New South Wales Supreme Court CITATION : Bircan v Portakaldali [2008] NSWSC 791 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 29 July 2008 JUDGMENT DATE : 1 August 2008 JURISDICTION : Equity JUDGMENT OF : Austin J EX TEMPORE JUDGMENT DATE : 29 July 2008 DECISION : Injunction refused. CATCHWORDS : INJUNCTIONS - management agreement for kebab shop - defendant purports to terminate for plaintiff's failure to operate business in proper and pleasing condition, in alleged breach of agreement - whether injunction to restrain acting on notice of termination would force parties to continue in personal relationship - whether it would involve continuing superintendence of the performance of the contract - relevance of lack of mutuality Curro v Beyond Productions Pty Limited (1993) 30 NSWLR 337 Doherty v Allman (1878) 3 App Cas 709 CASES CITED : Evans Marshall & Co v Bertola SA (No.1) [1973] WLR 349 J C Williamson Limited v Lukey & Mulholland (1931) 45 CLR 282 Sanderson Motors Sales Pty Limited v Yorkstar Motors [1983] 1 NSWLR 513 PARTIES : Kenan Bircan (Plaintiff) Birol Portakaldali (Defendant) FILE NUMBER(S) : SC 3903/08 COUNSEL : R O'Gorman-Hughes (Plaintiff) S O'Brien (Defendant) SOLICITORS : Falvey Associates Lawyers (Plaintiff) Donovan Oates Hannaford (Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY LIST AUSTIN J TUESDAY 29 JULY 2008 3903/08 KENAN BIRCAN V BIROL PORTAKALDALI JUDGMENT (Ex tempore; revised 29 July 2008) 1 HIS HONOUR: By an amended summons filed in court today, the plaintiff, Mr Bircan, seeks an interlocutory injunction restraining the defendant from acting on or implementing a purported notice of termination of a management agreement between the parties served on the plaintiff by the defendant on 16 July 2008. The management agreement was entered into on 18 January 2008. It relates to a business called Ottoman's Kebabs Port Macquarie, which is in a shopping centre at Port Macquarie. 2 The agreement, which is in evidence, contained the following pertinent provisions: (i) at clause 1(a) the defendant appointed the plaintiff as manager of the business for a term of two years, nineteen months and sixteen days, commencing on 1 February 2008 and terminating on 16 November 2010; (ii) at clause 1(c) the agreement provided that the defendant was entitled to receive from the plaintiff $750 per week for the term of the agreement as a management fee; (iii) at clause 1(d) the plaintiff was required to use best and genuine endeavours in the management of the business and to at all times operate and present the business in a proper and pleasing condition, bearing in mind the standards and public expectations with respect to such a business; (iv) at clause 1(e) the plaintiff was responsible for all aspects of the day-to-day operation of the business, including management functions; (v) at clause 1(f) the plaintiff was entitled to receive from the business a manager's salary calculated as equivalent to the net profit of the business. 3 Clause 2 of the agreement provided that the plaintiff agrees to ensure full and absolute compliance at all times with the provisions of the lease of the business in the shop premises where it is located. The defendant became lessee on 3 April 2003. Clause 4 of the agreement provided that in the event of any default by the plaintiff, then the defendant could, on the provision of one week's prior written notice to the plaintiff, terminate the agreement and re-enter and take possession of the business. 4 The plaintiff has given evidence that he made cash contributions to the business when he took over as manager. He mentioned various sums amounting to about $10,000. He claims that during his operation of the business he improved the cleanliness of the shop and quality of the food and range of products. 5 On 16 July the defendant, without any prior notice, served on the plaintiff a notice of termination of the management agreement, expressly relying on clause 1(d) and requiring the plaintiff to hand back the business on 23 July. The notice of termination was accompanied by a covering letter from the defendant's lawyers, enclosing copies of various letters received by the defendant and alleging that the plaintiff's conduct constituted default. The letters annexed to that letter complain about various aspects of the business, although there is some scope of debate as to the extent to which the letters relate to clause 1(d). In addition to complaints about the cleanliness of the premises and the spilling of cooking fat on the floor, there are also complaints about such matters as abusive language and the quality of the food. Nevertheless, it appears from those letters that there was a substantial degree of dissatisfaction with the conduct of the business, in one way or another, on the part of the complainants. 6 On 15 July 2008 the manager of the shopping centre wrote to the defendant referring to complaints about the quality of the products sold in the shop and encouraged him to investigate the claims and, if necessary, to make appropriate changes to ensure the high quality of food and service. In a separate letter of the same date, the shopping centre manager said to the defendant that if he believed taking back the management of the store would rectify what was identified as a 19% downturn in takings for the shop, then the shopping centre manager would give full support to such action. 7 There was further and in some respects lengthy correspondence between the parties but on 23 July, as foreshadowed in the notice of termination, the defendant purported to take repossession of the shop premises and the business. The plaintiff has been out of possession since that time. 8 The plaintiff has given evidence that when he entered into the management agreement, he moved to Port Macquarie and entered into a residential lease for a period of a year, and he says that he would not be living in Port Macquarie but for the management agreement. He has also given evidence that when the defendant took possession of the shop he took possession of various items of property and cash belonging to the plaintiff. The plaintiff says he is dependent upon the income from the business as his sole source of income and that if he were unable to obtain the income from the business he would, he says, suffer undue hardship. 9 The defendant has provided some affidavit evidence about the condition of the premises when he took possession on 23 July. His affidavit attaches colour photographs which show cooking areas that are filthy and cockroach infested. He says that he took these photographs when he re-entered possession and that they are photographs of the premises in which the business is conducted. 10 The plaintiff points to a Port Macquarie Hastings Council food inspection report in April 2008 which said, "Cleanliness now excellent - job well done!" but, on the other hand, there is, as I have said, evidence of complaints apparently more recently, and photographic evidence which would hardly fall within that description. 11 It is unnecessary for me to make findings about the condition of the premises and whether there was a breach of clause 1(d) or any other provision of the agreement. The issue, for present purposes, is not whether the plaintiff has a cause of action against the defendant but whether the court should intervene by interlocutory injunction. The injunction would have the effect of preventing the defendant from acting upon the notice of termination and therefore by implication it would force the defendant to allow the plaintiff to resume the conduct of the business. One can anticipate, in the light of the evidence I have described, that if that order were made there would almost certainly be further disputes, at least with respect to clause 1(d) of the agreement, and in particular, the condition of the premises – and also disputes in respect of other aspects of the agreement, including the obligation of the plaintiff under clause 2 to exercise his best endeavours to secure compliance with the requirements of the lease (in particular, with respect to the turnover of the business). There is, as I have said, some evidence that turnover is declining. 12 In summary, if the plaintiff were successful today, the outcome would almost certainly be further and continuing disputes about the proper performance of the management of the business. It seems to me, as I remarked in argument, that this is almost a classic set of facts to which the well trodden ground of interlocutory injunction law enunciated in J C Williamson Limited v Lukey & Mulholland (1931) 45 CLR 282 applies. In that case, Dixon J said at 297-8: "Specific performance is inapplicable when the continued supervision of the Court is necessary in order to ensure the fulfilment of the contract. It is not a form of relief which can be granted if the contract involves the performance by one party of services to the other or requires their continual co-operation." 13 There are two related points enunciated there. One is the court's reluctance to make an order enforcing the contract of personal service, and the other is the court's reluctance to make an order which will lead to some form of continual supervision of the performance of the ongoing contract between the parties. 14 In the present case, the relationship between the parties is not one of master and servant but it is, nonetheless, a relationship which requires the plaintiff to perform personal services in the conduct of the business, in the form of management services, for the benefit of the defendant and for reward made available by the defendant to the plaintiff. 15 The principle in Williamson v Lukey has been taken up in many other cases. There is a further useful statement of the principle by the Court of Appeal of New South Wales in Curro v Beyond Productions Pty Limited (1993) 30 NSWLR 337. The court, comprising Meagher JA, Handley JA and Cripps JA, referred to the well-known observations of Lord Cairns LC in Doherty v Allman (1878) 3 App Cas 709 at 720. The Court of Appeal observed that: "Under the doctrine enunciated by Lord Cairns LC in Doherty v Allman (1878) 3 App Cas 709 at 720, a Court of Equity would always grant an injunction to enforce a negative contractual promise made for consideration; Secondly that, by way of exception a negative promise would not be enforced by injunction if that would have the practical effect of compelling specific performance of a contract of personal service or if it would force the defendant either to perform that contract or remain idle (with overtones of destitution); and thirdly, by way of exception to the exceptions, in the case of special services a promise not to take employment with a competitor, would, under the doctrine of Lumley v Wagner , be restrained." 16 The Court observed that the first of these three propositions is no longer applied in categorical terms and that the second proposition has occasionally been departed from, citing in particular Evans Marshall & Co v Bertola SA (No.1) [1973] WLR 349 at 379-380. Nevertheless, the second proposition has always been regarded as generally sound. This is not a case where the third proposition has any application, for the effect of the orders sought by the plaintiff is to compel the defendant to allow the plaintiff to continue as manager of the shop business, not confined to special services. 17 As counsel for the plaintiff pointed out, there are discretionary considerations to be taken into account where interlocutory relief is sought under the second of these principles. He referred to Sanderson Motors Sales Pty Limited v Yorkstar Motors [1983] 1 NSWLR 513, a decision of Yeldham J. It seems to me, however, that the Sanderson Motors case is quite different from the facts of the present case. Here the business involved a close relationship between the parties, even though the obligations of the defendant are essentially money-related obligations. 18 In this case the plaintiff's obligations include detailed management of the business on a day-to-day basis, so as to meet the turnover requirement of the lease and to manage the business in such a way as to ensure that clause 1(d) is at all times complied with. Just what is involved in conducting the business in a "proper and pleasing condition, bearing in mind the standard and public expectation with respect to such a business" may be a matter open for speculation. 19 Compliance by the plaintiff with clause 1(d) would, as I said, be a matter of detailed management of the business on a daily basis. From the defendant's point of view there would have to be some regular and quite detailed and potentially intrusive regime of inspection in order to provide satisfaction that this clause was being properly adhered to. That, it seems to me, falls within the fundamental principle of the second proposition in the cases to which I have referred. 20 The aspects of continual supervision and personal service arise from the obligations of the plaintiff rather than the obligations of the defendant, but because the order sought would be tantamount to an order for specific performance (in that it would force the parties to continue with their existing management relationship), the order would be lacking in mutuality. Since the court ought not make an order enforcing the agreement against the plaintiff, nor should it make an order enforcing the agreement against the defendant. 21 The plaintiff submitted that damages would not be an adequate remedy in the present case because of various matters. First, he said damages would be difficult to estimate, particularly having regard to the fact that the business was in a start-up phase. It seems to me that problems of assessment of that kind are part of the routine work of the courts in damages cases. Assessment of damages may be difficult, but not impossible. 22 Second, he said that there would be a difficulty in assessing compensation for loss of goodwill and reputation. He referred to the Evans Marshall case, at [1973] 1 WLR 380. Again, I am not convinced that there would be any overwhelming difficulty in assessing damages in the present case, if that is a head of damage that the plaintiff is able to prove. The plaintiff has been a manager under the agreement for only about five months. 23 Third, reference was made to the fact that the plaintiff moved to Port Macquarie and entered into a residential lease, and that damages for losses arising if he has to break his lease in consequence of losing his position as manager may be too remote. But if they are too remote to be recoverable, then I find it difficult to understand why the court should, for that reason, intervene by injunction. 24 In conclusion, I am not persuaded that it is unduly harsh on the plaintiff to leave him to his remedy in damages if he can prove a breach of contract in the proceedings in due course. 25 Reference was also made to some matters relating to the balance of convenience. First, it was said to be a hardship on the plaintiff not to grant injunctive relief because the business was the sole source of income for the plaintiff and he would have difficulty in funding legal proceedings for damages. It is not entirely clear from the evidence whether the business is his sole source of income, because he does refer to another business at Tamworth. But assuming it is, it seems to me this is not sufficient to establish the ground of hardship, given the availability of a remedy in damages, and in any event hardship is not itself a ground for the court intervening by way of injunction. 26 Second, the plaintiff submitted that the granting of an injunction would be the best way to preserve the status quo. That is not, in my view, the overriding consideration in this case, having regard to the other matters to which I have referred. 27 Third, the plaintiff submitted that this is not a relationship of master and servant, and that the defendant is not required under the agreement to be involved in the day-to-day supervision of the business. Those propositions are true but nevertheless, in my view, the order sought would have the effect of forcing the defendant to continue in a personal relationship with the plaintiff, and involving the defendant in some form of continuing superintendence of the plaintiff's conduct of the business. If an injunction were in place, then that superintendence would inevitably involve applications to the court, attracting to the principles that I have described. 28 In summary, my view is that the application for interlocutory injunctive relief should be dismissed. 29 The orders I make are as follows: 1. Application for orders in terms of paras 5, 6 and 7 of the amended summons is dismissed. 2. I order that the defendant's costs of the application be the defendant's costs in the proceedings. 3. I stand the proceedings over for directions before the Registrar at 9.15am on Thursday 7 August 2008. ********** 07/08/2008 - The word "defendant" in the first line has been replaced with the word "plaintiff". - Paragraph(s) 17 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.