Atg Lanka (Pvt) Ltd v Safety Mate Pty Ltd
[2019] VSC 634
•20 September 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2019 01329
| ATG LANKA (PVT) LTD | Plaintiff |
| v | |
| SAFETY MATE PTY LTD | Defendant |
-
JUDGE: | KENNEDY J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 10 - 11 September 2019 |
DATE OF JUDGMENT: | 20 September 2019 |
CASE MAY BE CITED AS: | ATG Lanka (PVT) Ltd v Safety Mate Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2019] VSC 634 |
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PRACTICE AND PROCEDURE – Injunction – Whether serious question to be tried – Whether balance of convenience favours the grant of an injunction – Whether damages adequate remedy – Injunction refused given delay and effect on third party - Refusal also given compliance impossible and breach inevitable.
PRACTICE AND PROCEDURE – Addition of party - Application by non-party to be intervener to the injunction application only – Whether non-party’s legal interests affected – Whether non-party’s presence required to ensure all matters to be determined completely by the Court – Held non-party’s presence not required – Application dismissed.
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| For the Plaintiff | Mr D Williams QC with Mr S Cromb and Mr A Germano | HDL Legal & Consulting Pty Ltd |
| For the Defendant | Mr P Corbett QC | Patane Lawyers |
| For Mayo Hardware Pty Ltd | Ms M Loughnan QC | Thomson Geer |
HER HONOUR:
Pursuant to a summons dated 28 August 2019, the defendant, Safety Mate Pty Ltd (Safety Mate), seeks interlocutory relief restraining the plaintiff, ATG Lanka (PVT) Ltd (ATG) from acting upon or giving effect to a termination of an exclusive distribution agreement (Agreement) whereby Safety Mate imported ATG’s gloves for sale.
At the hearing, Safety Mate refined its application. In the result, the particular orders sought are:
1.Until the trial of this proceeding or further order, the Plaintiff shall not act on or give further effect to its purported notice of termination dated 21 March 2019 of the Distribution Agreement between the Plaintiff and Defendant dated 3 October 2017 (“the Distribution Agreement”) and shall not appoint any other person or persons to distribute the Plaintiff’s Products in Australia, New Zealand and Papua New Guinea.
2.Until the trial of this proceeding or further order the Plaintiff perform the covenant to supply Products to the Defendant pursuant to the Distribution Agreement and;
i.deliver to the Defendant the products described in the Defendant’s purchase orders PO964 and PO965 in accordance with the terms of the Distribution Agreement by 30 September 2019;
ii.deliver to the Defendant the products described in the Defendant’s purchase orders PO980 and PO974 in accordance with the terms of the Distribution Agreement by 31 October 2019; and
iii.deliver to the Defendant the products described in the email from the Defendant to the Plaintiff dated 8 August 2019 as product shortfalls and back orders by 30 September 2019.
There was a large number of affidavits filed in relation to this application.[1]
[1]Affidavits in support of Summons filed by the defendant: Affidavit of Bruce Blaise Patane sworn 28 August 2019 and exhibits; Affidavit of Clinton John Tee sworn 28 August 2019 and exhibits; Affidavit of Clinton John Tee sworn 3 September 2019 and exhibits; Affidavit of Bruce Blaise Patane sworn 9 September 2019. Affidavits in Opposition to Summons filed by the plaintiff; Affidavit of Jason Sheerin sworn 3 September 2019; Affidavit of Kyle David Browning sworn 4 September 2019 and exhibits; Affidavit of Sarah Gabrielle Mayo sworn 4 September 2019; Affidavit of Jason Sheerin sworn 5 September 2019 and exhibits; and Affidavit of Derek Lippner sworn 12 September 2019 and exhibits.
The issues before the Court are, first, whether or not the orders sought should be granted; secondly, whether or not Mayo Hardware Pty Ltd (Mayo) (the new chosen distributor) ought be added as an intervener to Safety Mate’s application.
For reasons expressed below, I have determined that the application for interlocutory relief should be refused. Further, that intervention by Mayo is unnecessary.
The refined orders were pursued in circumstances where the court had raised a real prospect of a trial date in November. Notwithstanding the dismissal of the application, both parties expressed a desire to have an urgent trial so that Safety Mate may pursue an application for a permanent injunction. This will now be a matter for the Principal Judge (as contemplated by the orders below).
Background
ATG is one of the world’s largest manufacturers of gloves and is based in Sri Lanka.
ATG appoints and sells its product to a primary sales partner (PSP) in every country or region that it operates in. It currently works with approximately 30 PSPs world-wide. Each PSP has exclusive distribution rights within their particular geographic region. Each PSP’s role is to promote and supply the gloves to ‘Channel Partners’ who are at the next level down in the distribution network (with the largest Channel Partner in the region being Blackwood & Sons Pty Ltd, a business owned by Wesfarmers Limited). The Channel Partner will in turn sell the product to the ultimate end-user.
A key part of the production model used by ATG depends on PSPs providing notice several months in advance of gloves that will be required to be delivered to their country or region for ongoing supply to Channel Partners. This is because the production model operates in such a way that there is a lead time of approximately four months between the ordering of gloves and the receipt of such gloves. The process usually involves four steps being:
(i) Safety Mate sends a purchase order;
(ii) ATG then sends a ‘pro forma invoice’ to Safety Mate which details the types and quantities of the products it can supply (which may be less than the amounts specified by Safety Mate);
(iii) Safety Mate then signs the invoice within 5 days; and
(iv) the products, once manufactured and packaged, are then shipped from Sri Lanka to Australia in shipping containers, usually by sea, to the port of Brisbane where Australian customs requirements must be satisfied before being transported by road to Safety Mate’s warehouse.
Apart from the possibility of there being a small amount of stock from a production overrun, there is no other means by which ATG is able to supply gloves to PSPs as it does not maintain warehouses anywhere in the world and it does not maintain stock of finished products i.e. its entire manufacturing process is on a ‘to order’ basis with the ATG factory emptied of finished products at the end of each production month.
Safety Mate carries on business as a distributor of hand and eye protection wear in Australia, New Zealand and Papua New Guinea.
Since about 2006, Safety Mate has been the exclusive distributer for ATG in Australia, with the sale of ATG products accounting for approximately 90 per cent of the total sales made by Safety Mate in the 2019 financial year.
Distribution agreement
In a date in about October 2017, the parties entered into an Agreement. Safety Mate is described as a ‘PSP’ being the exclusive distributor to import and distribute glove products in Australia, New Zealand and Papua New Guinea (PNG) geographic regions.
Pursuant to cl 2.1, ATG appointed Safety Mate to be an exclusive distributor to import and distribute certain ‘Products’ in Australia, New Zealand and PNG, on the terms of the agreement.
Those ‘Products’ were the glove products of a particular type and specification manufactured under ATG’s trade marks (cl 1.1).
Clause 14 provides for termination by either party, which may take place in accordance with cls 2.2 or 17.3 (relating to force majeure) or with immediate effect in the case of material breach of any of the terms of the Agreement, pursuant to cl 14.1.2.
In this case, ATG relied on cl 2.2 which reads as follows:
2.2This Agreement shall come into effect on the Commencement Date (1 October 2017) and shall continue in force for the Initial Term (2 years from Commencement Date) unless:
2.2.1terminated earlier by either party giving not less than [6 months’] prior written notice to expire on the expiry date of the Initial Term, or
2.2.2the Agreement is continued for further 2 year + 2 year periods, Contract Term, on the same terms, by either party giving not less than six (6) months’ prior written notice to the second and forth (sic) anniversary of the expiry date of the Initial Term, or
2.2.3the Agreement is terminated in accordance with the provisions of Clause 14 (Termination) below.
Clause 4.3 provides as follows:
4.3ATG undertakes to use its reasonable endeavours to meet all orders for the Products sent to ATG by the PSP in accordance with ATG’s Proforma invoice and terms of Delivery to the extent that the orders do not exceed the forecast for each type of the Products provided under sub-clause 5.2 (save for Events of Force Majeure).
Clause 12.2 further provides that ATG warrants and undertakes that it shall at all times act in its relations with the PSP in good faith.
Events of March 2019
By letter dated 21 March 2019, ATG sought to terminate the agreement by correspondence which read:
We act for ATG Lanka (PVT) Limited (our client).
Our client and Safety Mate Pty Ltd (Safety Mate) are parties to a document titled ATG Lanka (PVT) Limited and Safety Mate Pty Ltd DISTRIBUTION AGREEMENT (the agreement).
We now say as follows:
1.The Term of the agreement is defined as the Initial Term (and any extensions thereto as permitted under clause 2.2.2 of the agreement) being two (2) years from the Commencement Date which is 01 October 2017.
2.Therefore, it can be said that the Initial Term ends on 30 September 2019.
3.Clause 2.2 of the agreement states as follows:
2.2This Agreement shall come into effect on the Commencement Date and shall continue in force for the Initial Term unless:
2.2.1terminated earlier by either party giving not less than [6 months’] prior written notice to expire on the expiry date of the Initial Term
(emphasis added by the writer)
4. Clause 14 permits termination in accordance with clauses 2.2 or 17.3.
5.Clause 31 sets out the provisions for “Notice” under the agreement which relevantly stay as follows:
(i) The notice must be in writing in English;
(ii) The notice must be signed by or on behalf of the party giving it;
(iii) Shall be delivered personally or sent by express post.
We now give notice on behalf of our client that the agreement is terminated and will come to an end on 30 September 2019.
This notice of termination is being served by email as a courtesy noting such is not stated to be an acceptable form of service under clause 31 of the agreement.
This notice of termination is however also being served personally and by express post, and has been signed by the writer, and therefore constitutes acceptable service.
To discuss this further please contact the writer direct on (03) 9001 6909 or [email protected].
However, by letter dated 26 March 2019, Safety Mate also sought to extend the agreement for a further period of 2 years:
Pursuant to clause 2.2.2 of our agreement, we hereby exercise our right to extend the agreement for a further period of two years commencing on 1 October 2019.
We note that this extension, as well as according with the terms of the contract, accords with the intended duration of the contract as recorded in exchange of emails between us at the time that the contract was entered into.
There was some disagreement between the parties as to precisely when these communications were served. Nevertheless, it appeared to be accepted, consistent with evidence of Mr Clifton Tee (director of Safety Mate), that the notice purporting to exercise the extension was served by facsimile on ATG on 26 March 2019 at 2:26 pm.
On 28 March 2019, ATG issued this proceeding for a declaration that the notice of termination was effective. No injunctive relief was sought by Safety Mate at this time, rather, as will be seen below, no application was brought until 28 August 2019.
Entry of Mayo as proposed alternative distributor
On 3 May 2019, ATG’s solicitors wrote correspondence to Safety Mate’s solicitors, Patane Lawyers, which stated that the agreement was to end on 30 September 2019. Further, that the ‘final product order’ which ATG would supply to Safety Mate would be ‘in the July 2019 production run.’ The correspondence further stated that ‘your client (Safety Mate) is well aware of the lead time in production and subsequent supply and will therefore understand why the aforementioned date has been stated.’
Meanwhile, it appears that ATG had commenced speaking to Mayo in around January 2019 about becoming the substitute exclusive distributor from 1 October 2019. On 1 May 2019, Mayo placed an order for gloves to be manufactured from July 2019 in anticipation of being appointed PSP on 1 October 2019 (the July order). There have also been subsequent orders placed in respect of August 2019 and September 2019.
These appear to have been accepted on the basis of certain standard conditions contained in the relevant purchase orders. There were further additional conditions as described below:
The recommended purchase quantities have been made by ATG on the basis of their understanding of the Australian and NZ market requirements and their intention to appoint Mayo Hardware as Primary Sales Partner (PSP) for Australia and NZ. Therefore in addition to the standard terms and conditions the order is approved on the following additional conditions:
- That the quantities of each item are broadly in-line with the market demand for the products, in the event that any items on the purchase order can’t be sold into the market in a reasonable time period then ATG and Mayo will agree on a stock rebalancing and ATG will bear any associated costs.
- That Mayo and ATG enter into a formal agreement appointing Mayo Hardware as ATG’s PSP for the Australian and New Zealand territory. In the event that Mayo is not appointed PSP or is unable to commence selling the products into the territory in a reasonable time period from taking receipt of inventory then ATG will reimburse Mayo for the full landed costs of the inventory and any associated handling costs.’ (emphasis added).
On 15 May 2019, Patane Lawyers for Safety Mate, wrote in response to the 3 May 2019 letter stating, inter alia, that ATG had presumed that the present Court proceedings had been decided and that the letter was premature. They requested the relevant clause number of the Agreement which stipulates when final product orders will be supplied.
By orders dated 29 May 2019 and 31 May 2019, Safety Mate then placed orders bearing order number PO964 and PO965 respectively for shipment of gloves. The shipment date specified in both orders was 30 August 2019 with a required arrival date of 30 September 2019.
On 17 June 2019, ATG referred to the two orders for product ‘to be delivered to port on or about 30 September 2019.’ It advised that, given the notice of termination which stated that the Agreement was at an end as at 30 September 2019, that ATG declined to accept the orders.
The evidence of Mr Jason Sheerin (country manager of ATG) is that if these orders had been filled, they would at the earliest have been shipped at the end of August 2019 and would arrive in Brisbane at the end of September 2019. By the time the products cleared customs and were transported to Safety Mate’s warehouse, the Agreement would have expired.
On 26 June 2019, correspondence marked urgent was sent by Patane Lawyers to HDL Legal (solicitors for the plaintiff). It stated:
Would you please confirm by midday 28 June 2019 that your client will be issuing a proforma invoice in respect of Order numbers PO964 and PO065 and will be delivering such products to our client.
Take notice that, in the event that we do not receive any response by the nominated time or alternatively you client still refuses to provide the products to our client, our client reserves all its rights to apply to the Court seeking relief against your client in relation to the supply of the products. In the event that such application is necessary, we will bring this correspondence to the attention of the Court, including on the question of costs. (bolded and italics emphasis added).
On 27 June 2019, a response was provided by HDL Legal. It suggested that there was no point in ATG supplying product beyond Safety Mate’s actual requirements to 30 September 2019. It therefore sought information which included information as to what stock Safety Mate actually held, so as to identify those actual requirements. Insofar as orders PO964 and PO965 were concerned, it suggested that, given Safety Mate requested delivery for 30 September 2019, Safety Mate had therefore represented that it did not need stock delivered before that date.
The end result was that no invoices were issued and no confirmation provided that the stock would be delivered. Despite this, no injunctive relief was sought. Rather, on 28 June 2019, orders were made for completion of interlocutory steps to a trial.
By orders dated 1 July 2019 and 3 July 2019, Safety Mate placed purchase orders numbered PO974 and PO980 respectively with ATG. These orders both gave a required shipment date of 30 September 2019 and a required arrival date of 31 October 2019.
On 5 July 2019, ATG advised that, as the Agreement was at an end as of 30 September 2019, that the orders would not be accepted.
On 17 July 2019, Safety Mate became aware that the new distributor of ATG would be Mayo, through a client, IPP.
Subsequently, on 19 July 2019, Patane Lawyers wrote to HDL Legal again requesting advice by 22 July 2019 that a proforma invoice in respect of PO964 and PO965 would be issued and that the products would be shipped by the end of August 2019. The letter concluded:
It appears that your client’s position remains that it will not supply product to our client post 30 September 2019 despite the fact that the court proceedings will not be determined by that date. Please advise by midday 22 July 2019 if our understanding is incorrect.
Take notice that in the event that we do not hear from you by the above nominated times, or that your client’s position remains that [ATG](sic) will not deliver the products detailed in PO964 and PO965, or supply to our client post 30 September 2019, that our client will be taking further steps against your client which may include seeking injunctive relief.
By correspondence of 22 July 2019, HDL Legal wrote saying that their client’s position remained unchanged stating ‘if ATG has sufficient information about Safety Mate’s actual requirements for products to 30 September 2019, it will use its reasonable endeavours to supply sufficient products to Safety Mate to meet those requirements.’
The end result is that no proforma invoice was issued and no goods were delivered by end August 2019.
In or around July 2019, it also appears that ATG contacted customers of Safety Mate, including one of its largest customers, Blackwoods (on 9 July 2019), to advise them of the termination of the Agreement, and also that Mayo would be the new ATG PSP.
In the meantime, ATG also manufactured goods the subject of the orders from Mayo. Mr Sheerin says that orders for manufacture in July 2019 and August 2019 have now been manufactured and dispatched to Mayo and are packaged with Mayo branding. Mayo has also placed an order for gloves to be manufactured in September (there is also reference to orders post September which have not yet been paid for by Mayo).
The evidence of Ms Sarah Mayo (CEO of Mayo) is that, as at 30 August 2019, Mayo has ordered and paid for ATG products at a cost of USD $2.626 million. These payments have been made on the basis that ATG products ordered and paid for by Mayo would become the property of Mayo upon payment. It also claims to have incurred a large number of other costs which include funding costs for increased drawings of AUD $3 million with the Australian and New Zealand Banking Group Limited (ANZ).
On 8 August 2019, Safety Mate then sent an email to ATG relating to existing ‘back orders’ for customer requirements for August and September 2019. Such a request had been made previously from time to time. These ‘back orders’ are orders from customers which could not be supplied at the time the order was placed due to stock shortages. Safety Mate requested that the products be air freighted by ATG by 21 August 2019.
On 12 August 2019, in response, ATG advised that it was waiting on information from the factory and, once this information was received, it would be in a position to respond. Mr Sheerin now says that ATG does not hold spare stock from which it could meet those back orders.
On 28 August 2019, Safety Mate then filed its summons seeking interlocutory relief.
Injunction
Legal Principles
The principles governing the grant of an interlocutory injunction are well established.
The applicant must establish three criteria:[2]
[2]Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, 68 [19] (Gleeson CJ and Crennan J); See also 82 [65] (Gummow and Hayne JJ).
(a) there is a serious issue to be tried as to its entitlement to relief at trial. In order to satisfy that requirement, the applicant must make out a prima facie case as to its entitlement to that relief, in the sense that it must show a sufficient likelihood of success at trial to justify, in the circumstances, the preservation of the status quo pending trial;
(b) that the applicant is likely to suffer injury for which damages is not an adequate remedy; and
(c) that the balance of convenience favours the granting of an injunction.
In terms of balance of convenience, the Court of Appeal in Bradto Pty Ltd v State of Victoria stated:[3]
In our view, the flexibility and adaptability of the remedy of injunction as an instrument of justice will be best served by the adoption of the Hoffman approach. That is, whether the relief sought is prohibitory or mandatory, the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been ‘wrong’, in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial.
[3](2006) 15 VR 65, 73 [35].
Serious question
Safety Mate raised 3 serious questions for consideration:
(a) First, there was a ‘construction point.’ This was that, on a proper construction of cl 2.2, the objective intention of the parties was that the term was for 6 years with a review at the end of each 2 year period. Given this, neither party could terminate without cause if the other party gave notice that it wanted to extend under cl 2.2.2 (even if such notice was given after the notice to terminate);
(b) Secondly, there was a notice argument. This was that, even if the Agreement meant that the first notice in time took priority, then the extension notice was served first in time; and
(c) Thirdly, that there was a breach of the good faith obligation.
Construction point
Counsel submitted that there was a serious question to be tried about whether, even if the termination notice was delivered first, Safety Mate was entitled to give notice to extend if notice is given at any time prior to 31 March 2019. It was submitted that cl 2.2.2 was effectively an overriding provision which was supported by the words ‘unless’ and ‘or.’ Further, that if the parties could terminate regardless of service of a notice for extension, that this would make the notice of extension provision redundant.
ATG submitted that there was no justification for such a submission and nothing in the Agreement to suggest that a notice of extension ‘trumps’ the right of termination. More particularly, that there was nothing about the words ‘unless’ and ‘or’ which suggests that the right to terminate the Agreement is defeated if the other party subsequently purports to extend the Agreement.
It was further submitted that the right to terminate was also available even if the notice to extend was given earlier. The only proviso was that such notice be given not less than 6 months prior to the expiry date of the Initial Term.
The principles governing contractual construction were recently summarised by the Victorian Court of Appeal in PCCEF Pty Ltd v Geelong Football Club Ltd as follows:[4]
In short, the primary duty of a court construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. The meaning of the contractual terms is to be determined objectively, by reference to what a reasonable business person would have understood the terms to mean. The proper approach involves consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contact or lease. Ordinarily, the process of construction is possible by reference to the contract alone. At least where the language of the commercial contract is ambiguous or susceptible of more than one meaning, evidence of the surrounding circumstances is admissible to assist in the interpretation of the contract. (citations omitted)
[4][2019] VSCA 144 [27] (Whelan, McLeish and Emerton JJA).
Insofar as Safety Mate’s point is concerned, there is nothing in the language that suggests the right to terminate is in some way subordinated to the right to give notice to extend. The word ‘or’ supports that each of the options are independent and discrete. The word ‘unless’ takes the matter no further.
Safety Mate’s construction is also not supported by a consideration of the context in which cl 2.2 appears. Thus, though the parties have intended to place limits on termination without notice, (by requiring that there be in existence the matters contained in cl 14), the mutual termination on 6 months’ notice is left unrestricted. There is no reason to impose limits on such a clear right as Safety Mate’s construction seeks to do.
The more complex issue is whether the right to terminate may operate even if a notice to extend pre-dates it (as is alleged to have occurred here). Although there is much merit in the suggestion that the right to terminate would still independently exist, it may at least be arguable that the Agreement is ‘continued’ such that it may not be then terminated under cl 2.2.1. The matter is, at least, not free from doubt though it also depends on whether it is arguable that service of the notice to extend ‘came first’ (which will be considered below).
In any event, a more potent argument (which was not raised by either side at the hearing) is whether what occurred here was a valid termination anyway. Thus, the default position under cl 2.2 is that the Agreement only lasts for the ‘Initial Term’ unless, inter alia, it is terminated ‘earlier’ under cl 2.2.1. However, the notice purporting to terminate did not purport to terminate earlier in this case. To the contrary, it gave notice that the Agreement would come to an end on 30 September 2019. This, however, was already the case on expiry of the Initial Term. This then raises an issue as to whether there has been an effective termination under cl 2.2.1 at all. If no such termination was effective, the notice to extend would potentially operate regardless of the timing of the notice to terminate.
Overall, then, I consider that there are issues of construction which are raised for investigation at trial.
Service point
Evidence
Safety Mate’s evidence was that it served its notice of extension by facsimile on 26 March 2019. According to cl 31.3.2 of the Agreement, this was deemed to be received at the time of transmission, which was 2:26 pm.
ATG relied on an affidavit of Derek Lippner of 12 September 2019. This suggested that there were four methods of service of the notice to terminate, which (potentially) were effective prior to 26 March 2019 at 2.26 pm:
(a) an email sent on 25 March 2019 at 2.27 pm to the two directors of Safety Mate, Mr Tee and Mr Michael Temperton;
(b) by express post on 21 March 2019, which was delivered by a postal employee at 10.19 am on 26 March 2019 to an address in Bundall (being the address given for Safety Mate in the Agreement);
(c) hand delivery by a process server on 26 March 2019 at 11.50 am to a person who said she was authorised to accept the document on behalf of the director, Mr Temperton, at the registered office (in Brisbane)(Brisbane Address); and
(d) by express post on 21 March 2019, which was delivered by a postal employee at the registered office at the Brisbane Address on 26 March 2019 at 1.23 pm.
Clause 31 Notices
In order to understand the submissions of the parties, it is necessary to set out clause 31 which reads:
31 NOTICES
31.1 A notice served under this agreement:
31.1.1 shall be in writing in the English language;
31.1.2 shall be signed by or on behalf of the party giving it; and
31.1.3 shall be:
(a) delivered personally; or
(b) sent by fax; or
(c) sent by commercial courier; or
(d) sent by pre-paid first-class or express post or recorded delivery; or
(e)(if the notice is to be served by post outside the country from which it is sent) sent by airmail requiring signature on delivery.
31.2 The addresses for service of notice are as set out on page 1 of this agreement.
31.3 A notice of any other communication given in connection with this agreement is deemed to have been received:
31.3.1 if delivered personally, at the time of delivery; or
31.3.2 in the case of fax, at the time of transmission; or
31.3.3 if sent by commercial courier, at the time of signature of the courier’s delivery receipt;
31.3.4 in the case of pre-paid first class or express post or recorded delivery, 9.00 am on the sixth (6) Business Day after posting; or
31.3.5 in the case of standard airmail, 9.00 am on the tenth (10) Business Day after posting.
31.4 For the purposes of this clause:
31.4.1 all times are to be read as local time in the place of deemed receipt; and
31.4.2 if deemed receipt under this clause is not within business hours (meaning 9.00 am to 5.30 pm Monday to Friday on any Business Day), the notice shall be deemed to have been received at the opening of business on the next Business Day in the place of receipt;
31.5 To prove delivery, it is sufficient to prove that the notice was transmitted by fax to the fax number of the party or, in the case of post, that the envelope containing the notice was properly addressed and posted.
Submissions
In relation to the email sent 25 March 2019, Safety Mate says that it did not constitute service as required by cl 31.1.3 of the Agreement.
In relation to service at the Bundall address, Mr Tee deposes that ATG was aware that, as at 21 March 2019, Safety Mate had relocated from the Bundall Address. Further, Safety Mate did not receive the letter at the Bundall Address on 26 March 2019.
In terms of delivery to the Brisbane Address, Safety Mate submits that this address was not specified in the Agreement.
Resolution
First, in terms of the email, it is true that email is not included as a mode of service under cl 31.1.3. In such circumstances, service by email is arguably ineffective.
In terms of the Bundall Address, the evidence suggests that the notice was not received. In such a case cl 31.3 may need to be relied upon which deems receipt to be 9.00 am on the sixth business day after posting. This would be 29 March 2019, which would postdate the date of service of the notice to extend.
In terms of the Brisbane Address, it is true that this is not specified in the agreement under cl 31.2. However, s 109X(1) of the Corporations Act 2001 provides that a document may be served on a company by leaving it at, or posting it to, the company’s registered office. An issue of construction may then arise as to whether the specification of the address for service in the Agreement operates regardless of such a provision.
Overall, then, there appear to be arguments available as to the date of service of the notice of termination, more particularly, as to whether service of the notice to extend predated such a notice.
Good faith
There was a lack of precision about this complaint though there appeared to be three major grounds as follows:[5]
[5]Transcript of Proceeding, ATG Lanka (PVT) Ltd v Safety Mate Pty Ltd (Supreme Court of Victoria, S ECI 2019 01329, Kennedy J, 11 September 2019) 58, 79.
(a) since at least January 2019 ATG had been negotiating with and supplying products to Mayo;
(b) ATG has been limiting supply to Safety Mate; and
(c) ATG had supplied Mayo with commercially sensitive information.
These matters were said to be in breach of cl 4[6] in the Agreement and incongruous with the exclusive nature of the bargain between the parties.
[6]In particular, cl 4.2.2 which prohibited “supply” to other persons during the term of the Agreement.
ATG accepted that there may at least be an arguable case that the duty of good faith applies in the context of ATG’s right to terminate. However, that ATG acted for legitimate commercial reasons to ensure it had a PSP who effectively promoted its products. In respect of the particular matters raised, it submitted that negotiation was appropriate to ensure a substitute PSP was on board in time; that any limiting of supply in January 2019 was justifiable and consistent with previous reductions; and that no breach of confidential information was demonstrated, and certainly none prior to termination.
Resolution
The question of a breach of cl 4 was not properly argued and will not be considered on this application.[7]
[7]Save to say that the position of ATG was that, property construed, the Agreement would not prevent ATG from supplying product to Mayo provided that Mayo was not going to distribute that product during the term. Further, that if there was a breach, it was a technical one and it would sound in damages. Transcript of Proceeding, ATG Lanka (PVT) Ltd v Safety Mate Pty Ltd (Supreme Court of Victoria, S ECI 2019 01329, Kennedy J, 11 September 2019) 238.
Furthermore, negotiations and approaches to alternative suppliers do not substantiate the allegation that the notice of termination was exercised in bad faith. Clause 2.2.1 provides for an unrestricted entitlement dependent only on timing. It is entirely appropriate that, in this context, a commercial entity would be making arrangements for the appointment of a substitute PSP, particularly given the lead times involved.
In terms of limiting supply, the sworn evidence of Mr Sheerin is that the limiting of products was not new in January 2019. Rather, that there had been a number of occasions when Safety Mate had been required to reduce orders over the course of the relationship. This is to be compared with the shipment in June 2019 and July 2019 wherein he agrees that limits were imposed. However this was post termination and cannot assist in showing that the termination was given in bad faith.
In regard to the confidential information, Counsel’s submissions make reference to the affidavit of Mr Tee at [65] and [84]-[85].[8]
[8]Defendant’s Outline of Submissions filed 29 August 2019, 9 [27] n 21.
However, these paragraphs contain vague unsubstantiated allegations as to what ‘appears’ to have occurred. Paragraph 65 makes reference to an exhibit (Exhibit CJT-33 ). This contains email correspondence of 7 August 2019 where reference is made to information regarding Safety Mate purchases and ‘additional market intel.’ However, again it is very vague and postdates the termination.
In reply submissions, Senior Counsel for Safety Mate made reference to Ms Mayo’s affidavit [7]-[9] wherein Ms Mayo deposed to the fact that Mr Sheerin shared information ‘about Mayo’ at a meeting on 13 February 2019. This cannot assist Safety Mate.
Overall, then, there is nothing on the material before me to suggest there is some serious question arising as to whether the notice of termination was sent in breach of the duty of good faith. Rather, as Safety Mate itself suggests in written submissions, ‘it appears that it was a disagreement about ATG’s preferred marketing strategy for the region that has led to ATG seeking to rely on clause 2.2 of the agreement.’[9] This is not evidence of bad faith.
Summary
[9]Defendant’s Submissions in Reply filed 9 September 2019, 5 [11].
I am not satisfied, on the material before me, that Safety Mate has raised any arguable case that the right to terminate was not exercised in good faith.
There are, however, issues of construction which raise a serious question as to whether the Agreement has been extended. First, there is an issue as to whether ATG was entitled to terminate after service of a notice to extend. Second, there appears to be an issue as to whether the notice to terminate could be effective under cl 2.2.1 where it was not sought to terminate ‘earlier’ than would be the case if the Initial Term was left to expire.
It is difficult to determine the strength of Safety Mate’s case where the matters have not been the subject of fulsome argument, and where there is some urgency in the resolution of this application.
However, I consider that a serious question is raised.
Adequacy of damages
Safety Mate submits that there will be irreparable damage to its business given 90 per cent of its contracts are constituted by ATG products. Further, that there will be difficulty with enforcement in Sri Lanka, which is costly and uncertain.[10]
[10]Citing Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd [2018] FCA 142.
There is also nothing to show that ATG would have assets in the jurisdiction so as to satisfy any damages claim. Further, that no security has been offered.
Safety Mate also cited decisions where injunctions have been granted to prevent a supplier from acting on a purported termination, in particular citing a passage from Moonlight InternationalPty Ltd v International Lighting Pty Ltd[11] where Finkelstein J stated that Courts had recently begun to protect long–term supply agreements ‘recognising that the plaintiff’s survival in business often depends upon guaranteed supply’. Further, that ‘damages will not be a sufficient remedy in those circumstances.’[12]
[11][2000] FCA 41.
[12]Ibid [22].
ATG submitted that there are readily available mechanisms for reciprocal enforcement of judgments. Further, that ATG was well off financially as it is one of the world’s largest manufacturers of gloves with a 15-20% market share of the industrial sector in Australia, New Zealand and PNG.
The matters raised by Safety Mate are significant ones. In particular, a Court is ordinarily very concerned about damage to a business which is so dependent on a supplier (as appears to be the case here).
Against this, however, must be weighed the fact that the damage to the business appears to have already been largely done in circumstances where Safety Mate, for some time now, has been unable to obtain stock, and where approaches have already been made to Safety Mate’s customers. It is unclear in such circumstances that the grant of an injunction now will address any irremediable loss (even presuming such loss exists). Any future losses may otherwise be capable of assessment in the usual way.
I am therefore unable to be satisfied that, if the injunction is not granted, Safety Mate is likely to suffer injury for which an award of damages will be inadequate. In any event, issues of balance of convenience, and particularly utility and delay, must also be considered, below.
Balance of convenience
Counsel for Safety Mate submitted that refusal of the injunction would undermine the very purpose of this proceeding, and that it was appropriate to order the injunction to preserve the status quo.
Counsel further accepted that the following matters were advanced in favour of injunctive relief i.e. that Safety Mate will: [13]
[13]Transcript of Proceeding, ATG Lanka (PVT) Ltd v Safety Mate Pty Ltd (Supreme Court of Victoria, S ECI 2019 01329, Kennedy J, 11 September 2019) 82.
(a) have breached its supply contracts with its main customers and will be liable for damages;
(b) lose those customers;
(c) lose significant profits;
(d) likely breach other agreements;
(e) potentially lose staff;
(f) have suffered irreparable damage to its reputation.
ATG submitted that the parties ought not be forced to continue their relationship which had broken down; that they had become committed to an alternate third party supplier which would be the only party to have sufficient supplies on hand from 1 October 2019; that there was no demonstrable effort to mitigate loss by obtaining an alternative supplier; and that the undertaking for damages was not supported by security.
In reply, Safety Mate submitted that its financial statements suggested that the undertaking for damages would be satisfied.
Although Mr Tee states that the process of switching customers to a new product will take ‘several months,’ there is otherwise no evidence as to steps taken to mitigate its position in circumstances where the termination notice was served in March, and the relationship between the parties has clearly broken down.
A significant factor in this case was also the impact on third parties. Thus, Mayo, in particular, has incurred significant costs. It is true that Mayo has been aware of this litigation and has taken some commercial steps to protect its position. Nevertheless, in the absence of injunctive relief, there was a commercial imperative for ATG to take steps to ensure that a substitute distributor was in place for 1 October. In such circumstances, the Court is entitled to take the interests of Mayo into account.[14]
[14]Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 [65]-[66] (Brennan CJ, McHugh, Gummow, Kirby, Hayne JJ).
More significantly, as Counsel for ATG highlighted, the ‘core’ issue on the application was the fact that, absent available product, the proposed orders could not be complied with. Delay was also raised as a significant factor in circumstances where a substitute distributor has been allowed to enter the field.
Both of these issues therefore warrant further consideration.
Impossibility of Compliance and Inevitable Breach of Order
Proposed Order 2
Safety Mate highlighted that ATG was only obliged to use ‘reasonable endeavours’ to ‘supply’ product (rather than deliver)(citing cls 4.1.1 and 4.3). It was further submitted that the stock could have been delivered on the purchase orders consistent with what has occurred with Mayo.
Safety Mate also submitted that product could be supplied by way of the products already supplied to Mayo. The indemnity given to ATG also meant that no loss would be suffered by Mayo. At the hearing, Safety Mate further offered to meet any costs of repackaging and rebranding.
ATG submitted, consistent with the evidence of Mr Sheerin, that the product could simply not be delivered within the time frames sought given the 4 month lead time. The fact that only ‘reasonable endeavours’ was required was also not to the point given ATG simply will not have the stock to provide in the timeframe sought. Although the obligation is also to ‘supply’, this will also factually needed to be by way of delivery.
In terms of Mayo, ATG highlighted that no orders had been sought against Mayo. Second, that the stock was not identical in any event. Moreover, although ATG may have supplied an indemnity, this did not give it a right to repurchase stock against Mayo’s will as the power solely resided with Mayo, who could decide whether to seek reimbursement.
In terms of part (iii) of Order 2, ATG relied on the evidence of Mr Sheerin that, even as at 8 August 2019, it was too late for ATG to manufacture and supply these goods. Further, that ATG does not hold any spare stock to meet these back orders.
Order 1
The prime focus of Order 1 was to prevent the appointment of Mayo. Thus, Safety Mate sought to preserve its rights to continue to distribute post termination and prior to any final determination of the legality of the termination.
ATG submitted that Order 1 would also be pointless in circumstances where Safety Mate will not have sufficient stock if it fails under Order 2. Thus, even if ATG was ordered to deliver stock today, such stock would not be shipped until January 2020 and delivered until February 2020. In the meantime, no one would be able to sell ATG’s stock.
Reference in this regard was made to certain evidence of Mr Sheerin as follows:
I refer to paragraph 9 above. If the Channel Partners run out of stock (which they will very quickly do, if the Proposed Injunctions are granted), so too will their end-users. The Channel Partners and/or end-users would need to quickly source replacement gloves which meet the Required Standards from different manufacturers. The flow-on consequences of this could potentially include:
(a)if replacement gloves cannot be approved quickly enough, there is a danger that particular worksites could be temporarily shut down by site management and/or the relevant union, which would have drastic flow-on consequences for the end-users and their customers, which in turn would generate antipathy towards ATG from those end-users and their customers;
(b)the Channel Partners being reluctant to continue to promote ATG products and may actively seek to change their other end-users from an ATG product to an alternative for fear of a supply-shortage repetition;
(c)the Channel Partners’ reputation in the eye of the end-users would be consequently damaged, and as a result, the reputation of the PSP (Safety Mate) and further, that of ATG, would be irreparably damaged in the eyes of the Channel Partners and end-users. In this situation, everyone in the ATG-to-end-user supply chain loses, including Safety Mate; and
(d)once a Channel Partner or end-user changes its purchasing to another competitor’s product, it may never return to purchasing ATG’s Gloves.
Resolution
A Court will not make injunctive orders if they cannot be complied with and their making would lead inevitably to their breach.[15]
[15]Active Leisure (Sports) Pty Ltd v Sportsman’s Australia Ltd (1991) 1 Qd R 301, 308.
In terms of proposed Orders 2(i) and (ii), the evidence is that the stock can simply not be delivered by the dates proposed. This appears to be the case regardless of what ‘endeavours’ are utilised in circumstances where the proposed Orders oblige ATG to supply and ‘deliver’ the stock by the dates specified.
Safety Mate was unable to challenge this position apart from suggesting that Mayo provide its stock. However, there was no order sought against Mayo. Nor is it clear that ATG can effectively force Mayo to resupply the stock to it. In any event, the evidence was that the stock was not all of the same variety/quantities.
In terms of proposed Order 2(iii), the evidence of Mr Sheerin is again that the stock is not available.
Overall, then, it appears to be inappropriate to grant Order 2, even if all other factors weighed in favour of Safety Mate, since the orders could not be complied with and would inevitably lead to breach.
As highlighted by Senior Counsel for ATG, Order 1 presented essentially two options to the Court: first, to leave Safety Mate in the position where it remains the exclusive distributor but without ongoing stocks to supply end-users; alternatively to allow stock to continue to be supplied to Mayo with the defendant left to seek damages.
In the light of the evidence of Mr Sheerin, the lower risk of injustice appears to weigh in favour of a refusal to interfere in circumstances where the status quo has effectively shifted over the last several months. However, this will also be assessed in the context of the alleged delay in seeking a remedy, below.
Delay
ATG submitted that Safety Mate was on notice on both 3 May 2019 and 17 June 2019 that the orders would not be fulfilled. They were also on notice of the 4 month lead time given their longstanding relationship with ATG i.e. Safety Mate was aware that if it did not seek relief compelling ATG to manufacture and supply the orders, that stock could not be produced and delivered.
Counsel also again highlighted that Safety Mate’s material did not reveal what steps it had taken to secure an alternative supplier in the face of this knowledge.
Safety Mate raised a number of explanations for the apparent delay:
(a) the fact that the proceeding was issued highlighted that the issue of termination still needed to be determined by the Court;
(b) there was a legitimate expectation that ATG would supply invoices PO964 and PO965 at least up until July 2019; and
(c) that it was only through the discovery process that the defendant discovered the relationship with Mayo.
None of the matters raised by Safety Mate provide an acceptable explanation for the delay in this case.
Insofar as Mayo is concerned, Safety Mate was aware that it had been chosen, at least by 17 July 2019. In any event, from 3 May 2019, it was on notice that ongoing supply was an issue regardless of the reason.
The issue of the proceeding itself does not provide an explanation. Thus, the correspondence above suggests that Safety Mate was well aware that injunctive relief would be necessary if orders were to made compelling delivery.
Finally, and most significantly, although there was some ‘to-ing and fro-ing’ in the correspondence summarised above, the undisputable fact was that, given the 4 month lead time, Safety Mate needed to act swiftly if ongoing supply was to be secured. Its failure to act – by June 2019 at the latest - has not only meant that supply on the terms sought is impossible. It has also allowed for the creation of expectations that a third party supplier will be permitted to supply the market. The result is that the position of Safety Mate as exclusive distributor is no longer the ‘status quo’.
The delay in bringing this application then provides a further factor which weighs heavily against the grant of injunctive relief.
Summary
I have accepted that Safety Mate has raised a serious question and that it has depended on ATG as its supplier.
Against this, however, I am unable to be satisfied that, if the injunction is not granted, Safety Mate is likely to suffer loss for which damages will be inadequate. More significantly, there has been delay in seeking relief in circumstances where there was a known 4 month delay in delivery of products. Delay is a matter the court is always entitled to take into account.[16] However, the delay in this case has been critical given it has permitted the entry of a third party who is now ready to commence distribution on 1 October 2019.
[16]See Legg v Inner London Education Authority (1972) 3 All ER 177; Carlton & United Breweries (NSW) (1987) 76 ALR 633, 638-9; Bigdale Pty Ltd Trading as Engima At the Royal Motor Yacht Club v Royal Motor Yacht Club of NSW Port Hacking Branch [2010] NSWSC 1196, [87]-[101].
There is also an independent ground for refusal of Order 2 in circumstances where it simply cannot be complied with. This also has had a consequential impact on whether Order 1 is appropriate in circumstances where Safety Mate will necessarily be denied ongoing supply of product. In such circumstances, not only will there be damage to both ATG and Mayo if Order 1 is made, there is potential damage also to Channel Partners and end users. In the meantime, given the absence of stock, Safety Mate will not be in a position to benefit from any such order.
In all the circumstances of this case, then, the course which carries the lower risk of injustice is that of non-intervention.
For these reasons the application for injunctive relief is refused.
Intervener
Mayo sought to file a summons pursuant to rule 9.06(b)(i) of the Supreme Court (General Civil Procedure) Rules2015, alternatively the inherent jurisdiction, to be added as an intervener to Safety Mate’s summons on the basis that its presence was required before the Court to ensure that all matters to be determined in the injunction application are determined completely. Further, it sought an order that Safety Mate provide Mayo security of costs as a condition of the grant of any injunction being $4,080,850 to date, and up to 30 June 2020 in the sum of $5.7 million, giving a total sum of $9,750,850.
I made Orders on 11 September 2019 that the summons could be filed and heard brief submissions from the parties.
Mayo contended that its legal and commercial interests would be directly and adversely effected if Safety Mate is successful in its application.
Mayo did not adduce any evidence beyond the affidavit of Ms Mayo which was already filed on behalf of ATG (on 4 September 2019). It highlighted the costs it had incurred, including the USD $2.626 million for products ordered (cited above). Additionally, that it has also spent $9,850 meeting potential customers; $27,000 for training of senior staff at ATG’s head office; and labour costs of approximately $3,200 in order to make space for ATG stock now in its warehouse facility.
Mayo also contends that it has not pursued other business opportunities as it intended to perform its obligations under any distribution agreement with ATG from 1 October 2019. It is also likely to suffer reputational damage if it cannot supply its customers from that time, and may suffer harm from its credit providers.
Counsel for Safety Mate submitted that Mayo knew it could not enter into an agreement until after 30 September 2019. Further, that Mayo has no legal interest in circumstances where the purchase orders it has made are conditional on entry into a further agreement for distribution.
Legal Principles
Rule 9.06 provides that:
At any stage of a proceeding the Court may order that –
(b) any of the following persons be added as a party –
(i)a person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all questions in the proceeding are effectually and completely determined and adjudicated upon.
In Roadshow Films Pty Ltd v iiNet Ltd[17] the High Court stated:
A non-party whose interests would be directly affected by a decision in the proceeding, that is one who would be bound by the decision, is entitled to intervene to protect the interest likely to be affected. A non-party whose legal interest, for example, in other pending litigation is likely to be affected substantially by the outcome of the proceedings in this Court will satisfy a precondition for leave to intervene. Intervention will not ordinarily be supported by an indirect or contingent affection of legal interests following from the extra-curial operation of the principles enunciated in the decision of the Court or their effect upon future litigation.
Where a person having the necessary legal interest can show that the parties to the particular proceedings may not present fully the submissions on a particular issue, being submissions which the Court should have to assist it to reach a correct determination, the Court may exercise its jurisdiction by granting leave to intervene…
[17](2011) 248 CLR 37, 38-9 [2]-[3] citing Brennan CJ in Levy v Victoria (1997) 189 CLR 579, 600-605.
Although its agreement with ATG might be said to be conditional, I accept, for the purposes of its application, that Mayo has the necessary interest in circumstances where it appears to have paid for, and has obtained title to, products (some of which are in its warehouse). Particularly if Order 1 was granted, its interests stand to be directly affected in circumstances where it would not be entitled to distribute these products to the market if the injunction sought was granted.
However, the interests of Mayo were already placed before the Court through the affidavit of Ms Mayo. ATG also sufficiently presented submissions as to the impact on Mayo to enable the Court to determine this application. In these circumstances, I do not consider that leave to intervene is necessary.
Mayo also sought to obtain an order for its security for costs pursuant to rule 38.03 of the Supreme Court (General Civil Procedure) Rules2015 as a condition of the grant of an injunction. Such an order was characterised as similar to an undertaking for damages.
I do not consider that the application was a reasonable one where no adequate justification was provided as to why Safety Mate ought to give security of some $9 million in favour of a non-party.
Accordingly, Mayo’s summons dated 10 September 2019 will be dismissed.
Conclusion
The following orders will be made:
(a) The defendant’s summons dated 28 August 2019 will be dismissed.
(b) The summons of Mayo Hardware Pty Ltd dated 12 September 2019 will be dismissed.
(c) The matter will be listed for directions before the Honourable Justice Riordan on 3 October 2019.
I will hear from the parties on the questions of costs.
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