Cerebos Gregg's Limited v PaulMac Limited
[2012] NZHC 2796
•24 October 2012
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
CIV-2012-454-000545 [2012] NZHC 2796
BETWEEN CEREBOS GREGG'S LIMITED Plaintiff
ANDPAULMAC LIMITED First Defendant
ANDGRAEME PHILLIP MCCULLOUGH AND FIONA CHRISTINE MCCULLOUGH
Second Defendants
Hearing: 17 October 2012 (at Wellington) Counsel: B D Gustafson for Plaintiff
T P Cleary for Defendants
Judgment: 24 October 2012
In accordance with r 11.5 I direct the Registrar to endorse this judgment with the delivery time of 3.00pm on the 24th day of October 2012
RESERVED JUDGMENT OF COLLINS J
Introduction
[1] The plaintiff, Cerebos Gregg’s Limited (CGL), manufactures and distributes food and beverages, including coffee products.
[2] The first defendant, Paulmac Limited (Paulmac), is also a distributor of food and beverages, including coffee products. The second defendants, the McCulloughs,
own Paulmac.
CEREBOS GREGG'S LIMITED V PAULMAC LIMITED HC PMN CIV-2012-454-000545 [24 October 2012]
[3] In 2005 the parties entered into an agreement (“the 2005 agreement”) under which Paulmac acquired the right to sell to retailers in a defined region some of CGL’s products:
(1)The defined region was specifically identified on a map that formed part of a contract between the parties. For present purposes it can be described as encompassing the Manawatu, Horowhenua and Wanganui region.
(2)The products which Paulmac acquired the right to sell to retailers included certain “A list products” which were defined as being “Robert Harris Roast and Ground Coffee – catering, packs and sachets”.
[4] CGL contends that some form of contractual relationship persisted between the parties, or recommenced later, after the termination of the 2005 agreement on
31 December 2009. Paulmac disputes this.
[5] Regardless, for present purposes, it is agreed that any contractual relationship that did continue to exist between CGL and Paulmac, ceased on 5 May 2011. What is not agreed is whether Paulmac and the McCulloughs were subject to a restraint of trade provision prohibiting Paulmac and the McCulloughs from selling “‘A’ list products” in the defined region for two years from 5 May 2011.
[6] In this proceeding, CGL asks me to issue an interim injunction restraining
Paulmac and the McCulloughs from selling “Robert Harris Roast and Ground Coffee
– catering, packs and sachets” within the defined region until 5 May 2013.
Background to the dispute
[7] On 4 September 2005 the parties signed the 2005 agreement. It recorded arrangements that had been in effect since 1 January 2005. Under the terms of that agreement:
(1)Paulmac acquired the right to supply among other items “Robert Harris Roast and Ground Coffee – catering, packs and sachets” in the defined region for a period of five years.
(2)Paulmac and the McCulloughs agreed to a restraint of trade in the following terms:
24.3The Distributor or its Shareholders (if the Distributor is a company) will not for a period of 2 years after the date of termination of the Agreement, within the [defined region] conduct, establish, be concerned in or associated with whether directly or indirectly, and whether as principal, agent, servant, shareholder, advisor or otherwise in a business selling or dealing in products and services similar to the “A” List Products or the Services or with the Customers or Customer Lists unless prior arrangements have been made with [CGL].
[8] After the 2005 agreement came to an end Paulmac continued to distribute
CGL products, including the “‘A’ list products” in the defined region.
[9] It is accepted that both prior to and after 31 December 2009 the parties had discussions about the basis upon which Paulmac would continue to be a distributor of CGL’s products.
[10] It is also common ground that at some point during the first half of 2010 CGL sent Paulmac and the McCulloughs a new proposed distribution agreement. That proposed agreement specified that it was for a two year period commencing on
31 May 2010.
[11] According to Mr McCullough, on 25 June 2010 he made a number of amendments to the proposed distribution agreement, and sent the amended version of the agreement back to CGL via his lawyers in Palmerston North. For present purposes the key amendments made by Mr McCullough were:
(1)deletion of the reference to a two year restraint of trade period in cl 26.3 of the proposed contract and the insertion of “six months” in place of “two years”.
(2) deletion of a clause relating to the obligations of Paulmac’s
shareholders.
[12] From CGL’s perspective Mr McCullough did not amend the proposed agreement. CGL relies on two pieces of evidence to support its submission that Mr McCullough’s amendments to the proposed agreement were made at a much later time:
(1)The Palmerston North law firm representing Paulmac and the McCulloughs have no record of receiving or sending on the proposed agreement;
(2) On 23 August 2010, following discussions between CGL and
Mrs McCullough, Mr McCullough sent the following email to CGL:
I know you and Fiona [McCullough] have been discussing this. I have been in contact with our Solicitor regarding the documents.
They advise that based on their records the documents were posted from Palmerston North the evening of 30th June 2010.
They were addressed to Cerebos Gregg’s attention: Nic
McLean.
We do not know where it has got too [sic], as discussed with Fiona [McCullough] please forward another set – we will sign directly and courier them straight back.
[13] It is accepted by the parties that, in fact, after 23 August 2010 the 2010 contract was never executed by Paulmac or the McCulloughs and it was not returned to CGL.
[14] On 25 February 2011 Mr McCullough sent an email to CGL in which he said:
... After much consideration we have decided not to sign the new contract. We will still be trading as a distributor within the Hospitality industry, it is
just our intention to step away from Roast & Ground (A List products) as well as equipment, and focus on our range of Bio-degradable packaging and
Hotel/Motel supplies.
While we will not be dealing in Coffee per say [sic], we will still be servicing Motels, Offices etc and will require Teas, Coffee Sachets and Instant Coffee etc. (B List products).
We await your response as to how we can manage the handover. We will carry on as we have been until such time as agreed.
...
[15] On 5 May 2011 CGL wrote to Paulmac. In its letter, CGL:
(1) confirmed that Paulmac’s “Robert Harris distribution contract” had
expired; and
(2) said that one of Paulmac’s “ongoing obligations” was that it could not
“sell fresh coffee” within the defined region for a period of two years.
[16] In February and March 2012 a manager of CGL learnt that petrol service stations in Palmerston North, Levin, Otaki, Paraparaumu and Porirua[1] had ceased purchasing freshly roasted coffee products from CGL and were purchasing these types of products from Paulmac.
[1] CGL did not appear to appreciate that Paraparaumu and Porirua were not within the defined region until I pointed this out to counsel for CGL during the course of the hearing.
[17] On 2 March 2012 CGL’s solicitors wrote to Paulmac. In that letter CGL referred to the two year restraint of trade provision “in cl 24.3 of [the] agreement” (cl 24.3 was the restraint of trade clause in the 2005 agreement. The restraint of trade clause in the proposed 2010 agreement was cl 26.3). The solicitors for CGL required Paulmac to cease any business activities imposed by “cl 24.3 of the [2005] agreement” within seven days.
[18] On 12 March 2012 Paulmac wrote to CGL’s solicitors. In its letters Paulmac
said:
(1) that it had a five year contract with CGL which ceased on
31 December 2009; and
(2) that while CGL offered Paulmac new contracts in 2010 and 2011
Paulmac found the terms and conditions unacceptable and ceased
supplying to retailers CGL’s coffee.
[19] In opposing CGL’s application for an interim injunction Mr McCullough has
deposed:
(1)that from the defendants’ perspective, the restraint of trade provision expired on 31 December 2011 (ie two years after the 2005 contract came to an end);
(2) that Paulmac did not sell CGL’s “‘A’ list products” prior to
31 December 2011; and
(3) that if Paulmac is now restrained from trading in roast coffee products
Paulmac’s business will not survive.
Is there a serious question to be tried?
[20] CGL submits there are two routes that can be followed to reach the conclusion that the defendants agreed to be bound by a two year restraint of trade provision which commenced on 5 May 2011. The two routes are:
(1) the 2005 agreement had been rolled over after it came to an end on
31 December 2009 and that the 2005 agreement then came to an end on 5 May 2011; or
(2)that a new 2010 agreement was agreed to and that agreement came to an end on 5 May 2011.
[21] In relation to the first contractual argument route, CGL says that after the expiration of the 2005 agreement the parties agreed to continue the terms and conditions of the 2005 agreement until further agreement was reached. Mr McCullough disputes this version of events. He says that all that was agreed to
was that Paulmac would continue to trade in CGL’s products pending the negotiation of a new agreement. He says there was no discussion let alone agreement about the restraint of trade clause continuing after 31 December 2009.
[22] In relation to the second contractual route, CGL submits that when Mr McCullough said on 23 August 2010 he would “sign directly and courier straight back” the 2010 agreement he confirmed that the defendants agreed to the terms of the 2010 agreement. CGL says that Mr McCullough’s email of 23 August 2010 is conclusive evidence of a mutual assent to the terms of the 2010 agreement forwarded to the defendants by CGL earlier in 2010. CGL relies upon the well known House of
Lords decision in Brogden v Metropolitan Railway Co[2] to support this aspect of its
case. In that case Brogden had supplied the defendant company with coal without a formal agreement for many years. Eventually the parties decided to regularise their relationship. The company’s agent sent a draft form of agreement to Brogden. Brogden inserted the name of an arbitrator in a space that had been left blank for this purpose, signed it and returned it marked “approved”. The company’s agent put it in his desk and nothing further was done to complete its execution. Both parties acted thereafter on the strength of its terms, supplying and paying for coal in accordance with its clauses, until a dispute arose between them and Brogden denied that any binding contract existed.
[2] Brogden v Metropolitan Railway Co (1877) 2 AC 666 (HL).
[23] The House of Lords held that the parties’ conduct subsequent to the returning of the contract was explicable only on the assumption that the parties mutually approved the terms of the draft. The House of Lords held that a contract came into existence either when the company ordered its first load of coal from Brogden upon the terms contained in the draft contract or at least when Brogden supplied it.
[24] The defendants’ response to this part of CGL’s case is that the agreement that Mr McCullough was referring to in his 23 August 2010 email was the amended version of the 2010 agreement which contained a six month restraint of trade clause.
[25] The evidence at this juncture is very murky. If this matter proceeds to a hearing it will be necessary for the trial Judge to undertake a careful analysis of the
exact date Mr McCullough actually made the amendments he says he made on
25 June 2010 to the 2010 agreement.
[26] However, what is plain at this juncture is that on 5 May 2011 CGL accepted that its agreement with Paulmac was at an end. At that time CGL asserted the existence of the two year restraint of trade provision and that clause would not expire until 5 May 2013. Nothing has been presented to me to show that Paulmac or the McCulloughs took issue with CGL’s assertion of the two year restraint of trade clause at the time CGL asserted its existence. Indeed, at this time Paulmac’s position was that it would not be trading in CGL’s “‘A’ list products” at all.
[27] In these circumstances, I am satisfied that CGL has established by the narrowest of margins the existence of a serious case to be tried, on the basis that there is an operative two year restraint of trade clause which expires on 5 May 2013. That clause was operative either:
(1) because the 2005 agreement was “rolled over” after it expired on
31 December 2009; or
(2)because the parties agreed to a new 2010 agreement which contained a two year restraint of trade clause which took effect from 5 May
2011.
[28] Having reached this conclusion in relation to CGL’s claim upon contract it is unnecessary for me to examine CGL’s alternative claim based upon estoppel.
Where does the balance of convenience lie?
[29] CGL became aware of Paulmac’s apparent breaches of its obligations in February/March 2012. The Court proceedings and an application for injunction were filed on 3 August 2012.
[30] If issued the so-called “interim” junction would not be interim at all. CGL asks me to issue an injunction for the balance of the restraint of trade clause as argued by CGL.
[31] Inquiries made during the course of the hearing suggest that the proceeding can be heard on 18 or 19 March 2013. In reality, even if the case is heard at that time, any judgment is unlikely to be delivered until close to the expiration of the restraint of trade clause as argued for by CGL.
[32] In my judgement the balance of convenience firmly falls in favour of the defendants. My reasons for reaching this conclusion are:
(1)Rightly or wrongly the defendants proceeded on the basis that the restraint of trade clause lapsed on 31 December 2011.
(2)There is no evidence that the defendants were in breach of the restraint of trade clause prior to 31 December 2011.
(3)Paulmac has organised its business on the basis that it would not be restrained from trading in fresh coffee products from 1 January 2012.
(4)Paulmac has explained that it is likely to face major financial difficulties if it is now restrained from trading in roast coffee products.
(5)On the basis of CGL’s understanding of the legal position, there is only approximately seven months left out of the 24 months specified in the restraint of trade clause. It is apparent that whatever harm CGL claims to have suffered by virtue of the defendants’ breaches, that damage would not be greatly exacerbated by allowing the dispute between the parties to be determined in the normal way, without the plaintiff effectively being given the relief it really seeks prior to the hearing of its case.
Conclusion
[33] The application for an interim injunction is dismissed. [34] Costs are reserved.
D B Collins J
Solicitors:
Macky Robertson Limited, Auckland for Plaintiff
Jacobs Florentine, Palmerston North for Defendants
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