IN THE COUNTY COURT OF VICTORIA
AT Melbourne
COMMERCIAL DIVISION	 Revised
Not Restricted
Suitable for Publication	
Case No. CI-18-04832

Megasealed Bathrooms & Balconies Franchise Aust Pty Ltd and Megasealed Bathrooms Aust. Pty Ltd	Plaintiffs	
		
v		
		
Bendan Bathrooms Pty Ltd and Benjamin Lucas Price	Defendants	

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JUDGE:	Lewitan 	
WHERE HELD:	Melbourne	
DATE OF HEARING:	8 May 2019	
DATE OF RULING:	20 June 2019	
CASE MAY BE CITED AS:	Megasealed Bathrooms & Balconies Francise Aust Pty Ltd and Megasealed Bathrooms Aust. Pty Ltd v Bendan Bathrooms Pty Ltd and Benjamin Lucas Price	
MEDIUM NEUTRAL CITATION:	[2019] VCC 864		

REASONS FOR RULING
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Subject:		Summons for judgment in default of defence

Cases Cited:	Noden v Mason [1926] VLR 41; Tao Yang v Finder Earth Pty Ltd and Ximei Luo [2019] VSCA 22.

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APPEARANCES:
	Counsel	Solicitors	
For the Plaintiff	Mr J  A Silver	MCW Lawyers Pty Ltd	
			
For the Defendant	No appearance by defendant		

HER HONOUR:

1	Megasealed Bathrooms & Balconies Franchise Aust Pty Ltd (Megasealed Franchise) is a bathroom and balcony repair and maintenance company operating across Australia, and holds tiling and water proofing trade licenses in each state and territory of Australia.  Megasealed Bathrooms Aust. Pty Ltd (Megasealed Bathrooms) has granted to Megasealed Franchise a ‘commercialised licence’ in respect of its trade marks, products and techniques (the licence).  The license permits Megasealed Franchise to grant franchise rights to franchisees.
2	Some franchisees hold a building trades licence in tiling and/or water proofing.  Where a franchisee does not hold the required licence, the work is subcontracted to licensed tradesmen or performed under the supervision of Megasealed Bathrooms.  
3	On 10 February 2017 Megasealed Franchise and Megasealed Bathrooms (the plaintiffs) entered into a franchise agreement (franchise agreement) with Bendan Bathrooms Pty Limited (Bendan Bathrooms) as franchisee and Benjamin Lucas Price (Price) as guarantor and nominated representative. 
4	On 29 October 2018 the plaintiffs issued a writ claiming relief against Bendan Bathrooms and Price (the defendants).  By summons dated 14 March 2019 the plaintiffs seek judgment in default of defence.  
5	Rule 21.02 of the County Court Civil Procedure Rules 2008 (the County Court Rules) provides that a plaintiff may enter judgment against a defendant where the defendant does not serve a defence within the time limited by the County Court Rules.  
6	The plaintiffs now seek the following orders:
1.	A declaration that the plaintiffs terminated the Franchise Agreement on 10 September 2018.
2.	The defendants must pay the plaintiffs the sum of $165,672.01 by      2019.
3.	From 8 May 2019 to 7 May 2020 / 7 December 2019/1 July 2019 (cross out the inapplicable), the defendants must not, directly or indirectly, be involved in the provision or supply of services in competition with the plaintiffs or their franchisees, as defined in the Franchise Agreement, in the territories described in the Franchise Agreement as Wyndham, Hobson’s Bay & Footscray, Airport, and Brimbank.
4.	The defendants must forthwith desist from making any representation that they or anyone they are associated with are associated with the plaintiffs.
5.	The defendants must forthwith destroy all physical copies and permanently delete all electronic copies of the Megasealed Database and the Megasealed Operations and Procedures Manual that are in the possession or control of the defendants.
6.	The defendants must within 7 days, advise the plaintiffs’ solicitor in writing, the names and contact details of each person to whom any part of the contents of the Megasealed Database or the Megasealed Operations and Procedures Manual has been disclosed by the defendants since 10 September 2018.
7.	The defendants pay the plaintiffs’ costs taxed on a standard basis.
A.	A declaration that the plaintiffs terminated the Franchise Agreement on 10 September 2018.
7	Megasealed Franchise and Megasealed Bathrooms issued a writ on 29 October 2018. In paragraph 21 of the statement of claim endorsed on the writ (the statement of claim) the plaintiffs allege:
21.	It was a term of the Franchise Agreement that where the Franchisee has breached a term of the Franchise Agreement, the Franchisor may terminate after serving written notice that:
	(a)	identifies the breach;
(b)	states the fact that the Franchisor proposes to terminate if the breach is not remedied within a reasonable period;
(c)	states the action required by the Franchisee to rectify the breach; and 
(d)	states what the ‘reasonable period’ is,
where the Franchisee does not remedy the breach. 
	PARTICULARS
The term is in writing and contained in sub-clause 31.2 of the Franchise Agreement, and reflects section 27 of the Competition and Consumer (Industry Codes – Franchising) Regulation 2014.
8	Part B of the statement of claim alleges:
B.	Termination of Franchise Agreement
39.	On or about 23 April 2018, the Franchisor’s solicitor served a written Notice to Remedy (‘First Notice’) on the defendants requiring them to pay the Franchisor’s costs of preparing the Franchise Agreement, plus interest, by 5.00 pm on 14 May 2018.
				PARTICULARS
			A copy can be provided on request.
40.	Despite the First Notice, the defendants failed to remedy the breaches in part, or at all.
41.	Further, on or about 22 August 2018, the Franchisor’s solicitor served a further written Notice to Remedy (‘Second Notice’) on the defendants requiring payment of, inter alia, the aforementioned royalty, marketing and default fees (including the subject of the First Notice), by 5 pm on 6 September 2018.
				PARTICULARS
			A copy can be provided on request.
42.	Despite the Second Notice, the defendants failed to remedy the breaches in part, or at all.
43.	On or about 10 September 2018, in reliance upon the Second Notice and the failure to remedy the breaches identified therein, the Franchisor issued a Notice of Termination of the Franchise Agreement.
			PARTICULARS
	A copy can be provided on request.
44.	In the premise, the Franchise Agreement ended on 10 September 2018.
45.	Further and in the alternative, if the Second Notice was invalid, the Notice of Termination picked up upon and is effective by virtue of the First Notice.
9	The Notice of Termination provision contained in clause 31.2 of the Franchise Agreement provides:
31.2	The franchisor may terminate this agreement where:
31.2.1	the franchisee has breached a provision of this agreement; 
31.2.2 the franchisor has given the franchisee written notice of:
		31.2.2.1	the breach;
31.2.2.2	the fact that the franchisor proposes to terminate the agreement as a result of the breach unless it is rectified within a Reasonable Period; (emphasis added) 
10	The Statement of Claim does not allege that the franchisor gave to the franchisee written notice of the fact that the franchisor proposed to terminate the agreement as a result of the breaches alleged in either the First Notice or the Second Notice unless it was rectified within a reasonable period. 
11	Order 21.04 of the County Court Rules relevantly provides:
(1)	Where a claim is made other than for the recovery of a debt, damages or any property, whether or not a claim for such recovery is also made in the proceeding, and that plaintiff is entitled to judgment on that claim against any defendant in accordance with Rule 21.01 or 21.02, the Court may give judgment for the plaintiff upon the statement of claim. (emphasis added)
(2) An application for judgment under paragraph (1) may be made without notice to the defendant.
12	The statement of claim must allege the facts which in law entitle plaintiffs to judgment for the relief claimed.  The application for judgment may be refused if all material facts are not alleged. In determining what relief or remedy to give, the court will confine itself to the facts alleged in the statement of claim.   Courts will not look at affidavit or other material  which establish additional facts. 
13	As the plaintiffs did not plead the material fact that it gave written notice to Bendan Bathrooms that the franchisor proposed to terminate the franchise agreement as a result of the breaches, the plaintiff is not entitled to a declaration that the plaintiffs terminated the franchise agreement on 10 September 2018.

B.	An order that the defendants must pay the plaintiffs the sum of $165,672.
14	Rule 21.03 of the County Court Rules relevantly provides:
(1)	Where a claim is made for the recovery of a debt, damages or any property, whether or not another claim is also made in the proceeding, and the plaintiff is entitled to judgment on that claim against any defendant in accordance with Rule … 21.02 the plaintiff may –
(a)	for the recovery of a debt, enter final judgment against that defendant for an amount not exceeding the amount claimed in the writ or, if the plaintiff has served a statement of claim, the amount claimed in the statement of claim, together with interest from the commencement of the proceeding to the date of the judgment – 
	(i)	on any debt which carries interest, at the rate it carries;
(ii)	on any other debt, at the rates payable on judgment debts during that time.
15	  The statement of claim alleges:
Loss and Damage
57.	The defendants’ conduct has caused and is continuing to cause the plaintiffs loss and damage.
PARTICULARS OF LOSS AND DAMAGE
	The quantifiable losses of plaintiffs are as follows:
•	Costs of preparing the franchise agreement of $2,500 (ex GST)
•	Costs of preparing the variation of $1,750.00 (ex GST)
•	Royalties of $44,229.20
•	Marketing fees of $34,071.84
•	Stock of $1,638.95
•	Costs of the default notices of $2,930.00 (ex GST)
•	Interest under the Loan Agreement of $8,375.38
•	The balance of the Loan Agreement of $68,676.64
•	The SIM card fees of $1,430.00
58.	In the premise, the defendants are indebted to the plaintiffs in the total sum of $165,672.01.
AND THE PLAINTIFF CLAIMS
A.	A declaration that the Franchise Agreement was terminated by the Franchisor on 10 September 2018
B.	An order that the defendants be restrained from operating the Business, as described in subparagraph 6(a) of this Statement of Claim
C	An order that the defendants be restrained from misusing the confidential information of the plaintiffs
D.	An order that the defendants be restrained from making any representation that they are associated with or a subcontractor of the plaintiffs
E.	An order that the defendants shall do all things necessary to disassociate themselves from the plaintiff;
F.	An account of profits;
G.	The sum of $165,672.01.
H.	Alternatively, damages
I.	Interest
J.	Costs
16	Counsel for the plaintiff, Mr Silver, submitted that with the exception of the $1638.95 claimed for stock,   each amount claimed under the heading “Loss and Damage” in paragraph 57 of the statement of claim, has been individually pleaded as a quantifiable loss as a result of the defendants’ conduct.
17	I do not accept the plaintiffs’ submission.  In Tao Yang v Finder Earth Pty Ltd and Ximei Luo (Yang) the Court of Appeal held that the statement of claim as pleaded on behalf of the plaintiff was a claim for the recovery of damages, not a claim for the recovery of a debt.  Similarly in this case it would appear that the plaintiffs’ claim is a claim for loss and damage arising from the defendants’ conduct.
18	As stated by the Court of Appeal in Yang :
6.	As both sides accepted in this Court, r 21.03 defines the conditions respectively applicable to the entry of judgment in the various forms specified.  Its application may involve careful scrutiny of the pleading in order to ascertain the true character of the claim made.
7.	The case is also instructive for those preparing statements of claim.  If for any reason the contingency of judgment in default is to be anticipated, the pleader must take care to ensure that any claim for the recovery of a debt is clearly pleaded as such.  As in every case, care must be taken to ensure that all of the material facts necessary to establish the cause(s) of action are pleaded.
19	In these circumstances the plaintiffs are not entitled to judgment in default for $165,672.01 as set out at paragraph 58 of the statement of claim and referred to in paragraph 2 of the draft minutes of order.

C.	From 8 May 2019 to 7 May 2020/ December 2019/1 July 2019 (cross out the inapplicable) the defendants must not, directly or indirectly, be involved in the provision or supply of services in competition with the plaintiffs or their franchisees, as defined in the Franchise agreement, in the territories described in the Franchise Agreement as Wyndham, Hobson’s Bay & Footscray, Airport, and Brimbank.

20	The plaintiffs allege in paragraph 23 of the statement of claim that:
  It was a term of the Franchise Agreement that upon termination, except with prior consent from the Franchisor, the Franchisee and the Guarantor (and others) shall not be involved in competing services within a restraint territory for a restraint period.
PARTICULARS
The term is in writing and contained in clause 33 of the Franchise Agreement, as informed by Item 21 of the Schedule.
21	Item 21 of the Schedule to the franchise agreement describes the “restraint period” as:
1.	12 Months following termination of this agreement; or if that is unenforceable
2.	6 months following termination of this agreement; or if that is unenforceable
3.	3 Months following termination of this agreement.
22	In obtaining a default judgment under rules of the Court, the judgment must be warranted by the facts alleged in the statement of claim and the claim for relief made in the statement of claim. The plaintiffs cannot obtain judgment or relief other than that which is claimed expressly in the statement of claim.
23	In paragraph B of the statement of claim the plaintiffs claim “an order that the defendants be restrained from operating the Business, as described in subparagraph 6(a) of the statement of claim.”  The statement of claim does not nominate the length of the restraint period sought by the plaintiffs.
24	Accordingly the plaintiffs are not entitled to an order that the defendants be restrained from competing with the plaintiffs for the periods proposed in paragraph C of the draft minutes of order.

D.	The defendants must forthwith desist from making any representation that they or anyone they are associated with are associated with the plaintiffs
25	Clause 32 of the Franchise agreement provides:
32.1	On termination of this agreement the franchisee shall:
32.1.1 cease to operate the franchised business, cease to use     the image, system, marks and intellectual property, and refrain from holding itself out as being in any way associated with the franchisor:  (emphasis added)
26	Although the statement of claim does not refer to  clause 32.1.1 of the franchise agreement, the plaintiffs seek “an order that the defendants be restrained from making any representation that they are associated with or a subcontractor of the plaintiffs” in the prayer for relief.
27	However, as I have previously stated, the plaintiffs are not  entitled to a declaration that the plaintiffs terminated the franchise agreement on 10 September 2018 on this application for judgment in default of defence.

E.	The defendants must forthwith destroy all physical copies and permanently delete all electronic copies of the Megasealed Database and the Megasealed Operations and Procedures Manual that are in the possession or control of the defendants.
28	Part IV of the statement of claim relevantly provides:
IV. Consequences of Termination
22. It was a term of the Franchise Agreement that upon termination, the        Franchisee must:
	…
     (b)	return all property to the Franchisor belonging to the Franchisor, including confidential information.
PARTICULARS
The term is in writing and contained in clause 33 of the Franchise   Agreement, as informed by Item 21 of the Schedule.
29	In paragraph 20 of the statement of claim the plaintiffs claim:
 It was a term of the Franchise Agreement that the Franchisee and the Guarantor must keep all confidential information absolutely confidential, including upon the expiration or termination of the Franchise Agreement.
PARTICULARS
	The term is in writing and contained in clause 33 of the Franchise Agreement, where confidential information is defined in clause 1.
30	Clause 32.1.2 of the franchise agreement provides that on termination of the agreement the franchisee shall:
32.1.2	return to the franchisor all property belonging to the franchisor or any related entity including tools of trade, all copies of the manual, computer software and databases, notebook computer, mobile phone SIM card, uniforms, customer listings or other confidential information, all stationery, brochures, publications;
31	Although the plaintiffs in the prayer for relief in the statement of claim seek an order that the defendants be restrained from misusing the confidential information of the plaintiffs, the plaintiffs do not seek an order requiring the defendants to destroy all physical copies and permanently delete all electronic copies of the Megasealed Database and the Megasealed Operations and Procedures Manual that are in the possession or control of the defendants.
32	Accordingly the plaintiffs are not at this stage entitled to an order that the defendants must forthwith destroy all physical copies and permanently delete all electronic copies of the Megasealed Database and Operations and Procedures Manual. In my view the statement of claim requires amendment and it is premature at this stage to make an order in these terms on an application for judgment in default of defence.

G.	The defendants must within 7 days, advise the plaintiff’s solicitor in writing, the names or contact details of each person to whom any part of the contents of the Megasealed Database or the Megasealed Operations and Procedures Manual has been disclosed by the defendants since 10 September 2018.
33	The plaintiffs did not seek this relief in its statement of claim.
34	In Noden v Mason  the plaintiffs applied for a declaration entitling the plaintiffs to enforce against the defendant the provisions of clause 6 of the conditions of Table A of the Transfer of Land Act, which examination of the original contracts showed to have been incorporated in each contract.  In the words of Weigall AJ: 
 The English authorities…are clear, the effect that under that rule any claim to relief must be based on the pleadings alone, and cannot be sustained by evidence by affidavit or otherwise.  In my view the present application seeks relief not available on the pleadings alone, and not necessarily involved in the judgment which has been given on those pleadings. 
Conclusion
35	In the circumstances of this case, the application for summary judgment in default of defence is refused.  The application is premature.   It may be necessary for the plaintiffs to amend their statement of claim in order to seek the relief sought in the draft minute of order and then (if so advised) seek an order for summary judgment pursuant to Order 22  of the County Court Rules and/or s61 of the Civil Procedure Act 2010.