Free speech on internet an issue in franchisor v franchisee case

“It’s not for my clients to have to justify their freedom of speech; it’s for those seeking to restrain their freedom of speech to make their case.” That’s the message Auckland lawyer Phillip Rice had for Justice Willie Young last Wednesday, as he fought a gagging order barring 13 New Zealanders from bad-mouthing Worldsites International, a Canadian-based franchisor they say ripped them off (The Independent 8 August 2001).

The Independent New Zealand
August 15, 2001

Free speech on internet an issue in franchisor v franchisee case
Jon Stephenson

“It’s not for my clients to have to justify their freedom of speech; it’s for those seeking to restrain their freedom of speech to make their case.”

That’s the message Auckland lawyer Phillip Rice had for Justice Willie Young last Wednesday, as he fought a gagging order barring 13 New Zealanders from bad-mouthing Worldsites International, a Canadian-based franchisor they say ripped them off (The Independent 8 August 2001).

One of the franchisees claims to be more than $100,000 out of pocket.

Justice Robert Chambers issued the ex parte injunction in the High Court at Auckland on 5 March, after Worldsites claimed the franchisees had breached their agreement by accusing the company of misrepresentation and poor management.

Most of the critical comments were published on the internet.

Worldsites is also suing the group for allegedly breaching the Fair Trading Act, malicious falsehood, unlawful interference with trade and business, and defamation.

The franchisees responded with a counter-claim alleging Worldsites breached the Fair Trading Act by misrepresenting the system of developing and marketing internet web pages it promoted both here and overseas.

Incorporated in the Bahamas, Worldsites International has its head office in Toronto, and is trying to have the franchise dispute arbitrated in the US state of Delaware.

Worldsites is fronted in this country by its master franchisee Quentin Haines who, the court was told, had recently been convicted of fraud. (This had to do with a Waikanae company unrelated to Worldsites.)

The company sold its system to the 13 defendants between September 1999 and November 2000, with the majority of the franchisees paying around $80,000 plus GST. Franchisor-franchisee relations soured when none of the franchisees was able to trade profitably.

Worldsites secured the injunction after claiming the 13 franchisees had threatened to “bury” the company if it didn’t pay them $US707,881 to settle the dispute.

But Rice, a partner with the law firm Grove Darlow, told the court that it had taken the wrong approach for what was essentially an attempt to restrain defamation (prior restraint).

Citing several precedents, he said the court should not grant a gagging order when the defendant maintained he or she could justify the claims.

“Only in the most egregious cases… should the court intervene,” said Rice. The right to free speech was paramount.

Rice agreed that the judge had a duty to intervene if the claims were not true. “But Your Honour is not able to ascertain this at an interlocutory stage.”

However, suggesting the case essentially involved a commercial dispute, Justice Young asked if the use of the defendants of the words “scam,” “fraud” and “swindle” to describe Worldsites’ operation was really justified.

The judge also pointed out that the defendants had consented to the interlocutory injunction. But Rice rejected this interpretation. He said the defendants had been “bombarded with a wealth of documents” shortly before the hearing, and had not had time to consult their own solicitors.

“It’s not in the interests of justice that you should interpret [what happened] as consent,” Rice said. “It was not informed consent.”

Describing the injunction as a significant restriction, Justice Young said everything should be done to amend it to ensure the defendants could conduct their defence unfettered.

It would be “bizarre” if the defence was unable to approach other Worldsite frnachisees as potential witnesses because they couldn’t mention what he case was about.

Worldsites’ lawyer Michael Bos of Phillips Fox, suggested the defendants submit to his client a list of people they wanted to approach.

But the judge said that would suggest the defendants had to obtain the plaintiff’s approval for the way they ran their defence.

He also questioned Bos’ view that the dispute should be arbitrated in Delaware, while the other proceedings were decided in New Zealand.

Courts have always been against the possibility of two different tribunals deciding what was basically the same matter, the judge said.

Were the courts to accept the “ludicrous proposition” that cases must be heard in Delaware and in New Zealand “then the contract must say so expressly,” Rice said.

But, he said, by opting to file proceedings in New Zealand, Worldsites had submitted to this jurisdiction, knowing there could be a counter-claim. It couldn’t now try to get that counter-claim heard in another jurisdiction.

The defendants could not afford to go to the US and instruct counsel there and, in any case, their counter-claim dealt with the Fair Trading Act – a New Zealand law.

“You could have to have a Delaware arbitrator informed about a New Zealand statute. It just makes no sense at all.”

Justice Young reserved his decision.


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Risks: Gag order, court-mandated, Internet, information sharing, Freedom of speech, Intentional interference with economic relations, Convicted fraud artist, Canada, New Zealand, 20010815 Free speech

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