Barooga Projects (Management) Pty Ltd v Flag International Ltd [1998] QCA 253

IN THE COURT OF APPEAL [1998] QCA 253 SUPREME COURT OF QUEENSLAND Appeal No.11491 of 1997 Brisbane [Barooga Projects (Management) P/L v Flag Int. Ltd] BETWEEN: BAROOGA PROJECTS (MANAGEMENT) PTY LTD (ACN 055 654 987) (Plaintiff) Appellant AND: FLAG INTERNATIONAL LIMITED (ACN 004 588 756) (Defendant) Respondent Pincus JA McPherson JA Mackenzie J Judgment delivered 4 September 1998 Judgment of the Court APPEAL DISMISSED WITH COSTS. CATCHWORDS: LICENCE AGREEMENT - interim injunction - construction of the licence agreement - whether a licensee could have affiliations with other licensed motels. Rules of The Supreme Court O.57 r.2 Butt v McDonald (1896) 7 QLJ 68 Secured Income Real Estate (Aust) Pty Ltd v. St Martin's Investments Pty Ltd (1979) 144 CLR 597 Hospital Products Ltd v. United States Surgical Corporation (1984) 156 CLR 41 Fitzgerald v. F.J. Leonhardt Pty Ltd (1997) 143 ALR 569 Counsel: Mr P.A. Keane Q.C. with him Mr R.N. Traves for the appellant Mr A.J. Morris Q.C. for the respondent -- 1 of 6 -- Solicitors: Blanch Enders & Associates for the appellant Doyles - Construction Lawyers for the respondent Hearing Date: 20 August 1998 -- 2 of 6 -- IN THE COURT OF APPEAL SUPREME COURT OF QUEENSLAND Appeal No.11491 of 1997 Brisbane Before Pincus JA McPherson JA Mackenzie J [Barooga Projects (Management) P/L v Flag Int Ltd] BETWEEN: BAROOGA PROJECTS (MANAGEMENT) PTY LTD (ACN 055 654 987) (Plaintiff) Appellant AND: FLAG INTERNATIONAL LIMITED (ACN 004 588 756) (Defendant) Respondent REASONS FOR JUDGMENT - THE COURT Judgment delivered 4 September 1998 1 This appeal concerns the construction of a licence agreement between the appellant and the respondent under which the appellant became entitled to operate its motel, Centrepoint Motor Inn Rockhampton, as a Flag Motel. When the respondent advised of its intention to licence Club Crocodile Motel Rockhampton to trade as a Flag Motel too, the applicant sought and was granted an interim injunction restraining the respondent from granting the licence. 2 On 24 November 1997 when a motion for an injunction restraining the respondent from granting the licence until trial or further order was heard it was common ground that judgment in the action pursuant to O.57 r.2 should be given. A judge of the Trial Division gave judgment in favour of the respondent. The appellant appeals against this decision. 3 There was evidence that the Club Crocodile Motel Rockhampton was one of six properties providing accommodation services owned and operated by a publicly listed company Club Crocodile Holdings Limited. Four of those properties were already licensed to operate under the Flag name in other locations along the Queensland coast. There was also evidence that at the time of the commencement of proceedings about 25 per cent of all properties licensed by Flag were owned by persons who owned more than one property. The two largest multiple ownerships involved 26 and 12 properties respectively. Multiple owners had been licensed since well before the appellant's motel had become a Flag member. 4 Nevertheless the appellant's argument was based on the proposition that it was incompatible with its licence agreement to grant a Flag licence to an operator which used another brand or group name as well as Flag, since such operator would not be operating within the "System" referred to in the licence agreement. Recitals to the agreement assert, as much in the -- 3 of 6 -- 3 language of marketing as of the law, that the respondent has developed a process (the "System") for the provision of accommodation facilities including lodging, provision of food and other services of a uniformly high standard and for the management of such facilities. The distinguishing characteristics of the System are said to include the distinctive trade mark, uniform standards, specifications and procedures for the operation of accommodation facilities, management procedures, advertising and promotional programmes and the computerised instant reservation system. It is also recited that the licensor has established nationally and internationally a reputation and goodwill with the general public for the supply of high quality accommodation facilities and efficient courteous service pursuant to the System. 5 A recital also states that the parties intend the accommodation facilities to be provided by the licensee to integrate with all other accommodation facilities to be provided by other licensees under similar agreements to form a consistent international system of accommodation facilities. The licensee acknowledges that the success of the System and the continued goodwill of the public towards the trademark is dependent upon the continued exemplary reputation of each and every accommodation facility operated in accordance with the System. There is an acknowledgement by the licensee of the importance to the entire System of full and faithful adherence to the terms of the agreement. 6 The "System" is also defined in part 14 of the agreement albeit with little greater precision. The term is there defined as meaning the plan, procedure, process or system of providing for the general public accommodation facilities including lodging, provision of food and refreshments and other services of high standard and for the management of such accommodation facilities. "Characteristics" of the System include, without being limited to them, various forms of intellectual property, the provision of efficient, courteous and clean methods of operation of accommodation facilities and the operation of distinctive restaurants, the instant reservation system and the Licensee Operating Guide. 7 The appellant is understandably concerned that if a competitor with links to other similarly named accommodation facilities which are part of a group commences to operate under the Flag badge in Rockhampton the appellant's business may be detrimentally affected if potential customers who have stayed in other places at Club Crocodile establishments book with the Club Crocodile Motel in Rockhampton rather than the Centrepoint Motor Inn. The only specific evidence relating to the mode of operation of Club Crocodile in a way which may reinforce that concern is that Club Crocodile operates a separate corporate accumulator programme under which rewards, albeit modest, may be obtained by people who stay repeatedly at Club Crocodile facilities. The contents of the Licensee Operating Guide are not in evidence and there is no evidence that anything done by Club Crocodile would be contrary to the guide. There is no evidence that each licensee's agreement is precisely identical to the others. Indeed there is a handwritten addition to the appellant's. 8 The appellant's arguments are, firstly, that as a matter of construction the agreement precludes the granting of a licence to a person who operates under another name as well as using the Flag insignia and the System. Alternatively, it was submitted that there was an implied term that the respondent would not grant a licence to a person who would use another group name as well as the Flag identification. 9 The appellant's arguments were based on an analysis of the recitals and clauses of the agreement, particularly 2.1, 2.2 and 9.2 and the definition of "System" in cl.14.1. Clause 2.1 is an acknowledgement by the licensee that the licence is a non-exclusive licence to operate accommodation facilities in accordance with the System and that it does not preclude the licensor granting additional licenses to operate in accordance with the System. Clause 2.2 declares there is no territorial exclusivity and reserves the licensor's right, subject to restrictions which need not be analysed for present purposes, to use and authorise third parties to use the System inside or outside -- 4 of 6 -- 4 the territory (Rockhampton, in the case of the subject agreement). Clause 9.2 binds the licensee not to obtain during the lifetime of the current directory of Flag facilities, membership of, or a licence or other authority to operate as part of any chain of accommodation facilities that operates in competition with the licensor. 10 The appellant's argument based on analysis of the agreement is that a grant to operate in accordance with the System is intended to be comprehensive and exclusive. Carrying on business under two distinguishing brands is inconsistent with the System which is distinguished by the use of Flag insignia alone. The reservation in cl.2.2 of the right to grant a licence in accordance with the System is to be construed as an agreement not to grant a licence to operate otherwise than in accordance with the System. The System comprehends all operations of the facility rather than permitting operations which are distinct from the System. It is intended to ensure that other competitive licensees do not have the advantage of using two brands. 11 It was submitted that the effect of cl.9.2 was to bind the licensee not to seek a new group affiliation immediately upon ceasing to be a Flag licensee and that it was therefore improbable that the agreement contemplated that double branding during the currency of the licence agreement was permitted. The argument is narrowly focused and depends upon the proposition that it is an essential feature of the System that licensees must not have any affiliation with other licensees. When pressed counsel for the appellant conceded that it was a consequence of his argument that even facilities operated in different towns by a single natural person could not be licensed without contravening the agreement. 12 In our opinion the construction of the agreement upon which the appellant relies cannot be sustained. The references to operating in accordance with the System cannot be forced into a form which prevents the granting of a licence to anyone who has some kind of affiliation with other motels which are licensed by the respondent. Not the least of the appellant's difficulties in maintaining the interpretation contended for is the amorphous nature of what one obtains when one becomes entitled to operate under the System. Most of the System is concerned with standards of operation rather than anything tangible. The only tangible things are the use of the various forms of identification, access to the booking system and the access to the operating manual. If the intention had been to prohibit any sub-groupings within the Flag group by reason of common ownership or operation it would have been very easy to have said so explicitly. That was not done and reasons of commercial efficacy would seem to be consistent with its absence. 13 In all of the circumstances we are satisfied that the argument of the appellant as to the construction of the agreement fails. 14 The argument in support of implying a term prohibiting the respondent from entering into a licence agreement with an accommodation provider which is in common ownership with facilities using a similar name relies on the proposition that the appellant's agreement with the respondent entitles it to use the System in common with and on the same basis as other licencees. There would be a competitive advantage available to a licensee who is a member of such a group which was not available to the appellant. Granting a licence in those circumstances would injure the appellant's right to receive the benefit to which it was entitled under its agreement with the respondent. This derogation from its rights was impermissible. 15 The principle relied on was said to derive from the statement in Butt v McDonald (1896) 7 QLJ 68,71, as follows:- "It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract." 16 The principle has been applied frequently since. (e.g. Secured Income Real Estate (Aust) Pty Ltd v St. Martin's Investments Pty Ltd (1979) 144 CLR 597, 607; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 138; Fitzgerald v F.J. Leonhardt -- 5 of 6 -- 5 Pty Ltd (1997) 143 ALR 569, 570). It is not necessary to consider in detail the limits of application of the principle to this case, since counsel for the appellant observed in his submissions, correctly in our view, that it was debateable whether this argument and his argument as to the construction point were different, since the point was essentially that consideration of the recitals and the contractual provisions relied on led to the conclusion that the intention of the parties, or necessary implication, required the agreement to be construed in the manner contended for by the appellant. In our opinion, the reasons for finding that the construction point fails are equally compelling against implication of the term contended for and that argument also fails. 17 The appeal is dismissed with costs. -- 6 of 6 --