FEDERAL COURT OF AUSTRALIA Pampered Paws Connection Pty Ltd (ACN 116 460 621) (on its own behalf and in a representative capacity) v Pets Paradise Franchising (Qld) Pty Ltd (ACN 054 406 272) [2008] FCA 1606 PAMPERED PAWS CONNECTION PTY LTD (ACN 116 460 621) (ON ITS OWN BEHALF AND IN A REPRESENTATIVE CAPACITY) v PETS PARADISE FRANCHISING (QLD) PTY LTD (ACN 054 406 272), PETS PARADISE FRANCHISING (SA) PTY LTD (ACN 069 620 391), PETS PARADISE FRANCHISING (NSW) PTY LTD (ACN 006 919 222), GLOBAL PET PRODUCTS PTY LTD (ACN 005 666 599), PETS PARADISE (FRANCHISING) PTY LTD (ACN 006 626 455), PETS PARADISE PTY LTD (ACN 005 558 378), PARADISE RETAIL HOLDINGS PTY LTD (ACN 105 253 441) and GARY DIAMOND SAD.142 of 2008 MANSFIELD J 24 OCTOBER 2008 ADELAIDE IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SAD.142 of 2008 BETWEEN: PAMPERED PAWS CONNECTION PTY LTD (ACN 116 460 621) (ON ITS OWN BEHALF AND IN A REPRESENTATIVE CAPACITY) Applicant AND: PETS PARADISE FRANCHISING (QLD) PTY LTD (ACN 054 406 272) First Respondent PETS PARADISE FRANCHISING (SA) PTY LTD (ACN 069 620 391) Second Respondent PETS PARADISE FRANCHISING (NSW) PTY LTD (ACN 006 919 222) Third Respondent GLOBAL PET PRODUCTS PTY LTD (ACN 005 666 599) Fourth Respondent PETS PARADISE (FRANCHISING) PTY LTD (ACN 006 626 455) Fifth Respondent PETS PARADISE PTY LTD (ACN 005 558 378) Sixth Respondent PARADISE RETAIL HOLDINGS PTY LTD (ACN 105 253 441) Seventh Respondent GARY DIAMOND Eighth Respondent JUDGE: MANSFIELD J DATE OF ORDER: 22 OCTOBER 2008 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. The statement of claim is struck out. 2. Leave is given to the applicant to file and serve an amended statement of claim within a time to be specified. 3. The application for interlocutory injunctions in the terms sought is refused. 4. The costs of the applications for interlocutory injunctive relief, and to strike out the application and the statement of claim, are reserved. 5. Liberty to apply on short notice. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SAD.142 of 2008 BETWEEN: PAMPERED PAWS CONNECTION PTY LTD (ACN 116 460 621) (ON ITS OWN BEHALF AND IN A REPRESENTATIVE CAPACITY) Applicant AND: PETS PARADISE FRANCHISING (QLD) PTY LTD (ACN 054 406 272) First Respondent PETS PARADISE FRANCHISING (SA) PTY LTD (ACN 069 620 391) Second Respondent PETS PARADISE FRANCHISING (NSW) PTY LTD (ACN 006 919 222) Third Respondent GLOBAL PET PRODUCTS PTY LTD (ACN 005 666 599) Fourth Respondent PETS PARADISE (FRANCHISING) PTY LTD (ACN 006 626 455) Fifth Respondent PETS PARADISE PTY LTD (ACN 005 558 378) Sixth Respondent PARADISE RETAIL HOLDINGS PTY LTD (ACN 105 253 441) Seventh Respondent GARY DIAMOND Eighth Respondent JUDGE: MANSFIELD J DATE: 24 OCTOBER 2008 PLACE: ADELAIDE REASONS FOR DECISION 1 The applicant commenced these proceedings on 12 September 2008 under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (the Act) as a representative proceeding. 2 The applicant is a franchisee of the "Pets Paradise" franchise, which since December 2005 has carried on business under the name "Pets Paradise Superstore Burleigh" in Queensland. It brings the proceeding on its own behalf, and in a representative capacity on behalf of "former and current Pets Paradise Franchisees" including 11 nominated franchisees with businesses in New South Wales, Queensland, South Australia and the Northern Territory. 3 By notice of motion filed on 23 September 2008 the applicant sought urgent injunctive relief. The respondents, who had by then been served with the proceedings, had no real opportunity to consider those claims at that time. On 23 September 2008 I made orders on an interim basis only. I also set a timetable for the hearing of the interlocutory application. 4 On 10 October 2008, the respondents by motion applied to strike out the application and the statement of claim. The two motions were heard together, because the respondents' strike out motion underlay certain of its grounds for opposing the interlocutory injunctions sought. In what appears to be a sensible sequence, the respondents contended: (1) that the applicant's claim did not meet the threshold criteria for a representative action specified in s 33C(1) of the Act; (2) in any event, the statement of claim is so defective that it should be struck out; (3) alternatively, the statement of claim does not demonstrate on its face a serious issue to be tried as against the respondents; and (4) in the further alternative, the balance of convenience does not support the making of the injunction. 5 I shall deal with each of those contentions in turn. 6 Section 33C(1) provides: Subject to this Part, where: (a) 7 or more persons have claims against the same person; and (b) the claims of all those persons are in respect of, or arise out of, the same, similar or related circumstances; and (c) the claims of all those persons give rise to a substantial common issue of law or fact; A proceeding may be commenced by one or more of those persons as representing some or all of them. 7 The respondents contended that the requirements of subclauses (a) and (c) are not enlivened. They made that contention both on the basis of the applicant's application and statement of claim, and additionally on the basis of the material before the Court. 8 It is therefore necessary to look to the statement of claim. 9 For the purposes of s 33C(1)(a), the critical issue is the relationship between the several respondents. I put aside the seventh respondent, Paradise Retail Holdings Pty Ltd (Retail). There is no specific allegation against it in the statement of claim, except that it is "the common holding company" of the other corporate respondents. Counsel for the applicant at one point acknowledged that it would have to be removed as a respondent, or alternatively that the statement of claim would need to be amended to include such allegations as were properly to be made against it. I also put aside the eighth respondent, Gary Diamond. He is pleaded to be the sole director and "directing mind and will" of each of the respondents. He is also pleaded to be the sole director of Pet Goods Direct Pty Ltd and Pet Goods Direct Franchising Pty Ltd (together with Pet Goods Direct), allegedly a competing retail pet goods and services franchise. It was not his potential liability as a person knowingly concerned in the alleged contraventions of the Trade Practices Act 1974 (Cth) (the TP Act) so as to be liable by reason of s 75B of the TP Act which was, on the respondents' submission, the stumbling block. 10 The statement of claim alleges that since about August 1990 there have been at least 72 "Pets Paradise Franchise Agreements" between Franchisees on the one hand and "Pets Paradise Franchisors" on the other. Therein lies the root of the respondents' first contention. 11 The term "Pets Paradise Franchisees" is not defined in the statement of claim. It pleads that the "Pets Paradise franchise business" – also an undefined term – was carried on by a group of corporations including: (a) the first three respondents (respectively PP-Q, PP-SA and PP-NSW) as the Queensland, South Australian and NSW Franchisors and respectively including also the lessee of the sites in each of those States and the licensor of those sites to each of the Franchisees in those States; and (b) the fourth respondent (Global) as a corporation with which Franchisees were required to make agreements for the supply of goods as a condition of the grant of a Pets Paradise franchise; and (c) the fifth respondent (PP-Franchising), as the author of the Disclosure Document (referred to below); and (d) the sixth respondent (PP-Trade Marks) as the owner of the Trade Marks (separately defined). 12 Those corporations (together with the seventh respondent) are defined as the "Pets Paradise Group". They are then said to be related corporations under s 50 of the Corporations Act 2001 (Cth) (the Corporations Act) by reason of their common holding company Retail and their common director, Mr Diamond. They are each also said to be knowingly concerned in and a party to conduct of the members of the Pets Paradise Group, through Mr Diamond's role, so as to be caught up by s 75B(1)(c) of the TP Act, in conduct of the members of the Pets Paradise Group in contravention of the TP Act. That is inelegantly expressed. But, for present purposes, its meaning is clear enough. Each individual member of the Pets Paradise Group is somehow alleged to have contravened the TP Act (the Statement of Claim refers to certain of those contraventions in subsequent paragraphs) and the other members of that group are said to have been knowingly concerned in the several contraventions. 13 The statement of claim then alleges misleading and deceptive conduct leading up to and during the term of the franchise agreements generically. That is, the allegations do not at that point concern specifically the applicant or any other group member. 14 It refers to a "Disclosure Document" provided to potential franchisees which made certain specified representations about "the Franchisor's" relationship to potential franchisees. It alleges the representations were misleading and deceptive or likely to mislead and deceive. It alleges that the representations were made by Mr Diamond (presumably meaning that Mr Diamond caused the Disclosure Document to be made available, as the pleading otherwise is that the representations were made in the document itself) for the "Pets Paradise Franchisors" to induce prospective franchisees to enter a Franchise Agreement and related agreements, and were relied upon by prospective franchisees, including by attending a training program. 15 The conclusion is pleaded that "each of the Franchisors" engaged in conduct in contravention of ss 52 and 53 of the TP Act and "the Franchisees" suffered loss as a result. 16 The next step in the pleading is the allegation of further representations made orally by Mr Diamond on behalf of the Pets Paradise Group at the training program. They, too, are said to be misleading or deceptive or likely to mislead or deceive, and to have been made to prospective franchisees and relied upon by those who became franchisees, who thereby suffered loss. 17 The third set of conduct alleged relates to what is called "the Pets Paradise System", referring to the contractual arrangements under Franchise Agreements. I assume that, save for the specified parties – depending upon the State in which the franchise was granted, the franchisor would vary the Franchise Agreement – the pleading conveys that in material respects the Franchise Agreements were in the same terms. It is then pleaded that "the Franchisors" by the Franchise Agreement made representations about the quality of the Pets Paradise system. Particulars are given. Those representations are also said to have been misleading and deceptive, to have induced franchisees to have become franchisees, and to have thus caused their loss. 18 There is then a separate claim that the misrepresentations in the Disclosure Document meant that it did not comply with Annexure 1 to the Franchising Code of Conduct, and that "the Franchisors" contravened cl 6 of that Code. The statement of claim also signals that that conduct by "the Franchisors" reaches into the next claim. 19 It is that there was unconscionable conduct prior to entry into the franchise agreements. It is pleaded, again generically, that "a significant number of Franchisees" or their directors were financially and commercially and educationally inexperienced, or "were otherwise at a disadvantage" when entering the Franchise Agreements, so "the Franchisees" – that, presumably, means all of them – were unable to protect their interests when dealing with the "members of the Pets Paradise group". Mr Diamond and members of the Pets Paradise Group are said to have had knowledge of that disadvantage, as well as having knowledge of particular features of the Pets Paradise System which was not disclosed to the vulnerable Franchisees. Then, it is claimed, Mr Diamond and the Pets Paradise Group took advantage of their superior bargaining position to induce the Franchise Agreements and related agreements and directors' guarantees from Franchisees, including terms in the Franchise Agreements which were not reasonably necessary. That conduct, with the pleaded misrepresentations, is said to amount to Mr Diamond and the Pets Paradise Group having acted in bad faith and to have engaged in unconscionable conduct, contrary to ss 51AA or 51AC of the TP Act. 20 The next, and discrete, set of allegations concerns exclusive dealing by "the Franchisors" contrary to s 47 of the TP Act. Global is also said to have engaged in exclusive dealing contrary to s 47 by different conduct. 21 Global separately is alleged to have provided a "sham" discount by the "Global supply agreements" and invoices, when it really imposed penalty for late payment (ie after 14 days) on its invoices. 22 Mr Diamond is separately alleged to have engaged in financially threatening conduct towards the franchisees and their directors. There are no particulars of those claims. In addition, it is alleged that in response to a Notice of Dispute given by the 12 Franchisees named in the statement of claim, "members of the Pets Paradise Group" have taken various steps to terminate their Franchise Agreements and other remedies" in bad faith and for ulterior purposes" (the details of which are not pleaded). 23 There is then a further plea of unconscionable conduct on the part of Mr Diamond and the Pets Paradise Group contrary to ss 51AA or s 51AC of the TP Act. 24 The next step in the statement of claim is directed to Mr Diamond's role as, in effect, the controlling mind of each of the Pets Paradise Group and the person responsible for the representations and the conduct alleged. 25 Then there is a separate claim that there has been a failure of consideration, and alternatively a breach of contract in relation to the Franchise Agreements. Those allegations concern Mr Diamond and "the Franchisors". 26 Finally, there is a discrete allegation that the sixth respondent PP has failed to issue the Trade Marks since 11 August 2005. In the relief, an order is sought under s 92 of the Trade Marks Act to have those marks removed from the Register. 27 The relief claimed otherwise is: (a) against "the Franchisors" for misleading and deceptive conduct"; (b) against "the Pets Paradise Group" for unconscionable conduct; (c) against "the Franchisors and Global" for exclusive dealing; and (d) against Mr Diamond. 28 In the relief claimed, various orders under ss 4L, 80, 82 and 87 of the TP Act and under s 23 of the Federal Court of Australia Act 1976 (Cth) are sought against the respondents but no refinement beyond the four bases of relief set out immediately above. 29 The respondents, having regard to the decisions in Philip Morris (Australia) Ltd v Nixon (2000) 170 ALR 487 and Bray v F Hoffman-La Roche Ltd [2003] FCAFC 153, submitted that the claim to meet the threshold requirement of s 33C(1)(a) must expose that at least the applicant has a claim against each of the respondents (for the reasons given, I shall treat that as a claim against each respondent other than Retail). 30 It is less clear whether it must show a claim by each group member against each respondent. That was the effect of the decision of the Full Court in Phillip Morris, but the majority of the Full Court in Bray took a different view. For the purposes of an interlocutory application, involving in part an application to strike out the statement of claim, I accept by reason of the conflicting views, that the prescribed minimum requirement is that referred to in the preceding paragraph, and that it is arguable as to whether the higher requirement referred to in this paragraph is also necessary. 31 In my view, the correct approach to the question whether s 33C(1)(a) is satisfied is by reference to the matters alleged in the statement of claim. The respondents relied upon evidence of Mr Diamond that PP-Qld, PP-SA and PP-NSW all operate within their respective State boundaries and have no relationship with each other, at least in a practical sense. Whether, as alleged, Retail is in fact the holding company of each of them is a matter which should await the hearing. Mr Diamond's affidavit does not gainsay the allegation in the statement of claim. 32 It is not uncommon in representative actions for the claimants' to have separate claims against the respondents, or to have individual and specific features of their claims, or to have different claims for relief. Section 33C(2) recognises those matters. If the features of the representative proceeding, regarded overall, do not warrant its continuance as a representative proceeding, s 33N enables the Court to so order. 33 The statement of claim indicates clearly enough that the applicants, and all the group members, have claims against Global under s 47 of the TP Act which satisfy s 33C(1)(a). 34 However, whether the applicant has or claims against each of the three entities within the description of Pampered Pets Franchisors (whether under ss 52 or 53 of the TP Act or under s 47 of the TP Act, or under ss 51AA or 51AC of that Act) is not so clear cut. Nor is it clear that the claims of each of the Franchisees who are, or become, group members are against each of the Pets Paradise Franchisors. The critical issue is whether, by virtue of the allegations that PP-SA and PP-NSW were related corporations to PP-Qld (the Franchisor to the applicant) and that they (as members of the Pets Paradise Group) were knowingly concerned in contravening conduct by that group, the applicant arguably has claims against them. 35 The allegedly misleading representation through the Disclosure Document, the training program and the Franchise Agreements are sufficiently pleaded as representations made to all Franchisees. It does not necessarily follow that they were made by each of the Franchisors. 36 The foundation for their involvement in the contraventions by each of the other Franchisors is oblique. It is possibly because the Pets Paradise System and the representations made by or in the Franchise Agreement, and the pre-franchise representations, were made by them individually, that is for example by PP-Qld to prospective and then actual franchisees in Queensland, were really as part of a group of entities acting together and in a common cause, under the control of Retail and Mr Diamond. However, I do not think the claim is clearly expressed that way. Counsel for the applicant, I perceived, sought to express the claim to that level of specificity but had trouble tying it clearly to the statement of claim. 37 My analysis of the statement of claim, and those comments, should be sufficient to identify why I should not speculate further about what the applicant intends to allege. Reference to [27] above, compared to the detailed content of the statement of claim, indicates that it is unclear whether the claims for contraventions of ss 52 and 53 of the TP Act are made only against the Pets Paradise Franchisors, or against them and Global, or against all of the respondents. There is no apparently clear factual basis for treating the claims for unconscionable conduct differently from those claims, although it is ultimately expressed more widely as against the Pets Paradise Group, and even then, it is unclear whether that is intended to encompass PP-Trademarks. It is unclear how the applicant, and the proposed group members, would discretely have a claim against PP-Trademarks. The position of Retail, although said to be the holding company, is unclear. It is unclear whether all of the respondents are said to be acting in concert, so that the actions of one are the actions of all, or that (for example) PP-SA was knowingly concerned in the alleged contravention of s 52 by PP-QLD, and if so what conduct of PP-SA (apart from the knowledge shared through the role of Mr Diamond) amounted to its knowing involvement. 38 For those reasons, I consider it appropriate to strike out the statement of claim. It must follow that, at present, the claims for interlocutory injunctions should be refused. I propose to give the applicant leave to file and serve an amended statement of claim. 39 It is appropriate to make some comments upon the balance of the submissions. 40 The applicant identifies a number of matters which appear to me to give rise potentially to claims arising out of the same, or similar circumstances. However, that is a matter which is best determined when the amended statement of claim has been filed and served. It may be that the amended statement of claim, drawn having regard to the instructions of the applicant and the matters which are reasonably understood to be capable of proof, that the claims made either by the applicant against all respondents, or by the applicant and a number of the claim group against all respondents, will elucidate that issue. Similarly, the amended statement of claim will more clearly indicate whether the claims made give rise to a substantial common issue of law or fact. I also note that the amended statement of claim may demonstrate whether it is appropriate, either on the Court's own motion or on the application of the respondents, to order that the proceedings – even if properly constituted as a representative proceeding – should not continue in that form pursuant to s 33N. 41 Even if I were minded to make interlocutory orders of the general nature sought, because individual but identifiable group members would be specific beneficiaries of them, insofar as recovery proceedings are brought or threatened against those individuals, I would presently be disposed to make such orders only if the individual group members benefiting from them were to provide the usual undertakings as to damages, related to the particular enforcement action which is being proscribed. In addition, I would need to be satisfied that it was appropriate to make orders which prevented the respondents from recovery of debts which they severally claim, unless there was some dispute about existence of that indebtedness shown to exist. The recovery of a non-disputed debt, where there is a counterclaim such as that apparently sought to be pursued in this proceeding, is another matter. The recovery of a judgment debt or a non-disputed debt, which may lead to the liquidation of a group member and so prevent it from participating in a proceeding such as the present, may also be a different matter. Those are considerations which need to be addressed in the light of the amended statement of claim and the particular circumstances. In addition, there are matters going to the balance of convenience raised by the respondents, and which themselves to a degree raise circumstances individual to particular respondents. Those circumstances would need to be addressed and balanced in the more particular circumstances which may apply to individual group members seeking to pursue interlocutory injunctive relief. 42 The parties will be given an opportunity to determine a timetable for the filing and serving of an amended statement of claim and for any other directions. The costs of the application for interlocutory injunctive relief, and to strike out the application and the statement of claim, are reserved. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield. Associate: Dated: 24 October 2008 Counsel for the Applicant: Mr N Rochow with Ms M McCarthy Solicitors for the Applicant: Piper Alderman Counsel for the Respondents: Mr P O'Sullivan QC with Mr C Munt Solicitor for the Respondents: Leonard Legal Date of Hearing: 14 October 2008 Date of Judgment: 24 October 2008