Lawrence v Furniture Wizard [2000] NSWSC 1107

New South Wales Supreme Court

CITATION : Lawrence v Furniture Wizard [2000] NSWSC 1107 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 4590 of 1997 HEARING DATE(S) : 1, 2 and 3 November 2000 JUDGMENT DATE : 4 December 2000

Simon Lawrence, Matthew Gibson, Ross Hobden and Robert Bray trading as Plane Trading (Plaintiffs) PARTIES : The Furniture Wizard Pty Limited (First Defendant) Stephen Frederick Grant (Second Defendant) JUDGMENT OF : Windeyer J at 1

Mr S Burchett (Plaintiff) COUNSEL : Stephen Grant (First Defendant) In person (Second Defendant) Caldwell Martin & Cox (Plaintiffs) SOLICITORS : Stephen Grant (First Defendant) In person (Second Defendant] CATCHWORDS : CONTEMPT - breach of interlocutory injunctive orders - some charges proved DECISION : Paragraphs 22 to 24

1 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

WINDEYER J

MONDAY 4 DECEMBER 2000

4590/97 SIMON LAWRENCE & 3 ORS T/AS PLANE TRADING v THE FURNITURE WIZARD PTY LIMITED & ANOR

JUDGMENT 1 These proceedings were commenced by summons filed on 30 October 1997. In short the plaintiffs claim that they were joint venturers with Mr Grant the second defendant, in a business of promoting and selling franchises for a mobile furniture repair business conducted under the name of The Furniture Wizard and The Wood Wizard, that the first defendant, Furniture Wizard Pty Limited was formed for this purpose, but that instead of the shareholding being fifty percent for the plaintiffs and fifty percent for the second defendant, the second defendant kept all the shares for himself. Various orders for transfer, account and sale of the business are sought. In addition, certain interlocutory relief was sought. On 10 November 1997 interlocutory orders were made by consent. Those relevant were: 1. Order that pending the determination of these proceedings or until further order: (a) the First Defendant be restrained from (i) spending, disbursing or dealing in any way with any monies or credits received or owed by way of franchise or tuition fees or the price of goods sold in respect of the mobile furniture repairs franchising business of the First Defendant, otherwise than in the ordinary course of business; (ii) charging or otherwise dealing with any other assets, including the mobile furniture repair franchise business operated by it; (iii) issuing or otherwise dealing in shares in its capital; (iv) distributing any funds or property for the benefit of the Second Defendant except for the amount of $662. gross per week by way of wages. (b) The Second Defendant be restrained from: (i) spending, disbursing or dealing in any way with any monies or credits the benefit of which is or has been received from or owed by the First Defendant except by way of wages; (ii) disposing charging or dealing in any way with any shares in the capital of the First Defendant without the prior written consent of the Plaintiffs: (iii) representing that he is entitled to act in any way or capacity including as director of the First Defendant, in respect of the franchisor business known as "The Furniture Wizard" of "Wood Wizard" to the exclusion of the Plaintiffs. 2. Order that pending the determination of these proceedings or until further order, the Plaintiffs and the Defendants be restrained from: (a) offering to disclose any confidential information concerning the mobile furniture repair system to any person other than bona fide for the purpose of procuring for the First Defendant a franchisee of that system on the terms and conditions of the First Defendant for such franchise published as at July 1st, 1997 or as varied following bona fide agreement with a franchisee. (b) disclosing any confidential information concerning the mobile furniture repair system to any person other than to any existing franchisee of the First Defendant or with the written consent of the solicitors for each other party to these proceedings to any future franchisee of the First Defendant. (c) inducing or attempting to induce any franchisee of the mobile furniture repair system to breach their contractual arrangement with the First Defendant or otherwise act to the detriment of the bona fide business of the First Defendant or the goodwill of the First Defendant or the mobile furniture repair system. (d) attempting to procure for themselves or any other person or entity any franchisee of the mobile furniture repair system or any bona fide business of the First Defendant. 3. Order that pending the determination of the proceedings or until further order each of the Defendants will maintain true and proper accounts of all monies credits or other benefits received from and records of any negotiations, contracts or other dealings entered with any franchisee or prospective franchisee of the mobile furniture repair system. 4. The Court notes these orders are not intended to prevent: (a) any of the plaintiffs from continuing to conduct their business as mobile furniture repairers using the mobile furniture repair system; (b) the defendants from continuing to conduct the mobile furniture repair system franchising business of the First Defendant; (c) any party from procuring or attempting to procure such evidence as may be necessary for the bona fide prosecution or defence of these proceedings. 2 By notice of motion filed on 16 April 1999, the plaintiffs seek orders that the second defendant be found guilty of contempt for breach of the interlocutory orders and that he be punished for such contempt. 3 The conduct of the whole action has unfortunately proceeded at a leisurely pace. It has been the subject of twenty five or more mentions in court, usually in the Registrar's list, it seems with not a great deal of progress being made. Some of these appearances were relevant to the contempt proceedings, but most to the action, which could have been disposed of a long time go. The first defendant is now in liquidation and most of the relief sought by the plaintiffs will not be available whatever the result. 4 To complicate matters, the applicant's statement of charge alleges breaches in a sequence which differs from the order of restraints in the interlocutory injunction restraining orders. Nevertheless I will set out the charges proceeded with which are in paragraph 3 of the statement of charge. A charge in paragraph 4 of the statement of charge was not pursued. 3. In breach of the said orders: (a) the Second Defendant has attempted to procure for himself or another entity, being a company known as Surface Master Pty Limited, of which he was until 4 December, 1998 the sole director and shareholder, a franchisee of the mobile furniture repair system and/or bona fide business of the First Defendant. PARTICULARS OF CHARGE (i) On or about 1 June, 1998 he caused to be incorporated a company by the name of Surface Master Pty Limited for the purpose of procuring to it franchisees of the mobile furniture business and/or bona fide business of the First Defendant. (ii) In or about November, 1998 he procured the execution of a franchise agreement for a mobile furniture repair system by Ian McRae as franchisee and Surface Master Pty Limited as franchisor. (iii) In about November, 1998 he instructed an employee of the First Defendant, Barry Eddington, to refer all enquiries by prospective franchisees to the First Defendant to Surface Master Pty Limited. (iv) in June, 1998 he commissioned from Speedwell Media an internet site advertising a mobile furniture repair system in the name of Surface Master Pty Limited. (v) about June, 1998 he caused advertisements to be placed in the Yellow Pages for Surface Master Pty Limited. (vi) from June, 1998 he permitted Surface Master Pty Limited and its employee, Gerry Mitchell, to use the office space of the First Defendant. (b) the Second Defendant did induce or attempt to induce a franchisee of the mobile furniture repair system to breach his contractual arrangement with the First Defendant or otherwise to act to the detriment of the bona fide business of the First Defendant or the goodwill of the First Defendant or the mobile furniture system. PARTICULARS OF CHARGE (i) In or about December, 1998 he instructed an employee of the First Defendant, Barry Eddington, to tell a franchisee of the First Defendant, Dennis Roderick, to sign a new agreement with Surface Master Pty Limited in place of his agreement with the First Defendant. (c) the Second Defendant did offer to disclose the confidential information of the First Defendant concerning the mobile furniture repair system to a person for the purpose of procuring the said business for himself and another entity. PARTICULARS OF CHARGE (i) in June 1998 he caused the First Defendant to commission from Speedwell Media an internet site advertising a mobile furniture repair system in the name of Surface Master Pty Limited. (ii) about June 1998 he caused an advertisement to be placed in the Yellow Pages for Surface Master Pty Limited. (iii) in about November, 1998 he offered to provide Ian McRae and Dennis Roderick with the confidential information of the First Defendant as to the mobile furniture repair system. (d) the Second Defendant did disclose the confidential information of the First Defendant concerning the mobile furniture repair system to a person for a purpose not authorised by the orders. PARTICULARS OF CHARGE (i) in about November, 1998 he did provide Ian McRae and Dennis Roderick with confidential information of the First Defendant as to the mobile furniture repair system for the purpose of procuring the said business for himself and/or Surface Master Pty Limited. (e) the Second Defendant did spend, disburse or deal with monies received from the First Defendant, not being for wages, and/or caused the First Defendant to spend, disburse or deal with monies received by way of franchise fees or tuition fees or the price of goods sold in respect of the mobile furniture repair franchising business of the First Defendant, otherwise than in the ordinary course of business. PARTICULARS OF CHARGE (i) in late 1997 he purchased airline tickets and accommodation for himself and his wife, Elizabeth, for a holiday in Bali with money of the First Defendant or received from the First Defendant. (ii) between June and July, 1998 he paid for tickets, accommodation and ancillary expenses on a trip to Europe for himself, his family and others with monies of the First Defendant or received from the First Defendant. (iii) in June, 1998 he caused the First Defendant to pay Speedwell Media for an internet site advertising a mobile furniture repair system in the name of Surface Master Pty Limited. (iv) about June, 1998 he caused advertisements to be placed in the Yellow Pages for Surface Master Pty Limited. (v) in December, 1998 he paid $650.00 to a chemist through a company Chemplex, to analyse the Plaintiffs' bees wax formula with a view to copying it. (vi) in February, 1998 he paid $5,000.00 of the First Defendants money to an investment syndicate comprising Luke Manicaros, "Rosco", the Second Defendant and another person. (vii) in February, 1998 he caused the First Defendant to pay for acting classes for his son, Kyle Grant. (f) the Second Defendant did cause the First Defendant to deal with assets, not being the assets mentioned in clause 1(a)(i) of the said orders. PARTICULARS OF CHARGE (i) in late 1997 he caused to be transferred to his wife, Elizabeth, an automobile, being a 1992 Range Rover SE Vogue, which was owned by the First Defendant. (ii) on or about 4 December, 1998 he purported to transfer to Gerard Thomas Michael Mitchell all his interest in Surface Master Pty Limited, which interest was held by him by way of a constructive or resulting trust for the First Defendant. (iii) Between June and December, 1998 he transferred to Surface Master Pty Limited a spray booth, a four stage turbine spray unit, an extractor unit, benches and shelves. (g) the Second Defendant did cause the First Defendant to distribute funds or property for the benefit of the Second Defendant, in excess of the amount of $662.00 per week. PARTICULARS OF CHARGE (i) He paid his wife, Elizabeth Grant, $70,000.00 per annum, such monies being paid for his benefit. 5 I propose to deal with each charge in order, discussing the evidence relevant to it. There is a great paucity of relevant evidence. Charge (a) - orders 2(d) 6 Surface Master Pty Limited was incorporated in June 1998. There is a contest as to whether or not its business overlapped with that of Furniture Wizard. Mr Grant contends that the business of Furniture Wizard was restricted to repairs of wooden furniture or certainly that any venture in which the plaintiffs had part was restricted to repairs of wooden furniture, whereas the plaintiffs' claim that it extended to at least all types of furniture including hard ceramic type surfaces and vinyl and leather surfaces and perhaps to repairs of equipment such as kitchen equipment. Certainly Furniture Wizard had sold one franchise for leather and vinyl repairs for which the plaintiffs obtained no benefit, but they knew of this and although Mr Bray protested he did not appear to pursue it in any way. The promotional material used for Furniture Wizard makes it clear that the training of franchisees related to work on furniture for the most part and for the most part on wooden furniture but that fabric cleaning and protection was also covered. The franchise documents for Furniture Wizard referred to repairs to furniture and associated surfaces. The Surface Master information pack lists services and repairs which appear to relate to Laminex, Formica, ceramics, marble, leather and vinyl surfaces. What is claimed by the complainants is that the business of Furniture Wizard included all such work and that therefore in forming Surface Master and attempting to get work for Surface Master, Mr Grant has interfered and attempted to attract to Surface Master business of Furniture Wizard within the meaning of the order. It is argued it would have been apparent to the parties restrained by this order that business included repairs to all types of furniture. 7 It is, I think, unfortunate that the motion for contempt was brought on for hearing prior to determination of the action as this can be undesirable when questions of credit are involved. However, it was the plaintiffs who insisted on embarking on the hearing of the contempt proceedings, although their counsel later suggested that there should be an adjournment until the substantive action was concluded. It was far too late by then and as I probably should have adjourned the proceedings myself at the start, it is best to say nothing further on this procedural matter. 8 I have come to the conclusion that the terms of the order so far as it refers to the business of Furniture Wizard, should not be construed so as to extend to the franchising of persons to conduct repair work to articles other than furniture, and in view of the conflicting evidence about vinyl coverings I am not prepared to find as a matter of construction of the order that the business extended to such coverings because the plaintiffs were certainly aware that Mr Grant did not accept that to be the position and it was not an issue that clearly arose in the proceedings. If that is the position then the particulars of charge (i) is not made out. As to (ii), McRae had a franchise with Furniture Wizard which he cancelled. He did sign a franchise agreement with Surface Master and it is clear this was procured by Grant. However, it is not established it was a mobile furniture repair franchise, which I consider would be necessary in order to find breach. On the evidence this Surface Master franchise and one signed with Mr MacKenzie were the only Surface Master franchises signed while Grant controlled Surface Master. So far as the allegations in (iii) are concerned, I find them true. I accept Eddington on this. However, there is no evidence of any action by Barry Eddington to divert business to Surface Master Pty Limited or that there were any inquiries by prospective franchisees. Mr Grant maintained that he was obliged to inform potential franchisees of Furniture Wizard about this present litigation and he instructed Eddington to do so. There is a direct conflict in the evidence of the two on this, but even without supporting evidence I have no difficulty in accepting Eddington and disbelieving Grant. Particulars (iv), (v) and (vi) do not give rise to any breach. It is correct that there was an internet advertising site for Surface Master Pty Limited, but there was also one for Furniture Wizard Pty Limited with an appropriate break up of business and under appropriate headings. The same applies to the advertisements in the Yellow Pages and so far as (vi) is concerned the evidence is that Surface Master Pty Limited paid for the office space which it used and although it was put that leasing of this office space was not in the normal course of business I can see no basis for that submission. Charge (b) - Order 2(g) 9 The allegation is that Grant instructed Eddington to tell a franchisee of Furniture Wizard, one Dennis Roderick, to sign a new agreement with Surface Master. the only evidence to support this appears in paragraph 26 of Eddington affidavit, which is as follows: 26. In the Montague Road office Grant also stated to me: "I intend to do the same for all current Furniture Wizard Franchisees including Dennis Roderick". Dennis Roderick of Hillgate Hill, Queensland had previously signed Furniture Wizard documentation, but Grant told me to say to all Furniture Wizard franchisees: "There are to be no more Furniture Wizard franchises because they had reached saturation point, and that we have another company which does mobile repairs, and which would be bigger than Ben Hur and will actually generate more income."