Case Update 2017
Case Update 2017 A review of recent franchising cases
PageOutline heading goes here •Digital Central (Assets )Pty Ltd v Stefanovski •Kiraig Pty Ltd as trustee v Rent the Roo Pty Ltd •BSB v Stan Meyer Pty Ltd •Heaney v Just Cuts Franchising Pty Ltd (No. 1 and 2) •Unfair Contract Terms Round Up
Update 2017 PageCase heading goes here Part 1 - Presenter Matthew Williams Barrister-at-Law Callinan Chambers
PageOutline heading goes here •Digital Central (Assets )Pty Ltd v Stefanovski •Kiraig Pty Ltd as trustee v Rent the Roo Pty Ltd •Guirgus Pty Ltd v Michel’s Patisserie Pty Ltd •Pizza Fellas Pty Ltd v Eat Now Pty Ltd
Centralgoes (Assets)here Pty Ltd v Stefanovski PageDigital heading •Franchise system offering innovative signage products to real estate agents •The respondent, Mr Stefanovski, was Digital Central’s franchisee for a territory in Sydney •Relationship between the parties deteriorated when it became apparent to Digital Central that Mr Stefanovski and his wife, Ms Clark, were operating a business in direct competition with the Franchise
Centralgoes (Assets)here Pty Ltd v Stefanovski PageDigital heading •Matters of interest arising in Digital Central:
•Identity of the Franchisee – Mr Stefanovski personally, or a company on whose behalf he contracted? •Whether certain conduct engaged in by Mr Stefanovski and / or Ms Clark was misleading or deceptive, unconscionable, or conduct not in good faith •The extent to which restraints are enforceable in the circumstance of a departing franchisee •Whether related parties can be restrained from using confidential information of the franchisor
Centralgoes (Assets)here Pty Ltd v Stefanovski PageDigital heading Identity of the Franchisee
•The Franchise Agreement specified Mr Stefanovski personally as the Franchisee •Around the time the Franchise commenced, TK Sign Installations Pty Ltd was incorporated, and that entity later became the Trustee of a family trust associated with Mr Stefanovski and Ms Clark •The accounts of the Family Trust presented the position that TK Sign Installations Pty Ltd operated the Franchise from commencement •The court accepted that Mr Stefanovski signed the Franchise Agreement ‘as agent for a company to be formed’ •TK Sign Installations Pty Ltd was therefore the Franchisee
Centralgoes (Assets)here Pty Ltd v Stefanovski PageDigital heading
Misleading or deceptive conduct, unconscionable conduct, and conduct not in good faith •Ms Clark (with the assistance of Mr Stefanovski) established a competing business •Mr Stefanovski requested the Franchisor to increase the Franchise’s prices by 5% •The court accepted that the ‘5% increase request was motivated by a desire on Mr Stefanovski’s part to confer a competitive advantage on the [competing] business at its formative stage’ •The court found that conduct to be misleading or deceptive
Centralgoes (Assets)here Pty Ltd v Stefanovski PageDigital heading Misleading or deceptive conduct, unconscionable conduct, and conduct not in good faith •Mr Stefanovski set about attempting to sell the Franchise •He told a prospective purchaser that the Franchise had two main competitors, but did not mention the competing business established by him and Ms Clark •Mr Stefanovski did not tell the prospective purchaser that he had recently requested the Franchisor to increase the Franchise’s prices by 5% •The court found this conduct to be misleading or deceptive
Centralgoes (Assets)here Pty Ltd v Stefanovski PageDigital heading Misleading or deceptive conduct, unconscionable conduct, and conduct not in good faith •Mr Stefanovski also represented to the Franchisor that his reason for seeking to sell the Franchise was that he intended to relocate from Sydney to the Gold Coast •The court found that conduct to be misleading or deceptive •In addition to its findings of misleading or deceptive conduct on these bases, almost all of this conduct was accepted by the court to also amount to unconscionable conduct and conduct not in good faith
Centralgoes (Assets)here Pty Ltd v Stefanovski PageDigital heading
Misleading or deceptive conduct, unconscionable conduct, and conduct not in good faith •Most interestingly, the court accepted that the ‘progressive subversion of the Franchise’ by Mr Stefanovski, by aiding the establishment of the competing business, fell short of the statutorily imposed standard of good faith conduct •Demonstrates the breadth of potential application of that part of the Code •All of the conduct grounded an entitlement to the injunctive relief sought by Digital Central – not only as against Mr Stefanovski and his company (TK Sign Installations Pty Ltd), but as against Ms Clark and the recently established competing business
Centralgoes (Assets)here Pty Ltd v Stefanovski PageDigital heading Restraints and Confidential Information •The court upheld the restraints against Mr Stefanovski and TK Sign Installations Pty Ltd provided for in the Franchise Agreement (2 years, in the Franchise Territory) •Interestingly, the court restrained use of the Franchisor’s Confidential Information by Ms Clark and the recently established competing business •The court also extended the restraint directly to the competing business, on the basis of Mr Stefanovski’s ‘financial interest’ in that business, notwithstanding that he had no legal interest in the holding company
Centralgoes (Assets)here Pty Ltd v Stefanovski PageDigital heading Salient points •Be certain of whom you are contracting with - important for all of the obvious, usual reasons, but even more important in circumstances where a Franchise Agreement contains restraints and other obligations unique to such an agreement •To the extent practicable, keep proper records of conduct and representations made – you never know if something which seems trivial at the time will take on great importance later
Centralgoes (Assets)here Pty Ltd v Stefanovski PageDigital heading Salient points •Ensure that Franchise Agreements contain terms which properly protect confidential information, and which compel the Franchisor to obtain the appropriate undertakings from staff and contractors as to the use of that information
Kiraig Pty Ltd as trustee & Anor v Rent the Roo Pty Ltd & Anor •Franchise system offering household appliances for rent to consumers •The applicant, Kiraig Pty Ltd, held two Rent the Roo franchises
Kiraig Pty Ltd as trustee & Anor v Rent the Roo Pty Ltd & Anor •Relationship between the parties deteriorated when: •Kiraig gave notice of its intention to renew its Franchise Agreements and Rent the Roo proposed terms which were substantially different to those of the original agreements; and •Kiraig sought to sell its franchises to another RTR franchisee, and RTR sought to exercise its right of first refusal •An extended period of time passed, the nominal expiry date of the agreements then passed, and Rent the Roo purported to terminate the relevant agreements
Pty Ltd as trusteehere & Anor v Rent the Roo Pty Ltd & Anor PageKiraig heading goes Allegations of breach of the Franchise Agreements •The applicants alleged that RTR breached the Franchise Agreements by proposing renewal terms which were substantially different to the original terms (in contravention of the renewal clause) •The court found that the mere presentation of proposed terms which were materially different to the original terms was not a breach of the original agreements •Kiraig’s claims on this basis failed
Pty Ltd as trusteehere & Anor v Rent the Roo Pty Ltd & Anor PageKiraig heading goes Allegations of unreasonably withholding consent to sale •The applicants alleged that RTR had unreasonably withheld its consent to Kiraig disposing of its franchises by sale to another RTR franchisee •RTR contended that it had not unreasonably withheld its consent, on the basis that it had purported to exercise its right of first refusal to acquire the franchises itself, and Kiraig had unreasonably refused to perform that transaction •The court accepted RTR’s position; it was ready, willing and able to acquire Kiraig’s two franchises, on the terms of the original offer from the third party, and Kiraig had then sought to alter the terms, in contravention of the relevant provisions
Pty Ltd as trusteehere & Anor v Rent the Roo Pty Ltd & Anor PageKiraig heading goes Allegations of unconscionable conduct and conduct not in good faith
•The applicants alleged that the following conduct by RTR constituted unconscionable conduct and conduct lacking in good faith: •Failing to proceed to acquire the Franchises (pursuant to an exercise of the right of first refusal) •Proffering renewal agreements with terms which were substantially different to the terms of the Franchise Agreements •Refusing to consent to the sale of the Franchises to third-party purchaser, and •Terminating the Franchise Agreements after passage of the nominal expiry date
Pty Ltd as trusteehere & Anor v Rent the Roo Pty Ltd & Anor PageKiraig heading goes Allegations of unconscionable conduct and conduct not in good faith •The court rejected all of these claims •RTR had not acted unconscionably – it had merely sought to protect and advance its legitimate commercial interests •If RTR had, for example, insisted upon the proposed renewal terms (which were substantially different to the original agreement terms) the outcome would likely have been different •The court also found that the applicant’s claims of unconscionable conduct (under s 20 of the ACL) were doomed to failure, as the applicants had not demonstrated any ‘special disadvantage’ afflicting either of them
Pty Ltd as trusteehere & Anor v Rent the Roo Pty Ltd & Anor PageKiraig heading goes Allegations of breach of confidence •Shortly after terminating the franchise agreements, RTR accessed the franchisee’s RTR email account and customer list •The court held that RTR’s conduct in accessing that information was not unconscionable, given the information was stored on RTR’s system, and because RTR had a legitimate interest in supervising its franchisee
Pty Ltd as trusteehere & Anor v Rent the Roo Pty Ltd & Anor PageKiraig heading goes Salient points •It should go without saying, but… Act reasonably! •Conduct which legitimately advances a party’s commercial interests is not likely (without more) to be unconscionable or conduct not in good faith •Ensure that terms concerning rights of first refusal are drafted with precision •Ensure that terms dealing with access to information by the Franchisor (whether during or after the life of the franchise agreement) are included in the franchise agreement
relevantgoes cases here PageOther heading Guirguis Pty Ltd & Anor v Michel’s Patisserie System Pty Ltd & Ors One to watch – has been remitted by the Court of Appeal back to the District Court for retrial; raises some interesting misleading or deceptive conduct issues •Covered in the accompanying paper
relevantgoes cases here PageOther heading Pizza Fellas Pty Ltd v Eat Now Pty Ltd Worth reading for the litigators in the room •A lesson in how not to conduct litigation •If you are not experienced in litigation, refer the matter out or, at a minimum, engage Counsel early
Update 2017 PageCase heading goes here Part 2 - Presenter Alicia Hill Principal and Accredited Specialist – Commercial Litigation MST Lawyers
PageOutline heading goes here •BSB v Stan Meyer Pty Ltd •Heaney v Just Cuts Franchising Pty Ltd (No. 1 and 2) •UCT ACCC Prosecutions •UCT Cases •Good Faith ACCC Prosecution
Pty Ltd v Stan Meyer Pty Ltd & Ors PageBSB heading goes here Case principally concerns allegations that: • BSB did not pay airtime commissions to franchisee at the rate due under the franchise agreement; or •that by purporting to vary the rate of commission payable BSB acted unconscionably towards, or imposed a penalty upon Stan Meyer.
Pty Ltd v Stan Meyer Pty Ltd & Ors PageBSB heading goes here Relevant Clause Clause 13(c) of the franchise agreement stated: “in the event that the Franchisee’s percentage or portion of Airtime Commission has not been otherwise prescribed by the Franchisor, the Franchisee’s Airtime Commission shall be the percentage or portion of the Airtime Commission as is specified in item 21(b) of the Schedule.”
Pty Ltd v Stan Meyer Pty Ltd & Ors PageBSB heading goes here What happened? •Franchise Agreement entered into in 2006 •Airtime commission paid at schedule rate until 2008 •BSB introduced new system for calculating Airtime Commission payable and communicated it be email to franchisees. •Stan Meyer exited the system in 2011 owing money to BSB •BSB sued to recover monies and Stan Meyer counterclaimed
Pty Ltd v Stan Meyer Pty Ltd & Ors PageBSB heading goes here Decision Formal Notice provision non-compliance not impediment to valid notification of change in prescribed rate No breach of implied terms to act in good faith as basis and structure for implementation had commercial basis (incentivisation, ensure uniformity across system, financial benefits from change did not all flow to BSB) and was exercised for a legitimate purpose
Pty Ltd v Stan Meyer Pty Ltd & Ors PageBSB heading goes here Decision cont. Despite economic disparity between the parties there was no unconscionability as: •Agreement entered into freely with foreknowledge •BSB did not refuse to negotiate or use take it or leave it behaviour in respect of changes – Stan Meyer did not complain until after termination when it was being sued for monies owing to BSB. Laches would have been upheld if required. •The reduction of Airtime Commission to Stan Meyer was not a penalty.
Enterprises Ltd v Just Cuts Franchising Pty Ltd PageHeaney heading goesPtyhere Case principally concerns allegations that: •Just Cuts failed to comply with the Franchising Code of Conduct in respect of nondisclosure to the franchisee prior to entrance into the franchise agreement; and •A breach notice was invalid.
Enterprises Ltd v Just Cuts Franchising Pty Ltd PageHeaney heading goesPtyhere What Happened? Point Cook franchise granted in October 2010 to Heaney and 5 year lease obtained. Werribee franchise obtained in July 2011.Williams Landing franchise offered to Heaney in November 2013 but rejected. Williams Landing opened January 2015. Significant financial decline to Point Cook which did not improve. 5 year lease for Point Cook due to expire December 2015. Negotiations. No renewal. January 2016 breach notice issued.int Cook
Enterprises Ltd v Just Cuts Franchising Pty Ltd PageHeaney heading goesPtyhere Decision •Just Cuts failed to comply with the Code in relation to Point Cook •Heaney lost its claim for damages for opening of Williams Landing franchise •Heaney lost its claim for damages for Just Cuts taking a lease of premises previously occupied by it, refusing to extend the Point Cook franchise and entering into the Williams Landing franchise agreement •Just Cuts lost its claim for damages for alleged breaches of Point Cook franchise
Enterprises Ltd v Just Cuts Franchising Pty Ltd PageHeaney heading goesPtyhere Decision cont. •Breach notice was ineffective. •Just Cuts counterclaim for breach of restraints and other items.
Contractgoes Termshere – ACCC Prosecution PageUnfair heading ACCC v Servcorp Proceedings commenced. Clauses subject of controversy: • automatic renewal •unilateral price increases after renewal without notice •Unilateral termination and penalty like sanctions e.g. property
Contractgoes Termshere – ACCC Prosecution PageUnfair heading ACCC v JJ Richards & Sons Pty Ltd Proceedings commenced. Clauses subject of controversy: •Automatic renewal •Price variation •Agreed times •No credit without notification
Contractgoes Termshere – ACCC Prosecution PageUnfair heading ACCC v JJ Richards & Sons Pty Ltd cont. •Exclusivity •Credit terms •Indemnity •Termination
Contractgoes Termshere – ACCC Prosecution PageUnfair heading ACCC v Get Qualified Pty Ltd (in liq) Get Qualified contract was a standard form consumer contract Term alleged to be unfair was: “GQA may refund fees in limited circumstances. …Fees will only be refunded by GQA where a participant / applicant: • Pays duplicate fees for the one service • Makes an overpayment
Contractgoes Termshere – ACCC Prosecution PageUnfair heading ACCC v Get Qualified Pty Ltd (in liq) cont. Has submitted all evidence to GQA and the portfolio has been submitted to the RTO who has reviewed the application and determined that there is not enough valid, current, authentic and sufficient evidence to grant competency”.
Contractgoes Termshere – ACCC Prosecution PageUnfair heading ACCC v Get Qualified Pty Ltd (in liq) Refund policy term found to be unfair as: •not brought to attention of consumers at the time of entering into the contract; •terms caused a significant imbalance in parties rights and obligations; •refund policy not reasonably necessary to protect legitimate interests; • caused significant financial and other detriment. Declared void.
Contractgoes Termshere – Cases PageUnfair heading Bass Coast Resort Pty Ltd v Success Resources Australia Pty Ltd Success Resources contract was a small business standard form contract Term alleged to be unfair was: “We may change the Speakers, the Hours, the Dates and/or Location of the Seminar Services for any reason by notifying you in writing of the change an detailing substitute Speakers, Seminar hours , Dates and/or Location and we shall; have no liability to you and you shall make no claim against us (including for a refund) in respect of the same.”Ter
Contractgoes Termshere – Cases PageUnfair heading Bass Coast Resort Pty Ltd v Success Resources Australia Pty Ltd cont. Tribunal found: •Standard form small business contract •Term not reasonably necessary to protect Success Resources rights as it would allow Success Resources to retain money without supplying anything of value •Although the term was transparent this did not mean it was not unfair.Ter
Contractgoes Termshere – Cases PageUnfair heading Abraham v GoGetta Equipment Pty Ltd GoGetta Equipment contract was a standard form small business contract. Term alleged to be unfair was: “the Hirer’s obligations including the obligation to pay rent continues notwithstanding any defect in the Equipment”.
Contractgoes Termshere – Cases PageUnfair heading Abraham v GoGetta Equipment Pty Ltd Tribunal found: •A significant imbalance was created as Abraham was potentially liable to continue to pay despite having no continuing access to Equipment; •No submissions were made that this clause was reasonably necessary to protect GoGetta Equipment’s business interests and so the statutory presumption applied; •Detriment would be caused and the clause was void.
Prosecution – Good Faith PageACCC heading goes here ACCC v Ultra Tune Australia Pty Ltd •Proceedings Commenced •Lack of Good Faith in respect of representations made pre-entrance into franchise agreement
PageQuestions heading goes here ?
PageOutline heading goes here •Digital Central (Assets )Pty Ltd v Stefanovski •Kiraig Pty Ltd as trustee v Rent the Roo Pty Ltd •BSB v Stan Meyer Pty Ltd •Heaney v Just Cuts Franchising Pty Ltd (No. 1 and 2) •Unfair Contract Terms Round Up
Update 2017 PageCase heading goes here Part 1 - Presenter Matthew Williams Barrister-at-Law Callinan Chambers
PageOutline heading goes here •Digital Central (Assets )Pty Ltd v Stefanovski •Kiraig Pty Ltd as trustee v Rent the Roo Pty Ltd •Guirgus Pty Ltd v Michel’s Patisserie Pty Ltd •Pizza Fellas Pty Ltd v Eat Now Pty Ltd
Centralgoes (Assets)here Pty Ltd v Stefanovski PageDigital heading •Franchise system offering innovative signage products to real estate agents •The respondent, Mr Stefanovski, was Digital Central’s franchisee for a territory in Sydney •Relationship between the parties deteriorated when it became apparent to Digital Central that Mr Stefanovski and his wife, Ms Clark, were operating a business in direct competition with the Franchise
Centralgoes (Assets)here Pty Ltd v Stefanovski PageDigital heading •Matters of interest arising in Digital Central:
•Identity of the Franchisee – Mr Stefanovski personally, or a company on whose behalf he contracted? •Whether certain conduct engaged in by Mr Stefanovski and / or Ms Clark was misleading or deceptive, unconscionable, or conduct not in good faith •The extent to which restraints are enforceable in the circumstance of a departing franchisee •Whether related parties can be restrained from using confidential information of the franchisor
Centralgoes (Assets)here Pty Ltd v Stefanovski PageDigital heading Identity of the Franchisee
•The Franchise Agreement specified Mr Stefanovski personally as the Franchisee •Around the time the Franchise commenced, TK Sign Installations Pty Ltd was incorporated, and that entity later became the Trustee of a family trust associated with Mr Stefanovski and Ms Clark •The accounts of the Family Trust presented the position that TK Sign Installations Pty Ltd operated the Franchise from commencement •The court accepted that Mr Stefanovski signed the Franchise Agreement ‘as agent for a company to be formed’ •TK Sign Installations Pty Ltd was therefore the Franchisee
Centralgoes (Assets)here Pty Ltd v Stefanovski PageDigital heading
Misleading or deceptive conduct, unconscionable conduct, and conduct not in good faith •Ms Clark (with the assistance of Mr Stefanovski) established a competing business •Mr Stefanovski requested the Franchisor to increase the Franchise’s prices by 5% •The court accepted that the ‘5% increase request was motivated by a desire on Mr Stefanovski’s part to confer a competitive advantage on the [competing] business at its formative stage’ •The court found that conduct to be misleading or deceptive
Centralgoes (Assets)here Pty Ltd v Stefanovski PageDigital heading Misleading or deceptive conduct, unconscionable conduct, and conduct not in good faith •Mr Stefanovski set about attempting to sell the Franchise •He told a prospective purchaser that the Franchise had two main competitors, but did not mention the competing business established by him and Ms Clark •Mr Stefanovski did not tell the prospective purchaser that he had recently requested the Franchisor to increase the Franchise’s prices by 5% •The court found this conduct to be misleading or deceptive
Centralgoes (Assets)here Pty Ltd v Stefanovski PageDigital heading Misleading or deceptive conduct, unconscionable conduct, and conduct not in good faith •Mr Stefanovski also represented to the Franchisor that his reason for seeking to sell the Franchise was that he intended to relocate from Sydney to the Gold Coast •The court found that conduct to be misleading or deceptive •In addition to its findings of misleading or deceptive conduct on these bases, almost all of this conduct was accepted by the court to also amount to unconscionable conduct and conduct not in good faith
Centralgoes (Assets)here Pty Ltd v Stefanovski PageDigital heading
Misleading or deceptive conduct, unconscionable conduct, and conduct not in good faith •Most interestingly, the court accepted that the ‘progressive subversion of the Franchise’ by Mr Stefanovski, by aiding the establishment of the competing business, fell short of the statutorily imposed standard of good faith conduct •Demonstrates the breadth of potential application of that part of the Code •All of the conduct grounded an entitlement to the injunctive relief sought by Digital Central – not only as against Mr Stefanovski and his company (TK Sign Installations Pty Ltd), but as against Ms Clark and the recently established competing business
Centralgoes (Assets)here Pty Ltd v Stefanovski PageDigital heading Restraints and Confidential Information •The court upheld the restraints against Mr Stefanovski and TK Sign Installations Pty Ltd provided for in the Franchise Agreement (2 years, in the Franchise Territory) •Interestingly, the court restrained use of the Franchisor’s Confidential Information by Ms Clark and the recently established competing business •The court also extended the restraint directly to the competing business, on the basis of Mr Stefanovski’s ‘financial interest’ in that business, notwithstanding that he had no legal interest in the holding company
Centralgoes (Assets)here Pty Ltd v Stefanovski PageDigital heading Salient points •Be certain of whom you are contracting with - important for all of the obvious, usual reasons, but even more important in circumstances where a Franchise Agreement contains restraints and other obligations unique to such an agreement •To the extent practicable, keep proper records of conduct and representations made – you never know if something which seems trivial at the time will take on great importance later
Centralgoes (Assets)here Pty Ltd v Stefanovski PageDigital heading Salient points •Ensure that Franchise Agreements contain terms which properly protect confidential information, and which compel the Franchisor to obtain the appropriate undertakings from staff and contractors as to the use of that information
Kiraig Pty Ltd as trustee & Anor v Rent the Roo Pty Ltd & Anor •Franchise system offering household appliances for rent to consumers •The applicant, Kiraig Pty Ltd, held two Rent the Roo franchises
Kiraig Pty Ltd as trustee & Anor v Rent the Roo Pty Ltd & Anor •Relationship between the parties deteriorated when: •Kiraig gave notice of its intention to renew its Franchise Agreements and Rent the Roo proposed terms which were substantially different to those of the original agreements; and •Kiraig sought to sell its franchises to another RTR franchisee, and RTR sought to exercise its right of first refusal •An extended period of time passed, the nominal expiry date of the agreements then passed, and Rent the Roo purported to terminate the relevant agreements
Pty Ltd as trusteehere & Anor v Rent the Roo Pty Ltd & Anor PageKiraig heading goes Allegations of breach of the Franchise Agreements •The applicants alleged that RTR breached the Franchise Agreements by proposing renewal terms which were substantially different to the original terms (in contravention of the renewal clause) •The court found that the mere presentation of proposed terms which were materially different to the original terms was not a breach of the original agreements •Kiraig’s claims on this basis failed
Pty Ltd as trusteehere & Anor v Rent the Roo Pty Ltd & Anor PageKiraig heading goes Allegations of unreasonably withholding consent to sale •The applicants alleged that RTR had unreasonably withheld its consent to Kiraig disposing of its franchises by sale to another RTR franchisee •RTR contended that it had not unreasonably withheld its consent, on the basis that it had purported to exercise its right of first refusal to acquire the franchises itself, and Kiraig had unreasonably refused to perform that transaction •The court accepted RTR’s position; it was ready, willing and able to acquire Kiraig’s two franchises, on the terms of the original offer from the third party, and Kiraig had then sought to alter the terms, in contravention of the relevant provisions
Pty Ltd as trusteehere & Anor v Rent the Roo Pty Ltd & Anor PageKiraig heading goes Allegations of unconscionable conduct and conduct not in good faith
•The applicants alleged that the following conduct by RTR constituted unconscionable conduct and conduct lacking in good faith: •Failing to proceed to acquire the Franchises (pursuant to an exercise of the right of first refusal) •Proffering renewal agreements with terms which were substantially different to the terms of the Franchise Agreements •Refusing to consent to the sale of the Franchises to third-party purchaser, and •Terminating the Franchise Agreements after passage of the nominal expiry date
Pty Ltd as trusteehere & Anor v Rent the Roo Pty Ltd & Anor PageKiraig heading goes Allegations of unconscionable conduct and conduct not in good faith •The court rejected all of these claims •RTR had not acted unconscionably – it had merely sought to protect and advance its legitimate commercial interests •If RTR had, for example, insisted upon the proposed renewal terms (which were substantially different to the original agreement terms) the outcome would likely have been different •The court also found that the applicant’s claims of unconscionable conduct (under s 20 of the ACL) were doomed to failure, as the applicants had not demonstrated any ‘special disadvantage’ afflicting either of them
Pty Ltd as trusteehere & Anor v Rent the Roo Pty Ltd & Anor PageKiraig heading goes Allegations of breach of confidence •Shortly after terminating the franchise agreements, RTR accessed the franchisee’s RTR email account and customer list •The court held that RTR’s conduct in accessing that information was not unconscionable, given the information was stored on RTR’s system, and because RTR had a legitimate interest in supervising its franchisee
Pty Ltd as trusteehere & Anor v Rent the Roo Pty Ltd & Anor PageKiraig heading goes Salient points •It should go without saying, but… Act reasonably! •Conduct which legitimately advances a party’s commercial interests is not likely (without more) to be unconscionable or conduct not in good faith •Ensure that terms concerning rights of first refusal are drafted with precision •Ensure that terms dealing with access to information by the Franchisor (whether during or after the life of the franchise agreement) are included in the franchise agreement
relevantgoes cases here PageOther heading Guirguis Pty Ltd & Anor v Michel’s Patisserie System Pty Ltd & Ors One to watch – has been remitted by the Court of Appeal back to the District Court for retrial; raises some interesting misleading or deceptive conduct issues •Covered in the accompanying paper
relevantgoes cases here PageOther heading Pizza Fellas Pty Ltd v Eat Now Pty Ltd Worth reading for the litigators in the room •A lesson in how not to conduct litigation •If you are not experienced in litigation, refer the matter out or, at a minimum, engage Counsel early
Update 2017 PageCase heading goes here Part 2 - Presenter Alicia Hill Principal and Accredited Specialist – Commercial Litigation MST Lawyers
PageOutline heading goes here •BSB v Stan Meyer Pty Ltd •Heaney v Just Cuts Franchising Pty Ltd (No. 1 and 2) •UCT ACCC Prosecutions •UCT Cases •Good Faith ACCC Prosecution
Pty Ltd v Stan Meyer Pty Ltd & Ors PageBSB heading goes here Case principally concerns allegations that: • BSB did not pay airtime commissions to franchisee at the rate due under the franchise agreement; or •that by purporting to vary the rate of commission payable BSB acted unconscionably towards, or imposed a penalty upon Stan Meyer.
Pty Ltd v Stan Meyer Pty Ltd & Ors PageBSB heading goes here Relevant Clause Clause 13(c) of the franchise agreement stated: “in the event that the Franchisee’s percentage or portion of Airtime Commission has not been otherwise prescribed by the Franchisor, the Franchisee’s Airtime Commission shall be the percentage or portion of the Airtime Commission as is specified in item 21(b) of the Schedule.”
Pty Ltd v Stan Meyer Pty Ltd & Ors PageBSB heading goes here What happened? •Franchise Agreement entered into in 2006 •Airtime commission paid at schedule rate until 2008 •BSB introduced new system for calculating Airtime Commission payable and communicated it be email to franchisees. •Stan Meyer exited the system in 2011 owing money to BSB •BSB sued to recover monies and Stan Meyer counterclaimed
Pty Ltd v Stan Meyer Pty Ltd & Ors PageBSB heading goes here Decision Formal Notice provision non-compliance not impediment to valid notification of change in prescribed rate No breach of implied terms to act in good faith as basis and structure for implementation had commercial basis (incentivisation, ensure uniformity across system, financial benefits from change did not all flow to BSB) and was exercised for a legitimate purpose
Pty Ltd v Stan Meyer Pty Ltd & Ors PageBSB heading goes here Decision cont. Despite economic disparity between the parties there was no unconscionability as: •Agreement entered into freely with foreknowledge •BSB did not refuse to negotiate or use take it or leave it behaviour in respect of changes – Stan Meyer did not complain until after termination when it was being sued for monies owing to BSB. Laches would have been upheld if required. •The reduction of Airtime Commission to Stan Meyer was not a penalty.
Enterprises Ltd v Just Cuts Franchising Pty Ltd PageHeaney heading goesPtyhere Case principally concerns allegations that: •Just Cuts failed to comply with the Franchising Code of Conduct in respect of nondisclosure to the franchisee prior to entrance into the franchise agreement; and •A breach notice was invalid.
Enterprises Ltd v Just Cuts Franchising Pty Ltd PageHeaney heading goesPtyhere What Happened? Point Cook franchise granted in October 2010 to Heaney and 5 year lease obtained. Werribee franchise obtained in July 2011.Williams Landing franchise offered to Heaney in November 2013 but rejected. Williams Landing opened January 2015. Significant financial decline to Point Cook which did not improve. 5 year lease for Point Cook due to expire December 2015. Negotiations. No renewal. January 2016 breach notice issued.int Cook
Enterprises Ltd v Just Cuts Franchising Pty Ltd PageHeaney heading goesPtyhere Decision •Just Cuts failed to comply with the Code in relation to Point Cook •Heaney lost its claim for damages for opening of Williams Landing franchise •Heaney lost its claim for damages for Just Cuts taking a lease of premises previously occupied by it, refusing to extend the Point Cook franchise and entering into the Williams Landing franchise agreement •Just Cuts lost its claim for damages for alleged breaches of Point Cook franchise
Enterprises Ltd v Just Cuts Franchising Pty Ltd PageHeaney heading goesPtyhere Decision cont. •Breach notice was ineffective. •Just Cuts counterclaim for breach of restraints and other items.
Contractgoes Termshere – ACCC Prosecution PageUnfair heading ACCC v Servcorp Proceedings commenced. Clauses subject of controversy: • automatic renewal •unilateral price increases after renewal without notice •Unilateral termination and penalty like sanctions e.g. property
Contractgoes Termshere – ACCC Prosecution PageUnfair heading ACCC v JJ Richards & Sons Pty Ltd Proceedings commenced. Clauses subject of controversy: •Automatic renewal •Price variation •Agreed times •No credit without notification
Contractgoes Termshere – ACCC Prosecution PageUnfair heading ACCC v JJ Richards & Sons Pty Ltd cont. •Exclusivity •Credit terms •Indemnity •Termination
Contractgoes Termshere – ACCC Prosecution PageUnfair heading ACCC v Get Qualified Pty Ltd (in liq) Get Qualified contract was a standard form consumer contract Term alleged to be unfair was: “GQA may refund fees in limited circumstances. …Fees will only be refunded by GQA where a participant / applicant: • Pays duplicate fees for the one service • Makes an overpayment
Contractgoes Termshere – ACCC Prosecution PageUnfair heading ACCC v Get Qualified Pty Ltd (in liq) cont. Has submitted all evidence to GQA and the portfolio has been submitted to the RTO who has reviewed the application and determined that there is not enough valid, current, authentic and sufficient evidence to grant competency”.
Contractgoes Termshere – ACCC Prosecution PageUnfair heading ACCC v Get Qualified Pty Ltd (in liq) Refund policy term found to be unfair as: •not brought to attention of consumers at the time of entering into the contract; •terms caused a significant imbalance in parties rights and obligations; •refund policy not reasonably necessary to protect legitimate interests; • caused significant financial and other detriment. Declared void.
Contractgoes Termshere – Cases PageUnfair heading Bass Coast Resort Pty Ltd v Success Resources Australia Pty Ltd Success Resources contract was a small business standard form contract Term alleged to be unfair was: “We may change the Speakers, the Hours, the Dates and/or Location of the Seminar Services for any reason by notifying you in writing of the change an detailing substitute Speakers, Seminar hours , Dates and/or Location and we shall; have no liability to you and you shall make no claim against us (including for a refund) in respect of the same.”Ter
Contractgoes Termshere – Cases PageUnfair heading Bass Coast Resort Pty Ltd v Success Resources Australia Pty Ltd cont. Tribunal found: •Standard form small business contract •Term not reasonably necessary to protect Success Resources rights as it would allow Success Resources to retain money without supplying anything of value •Although the term was transparent this did not mean it was not unfair.Ter
Contractgoes Termshere – Cases PageUnfair heading Abraham v GoGetta Equipment Pty Ltd GoGetta Equipment contract was a standard form small business contract. Term alleged to be unfair was: “the Hirer’s obligations including the obligation to pay rent continues notwithstanding any defect in the Equipment”.
Contractgoes Termshere – Cases PageUnfair heading Abraham v GoGetta Equipment Pty Ltd Tribunal found: •A significant imbalance was created as Abraham was potentially liable to continue to pay despite having no continuing access to Equipment; •No submissions were made that this clause was reasonably necessary to protect GoGetta Equipment’s business interests and so the statutory presumption applied; •Detriment would be caused and the clause was void.
Prosecution – Good Faith PageACCC heading goes here ACCC v Ultra Tune Australia Pty Ltd •Proceedings Commenced •Lack of Good Faith in respect of representations made pre-entrance into franchise agreement
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