Livestock Improvement Corporation v Liberty Genetics Limited HC Hamilton Civ-2011-419-000831
[2011] NZHC 1365
•10 August 2011
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
CIV-2011-419-000831
BETWEEN LIVESTOCK IMPROVEMENT CORPORATION
Plaintiff
ANDLIBERTY GENETICS LIMITED First Defendant
ANDEWING FARMS LIMITED Second Defendant
ANDDAVID FULLERTON AND PHILLIPA FULLERTON
Third Defendants
ANDKEVIN CLARK AND FELICITY CLARK Fourth Defendants
ANDHENLEY FARMING CO LIMITED Fifth Defendant
ANDROBERT BRUIN AND ANNE-MARIE BRUIN TRADING AS R & A BRUIN MEANDER HOLSTEINS
Sixth Defendants
ANDNEW ZEALAND DAIRY BREEDERS PARTNERSHIP
Seventh Defendant
ANDDAVID LESLIE HAYMAN Eighth Defendant
ANDTILLEMANS TURF LIMITED Ninth Defendant
ANDAPEX GENETICS LIMITED Tenth Defendant
Hearing: 4-5 August 2011
Counsel: A J Horne and A E Simkiss for the Plaintiff
J A MacGillivray and K E Cornege for the Defendants
LIVESTOCK IMPROVEMENT CORPORATION v LIBERTY GENETICS LTD HC HAM CIV-2011-419-
000831 10 August 2011
Judgment: 10 August 2011
JUDGMENT OF DUFFY J
This judgment was delivered by Justice Duffy on 10 August 2011 at 4.30 pm, pursuant to
r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Solicitors: Minter Ellison Rudd Watts P O Box 3798 (DX CP24061) Shortland Street
Auckland 1140 for the Plaintiff
Tompkins Wake P O Box 258 (DX GP20031) Waikato Mail Centre
Hamilton 3240 for the Defendants
[1] Livestock Improvement Corporation Limited (LIC) is the main New Zealand supplier of bull semen for the artificial insemination of dairy herds. It seeks an interim injunction against the defendants. The conduct of the defendants that has given rise to the application falls into three categories.
[2] First, conduct involving Liberty Genetics Limited (Liberty) and certain other defendants allegedly breaching their obligations under rules which LIC says restrain them from re-importing into New Zealand bull semen that LIC had earlier exported to Australia. LIC’s claims are based on breach of contract and inducing a breach of contract. Liberty and the other defendants contend that the restrictive force of the rules does not apply to bull semen imported from Australia.
[3] Secondly, conduct involving the fifth defendant selling a bull to a syndicate, the membership of which includes some of the other defendants, in circumstances where the syndicate intends to use semen from the bull to artificially inseminate dairy herds owned by its members. LIC contends that the supply of semen in this way also breaches the restrictions that LIC relies upon to prevent the use of imported bull semen. The defendants contend that the rules cannot be applied to restrict the sale of a bull to purchasers who each intend to use that bull’s semen to artificially inseminate their dairy herds.
[4] Thirdly, conduct involving alleged breaches of an agreement between LIC and the ninth defendant regarding a heifer known as “Heifer J”, as well as allegations against the tenth defendant that it induced the ninth defendant to breach this agreement. Here, LIC contends that the agreement it had with the ninth defendant restricted the use of Heifer J for breeding purposes to either the ninth defendant or LIC. The ninth defendant is abiding the Court’s decision, and so it has not opposed LIC’s application for an interim injunction. The tenth defendant opposes the application. The tenth defendant accepts that the terms of the agreement between LIC and the ninth defendant restrict the use of Heifer J in the way LIC contends. However, the eighth and tenth defendants contend that, before the tenth defendant engaged with the ninth defendant over the use of Heifer J, LIC had orally released the ninth defendant from the contractual restrictions. Thus, the alleged inducement occurred when there was no contractual restriction on the use of Heifer J.
[5] The breeding season for dairy cows in the Waikato region commences in September and goes through to late November/early December. A Court hearing time to determine the substantive claims is likely to be available in either the week commencing 12 September 2011 or 3 October 2011. Nonetheless, if LIC is granted the relief it seeks, this is likely to preclude, or at least substantially hinder, the defendants from carrying out their intentions for the coming season.
[6] The conduct LIC seeks to injunct falls into three separate categories. I will deal with each in turn.
Use of bull semen imported from Australia
[7] In New Zealand, LIC has put in place strict controls regulating the use of bull semen and the semen from first male progeny of LIC-supplied bull semen. None of the defendants appears to dispute LIC’s authority under its Conditions and Service Rules (“service rules”) to control and restrict the use of this bull semen within New Zealand.
[8] In the present case, Liberty acquired bull semen from an Australian company and imported it into New Zealand. This semen had originated from a New Zealand based bull whose semen was under LIC’s control. LIC had exported this semen to the Australian company. Thus, bull semen that LIC had exported to Australia was later imported into New Zealand by Liberty. It used it to artificially inseminate dairy cows. Liberty has now obtained semen from the first male progeny of this artificial breeding (the subject semen).
[9] In this way, Liberty has acquired what it contends is unrestricted access to the semen of first generation male progeny of bulls that LIC considers to be some of its top sires. Liberty would not have been able to achieve this result at the cost it has paid if it had not obtained the bull semen from Australia.
[10] Liberty wants to supply the subject semen for use in New Zealand dairy herds. It has taken orders from dairy herd owners. LIC wants to prevent this from happening. LIC argues that the restrictions in its service rules prevent Liberty and
the other defendants affected by this claim (the second to sixth defendants) from supplying the subject semen for use in New Zealand dairy herds.
[11] The defendants affected by this claim are clients of LIC. They accept that as clients of LIC, they are subject to LIC’s service rules. However, they contend that the scope of the service rules does not extend to the use of the subject semen.
[12] When LIC sells or supplies bull semen to parties based outside of New Zealand, LIC does not restrict the uses to which the offshore parties may apply the semen. Thus, there was nothing to prevent the Australian company from supplying the bull semen to a New Zealand based company like Liberty. However, LIC now attempts to use the service rules against Liberty to restrict the use Liberty might make of the imported bull semen through sale of semen from the first male progeny.
[13] The key issue for determination is whether the restrictions on the use of bull semen in the service rules apply to the bull semen imported from Australia. The relevant clauses in the service rules are clauses 62, 63 and 89(e):
[14] Clause 62 states:
62. The client may not, except with LIC’s prior written permission:
(a) advertise for sale or supply or sell or otherwise supply any semen or other form of germplasm (Germplasm) for the first generation male Offspring of matings using Germplasm supplied by LIC (Offspring); or
(b) provide access to or possession of or dispose of the Offspring to any person (other than a director or an officer, employer or agent of the client, acting in that capacity) (Transferee) in circumstances where the Offspring may be used for the collection of Germplasm for sale or supply, without first entering into a written agreement with the Transferee in the form set out in Schedule 1 to these conditions and service rules. The client must send the original agreement to LIC within 14 days of entering into it.
This restraint, which does not prevent the use of the Offspring in natural matings, is reasonably required to protect the value and viability of the LIC artificial breeding and genetics programme, which represents a substantial and long term investment in capital,
research and development, and sire proving, and which is of strategic importance to the New Zealand dairy industry.
[15] Clause 63 states that:
63. (a) The client acknowledges that LIC is the sole proprietor (or authorised licensee) of all intellectual property rights contained in all semen supplied by LIC to the client. (b)
When supplying the client with semen LIC grants to the client a non-assignable, non-exclusive one-off licence (such licence otherwise on usual industry terms) for the sole purpose of the artificial insemination of the client’s own Herd (or part thereof) and the client will not provide access to or possession of such semen to any other person (other than a director or an officer, employee or agent of the client acting in that capacity).
(c)
The client undertakes that the semen supplied by LIC will not be used for any purpose other than the artificial insemination of the client’s Herd (or part thereof) and the client further undertakes that the client will not provide access to or possession or such semen to any other person (other than a director or an officer, employee or agent of the client acting in that capacity).
(d)
The client agrees to indemnify LIC for all losses whatsoever caused to LIC, arising out of or flowing from the client’s breach of this provision.
[16] Clause 89(e) states that:
The client will not circumvent or attempt to circumvent the wording and intent of the provisions of these conditions and service rules.
[17] Clause 63 regulates the use a client can make of semen supplied by LIC to the client. Clause 62 regulates the use a client may make of semen from the first generation male offspring of matings that have used semen supplied by LIC. The relevant clause here is clause 62.
[18] LIC contends that the meaning of the word supply in clause 62 encompasses an indirect supply from LIC where LIC is no more than the first supplier in a chain of suppliers. Thus, LIC contends that its sale of bull semen without restrictions to an Australian company cannot extinguish LIC’s role in the supply chain and thus the application of clause 62. If LIC is correct, it means that whenever its clients, who are subject to the service rules, obtain bull semen that was first supplied by LIC, then
irrespective of any intermediate source and what its position was vis-à-vis LIC, the
client’s use of the bull semen will always be constrained by the service rules.
[19] Liberty argues that the natural meaning of “supply” in clause 62 must mean no more than a direct supply from LIC to its client. Thus, once LIC supplies bull semen in circumstances where the service rules do not apply (as in the case of the sale to the Australian company) this unconstrained acquisition of the bull semen fixes the legal character of the bull semen henceforth; it cannot thereafter become subject to the services rules through its acquisition by a client of LIC.
Should an injunction be granted?
[20] The respective arguments of LIC and Liberty need to be assessed in terms of the approach taken in applications for interim injunctions. That is, LIC has to show that it has a serious case to be tried and that the balance of convenience favours the granting of the orders sought.
[21] The first step is to look at the ordinary meaning of the relevant rules. Here, this entails placing the words of clauses 62, 63 and 89(e) in their full context (the factual matrix): see Vector Gas v Bay of Plenty Energy [2010] 2 NZLR 444 at 453. Thus, some understanding of the genesis of LIC is necessary to understand how and why LIC places restrictions on use of certain bull’s semen for artificial insemination (artificial breeding) of dairy herds.
[22] LIC’s establishment and its antecedents are described in the evidence of Peter Gatley, who is employed by LIC as the General Manager of Genetics. LIC is a co-operative company registered under the Companies Act 1993. It is wholly owned by New Zealand dairy farmers, each of whom holds shares in LIC. It traces its history to various herd improvement organisations that have helped over time to improve the standards of New Zealand dairy herds. These entities merged in 1988 to form LIC. At that time its shares were held by the New Zealand Dairy Board. Then, following the New Zealand Industry Restructuring Act 2001, LIC was turned into a user owned co-operative.
[23] The aim of the early herd improvement organisations and the New Zealand Dairy Board was to develop and provide services to New Zealand dairy farmers for the express purpose of ensuring that the New Zealand dairy industry maintained its position as a world leader in the low cost, efficient production of milk. One of the ways to achieve this aim is to ensure that the best breeding stock available is used. This is done, in part, by gaining access to the semen of high quality bulls for use in artificial breeding programmes.
[24] LIC has inherited the intellectual property, assets, products and services of its predecessors, much of which was built at a time when the emphasis was on advancing the dairy industry as a whole and little thought would have been given to securing commercial advantage for the holder of the information. Thus, LIC has a huge database of information (called the “LIC database” or “national database”) with records relating to breeding, production, health and other measures relevant to dairy
farmers going back to the first part of the 20th century.
[25] Part of the LIC database is supervised by an industry panel that can grant any person access to part of the database. This is known as the core database and it contains a large amount of information, including production, information, ancestry and calving records. The information in the LIC database is provided by farmers to LIC. Farmers use the information to make herd management decisions. The database which was formerly maintained through farmers maintaining herd and cow records in hard copy has now been developed into a LIC software product called “MINDA”. The basic software is free, with upgraded versions being available as paid products. The majority of dairy farmers use MINDA. Each cow in New Zealand has a unique individual number and the records are associated with this unique lifetime identification number.
[26] LIC carries out herd testing and it analyses and stores the information to provide each farmer with records of their herd and individual cow production. LIC provides a service called “GENEMARK”, which is a DNA analysis service offered to farmers, breed societies and other artificial breeding companies. It provides a parentage verification service to establish an animal’s ancestry in order to help protect farmers’ investment. The DNA analysis can also be used to determine
whether the herd is carrying any abnormalities that could result in ill health, loss of production, fertility problems or premature death.
[27] LIC also maintains an artificial breeding programme. LIC’s business in this area builds on product and information in New Zealand that dates back over a century. Artificial breeding is now the standard method of impregnating for most dairy cattle. The increase in size of modern dairy herds has also made it less practicable for dairy farmers to rely on natural matings.
[28] The benefits of artificial breeding have led to LIC making large investments in progeny testing and sire proving. Consequently, LIC has made substantial investment in its artificial breeding programme. Until 2007, it progeny-tested around 300 bulls each year, requiring an annual investment of around $12M in order to produce around 10 premier sires for each breed each year. It has now reduced the number of bulls that are progeny tested to around 160 each year and this has reduced the programme to $7M. However, the reduction in expenditure on this programme has resulted in increased expenditure on the DNA proven genomic technology. LIC has invested approximately $25M in the development of genomics since 1994, and another approximately $5M is being invested this year to develop the technology. It also has a team of around 70 sales representatives at an annual cost of around
$10.4M, of which $4.62M is attributable to the artificial breeding programme. In order to pay for the investment, LIC’s commercial artificial insemination service produces revenues of approximately $60M annually through the provision of nearly four million straws of semen.
[29] Given the importance of artificial breeding to the New Zealand Dairy Industry and the level of investment LIC now makes in this area, it has sought to protect its investment and the information that it makes available to New Zealand dairy farmers. LIC seeks to protect its investment in its proven sires by imposing restrictions upon the ways that purchasers may use bull semen provided by LIC’s sires and how the purchasers may use the semen from the first generation male progeny of those sires. Those restrictions (which are found in clauses 62 and 63) were first introduced in the 2000/2001 season and, with minor changes, they have been included in the service rules ever since.
[30] Until 2006, customers of LIC filled out paper service order forms and by signing a service order form, farmers recorded their agreement to the service rules. In 2007, LIC switched to electronic order forms. At that time, LIC asked all new customers to complete a form when opening an account (form 1); and customers who were trading under a new entity were also asked to complete a form as well (form 2). Forms 1 and 2 record the farmers’ agreement to the service rules and the terms applicable to shares and shareholders. The forms were created to bring qualifying dairy farmers into the LIC share standard (compulsory dairy farmer co- operative) as well as the service rules. The service rules are included in the customer pack provided to new customers. Thus, anyone who is a customer of LIC, and who has opened an account with LIC in that role, will be subject to the service rules.
[31] It was common ground between the parties that for dairy farmers and others in the dairy industry to function effectively, they need to access one or more of the services offered by LIC. In doing so, they will also have signed up to compliance with LIC’s service rules.
[32] The defendants accept that they are subject to the service rules and it seems that they could not function properly in the dairy industry without them maintaining this connection with LIC. Thus, it is no answer for Liberty or any other defendant to cease to be a client of LIC. Were it not for Liberty or any of the other defendants needing to maintain this connection with LIC, they could have ended their client relationship with LIC. They would then have been free to market the subject semen with impunity. Since LIC’s service rules do not restrict use of semen from second generation offspring (the grandsons of its sires), the service rules would not have affected the progeny of the subject semen.
[33] The relationship between LIC and its clients is not the usual contractual relationship. Part A of the service rules provides that:
All orders for the supply of products and/or services are accepted on the basis that the submission of the order (by whatever means) to LIC constitutes an acknowledgement and acceptance by the client that products and/or services will be provided on the following terms and conditions, to the exclusion of all other implied terms, representations and warranties.
LIC may vary these service rules at any time by following the Rules Amendment Procedure. The Client agrees to abide by the Rules Amendment Procedure and acknowledges that all products and services supplied after the completion of the Rules Amendment Procedure will be subject to the amended service rules.
[34] “Client” is defined as:
The person, persons or corporate that is the legal entity that orders any products and/or services from LIC or on whose behalf any products and/or services are ordered, irrespective of whether those products and/or services are ultimately provided by LIC to the client.
[35] The service rules also provide for the client by the way in which the client becomes a shareholder of LIC:
Share Standard
The client acknowledges and understands that by ordering or otherwise signing up for qualifying products and/or services from LIC for the Season having an aggregate value of not less than $500 (at the same time as otherwise being a User), the client consents to and has made an irrevocable application to become a shareholder of LIC and to hold the Co-operative Control Shareholding Requirement (as such term is defined in, and upon the terms of, the constitution of LIC) (the Constitution). The Board of LIC may in its absolute discretion decide whether or not to accept an application by a User to become a shareholder.
The following is a summary of the relevant provisions of the Constitution and is provided for assistance only. This summary must be read subject to the detailed wording of the Constitution.
(a) In accordance with the Constitution, the client is a User at such time as the following criteria are met in respect of the client:
(i) the client derives an income from the farming of dairy cows in New Zealand, (including a sharemilker);
(ii) the client’s milk is supplied to a milk processor in
New Zealand;
(iii) the client has an LIC debtor’s code; and
(iv) the client purchases qualifying products or services of LIC having an aggregate value of not less than the Minimum Purchases amount which is currently set at $500 per Season.
[36] Thus, a client of LIC is also likely to be a shareholder of LIC. The service rules appear to me to have a purpose of regulating the conduct of persons who deal with LIC and who are members of the co-operative. Rules put in place for the benefit of LIC are thus intended for the indirect benefit of the members of the co- operative.
[37] Against the background of the genesis of LIC and the peculiar character of the client/shareholder relationship, I consider that the purpose of clause 62 is to regulate how clients will deal with the first generation male progeny of bull semen from LIC sires. The intent being that offspring that inherit desirable characteristics from LIC sires will be brought back into the LIC gene pool; and individual clients will not be able to take advantage of the birth of particularly good first generation male progeny by accessing their semen and supplying it to dairy farmers in competition with LIC. Thus, there is a continuum in which LIC obtains from its client/members essential herd information; applies this information along with research and development technology to develop further improvements in dairy herds through its artificial breeding and genetics programme; and these improvements are made available to its client/members, who will in turn provide information to LIC, which will inform it on the performance of the improved herds. In this environment, it makes sense for both LIC and its client/members that the continuum is not broken by individual client members obtaining benefits from LIC (here in the form of semen from first generation progeny of LIC sires) and competing with LIC in ways which can ultimately harm LIC’s investment in its artificial breeding and genetics programme.
[38] Insofar as LIC passes on the costs of its research and development through the sale of bull semen, it does not want its sales to be undercut by others who have gained the benefit of high quality bull semen resulting from this research and development but who have made no similar investment and therefore can afford to supply their bull semen at a lower price. Thus, it is understandable that LIC would want to restrict and control the supply of bull semen from its sires, as well as the semen from first generation male progeny of those sires.
[39] Against this factual background, I consider that there is a serious case for arguing that the word “supply” in clause 62 covers any form of supply by LIC and, therefore, it is capable of having the meaning for which LIC contends. I had considered whether the restriction in clause 62 on the semen from first generation male offspring was limited to offspring that had resulted from semen supplied by LIC directly to the client. Certainly, the use a client makes of semen supplied by LIC to that client is regulated by clause 63. I considered, therefore, that whether the bull semen referred to in clause 62 was intended to be confined to semen of first generation male progeny. However, if the rules were intended to have that effect, I consider that the restriction on the sale or supply of semen from first generation male offspring would have either formed a later part of clause 63, or have been placed in a clause that followed 63. I consider that the placement of the restriction on the sale or supply of semen from first generation male offspring ahead of the restriction on the use of semen “supplied by LIC to the client” is an indication that the regulation of the use of semen from first generation male progeny was intended to be dealt with as a separate issue from the regulation of the bull semen subject to clause 63.
[40] This separation is emphasised by the omission in clause 62 to refer to the LIC supplied semen having been supplied “to the client”. In clause 62(a) the reference to matings using semen “supplied by LIC” is not qualified with the addition of the words “to the client”, as is the case in clause 63. This suggests that other forms of supply, such as indirect supply, were also intended to be covered by clause 62. I consider that the placement of clause 62 in the service rules and the omission in the clause to refer to the semen of the first generation male offspring being derived from semen supplied by LIC to the client indicates that clause 62 is intended to have a wider coverage that extends to circumstances like the present
[41] Liberty sought to argue that the word “supply” in clause 62 was ambiguous and that, therefore, the contra proferentem rule should apply. However, I do not consider clause 62 is ambiguous; and at any rate serious argument can certainly be made that the clause is not ambiguous. Recourse to the factual matrix when interpreting the clause is no acknowledgement of ambiguity. As was recognised in Vector Gas at [4], recourse to the factual matrix of a contract when interpreting a contract is not dependent on the Court first finding an ambiguity.
[42] Once clause 62 is read in the context of its factual matrix, the intent and commercial purpose of the clause is clear. The test to be applied is an objective test, with the necessary enquiry being what a reasonable and properly informed third party would consider the parties intended the words of their contract to mean: see Vector Gas at [19]. There is a serious argument that a reasonable and properly informed third party would understand the purpose of clause 62 is to ensure that all first generation male progeny of the semen of an LIC bull sire were regulated by LIC and able to be restricted by clause 62. The clause carries its own explanation, where it sets out the reason for the restraint in subclause (b). In such circumstances, a reasonable and properly informed third party would expect clause 62 to have the widest possible application.
[43] I also consider that the role of clause 89(e) arguably makes it clear that clients/shareholders of LIC are to conduct themselves in a manner almost akin to good faith in their dealings with LIC. Since the purpose of clauses 62 and 63 is clear, clients should not attempt to circumvent those purposes (which are for the benefit of LIC and its shareholders, which include clients). The presence of this clause helps ascertain the meaning of clauses 62 and 63.
[44] I next turn to consider the balance of convenience. An injunction preventing the use of the subject semen will have some impact on this coming season but not on the following season. Even with this season, a hearing in September with an outcome in Liberty’s favour should allow it some opportunity to supply to those farmers who use artificial breeding later in the season. There is no doubt that LIC has the financial means to compensate Liberty for any losses it incurs through the restrictions imposed by the interim relief.
[45] Conversely, if no injunction is granted, Liberty will be able to offer bull semen from first generation male progeny of LIC’s top sires in circumstances where Liberty intends selling the semen for approximately $6.00 per straw instead of at Liberty’s price of $11.00. Liberty’s ability to pay LIC for any financial loss that LIC might suffer through this occurrence is uncertain. Furthermore, through the use of the imported bull semen, Liberty is in a position to obtain high quality first
generation male progeny which it can then breed from to develop its own high quality sires. It will achieve this outcome at LIC’s expense.
[46] I consider that if Liberty is prevented from using the subject semen this season, the harm it suffers in terms of loss of sales of the subject semen, loss of goodwill through it not being able to deliver to its customers their preferred bull semen (it has other bull semen that it can provide), and loss of opportunity regarding the potential to use either the imported bull semen or the subject semen to breed high quality sires are all losses that are capable of quantification.
[47] I propose, therefore, to grant LIC the injunctive relief it seeks regarding the use of the subject semen.
Sale of bull to syndicate
[48] LIC’s records show that a bull named “110895 Busybrook P F Rex ET S1F” (Rex) has been used for artificial breeding in five separate herds. Rex is an artificially bred first generation male progeny of a LIC sire. As such, he and/or his semen are subject to clause 62. He was rejected by LIC and so his owner, the fifth defendant, was free to sell him at a bull sale. It appears that he was purchased by a syndicate of five persons that includes the eight defendant, one of the fourth defendants and Raeden Jackson.
[49] LIC contends that there is a seriously arguable case that Rex was sold in circumstances where the fifth defendant knew that Rex may be used for collection and sale or supply of semen in breach of clause 62(b). LIC also contends that there is a seriously arguable case that Rex is being used for the collection of semen for sale or supply in breach of clause 62(b).
[50] Insofar as the fifth defendant has sold Rex in circumstances where the sale was for a purpose to defeat clause 62(b) of the service rules, this event has already occurred. There is nothing that an interim injunction can now prevent from happening in respect of the sale of Rex.
[51] The second part of the claim is that the service rules only apply to clients of LIC. LIC argues that insofar as the members of the syndicate which purchased Rex are clients of LIC (being the eight and fourth defendant), they are bound by rule 62(a) and so they cannot permit Rex’s semen to be supplied to others for artificial breeding.
[52] However, the supply of Rex’s semen for artificial breeding appears to be for the use of the syndicate members only. LIC has produced no evidence to suggest otherwise. This is a case where Rex’s owners are using his semen for their own dairy herds.
[53] There is nothing that would legally stop Rex being used to naturally sire offspring. Clause 62 expressly permits the use of first generation male progeny in natural matings. The question, therefore, is whether clause 62 precludes the owner of an artificially bred first generation bull from one of LIC’s sires from using this bull to breed artificially with that owner’s dairy herd. If a single owner could use the semen from such a bull to artificially inseminate his dairy herd, it is difficult to see why a bull owned by more than one person could not be used in that way. Conversely, if a single owner could not do so, neither could multiple owners.
[54] I consider it is significant that when defining the prohibited activity in clause 62, the words “sell or otherwise supply” are used. It is not usual to think of supplying something to oneself. Supply usually entails a passing of something from one person to another. Just as a single owner cannot supply him or herself with a product he or she owns, the same must apply with co-owners.
[55] There is nothing in clause 62 that would preclude the owner of first generation male offspring from using that bull’s semen to artificially inseminate his own dairy herd. In such circumstances, the owner is not supplying semen; he is using semen that is available to him through his ownership of the bull. The addition of multiple ownership does not, in my view, change this circumstance. Different owners may be part owners, either jointly or in common of the same chattel: see Garrow and Fenton’s Law of Personal Property in New Zealand at 2.4. Joint ownership is similar to the concept of a joint tenancy in land: see Marson v Short
(1835) 2 Bing NC 118, 132 ER 47 which involved an undivided moiety in a horse. Whether ownership is joint or akin to a tenancy in common is a matter of inference from the circumstances. Here the natural inference is that the co-owners of Rex each own an undivided share in him in a manner similar to a joint tenancy in land.
[56] I consider that if LIC had wanted to prohibit owners of first generation male offspring from using their semen in artificial breeding, it would have included in clause 62(a) a prohibition on “use” of semen, so that the prohibition would have been against “advertise for sale or supply or sell or otherwise supply or use any semen … from the first generation male offspring of matings using germplasm supplied by LIC”.
[57] The express reference in clause 62 to the restraint not preventing the use of artificially bred first generation male progeny of LIC sires in natural matings is not affected by this interpretation. I read that provision as permitting the owner of such bulls to use them in natural matings for his own dairy herd and for dairy herds owned by others. Thus, such bulls could provide stud services to others, but only by natural matings.
[58] It follows that I consider clause 62 permits owners and co-owners of first generation male offspring of matings using semen supplied by LIC to use that semen to artificially inseminate their own dairy herds, and to use those bulls in natural matings in their own dairy herds, and in other dairy herds if the owners of those herds are interested in using the services of the bulls. It follows that I am not satisfied LIC has established there is a serious case to be argued for an injunction to prohibit the use of Rex in the way that has been sought.
Use of Heifer J
[59] The parties accept that if Heifer J has not been released from the GeneRate agreement between LIC and the ninth defendant, then that agreement precludes the planned use. Whether Heifer J has been released from this agreement is a question of fact, the answer to which depends upon the Court hearing and determining the reliability and credibility of the witnesses whose evidence addresses this topic. In a
hearing like the present, the Court is in no position to make evidential findings of this nature. The ninth defendant has not opposed LIC’s application for an injunction. I am satisfied that the evidence on which LIC relies if proved establishes that there is a seriously arguable case for finding that the release did not occur. In such circumstances, I consider that it is appropriate to make the orders sought.
[60] The eighth and tenth defendants have opposed the application. However, the claim here is that they have induced the ninth defendant to breach the GeneRate agreement. This conduct is now spent. Regardless of any further inducement, the injunction against the ninth defendant will protect LIC’s position. I propose, therefore to make the orders sought against the ninth defendant. I have not been informed that the eighth and tenth defendants are threatening to continue to conduct themselves in a way that constitutes an inducement to breach this contract. Since the injunction will prevent any breach of the contract, I see no need to injunct the eighth and tenth defendants. There is nothing to show that any further conduct on their part will harm LIC.
Conclusion
[61] Having concluded that LIC should be granted some of the injunctive orders it seeks, I now turn to deal specifically with those orders. The orders as sought are set out in LIC’s application for interim injunction on notice, dated 23 June 2011. I am satisfied that orders (a)(i) to (iii) should be granted, and they are to remain in force until 6 October 2011, or further order of the Court, whichever is the sooner. I do not consider that there needs to be an injunction restraining the first and eighth defendants and anyone acting or purporting to act on their behalf from inducing breaches of the service rules.
[62] There is no purpose in injuncting the alleged past conduct of inducement of a breach. Regarding future conduct, it seems to me that whatever actions to induce breaches of the service rules the first and eighth defendants may take, the injunction against the first to sixth defendants will have the effect of preventing Liberty from supplying bull semen from first generation male progeny of bull semen imported from Australia. Whatever attempts the first and eighth defendants might make to
encourage the supply of this semen, it cannot now occur and, therefore, I see no need for the orders sought in 1(b)(i) and (ii) of the application.
[63] In seeking order (c), LIC has attempted to restrain the seventh defendant and anyone acting for it from inducing a breach of the service rules by the seventh defendant providing semen imported from Australia to either the first to sixth defendants or any other party to the service rules for the purpose of breeding first generation male progeny and either selling those progeny or selling or supplying their semen to others. The latter part of the intended conduct offends against clause 62, for the reasons I have outlined herein. I am satisfied, therefore, that the injunction sought in paragraph (c) should be made. It will remain in force until
6 October 2011 or further order of the Court, whichever is the sooner.
[64] I have already found that the evidence is that the fifth defendant has sold the bull known as Rex and, accordingly, I see no purpose in restraining the fifth defendant from selling Rex. Further, I have already found that the sale of Rex was to a syndicate of persons, all of whom who intended to use semen from Rex for artificial breeding within their own dairy herds. I have found there is nothing about this planned activity which contravenes clause 62. Accordingly, there is no basis for making an injunction against the fifth defendant and, therefore, the order sought in paragraph (d) of the application is refused.
[65] The order sought in paragraph (e) of the application against the ninth defendant is not opposed, and it is granted in terms as sought in the application. It remains in force until 6 October 2011 or further order of the Court, whichever is the sooner.
[66] Regarding the order sought in paragraph (f) of the application, this is a further claim based on inducing a breach of contract. Again, there is no purpose in injuncting past conduct; and regarding future conduct, I consider that the order made restraining the ninth defendant will protect LIC sufficiently from the harm it seeks to prevent. Thus, the order sought in paragraph (f) is refused.
[67] The same applies for the order sought in paragraph (g), and so this order is refused.
[68] I have fixed the orders until 6 October 2011 or further order of the Court, whichever is the sooner, because the later available date for a hearing of the substantive matter is 4 October 2011, and I understand a four day fixture on that date is available. Thus, 6 October 2011 should preserve LIC’s position while providing ample opportunity for the interim relief to be re-visited, should the need to do so arise.
Results
[69] Orders are made in terms of paragraphs (a)(i) to (iii), (c) and (e) of the application for interim injunction on notice, dated 23 June 2011. The orders are to remain in force until 6 October 2011 or further order of the Court, whichever is the sooner.
[70] The parties have leave to come back to the Court on any matter arising from the making of these orders; and the parties have leave to file memoranda on costs.
Duffy J
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