FEDERAL COURT OF AUSTRALIA HCA MFA Pty Ltd v HCAFranchise Corporation Inc [2019] FCA 678 File number: WAD 170 of 2019 Judge: COLVIN J Date of judgment: 14 May 2019 Catchwords: PRACTICE AND PROCEDURE - application for trial of preliminary issues - where applicants sought to confine issues to be determined at expedited hearing - where cross-claim raised matters in addition to those raised by the originating application - where some matters raised by the cross-claim did not require urgent determination - orders for trial of preliminary issues not made - orders made excluding certain issues from those to be determined at the expedited hearing Date of hearing: 14 May 2019 Registry: Western Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 21 Counsel for the Applicants: Mr PG Donovan with Ms HJ Burnside Solicitor for the Applicants: MDS Legal Counsel for the Respondent: Ms JK Taylor Solicitor for the Respondent: Bird & Bird Counsel for the Cross-Claimant: Ms JK Taylor Solicitor for the Cross-Claimant: Bird & Bird Counsel for the Cross-Respondents: Mr PG Donovan with Ms HJ Burnside Solicitor for the Cross-Respondents: MDS Legal ORDERS WAD 170 of 2019 BETWEEN: HCA MFA PTY LTD (ACN 600 083 323) First Applicant JA & PS PTY LTD (ACN 605 090 631) Second Applicant AND: HCAFRANCHISE CORPORATION INC Respondent AND BETWEEN: HCAFRANCHISE CORPORATION INC Cross-Claimant AND: HCA MFA PTY LTD (ACN 600 083 323) (and others named in the Schedule) First Cross-Respondent JUDGE: COLVIN J DATE OF ORDER: 14 MAY 2019 THE COURT ORDERS THAT: 1. The matters pleaded in paragraphs 80-115 of the cross-claim not be determined at the expedited hearing commencing 22 July 2019 and be separately adjudicated on a date to be fixed after the reasons for decision from the expedited hearing have been delivered. 2. The timing for filing a defence be extended until further order. 3. The costs of the interlocutory application dated 9 May 2019 be costs in the cause. 4. The parties do provide minutes of proposed orders as to discovery of documents to be relied upon at the expedited hearing on or before 16 May 2019. 5. In the event of competing minutes as to discovery orders, the Court will determine the orders for discovery on the papers. 6. The time for the applicants to file their reply and for the cross-respondents to file their defence to the cross-claim be extended until 20 May 2019. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT COLVIN J: 1 In early April this year, HCA MFA Pty Ltd (HCA), and JA & PS Pty Ltd brought proceedings for urgent injunctive relief to restrain steps being taken to give effect to the alleged termination of a master franchise agreement (MFA). The MFA had been entered into in 2014 between HCA as franchisee and HCAFranchise Corporation Inc (HCAF), as franchisor. Thereafter, HCA entered into a number of sub-franchise agreements with parties including JA & PS. 2 The application for injunctive relief was dealt with on the basis of undertakings and arrangements being made for an expedited hearing on the first dates available after 30 June 2019. Directions timetabling the matter for hearing were made by consent on 4 April 2018, and the matter is listed for hearing for five days commencing on 22 July 2019. The directions provided for the filing of a cross-claim. The cross-claim has been filed by HCAF. In addition to claiming that the MFA has been validly terminated and seeking relief consequent upon that claim, it raises a number of other matters said to involve breaches of the MFA. 3 In one case, the breach is said to provide a separate basis for termination. In other cases, the matters are said to provide the basis for claims to damages or other relief unrelated to termination. The applicant seeks to confine the issues to be determined at the expedited hearing to those concerned with termination. They say they have confined their claims to matters relating to the alleged termination and have reserved the right to bring other claims separately. 4 I have formed the view that a number of the matters raised by the list of claims in the cross-claim do not require urgent determination. Their inclusion in the matters to be determined at the expedited final hearing will likely jeopardize the conclusion of the hearing within the time allowed. They will significantly increase the forensic task to be undertaken by the parties on an urgent basis and they will add considerably to the issues to be addressed in a judgment. Therefore, I am satisfied that orders should be made confining the expedited hearing to those issues that relate to the dispute between the parties as to whether the agreement has been terminated. 5 The present circumstances must be distinguished from one where the Court is concerned with efficient case management of an overall dispute where arguments to the effect that ordinarily it is preferable for all issues to be determined at the one time carry more weight. In this case, there is to be an urgent hearing by reason that HCAF maintains that the MFA has been terminated, and it is entitled to act on that basis. It is that matter that provides the justification for the urgent hearing, not broader disputes that would otherwise fall for determination after case management in the ordinary course. 6 The applicants seek to confine the expedited hearing to a preliminary issue which might be broadly stated as being whether the MFA has been validly terminated. It seems to me that the preferable course is to identify those claims raised by the cross-claim that are not to be determined at the expedited hearing. Otherwise, the hearing will proceed as a determination of all the pleaded issues. This is to be preferred to the course urged by the applicants. As is well known, the statement of preliminary issues is often fraught because of the way issues develop. That is especially so where there are contested facts the determination of which may have significance for the issues that fall to be determined concerning whether recent dealings between the parties have resulted in the valid termination of the MFA. 7 To state a preliminary question framed in a particular way may unintentionally fail to capture all of the dispute concerning the alleged termination. There is also the prospect that in the course of the hearing issues may develop and it is better that those issues be addressed in the context of the pleadings with the ability of the parties to reformulate their case, subject of course to usual principles about such amendments at the time that those matters develop. 8 I now turn to the claims raised by the cross-claim. After dealing with the terms of the MFA, the first claim raised is at paras 41-45. It complains of alleged attempts in June 2018 by HCA to require sub-franchisees to operate under a licence held by HCA. It refers to a default notice and it is said to provide a separate basis for HCAF to terminate the MFA. These matters are alleged to provide an alternative basis for the alleged termination in March this year. The matters are connected, therefore, to the alleged termination that led to the claim for injunctive relief. They appear to be of narrow factual compass. On that basis, it is therefore appropriate to include them in the matters requiring urgent adjudication. My understanding is that this is accepted by the applicants. 9 The second claim is at paras 46-60. It concerns the alleged failure to pay royalties on time. This is at the heart of the dispute and concerns the matters that were before the Court at the time the interlocutory injunction was sought. This claim, therefore, should be determined urgently. 10 The third claim is at paras 61-79. This is the formulation by HCAF of the basis for its claim that the MFA has been terminated. It includes a claim that HCA is not entitled to use a specified trademark and a claim against an additional party joined by way of the cross-claim that it is not entitled to use a trademark that is registered in its name. 11 The issue concerning the trademark arises because HCAF seeks relief, in the event that its claim to termination is upheld, that would prevent any further use of the trademark and require an assignment of the trademark held by the additional party joined to the cross-claim. Therefore, the issue concerning the trademark is tied up with the claim that the MFA has been terminated and what should occur if that is the case. It has not been demonstrated that there will be significant factual issues associated with determining that aspect of the claim, and it should be determined at the expedited hearing. 12 The fourth claim is at paras 80-92. It alleges that there has been a failure by HCA to remit certain royalties to HCAF in respect of revenue from Home Care packages. This is a money claim. It is not pleaded as a basis upon which the claim to termination is advanced. As to this claim and a number of the claims in the balance of the cross-claim, it appears that HCAF relies upon the letter of the MFA. However, in answer, the applicants rely upon conduct and dealings between the parties as to the system for charging fees and royalties that has been applied in the dealings between the parties under the MFA. The applicants say that those dealings give rise to an alleged variation, waiver or estoppel that is an answer to the claims. In the course of submissions the prospect that rectification may be sought was also raised. These aspects of the manner in which the applicants seek to meet these claims also raise significant matters that are likely to expand the scope of discovery if the claims were to be included in the expedited hearing. They also give rise to issues of quantification of claims made which, though they might be the subject of attempts to reach relevant agreements as to calculations, certainly have the potential to add to the issues to be dealt with at the hearing. 13 For all those reasons, it seems to me that the fourth claim is a discrete matter that does not require urgent adjudication. If it was included it is likely to result in additional forensic burden in preparation where parties are already dealing with the termination issues on an urgent basis and the need for additional time to be allocated to the hearing of the matter in circumstances where the claim is not urgent. 14 The fifth claim is at paras 93-97. It alleges that there has been a failure to pay new franchise fees for each sub-franchisee. This is a money claim. It goes back some time. It is unrelated to the claim for termination. It is a claim that gives rise to additional forensic issues of the kind that I have described by reason of the manner in which the applicants indicate they intend to meet the claim. In those circumstances, it should not be included in the claims for urgent adjudication. 15 The sixth claim is at paras 98-109. It alleges a breach of the franchise agreement relating to the circumstances in which one sub-franchisee has been allowed to conduct a business that is said to compete with the franchise. It is a claim to loss and damage said to flow from that breach. It is a discrete claim of a kind that might even result in the sub-franchisee being brought in as a cross-respondent on the cross-claim. It appears to have nothing to do with termination and it is not a claim which on the face of it requires urgent adjudication. It also introduces additional forensic issues that may expand the scope of the hearing if included as part of the expedited hearing. It should not be dealt with at the expedited hearing. 16 The seventh claim is at paras 110-115. It also is a claim for damages for alleged breach of the MFA concerning, in this instance, the alleged service of default notices on five sub-franchisees. It is claimed that this should not have occurred without informing and consulting HCAF. The notices date from December 2017. It is not a matter advanced to support the termination and it should not form part of the matters to be determined at the expedited hearing. 17 The relief sought on the cross-claim that relates to the claims that I have identified as claims that should be included in the expedited hearing is the relief in paras 1-9 of the notice of cross-claim. As to para 9, I express that view on the basis that para 9 is confined to a claim to relief consequent upon the claim that the MFA has been terminated being upheld. The other claims to relief relate to claims that I have identified as claims that should not be included in the expedited hearing and it would follow that the claims to that relief are not urgent and may be determined at a later date. 18 It must be accepted that there will be some additional cost in deferring the issues that I have identified as not being urgent for later separate determination. It is a course that will involve two rounds of discovery. That of itself is not a particularly unusual course. Of more concern is the fact that it will result in a number of witnesses having to give evidence twice. However, for reasons I have indicated, their evidence will not cover the same field. Nevertheless, some have to travel from overseas and that inconvenience would ordinarily be sought to be avoided were it not for the need to deal with the particular issue relating to termination in an expedited manner. 19 It was submitted that the court might contemplate deferring the expedited hearing for some short time on the basis that the respondents have proffered undertakings which are protective. However, I accept the submission advanced for the applicants that for so long as there is uncertainty associated with the question of termination, then there is a proper basis for concern as to prejudice to the interests of the applicants which counts against that course being followed. So in my view, the matters raised concerning discovery and witnesses are outweighed by the risk of further delay if other issues were added to the expedited hearing. 20 It then falls to consider what should occur in relation to the matter. It seems to me that there should be orders identifying those paragraphs in the cross-claim which are not to be determined at the expedited hearing. On that approach, it is then necessary to consider what should happen in relation to the pleading as to those issues to be excluded. It was submitted that there should be an early pleading in response to those issues even if they were not to be determined at the expedited hearing. The submission advanced was that an early pleading would assist the parties in identifying the issues for the purposes of a mediation which is to take place before the dates listed for the expedited hearing. There is some merit in that submission but on balance I think that consistently with the course that I have indicated the forensic issues that the parties have to address on an urgent basis should be confined to those related to termination. It would be open to the parties as part of the mediation to prepare position papers on issues that are wider than those to be determined at the expedited hearing. Certainly it is not the case that the mediation would be confined to those issues. 21 So for those reasons, I will make orders that the matters pleaded in paras 80-115 not be determined at the expedited hearing commencing on 22 July 2019 and those issues be separately adjudicated on a date to be fixed after the publication of reasons following the expedited hearing. I will also order that the time for filing a defence to those claims be extended until further order. I will hear from the parties as to costs. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Colvin. Associate: Dated: 14 May 2019 SCHEDULE OF PARTIES WAD 170 of 2019 Cross-Respondents Second Cross-Respondent PAUL SHEHADE Third Cross-Respondent HCA MASTER FRANCHISE AUSTRALIA PTY LTD (FORMERLY KNOWN AS HCA MASTER FRANCHISE AUSTRALIA PTY LTD) (ACN 101 073 134)