litigation from personal loans from friends and family.
The franchisee argued that:
- an order would stultify its ability to bring a claim,
- Fisher & Paykel had assumed the risk that it may be sued by an impecunious franchisee when it entered into a franchise agreement with the entity incorporated for the purpose of conducting the franchise business,
- Fisher & Paykel had delayed in bringing its application and
- it would offer an undertaking to guarantee to pay any costs order up to $20,000.
The court rejected these arguments and ordered that the franchisee pay $20,000 as security for costs up to mediation, then a further $20,000 for advance to trial and a further $30,000 for preparation and trial, or, if an agreement could be reached on issues, only $25,000. Dates were set for when each payment was to be made. If payment was not made, the matter would not proceed.
These amounts were noted to be in addition to any costs the franchisee had to pay its own lawyers to progress the claim. This situation is not uncommon and can see the non-payment of monies resulting in the dismissal of the proceedings.