Orora Ltd v Lindsay Australia Ltd
[2015] VSC 215
•21 MAY 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2015 01386
| ORORA LIMITED | Plaintiff |
| v | |
| LINDSAY AUSTRALIA LIMITED | Defendant |
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JUDGE: | RIORDAN J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 18 May 2015 |
DATE OF JUDGMENT: | 21 MAY 2015 |
CASE MAY BE CITED AS: | ORORA LTD v LINDSAY AUSTRALIA LTD |
MEDIUM NEUTRAL CITATION: | [2015] VSC 215 |
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INJUNCTION – Discharge of interlocutory injunction – Change of circumstances – Balance of convenience – Possible obligations arising out of distribution agreement – Difficulty of court supervising compliance – Lower risk of injustice if order ‘wrong’.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C Caleo QC Mr M Costello | Minter Ellison |
| For the Defendant | Mr S Anderson QC Mr B Mason | McCullough Robertson Lawyers |
HIS HONOUR:
This is an application by the defendant for an order to discharge the injunction made by me on 1 April 2015. The background to the dispute is set out in the reasons published as [2015] VSC 197 (‘the previous reasons’) and I adopt the same defined terms as in the previous reasons. The reasons set out below should be read in conjunction with the previous reasons.
In summary, the injunction granted on 1 April 2015 was based on the following findings:
(a)There was a serious question to be tried as to whether the defendant had validly terminated the 2010 Distribution Agreement;
(b)The balance of convenience between the parties was ‘finely balanced’ but, at the time of the grant of the injunction, the Court considered that liability between the parties was, in substance, a dispute about the construction of the 2010 Distribution Agreement which could be determined in a three day trial. On this basis, the parties agreed to waive the entitlement to arbitration in the 2010 Distribution Agreement and directions were given for the trial of this matter, which was to commence on 11 May 2015. After pleadings and service of witness statements, the Court was informed that the plaintiff would be calling 6 witnesses and the defendant would be calling 11 witnesses. The plaintiff estimated the duration of the trial at 7 to 10 days and the defendant estimated 11 to 13 days. As a result, the Court was unable to maintain the trial date in May and it has been necessary to refer the matter to the Commercial Court. It is likely that the matter will now be heard late this year or at the start of 2016.
In the previous reasons I stated:
I am very conscious of the potential detriment that might be caused to the respondent by reason of it being so restrained and, therefore, consider it a realistic prospect, if so convinced that this matter cannot be determined on an expedited basis, that the injunction could be discharged prior to final determination.[1]
[1]Orora Ltd v Lindsay Australia Ltd [2015] VSC 197 [43].
Accordingly, I say at the outset that I do consider that the fact that this dispute has been unable to be resolved within approximately two months is a changed circumstance which requires me to reconsider whether the injunction should be maintained.
Submissions
Mr Anderson QC, who appeared with Mr Mason and Ms Brazenor for the defendant, accepted that there was a serious question to be tried but submitted that the balance of convenience had substantially shifted against the grant of an injunction for the following reasons:
(a) Since the injunction was granted, the performance of the defendant’s business has substantially deteriorated. The evidence was that:
(i) the defendant had lost 9 customers, 6 of them to the plaintiff;
(ii) in April 2015, by comparison with April 2014, the defendant had recorded lower sales to 121 of its 279 customers and had not made sales to 90 of the 121 customers;
(iii) the plaintiff is supplying the defendant’s customers with packaging at a lower price than that which it sells the products to the defendant; and
(iv) the plaintiff had stated that it would only supply the defendant with erected cartons and not supplied flat sheets; and after protest had only reversed this policy ‘until further notice’.
(b)The injunction is causing uncertainty among the defendant’s customers because the defendant is unable to inform them what type of packaging products it will be supplying in the future. This uncertainty is having a detrimental effect on the defendant’s business and in particular its ability to promote its business.
(c)The working relationship between the plaintiff and the defendant has significantly deteriorated, which is generally affecting its ability to prepare tenders for packaging contracts. It says a cooperative relationship is generally required for an effective distributor-supplier relationship.
(d)The competitive relationship between the plaintiff and the defendant may have resulted in the disclosure of commercially sensitive information by a representative of the plaintiff to a customer in the Renmark market, to the detriment of the defendant.
(e)In general, it was submitted that the injunction was causing the defendant’s business irreparable harm and, if maintained until trial, the damage to the defendant’s business would make any victory pyrrhic.
Mr Caleo QC, who appeared with Mr Costello and Mr Snyder for the plaintiff, submitted that there had not been a substantial change in circumstances because the proceeding could still be determined urgently before an arbitrator. The Court was provided with a list of arbitrators who were available and who could start the arbitration as early as next week. It was submitted that arbitration had been the dispute resolution method of choice under the 2010 Distribution Agreement and the defendant put forward no arguments of substance against reverting to arbitration. In any event, it was contended that the balance of convenience continued to favour the maintenance of the injunction. In particular, it was submitted as follows:
(a) The plaintiff does not have the infrastructure ready to commence direct supply to customers and, as a result, it faces a real risk of losing those customers under the defendant’s influence to its direct competitor, Visy. Once customers are transitioned, it is not realistically possible to reverse the custom for some time.
(b) The damage which the defendant alleges it has suffered by reason of the injunction is in large part due to its deliberate and precipitative strategy of terminating the 2010 Distribution Agreement. In particular, the plaintiff relied upon the following:
(v) By an internal email of the defendant on 19 June 2014, during the course of the correspondence referred to in [11] of the previous reasons, Mr Wolf Lorenz informed Mr Kim Lindsay that ‘… the Visy team is close to finalising their position in advance of the meeting next month’ and proceeded to set out Visy’s offer for the supply of corrugated packaging.
(vi) A document discovered by the defendant entitled ‘Orora timetable 2015’ which set out a timetable of action commencing on 30 January 2015 including:
· the communication by the defendant reasserting a breach by the plaintiff in the supply to Simpsons Farm;
· proceeding through a termination for repudiation; and
· concluding with arrangements with Visy depending upon the result of the plaintiff’s application for an injunction.
(vii) The defendant’s refusal to accept the plaintiff’s offer, by the letter dated 5 March 2015, to engage in negotiations about the Simpsons Farms dispute and other matters.[2]
[2]Ibid [14].
In summary, it was contended that the defendant deliberately took the risk and is not now entitled to complain of prejudice consequent upon its conduct.
(c) Further, of the six customers which it is alleged that the plaintiff has taken from the defendant, only one signed an account after the injunction and two have not signed accounts with the plaintiff at all.
(d) The defendant’s deliberate plan to terminate the contract unilaterally was taken despite options to apply for an injunction to restrain the plaintiff from supplying Simpsons Farms and generally seek a declaration of its rights.
(e) Any uncertainty among the defendant’s customers is a product of the defendant’s policy and can be resolved by the defendant accepting that it will continue to supply the plaintiff’s product until the end of the 2010 Distribution Agreement.
Inadequacy of damages
The parties’ submissions with respect to the inadequacy of the remedy of damages, for the one part, and the inadequacy of the remedy of a claim under the undertaking as to damages, for the other part, were substantially similar to the submissions made on the original application and referred to in [33]-[35] of the previous reasons.
If the injunction is discharged, the plaintiff’s principal claim will be for the loss of the chance of it being able to attract the business of customers converted by the defendant across to Visy product up to the termination of the 2010 Distribution Agreement on 30 June 2016. The defendant is prepared to give undertakings to ensure the veracity of the accounts relating to these matters.
If the injunction is maintained, the defendant’s principal claim under the undertaking as to damages would be for the loss of the chance of being able to convert its customers to Visy packaging; and its chance to attract the custom of other growers which have contracted with the plaintiff up to 30 June 2016. I would expect that the plaintiff would be prepared to give similar undertakings to ensure the veracity of its accounts, as the defendant.
In my opinion, both damages claims would be complex but not outside the types of claims considered by this Court.
Conclusion
I accept the plaintiff’s submission that, if the injunction is maintained, the liability dispute could be determined by arbitration within a period of about 2 to 4 months. However, I consider that the injunction should be discharged for the following reasons:
(a) From the middle of 2014 the defendant has planned, at least, for the possibility of changing its distributor to Visy. Further, from January 2015, the defendant has considered that the supply by the plaintiff to Simpson Farms could be used as a basis for terminating the 2010 Distribution Agreement.
(b) On the other hand, the evidence strongly indicates that from mid 2014, the plaintiff has been preparing to compete with the defendant. In particular, the intention to so compete is to be inferred from the following:
(viii) Clause 10 of the 2010 Distribution Agreement appears to demonstrate an intention that the defendant’s existing grower customers would be supplied under the 2010 Distribution Agreement.
(ix) In June 2014 the correspondence between the parties confirms that, despite this apparent intention, the plaintiff had decided that it was proposing to supply Simpson Farms directly, a grower customer of the defendant, at the end of the 2010 Simpson Farms Growers Supply Agreement. The plaintiff’s claim of an entitlement to compete, at this time, appears to have been based on, what in my opinion was, the irrelevant assertion that the 2010 Simpson Farms Growers Supply Agreement was not a Growers Contract as defined in the 2010 Distribution Agreement.
(x) Despite the defendant’s objections, in January 2015, the plaintiff proceeded to supply Simpson Farms and continued to do so after the defendant threatened the plaintiff with termination of the 2010 Distribution Agreement for repudiation.
(xi) By the time of the application for the injunction, the plaintiff had changed its argument that it was entitled to compete. It then contended that cl 10.3 of the 2010 Distribution Agreement was inapplicable because the definition of ‘Rural Companies’ included the defendant’s subsidiaries but not the defendant, which was the party to the 2007 Simpsons Farms Growers Supply Agreement. The argument may be technically correct, and the defendant’s attempt to rectify the 2010 Distribution Agreement, given the substantial obstacles to a claim for rectification, may not succeed. However, I cannot see how the failure to include the defendant in the definition of ‘Rural Companies’ was other than a technical oversight; and no submission was put that there was a reason of substance for the omission. The relevance of this observation is simply that it demonstrates the determination of the plaintiff to compete with the defendant to the fullest extent possible.
In summary, the evidence referred to above demonstrates that the parties, being two large publicly listed corporations, have for some time each been positioning themselves to compete with each other at the conclusion of the 2010 Distribution Agreement.
The nature of the injunction sought is mandatory and effectively requires specific performance of the 2010 Distribution Agreement. Although this does not preclude the Court from granting an injunction it does require careful consideration of the possibility of unintended consequences of such an injunction. In this case, the injunction relates to a distribution agreement, which I accept as a matter of practice and law, normally requires a level of co-operation. In this case, for example:
(a) Clause 9 of the 2010 Distribution Agreement provides a regime for ‘Margin Support’, which includes an obligation on the plaintiff to ‘meet with [the defendant] to discuss appropriate mechanisms through which [the plaintiff] may provide a form of assistance to [the defendant] to address competitive pricing pressure’. Although the assistance provided is subject to the plaintiff’s absolute discretion, it is at least arguable that there is some obligation imposed on the plaintiff in considering such applications, for example, an obligation of good faith. It will be for the trial judge to determine how such a provision can apply if the source of the competitive pricing pressure is the plaintiff.
(b) Clause 7.4 provides that ‘To the extent considered appropriate by [the plaintiff], [the plaintiff] will assist [the defendant] in the promotion of Products in the Distribution Area’. The opening words of the clause plainly limit the obligation but considerations may arise similar to that referred to in the previous sub-paragraph.
(c) There may well be implied in the 2010 Distribution Agreement an obligation for the plaintiff ‘to do all such things as are necessary on his part to enable the other party to have the benefit of the contract’.[3]
[3]Butt v M’Donald (1896) 7 QLJ 68, 70-71 per Griffith CJ; also see Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 607 per Mason J with whom Barwick CJ, Gibbs, Stephen and Aickin JJ agreed.
Whether such obligations arise from the 2010 Distribution Agreement, and whether the plaintiff is breaching any of these obligations by directly competing with the defendant for customers and potential customers of the defendant, may well be questions to be determined at the trial. However, practically it will not be possible, during the period of the injunction, for the Court to determine whether the plaintiff’s conduct is in breach of its express or implied obligations under the 2010 Distribution Agreement; much less supervise the conduct of the plaintiff. Accordingly, requiring the defendant to comply with its purchasing obligations under the 2010 Distribution Agreement, while the plaintiff competes for the defendant’s customers (potentially in breach of its obligations), may result in substantial unfairness to the defendant. I do not consider this is the course which carries the lower risk of injustice if the injunction should turn out to have been ‘wrong’, even for a limited period of a further 2 to 4 months.
Accordingly, I propose to order that the injunction made in order 1 of the orders made on 1 April 2015 be discharged. I will hear the parties on other consequential orders.
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