Earth Synergy Pty Ltd v Red Earth Licensing Ltd
[2002] VSC 325
•7 August 2002
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
PRACTICE COURT
No. 5974 of 2002
| EARTH SYNERGY PTY LTD AND ANOR | Plaintiffs |
| v | |
| RED EARTH LICENSING LTD | Defendant |
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JUDGE: | Nettle J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 7 August 2002 | |
DATE OF JUDGMENT: | 7 August 2002 | |
CASE MAY BE CITED AS: | Earth Synergy Pty Ltd and Anor v Red Earth Licensing Ltd | |
MEDIUM NEUTRAL CITATION: | [2002] VSC 325 | |
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Injunction – interlocutory injunction – balance of convenience – undertaking as to damages – inability of plaintiffs to secure undertaking as to damages.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr D.H. Denton, SC with Mr S.H. Parmenter | Vincent J. Ryan |
| For the Defendant | Mr W.T. Houghton, QC with Mr N.D. Hopkins | Deacons Lawyers |
HIS HONOUR:
This proceeding was instituted by writ filed on 13 June 2002. By their statement of claim which is endorsed on the writ the plaintiffs allege that the defendant unlawfully terminated a distributorship agreement pertaining to Red Earth cosmetics. The agreement is dated 17 July 1998 and is for a term of five years beginning on that day.
The plaintiffs seek declarations that the distributorship agreement remains on foot and is effective and injunctions to restrain the defendant from acting on or giving further effect to a notice of termination served on 13 December 2001, and from distributing its Red Earth cosmetic products directly to Red Earth stores in Australia. In the alternative, the plaintiffs seek damages for breach of contract and damages pursuant to ss. 82 and 87 of the Trade Practices Act 1974 for alleged contraventions of Part V of the Trade Practices Act and unconscionable conduct.
The matters in issue cover a substantial period of time, beginning shortly after entry into the agreement, but the more significant of them occurred in the period from late 2000 to December 2001 when the notice of termination was served. As appears from the material before me, the first plaintiff was for some time a company in the nature of a quasi-partnership between the second plaintiff and another lady, and over time the relationship between them broke down. The consequence of the breakdown was that the first plaintiff was deprived of funds which it needed to purchase stock and in order to purchase or otherwise make available display stands to which it was said to have been committed early in the distributorship agreement term. In an attempt to surmount the impasse the second plaintiff bought out the other lady’s interest in the first plaintiff.
By summons dated 17 July 2002, the plaintiffs seek interlocutory injunctions substantially in the terms set out in the statement of claim to restrain the defendant acting further upon the purported termination of the distributorship agreement and from dealing in Red Earth products by way of sales to Red Earth products stores. In the affidavit sworn by the second plaintiff in support of the application it is deposed that the present predicament of the first plaintiff has been brought about, or brought about substantially, by unlawful actions on the part of the defendant in refusing to approve new products for distribution and in unreasonably refusing to approve the transfer to the second plaintiff of the shares of her former partner in the business.
The defendant rejects those contentions. It says in substance that, because of the breakdown in the relationship between the two partners, the first plaintiff failed to perform the obligations imposed upon it by the distributorship agreement and in particular to market the products in the way in which it was required and, further, that the transfer of the former partner’s interest to the second plaintiff was without consent and thus unlawful.
The material before me includes a substantial affidavit sworn by the second plaintiff in proceedings instituted in this court for relief under the Corporations Act in respect of that breakdown. In that affidavit the second plaintiff set out in detail how the breakdown came about and how it resulted in significant financial effects upon the first plaintiff and the later buy-out.
This afternoon Mr Denton SC, who appeared with Mr Parmenter for the plaintiffs, submitted to me that the material filed on behalf of the plaintiffs established that there was a serious question to be tried as to whether or not the defendant had breached the distributorship agreement, and that the balance of convenience favoured the grant of interlocutory injunction.
Mr Houghton QC, who appeared with Mr Hopkins for the defendant, submitted with equal force that the material made plain that there was not a serious question to be tried as to whether the defendant had breached the distributorship agreement. He contended that the affidavit sworn by the second plaintiff in the Corporations Act proceeding, showed that the inability of the company to meet its obligations under the distributorship agreement was brought about by the breakdown in the relationship between the two former partners.
As at present advised, it seems to me that there is much to be said for the view that the difficulties in which the first plaintiff company found itself towards the end of 2001, and which appear, at least temporally, to have led to the notice of termination being issued, were the direct consequence of the breakdown in relationship between the two former partners. According to the second plaintiff’s affidavit in the Corporations Act proceeding, the company was starved of the funds which it needed in order to discharge the obligations imposed upon it by the distributorship agreement.
It is, however, unnecessary for me to reach a concluded view about that, and it is probably undesirable that I say much more; for in the end these are matters to be determined at trial on the basis of a full examination of the evidence, including cross-examination of the deponents. For present purposes I accept that there is a serious question to be tried, although I do not regard the case on the material before me as being especially strong.
Of recent times it has become more fashionable than it used to be to say that, in deciding whether or not to grant interlocutory injunctive relief, the task is not a compartmentalised process of first asking the question of whether there is a serious question to be tried and then, if there is, asking where the balance of convenience lies. Rather it is one of asking whether in all the circumstances of the case it is just that injunction should go. No doubt that is correct. But as a matter of practical application it does assist first to ask the question of whether there is a serious question to be tried, and then to turn to the balance of convenience and, accordingly, I turn now to the submissions which were made on behalf of both parties as to where the balance of convenience lies.
In her affidavit filed in support of the application, the second plaintiff deposed that, if the injunction which was sought were not granted, she expected that the first plaintiff might go out of business and be left with stock on hand of approximately $100,000 in value which could not be sold.
As against that, in an affidavit sworn in opposition to the application by Nigel David Jones it was deposed that in the period since the notice of termination was served, despite some desultory negotiations with the plaintiff with a view to settlement, the defendants have entered into and advanced negotiations with proposed new licensees of product to the point where, if injunction were to go to arrest entry into those arrangements, the losses which would be suffered by the defendant would be very significant.
In a sense, both sides' contentions are correct. I accept that if injunction is refused, it is to some degree probable that the first plaintiff will suffer real losses. It will lose the distributorship agreement and, practically speaking, it will lose any chance of ever re-establishing the distributorship agreement relationship. Equally, if injunction does go, the defendant will be saddled with a licensee with whom it wishes no longer to be associated and it will lose the chance of entering into new relationships which no doubt it regards as holding out greater prospects of profitability than has been the case to this point.
One factor which weighs heavily in the balance of deciding whether or not injunction should go is the delay which has occurred. I have already referred to the fact that although the matters which gave rise to the claim occurred over a substantial period of time, they had in effect culminated by December of last year. By that stage it was at least sufficiently clear to the defendant that there had been breach, that notice of termination was served. And it allowed six months before the agreement would come to an end. There were then some letters written by and on behalf of the plaintiffs in which it was alleged that the action taken by the defendant was unlawful. But nothing further occurred. There was no application to the court for declaration. There was no other action instituted. If it had been it might well have been tried to judgment, even before today. Yet, so far as appears from the material, nothing further was done than to enter into, as Mr Houghton described them, desultory negotiations.
In these circumstances, where I regard the strength of the plaintiffs’ case as weak and where I am satisfied that, although some damage might be done to the plaintiffs if injunction is refused, real damage would be done to the defendant if it is granted, I am in the end disposed to refuse injunctive relief unless the defendant can be adequately protected against such damages as it might suffer by reason of the injunction, in case it is found hereafter that the plaintiffs’ claim was unfounded. I am, however, told by counsel for the plaintiffs that they are not in a position to offer any security for the usual undertaking as to damages, and it appears to me from the material which is before me that there is a serious question as to the financial stability of the plaintiff.
In all the circumstances of the case, and in particular the apparent weakness of the plaintiffs’ case, and the apparent inability of the plaintiffs to hold the defendant harmless or substantially harmless against the consequences of injunctive order if it is later found to be unwarranted, I am disposed to refuse the application for interlocutory injunctive relief.
Gentlemen, subject to any submissions of counsel, the orders that I propose be made are that the application made by summons dated 17 July 2002 for interlocutory injunction be dismissed, and that the plaintiffs pay the defendant's costs of the application.
Mr Houghton, is there any submission you would make to me as to that?
MR HOUGHTON: No, Your Honour.
HIS HONOUR: Mr Denton?
MR DENTON: No, Your Honour.
HIS HONOUR: Upon the application for interlocutory injunction made by the plaintiffs by summons dated 17 July 2002, it is ordered -
1. That the plaintiffs’ application be dismissed.
2. That the plaintiffs pay the defendant's costs of the application.
Is there any direction that needs to be given? It is going back to Master Evans for the security for costs application.
MR HOUGHTON: Yes, on a separate summons, and I don't think Your Honour need make any order about that.
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