FEDERAL COURT OF AUSTRALIA Meridian Financial Pty Ltd v Australian Unity Limited [2003] FCA 891 NO CATCHWORDS State Transport Authority v Apex Quarries Ltd [1988)]VR 187 cited Sanderson Motor Sales Pty Ltd v York Star Motors Pty Ltd (1983) 1 NSWLR 513 cited Axxess Australia Pty Ltd v Primus Telecommunications Australia Pty Ltd [2000] VSC 64 cited MERIDIAN FINANCIAL PTY LTD & ANOR v AUSTRALIAN UNITY LTD & ANOR V 649 of 2003 HEEREY J 21 AUGUST 2003 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V649 OF 2003 BETWEEN: MERIDIAN FINANCIAL PTY LTD ACN 006 275 592 FIRST APPLICANT MERIDIAN ASSET MANAGEMENT PTY LTD ACN 091 686 127 SECOND APPLICANT AND: AUSTRALIAN UNITY LIMITED ACN 087 648 888 FIRST RESPONDENT AUSTRALIAN UNITY RETAIL NETWORK PTY LTD ACN 101 244 795 SECOND RESPONDENT JUDGE: HEEREY J DATE OF ORDER: 21 AUGUST 2003 WHERE MADE: MELBOURNE Upon the Applicants undertaking by their Counsel to pay to any party adversely affected by the undermentioned order such compensation (if any) as the Court thinks just, in such manner as the court direct. THE COURT ORDERS THAT: 1. That until the final hearing of this proceeding or further order, the First Respondent be restrained from acting upon the notices dated 19 June 2003, 1 July 2003, 23 July 2003 and 30 July 32003 of the termination of the agency agreement dated 1 September 1999 between the First Applicant and the First Respondent. 2. That until the final hearing of this proceeding or further order, the Respondents whether by themselves, their directors, officers, servants or agents or any of them be restrained from: a. Writing to or otherwise communicating with clients of the Australian Unity Agency conduct by the First Applicant to advise of the closure of the agency or the termination of the agency between the First Applicant and the First Respondent; b. Writing to or otherwise communicating with clients of the agency or any other persons that the agency will cease operations; c. Taking any steps preparatory for the closure of the agency. 3. That the proceeding be referred to mediation, pursuant to O 72 of the Federal Court Rules, by a mediator to be agreed upon by the parties and nominated by the District Registrar and in default of such agreement by 29 August 2003, to a mediator nominated by the District Registrar. The mediation shall be conducted by 4 September 2003 and the mediator is to report the result of the mediation to the Court and the District Registrar by 6 September 2003. 4. The costs of the parties of and associated with the application for interlocutory relief be reserved. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V649 OF 2003 BETWEEN: MERIDIAN FINANCIAL PTY LTD ACN 006 275 592 FIRST APPLICANT MERIDIAN ASSET MANAGEMENT PTY LTD ACN 091 686 127 SECOND APPLICANT AND: AUSTRALIAN UNITY LIMITED ACN 087 648 888 FIRST RESPONDENT AUSTRALIAN UNITY RETAIL NETWORK PTY LTD ACN 101 244 795 SECOND RESPONDENT JUDGE: HEEREY J DATE: 21 AUGUST 2003 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 The applicants seek an interlocutory injunction which, in the terms finally proposed, are as follows: "1. That until the final hearing of this proceeding or further order, the first respondent be restrained from acting upon the notices dated 19 June, 1 July, 23 July and 30 July 2003 of the termination of the agency agreement dated 1 September 1999 between the first applicant and the first respondent. 2. That until the final hearing of this proceeding or further order, the respondents, whether by themselves, their directors, officers, servants or agents or any of them, be restrained from: (a) writing to or otherwise communicating with clients of the Australian Unity agency, conducted by the first applicant, to advice of the closure of the agency or the termination of the agency between the first applicant and the first respondent; (b) writing to or otherwise communicating with clients of the agency or any other persons that the agency will cease operations; (c) taking any steps preparatory for the closure of the agency." 2 The background to this matter is that since 1997 the first applicant has conducted an agency for the first respondent ("Australian Unity") in premises at Elsternwick. That agency was under terms of a written agreement which provided for a term of one year with continuation thereafter on a month-to-month basis until terminated by one month's written notice by other side, without any cause being ascribed. Australian Unity has made a decision to convert its operations to a franchise rather than agency basis. Amongst other things, franchisees will enjoy a longer term. A draft franchise agreement, which was in evidence, and which I infer was typical of the franchises to be offered, provided for a five year term with options for renewal. 3 It is clear that the applicants, and in particular their principal, Mr Garth McLardie, was well-regarded by Australian Unity which was anxious that he continue to operate from Elsternwick and possibly from other locations in Melbourne as well. Various negotiations took place once the change to the franchise system was decided upon. It is not necessary to go into these in any detail for present purposes. Suffice to say that on 25 November 2002 Australian Unity sent an e-mail to Mr McLardie advising that the position about Elsternwick "remains unchanged since our last discussions, namely that we are unable to offer you a formal franchise agreement for the location which, while the conflict issue regarding your role in Meridian/AU remains open." That is a reference to an issue between the parties concerning Mr McLardie operating financial planning and other businesses which might involve financial products other than Australian Unity products. 4 The e-mail continued: "However, we are keen to retain your services, expertise, entrepreneurial drive etc, and accordingly now offer you an extension to your agency agreement until such time as we agree on terms to convert to a formal franchise or alternatively agree to part." 5 There followed further negotiations and in particular a meeting on 13 February 2003 in which there are conflicting accounts as to whether agreement was reached on outstanding issues. In any event, it is clear that shortly after that meeting Mr McLardie submitted to Australian Unity a detailed business plan for the proposed franchise. He had already submitted a form of application for a franchise. It is the applicants' case that (i) in a telephone call on 5 March 2003 Australian Unity told Mr McLardie that the application for a franchise had been approved and that (ii) at a conversation on 8 March Mr McLardie's associate, Mr Attardi, was told the same thing. These conversations are disputed, but there at least seems to be a triable issue of fact. 6 However things seem to go off the track in following months when Australian Unity raised further concerns. On 9 May 2003 Mr Craig of Australian Unity sent an e-mail to Mr McLardie which claims to summarise a meeting that morning. The e-mail says: "We have yet to receive an application for the franchise which takes into account the key requirements discussed previously, ie the competencies of the nominated key person, the manner in which ownership structures will separate Meridian from AU, equity arrangements for the key person. We have continued to receive expressions of interest from prospective purchasers of the franchise and are keen to ensure that the business maximises its potential. We have been consistent in our belief that your personal participation in the franchise would greatly enhance its performance and we would like to see this issue in the application. The complexity of the conflict issue which has long been our principal concern requires also to be specifically considered. We are requiring other applicants to divorce directorships, responsible officer duties, as well as proper authorities. We look forward to receiving the application on Wednesday, Garth, and to discussing it with you thereafter." 7 That prompted a rather terse response from Mr McLardie. He sent an e-mail on 12 May to MrCraig as follows: "Colin, I accept your concerns which have all been addressed previously. In fact we have not changed our position since discussions first started nearly 2 years ago. I have problems with the fact that each time I think that we have solved our problems and addressed the issues you guys continue to either move the goalposts again or bring up "old issues". You know, Colin, you ran on Wednesday 5 March and told me that we had the franchise. Two to three weeks ago Shane[Canton] was trying to force us to accept inappropriate premises under the application as it stood. I will send another application however don't expect it to have me as the key person and don't expect it to have a company owning it with no directors. Please attend to our application on this basis and this time if you say "Yes", please mean it. If you say "No", Rohan and our solicitors will take over the exit negotiations." 8 In fact, Mr McLardie did submit a second franchise application on 16 May which, as counsel for the respondents pointed out, differed in some significant respects from the first application. In particular it had a Mr Curry as the key person. Anyway no agreement was reached and there followed the series of letters referred to in the proposed form of injunction in which Australian Unity indicate their intention to terminate the agency. 9 This has been a difficult matter and my thoughts have varied over the course of the helpful arguments presented by counsel. However, it seems to me that there is at least a triable issue that the e-mail of 25 November 2002 does record an agreement for the extension of the agency agreement. Counsel for the respondents argued that there was no consideration but I think, as the e-mail itself indicates, it was to the advantage of Australian Unity to have somebody of Mr McLardie's talents continuing to operate for Australian Unity's benefit as well as his own at Elsternwick. 10 There was also an uncertainty element urged. It said that on one view this agreement might continue indefinitely as long as Mr McLardie neither agreed to a franchise nor "agreed to part". However, as an important commercial transaction the Court should strain to give it a workable meaning. I think it could arguably be implied that the agreement would extend so as to keep the agency agreement on foot for at least a reasonable time unless and until negotiations for a formal franchise had completely broken down. 11 There then is the second issue as to whether there was an agreement for a franchise concluded by the telephone acceptance on 5 March. There are two problems at least attending to this, quite apart from the conflict of evidence. One is that there was the subsequent franchise application which differs in significant respects from the earlier one and also there is the fact that the franchise agreement, at least going on the draft form, is a very substantial and detailed document to which formal assent was yet to be given. However, it may be arguable that it is not necessarily inconsistent with an agreement being reached that a party may, in order to satisfy a recalcitrant contracting party, attempt to negotiate a further agreement. Arguably the e-mail of 12 May may be explained on that basis. 12 Also there is some force in the point of counsel for the applicants that the reality is that the franchise agreement, although a formidable document of many pages, is a standard form and once essential agreement was reached on the particular issues affecting the parties one could reasonably expect that agreement would be reached. So I think there is a triable issue on the basis that the agreement of 25 November 2002 continued and that has been satisfied in that there has been agreement on terms to "convert to a formal franchise". 13 Part of the substantive of claim of the applicants is an order requiring Australian Unity to enter to a formal written agreement in the terms of the franchise agreement. As counsel for the applicants put it, it would be open to the Court to preserve the situation by in effect restraining any breach of the continuing agency agreement so that if the applicants succeed at trial they will be able to have their status converted into that of a franchisee as, according to their case, was originally contemplated and agreed to. 14 There then comes the equally difficult question of the balance of convenience. Traditionally the courts were loath to order what was in effect a mandatory injunction ordering the performance of a contract of service or a contract involving an ongoing personal relationship of trust and confidence. There has been perhaps a more liberal approach in recent times. Counsel referred to State Transport Authority v Apex Quarries Ltd [1988] VR 187, Sanderson Motor Sales Pty Ltd v York Star Motors Pty Ltd (1983) 1 NSWLR 513, and Axxess Australia Pty Ltd v Primus Telecommunications Australia Pty Ltd [2000] VSC 64. 15 This case perhaps takes that approach a fair way because I think there is strength in the argument of the respondents that damages could be assessed should the applicants finally succeed at trial. Nevertheless it ultimately remains a discretion for the Court and I am impressed by the fact that it seems common ground that, as I say, Mr McLardie has been a successful operator of this business and one would think that it is in the mutual interests of the parties that it be able to continue. 16 As I said in the course of argument, I was not impressed by assertions in the affidavit of Mr McMillan on behalf of the respondents that "Australian Unity has lost trust and confidence in Meridian Financial as an agent and is of the view that it is no longer acting in good faith." 17 No basis for that assertion was advanced; nor for allegations that there was quite a "significant risk" that Meridian Financial "could use the database [of the agency] to poach business from Australian Unity and existing franchisees". This is in a setting where the parties had been working more than amicably for six years and in circumstances where Australian Unity is only about a fifth of the applicants' business, so that if they were disposed to poach customers they would, one thinks, have done so before. 18 I am not satisfied that there is any basis for doubt about the applicant's capacity to meet an undertaking for damages. There is undisputed evidence that it is a substantial business returning a current net profit of $13,000 to $15,000 per month. If there is any question of adequacy of capacity of an applicant to meet an undertaking to damages, it behoves a respondent at least to go into evidence on that issue. 19 I think that it is highly desirable that there be an early resolution of this matter. I will make an order directing an expedited hearing. I have no idea how that can be accommodated within the court's capacity at the moment, but I will make an order for an early mediation, which I will direct to take place within 14 days. 20 So upon the counsel for the applicants giving the undertaking contained in the minutes, I will make the order in terms of the minutes. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey J. Associate: Dated: 21 August 2003 Counsel for the Applicant: Mr M Wise Solicitor for the Applicant: Middletons Counsel for the Respondent: M Goldblatt Solicitor for the Respondent: Minter Ellison Date of Hearing: 21 August 2003 Date of Judgment: 21 August 2003