Loktronic Industries Limited v Diver HC Auckland CIV 2008-404-4657
[2011] NZHC 1004
•6 September 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2008-404-4657
BETWEEN LOKTRONIC INDUSTRIES LIMITED Plaintiff
ANDSTEPHEN JOHN DIVER First Defendant
ANDS D R LIMITED Second Defendant
ANDROY BOWYER Third Defendant
ANDTRIMEC TECHNOLOGY PTY LIMITED Fourth Defendant
ANDNEIL RICHARD HINGSTON Fifth Defendant
ANDNEIL HINGSTON ENGINEERING LIMITED
Sixth Defendant
ANDASSA ABLOY NEW ZEALAND LIMITED
Seventh Defendant
Hearing: 31 August 2011
Appearances: S A Grant & K J Dawson for Plaintiff
P D M Johns for Third, Fourth & Seventh Defendants
Judgment: 6 September 2011
JUDGMENT OF KEANE J
This judgment was delivered by on at 6 September 2011 at 5 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Solicitors
Date:
Baldwins, P.O. Box 5999, Wellesley Street, Auckland for Plaintiff
Minter Ellison Rudd Watts, P.O. Box 3798, Auckland for Third, Fourth & Seventh Defendants
LOKTRONIC INDUSTRIES LIMITED V STEPHEN JOHN DIVER HC AK CIV 2008-404-4657 6 September
2011
[1] In a judgment given on 30 March 2011 Courtney J held that in July 2002
Loktronic, a distributer within New Zealand and an exporter of electronic drop locks, was deprived without notice, and unlawfully, of the benefit of two contracts essential to its continued viability.
[2] Hingston Engineering, the Judge held, was answerable in damages for breach of contract, for terminating without notice in July 2002 the first of those contracts under which it was obliged to manufacture for Loktronic exclusively a particular electronic drop lock. It should have given Loktronic, she held, at least six months notice.
[3] Trimec, the Judge held, was answerable equally for terminating in July 2002 without notice the second contract under which Loktronic enjoyed the exclusive right to distribute Trimec's products in New Zealand, all or most of which emanated from Assa Abloy. Trimec, she held, ought to have given Loktronic at least three months notice.
[4] Trimec and all other defendants but one, including Assa Abloy, the Judge held, were liable in tort for inducing those breaches of contract; and also for interfering with the manufacturing contract, or conspiring to interfere with it, by unlawful means, in this latter instance in order to free Hingston Engineering to manufacture exclusively for Trimec.
[5] In the result, Courtney J awarded Loktronic $1,420,721 damages and
$845,915 interest, in total $2,266,636; a judgment the defendants affected appealed almost immediately to the Court of Appeal. The appeal is set down to be heard on 25
- 27 October 2011.
[6] On 1 June 2011 the defendants affected also obtained from Rodney Hansen J a stay of the judgment, on the condition that they lodged with the Court a bank bond for the judgment sum, including interest, to the date of judgment. On 23 June 2011 they complied with that condition.
[7] Then, on 5 August 2011, Loktronic applied for the variation to that order with
to include a condition that the distribution agreement between Loktronic Innovationz Limited and Assa Abloy New Zealand Limited remain on foot on current terms until the final determination of all appeals in this proceeding and, if damages and costs are payable by AANZL to Loktronic, payment in full of all damages and costs.
[8] Loktronic applies for that variation because on 24 June 2011, one day after the bank bond was lodged in this Court, Assa Abloy gave notice to Innovationz, the entity to which Loktronic had transferred the last vestige of its business after July
2002, that as from 1 November 2011 it would no longer be an 'authorised product supplier'.
Issues arising
[9] Two related questions as to this Court's capacity to grant a stay arise. The first is whether this Court, once it grants a stay, retains any power to vary. The second is whether the variation Loktronic seeks comes within the scope of any power that this Court does retain.
[10] Innovationz is not a party to this proceeding. Nor is the oral supply and distribution contract Loktronic asserts, and Assa Abloy contests, the subject of the proceeding. It is said to derive from a distinct supply relationship between Loktronic and Assa Abloy that continued after July 2002, the benefit of which Innovationz inherited. Assa Abloy contends on both bases that this Court lacks power to grant the stay Loktronic seeks.
[11] If Assa Abloy proves to be right Loktronic then seeks, on the basis of urgency, and on the papers as they are, an equivalent interlocutory injunction. By giving notice terminating its relationship with Innovationz, Loktronic contends, Assa Abloy is intent on eliminating Innovationz from the market by taking advantage of its substantial market power. If Innovationz is eliminated, Loktronic contends, it will be also.
[12] The variation of the order for stay that it seeks, Loktronic contends therefore, is essential to protect it pending the outcome of the appeal. Its fate depends on the fate of Innovationz.
[13] Innovationz, Loktronic contends, is tantamount to a party. On 12 October
2009 Sargisson AJ made it liable as guarantor, to the extent potentially of $103,000, for Loktronic's liability for security for costs; a contingent liability under which it is forbidden to encumber further or transfer its own property. Apart from anything else, Assa Abloy's notice will affect Innovationz's ability to meet that contingent liability.
[14] The supply relationship between Innovationz and Assa Abloy, Loktronic contends secondly, is intimately related in a practical sense to the two contracts that are the subject of this proceeding. All three contracts, Loktronic contends, were the foundation for its own business in July 2002. It is no accident that on 24 June 2011, the day after the bank bond was lodged, Assa Abloy terminated the final supply relationship.
[15] Assa Abloy's notice, Loktronic contends thirdly, constitutes an intentional abuse of its substantial market power. If the notice is allowed stand, Innovationz will be deprived of 40 - 50 percent of its business. It will be eliminated from the market and with it Loktronic. Once the appeal is resolved Loktronic's intent is to resume any rights that it passed to Innovationz.
[16] Finally, Loktronic contends, Assa Abloy was less than frank when it obtained the stay. It did not then disclose that it intended to terminate its relationship with Innovationz. Had it done so it might have been declined a stay, or given a part stay conditionally. The variation applied for is, it says, essential to redress the balance.
[17] Assa Abloy denies any abuse of market power. If there is a contract for supply between itself and Innovationz, it says, and it denies that there is, it is entitled to terminate that contract by due notice. It has given four months notice. It denies also that it was less than frank when obtaining the stay. Innovationz was not a party
to the proceeding or the appeal. Its contract with Assa Abloy was not the subject of the proceeding or the appeal. Loktronic did not then disclose that it intended to resume the rights in contract, such as they were, that it had transferred to Innovationz. It only disclosed that intent last Friday.
[18] Loktronic, Assa Abloy contends, is not seeking a variation of the stay. It is seeking a mandatory injunction well beyond the scope of this proceeding. Loktronic's application for stay, and its alternative oral application for an interlocutory injunction, both constitute an abuse of process.
[19] If Innovationz considers that it has grounds for interlocutory injunctive relief, Assa Abloy says, then it should apply itself. Loktronic, it contends, cannot under the guise of urgency seek such relief on behalf of Innovationz when Innovationz has had since 24 June 2011 to seek its own remedy.
Power to vary stay
[20] The power to stay a decision of this court, pending an appeal to the Court of Appeal, is conferred on this court as well as the Court of Appeal by r 12(3) of that Court's rules:1
Pending the determination of an application for leave to appeal or an appeal, the court appealed from or the Court may, on application, -
(a) order a stay of the proceeding in which the decision was given or a stay of the execution of the decision; or
(b) grant any interim relief.
[21] The power to vary or rescind an order once made, by contrast, is expressly reserved to the Court of Appeal. (Where that rule speaks of the 'Court' it speaks of that court.2) Unsurprisingly, only that court may vary or rescind its own orders for
stay.3 Only that court, moreover, has the ability to vary or rescind any order for stay
made by this court.4 That latter power, the Court of Appeal itself has held, does not
1 Court of Appeal (Civil) Rules 2005, r 12.
2 Rule 3.
3 Rule 12(7).
4 Rule 12(6).
arise by way of appeal; it is a power that stands alone.5 No such power is reserved to this court and that must mean that, once this court grants a stay, its power is spent.
[22] In order to do justice, Ms Grant submits, this Court has, nevertheless, inherent jurisdiction to grant a variation. She invokes this Court's wide original jurisdiction.6 This court's inherent jurisdiction may only be invoked, however, to do justice where its own rules do not assist and, when the inherent jurisdiction is invoked, that must always be in harmony with such rules as do apply.7
[23] In this instance there is no vacuum. There is a rule that applies that is both comprehensive and explicit. Furthermore, the rule in issue is not one of this court. It is a rule of the Court of Appeal. It would be an abuse of process for this court to attempt, by recourse to its inherent jurisdiction, to circumvent the plain effect of that rule governing the effect of its substantive decision once issued and under appeal.
[24] Nor does the fact that this court is unable to vary or rescind its own orders for stay, where an appeal is pending in the Court of Appeal, result in any injustice. It is not as if Loktronic is deprived of any remedy. It it able to apply for the variation it seeks to the Court of Appeal.
Scope of stay power
[25] That apart, and in case I am wrong, there remains the issue whether the variation Loktronic seeks lies within the scope of this court's power to stay. As to that there are two issues. One is as to the extent to which an interim order in the nature of a stay may be positively mandatory. The other is as to the extent to which, if at all, such an order can reach beyond the proceeding.
[26] In staying Loktronic's ability to enforce its judgment, pending the appeal, Rodney Hansen J imposed a conventional negative constraint. (He was invited to do so under HCR 20.10(2)(a), (b); in fact that must have been under the
indistinguishable rule 12(3)(a).) The variation Loktronic seeks, by contrast, is in the
5 Cousins v Heslop [2007] 18 PRNZ 677 at [4], [12].
6 Judicature Act 1908, s 16.
7 R v Moke & Lawrence [1996] 1 NZLR 263.
nature of a mandatory injunction, or a decree of specific performance.
[27] Rule 12 does permit the making of interim orders, and they may be positive in character.8 But they must still serve the purpose of the rule; and that is to strike a just balance between 'the right of a successful litigant to have the fruits of a judgment and the need to preserve the position in case the appeal is successful.'9 It is 'so to arrange matters that, when the appeal comes to be heard, the appellate Court may be able to do justice between the parties, whatever the outcome of the appeal may be':10
[28] An interim order, just like a conventional order for stay, as Asher J said in Fullers Bay of Islands Ltd v Otehei Bay Holdings Ltd,11 must have 'a direct connection to the proceedings, or execution of the judgment'.12 For, as he continued to say:13
Rule 12 is not designed to give a Court a general discretion to make any further orders it might consider just, to resolve further disputes that have arisen since the hearing. A Court cannot give relief in the jurisdictional vacuum of an unpleaded claim.
[29] In seeking relief by interim order for the benefit of a non-party, in respect of an asserted relationship in contract not the subject of this proceeding, relying on an event after the judgment under appeal has been issued, Loktronic reaches well beyond the scope of rule 12. Its application must fail at this point, if not earlier.
Injunctive relief for abuse of market power
[30] The result is that Loktronic is thrown back on its oral application at the hearing for an interlocutory mandatory injunction before any proceeding is issued,
on the basis of urgency.14
8 JAM v GFM HC Auckland CIV 2010-404-7853, 7 July 2011.
9 Duncan v Osborne Building Ltd (1992) 6 PRNZ 85 at 87.
10 Minnesota Mining & Manufacturing Co v Johnson & Johnson Ltd [1976] RPC 671, CA at 676;
New Zealand Insulators Ltd v ABB Ltd (2006) 18 PRNZ 459, CA at [13].
11 Fullers Bay of Islands Ltd v Otehei Bay Holdings Ltd HC Auckland CIV 2009-404-7207, 23
February 2011 at [15].
12 At [15].
13 At [22].
14 HCR 7.53.
[31] To obtain any such relief Loktronic must first have standing to apply and that is debatable to this extent. It asserts the unlawful termination of a contract of supply to which it is not privy. Loktronic seeks, however, to rely not on any cause of action in contract but on s 36 of the Commerce Act 1986. Section 36 prohibits any person with 'a substantial degree of power in a market' from taking advantage of that power with intent to eliminate any other person from that or any other market. As Assa Abloy accepts, though not a party to the contract, Loktronic may still have standing
to apply.15
[32] In an urgent case, furthermore, interlocutory injunctive relief may be granted before a proceeding is issued, and in the absence of an undertaking as to damages, in order to preserve the position of the applicant until the proceedings can be commenced and the undertaken given.
[33] The issue is then whether, as is usual, Loktronic can establish 'a serious question to be tried' or, as it has also been described, 'a reasonably arguable case'; in each instance a case to be tested against whether there is any 'real prospect' of a grant of permanent injunctive relief.16 Only then does the balance of convenience arise and with it the interests of justice.
[34] To establish a serious question to be tried Loktronic must first establish the
'relevant market' in which Assa Abloy is said to have a 'substantial degree of power'. It must then establish that power to the requisite degree, and Assa Abloy's intent to take advantage of that power to eliminate Innovationz from the market.
[35] These are difficult issues of inference that are contested and that cannot be assessed on the evidence as it is. As to each Loktronic makes broad unsupported assertions. But it also seems to me to face a more formidable difficulty. On its own case, Assa Abloy and Innovationz are parties to a contract for supply that must be capable of being terminated by either by due notice. Where that right exists and is invoked, whether that involves any answerable intentional undue exercise of market
power must at least become very problematic.
15 Commerce Act 1986, s 81(1).
16 American Cyanamid Co v Ethicon Ltd [1975] AC 396.
[36] On the papers as they are certainly, that consideration seems to me to be fatal to Loktronic's application. Any inquiry into the balance of convenience is also complicated by the fact that Loktronic is not a party to the contract of supply that Assa Abloy is said to have terminated. Nor can Loktronic be safely assumed to speak for Innovationz.
[37] In short, the overall justice of the case, on the papers as they are, I consider, calls for this oral application for interlocutory injunctive relief to be declined. Innovationz has had since 24 June 2011 to apply itself for such interlocutory relief. That is inhibiting in itself. It certainly negates any grant of such relief to Loktronic on an oral application driven by urgency.
[38] There is also this to consider. All that Assa Abloy has done thus far is to give notice to Innovationz that it will cease on 1 November 2011 to be 'an authorised Assa Abloy product distributor'. It has not denied Innovationz supply. Nor is there any evidence to suggest that it will do so while the period of notice runs. There has then to be a large question whether even Innovationz could begin to deserve the interim relief that Loktronic seeks on its behalf before the hearing of the appeal in late October.
Conclusion
[39] Loktronic's application for a variation to the order for stay granted on 1 June
2011, and its alternative oral application for an equivalent interlocutory injunction, are both declined. Assa Abloy is entitled to costs, as I should have thought, at scale
2B and disbursements as fixed by the Registrar.
[40] If costs and disbursements cannot be agreed, Assa Abloy is to file a memorandum within ten working days of this decision and Loktronic a
memorandum in reply within the succeeding ten working days.
P.J. Keane J
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