Cabvan Pty Ltd v Salice, Arturo S.p.A

[1998] FCA 553

FEDERAL COURT OF AUSTRALIA

INTERLOCUTORY INJUNCTION - TERMINATION OF DISTRIBUTORSHIP AGREEMENT - WHETHER REASONABLE PERIOD OF NOTICE - SERIOUS ISSUE TO BE TRIED - BALANCE OF CONVENIENCE - APPROPRIATENESS OF SUPERVISION OF ONGOING COMMERCIAL RELATIONSHIP BY COURT

Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438
Co-operative Insurance Society Ltd v Argyll (Holdings) Ltd [1998] AC 1
Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (High Court of Australia (Full Court), 4 May 1998, unreported)

CABVAN PTY LTD AND ANOTHER V ARTURO SALICE S.P.A. AND ANOTHER
VG 159 OF 1998

JUDGE:        HEEREY J
DATE:          11 MAY 1998
PLACE:        MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 159  OF   1998

BETWEEN:	CABVAN PTY LTD AND ANOTHER APPLICANTS
AND:	ARTURO SALICE S.P.A. AND ANOTHER RESPONDENTS
JUDGE:		HEEREY J
DATE:		11 MAY 1998
PLACE:		MELBOURNE

THE COURT ORDERS THAT:

1. The application for an interlocutory injunction be dismissed.

2. The applicants pay the respondents’ costs of the application, including reserved costs.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 159 OF 1998

BETWEEN:	CABVAN PTY LTD AND ANOTHER APPLICANTS
AND:	ARTURO SALICE S.P.A. AND ANOTHER RESPONDENTS

JUDGE:	HEEREY J
DATE:	11 MAY 1998
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

The applicants seek an interlocutory injunction to restrain the respondents from acting on a purported termination of an existing distributorship agreement.  The distributorship has existed since about 1990.  It is for two products produced by the respondents, respectively runners and hinges for kitchen cupboards.  The termination was effected in January 1998.  The respondents gave six months' notice.  The applicants claim that a reasonable period in the circumstances was 24 months' notice.  It is common ground that the distributorship agreement, although informal and not reduced to writing, did contain an implied term for termination on reasonable notice.  It is also accepted that the reasonableness of the notice has to be determined in the light of the circumstances at the time of termination.

I have first to be satisfied as to whether there is a serious issue to be tried on the question of whether a reasonable term was 24 months, as against the 6 months which the respondents gave.  There are, as Dr Pannam QC for the respondents pointed out, some serious obstacles in the way of the term for which the applicants contend.  The two products generated, on the applicants' own figures, in total only some 20 per cent of their total turnover, and of the two, the runner product was a very small amount.  The uncontradicted evidence at the moment is that there are other distributorships available for products in this market.  There is no evidence on the applicants' part of existing commitments to customers which would be disrupted. 

The evidence of the expenditure of the applicants on building up this product is somewhat vague and in any event the figure of some $200,000 over seven years is, comparatively speaking, not great.  Combined with this is the point made by members of the New South Wales Court of Appeal in Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438 that, generally speaking, for representational arrangements of this type, the shorter the notice the better,. There are obvious practical problems of conflict of interest if the distributor applicants are trading within the notice period and at the same time trying to establish new relationships. Also, as is also pointed out in Crawford, a long period is not really in the interests of a distributor who, if the break must come, must deal with it sooner rather than later.

However, while pointing out those difficulties, as I think it is proper to do since they were raised in argument, I am not prepared to hold that there is no arguable case.  But the Court is entitled to look at the comparative strength of the cases presented as part of the overall exercise of the discretion:  see ICF Spry, The Principles of Equitable Remedies (1997) at 464-465.  I stress of course that I am only dealing with the case at the moment on necessarily limited material. 

What does persuade me firmly against the grant of an interlocutory injunction is the balance of convenience.  It would seem to me undesirable for the Court to be involved in the supervision of an ongoing commercial relationship extending over a period of quite possibly 12 months or more.  There was some mention made of an early trial but, this being a matter on my docket, my commitments are such that it is unlikely that a trial even limited to the issue of liability (which nevertheless I would imagine would take some four to five days at least) could be heard this year.

Counsel for the applicants stressed that there is no allegation of want of confidence made by the respondents and I accept that.  This is not a case where any allegations of bad faith or improper dealing are raised.  But the respondents have taken a commercial judgement that their interests are better served by new distributorship arrangements on a national level.  If the injunction sought were to be granted, the Court would be faced with the extremely difficult and inappropriate task of monitoring an ongoing commercial relationship.  For example the Court might be asked to vary or discharge the injunction on the ground that the applicants’ marketing performance was declining, or that the respondents were being deprived of greater potential sales through their preferred distributors, in both instances to a greater degree than might be foreseen at the moment: see generally Co-operative Insurance Society Ltd v Argyll (Holdings) Ltd [1998] AC 1.

In recent times, of course, there has been a celebrated example of a mandatory interlocutory injunction.  I refer to Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (High Court of Australia (Full Court), 4 May 1998, unreported).  But it is one thing to have continuing mandatory interlocutory injunction which may be brought to an end in the case of the insolvency of a party.  Insolvency is a set of circumstances which can usually be proved in a fairly definitive and objective way.  However, the satisfactory performance of commercial operations and whether business could be done better or more efficiently by some potential new distributor seems a much more inappropriate issue for a Court to resolve.

Also, I am not persuaded that if the applicants make out their case at trial damages would be an inadequate remedy, or that damages would be impossible or even unusually difficult to assess.  Essentially the claim would be for loss of profits.  While often presenting some complexity as a matter of evidence, the concept is a familiar one and the courts are used to coping with it.  I think it would be a very unusual and drastic exercise of the jurisdiction to grant the interlocutory injunction sought.  The respondents, on the material, have acted in good faith.  They have not abruptly broken a contract.  At the very lowest, the period of notice which they gave was arguably "reasonable” in terms of their contractual obligations.  The respondents should not continue to be yoked to a commercial relationship which, for rational reasons, they have decided to terminate. 

For those reasons the application for an interlocutory injunction will be dismissed.  The applicants will pay the costs of this application, including reserved costs. 

I certify that this and the preceding three (3) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey

Associate:

Dated:            20 May 1998

Counsel for the Applicant:	Mr M Colbran QC with Mr M Bevan-John
Solicitor for the Applicant:	Leo Dimos & Associates
Counsel for the Respondent:	Dr C L Pannam QC with Mr M C Hines
Solicitor for the Respondent:	Wantrup & Associates
Date of Hearing:	11 May 1998
Date of Judgment:	11 May 1998