Hartley & Anor v. Advanced Adhesives Pty Ltd
[2007] QSC 211
•24 July 2007
[2007] QSC 211
SUPREME COURT OF QUEENSLAND
CIVIL JURISDICTION
WHITE J
No 2969 of 2007
| CHRISTOPHER WALLACE HARTLEY | First Plaintiff |
| and | |
| C W HARTLEY PTY LTD and ADVANCED ADHESIVES PTY LTD and ROBERT OGG | Second Plaintiff First Defendant Second Defendant |
BRISBANE
..DATE 24/07/2007
JUDGMENT
HER HONOUR: These are the reasons for judgment in the matter of Hartley v Advanced Adhesives and Others.
Yesterday was the return date of applications in respect of which certain orders, including interim orders, were made by Wilson J on the 4th of July this year.
The applicants, who are Mr Christopher Hartley and his company C W Hartley Pty Ltd, are desirous of having an extension until trial of the interim injunction restraining the respondents' termination of a certain distribution agreement take effect. That is opposed. The applicants have issued proceedings and the respondents have defended and issued a counter-claim. They have been before the Court to ventilate their disagreement with each other after the catalyst for these proceedings in March 2007. That was the proposed capital raising and the issue of shares by the second and third respondents. They have been back before the Court on several occasions and have unsuccessfully participated in a
court-referred mediation.
Each side has filed considerable contentious material and there was cross-examination when the matter was heard by
Byrne J in May this year when his Honour referred the parties to mediation.
Each of Mr Hartley and Mr Ogg has sworn numerous and extensive affidavits It is not possible to discuss their contents in these reasons in the detail to which each descends - indeed, in my view it is unnecessary to do so - although I wish to assure the parties - and the individuals were in Court yesterday listening to the proceedings - that I have read the affidavits yesterday evening and the others that were also filed in support of their respective positions.
Even as to how their legal relationship commenced is the subject of dispute, and so I will confine myself to the briefest expression of the business relationship between them.
The first respondent, the company Advanced Adhesive, makes proprietary adhesives for industry and does so predominantly in the eastern States of Australia. Prior to October 2004
C W Hartley Pty Ltd was a reseller of the Advanced and other adhesive products. Advanced then had two shareholders and directors, Mr Robert Ogg in Sydney and Mr Roger Williams in New Zealand.
After discussions, and with what seems to have been a singular lack of due diligence for Advanced was not, it would seem, in a secure financial position, although this was seen largely to be a growth issue, the parties entered into certain agreements which saw Mr Hartley bring his customer list into Advanced and certain goodwill and product knowledge, although what he did bring into the agreement is not without controversy. He was issued with thirty of the two hundred shares in Advanced.
Mr Ogg and Mr Williams held the balance equally. Each of
Mr Hartley, Mr Ogg and Mr Williams is a director of Advanced.
The agreement, it seems, was prepared or at least emanated from Mr Hartley. It has some difficulties which will need to be ventilated at the trial but, in general, the so-called distribution agreement is between C W Hartley Pty Ltd and Advanced, for C W Hartley Pty Ltd, to be the sole distributor in a defined territory, which includes Queensland and Fiji, of Advanced's products.
It was not actually a distribution agreement as described in Hospital Products Limited v The United States Surgical Corporation [1984] 156 CLR 41 by Mason J at 92 or, as I would suggest, is generally understood by that arrangement. In reality, what it seems to have been was an agency-type arrangement because all the orders went back to Advanced in Sydney for pricing and despatch.
C W Hartley Pty Ltd was to be paid a percentage commission and was to do its best to sell the products of Advanced, not to be in competition, and there was some capacity to purchase and sell other competitor's goods if Advanced was unable to provide products in a reasonable time. But even this was to be invoiced to the customer by Advanced. Advanced at the same time purchased shares in a company associated with Mr Hartley, Global Adhesives Pty Ltd, but that is no longer the case. It seems to have revolved around the use of warehouse facilities at Lawnton in Queensland.
Certain resolutions were schedules to the distribution agreement which certainly seem to show something of a disregard for the corporate veil. Nonetheless, resolutions were implemented whereby Mr Hartley was appointed a director; that no new director was to be appointed without the express written approval of all directors; and future resolutions were to be approved by all directors. Mr Hartley's equity in the assets of the company was not to be diluted by the calling up of loan funds. As an aside, Mr Hartley has, as I read the material, contributed no funds to Advanced but Messrs Ogg and Williams have made considerable financial contributions over its life.
Almost from the commencement of the arrangements, the affidavits recall unhappiness with Mr Hartley by Mr Ogg and Mr Williams. What had been a satisfactory arrangement with Mr Hartley and his company as a wholesale purchaser of Advanced products did not translate into a cordial relationship of exclusive distribution and a close business relationship. The affidavits are replete with accusations and disappointments about the lack of diligence by Mr Hartley to the business of getting out to the customers and selling and the closure by Advanced of the warehousing in Lawnton.
Whilst both sides have a degree of correctness about the "lead time letter" which caused so much dispute, nonetheless,
Mr Hartley's letter to the customers that it would take two weeks to process orders from Sydney was unnecessarily pessimistic, in my view, and not accurate so far as some products were concerned.
There are allegations of Mr Hartley acting against Advanced's interests, which Mr Hartley responds to in detail. I do not propose to deal with those issues; they are certainly a matter for trial.
By mid-2006, if not before, Messrs Ogg and Williams wanted a capital injection into the company for growth. There seemed to be misunderstandings as ventilated in the affidavits. Messrs Ogg and Williams deposed that Mr Hartley had access to whatever financials he wanted and they thought he was with them on this. Mr Hartley deposes that he was left in the dark. After there was a resolution by Messrs Ogg and Williams to issue further shares, the litigation commenced. Those directors concluded that Mr Hartley and his company proposed acting against the interests of Advanced and proposed to sell in competition with Advanced in the territory the subject of the agreement, and purported to remove him as director.
Mr Hartley contends that he and his company are being excluded so that Advanced can avoid paying commission. Advanced wants the agreement to cease to be operative and for it, through others, to service the territory - which will be effectively, so far as Advanced is concerned, Queensland - and to pay, as it has in the past, the commission into a separate account pending trial. Mr Hartley says the agreement is still workable and it is his livelihood and that of his company.
Both sides seek damages for breach of their agreement.
Mr Hartley and his company also seek that Advanced be wound up or for other relief usually granted on oppression proceedings; a declaration that the distribution agreement has not be validly terminated; specific performance of that agreement; and damages for its breach.
Mr Peden for Mr Hartley and the company rely heavily on Evans Marshall & Co Ltd v Bertola SA and Anor [1973] 1 WLR 349, a true distribution agreement case. He relies on this case for the continuation of the agreement, at least until trial. But that was a very different factual case. There is here the necessity for a reasonably close personal working relationship. The despatch staff at Advanced say that
Mr Hartley is very difficult to work with. Trust between the directors has quite broken down and this is particularly a difficulty because Mr Ogg is the managing director in what seems to be a very hands-on company.
There is next to nothing that is not disputed as the material well reveals. So I am of the view that it will not be in the best interests of Advanced that this agreement should continue until trial, which may be some time away.
I accept that there are serious issues to be ventilated between the parties but, in light of the relief which is sought by Mr Hartley, which is inconsistent with the continuation of the supply of produce for the maintenance of the distribution agreement, I would have thought that it is not expected that it would survive the trial. The balance of convenience, then, for the reasons that I have outlined would dictate or say that the agreement not continue in place.
The undertaking as to damages has also been ventilated in these proceedings. I am satisfied on the material before the Court that, notwithstanding the lack of cash flow liquidity which seems to beset Advanced Adhesives from time to time, and rather more times than not, nonetheless, there is sufficient equity to meet any order for damages which might be made in favour of Mr Hartley and his company.
One further matter needs to be mentioned: the second and third respondents wish to obtain leave pursuant to section 237 of The Corporations Act to represent Advanced in the litigation. Effectively, this was an oral application by Mr Sweeney who appeared with Mr Johnstone for the respondents. That is opposed. That should be brought on proper notice and with appropriate material directed to that issue, although it may well be that affidavits which have already been filed in these proceedings will be sufficient for that purpose.
I have had a look at the draft that was proposed by Mr Sweeney as his second proposed draft and, with the exception of order 3, which I have dismissed, that seems to reflect these reasons but there may wish to be some fine-tuning.
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