J S Hayes and Associates Pty Ltd v Kimberly-Clark Australia Pty Ltd

[1992] FCA 1076

IN THE FEDERAL COURT OF AUSTRALIA	) )
NEW SOUTH WALES DISTRICT REGISTRY	) No. NG 231 of 1992

)

GENERAL DIVISION )

BETWEEN:JOHN S. HAYES AND ASSOCIATES PTY

LIMITED

Applicant

AND:KIMBERLY-CLARK AUSTRALIA PTY LIMITED

Respondent

4 May 1992

REASONS FOR JUDGMENT

LOCKHART J.

This is a motion for interlocutory injunctive relief by

John S. Hayes and Associates Pty Limited, the applicant, against

Kimberly-Clark Australia Pty Limited, the respondent. It is

necessary that I recite both the issues in the case and the
substance of the evidence that has been adduced.

The evidence is contained almost entirely in the affidavits of witnesses, together with documents that are referred to therein or otherwise tendered in evidence. There has been brief

oral evidence, but it does not relate anything of a controversial nature. My recitation of facts is necessarily on the basis that this is an interlocutory injunction application and therefore any matters of fact that I state do not represent a concluded or firm view at all on any of the issues of fact. This is so in most applications for interlocutory injunctions, but particularly in a case like the present where the facts are

complex and where the issues include questions of the possible contravention of sections of Part IV of the Trade Practices Act ("the Act"), in particular ss. 46 and 47.

The applicant carries on the business of providing cleaning services to various commercial establishments in New South Wales as well as buying washroom products and reselling them to other commercial establishments in New South Wales. These washroom products consist of toilet paper and paper towels and certain

other products of a not dissimilar nature, generally described "washroom products". They are supplied by the applicant in both roll and cut sheet form. In addition, the applicant supplies facial tissues to these establishments.

The commercial establishments comprise buildings from which

business are conducted and the buildings are to be found in the

Sydney central business district, the North Sydney central

business district, the north shore of Sydney, the Parramatta

central business district and other centres including country

centres in New South Wales.

The applicant has carried on this business by itself and

before it by a partnership for many years. For about 20 years,

that is until early this year, the applicant carried on this

business solely in New South Wales but presently also conducts

business in Victoria. It also now supplies other products.

For the past 20 years almost all of the washroom products
resold by the applicant have been purchased from the respondent.
The only other supplier from which the applicant has purchased
stock in recent times is a firm called ABC Tissue. The
respondent is the only manufacturer of a particular type of
interleaved towel and toilet tissue having certain dimensions.
The remainder of the washroom products resold by the applicant

can be purchased in Australia from ABC Tissue or a firm known as Bowater Tissues, the latter being the respondent's major competitor in the Australian market place.

ABC Tissue only converts bulk rolls of paper which it acquires from mills. This paper is manufactured from both recycled and virgin pulp: it does not produce its own raw paper, nor does it own a mill or any forests in Australia.

The washroom products supplied by the respondent are converted by the respondent or bodies associated with it using mills owned by the respondent or bodies associated with it, which produce paper from forests owned by the respondent or bodies associated with it. Thus there is a certain measure of

vertical integration. I have before me the sales figures of the applicant of all products in the 12 months to December 1991. It appears from the evidence that the revenue from the sales of the washroom products supplied by the respondent to the applicant during that period accounted for some 55.9 per cent of the

applicant's total gross sales for that period.

Of that 55.9 per cent, 26 per cent represent supplies under, what has been referred to as, the Commonwealth government contract and the balance of some 29.9 per cent relates to what is described as a "Managing Agent Delto arrangement".

Thus, the suppliers of products from the respondent to the

applicant represent a substantial part indeed of the applicant's
business, a matter which I shall return to later.

The applicant asserts that there are two major markets in which it re-sells the washroom products produced by the respondent. The first of the markets, it is said, exists as a result of the respondent having entered into a contract with the Commonwealth government and known as the Commonwealth government

contract. The period of that contract is from 1 May 1991 until 30 April 1994 although there is provision in the contract for

earlier termination given certain circumstances.

Under that contract various Commonwealth and state

governments and other public authorities are eligible to receive

at certain prices a variety of specified washroom products made by the respondent. For three years before May 1991 the

applicant was the entity appointed by the respondent to distribute the respondent's washroom products in New south Wales

in performance of the respondent's obligations under the Commonwealth government. Since May 1991 the applicant has

supplied those products pursuant to the agreement to which I

have made brief reference and which is in evidence.

The applicant is not the sole purchaser or distributor of

the washroom products produced by the respondent and nor is the

Commonwealth government contract an exclusive dealership

contract or arrangement.

The other major market into which the applicant asserts

that it supplies its washroom products made by the respondent is

the market comprising certain commercial establishments

principally in New South Wales. As those establishments are

often operated by a professional managing agent, the parties have referred to it was the managing agents market or

arrangements and I shall adopt the same expressions.

The prices at which the respondent sells the washroom

products to the applicant in order to allow the applicant to re-

sell them in the managing agents market are lower than the prices at which the respondent sells the same products to

markets outside the managing agents markets. The applicant gains access to that pricing by way of an ordering reference

number known as a "Delto" which is used by the applicant when placing its orders with the respondent. The respondent sells

washroom products to a variety of managing agents markets throughout Australia via a network of distributors. The

respondent does not permit those distributors to re-sell the washroom products acquired on the managing agents Delto to any market outside the managing agents market.

There is a deal of evidence already in the case which lays a factual basis for arguments that no doubt will be put in a final hearing as to the nature and extent both of the product

and geographic markets which the applicant asserts exist in this case and on which it founds its claims for relief. I need not dwell on that evidence in depth at this stage but it is

sufficient to say that much of the material is contained in the affidavit of Mr John Stephen Hayes of 21 April 1992, Mr Hayes being a director of the applicant.

On 1 April 1992 the respondent wrote a letter to the applicant, some three pages in length, together with an attached schedule of termination arrangements. That letter said that the respondent had decided to terminate the applicant's rights to distribute its washroom products:

"Effective as follows:

(i)Commonwealth Contract distribution will be passed to another distributor effective May 1 1992.

(ii)Managing Agents Delto will be cancelled effective

June 30th, 1992.

(iii)Other washroom Deltos that are inactive are

cancelled immediately."

The letter then stated the reasons given by the respondent

for its decision. I need not to refer to them in detail but they

assert breaches alleged to have been made by the applicant of its trading terms with the respondent in relation to its various

contractual arrangements with the respondent, more than one such breach being alleged. The schedule of termination arrangements

need not be stated fully though the letter and the schedule are important for present purposes and I have given full

consideration to their contents.

What the schedule says is that the Commonwealth contract

Delto:

"Will be supplied with normal quantities of products for delivery up to April 24th, assuming you already have one week's stock. After this date sales to Commonwealth Contract Customers will be the prerogative of the newly appointed distributor only."

It then states in relation to managing agents Delto that:

"Sales will be restricted to supplying goods for which you [the applicant] has made a sale to the following managing agents and property owners only."

There were some nine managing agents named.

The letter then prescribes a regime for the lodging and

processing of future orders by the applicant from the

respondent, the details of which I need not mention. The last
paragraph, relates to payment of accounts.

It is plain that there has been a continuing deterioration of the relationship between the parties; it is not easy as this stage to fix the precise date and indeed there is some controversy about it but it seems that the relationship has deteriorated since at least May or June 1991. The relationship

has become increasingly acrimonious, as the correspondence

between the parties manifests, notwithstanding that the

relationship appears to have been a substantially trouble free
one for many years before hand.

The statement of claim sets out in some detail the applicant's case and I will summarise it. The claim is put under two broad heads; the claims in relation to the Commonwealth Government contract and claims in relation to the

managing agents delto. First, as to the Commonwealth Government contract, the applicant asserts that the respondent wrongfully terminated that contract by its letter of 1 April 1992, to which

I have referred, that the wrongful termination constituted a

wrongful repudiation of the contractual arrangements between the parties and that by letter of 8 April 1992 from the applicant's

solicitors, the applicant elected not to rescind the agreement but rather to affirm it. There is evidence that subsequent to

the letter of 8 April there was a further act of purported

termination of the Commonwealth Government contract by the

respondent with the same response by the applicant.

The managing agents Delto, to adopt the commercial
description by the parties to it, is asserted in a statement of

claim as giving rise to a number of causes of action and they are contained initially in paragraphs 18 to 24 of the statement of claim, and I need not set them out. The conduct that is there pleaded is alleged by the applicant to constitute the

practice of exclusive dealing and therefore to be in

contravention of certain provisions of s. 47 of the Trade Practices Act 1974. Further, the statement of claim contains

what it refers to in relation to managing agents delto as the second claim, again I need not refer to it, it embraces paragraphs 28 to 31 of the statement of claim and the conduct

there referred to on the part of the respondent is said to also

constitute the practice of exclusive dealing and to be prohibited by s. 47 of the Act. The third claim under managing

contracts delto covers paragraphs 32 to 36 of the statement of claim and again conduct is relied upon as constituting a prohibited practice under s. 47 of the Act.

The pleading then contains an alleged contravention of s. 47 of the Act in relation to both the Commonwealth Government contract and the managing agents Delto in paragraphs 37 to 40. Paragraphs 41 to 58 contain a number of allegations are made by

the applicant which found assertions of contraventions of s. 47

and s. 46 of the Act by the respondent arising under the Commonwealth Government contract and the managing agents delto.

That sufficiently gives an outline of the pleading, though not, of course, the details that are pleaded in the statement of claim.

The applicant seeks in its amended application relief by way of injunctions under s. 80 of the Act and damages, including a declaration that the applicant did validly affirm the Commonwealth Government contract. What the evidence does reveal

is that although there is a contract between the parties in

relation to the Commonwealth Government contract, which is for a fixed term, the arrangements between them under managing agents

delto are not for a fixed term, they appear to be a series of ad

hoc supply and delivery orders and appear to have been the same

at all material times. There is as it were, no overriding contract between them which specifies any terms of a periodic duration and that is an important element in the case, at least

so far as interlocutory relief is concerned.

It is very difficult in a case such as the present, at

least so far as causes of action under the Trade Practices Act

are concerned, in the light of the evidence as it is, say whether or not there is a serious question to be tried or to put the question on a slightly higher threshold, whether a prima

facie case has been established. I should say in passing that

the principles to be applied in cases of this nature are, of

course, obvious and need no re-statement. However, having looked at the pleadings and the evidence and bearing in mind my

earlier statement that the Court is deciding nothing on a definitive or final basis at this stage, it does appear to me

that in relation both to the Commonwealth government contract

and the managing agents Delto, a series questions have been raised which should proceed to a final hearing. The ultimate strength of those claims or their defences is, of course, a matter on which I have no idea and it would not be proper or prudent for the Court to say anything further about them at this

stage of the case, in particular in relation to the claims under

the Trade Practices Act.

What this case really is all about for present purposes is

the balance of convenience. The balance of convenience and

serious questions to be tried, of course, are often interlocked and indeed, this case in no exception, save that it is a particularly difficult case in which to gain a view of a serious

question to be tried, as I have mentioned earlier because of the

nature of the facts and the issues.

I have taken into account all of the evidence that has been
led on the question of balance of convenience and by summarising

it as I propose to do, I do not intend to deal with every facet

of the evidence but have taken it into account.

The parties have been in one form or other of contractual relationship with each other for a long time and as I said earlier, it is only in more recent months that acrimony appears to have arisen as the commercial relationship has deteriorated.

If the Court does not intervene by interlocutory

injunction, then under the Commonwealth government contract the

terms of the letter of the 1 April 1992 make it clear that the

contract was to be terminated on 1 May 1992, however, when the matter was before the Court on 29 April the good sense of the parties assisted by the sensible conduct of their legal advisers

produced Short Minutes of Order which held the position until

today. The managing agents Delto will expire as between the

parties according to the letter of 1 April 1992 by cancellation

effective on 30 June 1992. In each case the letter proposes a regime of scaling down supplies before the dates fixed for termination of the contractual arrangements.

As I mentioned earlier, the percentage of sales from the respondent to the applicant is 55.9 per cent of total sales under these two forms of contractual arrangement. If the Court does not intervene in the case of the Commonwealth government contract, then there is evidence from the applicant that it will lose approximately 26 per cent of its business and would involve

the retrenchment of a number of staff, the evidence suggests

possibly four employees. It is also said that there are some

assets, including two trucks that are used by the applicant solely for the purposes of supply under the Commonwealth government contract and that those are likely to be wasted

assets.

There is also evidence of substantial overheads that are

incurred by the applicant, some of which it is said will be

incapable of being compensated for by damages if the applicant

should ultimately succeed in the case. Also, there is evidence that if there is a substantial interruption to or diminution in

the applicant's ability to sell its washroom products made by

the respondent it will be difficult, if not impossible for it to

ever regain that business should the applicant be successful upon the final hearing. In addition, the applicant says that it is concerned that its opportunity and ability to sell recycled

products, that is those products supplied to it by suppliers

other than the respondent, to these markets will be restricted

and perhaps eliminated if it is deprived of the contract.

In short, I refer to the Commonwealth government contract

there is evidence that a large percentage of the business of the

applicant will be seriously interfered with and possibly impose upon it long term effects if injunctive relief is not granted, in particular, the loss of market share and perhaps incalculable

harm to its business arising from the Commonwealth government

contract expiring.

On the other hand, the applicant has been for some months,

though not it seems before about May or June of last year,

marketing the use of recycled washroom products and it may well increase its business in this field. Also if the Court does

intervene by way of granting an injunction, then it will have

the effect of continuing in existence an already increasingly

acrimonious relationship between the parties.

If restrained the respondent will be compelled and certainly so far as the Commonwealth Government contract is concerned, to supply the applicant and may suffer hardship by reason of its having been required to continue its arrangements with a distributor with market strategies that are widely divergent from those of the respondent. There is some evidence

that another distributor has been appointed by the respondent,

though the terms of any such arrangement are not at this stage

clear.

There is a real difficulty about the Courts obliging

parties to remain in contractual relationships or commercial

relationships falling short of any long term contractual relationships with each other, and essentially binding one to sell and the other to buy its products. This arises with particular force in the present case so far as the managing

agents Delto is concerned. However, until fairly recently as I have said more than once, the relationship between the parties

was it seems an harmonious one and any interlocutory injunction will only subsist until the final determination of the proceeding.

It is difficult to establish how long this case will take

to prepare for hearing and how many hearing days it will take,

and then of course there will be a reserved judgment presumably.
One measures that in terms of months, not weeks, though not I
would suspect in years. It would be surprising if this case was
not finally determined some time later this year. There is
evidence of substantial financial loss that will accrue to the

applicant if injunctive relief is not granted and there is no

convincing evidence that the respondent will suffer any real

pecuniary loss if injunctive relief goes against it.

It is not an easy case to balance the necessary elements in

determining the balance of convenience; but I am satisfied that,

so far as the Commonwealth Government contract is concerned, the balance of convenience plainly favours the applicant and that

there should be interlocutory injunctive relief in appropriate terms granted to the applicant. As to the form of that relief, I do not propose to make any orders at the moment except to note

that the interim arrangement made on 29 April propounded a

regime which seems to me to substantially meet the requirements
of the case until the final hearing.

I turn to the managing agents Delto. I have already dealt with most of the relevant points concerning it already in my observations, but as I said before this is I think in a different category to the Commonwealth government contract

because there is no firm contractual arrangement between the

parties. It is simply a series of ad hoc arrangements. To

frame appropriate interlocutory injunctive relief is not an easy matter in this case, and I find the submissions of counsel for the respondent convincing on this. To grant the applicant

interlocutory relief would involve the Court, in my view, in

either having to frame an injunction such that would cast the Court to adopt a supervisory role for the performance of the

contract even on an interim footing, or place the applicant in a stronger, almost a fixed term contractual relationship with it, a benefit that it does not have at the moment. Nor do I think it would be appropriate to frame a relief even of the kind which

has been carefully submitted to me by counsel for the applicant,

restraining the respondent from doing certain prohibited things, but all in a context expressly spelt out of particular sections

of the Trade Practices Act. Such relief would place the respondent in a position which I think it should not be placed in of electing to give added benefit to the applicant or run the

risk of contempt of court. In those circumstances, the Court declines to grant interlocutory injunctive relief with respect to the managing agents Delto.

I omitted to mention one matter which counsel for the respondent raised and which has been opposed by counsel for the applicant, namely, what appears in the second limb of the paragraph 2 in the Schedule of Termination arrangements (to both

the Commonwealth Government contract and the managing agents

Delto) being the schedule to the letter of 1 April 1992 to which

I have made an earlier reference. I need not set out its terms.

They are clear and speak for themselves. The question is whether the regime that is referred to there should operate during the currency of the interlocutory injunction and with respect to the Commonwealth Government contract. It involves orders being sent to a person nominated by the respondent, accompanied by certain documents, provision for verification and the payment of what are called audit charges.

I can understand why from the respondent's point of view

that document would be desirable. I'm not persuaded for the

moment that it is appropriate to impose it as a term of the granting of relief upon the applicant and I therefore decline to

do so. It is of course always open for the respondent if it

wishes to bring the matter back if some problem arises during
the currency of the interlocutory injunction.

The costs of this interlocutory proceeding including the costs of the 29 April 1992 should be costs in the proceeding. That order should include the costs before Gummow J on 22 April

1992.

I certify that this and the preceding sixteen (16) pages are a true copy of the reasons for judgment herein of the Honourable Mr. Justice Lockhart.

Associate

Dated: 4 May 1992

Counsel for the Applicant :	C.D. Curtis
Solicitors for the Applicant :	Hunt & Hunt

Counsel for the Respondent : C.C. Hodgekiss

Solicitors for the Respondent :  Sly & Weigall

Date of Hearing : 4 May 1992
Date of Judgment : 4 May 1992