Punchbowl Casual Dining Pty Ltd v Rashays Cafes & Restaurants Pty Ltd (No 2)

Punchbowl Casual Dining Pty Ltd v Rashays Cafes & Restaurants Pty Ltd (No 2) [2024] FCA 127 is a Federal Court interlocutory decision in a franchise dispute about whether a franchisee could keep operating from a restaurant site after the written franchise term expired.

The franchisee said Rashays had promised a renewed or new 10-year agreement for the Punchbowl site if the operators bought another Rashays franchise at Bankstown or paid specified amounts. Rashays disputed those alleged promises and asked the court to discharge an earlier injunction that stopped it from evicting the franchisee or taking back the site. Justice Jackman refused to discharge the injunction, holding that there remained a serious question to be tried and that the balance of convenience favoured preserving the status quo until final hearing.

The commercial setting matters. Punchbowl Casual Dining operated a Rashays restaurant at Punchbowl under a franchise agreement made on or about 16 December 2019. On the same date, Rashays granted it a licence to occupy the Punchbowl site. The site was owned by RAM Property and leased to Rashays, so the franchisee's occupation depended on arrangements controlled by the franchisor rather than a direct lease from the landlord.

The franchise agreement included obligations to pay a monthly royalty based on 12 per cent of gross turnover, pay rent associated with occupation of the premises, comply with laws including workplace laws, pay creditors within 21 days, and pay creditors related to the franchisor within seven days. Those obligations later became central because Rashays relied on alleged non-compliance to argue that the injunction should be lifted.

The applicants' case was that in 2022 and 2023 Rashays made promises linking the future of the Punchbowl site to the Bankstown site and to certain payments. The judgment records prima facie evidence from Mr Wajahat, corroborated by Mr Rahaman, that on or about 30 June 2022 Rashays' general manager, Mr Krayem, said that if they agreed to purchase Rashays Bankstown they would be given either an extension of the existing Punchbowl franchise agreement or a new franchise agreement for Punchbowl for 10 years. At a meeting on 4 July 2022, Mr Wajahat said he agreed to purchase the Bankstown site for $1.6 million plus GST and sought confirmation that a new lease and franchise agreement for Punchbowl would be provided as part of the deal, and Mr Krayem allegedly responded affirmatively.

The applicants also relied on a later alleged promise tied to a specific debt payment. On 13 July 2023, Mr Wajahat said he was assured by Mr Krayem that if they paid $36,500 said to be owed for suppliers' fees to Rashays, they would be provided with a new 10-year franchise agreement for Punchbowl. The applicants said they paid that amount on or about 22 July 2023 in reliance on the promise. In September 2023, according to the judgment, Rashays' chief executive officer, Mr Deveson, advised that the new franchise agreement and lease for the Bankstown site was conditional on payment of $112,907.23 to RAM Property. That amount included rental back-charges arising from a new lease negotiated by Rashays with the Punchbowl landlord, increasing the rent from $22,375 to $26,617. The judgment says that amount was later paid in four instalments.

The judgment also records evidence that the applicants paid a total of $365,000 towards the Bankstown site. That money appears to have been applied by Rashays to debts it claimed were owing in relation to the Punchbowl site, and there appeared to be a dispute about that. This is one of the practical features of the case: the alleged renewal promises, the Bankstown purchase, the Punchbowl site, and the accounting between the parties had become intertwined.

The written Punchbowl franchise agreement was due to expire on 4 December 2023. On that day, the applicants obtained an ex parte injunction restraining Rashays from taking steps to evict the franchisee, take possession of the Punchbowl site, or interrupt business operations. There were further hearings on 6 and 20 December 2023. On 23 January 2024, by consent, the injunction was continued until further order. Rashays then sought to have it discharged.

The immediate issue was not who would ultimately win the substantive case. The question was whether the interlocutory injunction already in place should be discharged. That required the court to consider two familiar interim questions: whether there remained a serious question to be tried, and whether the balance of convenience favoured keeping the injunction in place until trial.

On the applicants' side, the court had to consider the alleged promises of renewal or a new agreement, the payments said to have been made in reliance on those promises, and the commercial harm that would follow if the franchisee lost the site before the case could be heard. The judgment notes that the applicants had operated the business since 2019, that it provided the individual operators with the means to pay their living expenses, that many patrons were local members of the Punchbowl community and surrounding suburbs, that the shareholders were involved in local community activities, and that they regularly attended the restaurant on a daily basis. The franchisee also claimed to have generated substantial goodwill at the site, although Rashays said it too had a share in the goodwill through its brand and franchising features.

On Rashays' side, the court had to consider the franchisor's complaint that the franchisee continued to operate in breach of the franchise agreement. By the time of this application, the workplace-related concerns that had initially generated much of the application had been rejected by the judge on the evidence relied on for that aspect. Rashays then based its application on alleged continuing breaches including not paying rent on time, paying rent late and by instalments, not paying royalties on time or at all, not making certain payments to third parties including Ruomky Pty Limited and Sydney Freezers, and failing to reimburse $190,000 said to have been wrongly credited because of an internal accounting error.

The applicants responded that there was a bona fide dispute about whether those amounts were due and payable. They said invoices to Rashays or its related supplier were only issued after two weeks, the landlord had given additional time to pay December rent, a royalty payment bounced because Rashays attempted to deduct significantly more than had previously been advised, a later royalty payment had been made, Ruomky had been paid upfront since 27 November 2023, a rent payment of $40,440 had been made to Rashays on 11 February 2024, the $190,000 accounting issue required further investigation, a payment plan was in place with Sydney Freezers, a payment of $26,617.03 had been made to RAM Property on 15 February 2024, and the bank had been instructed to pay Rashays $36,747.52.

Justice Jackman dismissed Rashays' application to discharge the interlocutory injunction. The judge held that there remained a serious question to be tried. The judgment says the evidence of Mr Wajahat, corroborated by Mr Rahaman, established at least at a prima facie level the alleged conversations about a renewed or new agreement for the Punchbowl site, even though those conversations were disputed by Rashays.

The court also held that the balance of convenience favoured continuation of the injunction. A central reason was that there appeared to be a bona fide dispute about whether the amounts claimed by Rashays and others were actually due and unpaid. The judge accepted the applicants' submission that there was a bona fide dispute as to whether there were any outstanding amounts due and payable either to Rashays or to the various third parties. That meant the alleged payment defaults did not justify discharging the injunction at this stage.

The court did accept that delay counted against the applicants. Rashays pointed out that on 13 July 2023 it had notified the applicants that the franchise agreement would come to an end and that it did not intend to enter into a new franchise agreement, and that a reminder was given on 29 September 2023. The applicants did not seek undertakings through their solicitors until 29 November 2023 and only approached the court on 4 December 2023, the last day of the franchise agreement according to its terms. The judge said that delay weighed against continuation of the injunction, but was not determinative. The court said it could understand the applicants' reluctance to engage in expensive and time-consuming litigation until they felt they had no choice.

The judge also noted that no complaint or submission had been made about the applicants' ability to honour the usual undertaking as to damages. The injunction granted on 4 December 2023 therefore continued until further order. The costs of the discharge application were made costs in the cause. The matter was fixed for final hearing on 29 May 2024 with an estimate of three days, and a case management hearing was listed for 1 March 2024.

For franchisees, the case shows the practical danger of operating from a site controlled by the franchisor when the written term is close to expiry. Even if you believe you have been promised a renewal, extension or replacement agreement, the immediate commercial risk remains the same if the written documents do not clearly secure your continued occupation. If the franchisor can control possession of the site, the business may face sudden interruption, loss of staff confidence, disruption to customers and damage to goodwill.

For franchisors, the case is a reminder that disputed oral assurances and complicated payment histories can make it harder to regain possession quickly on an interim basis. If your position is that no renewal will be offered, communications should be clear and consistent. If you rely on breaches, your accounting, notices and debt records should be organised and capable of being proved. A court may be reluctant to disturb the status quo if there is a genuine dispute about what is actually owing.

The decision also shows how one commercial dispute can become entangled with several others. Here, the alleged promises about Punchbowl were linked to the proposed Bankstown purchase, a $36,500 suppliers' fee payment, a $112,907.23 landlord-related payment, and a larger $365,000 amount said to have been paid towards the Bankstown site but apparently applied to Punchbowl debts. Once those issues overlap, an urgent hearing can become a contest about conversations, reliance, accounting treatment, supplier debts, rent and royalties all at once.

Another practical point is timing. The applicants succeeded in keeping the injunction, but the judge still treated their delay as a factor against them. Businesses often wait because litigation is costly and disruptive. This case shows that waiting until the last day of the agreement is risky. If a renewal dispute is developing and possession of the site is in play, early advice can help you decide whether to negotiate, seek undertakings, or move for urgent relief before the position becomes critical.

The timing in this case is commercially important because the court's view of delay formed part of the balance of convenience analysis. The judgment records a sequence in which alleged promises were made, payments were said to have been made, Rashays later said it did not intend to enter a new franchise agreement, and the applicants only sought urgent court relief on the last day of the written term.

For business owners, this is a useful reminder that courts look not only at the strength of the dispute but also at when the parties acted. If you know the agreement is ending and the other side says there will be no renewal, leaving action until the final days can weaken your position even if it does not defeat it.

This page is based on the Federal Court of Australia's judgment in Punchbowl Casual Dining Pty Ltd v Rashays Cafes & Restaurants Pty Ltd (No 2) [2024] FCA 127, delivered on 16 February 2024 by Jackman J.

The judgment is an interlocutory ruling about whether an injunction should be discharged. It records disputed allegations and the court's interim assessment of them. It should not be read as a final determination of the underlying contractual and factual disputes between the parties.