Berlaz Pty Ltd v Fine Leather Care Products Ltd
[1991] FCA 196
•24 APRIL 1991
Re: BERLAZ PTY. LTD.; BRUCE RICHARD TREVENA and MARGARET ROSE FRY
And: FINE LEATHER CARE PRODUCTS LIMITED
No. Q G22 of 1991
FED No. 196
Trade Practices
(1991) 13 ATPR 41-118
COURT
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Pincus J.(1)
CATCHWORDS
Trade Practices - trans-Tasman market - misuse of market power - injunction refused.
Trade Practices Act 1974, ss.46 and 46A
HEARING
SYDNEY
#DATE 24:4:1991
Counsel for the first applicant: Mr P.J. Baston
Solicitors for the first applicant: Primrose Couper
Cronin Rudkin
Counsel for the respondent: Miss M.A. Wilson
Solicitors for the respondent: McCullough Robertson
ORDER
The application for interlocutory relief is refused.
The cost of the said application will be the respondent's costs in the proceedings.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
This is an application for an interlocutory injunction requiring the respondent to continue to supply the first applicant with certain products. The first applicant has been the Australian distributor of the products, which are sold as being useful for maintaining leather; they are made in New Zealand on behalf of the respondent, a New Zealand company. The application is made under s.46 of the Trade Practices Act 1974 ("the Act") and under s.46A; the former relates to misuse of market power generally and the other relates to such misuse in a trans-Tasman market.
I do not propose to include in these reasons the relevant parts of ss.46 and 46A. I note that under s.46, it is necessary for such an applicant as the present to show that the respondent, having a substantial degree of power in a market, has taken advantage of that power for one of three specified purposes, which may be summed up, with some sacrifice of accuracy, by describing them as anti-competitive purposes. Section 46A is a rather similar provision, but under it the respondent must be shown to have a substantial degree of market power in a trans-Tasman market, which is one in Australia, New Zealand or Australia and New Zealand for goods or services; the purpose under the section must be anti-competitive in relation to an "impact market" which means a "market in Australia that is not a market exclusively for services". As argued, the case turned in no way upon the differences between ss.46 and 46A.
The applicants' chief complaint is that the respondent (FLC) terminated the distributorship of the first applicant (Berlaz) with a view to eliminating or substantially damaging Berlaz as a competitor of FLC. The material shows that the termination was preceded by some disputes between Berlaz and FLC about various matters, being principally Berlaz' having relabelled certain of FLC's products as "Textreat" and money allegedly due by Berlaz to FLC. The applicants' counsel argued that these disputes "are all really a sham" and that FLC was "looking for an excuse" to terminate the distributorship.
Although counsel, at the hearing before me, refrained from doing so, I found it necessary to analyse the material in detail to determine whether it is true, as the applicants say, that the disputes raised by FLC were merely a sham. The view I have come to is that, although FLC had legitimate reason for dissatisfaction with Berlaz' conduct, FLC in the months before termination showed a growing determination to get rid of Berlaz. It appears to have had little desire to resolve the disputes, but has, to some extent, sought to exacerbate them. In that sense, but by no means wholly, the disputes were factitious.
But that does not necessarily mean that there was a breach of s.46 or s.46A. The question is whether FLC wished to get rid of Berlaz, rather than resolve its differences with Berlaz, simply because it thought Berlaz was an unsatisfactory distributor, or whether, on the other hand, a "substantial purpose" of its actions was to get rid of Berlaz as a competitor or to drive it from the relevant market: see s.4F of the Act.
In order to make, at a final hearing of the matter, findings as to the true purpose of FLC, it would be necessary to resolve a number of issues, including the content of conversations between the parties. A picture of the disputes sufficient for present purposes may be obtained without attempting to do that, even provisionally; 'for the history of the parties' relationship may be built up from an examination of the correspondence and other admitted documents. The following account is not comprehensive, but rather selective.
On 21 December 1989, FLC and Berlaz executed an agreement (to which the second applicants were also parties) under which FLC licensed Berlaz to use certain marks belonging to FLC for a period of five years. Berlaz undertook, under that agreement, to promote FLC's products under FLC's mark ("Pelle") and pay for products supplied "such sum as shall be determined by FLC". The agreement contained a provision for termination which is defectively drawn and, read literally, makes no sense. It seems to me right to proceed, at the interlocutory stage, on the assumption that, either by a process of construction or rectification, the provision would at a trial be treated as effective. The applicants' case for an injunction was based on breaches of the Trade Practices Act, not on an allegation of breach of contract. I shall treat the agreement as giving FLC a right to terminate in the way the agreement seems to contemplate - i.e, on 21 days written notice in the event that any payment due under the provisions of the agreement is unpaid for a period of one month and not paid under the notice, or in the event of any "serious breach of the terms and conditions of this Agreement ... not put right within 21 days of written notification of breach".
It is important to notice, as was pointed out by Miss Wilson for FLC, that the licence given was not exclusive.
A solicitor for Berlaz, who was present at the discussions in New Zealand which led up to this agreement, says there was discussion about money due by Berlaz to FLC. The solicitor's affidavit said:
"The precise quantum of the amount owing by the
applicant to the respondent was not known as there had been no agreement between the parties as to
that, but it was agreed between both parties that the debt owing to the respondent was in excess of $73,876 A.U.D. (sic)".
According to an affidavit by one of the second applicants, Mr B.R . Trevena, there was an agreement at the meeting as to payment of the debt by Berlaz to FLC. Certain monies due to Berlaz by another party were to be applied towards it.
The evidence filed on behalf of FLC is to the effect that the amount due was much greater than the sum of $A73,876, and I accept that that is so, as that view of the matter is consistent with both Mr Trevena's affidavit just referred to and that of his solicitor. However, on 2 March 1990, FLC sent a fax to Berlaz discussing financial questions in a way which suggested that FLC was willing to accept the necessity of giving Berlaz time to pay monies due.
On 3 May 1990, solicitors on behalf of FLC wrote to solicitors for Berlaz, complaining of non-payment of monies promised, and also about another issue described as "Fuji seals". FLC's solicitor said Berlaz now "seems to consider" that FLC should pay for the costs of the seals. The subject was further discussed in a fax of 24 May 1990, in which FLC said that substantial amounts were still due by Berlaz.
On 3 September 1990, FLC raised a number of contentious issues, including the seals just mentioned, and in particular complaining of monies due by Berlaz. It demanded payment in advance for future orders. A similar fax was sent on 24 October 1990. On 1 November 1990, FLC wrote to its solicitor regarding the account due by Berlaz, asserting that the total amount of the invoices enclosed with the letter had been agreed by Berlaz. The letter said:
"You will note the last time any payment was
received on this account was the 25/05/90".
On 22 November 1990, FLC wrote to Berlaz, according to an affidavit by Mr Trevena, advising of new prices of its products and dealing with terms of trade. The price rises ranged from 30% to 70% and purported to "apply to all products produced by FLC from 1 December, 1990".
On 14 December 1990, Berlaz faxed FLC complaining that its margins had been "eroded by the dollar and change in marketing strategy". Berlaz said it would have to increase prices. Berlaz' case before me was that FLC's increase in price by 30% to 70% was strongly resented, but it is odd that this is not reflected in Berlaz' fax of 14 December 1990, just discussed.
On 20 December 1990, FLC faxed Berlaz suggesting that Berlaz' prices for 1991 would be too high. The fax also suggested that certain of Berlaz' actions had caused damage to the relationship between the two companies and that 1991 was "very unpredictable as to trade between Fine Leather Care and Berlaz". The fax also complained of Berlaz' having marketed "a protector not sourced from Fine Leather Care".
On 7 January 1991, FLC ordered from Berlaz a considerable quantity of "Howe" and "Moran" packaging. The significance of this, in Berlaz' eyes, was that, so it was suggested, Berlaz was buying these packages with a view to competing in Australia with Berlaz. It appears to me, on the evidence, that this suggestion has substance.
On 1 February 1991, FLC sent a fax to Berlaz, again complaining of Berlaz' having sold "Textreat Fabric Protector", being FLC's product relabelled. The fax said that:
"we are currently considering our response to this flagrant contravention of Berlaz's obligations as defined in the Marketing and Distribution Agreement".
Berlaz replied on the same day, denying the alleged breach.
On 5 February 1991, FLC gave Berlaz notice demanding payment of monies said to be due and stating that failure to make payment within 21 days would be a serious breach under the agreement.
On 14 February 1991, a company called Double E Developments Pty. Ltd. wrote to FLC, complaining of Berlaz' poor performance. The letter said that Double E Developments Pty. Ltd. had become a sub-agent of Berlaz, selling products in New South Wales. The letter said that deliveries had become slow and that Berlaz was unresponsive to requests for information. The letter also said that "last year Berlaz introduced a new range of products under the label Textreat Fabric Care".
Mr A.P. Cunningham, a director of FLC, has made an affidavit saying that on 20 February 1991, he received a report about a can of product labelled "Textreat Fabric Upholstery Protector", said to have been marketed by Australian Furnishing Textile Finishers Pty. Ltd., Southport, Queensland. The report said that the product in the can had been made for FLC and relabelled.
In my opinion, FLC's assertion that Berlaz acted in breach of the agreement in selling the product labelled as just mentioned has considerable strength. There is in evidence a copy of a letter from Australian Furnishing Textile Finishers Pty. Ltd. to one Edgington of Double E Developments which gives that case support. Australian Furnishing Textile Finishers Pty. Ltd. (a company the name of which is variously given in the papers) is a company formed by the second applicants. The letter to Edgington says, among other things, "it is the continued sale of the Pelle/Howe products which assists with the funding of the introduction of the Textreat range".
On 26 February 1991, FLC terminated the distributorship.
The evidence supported the submission made on behalf of Berlaz that FLC, at relevant times, dominated the market for leather care products in Australia. It seems unnecessary to set out the details of that evidence, as the point was not contested.
In concluding as I have that, to some extent, FLC's actions in the period immediately preceding the termination of the distributorship were designed to render a termination more likely, I have relied on the tone of its correspondence and the absence of any real attempt to reach any sort of compromise or obtain assurances from Berlaz. However, I have been unable to conclude that the purpose FLC had has been shown, prima facie, to be the suppression of competition or the deterring of competitive conduct, or that there is shown a serious question to be tried. A distinction has to be drawn between purpose and consequence. The clear impression I have gained from the evidence is that FLC's purpose in acting as it did was not to get rid of or damage Berlaz as a competitor, although no doubt FLC knew that terminating the distributorship would be likely to have one or both of those results.
Some other aspects of the matter should be mentioned. First, Mr Cunningham swore that he and his wife were owed a substantial sum by FLC and that they decided to transfer the assets of FLC to themselves pursuant to their rights as debenture holders. Mr Cunningham's affidavit said:
"Accordingly, the Respondent has ceased to carry on business and can no longer supply any product to the First Applicant".
It is unnecessary to determine how that affects the matter; if it were shown that the transfer of assets was executed to make it impossible for Berlaz to obtain relief in these proceedings, the transfer might itself be attacked as having a purpose proscribed by s.46 or s.46A.
Secondly, the argument for the applicants appeared to rely, to some extent, upon a breach of para (a), as well as upon a breach of para (c), of s.46A(2). It is not clear to me on the evidence that para (a) is relevant; there is no obvious basis for a finding that FLC and Berlaz were at relevant times competitors of each other.
Thirdly, the hearing produced no satisfactory explanation of how the Court should perform the task of setting the prices and other terms of trade, if an injunction were granted, but I need not reach a conclusion on that aspect.
Fourthly, although it is in the circumstances unnecessary to discuss the matter at length, it would hardly seem convenient to force the parties back into their former relationship, divided as they are by acrimony and ill-will; if the applicants had a substantial case, it would be one for damages. In some situations it would no doubt be practicable to re-establish a distribution contract, but here it is not.
In my opinion, the applicants failed to show that there is a serious question to be tried on the issue as to whether the termination of the distributorship was in breach of s.46 or s.46A of the Trade Practices Act. The application for interlocutory relief will be dismissed and the costs of it will be respondent's costs in the proceedings.
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