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Franchising Injunctions: Preserving Your Rights And Maintaining The Status Quo

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By Nicole Flory, Lawyer, MST Lawyers and Alicia Hill, Principal, MST Lawyers

Injunctions play a key role in franchising. They are a specific tool that enables franchisors to enforce terms or rights contained in their franchise agreements or at law, that relate to protecting their brand and trademarks, reputation and their franchises generally. They can also be used by franchisees to prevent a franchisor from wrongfully terminating their franchise arrangement.

An injunction is an order of the Court requiring a person to refrain from doing, or compelling them to do a certain action.

There are two types of injunctions:-

  1. interim injunctions or interlocutory injunctions, which are only granted for a short or limited period, pending a hearing of the matter; and
  2. permanent injunctions which are granted at the conclusion of a hearing and are in the form of final prohibitive orders on the actions or conduct of the parties.

Recently, Justice Barker of the Federal Court dismissed an urgent application for an injunction in the matter of W Hoy Pty Ltd v W.T.H. Pty Ltd [2018] FCA 310. His Honour determined this was not a matter where interlocutory injunctions should be granted. He noted that while some of the claims were arguable, as a matter of law and fact, they were not strong, and as such, the balance of convenience and justice did not warrant the granting of an injunction in this instance, as damages were an adequate remedy.

 The Background

W Hoy Pty Ltd (W Hoy) and W. H. T Pty Ltd (Avis Australia) (Avis) had a long business relationship dating back to 1996. The parties entered into an agreement in 1996 for the operation of a car hire business under the name Avis and located at Perth International Airport. A subsequent agreement with Avis followed in 1998. In 2016, W Hoy entered into further agreements with Avis and also with Budget Australia (Budget) (collectively the Agreements).

Pursuant to clause 8 of the Agreements, Avis was entitled to give W Hoy 30 days’ notice (Notice) of the termination of the Agreements, without reason or explanation.  Avis gave W Hoy Notice, and the Agreements were due to expire on 12 March 2018.

W Hoy sought an urgent interlocutory injunction restraining Avis and Budget from:

  1. terminating and/or preventing W Hoy from operating his business trading under the name of Avis and Budget until trial; or
  1. entering upon the business premises for the purpose of preventing W Hoy from operating the business pursuant to the Agreements dated 1 July 2016.

W Hoy’s Arguments

W Hoy claimed:

  1. each of the Agreements with Avis and Budget, were franchise agreements as defined in clause 5 of the Franchising Code of Conduct contained in Schedule 1 to the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Cth) (Code);
  2. Avis had contravened section 21 of the Australian Consumer Law  (ACL) by engaging in unconscionable conduct; and
  3. Avis had breached implied contractual terms of good faith, reasonableness and fair dealing.

 Avis’ Arguments

Avis argued that:

  1. each of the Agreements were agency agreements;
  2. if the Agreements were franchise agreements, Avis had not breached the Code in any event;
  3. Avis’ conduct was not unconscionable as the Notice was in accordance with the contract as evidenced by clause 8 of the Agreements (termination provisions), and were in the promotion of its own legitimate commercial interests; and
  4. W Hoy had not identified any particular breach of law in relation to Avis’ implied duties or a departure from the required standard.

The Law

In determining whether to grant an interim or interlocutory injunction, the Court applied a three-part test, as set down in Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd:

  1. Is there a serious issue to be tried?
  2. Would the party seeking the injunction suffer irreparable harm, for which damages will not be adequate compensation, unless the injunction is granted?; and
  3. Does the balance of convenience lie in favour of granting or refusing the application?

As an injunction is an equitable remedy, the decision of the Court to grant the order is discretionary. A party seeking the granting of an injunction is not required to prove that it will succeed at trial, only that there is a ‘sufficient likelihood’ of succeeding at trial, which justifies the granting of the order and preserving the party’s rights as seen in Australian Broadcasting Corporation v O’Neil (2006)

 Undertaking as to Damages

 A usual condition of granting an interlocutory injunction is that the party seeking the injunction must also give an undertaking as to damages. This undertaking operates as a protection to the responding party should the Court later rule that the interlocutory/interim injunction should not have been granted.

The undertaking requires the party seeking the injunction to compensate the party affected by an injunction that is granted for any loss or damage suffered as a result of granting the injunction if it is found that the claim supporting the granting of the injunction goes against the party who sought the injunction. Where the party seeking the injunction fails to give this undertaking, the interlocutory injunction will most likely be refused.

It is important to note that this undertaking as to damages is not only limited to damages suffered by a person the subject of the injunction, but also any other third party that may claim to have been affected by the granting of the injunction.

 The Decision

 Is there a serious question to be tried?

In determining whether there was a serious question to be tried, Justice Barker considered whether W Hoy had established firstly, that an enforceable right existed on the facts and secondly, that there was a sufficient likelihood of success for W Hoy at trial.

Justice Barker concluded there were no serious questions to be tried in this matter and that W Hoy’s perspective causes of action would likely fail, as they were not strong on either law or fact.

Specifically, Justice Barker believed the Agreements were true agency agreements, and given the nature of their terms, the subject matter, payment obligations of the parties and a lack of a fixed term, all assisted him in reaching that conclusion.

As to the claim of unconscionable conduct, Justice Barker believed that no breaches of section 21 of the ACL had occurred. In addition, his Honour formed the view that although arguments could be made in relation to the unconscionable, good faith and reasonableness questions, they were not strong, as W Hoy had not pointed to any evidence of conduct contrary to good faith dealings.

Justice Barker added that although the termination may be unfair, Avis’ conduct was not unconscionable, and in fact, appeared to be a decision made with the legitimate commercial interests of Avis and Budget in mind. Furthermore, their actions were based on a held contractual right.

Will damages provide an adequate remedy?

In determining this issue, Justice Barker considered whether the injury to W Hoy would be irreparable harm or an injury for which only an injunction would be adequate. W Hoy argued that his goodwill in the business would be destroyed and that as a result of the termination, his ability to provide financial support to his ailing life partner would be greatly affected.

Justice Barker expressed the view that it was W Hoy’s interests that required consideration and not secondary considerations such as W Hoy’s ability to support his life partner.

Justice Barker concluded W Hoy would not suffer irreparable personal damage from the termination of the Agreement on Notice, which would justify granting the injunction. Further, if W Hoy could make out the causes of action as claimed, then damages would provide a complete and adequate remedy in the form of monetary compensation for any losses he had incurred as a result.

Where does the balance of convenience lie?

In assessing the balance of convenience, a Court is required to weigh up the relative effects of an injunction on the parties, including the inconvenience and the likely injury to either party if the injunction is granted or refused.

In reaching his conclusion, his Honour considered the following arguments raised by Avis:

  1. the Agreements expired on 12 March 2018 (the day prior to the hearing), granting the injunction would require Avis to remain in a contractual relationship with W Hoy and to positively perform its obligations under the Agreements, which had ceased in any event. The granting of an injunction would not prevent the termination of the Agreement from occurring;
  2. the effects of granting an injunction would force Avis to remain in a contractual relationship that had effectively ceased
  3. an injunction would force Avis to reappoint W Hoy as an agent of Avis and Budget, which in turn would entitle Hoy to receive commission payments in accordance with the Agreements.
  4. forcing the parties to remain in a contractual relationship and to perform their obligations could result in deterioration of the commercial relationship and damage to the franchise, potentially increasing the likelihood of further disputes; and
  5. granting the injunction would likely require Court supervision of the parties to ensure performance of their obligations under the Agreements.

Upon consideration, Justice Barker ultimately concluded the balance of convenience fell heavily in favour of Avis for the following reasons:

  • there was a real possibility of a further dispute between the parties;
  • Courts are cautious to grant injunctive relief where it will be required to supervise the parties to ensure continued cooperation and performance;
  • damages would be calculable and would be an adequate remedy for Hoy if he was successful at trial.
  • even if the injunction was granted, W Hoy would still be subject to the terms of the Agreement, and as such, it would not transform W Hoy’s limited tenure (which had expired) into anything like a permanent grant of tenure.

On that basis he was not prepared to grant the injunction forcing the parties to continue in a business relationship, as that would be unwise. He determined that damages would adequately compensate W Hoy for any loss he may suffer.

Conclusion

For franchisees or franchisors looking to prevent the other party from doing or not doing something, either under their franchise agreements or in relation to an infringement of their rights, parties must meet the requirements of the test for injunctive relief and provide the undertaking as to damages. Failure to do so can result in failed court action and costs orders requiring payment to the other party.

Beyond illustrating how the principles governing the granting of injunctive relief can apply in a franchise situation, and generally, Avis’ successful defence of its application is a positive decision for franchisors seeking to terminate their franchise agreements. This is particularly the case in instances where a contractual right exists, and it is in the legitimate commercial interests of the franchisor.

It also serves to illustrate that Courts are reluctant to order injunctive relief where damages will adequately compensate a party, and/or granting of injunctive relief would require the Court’s supervision to ensure performance of the parties.

 MST Lawyers’ Franchising team can assist franchisors in drafting franchise agreement provisions that will be enforced by Courts. Our Dispute Resolution and Litigation lawyers can provide advice on matters relating to evidence gathering and represent parties in litigation pertaining to applications for injunctive relief and enforcement of terms contained in your franchise agreements.

For more information, please contact our Franchise Law or Dispute Resolution and Litigation teams by email us or telephone +613 8540 0200.