Rockwell Automation Australia Ltd v Remtron Pty Ltd
[2010] VSC 404
•9 September 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
No. 2082 of 2008
| ROCKWELL AUTOMATION AUSTRALIA LTD (ACN 005 549 477) | Plaintiff |
| v | |
| REMTRON PTY LTD (ACN 006 379 540) | Defendant |
No. 2083 of 2008
| ROCKWELL AUTOMATION AUSTRALIA LTD (ACN 005 549 477) | Plaintiff |
| v | |
| JPR CONTROLS PTY LTD (ACN 008 127 991) | Defendant |
No. 5579 of 2009
| TRIFLEX ELECTRICAL PTY LTD (ACN 002 560 054) | Plaintiff |
| v | |
| ROCKWELL AUTOMATION AUSTRALIA (ACN 005 549 477) | Defendant |
No. 6651 of 2009
| ROCKWELL AUTOMATION AUSTRALIA LTD (ACN 005 549 477) | Plaintiff |
| v | |
| WESTCOAST INDUSTRIAL CONTROLS PTY LTD (ACN 006 192 454) | Defendant |
No. 7196 of 2009
| CENTRAL QLD HI TECH PTY LTD (ACN 063 975 324) | Plaintiff |
| v | |
| ROCKWELL AUTOMATION AUSTRALIA LTD (ACN 005 549 477) | Defendant |
No. 7197 of 2009
| DELTA ELECTRICAL PTY LTD (ACN 053 861 108) | Plaintiff |
| v | |
| ROCKWELL AUTOMATION AUSTRALIA LTD (ACN 005 549 477) | Defendant |
No. 7198 of 2009
| ENCOMPASS AUTOMATION PTY LTD (ACN 005 549 477) | Plaintiff |
| v | |
| ROCKWELL AUTOMATION AUSTRALIA LTD (ACN 005 549 477) | Defendant |
No. 7199 of 2009
| MARCON AGENCIES PTY LTD (ACN 062 671 210) | Plaintiff |
| v | |
| ROCKWELL AUT0MATION AUSTRALIA LTD (ACN 005 549 477) | Defendant |
No. 7285 of 2009
| GIPPSLAND SENSORS AND CONTROLS PTY LTD (ACN 006 366 678) | Plaintiff |
| v | |
| ROCKWELL AUTOMATION AUSTRALIA LTD (ACN 005 549 477) | Defendant |
No. 10854 of 2009
| REYNOLDS AUTOMATION CONTROLS PTY LTD (ACN 074 946 053) | Plaintiff |
| v | |
| ROCKWELL AUTOMATION AUSTRALIA LTD (ACN 005 549 477) | Defendant |
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JUDGE: | JUDD J | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 2, 3, 7-10, 16 June 2010 | |
DATE OF JUDGMENT: | 9 September 2010 | |
CASE MAY BE CITED AS: | Rockwell Automation Australia Ltd v Remtron Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 404 | |
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CONTRACT – Distribution Agreement – Construction – Termination – Repudiation – Confidential information - Fiduciary duty.
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APPEARANCES: | Counsel | Solicitors |
| For Rockwell Automation Australia Ltd | Mr D J Christie with Mr C H Smith | Lander & Rogers |
| For the Distributors | Mr M D Wyles SC with Ms L L Barrett | Russell Kennedy |
HIS HONOUR:
Introduction
Rockwell Automation Australia Ltd produced and supplied components and services in the field of industrial automation, power, control and information solutions. Rockwell products ranged from generic switch gear to ‘whole of industry’ automation systems. It specialised in programmable logic controllers, human machine interface products, motor control products including variable speed drives, field devices including sensors, contactors, thermometers and products which gathered, processed and transmitted information.
Customers for Rockwell products included some of the largest mining and manufacturing companies in Australia. To support its products, Rockwell provided services for the installation and commissioning of its equipment as well as the management of on-going customer requirements.
Until November 2008, Rockwell serviced the Australian market through distributors who were allocated defined territory described in each Distributor Agreement as an area of primary responsibility or APR. The APR was the target area within which each distributor was required to discharge its marketing, sales and service responsibilities. The performance of a distributor would be assessed having regard to its performance in the APR.
The industry within which Rockwell and its distributors carried on business was inherently difficult to confine to delineated geographical areas. The business carried on by some customers extended beyond a single APR. In order to service a customer’s needs, a distributor might have been required to sell Rockwell products outside its APR and was permitted to do so. This reality was reflected in the non-exclusive nature of the distribution rights.
By early 2003, most of Rockwell’s distributors had executed a Distributor Agreement in essentially the same terms. This trial is concerned with the termination by Rockwell of Distributor Agreements with Triflex Electrical Pty Ltd, Gippsland Sensors & Controls Pty Ltd, Encompass Automation Pty Ltd, Central Queensland Hi Tech Pty Ltd, Marcon Agencies Pty Ltd, Reynolds Automation Pty Ltd, Remtron Pty Ltd, JPR Controls Pty Ltd, Delta Electrical Pty Ltd and Westcoast Industrial Controls Pty Ltd. The Distributor Agreements were terminated by letters dated 5 November 2008. The letter to each distributor stated,
As we explained in our phone conversation with you today, Rockwell has decided to change the structure of its distribution network in Australia and New Zealand. We confirm that this means the termination of your Appointed Distributor Agreement (‘Agreement’) with Rockwell.
In accordance with clause 19 of your Agreement, this letter is formal notice to you of that termination. The termination will be effective June 30 2009 (‘Last Day’).
You will be aware that we are giving you more than 90 days’ notice required in the Agreement. It is our intention that this will give you a longer period of time to find an alternative supplier(s) and restructure your business while still meeting your obligations to your existing customers in accordance with the Agreement. In all other respects, our obligations under the Agreement remain unchanged.
Both parties’ obligations on termination of the distributor relationship are set out in detail in the Agreement. The attached document titled ‘Logistical Matters’ provides additional detail on managing certain logistical matters from now until the Last Day (‘Transition Period’).
Please accept our thanks for your support of Rockwell. We wish you all the best in your future endeavours.
The attachment to the letter, to which further reference will be made below, explained Rockwell’s expectations during the Transition Period, arrangements for the repurchase of stock and other matters.
On 7 November 2008, Rockwell issued a media release in conjunction with Inaco Automation Controls (a division of Rexel Group Australia Pty Ltd) and NHP Electrical Engineering Products Pty Ltd. The joint media release announced Rockwell’s intention to form a new distributor relationship to better serve customers in Australia and New Zealand. The new arrangements included distribution roles for Inaco and NHP, effective from 7 November 2008. Inaco was an existing Rockwell distributor in New South Wales.
The trial of the issues between Rockwell and its former distributors involved the hearing of 10 separate proceedings. Most of the issues in each proceeding were identical, although some issues were unique to a particular case or a sub-set of cases. For convenience and efficiency in the management and disposition of the proceedings, the parties agreed that evidence in any one proceeding should be treated as evidence in all others, insofar as relevant. Of course some of the evidence given on behalf of individual distributors was unique to their individual circumstances. The evidence established a pattern of activity by Rockwell upon which the distributors relied to support construction arguments and a fiduciary obligation.
All parties accepted that the terms and conditions of each Distributor Agreement were identical, save for the individual distributor details, including the commencement date, APR, authorised products, authorised premises and the ownership and control structure described in each agreement.
(1) Rockwell v Remtron (2082/08)
The first proceeding was commenced by Rockwell to recover unpaid amounts charged to Remtron for products supplied. Rockwell claimed $3,176,637.51, together with interest, calculated to 31 May 2010, in the sum of $818,176.18. In each case interest was calculated at the rate of 1.5% per month pursuant to a term of trade between the parties.
Rockwell divided its claim against Remtron into two parts, based on two Distributor Agreements. The first agreement was dated 3 January 2003 between Rockwell and Remtron. It had been sent to Remtron under cover of a letter dated 3 December 2002. The second agreement, between Rockwell and AIC Automation, a business name owned by Remtron, was dated 1 July 2006. Rockwell supplied products to Remtron under both agreements.
By its Substituted Defence and Amended Counterclaim, Remtron alleged that the terms of the Distributor Agreements had been varied by the covering letter dated 3 December 2002 and some ‘Powerpoint’ slides shown as part of a presentation made by Rockwell to its distributors in May 2007.[1] Remtron alleged that, as a consequence of the variations, the termination provisions in cl 19.1 of the Distributor Agreement, relied upon by Rockwell to support its termination, had been effectively neutralised. Remtron argued that the duration of each agreement had been extended until 30 September 2012.
[1] The slides are set out at [95] below.
In the alternative, Remtron alleged that on a proper construction of the agreements, a party could only terminate, in the absence of cause, by providing to the other party not less than one year’s notice to be effective on the next anniversary date of the Distributor Agreement. The anniversary dates for Remtron were 3 January and 1 July. Remtron alleged that by terminating the agreements on 5 November 2008, Rockwell repudiated the agreements. Remtron alleged that Rockwell also breached the Distributor Agreement by using confidential information to secure agreement with NHP, as replacement distributor.
Remtron also alleged that Rockwell owed to it a duty as a fiduciary ‘to preserve and pursue the benefit to Remtron of such goodwill as Remtron established by reason of its performance of obligations’ under the agreement. It alleged that by terminating the Distributor Agreement in November 2008, Rockwell destroyed the goodwill. Remtron sought damages for breach of contract in the sum of $21,464,000 and compensation for loss of goodwill valued at between $7,200,000 and $9,800,000. It sought to set-off those amounts against any amount owing to Rockwell.
Remtron had been appointed a Rockwell distributor in the early 1990s with an APR in Melbourne’s southern suburbs. It submitted that Rockwell prohibited sales of competing products. When first appointed as a distributor of Rockwell products, Remtron was only authorised to sell a small range of Rockwell switch gear. The range of products increased as Remtron phased out competing product lines.
Remtron clients included Coca Cola, Nestlé, Tip Top Bakeries, Automation Mechatronics and National Dairies. Rockwell encouraged Remtron to consult with it over the appointment of sales staff, and assisted Remtron in its employment of staff. Rockwell required staff training, and Remtron complied with Rockwell’s requirements. Rockwell convened distributor conferences which Remtron representatives attended, including the conference in May 2007. Each year Rockwell representatives attended Remtron’s premises to discuss annual business plans. Rockwell would prepare a budget and assisted Remtron to prepare operating plans.
In April 2005, Rockwell sent to Remtron an ‘Addendum Agreement’, which the parties accepted formed part of the agreement between them. According to Remtron, the Addendum Agreement, like the Distributor Agreement was presented by Rockwell as non-negotiable.
In 2006, Remtron acquired an existing Rockwell distribution business operating in the Albury-Wodonga region. The acquisition was made in consultation with Rockwell. Before approving Remtron’s new APR, Rockwell required an approved business plan. Rockwell eventually approved the plan and Remtron completed the purchase. That acquisition was the genesis of the second Remtron Distributor Agreement.
Following is a summary of each subsequent proceeding, highlighting material differences, and relevant factual background. They are dealt with in order of commencement.
Rockwell v JPR (2083/08)
The JPR proceeding raised substantially similar issues as the Remtron proceeding. Rockwell claimed the sum of $2,126,448.62 for unpaid invoices, together with interest of $546,406.50, calculated to 31 May 2010.
By its defence and counterclaim, JPR claimed damages for breach of contract in the sum of $11,348,000 and compensation for loss of goodwill valued at between $2,520,000 and $3,720,000. The relevant Distributor Agreement was dated August 2001.
One difference between the Remtron and JPR proceedings was an alleged term of the JPR Distributor Agreement to the effect that, upon termination, Rockwell was obliged to repurchase unsold stock from JPR. The only relief sought by JPR in that regard was a declaration to the effect that the Distributor Agreement contained such a term. A similar allegation was made by each of the Triflex, Westcoast and Delta.
The current directors of JPR, Mark Tolcher and Ty Harwood, purchased JPR in early 2001. The purchase was made with the approval of Rockwell. JPR relied on a letter, dated 28 February 2001, which was in similar, although not identical, terms to the Remtron letter of 3 December 2002. That letter did not purport to enclose a Distributor Agreement, but foreshadowed its terms and Rockwell’s intention to enter into such an agreement. A Distributor Agreement had been sent to JPR by Rockwell at about that time, and executed and returned by JPR. The APR was South Australia, except for the Riverland and part of the south east of the state.
Evidence of the relationship between Rockwell and JPR painted a similar picture to the relationship between Rockwell and its other distributors. There was evidence that Rockwell prohibited the sale of competing products, and of the close cooperation between JPR and Rockwell in serving those customers. JPR trained its staff in conformity with the requirements of Rockwell. Its officers attended distributor conferences conducted by Rockwell. Rockwell and JPR reviewed and set sales targets and prepared annual operating and business plans.
(3) Triflex v Rockwell (5579/09)
The Triflex proceeding was the first of a number of proceedings initiated by a former distributor against Rockwell, in which the distributor claimed damages for breach of contract and compensation for loss of goodwill. In each proceeding, where there were unpaid invoices, Rockwell counterclaimed for the amount, together with interest. The issues between the parties in the Triflex proceeding were substantially the same as in the JPR proceeding. Triflex claimed damages for breach of contract in the sum of $6,944,000 and compensation for lost goodwill valued at between $1.6 and $2.35 million. Rockwell counterclaimed for unpaid invoices in the sum of $1,974,752.22, together with interest of $442,318.92, calculated to 31 May 2010.
Triflex was, prior to 2004, owned and operated by Ross Jorgensen. In that year Mr Jorgensen’s brother-in-law, Reid Chapman Berg, acquired the business and became general manager. By that time, Triflex had distributed Rockwell products for about 13 years. The Triflex APR was Sydney and surrounding areas.
About 80 per cent of Triflex sales were of Rockwell products. Triflex customers required long lead times in order to secure sales. The business operated by Triflex was not confined to over the counter sales.
The Triflex Distributor Agreement, dated 12 January 2003, had been sent to Triflex under cover of a letter dated 12 December 2002.
(4)Rockwell v Westcoast Industrial (6651/09)
The Westcoast proceeding was commenced by Rockwell, who claimed $1,735,685.06 for unpaid invoices, together with interest of $304,633.59, calculated to 31 May 2010. By its defence and counterclaim, Westcoast advanced a case in substantially the same terms as JPR. The Westcoast Distributor Agreement was dated 3 January 2003. Westcoast claimed damages for breach of contract in the sum of $7,720,000 and compensation for the loss of goodwill valued at between $1,710,000 and $1,750,000. The agreement had been sent to Westcoast under cover of a letter dated 3 December 2002, which was in identical terms to the letter sent to Triflex.
Westcoast had commenced to distribute Rockwell products in about October 1989. Its APR extended from the Geelong region to the South Australian border. Westcoast customers were primarily dairy companies, but included Australian Cement, CSR Portland and the Stawell Goldmine. Westcoast had developed expertise in supplying Rockwell products and services to those customers.
Another major client of Westcoast was Alcoa. From about 1997, Westcoast worked in conjunction with Rockwell to establish a relationship with Alcoa, and ultimately entered into a parts management agreement with Alcoa. Rockwell was also a party to parts management agreements, under which it supplied services and parts. Westcoast was party to about 14 such agreements. Those agreements gave Westcoast continuity of relationship and business with the contracted customers.
In about 2001, Westcoast expanded its operations to include the Western suburbs of Melbourne. This was achieved by purchasing the business of a former Rockwell distributor, whose agreement with Rockwell had been terminated after the business went into receivership. Rockwell approved the acquisition, but no formal Distributor Agreement was executed until 2003, when Rockwell sent to Westcoast two new Distributor Agreements under cover of a letter dated 3 December 2002.
Like other distributors, Westcoast trained its staff in accordance with Rockwell requirements and considered itself prohibited from selling competing products. Rockwell employees and officers attended distributor conferences conducted by Rockwell from time to time.
(5) Central Queensland v Rockwell (7196/09)
The issues in the Central Queensland proceeding were substantially the same as in Remtron. The Distributor Agreement was dated 3 January 2003. There was no counterclaim by Rockwell. Central Queensland claimed damages for breach of contract in the sum of $4,824,000 and compensation for loss of goodwill valued at between $1.24 and $1.28 million.
As its name connotes, the Central Queensland territory was in and around Gladstone, Queensland. It commenced distributing Rockwell products in about June 1994. Its customers were primarily mining companies. Central Queensland did not rely upon a covering letter.
In about 1998, Victor Leslie Mayfield purchased the interests of his co-owners. Rockwell was advised of the change of ownership and, once advised, responded by requesting a business plan before it would authorise a new distributor agreement. By December 2002, about 75 per cent of sales made by Central Queensland were of Rockwell products. Central Queensland had become identified by its customers as a supplier of Rockwell products.
Mr Mayfield said that each year Rockwell would request annual business plans and would set sales targets. Central Queensland was required to maintain stock to a value of between $300,000 and $500,000 in any given month.
Even though Rockwell had proposed to send a new distributor agreement to Central Queensland, following the change of ownership, it did not do so. It was not until December 2002 that Rockwell sent the new distributor agreement. As with other distributors, Central Queensland caused its sales staff to attend distributor conferences, consulted with Rockwell prior to the appointment of staff, and trained staff in conformity with Rockwell’s requirements.
(6) Delta v Rockwell (7197/09)
The issues between the parties in the Delta proceeding were substantially the same as those in the JPR proceeding. The Distributor Agreement was dated 3 January 2003. Delta did not rely upon a covering letter. Rockwell counterclaimed for unpaid invoices in the sum of $970,885.98, together with interest, calculated to 31 May 2010, in the sum of $157,267.22. Delta claimed damages for breach of contract in the sum of $5,044,000, and compensation for loss of goodwill valued at between $1.84 and $1.9 million.
The Delta APR was central Victoria. Delta had been a Rockwell distributor since about April 1994. The initial shareholders were Alan Michael Jack and David Hansford. Mr Hansford eventually sold his interest to Mr Jack’s, brother Geoff. The transaction was completed with the approval of Rockwell.
Delta carried on business from branches located in Shepparton and Bendigo. Its customers included Empire Rubber, Heinz, Nestlé, Unilever, Tatura Milk and Kraft Foods. It had entered into parts management agreements with Fosterville Goldmine, Unilever and Shepparton News.
As with other distributors, Delta personnel regularly attended distributor conferences arranged and hosted by Rockwell. Delta consulted with Rockwell prior to the appointment of any sales staff. Rockwell was actively involved in the employment of staff. Delta would not, for example, appoint a new sales staff member without Rockwell’s approval.
(7) Encompass v Rockwell (7198/09)
The issues in the Encompass proceeding were substantially the same as in the Remtron proceeding. The date of the Distributor Agreement was 4 June 2003.
It is not certain when Encompass was sent a new Distributor Agreement, although the parties proceeded on the basis that the Distributor Agreement, dated 4 June 2003 was probably sent to Encompass in about December 2002. Encompass did not rely on the contents of a covering letter from Rockwell.
Rockwell counterclaimed for amounts due under unpaid invoices, in the sum of $206,668.57, together with interest of $30,453.35, calculated to 31 May 2010. Encompass claimed damages for breach of contract in the sum of $2,056,000, and compensation for loss of goodwill, valued at between $140,000 and $250,000.
In 2001 Encompass, with the approval of Rockwell, took over the distribution business previously carried on by Elec-Air Pty Ltd. Elec-Air had been a distributor of Rockwell products since about 1993. The Encompass Distributor Agreement did not contain part of the usual recital, defining the ‘Effective Date’, as was the case with the other agreements. There was no explanation for the omission. The omission was not, in any event, material. The Effective Date may be assumed to have been 4 June 2003.
The APR serviced by Encompass was south eastern South Australia, with an extension to include Dartmoor, Victoria. This was because the main industry in Dartmoor was timber milling with connections to mills operated in the Mt Gambier area. The extension was made by agreement with Westcoast.
As with the other distributors, the majority of the Encompass business involved the sale of Rockwell products. Encompass personnel regularly attended distributor conferences arranged by Rockwell. Encompass consulted with Rockwell prior to the appointment of staff, and Rockwell was actively involved in the employment of sales staff. Encompass trained staff in accordance with the requirements of Rockwell.
(8) Marcon v Rockwell (7199/09)
The issues between the parties in the Marcon proceeding were substantially the same as in the Remtron proceeding. The Distributor Agreement was dated 3 January 2003, and had been sent to Marcon under cover of a letter dated 3 December 2002, which was in the same terms as the letters to Remtron, Westcoast and Triflex. Rockwell counterclaimed for unpaid invoices in the sum of $600,688.41, together with interest of $136,005.26, calculated to 31 May 2010. Marcon claimed damages for breach of contract in the sum of $6,012,000, together with compensation for loss of goodwill valued at between $3,850,000 and $4,220,000.
Marcon commenced operations as a distributor for Rockwell in about January 1992. Its APR was Northern Queensland. In about 1994, Marcon ceded part of its territory to Central Queensland, which concentrated its distribution business in the Gladstone area. That change was, of course, made with Rockwell’s cooperation and approval. There was a change of ownership of Marcon in 2003. Rockwell was informed of and approved the change. Other aspects of the relationship between Rockwell and Marcon, involving distributor conferences, the preparation of business plans and the employment of staff, resembled that of the other distributors.
(9) Gippsland Sensors v Rockwell (7285/09)
The issues between the parties in the Gippsland Sensors proceeding were substantially the same as in the Remtron proceeding. The Distributor Agreement was dated 2 July 2003. Gippsland Sensors did not rely upon the contents of a covering letter. Rockwell counterclaimed for unpaid invoices in the sum of $412,111.31, together with interest of $60,774.03, calculated to 31 May 2010. Gippsland Sensors claimed damages for breach of contract in the sum of $3,032,000, and compensation for loss of goodwill valued at between $540,000 and $710,000.
As its name connotes, the APR for Gippsland Sensors was the Gippsland region in Victoria. The business was based in Trafalgar. The present owner of Gippsland Sensors, Garry Andrew May, purchased the business in early 2003. Rockwell was involved in the negotiations and approved the purchase. Mr May paid $650,000 for the business, $460,000 of which was allocated as goodwill. The relationship between Gippsland Sensors and Rockwell was much the same as for other distributors, with Rockwell involved in the preparation of business plans and training sessions. Gippsland Sensors serviced the Hazelwood Power Station, Australian Paper Mills, the Gippsland Water Factory and Loy Yang Power Station. Dealings with these customers was undertaken in conjunction with Rockwell staff.
(10) Reynolds v Rockwell (10854/09)
The issues in the Reynolds proceeding were substantially the same as in the Remtron proceeding. The Distributor Agreement was dated 3 January 2003. Rockwell counterclaimed for unpaid invoices in the sum of $390,000, together with interest of $53,700.40, calculated to 31 May 2010. Reynolds claimed damages for breach of contract in the sum of $6,700,000, and compensation for loss of goodwill valued at between $2,210,000 and $2,260,000.
The relationship between Reynolds and Rockwell commenced in 1996. Prior to the commencement of that relationship, Martin Reynolds had been an employee of Rockwell. He applied to Rockwell to become a distributor, submitting a business plan which detailed projections for the first five years. The Reynolds APR was northern metropolitan Melbourne.
Reynolds clients included Nestlé, OneSteel and Auscap Tech. Reynolds had entered into product management agreements with those entities. Its relationship with Rockwell, including the prohibition on the sale of competitive products, the appointment and training of staff and attendances at distributor conferences mirrored that of other distributors.
Issues
While the former distributors did not concede the amount of Rockwell’s claims for unpaid invoices or the calculation of interest thereon, there was no serious challenge to the evidence advanced by Rockwell in support of its money claims. I accept the evidence of Kim Diane Crawford, credit manager for Rockwell, who verified the amounts by reference to company records, including statements of account sent to the distributors. No submission was advanced by any of the distributors to the effect that the interest rate to be applied to overdue invoices, at the rate of 1.5% per month, in paragraph 2 of the terms and conditions for payment, should not be applied.
By reference to the pleadings and the submissions, the following issues arose for determination:
(1)Was each Distributor Agreement varied in about May 2007 so as to extend the date of termination to 30 September 2012?
(2)In the alternative, was Rockwell required to provide each distributor with at least one year’s notice of termination effective on the next anniversary of the date of the agreement, unless for cause?
(3)Did Rockwell repudiate each Distributor Agreement by terminating the agreement on 5 November 2008?
(4)Did Rockwell use confidential information provided to it by each distributor, in breach of the Distributor Agreement, to secure agreement with a new distributor, NHP or Inaco, as the case may be?
(5)Did Rockwell owe to each distributor a duty as a fiduciary to preserve and pursue the benefit to the distributor of its goodwill resulting from its performance of the Distributor Agreement, and, if so, did Rockwell breach that duty by terminating the Distributor Agreement, thereby eliminating the distributors’ goodwill or transferring it to the new distributor?
(6)In the case of Triflex, JPR, Westcoast and Delta, was it a term of the Distributor Agreement, express or implied, that upon termination Rockwell would credit the distributor with the price charged for such of its products as were returned by the distributor?
The relationship
The distributors opened their cases using Triflex as a vehicle to agitate most issues, including the definition of the contract documents, their proper construction, the fiduciary duty and obligations of confidentiality. The text of the contractual documents was in all material respects the same, although there were some minor differences.
Set out below are the standard terms of each Distributor Agreement. The example given is the Triflex agreement. There were few clauses of the Distributor Agreement which did not feature at some time in the distributors’ case for breach or to establish a fiduciary duty.
ROCKWELL AUTOMATION AUSTRALIA LTD
APPOINTED DISTRIBUTOR AGREEMENT
(Industrial Automation Products)
AGREEMENT, made and entered into this January 12, 2003 (herein ‘Effective Date’) by and between Rockwell Automation Australia Ltd and Triflex Electrical Pty Ltd, having its principal place of business at and situated in Unit 4/20 Tucks Road, Seven Hills, NSW, 2147.
WHEREAS, Rockwell Automation Australia Ltd is an affiliate of other entities within the ‘Rockwell Automation’ business organisation of Rockwell International Corporation that are manufacturers of quality industrial automation products marketed and distributed worldwide by Rockwell Automation; and
WHEREAS, Rockwell Automation Australia Ltd has the responsibility for the importation into the distribution within (Australia) of the various brands and types of Rockwell Automation industrial automation products subject to this Agreement, both as defined herein: and
WHEREAS, Rockwell Automation Australia Ltd desires that the Distributor, as an authorised reseller of the Products appointed by Rockwell Automation, will resell and/or assist with the licensing of the Products in certain markets within Australia in accordance with the terms of this Agreement and in a manner that will contribute toward maintaining Rockwell Automation’s overall reputation for quality products and service, and Distributor desires to enjoy the benefits in being such an appointed authorised reseller of the Products.
NOW, THEREFORE, in consideration of the mutual agreements herein set forth, the parties hereto agree to the attached terms and conditions of appointment:
1.0 APPOINTMENT
1.1Rockwell Automation hereby appoints TRIFLEX ELECTRICAL PTY LTD as a Rockwell Automation Appointed Distributor and grants it the right to resell Authorised Rockwell Automation Products, (the Products) and the Appointed Distributor hereby accepts such appointment and agrees to perform the obligations and responsibilities of an Appointed Distributor as herein provided.
2.0PRODUCT SALES AND PURCHASES
2.1Subject to and in accordance with the terms and conditions of this Agreement, Rockwell Automation will sell to the Appointed Distributor, and the Appointed Distributor shall purchase such Products only from Rockwell Automation Australia.
2.2The Authorised Products will be those Products designated in the Rockwell Automation Product Authorisation listed in Addendum A and thereby incorporated herein by reference. Product Authorisations may be modified by Rockwell Automation from time to time by adding or deleting Products without prior notice. Rockwell Automation reserves the right to select the Authorised Products. Product Authorisations may be added to the Addendum A by written amendment or by EDI Amendment (see Paragraph 16) and may be deleted by Rockwell Automation from the Addendum A, after Rockwell Automation provides the Appointed Distributor with thirty (30) days written notice prior to such a deletion.
3.0LOCATION
3.1The Appointed Distributor agrees to sell and stock the Products only through its place(s) of business located at Unit 4/20 Tucks Road, Seven Hills, NSW, 2147 (the ‘Authorised Locations’) and agrees that it shall not move any such Authorised Location to any new or different location or attempt to add to or delete any such Authorised Location without the prior written consent of Rockwell Automation, which may be made by written amendment or by EDI Amendment (see Paragraph 16). It is expressly understood and agreed that the obligations of the Appointed Distributor hereunder are individual and collective obligations as to each Authorised Location, and that no place of business of the Appointed Distributor shall be operated or represented as being an Authorised Location unless expressly identified as such herein.
3.2Notwithstanding the foregoing and without otherwise terminating this Agreement as may be elsewhere provided herein, Rockwell Automation may remove any (but not all) Authorised Location(s) from this Agreement at any time, with or without cause, after giving the Appointed Distributor written notice by certified mail not less than ninety (90) days in advance of the effective date of such removal.
3.3The Appointed Distributor shall not make any contract or arrangement with any third party whereby said third party may be considered or viewed by others in any way as authorised by Rockwell Automation, such as stocking and/or reselling Authorised Products in non-Rockwell Automation authorised locations of the Appointed Distributor.
4.0 AREA OF PRIMARY RESPONSIBILITY
4.1The Appointed Distributor agrees to devote its best efforts to developing the sales potential and maximising share thereof in the logical market or trading area within which it is located, herein ‘Area of Primary Responsibility or APR.’ The APR being the area bounded by Sydney Harbour and Parramatta River, Church Street, Parramatta to the railway line at Parramatta, the western railway line to Blacktown, the Richmond railway line to Quakers Hill, a straight line due west to the Nepean River, a straight line due north to the intersection of a straight line extending due west from the southern extremity of Tuggerah Lake, the east/west line to the southern extremity of Tuggerah Lake to the Australian coast, the Australian coast to Sydney Harbour and the Appointed Distributor understands that its sales performance in the APR shall be the prime consideration for the continued right hereunder to purchase and sell the Products. The APR can be amended by written amendment or EDI Amendment (see Paragraph 16).
4.2Rockwell Automation reserves the right to make sales to others (including, without limitation, other Appointed Distributors) without obligation or liability of any kind to the Appointed Distributor, provided that Rockwell Automation shall not appoint an additional Distributor of the Authorised Products in the Appointed Distributor’s APR without first having made a survey which, in the opinion of Rockwell Automation reveals the need therefore.
5.0ROCKWELL AUTOMATION’S MARKETING AND SALES RESPONSIBILITIES
5.1Rockwell Automation will sell the Products to the Appointed Distributor pursuant to the provisions of Rockwell Automation’s standard Terms and Conditions of Sale, and at the discounts shown on the applicable Rockwell Automation Suggested Discount Schedule, each of which may be modified by Rockwell Automation from time to time without prior notice. While Rockwell Automation reserves the right not to sell, Rockwell Automation will not unreasonably refuse to sell the Products to the Appointed Distributor.
5.2Rockwell Automation will cooperate with the Appointed Distributor in promoting the marketing and sale of the Products within the APR whenever such assistance becomes necessary or desirable. Such cooperation shall include the following:
(a)Making available Factory and Field Training for the Appointed Distributor personnel for the Products;
(b)Providing joint sales assistance within the APR as well as inventory management support for the APR; and
(c)Making available promotional materials to support the Appointed Distributor.
6.0APPOINTED DISTRIBUTOR’S MARKETING, SALES AND SERVICE RESPONSIBILITIES
6.1The Appointed Distributor will vigorously and aggressively promote and develop the market for the sale of the Rockwell Automation Products as its regular and standard line in its APR.
(a)Maintaining an adequate inventory of Authorised Products for the APR based on Rockwell Automation’s recommendations as well as maintaining current demonstration equipment as required by Rockwell Automation;
(b)Maintaining a staff of competent sales and marketing personnel who are training to describe, demonstrate and quote the Products. As part of attaining the necessary competency and training levels, the Appointed Distributor will cooperate with Rockwell Automation by authorising its personnel to attend product schools and seminars when recommended by Rockwell Automation;
(c)Employing Allen-Bradley Product Specialists as required by Rockwell Automation;
(d)Using vigorous sales efforts to convert customers to specify and buy the Products where those customers are presently specifying or buying other makes of industrial automation products;
(e)Prominently displaying the current ‘Appointment Distributor’ sign; and
(f)Satisfying the written marketing commitments established in the annual business plan as well as mutually established sales goals established annually.
6.2The Appointed Distributor shall render prompt, competent and courteous service in its APR. To provide this service, the Appointed Distributor shall have available competent personnel who are able to promptly respond to and satisfy customer service requests. The Appointed Distributor shall refer customer service requests to the Global Manufacturing Solutions (‘GMS’) business of Rockwell Automation when Rockwell Automation deems the technical requirements necessitate such referral.
6.3The Appointed Distributor shall report in writing or by EDI (Electronic Data Interchange) to Rockwell Automation each customer complaint it receives relating to any of the Products which the Appointed Distributor cannot satisfy. This subparagraph does not cover service requests governed by subparagraph 6.2 above.
6.4The Appointed Distributor agrees that where a signed Software License Agreement is required by Rockwell Automation, the Appointed Distributor shall secure its customer’s signature on the License Agreement as follows:
(1)Prior to entering an order with Rockwell Automation for software; or
(2)If stocked by the Appointed Distributor, prior to transferring the applicable software product to the customer.
6.5The Appointed Distributor shall conduct its business in a manner that will reflect favourably at all times on Rockwell Automation including the good name, good will and reputation thereof.
7.0CAPITAL
7.1The Appointed Distributor at all times shall maintain and employ in connection with its business and operations under this Agreement such net working capital and net worth as may be required to enable the Appointed Distributor to properly fulfil and perform all of its duties, obligations and responsibilities under this Agreement.
8.0RECORDS
8.1The Appointed Distributor shall maintain records of sales (including point-of-sale information) and records of sales support service of the Products as Rockwell Automation may require for market research; shall maintain records reflecting the true financial condition and operating results of its business; and shall submit to Rockwell Automation information based upon such records regarding its Product sales as well as the financial condition of the Appointed Distributor in such specific form and detail as Rockwell Automation may from time to time request.
9.0ACCESS TO PREMISES AND RECORDS
9.1The Appointed Distributor will permit Rockwell Automation representatives to examine its records pertaining to this Agreement and transactions hereunder, make copies thereof, and take inventory of the Appointed Distributor’s stock of the Products at regular intervals.
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11.0CONFIDENTIAL INFORMATION
11.1Each party agrees that all documents and information relating to the Products and/or their marketing which are communicated to it by the other party as confidential (whether orally, in writing, as well as by EDI or other media) shall be maintained by each party on a confidential basis – such control to include, but not be limited to, copying and/or disclosing of such confidential information as well as preventing disclosure of such documents or information to third parties unless otherwise instructed in writing by the other party or unless/until such information is no longer confidential. Each party agrees to return each such document or media and any copies of documents or media (including copies of such documents) containing the confidential information to the other party upon request. The obligations of each party under this paragraph shall survive the termination of this Agreement.
12.0OWNERS OR MANAGERS
12.1The Appointed Distributor understands and agrees that this appointment is being made by Rockwell Automation upon the specific condition that the following person(s) substantially participate in the ownership or management of the Appointed Distributor’s business for the term of this Agreement:
Name
Address
Percentage
Ownership
Title
Ross Jorgensen
Unit 4/20 Tucks Road
Seven Hills NSW 2147
100%
Owner
Mark Elrick
Unit 4/20 Tucks Road
Seven Hills NSW 2147
0%
General Manager
12.2The Appointed Distributor also understands and agrees that in the event of any change in ownership or in managerial authority whereby the person(s) hereinbefore named shall discontinue serving as a principal for whatever reason, the Appointed Distributor shall notify Rockwell Automation thereof in writing within thirty (30) days of the date that the Appointed Distributor first learns of the discontinuance, and Rockwell Automation shall have the right to terminate this Agreement with cause or without any cause whatsoever within ninety (90) days of the date that Rockwell Automation is so notified. Failure to so notify Rockwell Automation within the said thirty-(30) day period shall constitute a basis for termination of this Agreement with cause or without any cause whatsoever by Rockwell Automation upon written notice to be given no later than ninety (90) days after Rockwell Automation learns of such change in ownership or managerial authority by public notice or the like. In the event any ownership change constitutes a transfer or assignment of the Agreement, the provisions of Paragraph 13 shall take precedence over this Paragraph 12.
12.3Any changes in the names, addresses, ownership of title are subject to EDI Amendment (see Paragraph 16).
13.0TRANSFER AND ASSIGNMENT OF AGREEMENT
13.1This Agreement shall not be transferable or assignable without the written consent of Rockwell Automation. Any act of the Appointed Distributor which is or could be construed as a transfer or assignment of the Agreement shall result in the immediate termination of this Agreement concurrently with said act and without need for notice or other act by Rockwell Automation.
13.2Either party may, in its sole discretion, immediately terminate this Agreement and any Purchase Order hereunder upon written notice to the other party in the event of (i) the liquidation or insolvency of the non-terminating party, (ii) the appointment of receiver or similar officer for the non-terminating party, (iii) an assignment by the non-terminating party for the benefit of all or substantially all of its creditors, (iv) entry by the non-terminating party into an agreement for the composition, extension or readjustment of all or substantially all of its obligations, or (v) the filing of a meritorious petition in bankruptcy by or against the non-terminating party under any bankruptcy or debtors’ laws for its relief or reorganisation.
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16.0MODIFICATION AND AMENDMENT
16.1Rockwell Automation shall have the right to amend, modify or change this Agreement in case of legislation, government regulation or changes in circumstances beyond the control of Rockwell Automation that might materially affect the relationship between Rockwell Automation and the Appointed Distributor. No representations, promises, or understanding, of whatever nature, shall be binding upon Rockwell Automation unless expressly stated herein (including the EDI Amendment provided below) or as a writing of amendment, modification or change of this Agreement. It is agreed that those specific provisions in this Agreement so identified for EDI Amendment can be amended by verbal agreement as long as a record of such verbal agreement is transmitted (with confirmation of receipt) via-EDI (Electronic Data Interchange) by Rockwell Automation to the Appointed Distributor (herein ‘EDI Amendment’). Each EDI Amendment shall be incorporated herein by reference and will be binding upon both parties unless notice of objection is communicated by the Appointed Distributor to Rockwell Automation within thirty (30) days after the EDI communication of the record.
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19.0TERMINATION
19.1Except for the condition set forth in Paragraph 12 hereof, this Agreement, including each Product Authorisation listed in Addendum A, shall collectively run for a term of one (1) year (or less) from the Effective Date and shall be automatically renewed from year-to-year thereafter, provided, however, that either party may terminate the Agreement at any time, with cause or without any cause whatsoever, after giving the other party written notice by certified mail not less than ninety (90) days in advance of the effective date of termination.
19.2In the event of termination, the ninety-(90) day period is solely for the purpose of permitting an orderly transition for both parties including the phase out and discontinuance of the sale of the Products by the Appointed Distributor as well as the appointment by Rockwell Automation of distributor(s) for the APR(s) affected by the termination without any survey as called for in Paragraph 4.2. During the ninety-(90) day period, Rockwell Automation is obligated to sell the Products to the Appointed Distributor (1) only to the extent reasonably necessary to satisfy the Appointed Distributor’s customer requirements existing at the time of the termination notice which can be satisfied during the ninety-(90) day period; and (2) only so long as Rockwell Automation reasonably determines that the Appointed Distributor continues to satisfy its obligations under this Agreement, including timely and sufficient payments for all sums due to Rockwell Automation.
19.3In the event of any termination of this Agreement, Rockwell Automation shall have the right to cancel any or all unfilled orders existing on the effective date of termination.
19.4Rockwell Automation may terminate this Agreement at any time by giving notice to the Appointed Distributor not less than thirty (30) days prior to the effective date of termination in the event that Rockwell Automation decides to generally terminate outstanding Appointed Distributor agreements for the Products and to offer to the Appointed Distributor a new or amended form of the Appointed Distributor Agreement.
19.5In the event of termination of this Agreement with or without cause by either Rockwell Automation or the Appointed Distributor, neither party shall be liable to the other, or to any other party, for damages including, but not limited to, any claim of loss of present or prospective profits, or any expenditures or investments made in connection with the business of either party.
20.0LEGAL REPRESENTATIVE
20.1It is understood that the Appointed Distributor is not a legal representative or an agent of Rockwell Automation, cannot assume or create any obligations on Rockwell Automation’s behalf, and cannot make any warranties or product representations unless authorised in writing by Rockwell Automation.
21.0ENTIRE AGREEMENT
21.1This document and Addendum A set forth the entire Agreement of the parties and supersede all previous understandings, agreements, representations, promises or conditions, whether oral or written, whether expressed or implied, between the parties (including Rockwell Automation predecessors) in connection with or in respect to the matters recited in this Agreement.
In addition to the Distributor Agreement, most of which were dated in early 2003, there was an Addendum Agreement, dated 22 April 2005, and Terms and Conditions of trade. Some distributors relied upon a covering letter under which new contract documents had been sent to them in late 2002 and early 2003.
The covering letters sent to Remtron (3 December 2002), Marcon (3 December 2002), Westcoast (3 December 2002) and Triflex (12 December 2002), enclosing new agreements, were identical. The covering letter to JPR, dated 28 February 2001, had a different opening paragraph and did not include the closing paragraph found in the others.
The similarity in contract documentation meant that the parties were content to rely on the text of the Triflex package of documents, as reflecting the contract documents in each proceeding. While the covering letters were only relied upon by Westcoast, Reynolds, Marcon, Triflex, JPR and Remtron, the content of those letters diminished in importance as the case progressed, so that the absence of such correspondence in the other cases became less relevant.
Each case, of course, involved a different factual background. The distributors sought to rely upon the background facts to achieve a uniform construction of their contractual relationships with Rockwell and to support a fiduciary duty owed by Rockwell to each of them. In the case of Triflex, JPR, Westcoast and Delta, an additional allegation was made to the effect that upon termination of the Distributor Agreement, Rockwell was obliged to repurchase any stock returned by the distributor. Further, in the case of Triflex, Remtron and Westcoast, Rockwell pleaded, by a late amendment, an allegation to the effect that their claims for damages or compensation ought to be stayed as an abuse of process. The basis for the allegation was evidence that emerged in the course of the trial to the effect that some individual owners of former distributors had taken steps to quarantine assets leaving the distributor entity with debts due to Rockwell but without the ability to pay. That allegation was later abandoned.
The case initially advanced on behalf of the distributors in support of their repudiation case involved three separate construction arguments. Only two of the arguments were ultimately advanced. The distributors initially sought to rely upon the last paragraph in the covering letters to Remtron, Triflex, Marcon and Westcoast to extend the duration of the agreement to ‘approximately 11 January 2014’. The 2014 expiry date was arrived at by reading into the expression, ‘long into the future’, found in the last paragraph of the letters, an agreement to extend the duration of the Distributor Agreements by at least 10 years. While that construction was later abandoned, the covering letters were relied upon for a different purpose. The distributors submitted that the letters provided ‘the genesis of each agreement’. The letter to Remtron stated,
Due to changes in legal entity name and the need to update some aspects of our Distributor Agreement, it is necessary for us to terminate your existing Distributor Agreement with Rockwell Automation and to offer you a new agreement, two copies of which are attached.
As required by the existing Distributor Agreement this letter gives you notice that the Agreement will be terminated 30 days from the date of this letter.
This new Agreement is broadly similar to the present agreement, but has been subject to some minor updating. The Agreement is identical for all Australian Distributors and is not open to individual negotiation.
I would like to take this opportunity to emphasise some of the elements of the Distributor Agreement which we consider are vital to our mutual success.
1.We view Distributors as an extension of our Sales and Marketing activity and mutually agree to cooperate willingly and coordinate activities closely. An open interchange of information on sales activities and customer information is essential.
2.Respect for the boundaries of the Area of Primary Responsibility (APR) is the essence of the working relationship with the Distributors, and between the Distributors. The Distributor agrees to devote his efforts to developing the sales potential and growing the market share in the specified APR.
3.The Distributor will vigorously and aggressively promote our products and develop the market for our products and shall maintain a staff of competent sales and technical specialists so as to be a ‘Market Maker’ and not simply a ‘Market Server’. Teaming with Rockwell Automation on promotional activity is an essential part of the ‘Market Making’ role.
4.The Distributor will not promote and sell products which compete and conflict with Rockwell Automation Products.
5.Rockwell Automation reserves the right to make sales to others in the Distributor APR without obligation or liability.
6.Rockwell Automation authorises only one location and Distributor agrees to stock and sell Allen-Bradley products only from this location unless otherwise agreed by Rockwell Automation.
7.Distributor Authorisation is only for products as nominated in the Product Attachment.
We ask that you promptly sign the two copies of the attached Agreement and return both to us for R-A signature. We shall return one copy duly signed for your records and we look forward to the continuation of our mutually beneficial relationship long into the future.
Having abandoned a misrepresentation case initially pleaded by them, the distributors sought to incorporate parts of the covering letters and parts of the Powerpoint presentation, as an amendment, modification or change to the Distributor Agreements under cl 16 of the Distributor Agreement.
The distributors commenced their case by drawing attention to the fact that in most of the covering letters, Rockwell stated that it was necessary to terminate the existing Distributor Agreement and to offer distributors a new agreement, which was enclosed. The distributors submitted that the very genesis of each new agreement evidenced their complete dependence on Rockwell. The apparent purpose of that argument was to characterise the relationship between Rockwell and its distributors as akin to employer and employee, with Rockwell dictating terms and conditions of engagement. While such a characterisation fell far short of modern employment law, the distributors persisted with that case, at times characterising the relationship as ‘King and courtesan’. By reference to such a relationship the distributors advanced a range of elaborate arguments which seemed to overlook the plain and unambiguous words of the agreement between the parties. The distributors also relied upon that characterisation of their relationship to support a case for a fiduciary duty, owed by Rockwell to each distributor, to protect the distributors’ goodwill.
The distributors complained that Rockwell had terminated and replaced each Distributor Agreement in 2002 without consultation with them. They submitted that at the time the new agreements arrived, in late December 2002 and early 2003, the market for Rockwell products required joint action by Rockwell and its distributors, in pursuit of potential sales within their respective territories. They argued that supplier and distributor were tied to each other because of the range of products and services supplied by Rockwell, and the types of industry to which the products and services were sold. The evidence revealed that cooperation between Rockwell and its distributors was necessary if a full suite of products and services was to be supplied to large mining or manufacturing industry customers. Rockwell’s engineers were required to install, validate and commission complex and expensive equipment. Lead times on sales of products and services might involve many months and possibly years. In such circumstances, the distributors submitted, it would be untenable to construe the Distributor Agreement as one capable of termination on short notice as Rockwell had purported to do.
The central thesis advanced by the distributors was that the contract documents should be construed in a manner which recognised their subjugation to the will of Rockwell, as an extension of its sales and marketing activity, and a corresponding obligation to protect their vulnerability. To advance their case, the distributors called for an examination of the whole of the text of the documents, but in particular, the Distributor Agreement. They submitted that each Distributor Agreement, properly construed, revealed an objective intention to ensure that the distributor remained accustomed to acting in accordance with Rockwell’s instructions or wishes.
At times the distributors’ elaborate arguments were difficult to follow, or it was difficult to discern the point of relevance of the argument to their case. One consistent theme was that the intention of the parties could not to be found in the words of the Distributor Agreement because of ‘the lack of felicity attending its drafting’. There were many such examples. The first example was cl 2.2. The distributors submitted that the last sentence contradicted the first three sentences. With this and other examples of ambiguity, uncertainty or contradiction, identified by the distributors, a fair reading of the clause did not disclose any such thing.
The relationship of dependency and subjugation, relied upon by the distributors to support their construction arguments, and fiduciary duty case, occasionally conflicted with other important limbs of their case. For example, they emphasised the control which Rockwell retained over product authorisations and premises. Such control, however, pointed to a relationship under which the only goodwill created by the distributors’ efforts, in exercising rights under the Distributor Agreements, belonged to Rockwell. If Rockwell was entitled to act as the agreement expressly provided, an essential element of the distributors’ fiduciary duty case evaporated.
The distributors made lengthy submissions on the principles applicable to the construction of contracts in Australia. Their ultimate objective was to support the proposition that the termination provisions in cl 19.1 of the Distributor Agreement should be rewritten, to give effect to an ‘amendment, modification or change’ brought about by the Powerpoint presentation of May 2007. That submission depended upon a construction of cl 16 that elevated the marketing messages in the Powerpoint presentation into binding terms of the Distributor Agreement. If correct, their construction of cl 16 had the effect of rewriting cl 19, by extending the duration of the agreement beyond the clear meaning of the words in cl 19. The basis for the distributors’ construction of cl 16 was the failure of the clause to define any limitation upon the scope of its application to words published by Rockwell. It was submitted that Rockwell’s failure to define the scope of operation of cl 16 evidenced the intention of the parties that Rockwell would be bound by anything it put in writing which related to performance under the Distributor Agreement.
The principles of law advanced on behalf of the distributors were not in dispute and are well understood. As Gleeson CJ said in IATA v Ansett Australia Holdings Ltd,
In giving a commercial contract a business-like interpretation, it is necessary to consider the language used by the parties, the circumstances addressed by the contract, and the objects which it is intended to secure. An appreciation of the commercial purpose of a contract calls for an understanding of the genesis of the transaction, the background, and the market. This is a case in which the court’s general understanding of background and purpose is supplemented by specific information as to the genesis of the transaction. The agreement has a history; and that history is part of the context in which the contract takes its meaning. Before considering that history, it is necessary to explain, by reference to the text, how the issue of construction arises (footnotes omitted). [2]
[2](2008) 234 CLR 151, [8].
While the distributors also relied upon the Addendum Agreement and the Terms and Conditions as forming part of the text of their contracts with Rockwell, their reliance on the text of those documents was limited. It is unnecessary to set them out in full. In the case of Triflex, the Terms and Conditions were dated January 2004 and relevantly included payment terms. Payment for goods supplied was to be made 30 days from the date of invoice, with ongoing credit at Rockwell’s discretion. Interest charged on overdue invoices was specified at the rate of 1.5% per month, subject to any limit imposed by applicable law. The Terms and Conditions also dealt with the return of products and the cancellation of orders. It provided that
all returns of Products will be pursuant to Seller’s instructions. Non-Warranty returns of unused and resalable Products for credit will be subject to Seller’s return policies in effect at the time, including applicable restocking charges and other conditions of return …
The evidence did not explain the ‘Seller’s return policies in effect at the time’ although the letter of termination attached a document which, amongst other things, dealt with the ‘Repurchase of Products’. Each distributor was advised as follows:
On your request, we will consider repurchasing any resalable products remaining in your inventory as of the date of termination, pursuant to the terms and conditions contained in our standard returns policy (see Attachment 2).
If you want Rockwell to consider repurchasing any inventory, you must send us a list of your Product inventory by 5 December 2009.
Any repurchase will be subject to your continued compliance with the terms of your Agreement during the Transition Period, including the prompt payment of all Rockwell invoices for past and future product purchases.
Attachment 2, mentioned in the termination letter, was described as ‘Distributor Goods Return Program’. It was in the nature of a company policy of general application.
The evidence did not reveal any attempt by a distributor to take advantage of the repurchase regime offered in the termination letter. Triflex, JPR, Delta and Westcoast had alleged that there was an express, alternatively implied term, of the Distributor Agreement, to the effect that upon termination, Rockwell was obliged to repurchase all unsold stock. The policy was inconsistent with any such term, as was the relevant part of the Terms and Conditions. Mr Berg, a director of Triflex, admitted in evidence that he had not approached Rockwell to buy back stock. Mr Tolcher, a director of JPR, gave no evidence of having made any attempt to negotiate a return of stock. Mr Jack, a director of Delta, was in the same position as Mr Tolcher. While generalising about Rockwell’s reluctance to accept returns, he did not give evidence of any request or attempt to negotiate a return. Armin Fahnle, a director of Westcoast, gave no evidence of any attempt to have Rockwell accept returned goods.
The absence of evidence of any attempt by a distributor to have Rockwell accept returned stock may explain why four distributors, Triflex, JPR, Delta and Westcoast, only sought a declaration in relation to the alleged right to receive a credit for stock. The distributors’ closing submissions did not even address the allegation.
Addendum Agreement provided an example of Rockwell unilaterally imposing new terms and conditions of trade. It is a clear example of what was contemplated under cl 16 of the Distributor Agreement. It is, without doubt, ‘a writing of amendment, modification or change of this Agreement’. Whatever its background, the Addendum Agreement seems designed to recruit and reward the cooperation of the distributors within the APR to secure direct sales by Rockwell. The distributor could derive commissions as a consequence of product sales made directly by Rockwell within a distributor’s APR.
The Distributor Agreement was non-exclusive. Rockwell reserved the right to make sales within a distributor’s APR, although agreed that it would not appoint an additional distributor in the APR without having first conducted a survey which, in the opinion of Rockwell, revealed the need for an additional distributor. Those, and other features of the Distributor Agreement mentioned below, under which Rockwell tightly controlled the distributor product range and operations, meant that a distributor had no more than a mere right to market and sell an approved range of Rockwell products within the APR; and a right to a process under which Rockwell might satisfy itself of the need for an additional distributor.
The distributors commenced their analysis of the documents by referring to paragraph numbered 1 in the covering letters, in which Rockwell stated that each distributor was to co-operate in an open interchange of information on sales activities and customer information. They sought to convert that statement into a term of the Distributor Agreement. The distributor’s purpose was apparently to construct a building block in their case for a dependent relationship, or perhaps to support the breach of confidentiality case. Their purpose was often elusive. For this element of their argument to succeed, it was necessary to incorporate parts of the covering letter into the Distributor Agreement, as an amendment, modification or change, under cl 16.
The distributors also relied upon cl 16 in an attempt to change or modify the Distributor Agreement by incorporating a statement of Rockwell’s expectation that the distributor would not sell competing products. This stated expectation, found only in the covering letters, but not found in the written terms in the Distributor Agreement, was a practical consequence of Rockwell’s ability to withdraw its approval for the sale of a particular product or products. Under cl 2, Rockwell could add or delete items from the list of Authorised Products by ‘written amendment’. The distributors relied upon Rockwell’s right to de-authorise products as an indicator of its dominant role. They argued that by deleting a product, Rockwell had the power to eliminate their goodwill. This is another example of an argument advanced by the distributors that was inconsistent with the notion that a distributor created and owned goodwill in its market for Rockwell products. It was also inconsistent with any notion of a fiduciary duty, owed by Rockwell to its distributors, to protect their goodwill in a market for Rockwell products.
The distributors argued that by cl 3.1 of the Distributor Agreement, Rockwell retained control over their business premises through its right to authorise locations at which the distributor could carry on the distribution business. They argued that Rockwell’s control over the authorisation of premises was inconsistent with its ability to terminate the agreement on 90 days’ notice. Their argument for inconsistency depended upon the proposition that Rockwell required each distributor to make a substantial investment in approved premises leading to the conclusion that Rockwell’s power to ‘de-authorise’ premises on 90 days’ notice could not have been intended by the parties. The distributors also submitted that the words in cl 3.2, ‘or without’, had been wrongly included because a reasonable person would not contemplate that Rockwell would have the right to withdraw authorisation on 90 days’ notice without cause.
The distributors did not allege that Rockwell had ‘de-authorised’ premises. Thus, it might be supposed that their submissions in relation to cl 3 were intended to assist an argument that, in numerous respects, the written words of the Distributor Agreement did not mean what they said and should be disregarded.
The distributors turned next to cl 5.1 of the Distributor Agreement, under which Rockwell had the right to determine the discount at which its products would be sold to each distributor. They submitted that through its manipulation of distributor discounts, Rockwell effectively controlled the income of each distributor. The purpose of this argument was not clear, unless to assist their control and subjugation argument.
Under cl 6.1, each distributor was required to undertake marketing, sales and service responsibilities. Rockwell did not allege a breach of any of those obligations. The distributors submitted, however, that they were required to maintain an adequate inventory and competent trained sales and marketing personnel. They were required to cooperate with Rockwell to have their personnel attend product schools and seminars. They were required to employ product specialists and satisfy written marketing commitments established in the annual business plan as well as mutually established sales goals established annually. Much of the evidence given on behalf of the distributors was directed to establishing their performance of these obligations.
The distributors submitted that the obligation in cl 6.1(a), to maintain adequate inventory, was inconsistent with a right to terminate without a distributor’s right to return stock and obtain a credit. That allegation was not developed in argument, and seemed to pre-suppose Rockwell’s right to terminate without cause.
The distributors also submitted that the obligations imposed under cl 6 reflected Rockwell’s dominant position in the relationship. Clause 6.5 required the distributor to conduct its business in a manner that would reflect favourably at all times on Rockwell, including the good name, goodwill and reputation of Rockwell. The distributors argued that the clause evidenced an intention of the parties that the distributors relationship with Rockwell was ‘master-servant’ or perhaps ‘King and courtesan’.
Clause 7 of the Distributor Agreement required the distributor to maintain adequate working capital and net worth as may be required to enable it to properly fulfil its obligations under the agreement. Clause 8 required the distributor to maintain records of sales and submit financial information from time-to-time as Rockwell may request. That information might extend to the financial condition and operating results of the distributor’s business. By cl 9, Rockwell was entitled to examine the distributor’s records relating to its distribution business, to make copies and to take an inventory of stock. Those clauses, it was submitted, were all consistent with a master-servant relationship. The distributors submitted that the obligations were more onerous than those imposed on an employee. By so contending the distributors, perhaps inadvertently, drew an important distinction between the relationship they sought to establish (employer/employee) and the relationship created under the Distributor Agreement.
The distributors alleged a breach by Rockwell of an obligation not to use confidential information supplied by them. Their construction of cl 11, which dealt with confidential information, was designed to reveal an intention that the protection afforded to information, and the prohibition upon misuse, extended to all information supplied by a distributor, whether confidential to the distributor or not. While Rockwell, as supplier, would know what it had supplied, and probably the identity of customers, it would not always know the price charged by the distributor to the customer. The distributors submitted that the terminology employed in cl 11 meant that all data supplied by them was subject to the restraint, whether or not it was otherwise available to Rockwell or in the public domain. They based that submission on the opening words of the first sentence in cl 11, which referred to ‘all documents and information’. The argument seemed to overlook the concluding words, ‘until such information is no longer confidential’.
It is instructive to reflect at this time on the way in which the distributors formulated their allegation of breach. Their case for breach went no further than to assert that the information provided by them would have made it easier for Rockwell to negotiate with a replacement distributor. There was no direct evidence that Rockwell had in fact employed any information provided by distributors, confidential or otherwise, in its negotiations with Inaco and NHP.
The distributors alleged that Rockwell must have employed the distributors’ confidential information in its negotiations with Inaco and NHP because those entities agreed to assume the position of the distributors in territory previously serviced by them. The distributors argued that the court should draw an inference that unspecified confidential information had been misused. They relied upon the principles in Jones v Dunkel.[3]
[3](1959) 101 CLR 298.
By cl 12, Rockwell had the right to terminate the Distributor Agreement if there was an unauthorised change in ownership or managerial authority in the distributor’s business. The distributors, by way of another elaborate argument, submitted that cl 12.2 did not accurately record the parties’ agreement. They submitted that the parties intended that upon a change of ownership the distributor was required to notify Rockwell within 30 days. Rockwell could terminate the Distributor Agreement on 90 days’ notice. If the distributor failed in its obligation to notify Rockwell within 30 days of the change, Rockwell could terminate the Distributor Agreement by giving notice no later than 90 days after Rockwell discovered the change of ownership. Therefore, the distributors submitted, Rockwell must be understood to have been conferred an absolute right to terminate.
As with other construction arguments advanced on behalf of the distributors, it was difficult to know precisely how the argument advanced their case. I am not persuaded that there is any ambiguity in cl 12.2. The outcome of the distributors’ elaborate argument is to be found in the words of the clause. Rockwell clearly retained the right to terminate in the event of an unauthorised change in management or ownership. The relevance of this argument, like others, was elusive. The distributors did not make any allegation of termination under cl 12.2; and no reliance was placed on that clause by Rockwell.
Clause 13 of the Distributor Agreement prohibited unauthorised transfer or assignment of the agreement by the distributor without Rockwell’s written consent. The distributors argued that the clause presented another construction challenge. Once again, it is difficult to understand the point of the argument. The distributors submitted that the prohibition should be read against the history of the relationship between Rockwell and each distributor. Presumably, that history might include a transfer or assignment. The agreement does not absolutely prohibit transfer or assignment, but required the consent of Rockwell.
By a tortured path of reasoning, designed to highlight inconsistencies in the drafting of the clause, the distributors concluded that, properly construed, cl 13 permitted Rockwell to terminate the agreement should any distributor attempt to assign the agreement without written consent. In my view, a plain reading of the words leads to that conclusion. Doing the best I can to follow the distributors’ argument in relation to cl 13, their purpose may have been to assist in characterising the relationship as master-servant; or perhaps to support the contention that words in the document should be disregarded; or even that Rockwell owed a fiduciary duty to its distributors to preserve their goodwill.
Mention has already been made of the distributors’ reliance on cl 16 to amend, modify or change the Distributor Agreement, by incorporating parts of the covering letter and to elevate the words in the Powerpoint presentation of May 2007, so as to override cl 19.1 and extend the duration of each Distributor Agreement until 30 September 2012. The distributors accepted that such an extension was subject to termination on change of ownership (cl 12); termination for unauthorised transfer or assignment (cl 13); or termination for cause upon a distributor’s failure to achieve annual sales targets.
The distributors approached cl 16 as if confronted by absurdity, unreasonableness, ambiguity or uncertainty. They submitted that the second sentence was unclear because it did not provide a description of what would amount to something ‘expressly stated … as a writing of amendment …’. The distributors submitted that consequently, a reasonable person in the position of the parties would have intended that Rockwell was bound by any statement in writing which dealt with any subject matter of the agreement. The intended end point of the argument was to modify the termination provisions in cl 19.1, overriding the initial term of one year and the proviso under which either party was entitled to terminate at any time, with or without cause, on 90 days’ notice.
The Powerpoint slide pack was presented at a meeting at the Airport Hilton on 21-24 May 2007. The slides were presented by Don Werner, Managing Director of Rockwell. The presentation was probably made to all Rockwell distributors, and I will proceed on that basis. The particular presentation was comprised of 21 slides, which introduced the occasion as a marketing meeting. Set out below are all the slides in numerical order. The information in slide 4 has been deleted because it is confined to personal details concerning the speaker, Mr Werner; and slide 21, is not reproduced because it only contained the heading ‘Closing Comments’. The distributors relied upon slides 6 to 10 in particular. A review of the full set of slides provides the necessary context.
SLIDE 1
SLIDE 2
SLIDE 3
SLIDE 4
SLIDE 5
SLIDE 6
SLIDE 7
SLIDE 8
SLIDE 9
SLIDE 10
SLIDE 11
SLIDE 12
SLIDE 13
SLIDE 14
SLIDE 15
SLIDE 16
SLIDE 17
SLIDE 18
SLIDE 19
SLIDE 20
The distributors relied on the content of slide 6 in particular, which they submitted contained a representation or promise or gave rise to an understanding, that each distributor would remain a distributor until 30 September 2012. The distributors submitted that the amendment to the Distributor Agreement, brought about by the presentation at the May 2007 marketing meeting, effectively neutralised cl 19.1 by extending the term of the agreement and removing the proviso.
The obvious purpose of cl 16 is, first, to provide Rockwell with the right to amend, modify or change the agreement to make it comply with a change in law or circumstances beyond its control that might materially affect the relationship; second, to exclude representations, promises or understandings made or held outside the four corners of the agreement; and, third, to make provision for a representation, promise or understanding to be binding upon Rockwell when expressly stated therein to be binding or if by way of ‘a writing of amendment, modification or change to this agreement.’ The latter phrase connotes a writing which purports to be an amendment, modification or change of the agreement. Examples might include changes to Product Authorisations in the Addendum to the Distributor Agreement; removal of an Authorised Location under cl 3; and the introduction of the Addendum Agreement of April 2005.
The short answer to the distributor’s attempt to employ cl 16 to incorporate the covering letter is that the letter did not purport to amend, modify or change the Distributor Agreement attached to it. In relevant respects, the letter is no more than an explanation by Rockwell of why a new Distributor Agreement was enclosed and Rockwell’s interpretation of ‘some of the elements of the Distributor Agreement’. Some statements made in the letter were a summary of particular provisions. By its very nature, the letter directed attention to the terms of the Distributor Agreement, a feature that is inconsistent with the notion that the letter should modify or change the very agreement it propounded.
The Powerpoint presentation did not purport to amend, modify or change the Distributor Agreement. It was entirely inconsistent with a ‘writing’ intended by the parties to have that effect. It was no more than an aspirational presentation, made by Rockwell to its distributors, with a ‘call to arms’ to achieve business outcomes. It was motivational, encouraging its distributors to assist in achieving Rockwell’s objectives. The date, 30 September 2012, advanced as the termination date was derived from the words ‘the end of Fiscal Year 2012’ in slide 6. Rockwell set a goal to be achieved by that time. The references in slides 8 and 10 to cooperative behaviour were no more than motivational incantations and cannot be taken, on any rational basis, as having been intended to amend, modify or change the existing contractual relationship between Rockwell and the distributors present at that meeting.
A corollary of the distributors’ case, based on cl 16, is that if their broad submission is correct, the letters of termination, dated 5 November 2008, must also be treated as an amendment, modification or change to the agreement, so as to introduce a new termination date and process.
Clause 19.1 provided that the agreement would continue for a term of one year from the Effective Date, which was the date of the Distributor Agreement as defined in the opening recital, with automatic renewals thereafter. Continuation was subject to mutual rights of termination. Rockwell relied on its right to terminate, giving more than 90 days’ notice. The distributors’ primary case was the alleged modification to extend the agreement to 30 September 2012.
The distributors advanced an alternative termination argument in which they sought to impose an obligation of one year’s notice, terminating on the anniversary of the Effective Date. The argument had a number of disparate strands. The distributors seemed to rely upon the master-servant relationship to support a minimum period of notice for termination of at least one year. That was coupled with the proposition that a 90 day period of notice was so incompatible with commercial reality that a reasonable person could not have so intended. The third element of the argument was their employment of the words, ‘effective date’ in the last line of cl 19.1, as if prescribing a future date of termination on an anniversary of the ‘Effective Date’ as defined.
The words in cl 19.1, defining the date upon which the agreement was to terminate, are ‘the effective date of termination’. The same clause makes reference to ‘Effective Date’. Each phrase has different work to do. One makes reference to the past and the other to the future. The distributors would have cl 19.1 modified so that the relevant part read:
after giving the other party written notice by certified mail not less than one year in advance of the next anniversary of the Effective Date.
There is no warrant for any such modification to cl 19.1. The intention of the parties, plainly reflected in the terms of the clause, is that ‘the effective date of termination’ is the date nominated in the notice of termination, which date must not be less than 90 days in the future. I note that the words ‘the effective date of termination’ are also employed in cll 19.3 and 19.4. To give those words the meaning I have attributed to them does not, in my opinion, lead to any absurdity or commercially improbable outcome. On the contrary, they seem entirely apt to so describe a date in the future as the date specified in a notice of termination.
Nor is there any justification for the introduction of a minimum period of notice of one year, by reference to employer-employee relationships. The relationship was not that of employer-employee. It was defined by the contract between the parties which was, in relevant respects, remarkably clear.
Repudiation
When Rockwell substituted the new Distributor Agreement in late 2002 or early 2003 its actions may have seemed autocratic. It assumed a dominant, non-negotiable position. By its covering letters, Rockwell gave notice of termination of the existing Distributor Agreement, presumably in compliance with its terms. The distributors were to ‘take it or leave it’. By executing and returning the agreements to Rockwell, the distributors indicated their acceptance of the terms proffered.
The dominant position adopted by Rockwell was expressed with reasonable clarity in the words of the Distributor Agreement. Rockwell left no room for negotiation; reserved to itself the right to amend the agreement; retained control over the range of products each distributor could sell; retained control over premises from which products could be marketed and sold; retained control over business management and transfers; retained the right to sell within each APR and to appoint another distributor; and retained the right to terminate without cause at any time on 90 days’ notice. If approached by a distributor as a basis for a long term sustainable business relationship, the parcel of rights granted by Rockwell was tenuous and fragile.
The rights granted under the Distributor Agreement might more accurately be described as rights conferred on a mere agent, authorised to represent and sell a brand of product or services, or even a limited franchise, rather than the conferral of enduring rights. The distributors rightly point out that the analysis of the relationship must be undertaken by reference to the terms of the agreement between the parties, unalloyed by concepts of what is usual for distribution relationships.
The distributors’ case for repudiation had three limbs. The first limb was an allegation of wrongful termination, without cause, prior to 30 September 2012. That case depended upon the distributors establishing an ‘amendment, modification or change’ under cl 16, effectively neutralising cl 19.1, by extending the duration of the agreement to the ‘end of the Fiscal Year 2012’. I reject the argument that the May 2007 Powerpoint presentation was a ‘writing of amendment, modification or change’ of the Distributor Agreement. It is fanciful to suggest that a pictorial presentation at a marketing conference could have such a consequence. It did not purport to assume such a character and could not have been reasonably so understood.
The second limb of the repudiation case relied upon the requirement to give at least one year’s notice of termination expiring on the Effective Date. At one point the distributors had argued that if the period of notice was not less than 90 days, it must expire on the next anniversary date of the agreement – the Effective Date. While such an argument was advanced in opening, it seemed to merge in final submissions, with the proposition that a minimum of one year’s notice was required.
As with the first limb of the repudiation case, the second limb is without substance. It is built on an assertion that the parties would not reasonably have intended the agreement to be terminable, without cause, on 90 days’ notice, and thus the introduction of a one year period was reasonable. In my opinion, no sustainable basis was advanced to disturb the plainly expressed and mutual right to terminate without cause on 90 days’ notice. No case was advanced for relief based on a representation, estoppel or unconscionable conduct. The construction arguments advanced by the distributors were, for the most part, a camouflage for a complaint that, after so long, Rockwell should not be entitled to exercise a right that it plainly had available to it.
Confidentiality
The third limb of the repudiation case involved the alleged wrongful use of confidential information.
The material allegation by the distributors, of breach of the confidentiality obligations in cl 11 of the Distributor Agreement, was that Rockwell ‘made use of the Confidential Information … in securing the agreement of’ a replacement distributor. The only particulars given were to the effect that the unauthorised use was to be inferred from the fact of the new agreements. The inference was supported, it was submitted, by the absence of evidence from Rockwell that it did not use the information
There was some confusion about the nature of the information that was provided by distributors to Rockwell. Let it be assumed, however, that each distributor provided Rockwell with sales data, disclosing to Rockwell the identity of customers, their purchase requirements, prices and after sales information. Let it also be assumed that each distributor provided Rockwell with financial records and other information required by Rockwell pursuant to cll 8 and 9 of the Distributor Agreement. There is no evidence that Rockwell made use of any of this information in its negotiations with Inaco and NHP.
Insofar as the distributors sought to prosecute their claim for breach of the confidentiality obligation, they bore the onus of proving a breach with a reasonable degree of particularity, identifying the information said to have been wrongfully employed by Rockwell. It is not enough for the distributors to make an allegation of breach and rely upon the absence of any evidence from Rockwell that the unparticularised breach did not occur. I reject the distributor’s case for breach of cl 11.
Fiduciary Duty
The fiduciary duty alleged by the distributors was a duty on the part of Rockwell to preserve and pursue the benefit to the distributor of its goodwill under the Distributor Agreement. The alleged breach of duty was the elimination by Rockwell of the distributor’s goodwill by termination of the Distributor Agreement in November 2008. The duty was said to arise by reason of the terms of the Distributor Agreement, incorporating parts of the covering letters and the Powerpoint presentation. Those terms, the distributors argued, reflected an employer-employee relationship that had evolved prior to 2002. The terms of the distribution relationship contended for by the distributors included termination provisions, but no provision for a payment or compensation reflecting the value of goodwill. The text of the Distributor Agreements contradicts the concept of a distributor creating and owning any goodwill in the market for Rockwell products.
It is possible that the distributors may create goodwill in the market for products of the kind supplied by Rockwell. The relative ease with which many of them substituted a range of competing products, following termination, may support the existence of some goodwill in their customer base in the overall market. That limited goodwill was not adversely affected by the termination. The distributor’s case, however, depended upon establishing their right to goodwill in the market for the supply of Rockwell branded products, which in turn depended upon a right to continue to sell those products. Such a right is inconsistent with the tenuous and fragile rights they had under the Distributor Agreements to market Rockwell products. The terms of the Distributor Agreements were deliberately designed to deny to the distributors any goodwill in the market for Rockwell products. The agreement has that consequence. Thus, the basis for the claimed duty is at odds with the express terms of the Distributor Agreements, including the right to de‑authorise products and premises, and the rights of termination.
The distributors relied upon John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd.[4] I find no support for the distributor’s case in the joint judgment of the High Court. The relationship in this case does not resemble that under consideration in Hospital Products Ltd v United States Surgical Corporation.[5] Each distributor accepted appointment under a regime of very limited rights. Rockwell did no more than exercise its right to terminate under cl 19. It gave more than the minimum notice required.
[4](2010) 266 ALR 462.
[5](1984) 156 CLR 41.
Finally, in Australia, fiduciary duties are proscriptive not prescriptive. There is no positive duty to act in the interests of the persons to whom the duty is owed.[6]
[6]Breen v Williams (1995) 186 CLR 71, 113; Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165, 198.
Return of Goods on Termination
In the case of Triflex, JPR, Westcoast and Delta, the distributors pleaded an allegation that cl 5.1 of the Distributor Agreement and cl 13 of the Terms and Conditions of sale should be construed as imposing on Rockwell an obligation, on termination of the Distributor Agreement, to purchase back any unsold stock. They also alleged, in the alternative, an implied term to the same effect. The distributors alleged that such a term was to be implied as a matter of law so as to allow the plaintiff the benefit of the Distributor Agreement and to give it efficacy.
In my opinion, cl 5.1 of the Distributor Agreement and cl 13 of the Terms and Conditions do not assist the distributors. The applicable return policy of Rockwell was attached to the termination letter. The alleged obligation, however arising, was inconsistent with the express terms of the policy.
Save for brief mention in opening, the distributors did not advance argument to support that part of their case and I take it to be abandoned. In any event, the evidence did not support a breach of any such term, if it existed. Furthermore, the making of a declaration in a vacuum is not to be encouraged.
The distributors’ claims fail. Rockwell is entitled to recover the amounts claimed by it as unpaid invoices. I will hear the parties on interest, costs and final orders.
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