By James Tobin, Partner.

Mills Oakley was successful in the Federal Court earlier this week, where it was found that our client’s contractual relations with its franchisees had been unlawfully interfered with by a competing franchise business.

The matter involved tobacco product franchisor TSG Franchise Management Pty Ltd (TSG) and market competitor Cigarette & Gift Warehouse (Franchising) Pty Ltd, who trade under the business name Freechoice (Freechoice).

Facts

TSG initiated proceedings against Freechoice after numerous approaches were made by Freechoice to TSG-franchised stores, seeking to convince them to end their relationship with TSG and move across to Freechoice. It was alleged that by doing so while the franchisees were under contract with TSG, Freechoice was unlawfully targeting TSG’s franchisees by offering them financial incentives to terminate their TSG contracts and enter into franchise agreements with Freechoice.

In particular, the allegations were that Freechoice had engaged in:

1. the tort of procuring or inducing a breach of contract by inducing TSG franchisees to terminate their franchise agreements with TSG before the fixed term contracts had expired; and
2. misleading or deceptive conduct by making (3) false representations to TSG’s franchisees to induce them into entering into new franchise agreements with Freechoice.

The Court’s decision

The Court held that Freechoice had intended to procure a TSG franchisee to terminate her contracts with TSG in respect of two retail stores and commence with Freechoice, despite her ongoing contractual arrangements with TSG. TSG was granted a declaration to this effect and a permanent injunction was granted, prohibiting Freechoice from seeling to induce further TSG franchisees to breach their TSG franchise agreements.

The Court also held that that Freechoice had made a number of misleading or deceptive statements to TSG franchisees in seeking to procure them, and made declarations to this effect.

The matter was listed for a further hearing on a later date to determine the final nature of relief granted and issues relating to the awarding of costs.