FEDERAL COURT OF AUSTRALIA Biman International Pty Ltd v Amalgamated Security Services Pty Ltd [2002] FCA 919 BIMAN INTERNATIONAL PTY LTD v AMALGAMATED SECURITY SERVICES PTY LTD & ORS N 927 of 2002 ALLSOP J 20 DECEMBER 2002 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 927 of 2002 BETWEEN: BIMAN INTERNATIONAL PTY LIMITED (ACN 087 748 007) APPLICANT AND: aMALGAMATED SECURITY SERVICES PTY LIMITED (ACN 084 183 362) FIRST RESPONDENT DARRYL JOHN EVANS SECOND RESPONDENT RYNAS PTY LIMITED (ACN 010 140 520) THIRD RESPONDENT AUSTRALIAN TENDER SERVICES PTY LIMITED FOURTH RESPONDENT JUDGE: ALLSOP J DATE OF ORDER: 20 DECEMBER 2002 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The notice of motion filed by the first, second and third respondents on 26 November 2002 in relation to mediation be dismissed. 2. Costs of the motion, to the extent it deals with the orders about mediation, of the applicant to the proceedings/respondent to the motion be costs in the cause. 3. On the condition that security for costs is perfected to the satisfaction of the District Registrar on or before 4 pm Monday 23 December 2002, the stay of these proceedings as against the fourth respondent be dissolved as and from 4.30 pm on Monday 23 December 2002. 4. The fourth respondent have liberty to relist this matter in January 2003 to argue why the above order 3 should be vacated. 5. There be general liberty to apply on five days' notice during January 2003. 6. The fourth respondent file and serve its defence on or before 4 pm on 3 February 2003. 7. The solicitors for the applicant to the proceedings are to notify the fourth respondent of today's orders and that liberty to relist the matter is granted. 8. Leave be granted to the applicant to the proceedings to file in Court the affidavit of Timothy Lynch sworn 20 December 2002. 9. Leave be granted to the parties to file and serve a notice of notion returnable for directions on 11 February 2003. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 927 of 2002 BETWEEN: BIMAN INTERNATIONAL PTY LIMITED (ACN 087 748 007) APPLICANT AND: AMALGAMATED SECURITY SERVICES PTY LIMITED (ACN 084 183 362) FIRST RESPONDENT DARRYL JOHN EVANS SECOND RESPONDENT RYNAS PTY LIMITED (ACN 010 140 520) THIRD RESPONDENT AUSTRALIAN TENDER SERVICES PTY LIMITED FOURTH RESPONDENT JUDGE: ALLSOP J DATE: 20 DECEMBER 2002 PLACE: SYDNEY REASONS FOR JUDGMENT 1 I have before me a notice of motion filed by the first to third respondents in this matter dated 26 November 2002 and filed on 27 November 2002. Relevantly for today's purposes, the notice of motion seeks an order that these proceedings be stayed pending compliance by the applicant and the first, second and third respondents with cl 26 of the Deed of Master Licence Agreement between them dated 5 August 1999. 2 The proceedings were commenced by the applicant on 5 September 2002. The application seeks a number of orders, one of which is a declaration that the Deed of Master Licence Agreement, which is referred to in the notice of motion, is void or has been void from a date ordered by the Court. Damages are also sought. 3 The matter involves a franchise arrangement which was entered initially by the applicant and the first respondent on 5 August 1999. The applicant's complaints against the first, third, and fourth respondents substantially concern the lack of information that was provided to the applicant, it is said, at the beginning of the franchise arrangement and during the course of the franchise arrangement. Those words are used fairly generally and I do not propose to analyse the various causes of action in the pleading. 4 The second respondent is principal of the first respondent. Clause 26 of the Deed of Master Licence Agreement is a dispute resolution clause: 26. DISPUTE RESOLUTION 26.1 The Grantor and the Grantee agree that before commencing any proceedings in any court, commission or tribunal in relation to this Agreement the party intending to commence the proceedings shall notify the other parties in writing of the existence and nature of the dispute. 26.2 The Grantor and the Grantee each acknowledge that every reasonable effort to resolve any dispute by mutual negotiation will be made and in the event that the parties are unable to reach satisfactory resolution of any dispute then either the Grantor or the Grantee may by notice in writing advise the other that the dispute is to be resolved by mediation. 26.3 Within a period of thirty (30) days of the service of such notice the Grantor and the Grantee shall appoint a mediator by mutual agreement or in the event that no agreement can be reached as to the appointment of an appropriate mediator the dispute is to be referred to a mediator appointed by the President for the time being of the Queensland Law Society Inc. 26.4 The mediator, for the time being, shall have the right to determine the procedures for the hearing and resolution of a dispute and may or may not allow the appearance of barristers, solicitors, advocates or other legally qualified persons on behalf of all or any of the parties. 26.5 The mediator will conduct such dispute hearing in as informal manner as is possible and in so far as the Grantor and Grantee may agree the following guidelines for the hearing of matters and disputes by the mediator pursuant to this clause shall apply: 26.5.1 All parties are to make a determined and genuine effort to resolve any dispute before the appointment of a mediator; 26.5.2 The hearing by the mediator is to be in confidence and in a closed session; 26.5.3 All discussions and evidence before the mediator are to be tendered on a 'without prejudice' basis; 26.5.4 No documents brought into existence for the purpose of the mediation process may be called as evidence at any subsequent litigation by any party to the proceedings; 26.5.5 Each party has the opportunity to adequately state their case and correct or contradict any relevant statement prejudicial to such case; 26.5.6 The parties are to report back to the mediator within fourteen days with a report as to the result of actions taken based on the mediator's recommendations; 26.5.7 The mediator shall have regard to the fairness and reasonableness of any matters pertaining to a dispute and the need for the Grantor to maintain the integrity of the Intellectual Property; 26.5.8 Costs of mediation are to be paid as is ruled by the mediator. 26.6 Nothing herein contained or implied shall affect the right of any party to apply for injunctive or other interlocutory relief from any court, commission or tribunal to enforce the provisions of this Agreement. 5 The obligations of the parties there set out in substance are to the effect that the parties negotiate and mediate prior to any proceedings in court. 6 The evidence before me is to the effect that the applicant and the fourth respondent, who is not a party to this motion, attempted in 1999 to reach some accommodation and to take some steps towards a procedure to reach that accommodation. The fourth respondent was the then franchisor of the applicant. The applicant and the fourth respondent have not been able to settle the matter and the fourth respondent has indicated that it does not prefer a course of mediation but would rather negotiate directly with the applicant in order to resolve this case commercially. 7 The parties to the Deed of Master Licence Agreement are the grantor and the grantee, being the applicant and the first respondent. The second and third respondents say that they will agree to participate in the mediation. Mr Ashhurst, who appears for the respondents/applicants to the motion, says that the Court should enforce what is in effect a negative covenant in cl 26 and restrain by way of stay the further conduct of the proceedings until the regime set out in cl 26 has been carried into effect. 8 On 28 March 2002 or thereabouts the solicitors for the applicant wrote to the solicitors for the fourth respondent, the then solicitors for the first respondent and the directors of the third respondent as follows: We act for Biman International Pty Ltd. We are instructed that our client: (i) Executed a franchise agreement with Australian Tender Services (Operations) Pty Ltd ('ATSO') on 5 August 1999. (ii) Executed a variation of the franchise agreement with ATSO and Rynas Pty Ltd ('Rynas') on 3 March 2000. Further, we are instructed that on 1 March 2000 Australian Tender Services Pty Ltd ('ATS') assumed the obligations of ATSO under the agreement. It is plain that the agreement was a franchise agreement for the purposes of the Franchising Code of Conduct ('the Code') and that each of the ATSO, ATS and Rynas were franchisors for the purposes of the franchise agreement. The Code was never complied with and in particular, the disclosure documents required under the Code were never given to our client. Accordingly, each of ATSO, Rynas and ATS contravened the Code and our client is entitled to relief against each of them under the Trades Practices Act 1974. To the extent necessary to do so, our client elects to avoid the agreement and demands repayment of all monies paid pursuant to the agreement, recoupment of all losses suffered as a result of the agreement and restitution of any other benefits received by other parties pursuant to the agreement. Our client is significantly out of pocket as a result of its involvement with this franchise and has instructed us to commence proceedings against ATSO, ATS and Rynas and associated persons to recoup its losses. However, our client wishes to avoid legal proceedings if possible. Our client has therefore instructed us to give the recipients of this letter until 5 PM Friday 5 April 2002 to jointly negotiate payment of an appropriate sum by way of compensation and restitution to our client, failing which our client will commence legal proceedings without further notice. Please advise as to whether legal firms acting have instructions to accept service of initiating process. Nothing in the letter should be taken as limiting the parties against whom, or the basis on which, our client will pursue legal proceedings if that becomes necessary. 9 As can be seen from the terms of that letter, the applicant sought to avoid the agreement but also sought some co-operation from the first respondent in negotiating the dispute. The invitation was not such as to be described as fullsome, however it is not suggested, nor could it be, that the offer on page 2 of the letter was not bona fide. 10 Shortly thereafter, on 5 April 2002, the then solicitors for the first respondent replied to this letter in terms which I set out below: We acknowledge receipt of your letter dated 28 March 2002 received by us on 4 April 2002. Mr Kumnick of our office, who handles ATSO's matters does not return until Monday 8 April 2002. We have forwarded a copy of your letter to our client and Mr Kumnick will seek their instructions upon his return. 11 Thereafter, on the evidence before me, there was no further communication about these matters and on 5 September 2002 proceedings were commenced. 12 The first respondent raised the question of a stay in Court in November 2002. There is no evidence of the matter having been raised prior to that inter partes. By the time the matter had been raised the proceedings had been on foot for a period of some two months or thereabouts and directions hearings have been held in the matter. 13 Parties have put submissions to me in clear terms in the following respects. Mr Ashhurst says that the agreement is both clear and enforceable and I should follow Giles J in Hooper Bailie Associated Limited v Natcon Group Pty Limited (1992) 28 NSWLR 194. 14 Mr Parker, who appeared for the applicant/respondent to the motion, said that the agreement was not enforceable by reason of its terms; first, that it was not a Scott v Avery clause about which there is no dispute, and secondly, that it was not a negative covenant. He also put the submission that the clause lacked a contractual mechanism for its fulfilment by reason of the absence of a provision for a mediation agreement and for procedures therein. Mr Parker also submitted that to the extent that the clause was binding his client had complied with subcll 26.1 and 26.2 by the sending of a letter on 28 March 2002 and that any failure to propound or further by mutual agreement the matters anticipated by cl 26 was the fault of the respondents/applicants to the motion. 15 Mr Ashhurst in answer to this submitted that the notice was not a notice under cl 26 because it did not identify, first of all, the provisions of the agreement in respect of which it was issued and also that the notice did not offer to deal with the matter in accordance with cl 26 because it purported to rescind the agreement. Mr Ashhurst also indicated in relation to the form of the covenant that it was in substance a negative covenant and should be interpreted as such. In particular he relied on the phraseology in subcl 26.1 that before commencing any proceedings in any court certain things had to be done. Mr Ashhurst also submitted that on a proper construction of subcll 26.4 and 26.5 there was a certain default procedure. That is, one which was within the control of the mediator. 16 Mr Parker relied on certain discretionary considerations, in particular delay and that there was no application by the fourth respondent for a similar stay. He also referred to the fact that the second respondent was not a party to the mediation agreement, being a party sued under s 75A of the Trade Practices Act 1974 (Cth). 17 The fact that not all parties are covered by the contractual arrangement, if it be enforceable, is said by Mr Parker to be an important consideration in deciding whether I should stay the proceedings, and he raises by analogy the arbitration cases referred to by the editors of Jacobs Commercial Arbitration, Volume 1B, par 50.620. 18 I do not think it ultimately necessary to resolve each of the matters identified by counsel in their submissions. I am prepared to approach the matter on the assumption that cl 26 is enforceable as a negative covenant. I think in substance the covenant has a negative element to it notwithstanding the lack of any express negative terms. There is nothing in the learned discussion by Giles J in Hooper Bailie, supra, that I would wish to disagree with. Mediation is, as a form of alternative dispute resolution, an important adjunct to court proceedings in this and other superior courts in the attempts by courts, judges and parties to limit and minimise litigation and its costs. 19 However, in my view, the circumstances before me are such that I should not, at least at the present time, stay the proceedings in furtherance of cl 26. I do that essentially for discretionary reasons involving some of the matters raised by Mr Parker. There has been delay and it is not explained. The matter has commenced. Some costs have been expended and the matter was raised some two months or so after the case was started. 20 Secondly, there was an attempt by the solicitors for the applicant to discuss the matter with the first respondent. Not very much time was given but there is no evidence before me of any attempt, prior to this attempt, to enforce mediation of the first respondent or of its solicitors seeking to take up the offer identified in the letter of 28 March 2002. 21 In any event, leaving those two matters aside, they not being crucial, the relief sought is a rescission of this agreement or involves the rescission of this agreement. The fundamental question which the applicant complains of, rightly or wrongly, is the failure of the parties to provide it with information. It seems to me, from the information that I have gained in directions hearings in this case, that if there is any prospect of settling this case it would not occur until some body of disclosure is made, to the extent that it lawfully has to be, from the respondents about the matters that should have been covered by a notice under the Trade Practices (Industry Codes – Franchising) Regulations 1998 if those notices were required to be given. 22 Mediation agreements of this kind should generally be the subject of compliance by the parties. There has been an attempt to discuss this matter before bringing the proceedings, albeit not one in which the clause in its specifics was identified. Another relevant consideration in enforcing mediation agreements is the timing of that enforcement. I leave aside any question of delay. 23 The utility of mediation at any particular point will very often depend upon the ripeness or otherwise of the dispute for sensible discussion. I am not persuaded at the moment that there will be any significant utility in the circumstances of the saving of costs in staying these proceedings until some attempt is made to mediate the matter. That is not to say that henceforth in these proceedings the dispute resolution clause is not of consequence. It is a background fact which has now been brought to my attention and which I will bear in mind in the future management of these proceedings because at a point in time when I think this case may be more ripe for sensible commercial discussions, the parties may, or I of my own motion may, consider it appropriate that the matter be dealt with by mediation with or without the consent of all the parties. 24 There is one other matter which I do not need to decide, but which is a significant question, and that is the application of clauses such as cl 26 in circumstances where the party seeks to avoid the agreement. There is a large body of arbitration cases dealing with this kind of problem. In those cases the clause is viewed as surviving an allegation of rescission or termination. The parties did not direct argument to this specifically in relation to mediation but a serious question does arise as to the several survival of the mediation clause in circumstances where the primary complaint is that the whole agreement should be set at nought. I do not need to decide this question as a matter of principle but it is another question that affects the discretion as to whether I should stay this case in limine at this point. 25 For those reasons I propose to dismiss the motion in relation to the mediation. 26 The notice of motion also sought orders for security of costs. Those orders which were sought are to be dealt with consensually. 27 That leaves the question of costs, which I propose to deal with severally, that is, severally as to mediation and as to security. 28 In relation to the costs of the motion to the extent it deals with the orders about mediation, the applicant to the proceedings/respondent to the motion shall have its costs of the motion as costs in the cause. 29 I also make these orders: on condition that security is perfected to the satisfaction of the District Registrar on or before 4 pm, Monday 23 December 2002, I order that the stay of these proceedings as against the fourth respondent be dissolved as and from 4.30 pm on Monday 23 December 2002. Subject to granting leave which I grant to the fourth respondent to relist this matter in January to argue why this order should be vacated, I order that the fourth respondent file and serve its defence on or before 4 pm on 3 February 2003. 30 I direct the solicitors for the applicant in the proceedings to notify the fourth respondent of today's orders and that liberty to relist the matter is granted. There will be general liberty to apply on five days' notice during January 2003. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Allsop. Associate: Dated: 30 January 2003 Counsel for the Applicant: M Ashhurst Solicitor for the Applicant: Beswick Solicitors Counsel for the First, Second and Third Respondents: T G R Parker Solicitor for the First, Second and Third Respondents: Kemp Strang Date of Hearing: 20 December 2002 Date of Judgment: 20 December 2002