United Petroleum Franchise Pty Ltd v Istanikzai (No 2)

This case sat in the middle of a larger dispute involving the United Petroleum network. Two Federal Court proceedings were already on foot. In one, United Petroleum entities were proceeding against Fahim Istanikzai and FNH United Pty Ltd. In the other, they were proceeding against Jaydeep Devjibhai Bhatti and Jigarkumar Bharatbhai Patel. At the same time, those respondents were also plaintiffs in a representative proceeding in the Supreme Court of Victoria.

The respondents wanted the two Federal Court proceedings transferred to the Supreme Court of Victoria under the cross-vesting regime so the matters could run concurrently. That sounds like a technical step, but it can have major practical consequences. It can affect which court manages the dispute, whether evidence is duplicated, whether there is a risk of inconsistent factual findings, and how much the parties spend getting to trial.

The complication was that the Supreme Court proceeding was not settled in form. After an earlier Federal Court decision refusing stay applications, the plaintiffs in the Supreme Court proceeding sought leave to file an amended writ and amended statement of claim and to join another party. The Federal Court therefore had to decide whether it should hear the transfer applications immediately, or wait until the Supreme Court had decided whether those amendments and joinder would be allowed.

The judgment records that the proposed amended statement of claim in the Supreme Court sought to add claims by commission agents within the network of licensed businesses operated by franchisees. It also sought to join United Petroleum Pty Ltd as a proposed third defendant. That mattered because, in the earlier stay decision, the absence of United Petroleum Pty Ltd from the Supreme Court proceeding had been one reason the Federal Court declined to stay its own proceedings.

The judgment also records the respondents' submission that, if leave to amend were granted, commission agents would have mirror claims to franchisees in all material respects.

Those proposed claims included allegations that the Pie Face franchise was introduced into stores without consent, that there was no contractual basis for doing so, that operators were forced to purchase stock without reimbursement, that unsold stock was recorded as wastage without reimbursement, that the costs and overheads of operating a Pie Face site rendered sites unprofitable, and that United Petroleum Franchise Pty Ltd was aware, or had enough information to be aware, that the model was causing loss.

The proposed amended pleading also sought to add unfair contract term claims under Part 2-3 of Schedule 2 to the Competition and Consumer Act 2010 (Cth), alleging that various clauses in the Franchise Agreement and the Commission Agency Agreement were unfair within the meaning of section 24 of the Australian Consumer Law.

In addition, the judgment notes that in the Istanikzai proceeding the respondents had filed a further amended concise statement in response alleging, among other things, that certain terms of the Franchise Agreement impugned in the Supreme Court proceeding were unfair within the meaning of section 24.

But it is important to keep the procedural posture clear. These were not findings by the Federal Court that the allegations were true. The court was describing the claims and proposed claims because they were relevant to whether the proceedings overlapped enough to justify transfer. A business reader should not treat this judgment as deciding the merits of the Pie Face rollout, profitability issues, reimbursement practices or unfair contract term allegations.

The immediate legal issue was narrow but important. The respondents had filed transfer applications under section 5(4) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth), seeking orders that the two Federal Court proceedings be transferred to the Supreme Court of Victoria.

The question for Justice Anderson was whether those transfer applications should be heard on 1 June 2023 as listed, or whether they should be stood over until after the Supreme Court heard the amendment and joinder application listed for 18 July 2023.

That required the court to apply ordinary case management principles under the Federal Court of Australia Act 1976 (Cth), including the overarching purpose in section 37M of resolving disputes according to law as quickly, inexpensively and efficiently as possible. The court referred to factors relevant to transfer and case management, including efficient use of judicial resources, the likelihood of contrary findings of fact arising from the same material, and the likelihood that costs could be minimised.

Those factors all depended heavily on one practical question: how much overlap was there really between the Federal Court proceedings and the Supreme Court proceeding? The problem was that the answer might change significantly depending on whether the Supreme Court allowed the proposed amendments and joinder. Without knowing that, the Federal Court considered it difficult to assess the transfer applications properly.

Justice Anderson decided that the transfer applications should be stood over pending the hearing of the amendment and joinder application in the Supreme Court of Victoria. The court's central reason was uncertainty about overlap. If the Supreme Court granted leave to file the proposed amended statement of claim and to join United Petroleum Pty Ltd, the relationship between the proceedings could look materially different from the position considered in the earlier stay judgment.

The court said that, in deciding the transfer applications, it would need to consider matters such as efficient use of judicial resources, the risk of contrary findings of fact from the same material, and whether costs could be minimised. Each of those matters directed attention to the extent of overlap between the cases.

The judge considered that overlap could not be properly assessed until it was known whether the plaintiffs in the Supreme Court proceeding would be allowed to pursue the foreshadowed claims and join United Petroleum Pty Ltd.

The court also accepted that there was a real duplication risk in hearing the transfer applications immediately. If the Federal Court heard and dismissed them before the Supreme Court ruled on amendment and joinder, the parties might later return with further transfer applications if the amendments succeeded. That would require another detailed analysis of the allegations and overlap between the proceedings, causing unnecessary duplication and cost.

At the same time, the judge recognised the applicants' concern that the Federal Court proceedings should not simply stall. To manage that risk, the court ordered that within 7 days of the hearing of the amendment and joinder application in the Supreme Court, the parties were to jointly notify the judge's chambers so that a further case management hearing could be fixed. The idea was to pause the transfer issue, not to let the Federal Court matters drift indefinitely.

For business owners, this case is a reminder that litigation strategy is often shaped by pleadings, party structure and forum questions long before a court reaches the merits. If your business operates through a network with multiple entities, such as a franchisor entity, a supply or operating entity, and separate agreements for franchisees and commission agents, a dispute may not stay confined to one contract or one court.

A proposed amendment in another proceeding can change the overlap analysis and alter whether transfer, stay or consolidation arguments become stronger.

This is particularly relevant in franchising and distribution settings. A single operational decision, such as introducing a new product line, store format or branded concept across multiple sites, may generate similar allegations from different operators. If those operators are bound by standard form agreements, any challenge to those terms can also spread across the network.

Once that happens, the identity of the contracting entities and the alignment of parties across proceedings become commercially important, not just legally interesting.

The case also shows that courts are alert to duplicated work. If a procedural application is likely to have to be argued again after another court decides a related amendment application, the court may prefer to wait. That can be frustrating for a party wanting momentum, but it may still be the more efficient course overall. Businesses involved in parallel proceedings should therefore budget for procedural steps to change as pleadings evolve.

Another practical point is record keeping. The allegations described in this judgment concerned consent, contractual authority, stock purchases, reimbursement, wastage treatment and profitability. Even though the court did not decide those issues here, they are the kinds of operational matters that become central in network disputes.

Businesses should keep clear records of the contractual basis for network-wide changes, how consent was obtained, how stock and wastage are treated, and which entity is responsible for each part of the commercial arrangement.

These steps will not decide the merits of a dispute, but they can reduce procedural risk. In network businesses, the same documents and practices are often repeated across many operators. That means one amendment application in one court can change the strategic position across several proceedings. Early review helps management understand whether the dispute is likely to stay narrow or expand into a broader challenge involving multiple entities and standard terms.

It also helps with budgeting and commercial decision-making. A business that understands where overlap exists is better placed to decide whether to push for one forum, resist transfer, preserve evidence, or explore settlement before costs escalate.

The judgment was delivered on 31 May 2023 and was determined on the papers. The transfer applications had been listed for hearing on 1 June 2023, but the court stood over both the case management hearing and the hearing of the respondents' interlocutory applications to a date to be fixed. The amendment and joinder application in the Supreme Court of Victoria was listed to be heard on 18 July 2023.

The orders required the parties, within 7 days of the hearing of the amendment and joinder application, to jointly notify Justice Anderson's chambers so that the Federal Court could fix a further case management hearing. The judgment therefore left the transfer issue unresolved pending the next development in the Supreme Court proceeding.