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In continuing with a review of interesting recent High Court judgements, the decision of Justice Laffoy in Irish School of Yoga Limited v Henkel Murphy 2012 1389P delivered on 28th May 2012 is well worth a read. A copy of the link to the decision on the courts website is attached.

This case is interesting insofar as in addition to making an order granting an injunction until the hearing of the action, the High Court granted a further order inviting the parties to use the process of Alternative Dispute Resolution to deal with the remainder of their differences. Justice Laffoy noted that the issues at stake were disproportionate to the costs incurred in pursuing the High Court action.

Background

This case concerned an application for interlocutory injunctive relief by the plaintiff out of a franchise agreement made between the predecessor of the plaintiff, of the one part and the defendant of the other part.

The defendant also brought an application for an order pursuant to the provisions of Order 56A of the Rules of the Superior Courts 1986 (the Rules) adjourning the plaintiffs application for an interlocutory injunction and inviting the parties to use an ADR process, namely, mediation, to settle or determine the plaintiffs application for an interlocutory injunction and the entirety of the issues in dispute between the parties and, if necessary, inviting the parties to attend such information session on the use of mediation as the Court might specify.

In summary, the application for an interlocutory injunction concerned the business in respect of which the plaintiffs predecessor, as franchisor, granted the defendant, as franchisee, the right and licence to operate was the training of student customers to become Yoga Teachers to 1st Level in accordance with a course system developed and owned by the franchisor, using manuals, products and services provided by Yoga Therapy and Teaching Centre (YTTC), and its “proprietary marks” which were defined as meaning trademarks, insignias and logos owned and used by YTTC, and trading under the name YTTC.

The Franchise Agreement contained a number of important clauses including:

  • the franchisor granted the defendant, as franchisee, the right and licence to operate the “business” as defined anywhere within County Cork and Munster or within a fifty mile radius of County Cork and Munster on the terms and conditions set out in the agreement.
  • the franchise agreement would remain in force unless terminated by either party under the terms of the agreement, so that it was not for a fixed term.
  • Upon termination of the Franchise Agreement, the franchisee agreed to:

(i) immediately cease to operate “the business”, (ii) not hold herself out as franchisee of the franchisor, (iii) immediately cease to use the trademarks and such like of the franchisor, and (iv) return to the franchisor or otherwise dispose of or destroy, as the franchisor should direct, all signs, advertising materials, records, data and suchlike concerning “the business” or bearing its Proprietary Marks.

Additional clauses also included the restriction upon the use of confidential information.

The defendant agreed to give a series of undertakings pending the hearing of the substantive action including that (without prejudice) the defendant would not in any manner hold herself out as being in any way connected with the plaintiff or his business, would not make any use of any intellectual property rights being asserted by the plaintiff, and that the defendant would not make any positive use of any data base or customer records which the plaintiff claimed as his property. The defendant also gave an undertaking to deliver all materials in her possession relating to the franchised business.

The issue of entitlement to an interlocutory injunction

The High court then considered whether the plaintiff was entitled to an interlocutory injunction in the following terms:

“An injunction prohibiting the defendant its servants and/or agents from operating yoga teacher training courses in respect of students enrolled by the defendant during the operation of the Franchise Agreement when they were enrolled in the level 1 teacher training course as students of the ‘YTTC’ or ‘Yoga Therapy and Training Centre’ in (1) [the] 2010-2012 group and (2) [the] 2011-2013 group.”

The Court noted that it had been furnished with comprehensive legal submissions by both parties. Counsel for the defendant noted that the legal context of many of the authorities relied on by counsel for the plaintiff was an employer/employee contractual relationship and pointed to the cases of Allied Irish Banks Plc & Ors. v. Diamond & Ors. [2011] IEHC 505, in which Clarke J. explained the underlying rationale for the grant of a “springboard” injunction and the decision of Dunne J. in Net Affinity Ltd. v. Conaghan & Anor. [2011] IEHC 160.

Justice Laffoy noted that it was apt to have regard to distinctions that existed between relationships based on contracts of employment and relationships which arose under franchise agreements.

The Court then looked at the well established principles laid down by the Supreme Court in Campus Oil v. Minister for Energy (No. 2) [1983] 2 I.R. 88 and asked whether there was a fair issue to be tried that in operating the yoga teacher training courses for students enrolled by her during the operation of the Franchise Agreement in Autumn 2010 and Autumn 2011, the defendant is in breach of the terms of the Franchise Agreement.

The Court highlighted the deficiencies in the Franchise Agreement including Clause 4 which it noted as clearly envisaging the franchisee having a right to terminate the Agreement, but that was not expressly provided for. The Court also noted that from the perspective of the plaintiff, as the successor of the franchisor, “one would have expected to find a valid non-compete post-termination clause which was not provided for”. 

The Court noted that the key clause concerning the restraint applied both during and after the termination of the Franchise Agreement and was satisfied that there was a fair issue to be tried that, by her conduct in using the information as to the identity of students who had commenced the course in Autumn 2010 and those who intended to become students in 2011, the Defendant had procured customer students for the courses which she operated following the termination of the Franchise Agreement and she was acting in breach of Clause 8.3 of the Franchise Agreement.

The Court also noted that there was a fair issue to be tried that the expression “Confidential Information” “must cover information as to the identity of potential customers for the business the subject of the Franchise Agreement”.

The Court then looked at the second question which arises on the basis of the application of the Campus Oil principles in asking whether damages would be an adequate remedy for the plaintiff in the event that the injunctive relief sought was refused but the plaintiff was successful on the issue of the breach of Clause 8.3 at the trial of the action.

Justice Laffoy noted that the Court was entitled to draw certain inferences in determining whether damages would be an adequate remedy and referred to an extract from the decision of Clarke J. in Metro International S.A. v. Independent News and Media Plc [2006] 1 ILRM 414 (at p. 424)-

“… the court can and should have regard to the question of whether the right sought to be enforced or protected by interlocutory injunction is one which is of a type which the court will normally protect by injunction even though it might, in one sense, be possible to value the extinguishment or diminution of that right in monetary terms.”

On the second question, Justice Laffoy concluded that damages would not be an adequate remedy for the plaintiff, should an injunction be refused and the plaintiff be successful in the substantive action.

On the third question of whether the balance of convenience lay in favour of granting the injunction, Justice Laffoy noted that the issue before the Court was whether the contractual rights which the plaintiff contended it had against the defendant should be protected by interlocutory injunction and noted that they should and awarded an injunction until the hearing of the action.

Alternative Dispute Resolution

The Court then considered Order 56A, rule 2(1) of the Rules of the Superior Courts 1986, as inserted by S.I. No. 502 of 2010, which provides:

“The Court, on the application of any of the parties or of its own motion, may, when it considers it appropriate and having regard to all the circumstances of the case, order that the proceedings or any issue therein be adjourned for such time as the Court considers just and convenient and –(i) invite the parties to use an ADR process to settle or determine the proceedings or issue, or

(ii) where the parties consent, refer the proceedings or issue to such process,

and may, for the purposes of such invitation or reference, invite the parties to attend such information session on the use of mediation, if any, as the Court may specify.”

The Court referred to rule 1 whereby “an ADR process” was defined as meaning mediation, conciliation or another dispute resolution process approved by the Court, but does not include arbitration.

The Court also referred to the sanction which it could impose for failure to accept such an invitation outlined in rule 1B of Order 99 of the Rules, inserted by S.I. 502 of 2010, which provides that, in considering the awarding of costs of any action, the Court may, where it considers it just, have regard to the refusal or failure without good reason of a party to participate in any ADR process where an order has been made under Order 56A, rule 2.

Justice Laffoy noted that “prudence dictates that the parties should process the remainder of their differences through an ADR process. What is at stake in these proceedings is totally disproportionate to the costs which will be incurred in pursuing a High Court action…..Accordingly, there will be an order under Order 56A inviting the parties to use an ADR process”

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