Archive for the ‘Franchising’ Category

An arbitration clause means arbitrate

Wednesday, July 9th, 2014

The Irelands were Subway franchisees.

Their franchise agreement with Subway included an arbitration clause:

10. DISPUTE RESOLUTION. The parties want to settle all issues quickly, amicably, and in the most cost effective fashion. To accomplish these goals, the parties agree to the following provisions that will apply to resolve any dispute or claim arising out of or relating to this Agreement, or any other Franchise Agreement the parties have with each other (a ‘Dispute’):

c. The parties will arbitrate the Dispute if the mediation clause in Subparagraph 10.a. is not enforceable, or the parties do not settle the Dispute under the informal discussion and mediation procedures above, or the Dispute is one which this Agreement provides will be submitted directly to arbitration, except as provided in this Agreement. The arbitration will be held in accordance with the United Nations Commission on International Trade Regulations and Law (UNCITRAL) Arbitration Rules administered by an arbitration association, such as the American Arbitration Association or the Institute of Arbitrators or Mediators Australia, at a hearing to be held in Queensland. The arbitration will be conducted in English and decided by a single arbitrator unless the law of Australia requires three (3) arbitrators. Any court having jurisdiction may enter judgment on the arbitrator’s award. Except as provided in this Agreement, a party must commence and pursue informal discussions, mediation, and arbitration to resolve Disputes before commencing legal action.

The Irelands, however, commenced proceedings against Subway in the Victorian Civil and Administrative Tribunal (VCAT) alleging breaches of the franchise agreement, negligence and misleading or deceptive conduct.

Subway applied to VCAT to have the proceeding referred to arbitration pursuant to clause 10. VCAT refused. The Supreme Court dismissed Subway’s appeal. The Court of Appeal, Maxwell P and Beach JA, Kyrou J dissenting, have allowed Subway’s further appeal and sent the matter to arbitration.

Section 8 of the Commercial Arbitration Act 2011 (Vic) provides:

8            Arbitration agreement and substantive claim before court (cf Model Law Art 8)

(1)  A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when submitting the party’s first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

As the heading indicates, this provision is part of a national scheme to implement the UNCITRAL Model Law on commercial arbitration.

The “problem” was that reference to “court”. While it was not a defined term in the Act, there are any number of court rulings declaring in no uncertain terms that VCAT is not a court – it is an administrative tribunal.

Maxwell P and Beach JA standing back and looking at the big (international) picture, however, held that for the purposes of the Act – a law designed to promote commercial arbitration as a dispute resolution mechanism – VCAT qualifies as a “court”. Maxwell P and Beach JA took somewhat different routes to reach that conclusion but it is perhaps best encapsulated in Maxwell P’s observation:

The clear policy of the Act (and of the model law which it enacts) is that, when parties have agreed to have disputes between them determined by private arbitration, neither party is at liberty to litigate the matter in dispute through the adjudicative mechanisms of the State. For this statutory purpose, in this statutory context, the Tribunal is indistinguishable from those other adjudicative bodies of the State which bear the title ‘court’.

I don’t know if other States or Territories operate under regimes similar to VCAT in, er, parallel to the court system but, as Croft J noted at first instance, Parliament set up VCAT to provide a speedy and inexpensive, low cost, accessible, efficient means of dispute resolution and, apparently, it handles the vast bulk of legal disputes here. But not disputes between franchisors and franchisees (where there is an arbitration clause).

Subway Systems Australia Pty Ltd v Ireland [2014] VSCA 142

ACTA coming a little bit more out of the shadows

Thursday, November 12th, 2009

Michael Geist has a link to the leaked EU comments on the chapter for third party liability on the internet – being drafted by the USA.

The Guardian has weighed into the debate.

Kim Weatherall has emerged from her self-imposed seclusion to comment here, here and here.

DFAT’s must recent summary and overview of key elements. Anondyne USTR statement.

Damages for breach of franchise agreement

Friday, March 20th, 2009

Howard’s Storage World (HSW) granted Haviv a franchise to operate an Howard’s Storage World retail outlet at Burwood in Sydney. The terms of the franchise included a grant of an exclusive territory for a radius of 5km.

Subsequently, HSW granted someone else an franchise to operate an Howard’s Storage World franchise at a new shopping centre at Rhodes, approximately 4,840m from Haviv’s Burwood store.

The breach of the contractual exclusivity promise was found, but claims for breach of TPA by misleading or deceptive conduct were rejected.

Jagot J explores the basis on which the damages payable to Haviv should be calculated in Haviv Holdings Pty Limited v Howards Storage World Pty Ltd [2009] FCA 242.

Her Honour considered the nature of the grant of exclusivity – it did not extend as Haviv contended, to a right to be offered the franchise for Rhodes. Nor did it preclude the opening of another store with a territory radius of 5km which overlapped with the territory within 5km of the Burwood store.

On the calculation of damages, her Honour considered the following issues:

  1. Was Haviv entitled to claim damages on the scenario that, if the third party had not been granted the Rhodes franchise, Haviv would have been – No
  2. Did Haviv prove that the breach of the exclusivity promise caused it loss – Yes
  3. How to assess that damage on the basis of loss of net profits
  4. The extent to which damages should be calculated for the period after Haviv closed the Burwood store in 2007 – damages would be payable until the expiry of the last option for renewal period – 2022
  5. The date the loss should be assessed at
  6. What discount rate should be adopted and how should it be applied
  7. What gross profit percentage should be used
  8. How should fixed costs including rent and refurbishment costs be treated?

At [110] her Honour summarised her findings:

 (1) Mr Halligan’s “alternative C” period of assessment should be used (that is, with damages assessed until the end of the option period, being 17 July 2022).

(2) The benchmark group should comprise Hornsby, East Gardens, Macquarie and Bondi Junction stores.

(3) The discount rates applied should be 28% for losses to the date of judgment and 30% for losses thereafter.

(4) The rent increase should reflect the true position where known (that is, $138,490.56 per annum for seven months from 1 September 2007 and an annual rental of $187,000 from 1 April 2008 to the end of the current lease on 31 March 2013 with appropriate adjustments thereafter from that base).

(5) The figure of 50.3% should be used as the gross profit percentage for the 2007 financial year onwards.

(6) The refurbishment costs should be $40,000 in July 2007, $155,000 in July 2012 and $40,000 in July 2017 and subject to mid-period discounting. 

The parties were sent away to have their experts recalculate their reports on the basis of her Honour’s findings.