Australian Satellite Communications P/L v Globalstar Aust P/L
[2004] SADC 186
•16 December 2004
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
AUSTRALIAN SATELLITE COMMUNICATIONS P/L v GLOBALSTAR AUST P/L
Judgment of His Honour Judge Smith
16 December 2004
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS
Plaintiff and defendant party to distribution contract – defendant purported to give notice of termination of contract on the basis of plaintiff’s failure to achieve quota as set under contract – application for injunction restraining defendant from acting on notice of termination - held whether defendant had waived compliance with quota provision and whether quotas were in any event validly set were serious questions to be tried - as to balance of convenience discussion of whether damages would be an adequate remedy and whether an injunction would be tantamount to an order for specific performance - held balance of convenience required preservation of status quo – injunction granted.
Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148; Kilpatrick Green Pty Ltd v State Supply Board (1991) 56 SASR 591; NWL Ltd v Woods [1979] 1 WLR 1294; Cayne v Global Natural Resources (1984) 1 All ER 225; State Transport Authority v Apex Quarries Ltd [1988] VR 187; Ajayi v RT Briscoe (Nigeria) Ltd [1964] 3 All ER 556; Commonwealth v Verwayen (1990) 170 CLR 394; Giumelli v Giumelli (1999) 196 CLR 101; Walter Construction Group Ltd v Walker Corp Ltd [2001] NSWSC 283, BC200102189; Equity: Doctrines and Remedies Meagher, Gummow and Lehane, 3rd Ed 1992, considered.
AUSTRALIAN SATELLITE COMMUNICATIONS P/L v GLOBALSTAR AUST P/L
[2004] SADC 186
This is an application by the plaintiff, Australian Satellite Communication Pty Ltd, for an interlocutory injunction restraining the defendant, Globalstar Australia Pty Ltd, from:
·terminating a written agreement between them dated the 1st March 2000; and
·acting upon a letter dated the 26th October 2004 which purported to give notice of termination of said agreement.
Summary of circumstances
As at 1st March 2000, Vodafone Pty Ltd (“Vodafone”) was part of the Globalstar consortium which was licensed to promote, sell and distribute a handheld satellite mobile telecommunications service in amongst other places, Australia. On the 1st March 2000 the plaintiff entered into an agreement in writing with Vodafone called the Globalstar Distribution Agreement (“Agreement”) which, in summary, appointed the plaintiff as the sole distribution agent in South Australia and the Northern Territory for the Globalstar mobile product range. In about December 2002 the defendant, by novation, took over Vodafone’s rights and liabilities under the Agreement. The Agreement was for a term of four years commencing on the 1st April 2000 with an automatic renewal of a further two years. The automatic renewal period is now in place. From the 1st April 2006 the Agreement may be terminated by either party on 30 days notice. In broad terms the Agreement provided that the plaintiff appoint dealers from time to time and through the dealers sell the service and allied products to customers. Connection bonuses in respect of each new customer and an agreed airtime commission is payable to the plaintiff.
Clause 10 of the Agreement provided a mechanism for fixing quotas (ie the number of new customer connections to the service), to be achieved by the plaintiff. Failure by the plaintiff to achieve the required quotas fixed under Clause 10 entitled the defendant to terminate the Agreement “by giving 30 days written notice”. By letter to the plaintiff dated the 22nd April 2004 the defendant purported to fix quotas to be achieved by the plaintiff for the three month period ending the 30th September 2004. The quota fixed was a total of 420 connections. It is common ground that the plaintiff did not achieve the required 80% of this quarterly quota. Then by letter dated the 26th October 2004 the defendant gave 30 days notice to the plaintiff of the termination of the Agreement.
Legal proceedings
On the 5th November 2004 the plaintiff instituted an action in this Court seeking the following relief:
“1.That an interlocutory injunction be granted restraining the defendant from terminating the Globalstar Distribution Agreement dated 1 March 2000 to which the plaintiff and defendant are parties.
2.That an interlocutory injunction be granted restraining the defendant from acting upon the Notice dated 26 October 2004 purportedly giving notice of termination of the said Globalstar Distribution Agreement.
3.That an injunction be granted restraining the defendant from acting upon the Notice dated 26 October 2004 purportedly giving notice of termination of the said Globalstar Distribution Agreement.
4.That the said Notice of termination of the Globalstar Distribution Agreement be set aside.
5.An injunction under s80 of the Trade Practices Act 1974 (Cth).
6.In the alternative, an order under s87 of the Trade Practices Act 1974 (Cth) to vary the Globalstar Distribution Agreement.
7.Damages at common law and under sections 82 and 87 of the Trade Practices Act.
8. ..........
9. ..........”
A draft Statement of Claim has been filed which pleads the following causes of action:
·Breach of contract;
·Breach of s52 of the Trade Practices Act 1974 (Cth);
·Breach of s51AC of the Trade Practices Act 1974;
·An injunction pursuant to s80 of the Trade Practices Act 1974;
·Orders under s87 of the Trade Practices Act 1974; and
·Equitable estoppel.
Then by Notice for Specific Directions of the 5th November 2004 the plaintiff sought an interlocutory injunction, inter alia, in the following terms:
“1...........
2.That an interlocutory injunction be granted restraining the defendant from terminating the Globalstar Distribution Agreement dated 1 March 2000 to which the plaintiff and defendant are parties.
3.That an interlocutory injunction be granted restraining the defendant from acting upon the letter dated 26 October 2004 purportedly giving notice of termination of the said Globalstar Distribution Agreement.
4...........
5...........”
Legal Parameters
The principles governing the grant or refusal of an interlocutory injunction are well settled. In Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 at 153 Mason ACJ, as he then was, said:
“The principles governing the grant or refusal of interlocutory injunctions in private law litigation have been applied in public law cases, including constitutional cases, notwithstanding that different factors arise for consideration. In order to secure such an injunction the plaintiff must show (1) that there is a serious question to be tried or that the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief; (2) that he will suffer irreparable injury for which damages will not be an adequate compensation unless an injunction is granted; and (3) that the balance of convenience favours the granting of an injunction.”
The weighing up of these questions in the interlocutory setting is upon the affidavit evidence on the basis that the evidence will be as deposed to.
Though what is said by Mason ACJ in Castlemaine Tooheys (supra) suggests a three stage process, often the steps are distilled to two propositions, namely whether there is disclosed a serious issue to be tried and where the balance of convenience lies (see Kilpatrick Green Pty Ltd v State Supply Board (1991) 56 SASR 591 per King CJ at 594). Issues such as irreparable injury, detriment and whether damages are an adequate remedy, are subsumed under the general banner of the balance of convenience (see NWL Ltd v Woods [1979] 1 WLR 1294 per Lord Diplock 1306). What is embraced by the concept of balance of convenience is best described by Lord Diplock, in his speech in NWL Ltd v Woods (supra) at 1306, 1307:
“Cases of this kind are exceptional, but when they do occur they bring into the balance of convenience an important additional element. In assessing whether what is compendiously called the balance of convenience lies in granting or refusing interlocutory injunctions in actions between parties of undoubted solvency the judge is engaged in weighing the respective risks that injustice may result from his deciding one way rather than the other at a stage when the evidence is incomplete. On the one hand there is the risk that if the interlocutory injunction is refused but the plaintiff succeeds in establishing at the trial his legal right for the protection of which the injunction had been sought he may in the meantime have suffered harm and inconvenience for which an award of money can provide no adequate recompense. On the other hand there is the risk that if the interlocutory injunction is granted but the plaintiff fails at the trial, the defendant may in the meantime have suffered harm and inconvenience which is similarly irrecompensable. The nature and degree of harm and inconvenience that are likely to be sustained in these two events by the defendant and the plaintiff respectively in consequence of the grant or the refusal of the injunction are generally sufficiently disproportionate to bring down, by themselves, the balance on one side or the other; and this is what I understand to be the thrust of the decision of this House in American Cyanamid Co. v. Ethicon Ltd. Where, however, the grant or refusal of the interlocutory injunction will have the practical effect of putting an end to the action because the harm that will have been already caused to the losing party by its grant or its refusal is complete and of a kind for which money cannot constitute any worthwhile recompense, the degree of likelihood that the plaintiff would have succeeded in establishing his right to an injunction if the action had gone to trial, is a factor to be brought into the balance by the judge in weighing the risks that injustice may result from his deciding the application one way rather than the other.”
In Cayne v Global Natural Resources (1984) 1 All ER 225 at 237 May LJ said:
“... the balance that one is seeking to make is more fundamental, more weighty, than mere ‘convenience’. I think that it is quite clear from both cases that, although the phrase may well be substantially less elegant, the ‘balance of the risk of doing an injustice’ better describes the process involved.”
As is made clear in the above comments, the issue of whether damages will be adequate compensation arises in this process of weighing up detriment. In respect of this question, I adopt that said by Kaye J in State Transport Authority v Apex Quarries Ltd [1988] VR 187 at 193:
“It was contended on behalf of the defendant that the plaintiff could accept its repudiation and sue for damages.
The proper test in these circumstances is not whether damages would provide the plaintiff with an adequate remedy, but rather the test is as was formulated by Sachs L.J. in Evans Marshall & Co. Ltd. v. Bertola S.A. [1973] 1 W.L.R. 349 at p. 379 and approved and adopted in City of Melbourne v. Hamas Pty. Ltd. (unreported, 20 February 1987) by Tadgell J.: “Is it just, in all the circumstances, that a plaintiff should be confined to his remedy in damages?””
Serious question to be tried
The plaintiff contends that the defendant was not entitled to give notice of termination of the Agreement as it purported to do pursuant to Clause 10(3) because:
·the quotas were not validly set in accordance with Clause 10(2)(a);
·the defendant by its conduct had waived its right and entitlement to rely upon the letter of Clause 10 without first giving notice of that intention to the plaintiff and was thereby estopped from insisting on adherence to the Clause;
·the defendant set the quotas and served the notice of termination not for the purpose for which those contractual powers were conferred but in bad faith and/or for the collateral purpose of triggering the premature termination of the Agreement;
·the defendant has been guilty of unconscionable conduct within the meaning of s51AC of the Trade Practices Act 1974 and misleading or deceptive conduct within the meaning of s52 of that Act; and
·the defendant is precluded by equitable estoppel from acting upon the Notice of Termination.
The defendant denies those contentions and in summary argues that the quotas were properly set under the provisions of contract and were a proper basis for giving the notice of termination. Further it denies having waived its entitlement to rely on Clause 10 and draws attention to Clause 18.3 of the Agreement which requires, inter alia, that any waiver be in writing. Further the defendant denies the allegations of collateral purpose and points to the absence of any evidence of any such mala fides.
Clause 10 of the Agreement provides as follows:
“10. DISTRIBUTOR QUOTAS
10.1 Distributor Quotas
a) The Distributor must meet the Initial Quota.
b) The Distributor must meet each Quota in every Quarter. The parties acknowledge the Quota is based on agreed Connection projections for the Distributor.
10.2Subsequent Quotas
a) At least 15 Business Days before the beginning of each Quarter (other than during the first 12 months) Vodafone will set the Quota for the next Quarter in consultation with the Distributor, having regard to:
i)the Distributor’s performance over the previous Quarter;
ii)the Distributor’s performance over the 3 previous Quarters;
iii)the Distributor’s performance over the corresponding Quarter in the preceding year.
b) Where Vodafone has sent the Distributor a notice containing the Quota for the next Quarter and the Distributor does not issue Vodafone a written notice disputing the Quota before the beginning of the next Quarter, the Quota will be deemed to be mutually accepted. Where there is a dispute about the Quota, it must be resolved according to clause 18.6.
c) Where Vodafone fails to issue a Quota in any Quarter, then the most recent agreed Quota remains in effect.
10.3 Failure to Meet Quota
Where the Distributor:
a) fails to meet 80% of its Quota in any Quarter; or
b) fails to meet its Quota for 2 consecutive Quarters,
Vodafone may terminate this agreement by giving 30 days written notice to the Distributor. Vodafone’s sole remedy if the Distributor fails to comply with this clause 10 is termination of this Agreement.”
The “Initial Quota” referred to in Clause 10.1(a) is that set out in item 3 of Schedule 1 of the Agreement which expired at the end of March 2001. Effectively it was the basis on which the Agreement started.
It is common ground that the business has struggled and when the defendant stepped into Vodafone’s shoes in December 2002 it took over a “distressed asset”. So after the Initial Quota, which was not achieved, Vodafone set no further quotas.
It can be seen that Clause 10 provides a comprehensive consultative scheme for setting quotas at the core of which is previous performance. Clause 18.6 is a dispute resolution clause. It is clear from the affidavit evidence that quotas began to feature a year after the arrival of the defendant. Quotas were, to use the plaintiff’s counsel’s word, “suggested” for the December 2003 quarter (ie October, November, December) the March 2004 quarter (ie January, February, March) and the June 2004 quarter (ie April, May, June). On the evidence before me I doubt that these quotas were set in conformity with Clause 10. At this time there were problems making available two new products, namely Qualcomm and the Telit SAT600. If the defendant was purporting to “activate” Clause 10 in respect of these quotas then it failed to signal that to the plaintiff as I consider it should have done given the history. The plaintiff failed to meet these quotas. There was no suggestion or threat that as a result the Agreement could or would be terminated.
Then the defendant claims to have fixed the quotas in accordance with Clause 10 for the September 2004 quarter (ie July, August and September). In particular the defendant claims to have set the quotas pursuant to Clause 10.2(b). and notified them to the plaintiff by the letter dated 22 April 2004 and the attachment thereto (see Exhibits CDJ 7A and CDJ 7B to affidavit of Christopher David Joseland sworn on 5th November 2004). The plaintiff by its sole director denies receiving that letter at that time. It certainly came to his attention later. What is notable is that the quotas are set out in the attachment and do not rate a mention in the covering letter which is wholly devoted to the “new distributor commission structure”. The argument by the plaintiff that this had the effect of masking the claimed significance of the letter as fixing the quotas, is quite compelling.
In all, taking into account the affidavit evidence, I am satisfied that until these events the parties to the Agreement had paid little heed to the quota provisions in the Agreement. In particular there had been no history of complying with the letter of Clause 10 by either going through the step by step consultative process of fixing the quotas and then even threatening to terminate pursuant to Clause 10.3. So in my view the defendant, since taking over the agreement, may have picked up where Vodafone left off, and waived strict compliance with Clause 10. The waiver in these circumstances may have given rise to an equitable estoppel which would act to prevent the defendant insisting on the strict terms of the contract (see Ajayi v RT Briscoe (Nigeria) Ltd [1964] 3 All ER 556 at 559; Commonwealth v Verwayen (1990) 170 CLR 394 at 474-475; Giumelli v Giumelli (1999) 196 CLR 101 at 123-124).
If such a waiver has occurred it is not permanent and can be enlivened by due and reasonable notice. The events giving rise to this litigation would indeed constitute such notice.
In my view Clause 18.3 of the Agreement could not apply to prevent the plaintiff relying on waiver and estoppel (see Walter Construction Group Ltd v Walker Corp Ltd [2001] NSWSC 283, BC200102189, [168, 171, 173 and 175]).
Whether the quotas for the quarter ended the 30th September 2004 were set in proper accordance with the requirements of Clause 10 of the Agreement also constitutes a serious question to be tried. I am satisfied that the defendant may have failed to adhere to the step by step consultation approach required in Clause 10 as a prelude to fixing the quota.
There were two further matters which the plaintiff contended were productive of a serious issue, namely:
·the difficulties with two new products, the availability of which would have impacted on the fixing of the quotas (ie Qualcomm and Telit600 were to be released in November/December 2003 however Qualcomm was not released until May 2004 and Telit600 was never released); and
·the inference, said by the plaintiff, to arise from all the evidence that without legal justification the defendant used Clause 10 for the collateral purpose of seeking to eliminate the plaintiff from its Australia wide network as a distributor.
Bearing in mind my decisions, in respect of the matters of waiver and the validity of the purported basis for termination, it is not necessary to come to a view about whether the above two matters constitute triable issues.
Balance of convenience
I now turn to the balance of convenience and the allied considerations of irreparable harm and whether damages are an adequate remedy. My task here is to have regard to what effects the granting of an injunction will have on both parties. As indicated, it is a process better described as balancing the risk of doing an injustice. “The greater the hardship to the defendant the greater the reluctance of the Court to grant the injunction” (see Equity: Doctrines and Remedies, Meagher, Gummow and Lehane 3rd Ed 1992 at 597).
Whether a detriment is adequately compensated for by damages or whether there might be irreparable harm are important considerations.
In this case the plaintiff claims that the damages will not remedy the breach by the defendant and contends that its loss would be difficult if not impossible to assess because of the following relevant matters which are inherently unpredictable:
·whether the plaintiff would have successfully appointed additional dealers and the number of connections those dealers would achieve;
·the impact of factors such as changes in the defendant’s products, changes in competitor’s products and technology advancement; and
·the value of airtime commissions the plaintiff would have earned from the use of the network by new purchasers (ie at trial, the Court would have to make a finding as to the number of connections the plaintiff would have achieved if the contract had remained on foot, and the Court would then have to determine the amount of airtime which those hypothetical purchasers of the network would have used during the balance of the term of the distribution agreement).
In response, the defendant contends that the damages are easily calculated by reference to the business done in the event of the plaintiff’s departure upon the termination.
In my view, it is difficult at this interlocutory stage to be certain about the conclusiveness of the respective submissions. On the balance I consider that the plaintiff’s damages are not as easily calculable as the defendant suggests. In any event, as I previously indicated, the proper test is not whether damages would provide the plaintiff with an adequate remedy but rather whether in all the circumstances the plaintiff should be confined to his remedy and damages (see State Transport Authority v Apex Quarries (supra) 193).
As to whether the plaintiff will, if the defendant is not enjoined, suffer irreparable harm which cannot be remedied by an award of damages I refer to what I have said above. Mr Joseland deposed to “irreparable harm” in his affidavit at paras 49-51. The claim for such detriment was further articulated by plaintiff’s counsel, Mr P McNamara QC, in argument as follows:
“If an injunction is refused, the plaintiff will suffer irreparable loss:
·Loss of goodwill developed over the last four years as the Globalstar distributor.
·Loss of standing with retailers who are presently part of the plaintiff’s dealer network for the Globalstar product and other products.
·Loss of work for staff members assigned to the distribution function of the Globalstar network.
If an injunction is refused, the plaintiff will be relegated from being a Distributor to a Dealer with an associated loss of the income benefits under clause 8.1(a) and (d) of the Agreement: bonus per connection and airtime commissions.”
Though some of the claimed harm is rather nebulous I consider that some of the maters articulated are indeed irreparable.
I do not accept the submission that to grant the injunction would be tantamount to ordering specific performance. Rather, the injunction would preserve the status quo applicable immediately prior to the purported termination in which event the contract takes effect from then on according to its tenor. In other words if there has been a valid termination the Court will in due course give effect to it. If there has not been a valid termination the contract remains in force and that will be given effect to in due course by the Court. This means that the Court in granting an interlocutory injunction is not compelling the defendant to abide by the provisions of the contract. Rather, it is preventing the defendant for the time being from acting as if the contract had been terminated.
If I am incorrect in declining to characterise the effect of granting the injunction as akin to a decree of specific performance, I note that the principle that an injunction will not lie if the effect of it would be to compel performance of an agreement in respect of which equity would not decree specific performance has, in recent times, been modified (see State Transport Authority v Apex Quarries (supra) per Kaye J at 191, 192). Such an order could be made in this case. The injunction sought here would not require supervision of the type which a court would normally shrink from.
The granting of the restraining orders sought here do not in my view create any new or ambiguous obligation. For the duration of this Agreement the defendant is entitled to act upon Clause 10 and have the quotas fixed in accordance with it. The plaintiff is effectively on notice that Clause 10 will be relied upon by the defendant.
Accordingly, bearing in mind all the factors and in particular bearing in mind that the parties have been commercial bedfellows now for approximately two years, I consider that the balancing exercise favours the preservation of the status quo. The balance of convenience, or put another way the balance of justice, between the parties is so finely weighed that prudence would demand that the status quo be preserved.
Finally, if the making of these orders can be characterised as effectively disposing of the action despite the time to run in this Agreement I would indicate that on the waiver point there is a high degree of likelihood that the plaintiff would on that ground succeed in establishing its right to an injunction at trial (see NWL Ltd v Woods (supra) per Lord Diplock 1307). Such a conclusion of course is predicated on the assumption that the evidence at trial will be the same as that deposed to in the affidavits before me on this application.
Conclusion
Accordingly, I grant the plaintiff’s application.
I leave it to the parties to prepare and file a minute of order embracing these reasons. I note that the plaintiff gives an undertaking as to damages.
I will hear the parties as to the final terms of the orders and as to costs.
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