Natra Pty Ltd v Markhill Investments Pty Ltd
[2005] FCA 552
•6 MAY 2005
FEDERAL COURT OF AUSTRALIA
Natra Pty Ltd v Markhill Investments Pty Ltd [2005] FCA 552
CONTRACT – sale of business of supplying, servicing and repairing radiators other than “Excluded Business”, defined as including businesses of the sale and servicing of “industrial
;radiators” carried on by the vendor under certain names – whether servicing radiators for four wheel drive vehicles and passenger vehicles of industrial customers of vendor within exclusionWORDS AND PHRASES – “industrial”, “industrial radiators”
Trade Practices Act 1974 (Cth) ss 52, 84(1)
Fitzgerald v Masters (1956) 95 CLR 420 at 426 applied
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352 appliedL Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 263 cited
Norton on Deeds (1st ed, 1906) at 43
NATRA PTY LTD v MARKHILL INVESTMENTS PTY LTD & OTHERS
NO. V 437 OF 2004HEEREY J
6 MAY 2005
MELBOURNE
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
V437 OF 2004
BETWEEN:
NATRA PTY LTD (ACN 105 217 230)
APPLICANTAND:
MARKHILL INVESTMENTS PTY LTD
(ACN 052 046 82) and OTHERS
RESPONDENTSJUDGE:
HEEREY J
DATE OF ORDER:
6 MAY 2005
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.The respondents and each of them by their officers, servants or agents or howsoever otherwise are restrained from conducting in the State of Western Australia for a period of three years from 4 January 2004 a business of supplying, servicing or repairing radiators for passenger motor vehicles, including four wheel drive vehicles, and light commercial vehicles up to 3.5 tonnes.
2.The applicant’s claim for damages for breach of the agreement between it and the first respondent dated 4 January 2004 is adjourned to a date to be fixed.
3.The application is otherwise dismissed.
4.The respondents pay the applicant’s costs including reserved costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
V437 OF 2004
BETWEEN:
NATRA PTY LTD (ACN 105 217 230)
APPLICANTAND:
MARKHILL INVESTMENTS PTY LTD
(ACN 052 046 82) and OTHERS
RESPONDENTS
JUDGE:
HEEREY J
DATE:
6 MAY 2005
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
Up until January 2004 the first respondent Markhill Investments Pty Ltd (Markhill) conducted at and from various locations in metropolitan Perth, Western Australia the business of supplying, servicing and repairing radiators and cooling system products.
By an agreement dated 4 January 2004 (the Agreement) Markhill sold part of that business to the applicant Natra Pty Ltd (Natra) for $1.45 million. The part excluded from the sale, and which Markhill continued to conduct, was referred to in the Agreement as the “Excluded Business”, a term defined to mean
“the businesses of the sale and servicing of industrial radiators, charge air coolers, oil coolers and heat exchangers carried on by the Vendor under the names ‘Abbotts Industrial Radiators’ and ‘Abbotts Oil Coolers’.”
Natra complains that since the sale Markhill has breached the Agreement by carrying out radiator work in respect of four wheel drive (4WD) vehicles, other passenger vehicles and light commercial vehicles (up to 3.5 tonnes).
Markhill contends that it is entitled to do such work because it falls within the definition of Excluded Business in the Agreement.
Natra also says that Markhill has used the name “Abbotts” in a way that is likely to mislead or deceive consumers contrary to s 52 of the Trade Practices Act 1974 (Cth) (the Act).
Markhill’s business before the Agreement
Markhill in 1991 purchased a radiator business carried on under the name Abbotts Radiators and Air Conditioning Australia. From that time Markhill operated the business as two divisions, which it referred to as automotive and industrial, under a central administration system based at 19 Kewdale Road, Welshpool. Both divisions had separate operations managers, sales representatives, customer bases, individual budgets and sales and marketing strategies. Individual records were kept but there were no separate annual financial statements for the divisions. Tax returns were submitted on a consolidated basis.
The automotive division operated six retail workshops throughout metropolitan Perth, including one at the Welshpool premises. These workshops dealt with trade customers such as motor vehicle repair workshops, panel beaters and motor vehicle dealerships and retail customers from the general public.
The industrial division was located at the Welshpool premises. The premises consisted of a two storey building adjacent to a car park fronting on to Kewdale Road. A photograph tendered in evidence shows along the left of the facade the words “Abbotts Radiators” and to the right, and underneath one another, the words:
Automotive
Trucks
Earthmoving
Oil Coolers
On the side of the building is the word “Abbotts”. I was told that there had been no change to this signage since the date of the Agreement.
The Welshpool premises consisted of four separate workshops extending back from the front. There was not internal access between the buildings. In other words, it was somewhat like a row of terrace houses joined from front to back rather than side to side. The retail division operated in the front workshop and the industrial division in the rear ones. In the rear workshops there was heavy lifting machinery.
The industrial division supplied and serviced radiators to companies involved in heavy industries such as mining, earthmoving, transport, farming, power generation, drilling and marine. Much of its business originated from locations outside the metropolitan area.
The Agreement
Clause 2.1 provides:
“The Vendor as beneficial owner sells and the Purchaser buys the Business free from any Security Interest for the Purchase Price on the terms of this Agreement.”
Clause 1.1 contains a dictionary which provides “unless the context otherwise requires” definitions of various expressions used in the Agreement. These include:
“Business means the Vendor’s business of supplying, servicing and repairing radiators and cooling system products and (except where the context otherwise requires) also means all of the Assets, but excludes the Excluded Business.”
and the definition of Excluded Business already quoted.
Clause 9 contains restraints on the Vendor. Clause 9.2 relevantly provides:
“Subject to the provisions of clause 9.6, the Vendor… must not, … during any of the Restraint Periods within any of the Restraint Areas:
(a)conduct, carry on or promote (whether on its own account, in partnership, in joint venture or as employee or agent of or manager for any other person) any Restrained Business…
;(b)…….”By cl 9.1 the certain definitions are provided for:
“Restrained Business means a business or operation similar to, or competitive with, the Business or similar to or competitive with, the Business.”
It was agreed that the repetition is probably a typographical error. “Restrained Area” is defined to mean metropolitan Perth and the State of Western Australia excluding each of Kalgoorlie, Karratha and Port Hedland, in respect of each location to the extent only that during any restraint period neither Natra nor any of its related bodies corporate or Natrad franchisees traded in that location. The restraint period is three years from Completion, which was in fact 4 January 2004.
The exception to restraints contained in cl 9.6 are relevantly in these terms:
“Notwithstanding the provisions of this cl 9, the Vendor is entitled to continue to use the names ‘Abbotts Industrial Cooling’, ‘Abbotts Industrial Radiators’ and ‘Abbotts Oil Coolers’ in respect of the Excluded Business on and from Completion (and the font style currently used by the Business), provided always that:
(a)the Vendor, … ceases on and from Completion to trade under or otherwise use the Abbotts logo as currently used by the Business and the Excluded Business (being the name “Abbotts” in a blue box) ( the Abbotts Logo), or any logo, branding or other design which is similar to the Abbotts Logo, in connection with the Excluded Business or any other business operated by them from time to time; and
(b)the Excluded Business or any other business operated by them from time to time does not at any time following Completion compete in any way whatsoever with the Business.”
It will be seen there is a disconformity between cl 9.6 and the definition of the Excluded Business in cl 1.1 in that the latter does not include the name “Abbotts Industrial Cooling”. Counsel were unable to suggest any rational basis for this. It would appear to be an error producing absurdity or inconsistency. Without the need for rectification the definition of Excluded Business should be read as including “Abbotts Industrial Cooling”: see Fitzgerald v Masters (1956) 95 CLR 420 at 426.
The respondents’ defence includes an allegation that the restraints are an invalid restraint of trade, but this was not pressed at trial.
Further undertakings in cl 9.3 to protect goodwill include an undertaking by Markhill not:
“(d)to use a name which is similar to any Name or other trading name currently or previously used by the Business.”
“Names” are defined in cl 1.1 to mean the following names:
“(a) Abbotts Radiators and Airconditioning;
(b) Vaughan’s Radiator Service;
(c) The Radiator Warehouse; and
(d) Roadside Radiators
and any similar names or abbreviated forms of those names.”Contentious dealings by Markhill between Agreement and interim orders
In May 2004 Natra brought an application for an interim injunction to restrain alleged breaches of the Agreement. On 18 May 2004 the application was settled on terms including an undertaking that pending trial Markhill would refer disputed work to Natra. Between the date of the Agreement and 15 May 2004 Markhill had carried out radiator work on certain vehicles. Natra says that this work was done in breach of the Agreement, a contention which Markhill disputes. The work was as follows:
Customer Type of Vehicle Location of Customer City Panel Beaters A light vehicle Perth City Panel Beaters Toyota Corona Perth Enmac Mechanical Landcruiser (4WD) Perth (Welshpool) GPR Trucks Toyota Tarago Perth (Welshpool) GPR Trucks Toyota Dyna (light commercial van) Perth (Welshpool) Emeco Toyota Corolla Perth (Belmont) Major Motors Holden V8 Perth (Belmont) Newmont Golden Grove Landcruiser (4WD) Golden Groves Scuddles mine site (400 km inland from Geraldton) Underground Services Mazda (Utility or passenger vehicle) Perth (Bassendean) Newmont Golden Grove Landcruiser (4WD) Golden Groves Scuddles Mine site Newmont Golden Grove Landcruiser (4WD) Golden Groves Scuddles Mine site Newmont Golden Grove Lancruiser (4WD) Golden Grove Scuddles mine site Underground Services Landcruiser (4WD) Perth (Bassendean) BGC Asphalt Landcruiser (4WD) Perth (Hazelmere, which adjoins Welshpool) Newmont Golden Grove Isuzu (small truck) Golden Grove Scuddles mine site Newmont Golden Grove Landcruiser (4WD) Golden Grove Scuddles mine site Newmont Golden Grove Landcruiser (4WD) Unknown WA Fork Trucks Forklift Perth (Cloverdale, which adjoins Welshpool) In addition to the foregoing work done, on 15 March 2004 Markhill provided a written quotation to a Mr Neil Baker, whose address does not appear, for repair or replacement of the radiator on a Patrol 4WD for the sums of $429.45 and $488.07 respectively.
Construction of the Agreement: the respondents’ case
At the outset of the trial, and after Natra’s opening, the respondents’ case was summarised by its counsel as follows. Prior to the Agreement there were two existing businesses. One was a business undertaken from the six retail outlets. The type of customers that it normally dealt with were members of the public who wanted to have their radiators repaired. Dealings were either direct or through mechanics’ workshops or panel beaters. That was an existing business and that was what was sold and purchased. There was another business, the industrial business, which was an ongoing concern and had its own customers for whom that business did all sorts of work, including work on 4WD radiators. That latter business was the business that was specifically excluded from the Agreement and which Markhill continued to operate. In essence, counsel submitted, the Excluded Business is to be identified by an historical approach, that is to say the Excluded Business is the industrial business which was carried on by Markhill prior to the Agreement. One must look at “the nature of the business at the time of the sale to see what was excluded”.
The issue of 4WDs, counsel said, was really an issue which depends upon the use of the vehicle. If it is used as a passenger vehicle in the suburbs, “then, sure, it’s an automotive vehicle” but if “it’s a vehicle used in Broken Hill or at a mine site, undertaking work at that mine, then it’s an industrial vehicle”.
The application of this construction in relation to contentious items varied during the course of the trial. At different stages either counsel or Mr David Meese a shareholder and director of Markhill (and, as a guarantor of the Agreement, the third respondent) contended that the Excluded Business included work in relation to:
- all 4WDs;
- 4WDs used in connection with an industrial undertaking such as a mine or farm;
- 4WDs, and indeed any passenger vehicles, owned by customers of the industrial division or their staff;
- all vehicles of customers who are not in the same market in which Natra operates.
The respondents’ case is illustrated by its attitude in respect of City Panel Beaters. This was a valued customer which produced $50,000 worth of business a year. Mr Meese’s position was that Markhill was entitled under the Agreement to work on any vehicles for City Panel Beaters, including passenger vehicles owned by its staff, because to refuse to do so would run the risk of losing that firm’s business. In the same vein, one of the vehicles referred by Markhill to Natra under the terms of the interim undertaking, and which Markhill claims was work to which it was entitled as being within the Excluded Business, was an MG. This is certainly giving an extended meaning to the term “industrial”.
Negotiations and expectations: the Codelfa rule
As might have been expected, negotiations for the Agreement were quite protracted, extending over a period of some six months. Counsel for the respondents supported his construction of the Agreement by reference to the course of these negotiations. For example, he pointed to evidence that Natra expressed interest only in purchasing retail outlets and made no enquiries as to the type of work done by the industrial division or the identity of its customers.
Also counsel referred to the nature of work done by the industrial division before the Agreement, and particularly on 4WDs. There was a conflict as to this. Mr Meese said that work on 4WD radiators was done in the industrial division and was only referred to the automotive division at Welshpool on “a handful of occasions”. Mr Bradley Rowland, who worked for Markhill as manager of the automotive division and continued in that role for Natra after the Agreement, said that it “must have been a big handful”. He estimated that only about five per cent of such work would have been retained within the industrial division. If it became necessary to do so, I would prefer the evidence of Mr Rowland on this issue. However, evidence of this nature, and evidence as to what was said or not said in negotiations, is not relevant on the issue of the construction of the Agreement. The reason for this is explained in the well known passage in the judgment of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352:
“The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.
It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.
Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties’ presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.”
Conclusion on the construction issue
The Agreement does not present a picture of a vendor with two businesses who sells one and keeps the other. Rather, there is the one business from which is carved out an Excluded Business to be retained by the vendor. The potential for confusion, misunderstanding and thwarted expectations would, objectively speaking, have been obvious at the time. This was the more so in light of the fact that the Excluded Business was to operate from the same premises and in a closely related field of commercial endeavour. All the more reason therefore to give the Agreement a construction which is consistent with the actual language which the parties chose to use in an elaborate document prepared by their lawyers. As Norton on Deeds says (1st ed, 1906 at 43), in a passage cited by Lord Simon of Glaisdale in L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 263, “the question is ‘
“What is the meaning of what the parties have said?’”not ‘“What did the parties mean to say?’””.The criterion for the identification of the Excluded Business which the parties have chosen in the Agreement is the kind of radiator or other plant and equipment which is sold or serviced. There is no attempt in the Agreement to identify any existing customers of Markhill, an obvious matter to be dealt with if the business to be retained involved all work from existing industrial customers. Nor is there reference to the internal workings of the Markhill business prior to the Agreement. The definition of Excluded Business does not just say “the businesses carried on by the Vendor under the names ‘Abbotts Industrial Radiators’ etc etc ”. There is the further qualification that the businesses are those which involve the sale and servicing of specified kinds of plant and equipment.
The word “industrial” appears in a context where a certain kind of work is being excluded by a vendor from a business which is being sold. That business is concerned with radiators in motor vehicles. Therefore the term “industrial radiator”, in this setting, connotes something which is different from radiators in motor vehicles. The word “automotive” has figured much in evidence and argument in this case. The term is not found in any relevant part of the Agreement itself although, as mentioned, it appears on the front of the Welshpool premises announcing to the world that work of that description was one of four types of work done by the pre-Agreement business. The term “automotive”, like the term “motor vehicle”, helps to give meaning by way of contrast to “industrial”.
The terms “automotive” and “motor vehicle” convey the notion of a motorised vehicle used for the transport of people and/or goods. Thus the Macquarie Dictionary gives as one of the meanings of “automotive’”, “of or pertaining to motor vehicles”. “Motor vehicle” is defined as “a road vehicle driven by a motor, usu an internal-combustion engine, as a motor car, motor cycle, or the like”.
In this setting, “industrial” suggests plant or equipment used in connection with the winning or production of goods – as in mining, manufacturing, farming or fishing. Some such plant may be mobile, for example a mining dump truck. Some may perhaps be used in a way not immediately involving the production of goods, as in earthmoving equipment. Nevertheless a central idea of “industrial radiator” in the present context is that it does not form part of a motor vehicle in the sense discussed.
It is neither necessary nor desirable to attempt a categorisation of all conceivable radiators into industrial and non-industrial. However, of the vehicles which have given rise to contention in the present case it is possible to say:
- 4WDs are not “industrial”. While for some purposes, such as vehicle marketing and customs duties, they may be treated as a separate category of motor vehicle, 4WDs are essentially motor vehicles intended primarily for the transport of passengers. They fall into a category of motor vehicle, but are motor vehicles none the less, as are two door, four door and five door vehicles, sedans, station wagons, sports cars and motorcycles and petrol, diesel and LPG powered vehicles. True it is, 4WDs are designed to be capable of use off-road, but equally they have the same function and capability on-road as a two wheel drive sedan, station wagon or sports car;
- 4WDs and other motor vehicles do not become “industrial” by virtue of their owners being existing customers of Markhill at the time of the Agreement;
- the fact that a 4WD or other passenger vehicle is owned by a firm engaged in industry, or staff of such a firm, does not make it “industrial”;
The onea particular 4WD does not become “industrial” or not depending on its actual use from time to time, as for example where a farmer uses a 4WD on his farm and then takes his family in it to the beach for a holiday.
The respondent’s market/competition argument
Counsel for the respondents submitted that the Business purchased was “basically a retail and trade business”, its customers being members of the public and trade customers such as motor mechanics and panelbeaters. The Excluded Business, on the other hand, dealt with “corporate clients and country customers who have more industrial needs”. The businesses operate in different segments of the market and, therefore, do not compete. By way of illustration, counsel said that in servicing the needs of Newmont Golden Grove, 400 km from Geraldton, Markhill was not operating in the same market as that of the metropolitan business purchased by Natra. Therefore there was no breach of cl 9.2.
However, this argument begs the question. It is predicated on acceptance of the respondents’ construction argument. For the reasons given above, what was sold was not “basically a retail and trade business”, but the Business, that is to say all Markhill’s business, less the Excluded Business as defined. Implicit in the respondents’ present argument is that at the time of the Agreement the Business was not confined to Perth but extended to customers such as Newmont. Consistently with this, the Restraint area covers the whole of Western Australia except for the three named towns (and even in these the restraint was to operate once Natra or its franchisees commenced to trade there). The definition of Excluded Business does not suggest any limitation of the area in which the Business is to operate. As already mentioned, that definition only excludes certain types of work.
Markhill covenanted not to carry on a Restrained Business (defined to mean a business similar to, or competitive with, the Business) subject only to the exceptions in cl 9.6. Doing work on, say, 4WDs for Newmont was similar to, or competitive with, the Business, because the Business included work on 4WDs anywhere in Western Australia. So much the more was work on a Toyota Corolla in Belmont.
Injunction
Counsel for the respondents submitted that a declaration was a sufficient remedy. I do not agree. Having received $1.45 million for the sale of a business essentially involving radiators for motor vehicles, Markhill asserts a right to deal with radiators for 4WDs, MGs, Toyota Corollas and other motor vehicles as long as they have some connection with previous customers or their staff (and in Mr Meese’s view any 4WD). This is in my view a clear breach of a central term of the Agreement and Natra is entitled to the grant of a permanent injunction, that being the usual form of remedy where there have been past contractual breaches and an assertion of entitlement to continue such conduct. But I think counsel for the respondents was correct in submitting that the terms of any injunction should specify with reasonable clarity the disputed work.
Damages
Counsel agreed that in the event of my finding in favour of Natra on the breach of contract issue the question of assessment of damages should be adjourned.
The Bartercard fax: s 52 claim
Bartercard is a firm which operates a kind of clearing house for contra deals. Firms can sell goods and services and be paid in credits which can be used to buy goods and services from other firms who have enrolled in the system.
In late February 2004 Natra obtained a copy of a fax sent by Bartercard Perth South which read as follows (formal parts omitted):
“Subject: Radiator Components on Trade
Please find attached details of the offer from Abbotts Industrial Cooling to supply wholesale radiator components on trade.
Abbotts are keen to supply anywhere in Australia except WA, and are looking forward to taking enquiries you may have.
Please contact Brendan Martin on (08) 9458, Fax (08) 9458 4898 or e-mail [email protected]
Regards
(sgd) M Styles
Mark Styles”
The attachment was headed “Finally … a Radiator Supplier on Bartercard”. At its foot appeared the name of Brendan Martin, described as Import/Export Manager. It offered “an extensive range of radiator product through the Bartercard system”. Technical details of certain products were supplied.
Mr Meese said the reference to Abbotts in the Bartercard fax was a “slip” and was not endorsed by Markhill.
The information in the attachment obviously came from Markhill and it can be inferred that Markhill intended Bartercard to publish it. Bartercard therefore had apparent authority to act on Markhill’s behalf in the publication of the information and, necessarily, associated explanatory material such as that contained in the covering fax. Markhill is liable by virtue of s 84(1) of the Act for any contravention of the Act constituted by publication of the fax.
However, the natural meaning conveyed by the Bartercard fax is that the word “Abbotts” is simply a shorthand version of “Abbotts Industrial Cooling”. A reader would not think that there were two separate businesses, one of which was making an offer to supply wholesale radiators and another which was “keen to supply” such goods. On that basis the fax was not misleading or deceptive since Markhill was contractually entitled to use the name “Abbotts Industrial Cooling” in respect of “industrial radiators” within Western Australia and generally outside that State.
In any event, Natra does not claim any loss or damage in respect of this cause of action. Markhill does not assert a right to use the name “Abbotts” by itself in Western Australia. So it would not be appropriate to grant an injunction.
Costs
There should be an order that the respondents pay Natra’s costs. I am conscious of the fact that the Bartercard fax claim has failed and that some other claims were withdrawn at the commencement of the trial. However, these matters did not make any material difference to the length of the trial.
I certify that the preceding forty- three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey .
Associate:
Dated: 6 May 2005
Counsel for the Applicant:
D Christie
Solicitors for the Applicant:
Mills Oakley Lawyers
Counsel for the Respondents:
N Pane
Solicitors for the Respondents:
R B Legal
Dates of Hearing:
26, 27, 28 April 2005
Date of Judgment:
6 May 2005
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