Ergoline (Vic) Pty Ltd v Ergoline (Australia) Pty Ltd

[2001] VSC 270

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

PRACTICE COURT

No. 6843 of 2001

ERGOLINE (VIC.) PTY. LTD.	Plaintiff
v.
ERGOLINE (AUSTRALIA) PTY. LTD.	Defendant

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JUDGE:	BEACH, J.
WHERE HELD:	MELBOURNE
DATE OF HEARING:	30 JULY 2001
DATE OF JUDGMENT:	1 AUGUST 2001
CASE MAY BE CITED AS:	ERGOLINE (VIC.) PTY. LTD. v. ERGOLINE (AUSTRALIA) PTY. LTD.
MEDIUM NEUTRAL CITATION:	[2001] VSC 270

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CATCHWORDS:      Interlocutory injunctions – Creditor calling up bank guarantee – Justification of creditor doing so.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr. P.G. Cawthorn	Lander & Rogers
For the Defendant	Mr. M. Robins	Richmond & Bennison

HIS HONOUR:

1. This is the return of an order made by Gillard, J. on 24 July 2001 whereby His Honour ordered that the defendant, Ergoline (Australia) Pty Ltd, be restrained from calling upon the bank guarantee issued by Australia and New Zealand Banking Group (ANZ) at the request of the plaintiff Ergoline (Vic) Pty Ltd and in favour of the defendant.

1. The background to the proceeding appears in the affidavits filed on behalf of the parties.  It is unnecessary to set out the detail of that material in these reasons for judgment.  I shall simply refer to the more salient features of it as and where necessary.

1. By a distribution agreement dated 11 May 2000, the defendant appointed the plaintiff the distributor of its tanning equipment and tanning products in Victoria.  Pursuant to the agreement, the trading terms for tanning equipment were effectively cash on delivery and, for tanning products, 30 days.

1. It is clear from the evidence that by March 2001 the plaintiff had fallen behind in the payments it was required to make to the defendant in respect of both equipment and products.  Following discussions between representatives of the parties, an agreement was entered into by the parties with a view to rectifying the situation.

1. The agreement is in the form of a letter dated 16 March 2001, emanating from the defendant and countersigned by the plaintiff.  The letter reads: 

"The Directors

Ergoline (VIC) Pty Ltd
143-149 Clarendon Street
South Melbourne VIC 3205

Dear Sirs,

Further to our telephone conversations today, in consideration of the mutual benefits to each party:

Ergoline (Australia) Pty Ltd herewith undertakes to increase your credit limit from $150,000 as per distribution agreement to $230,000 (two hundred and thirty thousand dollars) until 30 November 2001.

Ergoline (Australia) Pty Ltd also undertakes to increase the payment terms for Tanning Products ordered before 16 March 2001 from 30 days to a maximum of 6 (six) months.  Tanning Products ordered on or after 16 March 2001 will be subject to our usual 30 (thirty) days payment terms.

Both the above increases are conditional upon receiving a bank guarantee from Ergoline (VIC) Pty Ltd for the amount of $200,000 (two hundred thousand dollars) before 30 March 2001.

The bank guarantee must entitle Ergoline (Australia) Pty Ltd to receive the guaranteed funds:

(a)       on default of this arrangement;

(b)on default of any other agreement between Ergoline  (Australia) Pty Ltd and Ergoline (VIC) Pty Ltd; or

(c)in the event Ergoline (VIC) Pty Ltd goes (whether voluntarily or involuntarily, by operation of law or by court order) into administration, receivership or liquidation, is wound up, proposes to or makes an arrangement with its creditors, commits any insolvent act, or is subject to any other form of external administration.

During November 2001 we will reassess the position without any obligation to extend the period of these increases.

If you agree with the above please sign below to create a legally binding agreement.

Yours sincerely,

Tina Maler
Managing Director

AGREED

We, Nathan Hackshall and Peter Hackshall, for and on behalf of Ergoline (VIC) Pty Ltd hereby agree to the above.

.............................  16/3/01
Nathan Hackshall   Date
Director

.....................  16/3/01
Peter Hackshall   Date

Director."

1. On 28 March 2001 the plaintiff obtained the appropriate guarantee for $200,000 from ANZ.  It is the case for the defendant that the plaintiff continued to be in default of the distribution agreement as varied.  By letter to the plaintiff of 18 July 2001, the defendant terminated the distribution agreement.  As at that date, the defendant contended that the plaintiff was indebted to it in the sum of $267,519.25.

1. Fearing that the defendant would call up the bank guarantee, on 19 July, 2001 the plaintiff made an ex parte application to Gillard, J. for an order restraining the defendant from doing so.  His Honour acceded to the application.

1. On 24 July 2001 His Honour extended his order to 30 July.

1. On 30 July I heard an application by the plaintiff for an extension of the order to the trial of the proceeding.  The application was opposed by the defendant.  To give me an appropriate opportunity to consider the matter, I extended the order of Gillard, J. to 4.30 p.m. this day.

1. The only other aspect to be noted at this stage is that the plaintiff has now accepted what it contends is the defendant's repudiation of the distribution agreement.  Having considered the evidentiary material placed before me, and the very helpful submissions of counsel for the parties, I have come to the following conclusions:

1.  By 18 July 2001, the plaintiff was significantly in arrears so far as its payments to the defendant were concerned.  Although the plaintiff challenges the extent of that indebtedness, I consider that it is highly arguable that it exceeded the sum of $200,000.  Whereas the defendant has been able to present what on its face is accurate evidence as to the extent of the plaintiff's indebtedness, despite the time available to it in which to do so, the plaintiff has not.  I find that a most unusual situation. 

2.  As at the date of the variation of the terms of payment of the distribution agreement, namely, 16 March, the plaintiff owed the defendant $218,185.60.  It is arguable that the variation agreement extended the time for payment of that sum to 16 September 2001, although the contrary argument is that the period of 6 months applied from the date of supply of each item of tanning product, that is, if an item had been supplied on 1 December 2000, the six month period ran from that date, not 16 March 2001.  However, determination of that matter must await the trial of the proceeding.

3.  It is clear on any view of the matter that, by 16 September 2001, at the latest, the plaintiff will have an obligation to pay to the defendant all moneys outstanding pursuant to the distribution agreement.  I say that, because all moneys which were owing in respect of tanning products ordered prior to 16 March 2001 will be due to be paid on or before that date, all moneys due in respect of tanning products ordered between 16 March 2001 and the termination date of 18 July would be due and payable before that date, and all moneys owing in respect of tanning equipment would be due and payable before that date.  In that situation, one asks, why should the defendant be restrained from calling up the bank guarantee after 16 September.

1. Counsel for the plaintiff contends that for the following reasons that is not the appropriate course to adopt in the matter.

1.   It may well be that at the end of the day the plaintiff's indebtedness to the defendant does not exceed $200,000.

2.   It was agreed that the defendant would only call up the guarantee if the plaintiff was in default under the distribution agreement, the further agreement or went into administration receivership or liquidation.  The plaintiff, so it is said, has not breached that aspect of the agreement and the defendant has no entitlement therefore to call up the guarantee.

3.   To induce the plaintiff to procure the guarantee, the defendant represented to the plaintiff that the guarantee was to enable the defendant to secure an agency for Californian Tan and would only be called on if the plaintiff went into liquidation.  If the defendant is allowed to call on the bank guarantee and resile from the Californian Tan representation, the plaintiff will suffer detriment.

4.   To induce the plaintiff to enter into the distribution agreement, the defendant made various representations to it concerning the profitability of the venture so far as the plaintiff would be concerned.  The representations were misleading and/or deceptive.  Ultimately the plaintiff will be entitled to recover damages from the defendant in respect of the loss suffered by it as a consequence of relying upon the misrepresentations and entering into the distribution agreement.

1. I have already expressed my views in relation to the plaintiff's indebtedness to the defendant.  If it is ultimately shown that the plaintiff did not owe the defendant sums in excess of $200,000, then the plaintiff will ultimately be compensated by an appropriate award of damages in respect of any over payment.

1. In my opinion, the plaintiff is clearly in breach of the distribution agreement at least insofar as payment in respect of tanning equipment is concerned, thereby entitling the defendant to call up the guarantee.  Whilst it is arguable whether the plaintiff is in breach so far as the payment for tanning products is concerned, its case in that regard is, in my view, no stronger than that of the defendant.

1. In its general endorsement of claim in the writ filed in the court on 20 July 2001, the plaintiff makes no reference to any representations made by or on behalf of the defendant with a view to inducing the plaintiff to enter into the distribution agreement.  Nor is any such complaint made by the plaintiff's director, Nathan Peter Hackshall, in his first affidavit of 19 July 2001.

1. I have grave doubts as to the veracity of the plaintiff's later complaints in that regard.

1. In his affidavit of 19 July, Hackshall has sworn:

"8.  In about January or February 2001, Ms Maier approached me and informed me that she wanted to take over the Australian agency for Californian Tan, a tanning accelerant product manufactured in California.  She informed me that, in order to be able to secure that agency, she required a bank guarantee from me in the sum of $200,000.  At that time, I informed her that I was conscious of the amount of money that my company owed to the defendant.  She responded with words to the effect:  "You know that we have extended trading terms with you.  This bank guarantee is only to enable me to secure the agency for Californian Tan.  It would only be called upon if you go bankrupt or into liquidation".

1. In my opinion, it is strongly arguable that, if Ms Maier did make the statement concerning Californian Tan as alleged by Hackshall, it was not made with a view to inducing the plaintiff to procure the guarantee but simply to explain to Hackshall one of the reasons why the guarantee was required.

1. Having considered all these factors, it is my opinion that the appropriate course to adopt in that case is to make an order which will have the effect of restraining the defendant from calling up the guarantee until 17 September next.  In my opinion, it would be totally inappropriate to restrain it from doing so until the trial of the proceeding, an event which probably will not occur until 2002.

1. It must be remembered that these are commercial transactions.  They are not ongoing because the distribution agreement has now been terminated.  If at the end of the day the plaintiff can demonstrate that the defendant had no entitlement to call up the guarantee, or that it has suffered loss as a consequence of the wrongful acts of the defendant, then, in my opinion, it can be adequately compensated by an appropriate award of damages. 

1. The final matter I wish to advert to is the defendant's summons seeking an order restraining the plaintiff from holding itself out as being associated with the defendant in respect of the distribution etc. Of tanning products and equipment.

1. The parties are agreed that such an order should be made.  As the defendant has given the appropriate undertaking as to damages, I propose to do so.

1. The court orders that:

1.   The defendant, whether by its servants, agents or howsoever otherwise be restrained until 17 September 2001 or further order from calling upon the bank guarantee issued by Australia and New Zealand Banking Group Limited in favour of Ergoline (Australia) Pty Ltd dated 28 March 2001 against the customer, Ergoline (Vic) Pty Ltd.

2.   The plaintiff, whether by itself, its servants or agents or howsoever, be restrained until the hearing and determination of the proceeding or further order from in any way

(a)       holding itself out as; and/or

(b)      representing itself as; and/or

(c)       passing itself off as the defendant or associated with the business of the defendant in respect of the distribution servicing or supply of tanning products or tanning equipment of the defendant in the State of Victoria, in any capacity whatsoever whether as agent, licensee, and/or distributor for the defendant.

3.   Insofar as it may be required, leave be granted to the plaintiff to serve the statement of claim filed 30 July 2001, and I direct that within 14 days the plaintiff amend the endorsement of claim so as to make it conform to the statement of claim.

4.   On or before 15 August 2001, the defendant file and serve its defence and counterclaim, if any.

5.   On or before 29 August 2001, the plaintiff file and serve its reply and defence to counterclaim.

6.   On or before 19 September 2001, the parties swear file and serve their affidavits of documents.

7.   I adjourn the further hearing of this matter to the Listing Master on a date to be fixed by the associate to the Listing Master after 19 September 2001, for the purpose of the Listing Master giving any necessary further directions in the proceeding and, when appropriate, to fix a date for the trial of the proceeding.

8.   The costs of the plaintiff's summons dated 20 July 2001 and the defendant's summons dated 25 July 2001 are reserved.

9.   I direct that the plaintiff's solicitor prepare this order and bring it to me for authentication pursuant to Rule 60.04(1) of the Rules of Court.  I should add, the order will recite both the plaintiff's and the defendant's undertakings as to damages.  I do not require any further undertaking from the plaintiff.

10.  I direct that a copy of this order be served on the associate to the Listing Master within 7 days of its authentication.

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