Hydrofibre Pty Ltd v Australian Prime Fibre Pty Ltd
[2009] QSC 171
•25 June 2009
SUPREME COURT OF QUEENSLAND
CITATION:
Hydrofibre Pty Ltd v Australian Prime Fibre Pty Ltd [2009] QSC 171
PARTIES:
HYDROFIBRE PTY LTD
ACN 120 252 628
(applicant)
v
AUSTRALIAN PRIME FIBRE PTY LTD
ACN 092 742 991
(respondent)FILE NO/S:
BS 5498/09
DIVISION:
Trial Division
PROCEEDING:
Application
ORIGINATING COURT:
Supreme Court at Brisbane
DELIVERED ON:
25 June 2009
DELIVERED AT:
Brisbane
HEARING DATE:
22 June 2009
JUDGE:
Chief Justice
ORDER:
1. That the originating application filed 25 May 2009 be dismissed.
2. That costs be reserved, with written submissions to be provided as necessary for consideration.
CATCHWORDS:
EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – application for injunctions – whether a serious question to be tried as to breach of exclusive supply agreement
COUNSEL:
D J Campbell SC for the applicant
M K Stunden for the respondentSOLICITORS:
Hemming and Hart Lawyers for the applicant
Griffiths Parry Lawyers for the respondent
Introduction
CHIEF JUSTICE: The applicant seeks interlocutory injunctions, restraining and mandatory, in relation to the respondent’s obligations under an agreement between the parties signed on 2 September 2006.
The “manufacturing agreement”
The agreement recites that “the Buyer has developed products known as “hydrofibre” products…and owns certain intellectual property in the Product and processes of manufacture”, and that “the Seller is willing to manufacture the Product and sell it to the Buyer”. (The applicant is the buyer, and the respondent is the seller.)
Schedule 3 specifies a range of products, each a variety of “hydromulch”. The respondent is obliged to manufacture the product, of which the applicant undertakes to purchase minimum quantities, as set out in schedule 4.
The respondent warrants that the products will “meet the specifications”. The term “specifications” is defined as “the specification for the Product as agreed between the parties from time to time or as specified in the Buyer’s purchase orders”. The respondent contends this renders the agreement uncertain and unenforceable.
There is an exclusivity provision: “So long as the Buyer continues to meet the minimum purchase quantities set out in schedule 4, the Seller shall not manufacture or sell the Products to any party other than the Buyer”. The respondent relies on a failure by the applicant to demonstrate capacity to meet those “minimum purchase quantities”.
On the other hand, “the Buyer agrees that the Seller may manufacture and sell the Products to third parties should the buyer not meet the minimum quantities set out in schedule 4 in that period”.
The term of the agreement is one year, with a subsequent two year option to be exercised prior to the end of the first year. The commencement date of the agreement is not specified, so that one would ordinarily regard its term as commencing with the execution of the agreement. Clause 13.1 refers to a “manufacturing commencement date” without specifying it. The respondent contends the agreement has come to an end, a major issue before me.
Whether the agreement subsists
When the agreement was signed, the respondent lacked the capacity to produce the hydromulch. New equipment was necessary. The parties expected a time lag between the signing of the agreement and the commencement of supply. See for example pages 31 and 33 of the material exhibited to the affidavit of Mr Magnus filed 27 May 2009.
The applicant raised concern in this area on 29 December 2008 (p 41), and that drew a response from the respondent (p 42), but there was no suggestion then that the agreement had expired.
Mr Stunden, who appeared for the respondent, relied on orders leading to deliveries by the respondent to the applicant, dating from 9 May 2007. See pages 33 to 39 of the exhibit to the affidavit of Mr Woosley filed 15 June 2009. They were not however for hydromulch, and appear to have related to other products. There is a suggestion that those supplies related to a testing process (see the email at p 38 of the exhibit to the affidavit of Mr Magnus).
The applicant placed an order for hydromulch in May 2006 (p 14 Magnus), prior to the signing of the agreement, and that has never been met.
I doubt it could be established that manufacture under the agreement has yet commenced.
The applicant’s contention is that the agreement will commence when, having established its production capacity, the respondent responds to that order placed as long ago as May 2006. The conduct of the parties is consistent with the continuation of the agreement, notwithstanding more than a year has elapsed since its execution. (A deposit paid by the applicant has not been refunded, among other things.)
Whether the agreement is certain
Another major issue is the certainty of the agreement. One aspect of that is the absence of a detailed description of the product referred to in schedule 3.
The parties appear to have been proceeding on the basis that the hydromulch comprised recycled paper or cane, with the addition of a binding product and fertilizer and grass seeds, with the aggregation compressed into bale form and covered with weatherproof material. The ultimate user would add a slurry and apply the product as ground cover, controlling erosion and producing grass. See page 39 of the material exhibited to the affidavit of Mr Magnus and paragraph 4 of the affidavit of Mr Woosley.
Mr Stunden focused on the definition of specifications, as being “the specification for the product as agreed between the parties from time to time or as specified in the Buyer’s purchase orders”. Mr Campbell SC, who appeared for the applicant, explained this on the basis that a particular purchaser from the applicant might, for example, require a particular variety of grass seed. While there was range for variety in the orders presented, it was a limited range, and that did not inject uncertainty into what were the “products” covered by the agreement.
For present purposes, I think it reasonable to proceed on that basis.
Adequacy of evidence of breach or likely breach
But is there sufficient evidence of an actual or intended breach such as would warrant the granting of injunctive relief?
The applicant points to Mr Woosley’s statement on 4 March 2009 that he intended selling hydromulch to Kriedemanns (para 53 Magnus), and of sales to Revolution Equipment, and an advertisement published by the respondent on 21 April 2009, referring to “exciting new products coming soon”, specifying “hydromulch and cellulose roof insulation”. The advertisement refers to them as “exciting products…in the trial stages now”.
Mr Stunden relied on the circumstance that “hydromulch” is a generic term used industry-wide, and queries whether the hydromulch which may be supplied to Kriedemanns and Revolution Equipment, and that referred to in the advertisement, should be regarded as the same as the products referred to in schedule 3 of the agreement. He harks back, then, to the lack of precise definition in the agreement, notwithstanding that may have been the precedent mutual understanding of the parties.
He raises concern that granting the injunctions sought may exclude the respondent from legitimate business never intended to fall within the exclusivity provision of the agreement.
I am left in considerable doubt as to whether there is identity between the product to be supplied to Kriedemanns and Revolution Equipment and as referred to in the advertisement, and the products referred to in schedule 3 to the agreement. In my view, on the evidence before me, the applicant has not demonstrated that identity, or that identity could at trial be established.
Further, it is not clear that the respondent yet has the capacity to produce the products referred to in schedule 3, so that on the applicant’s approach to the agreement (with operation dependent on the existence of that capacity), the respondent’s exclusive delivery obligation in favour of the applicant has not yet cut in.
Adequacy of evidence of loss
There is an additional, if somewhat less critical, matter for concern. To establish a potential loss, should the agreement be breached, the applicant refers to a distribution agreement with Enviro Sales Inc, a copy of which commences at page 25 of the material exhibited to the affidavit of Mr Magnus. The description of the product to be supplied under that agreement (p 25) does not use the term “hydromulch”, but refers simply to “paper mulch”, “cane fibre mulch” and “cane fibre and paper mulch”. The description does not refer to the additives going to make the hydromulch product as contemplated by the parties when they entered into their agreement.
Conclusion
I have not dealt here with all of the points raised by Mr Stunden in his comprehensive written outline (including, for example, demonstration of the readiness, willingness and ability of the applicant to receive and pay for deliveries; and the adequacy of any undertaking as to damages.). I have focused, rather, on the points agitated orally at the hearing, and I have dealt above with those which have principally led me to the conclusion that the application for interlocutory relief should be dismissed. In the end, I have not been satisfied that the applicant has at this stage established a serious question to be tried as to breach in particular.
I broadly accept Mr Stunden’s primary position, that “there is significant factual and legal discord on the material which cannot be resolved in Chambers. (The applicant) should be (left) to pursue its alleged contractual rights in proceedings commenced by claim and statement of claim where all legal and factual matters can be fully and finally litigated. There is no urgency and, at best, Hydrofibre’s claim sounds in damages.” There is particular force, I consider, in that last point.
Orders
For those reasons, I order that the originating application filed 25 May 2009 be dismissed. I will, as necessary, receive and consider written submissions on costs. For the moment, costs are reserved.
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