La Donna Pty Ltd v Wolford Aktiengesellschaft
[2005] VSC 174
•13 May 2005
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 5774 of 2005
| LA DONNA PTY LTD | Plaintiff |
| v | |
| WOLFORD AKTIENGESELLSCHAFT | Defendant |
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JUDGE: | Hollingworth J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 10 May 2005 | |
DATE OF RULING: | 13 May 2005 | |
MEDIUM NEUTRAL CITATION: | [2005] VSC 174 | |
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Practice and procedure – interlocutory injunction – serious question to be tried as to defendant’s entitlement to terminate distributorship agreement – balance of convenience favoured continuation of interlocutory injunction.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Sifris S.C. Mr AP Trichardt | Michael Flemming & Associates |
| For the Defendant | Mr G Bigmore QC Mr P Fary | Saxonia Partners |
HER HONOUR:
The application
On 31 March and 27 April 2005, the defendant (“Wolford”) gave notices purporting to terminate its distributorship agreement with the plaintiff (“La Donna”) with effect from 30 April 2005. Its right to terminate was said to arise from La Donna’s failure to meet a turnover target specified in the distributorship agreement.
On 29 April 2005, Harper J granted interim injunctive relief restraining Wolford until 5 May 2005 from enforcing the turnover target, terminating the agreement for failure to achieve the turnover target, or taking any steps pursuant to the notices of termination. The injunction has been subsequently extended until now.
Before me is an application for interlocutory injunctive relief until trial or further order. The application is made by summons dated 29 April 2005 and supported by two affidavits of each of Maurizio, Ruth and Bridget Borgobello sworn on 29 April 2005 and 9 May 2005 respectively, and the affidavits of Beverly Zilm and Koidu Liiv sworn on 9 May 2005. The defendant relies upon the affidavits of Holger Dahmen, Hermann Fischer, Peter Simma and Robert Geronzi, all sworn on 4 May 2005.
The distributorship arrangements
La Donna is a Victorian company which has been selling women’s lingerie on both a wholesale and retail basis for more than 20 years. It presently operates its business from premises in South Yarra. Over the years, it has distributed various lingerie ranges, particularly European labels, aimed at the high-priced end of the market.
Wolford is an Austrian company which designs, manufactures and sells high-quality hosiery and lingerie throughout the world under the Wolford trademark.
Wolford appointed La Donna as its Australian and New Zealand distributor, under an agreement dated 23 June 2003. The agreement was the result of negotiations which apparently commenced in late 2002.
The distributorship agreement appointed La Donna as the exclusive distributor for the whole of Australia and New Zealand except Melbourne and Sydney. In respect of those two cities, it expressly preserved Wolford’s right to sell its products through existing arrangements with Maxsim International Pty Ltd in relation to a store in Castlereagh St, Sydney and Ernella Nominees Pty Ltd in relation to a store in Collins St, Melbourne. La Donna agreed not to open a Wolford boutique in Sydney or Melbourne without the consent of Wolford and either Maxsim or Ernella, as the case may be.
The term of the agreement was from 1 May 2003 until 30 April 2008, with an automatic renewal for 3 years unless terminated by either party 6 months before the expiry date. Wolford had an option to terminate the agreement at the end of any fiscal year of Wolford, being 30 April, if La Donna did not achieve the minimum annual turnover targets contained in Annexure 1 to that agreement.
La Donna alleges that before it executed the agreement, Wolford represented to La Donna in Melbourne that:
(a) The turnover target was determined on the basis that La Donna would be permitted to open Wolford boutiques in Toorak and Double Bay;
(b) From 1 May 2006 (when the current arrangements for the Castlereagh and Collins St stores ended), La Donna would be the exclusive distributor of Wolford products in Australia and New Zealand, without exception; and
(c) Wolford would work together with La Donna in endeavouring to achieve the turnover target.
The representations are said to have been false in that:
(a) Wolford has refused to permit La Donna to open boutiques in Toorak and Double Bay, when it was willing and able to do so. As a consequence, La Donna did not achieve the turnover target;
(b) Wolford had no intention of appointing La Donna as its exclusive distributor with effect from 1 May 2006;
(c) Wolford failed to work with La Donna to achieve the turnover target.
La Donna also says that there was a further agreement made between the parties in July 2004, at which it was agreed that new turnover targets would be established as soon as Wolford made a decision as to the proposed operator of the Toorak and Double Bay boutiques and Wolford would not enforce the turnover targets pending that decision. Not having communicated any decision about the Toorak and Double Bay boutiques to La Donna, it is said that Wolford is not entitled to enforce the turnover targets or terminate the agreement for failing to achieve the current turnover target. It is not clear from the general endorsement whether this is said to constitute a collateral contract or a variation to the distributorship agreement.
Further and alternatively, La Donna says that Wolford is estopped from enforcing the turnover target or terminating the agreement for failure to achieve the target. It also alleges that Wolford has engaged in unconscionable conduct in breach of ss.51AB or 51AC of the Trade Practices Act (“TPA”).
La Donna also alleges that Wolford has breached the agreement by failing to supply products ordered by La Donna in early 2005 and permitting its products to be sold on a wholesale basis to retailers other than La Donna.
La Donna seeks injunctive relief under the s.37 of the Supreme Court Act 1986 or s.80 of the TPA, unspecified orders under the very broad provisions of s.87 of the TPA, specific performance of the agreement as varied by the July agreement, alternatively damages at common law or under s.82 of the TPA.
La Donna’s supporting affidavits set out the details of the meetings and conversations, prior to execution of the agreement and in July 2004, in which the various representations are said to have been made and the July 2004 agreement reached.
In general terms, Wolford denies that the alleged representations were made and denies the existence of the alleged July 2004 agreement. It also relies upon Article XI (3) of the agreement, which requires amendments or modifications to be made in writing and signed by duly authorised officers. It says it was entitled to enforce the turnover targets and to terminate the agreement for non-compliance with the current target. It does not wish to continue its relationship with La Donna.
Serious question to be tried
It is common ground that La Donna has fallen well short of the turnover target for the period 2003/2004 to 2004/2005. The real dispute is whether it has an obligation to comply with that target.
Wolford did not dispute that there are a number of serious questions to be tried in relation to what was or was not said at the pre-contractual and July 2004 discussions. The parties’ respective affidavits in relation to those matters are in direct conflict with each other. Without the benefit of discovery and cross-examination, it is not possible for me to resolve such factual conflicts.
Wolford’s counsel submitted that even if the alleged representations were proven at trial, the only relief sought or likely to be granted in respect of the representations was damages. It was argued that, in those circumstances, injunctive relief to restrain the termination of the distributorship agreement on the basis of the representations ought not be ordered. I do not agree with that submission, for the following reasons.
At this early stage, La Donna’s claim has not been fully pleaded or particularised. The writ, dated 29 April 2005, contains only a general endorsement. No statement of claim has been delivered. The relief sought includes specific performance, injunctive relief and relief under various provisions of the TPA, including s.87. The representations apparently form the basis of the estoppel and unconscionability claims, as well as a claim under s.52 of the TPA. Whilst it is not entirely clear, given the generality of the current pleading, which of the paragraphs in the prayer for relief relate to the representation claim, it cannot be said that there is not a serious question to be tried as to La Donna’s entitlement to relief other than damages.
Balance of convenience
La Donna says that if Wolford is allowed to terminate the agreement, it anticipates losing sales in the vicinity of just under $2m between now and the end of this year. There is no evidence as to what its lost profit on such sales would be, and no evidence to suggest that damages would not be an adequate remedy for any such loss, if La Donna ultimately succeeds at trial.
The evidence of Maurizio Borgobello, the managing director of La Donna, is that La Donna has spent about $500,000 setting up warehouse, showroom and office space, converting its retail outlets to the Wolford brand, and buying in initial Wolford stock. No breakdown of this expenditure has been provided. Nor am I told whether any of the initial stock remains unsold. There is insufficient material before me to conclude that damages would not be an adequate remedy in respect of these losses, if La Donna succeeds at trial.
However, La Donna says that unless the interlocutory injunction is granted, it will have to close its business altogether, in which case damages would not be an adequate remedy if it ultimately succeeds at trial. Since La Donna became the distributor of Wolford products, it has devoted its efforts exclusively to the promotion and distribution of Wolford products. It could not immediately change its business to another product line. Further, it may not be possible for La Donna to simply re-establish its business selling Wolford products if it succeeds at trial.
In relation to the question of goodwill, it is not disputed that La Donna has developed a distribution network of 40 new multi-brand boutiques selling Wolford products and has been actively advertising and marketing Wolford products.
In addition, La Donna has recently executed an agreement to supply David Jones Limited with Wolford products for the period 1 February 2005 to 31 January 2007, with a projected value of $255,000. The David Jones agreement was not exhibited to an affidavit, due to a claim for commercial confidentiality, but was produced to me and to counsel for Wolford upon their giving appropriate confidentiality undertakings. That agreement does not impose obligations on La Donna to supply minimum quantities of Wolford products. It appears that La Donna would not be in breach of its contract with David Jones if its appointment as Wolford distributor were terminated, and would not be exposed to a damages claim, as asserted by Mr Borgobello. However, the agreement with David Jones was apparently the result of difficult and time-consuming negotiations, as a result of David Jones’s reluctance to distribute Wolford products because of problems with Wolford’s previous Australian distributor. I accept that there may be a loss of goodwill and harm to La Donna’s relationship with David Jones, if it is unable to supply David Jones between now and the trial and ultimately succeeds at trial in preventing the termination of the distributorship agreement. Such losses may be difficult to quantify.
I accept that if the distributorship agreement were to be wrongfully terminated, La Donna could lose the benefit of the relationships and goodwill that it has established as well as the money it has so far expended on developing the Wolford distributorship. It may be very difficult to prove and put a dollar figure on such losses.
On the other side of the scales, Wolford says that it will lose sales and profits if the interlocutory injunction is granted and La Donna subsequently loses at trial. Peter Summa, the Chief Financial Officer of Wolford, expresses the opinion that the Australian market “is capable of sustaining sales by a Wolford distributor” excluding the Castlereagh and Collins St boutiques, of approximately $825,000 per annum for the next two years. There is no explanation as to how such a projection has been calculated and no evidence of past sales or past sales targets remotely near such a figure. More importantly, there is no evidence before me as to what Wolford’s profit margin might be so as to enable me to assess what its actual loss might be.
Wolford has recently concluded negotiations with the operator of the Collins St boutique on the terms of an exclusive distribution agreement with it. However, the agreement has not been executed, pending the determination of La Donna’s current application. There is no suggestion that the Collins St operator will not still be willing to be appointed as exclusive distributor after trial, if Wolford succeeds in terminating its agreement with La Donna.
There is no evidence that Wolford might suffer any loss which cannot be compensated in damages, if it is successful at trial. However, Wolford submits that the court should not be satisfied that La Donna’s undertaking as to damages would be adequate to cover any damages which might be suffered by Wolford. The most recent financial information before me is La Donna’s trading accounts for the financial year ending 30 June 2004. They show that La Donna had net assets of approximately $180,000. Its current assets at that time totalled approximately $767,000 and included stock on hand of approx $570,000; more recent stock figures have not been disclosed.
Whilst I agree with Wolford that it would have been desirable to have more recent financial information before the court, given the lack of any evidence from Wolford which would enable me to quantify Wolford’s possible damages by way of lost profits between now and trial, I cannot conclude that La Donna’s undertaking as to damages is likely to be worthless.
I propose to require La Donna to give an undertaking to prosecute this proceeding with all due expedition and to make interlocutory directions which will see the proceeding referred to the Listing Master within a couple of months from now.
For these reasons, the balance of convenience favours the granting of interlocutory injunctive relief until trial.
Orders
I will hear from the parties as to the precise form of the injunction and other orders.
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