Precast NZ Ltd v Anystep Ltd
[2016] NZHC 377
•8 March 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-3171 [2016] NZHC 377
BETWEEN PRECAST NZ LIMITED
Plaintiff
AND
ANYSTEP LIMITED First Defendant
AND
P J EVANS Second Defendant
AND
P T CANE Third Party
Hearing: 3 March 2016 Appearances:
M J Fisher and A T Burnet for the Plaintiff
B Gustafson and C M Hanafin for the DefendantsJudgment:
8 March 2016
JUDGMENT OF THOMAS J
This judgment was delivered by me on 8 March 2016 at 11.45 am pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date:………………………….
Solicitors:
Claymore Partners Limited, Auckland. Lowndes Jordan, Auckland.
PRECAST NZ LIMITED v ANYSTEP LIMITED [2016] NZHC 377 [8 March 2016]
Introduction
[1] The plaintiff, Precast NZ Limited (Precast), applies for interim relief in respect of the purported termination of a Licence Agreement (the Licence) dated
22 December 2009 between Precast and the first defendant, Anystep Limited
(Anystep).
[2] Precast claims there is a serious question to be tried concerning the validity of Anystep’s purported termination of the Licence, and the overall justice favours the granting of the interim relief sought. Precast also seeks interim mandatory orders requiring Anystep to supply Precast with rubber extrusions which Precast ordered from Anystep on 13 January 2006 pursuant to the Licence.
Background
[3] Precast is the management company of the Stresscrete group of companies, which manufactures precast concrete components, and supplies them to the construction market. The Stresscrete Group is a joint venture between interests associated with Paul Cane and interests associated with Brett Russell. Mr Cane is the managing director of Precast and a third party in these proceedings.
[4] Anystep manufactures moulds for making precast concrete stairs. It has the right to use the intellectual property rights to the Anystep Moulding System (System), which enables the cost effective installation of concrete stairs. The relevant intellectual property is owned by Anystep Technology Limited. Peter Evans is a director of Anystep.
[5] Pursuant to the Licence, Anystep granted Precast the exclusive rights (with one exception in the Kerikeri area) to use and sell the System in New Zealand for a term of 25 years, with an option to renew for a further term of 25 years.
[6] In August 2011, Precast acquired a 10 per cent shareholding in Anystep and in March 2012 Mr Cane was appointed a director of Anystep.
[7] Unfortunately, the working relationship between Mr Cane and Mr Evans was problematic. In May 2013, the non-Precast shareholders voted to remove Mr Cane as a director. The reasons for his removal are in dispute. By late December 2013, however, Precast had relinquished its 10 per cent shareholding in Anystep.
[8] In early 2014, a precast concrete manufacturer based in Ashburton, McIntosh Precast Ltd (McIntosh), contacted Mr Evans seeking to buy an Anystep Mould in order to manufacture and sell precast concrete stairs in Ashburton. Anystep was unable to make the sale due to its exclusive licence arrangements with Precast. Some time later, however, Ancon Building Products Pty Ltd (Ancon), an Australian based company which Anystep had agreed could sell the System in Australia, sold an Anystep Mould to McIntosh. The circumstances of that sale are not entirely clear (and will be an issue for trial).
[9] Precast then commenced proceedings. It appears that Precast’s key concern, given the breakdown in its relationship with Anystep, is that Anystep might sell its moulds to overseas entities (such as Ancon) in circumstances where Anystep knows, or ought to know, that those entities intend to on-sell the moulds in New Zealand. Precast says that any such conduct would be in breach of the Licence.
[10] Precast sought an interim injunction to protect its position through to trial. In particular, it sought to restrain Anystep from assisting anyone to purchase the System where Anystep knew “or ought reasonably to know” that the System would be used in New Zealand. Precast’s interim injunction application was ultimately resolved by Anystep providing appropriate undertakings.
[11] Meanwhile, Anystep filed a counterclaim, alleging a breach of clause 10.2 of the Licence, which provides for Precast to support Anystep in respect of sales of the System to overseas parties. Anystep claimed to have lost potential sales and sought a declaration that the breach was repudiatory, entitling it to cancel the Licence.
[12] Precast denied Anystep’s counterclaim and sought summary judgment in respect of it, on the basis it was doomed to fail. In May 2015, I found that Anystep did not have an enforceable right to terminate the Licence, because a notice had not
been given and, in any event, Anystep had affirmed the Licence.1 Anystep’s counterclaim based on clause 10.2 was permitted to continue to trial, albeit with the scope of any possible relief limited to damages.
[13] Following the hearing, Anystep amended its pleading to include a further counterclaim, this time based on clause 8 of the Licence. Anystep says that this further counterclaim, unlike the one under clause 10, does give rise to a right on its part to terminate the Licence.
[14] The Licence contains the following relevant clauses:
6. (Termination)
6.2 Either party may be written notice to the other, terminates this
Agreement with immediate effect upon the happening of the following:
… 6.2.1 If the other party fails to perform or observe any provision of this Agreement and that failure to observe or perform is not remedied within 30 working days after written notice to the other party requiring it to be remedied.
6.3 Upon termination or expiry of this Agreement:
6.3.1 If termination was by the Licensor under clauses 6.1 or 6.2, the Licensee will no longer be licensed under the Intellectual Property Rights to use or exploit in any the Anystep moulds;
Clause 8 (Assignment)
8.1 The Licensor shall not assign its interest under this Agreement to any party without having that party covenant with the Licensee in terms of this agreement.
8.2 The Licensee shall be entitled (subject to the prior written consent of the Licensor, which will not be unreasonably withheld or delayed) to assign its rights hereunder to any third party provided the Licensee remains liable for the payments due to the Licensor pursuant to clause 4.1 hereunder.
[15] Anystep alleges that Precast breached clause 8 by, without seeking Anystep’s
consent:
(a) granting an exclusive licence to Bradford Precast Limited (Bradford)
to operate the System in Canterbury and Otago (Bradford Breach);
and
1 Precast NZ Ltd v Anystep Ltd [2015] NZHC 1535.
(b)granting a further licence to Balcrom Limited (Balcrom) to operate the System in Canterbury and Otago (Balcrom Breach).
[16] Anystep relies on a letter it sent to Precast on 25 July 2015 as giving rise to a right to terminate the Licence for the alleged breaches of clause 8.2. It gave notice to Precast that it had 30 days to remedy the Bradford Breach and the Balcrom Breach (the Notice).
[17] Precast has failed to “remedy” the Balcrom Breach and the Bradford Breach. Precast accepts it did not seek consent from Anystep to the granting of the Balcrom and Bradford sub-licences but disputes that a right to terminate has arisen, pursuant to the Notice or otherwise.
[18] On 21 January 2016, Anystep’s solicitors wrote to Precast’s solicitors, and
advised inter alia that:
(a) the Licence was terminated; and
(b)Anystep believed Precast’s request for the rubber extrusions was so they could be on supplied to the allegedly unauthorised sub-licensee, Balcrom, and as such, Anystep would not supply them.
[19] On 25 January 2016 Precast’s lawyers wrote disputing the Licence was terminated. The letter did not dispute that Precast intended to on supply the rubber extrusions to Balcrom.
[20] Anystep’s lawyers replied by letter date 29 January 2016 advising that:
The letter of 25 July 2015 gave notice of the defaults, including the Balcrom breach and the Bradford Breach, and asked that they be remedied within 30 days. They were not. As a result the Licence was terminated from
25 August 2015.
For the avoidance of doubt, and out of an abundance of caution, this letter gives further notice pursuant to clause 6.2 that as a result of failing to remedy the Balcrom and Bradford Breaches as notified to you on
25 July 2015, the Licence is terminated with immediate effect.
In the unlikely event that a Court finds in the future that the Licence is not terminated by failure to comply with the notice delivered on 25 July 2015 this letter gives notice pursuant to clause 6.2.1 of the Licence of the Balcrom Breach and Bradford Breach (as set out in the amended statement of defence and counterclaim) and seeks that they be remedied within 30 days. A copy of this letter will be sent by registered post to your client’s nominated address.
Further you have misstated what Precast obtained under the Licence. Clause
2.1 of the Licence states:
The Licensor grants to the Licensee for the Term an exclusive licence throughout New Zealand (excluding the existing Kerikeri based mould only) and in accordance with the intellectual Property Rights to use and sell in New Zealand the Anystep Moulding System as supplied by the Licensor on the terms and conditions of this Agreement.
As stated in our previous letter we understand Precast’s intention is to supply strips to Balcrom and to Bradford, the very two sub-licensees whose sub-licences were never agreed to by Anystep. That failure by Precast to obtain Anystep’s consent breached the Licence and therefore supply of extrusion strips to Bradford and Balcrom is not using the moulding system on the terms and conditions of the Licence.
As an interim measure, if the strips are only for Precast’s exclusive use in the next 30 days and to enable an orderly cessation of the use of the Anystep moulding system by Precast, and without any admission that the Licence is not currently terminated, our client will consider supplying a small quantity of strips to cover use in that period.
[21] By that letter, Anystep purported to terminate the Licence.
[22] Interim orders have been made restraining Anystep from taking any steps in furtherance of the purported termination pending this decision.
Application for interim injunction
[23] Precast has applied for the following orders (Orders) pending determination of the substantive dispute between the parties:
(a) an interim injunction (the Injunction) restraining Anystep from:
(i) terminating or purporting to terminate the Licence on any of
the grounds specified in Anystep’s solicitors’ letter dated 29
January 2016; and
(ii)taking any steps in furtherance of any such purported termination.
(b)an interim mandatory injunction (the Mandatory Injunction) requiring Anystep to supply to Precast, on Anystep’s usual terms of trade, the rubber extrusions ordered by Precast on 13 January 2016;
[24] The grounds upon which the Orders are sought are that there is a serious question to be tried and the balance of convenience favours granting the Orders, for the following reasons.
Serious question to be tried
[25] Precast states that there are serious questions to be tried:
(i)as to whether Precast is in breach of the Licence, as alleged in the counterclaim;
(ii)as to whether Anystep is entitled to terminate the Licence for such breach; and
(iii)as to whether Anystep is obliged to supply to Precast the rubber extrusions.
[26] Precast claims the essential issue concerns whether Precast has breached the Licence by selling Anystep moulds to Bradford and Balcrom and sub-licensing each of them to use the moulds. Precast contends that on a proper construction of the Licence:
(i)Precast is entitled to sell the Anystep moulds and sub-license their use at its direction;
(ii)such sales and sub-licensing do not constitute an assignment within the meaning of clause 8 of the Licence; and
(iii)Anystep is obliged to supply the rubber extrusions needed to use the Anystep moulds.
[27] Alternatively, even if Precast were required to obtain Anystep’s consent for
sales and sub-licensing (which is denied):
(i) Precast is not in breach of the Licence, as Anystep has by its
conduct consented to Precast’s sales and sub-licensing;
(ii)alternatively, if Precast is in breach of the Licence, Anystep is not entitled to terminate for breach as it has by its conduct affirmed the Licence;
(iii)alternatively, Anystep is estopped by its conduct from asserting that such sales and sub-licensing constitute a breach of the Licence or entitle Anystep to terminate the Licence.
[28] The alleged conduct of Anystep constituting acts of consent include, by way of example:
(i) Its actions in acquiescence of the sale and sub-licence to
Bradford, including its supply of rubber extrusions;
(ii) Its actions in selling to Ancon Building Products Pty Ltd an
Anystep mould knowing it was to be used in New Zealand.
Balance of convenience
[29] If the Injunction is refused but Precast is successful at trial, Precast says:
(i)Precast will be exposed to substantial damages claims from third parties as a result of being unable to perform its contractual commitments;
(ii) irreparable harm will consequently likely be done to the
goodwill and reputation of Precast’s business;
(iii)there is much uncertainty as to whether Anystep will be able to meet its liability for loss and damage suffered by Precast.
[30] If, however, the Injunction is granted but Precast is ultimately unsuccessful at trial, no real injustice will have been caused to Anystep given that any loss suffered would be readily quantifiable and recoverable from Precast as damages.
[31] In relation to the rubber extrusions, if the Mandatory Injunction is not granted and Precast cannot source alternative rubber extrusions elsewhere:
(i)Precast and its sub-licensees will not be able to use the Anystep moulds and this will likely cause irreparable harm to their respective businesses;
(ii)Precast will be left to pursue an inadequate remedy in damages.
[32] Precast has given an undertaking as to damages and the application is supported by a number of affidavits.
[33] In the above circumstances, Precast says the status quo will be maintained by the grant of the Orders and it is in the overall interests of justice that the Orders are granted.
Opposition
[34] Anystep opposes the application on the following grounds.
There is no serious question to be tried
[35] Anystep claims there is no serious question to be tried on the basis that:
(i)There is no possibility that Precast will still hold the Licence to use the Anystep moulds after 29 February 2016.
(ii)The Mandatory Injunction requires the Court to have a high degree of assurance that at trial it would be confirmed an injunction was rightly granted and that level of assurance does not exist in this case.
(iii)At trial, Precast will not be able to enforce the continued supply of consumables or to claim any contractual right to continue to use Anystep moulds. It therefore, cannot obtain the interim relief sought.
(iv)The Court, when considering the Mandatory Injunction, must be careful to ensure it is not creating contractual rights to which Precast will ultimately be found not to be entitled to at trial. P+recast will have no enforceable right to use the System or purchase or use the rubber extrusions.
(v)Precast granted Bradford an exclusive licence to operate the System in Canterbury and Otago. This assigned part of the rights granted by Anystep to Precast under the Licence to operate the System exclusively in New Zealand but, in breach of the Licence, Precast did not ask for Anystep’s consent.
(vi)Precast’s arrangement with Balcrom involved the assignment of Precast’s rights under the Licence but again, in breach of the Licence, Precast did not ask for Anystep’s consent.
Balance of convenience
[36] Anystep contends that Precast, having breached the Licence through the Balcrom Breach and Bradford Breach, does not come to Court seeking the Orders with clean hands and that damages would be an adequate remedy.
[37] Anystep relies on a number of affidavits filed in support of its opposition.
Legal principles
[38] The Court of Appeal has described the purpose of an interim injunction as follows:2
The object of an interim injunction is to protect the plaintiff from harm occasioned by any breach of rights that is the subject of current litigation, for which the plaintiff might not be adequately compensated by an award of damages by the court, if successful at the trial. Against that object it is necessary to weigh the consequences to defendants of preventing them from acting in ways which the trial may determine are in accordance with their rights.
[39] The law around interim injunctions is well settled. First, the applicant must establish that there is a serious question to be tried or, put another way, that the claim is not vexatious or frivolous.3
[40] In showing there is a serious question to be tried, the plaintiff must “adduce sufficiently precise factual evidence to satisfy the court that he has a real prospect of succeeding in his claim for a permanent injunction at the trial”.4
[41] Secondly, the balance of convenience must be considered. Wild J stated in Wellington International Airport Ltd v Air New Zealand Ltd that the task involves balancing the injustice that will be caused to the applicant if an interim injunction is refused and the applicant’s case ultimately succeeds, against the injustice to the respondent that will result if the interim injunction were granted but then discharged
in the substantive judgment.5
[42] Finally, an assessment of the overall justice of the position is required as a check.6 McGechan J has stated:7
2 Roseneath Holdings Ltd v Grieve [2004] 2 NZLR 168 (CA) at [35].
3 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (HC) and recently reasserted in NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at
[12].
4 Re Lord Cable (dec’d) [1977] 1 WLR 7 (ChD) at 19.
5 Wellington International Airport Ltd v Air New Zealand Ltd HC Wellington CIV-2007-485-1756,
30 July 2008 at [4].
6 NZ Tax Refunds Ltd v Brooks Homes Ltd, above n 3, at [12].
The ultimate and controlling requirement is overall justice. Usually, attainment of overall justice will be served by adopting the relatively low threshold of a mere serious question to be tried… The appropriate test, in the end, is the threshold test which best serves the interests of overall justice in the particular circumstances of the individual case. Commonly that will be the so called serious question threshold, but the common should not be elevated to the invariable.
Interim mandatory injunctions
[43] The courts are much more reluctant to grant mandatory interim injunctions which force a party to do a particular act or thing rather than simply requiring them to refrain from doing something. In Soft-Tech International Pty Ltd v Ball, Eichelbaum CJ emphasised the difficulty in securing mandatory injunctions:8
Mandatory injunctions are relatively uncommon, interim mandatory injunctions are rare indeed, and interim mandatory injunctions having the effect of a final order and involving the payment of a sum of money which normally would be described as a debt, in my experience are completely novel.
[44] The law is summarised in McGechan on Procedure:9
A mandatory injunction ought to be granted on an interlocutory application only in special circumstances, and then only in clear cases either where the Court thinks that the matter ought to be decided immediately or where the injunction is directed at a simple and summary act, which could be easily remedied or where the defendant has attempted to steal a march on the plaintiff. Moreover, before granting a mandatory interlocutory injunction the Court has to feel a high degree of assurance that at the trial it would appear that the injunction had rightly been granted, that being a different and higher standard than is required for a prohibitory injunction: Locabail International Finance Ltd v Agroexport [1986] 1 All ER 901 (CA).
Issues
[45] In respect of the Orders, the issues are:
(1) Is there a serious question to be tried in respect of the Injunction?
7 E R Squibb & Sons (NZ) Ltd v ICI New Zealand Ltd (1988) 3 TCLR 296 (HC) at 310.
8 Soft-Tech International Pty Ltd v Ball (1990) 3 PRNZ 683 (HC) at 684.
9 Andrew Beck and others McGechan on Procedure (online ed, Brookers) at [HR7.53.23] quoted in Waihopai Valley Vineyard Ltd v Savvy Vineyards 3550 Ltd [2014] NZHC 1708 at [43] and West Harbour Holdings Ltd v Waipareira Investments Ltd [2012] NZHC 1645 at [60].
(2) Is there a serious question to be tried in respect of the Mandatory
Injunction?
(3)What is the balance of convenience and where does the overall justice lie? This incorporates considerations of whether damages would be an adequate remedy, whether Precast has come to the Court with clean hands, and whether it has delayed unreasonably in making the application for the Orders.
The Injunction - is there a serious question to be tried?
[46] The question is whether any right has arisen for Anystep to terminate the
Licence. This largely turns on:
(a) whether Precast’s agreements with Bradford and Balcrom and the grant of “sub-licences” to each of them constitute assignments within the meaning of clause 8.2 of the Licence.
(b)If such sub-licensing did constitute an assignment within the meaning of clause 8.2:
(i)whether Anystep has, by conduct, nevertheless assented to the assignments;
(ii) whether the Anystep has, subsequent to any breach of clause
8.2, affirmed the Licence; and
(iii) whether an estoppel has arisen rendering it unconscionable for
Anystep to assert any breach and/or any right to terminate.
The Bradford and Balcrom agreements
[47] The Bradford agreement is dated 17 October 2011 and is headed “licence and sub-licence agreement”. It recites that Precast is the exclusive licensor of the System in New Zealand and wishes to sell a moulding system machine and to licence the use of the system to Bradford on an exclusive basis saying:
The Master Licensor [Precast] grants to the Licensee [Bradford] for the Term an exclusive Licence for the Canterbury and Otago regions in New Zealand and in accordance with the intellectual property rights to use in Canterbury and Otago New Zealand the Anystep Moulding System as supplied by the Master Licensor on the terms and the conditions of this Agreement.
[48] The licence is for 25 years subject to the termination provisions in respect of breach.
[49] Philip Bates, sole director of Balcrom, has given an affidavit discussing his agreement for the purchase of an Anystep moulding machine from Precast, to be delivered in March 2015. A copy of that agreement was not produced in evidence.
[50] The agreement between Precast and Bradford was amended in August 2015 by a document entitled “Amendment to licence and sub-licence agreement”. Pursuant to the amendment, Bradford expressly acknowledged that Precast could supply and/or sell any Anystep machine to Balcrom for use in the Otago Region. It also ratified and confirmed its approval to any such supply or sale which might already have taken place. Therefore if, as Anystep contends, the arrangement between Precast and Balcrom was in breach of Precast’s agreement with Bradford, the breach was rectified by 10 August 2015, within the time stipulated in the Notice to rectify any breach. This does not, of course, answer Anystep’s main claims that Anystep’s consent was nevertheless required for both agreements.
[51] Anystep maintains that the grant by Precast of an exclusive licence to Bradford to operate the system in Canterbury and Otago constitutes an assignment of Precast’s rights under the Licence, as does its agreement with Balcrom.
[52] Mr Gustafson, who appeared for Anystep, pointed out that some of the provisions in the Bradford agreement are identical to those of the Licence, for example, the requirement for the licensor to support the licensee and other miscellaneous provisions. The assignment clause is different, prohibiting Bradford’s from assigning its interest.
[53] Therefore, while there is no dispute that Precast did not obtain Anystep’s
consent to its agreements with Bradford and Balcrom, the issue is whether consent
was needed. If there were no assignment of Precast’s rights, then consent was not required. The issue is a relatively simple one and that is the correct interpretation of clause 8.
[54] Anystep approaches clause 8 by relying on the restriction of Precast’s ability to “assign its rights”. Anystep accepts that Precast is entitled to sell machines to others and grant them the right to use them.
[55] In his written submissions, Mr Gustafson said:
Precast are essentially attempting to argue that there is an implied term that
Anystep’s consent is not required to an assignment of a sub-licence.
[56] Mr Gustafson said that Precast seeks to imply terms into the Licence which negate the existing express terms about Anystep’s rights relating to the grant of sub- licences and its right of termination, and this is legally misconceived. It is a fundamental rule of contract law that the Courts cannot imply a term into a contract which contradicts an express term, he said.
[57] In the context of this case, Mr Gustafson did not accept that an assignment of
Precast’s rights is different from a sub-licence of those rights.
[58] The issue is clear. That is, whether the arrangements entered into by Precast with Bradford and Balcrom constitute an assignment of Precast’s rights under the Licence.
[59] The English text Guest on the Law of Assignment defines an assignment as “the transfer from one person (the assignor) to another (the assignee) of the whole or part of an existing right or interest in intangible property presently owned by the
assignor.”10
10 Anthony Guest and Ying Khai Liew Guest on the Law of Assignment (2nd edition, Sweet and Maxwell, London, 2015) at [1-01]. See also Greg Tolhurst The Assignment of Contractual Rights (Hart, London, 2006) at 32.
[60] For that proposition, the authors cite Burton v Camden London Borough
Council, a House of Lords case.11 In that case, Lord Millett stated:12
… the word “assignment” is not a term of art. It denotes any conveyance, transfer, assurance or other disposition of property from one party to another. The essence of an assignment is that it operates to transfer its subject matter from the ownership of the assignor to that of the assignee. A lease is not an assignment, because it does not transfer any pre-existing property from the lessor to the lessee, but creates a new interest and vests it for the first time in the lessee. A purported assignment of the interest of one joint tenant to the other joint tenant does not constitute an assignment, because each of the joint tenants is already the owner of the whole. The so- called assignor has no separate interest of his own which is capable of being transferred to the other and which the other does not already own. None of this, of course, applies to a tenant in common, because he has a separate and distinct interest of his own which he can assign either to a third party or to his co-owner.
[61] That judgment was in the context of the question of whether a deed of release from one joint tenant to another constituted an assignment of an interest in the lease of a house, granted by a local authority.13
[62] The authors state that by “transfer”, it is meant that the assignor’s right or interest is, to an extent dependent on the nature of the assignment, removed from the assignor and acquired by the assignee, although the right or interest itself is not extinguished:14
… after the assignment, the assignee can exercise, claim and enforce the
right or interest to the extent that it has been transferred to him.
[63] In the same way as a lease is not an assignment, because it does not transfer any pre-existing property from the lessor to the lessee but creates a new interest and vests it for the first time in the lessee, it can be argued that a sub-licence is not an assignment. It is not suggested that either Bradford or Balcrom has any right to enforce the Licence against Anystep and the Bradford agreement which has been
made available in evidence, contains no such right.
11 Burton v Camden London Borough Council [2000] 2 AC 399; [2000] 2 WLR 427 (HL).
12 At 408.
13 Lord Millett dissented as to the outcome, based on whether the “release” was in substance an
assignment, but not in relation to the definition of an assignment.
14 Guest and Liew Guest on the Law of Assignment, above n 10, at [1-01].
[64] Mr Gustafson suggested that the meaning of clause 8 is plain on its face. I am not persuaded that necessarily assists his position as, on that approach, it could be said that because clause 8 does not in terms prevent a sub-licence, the arrangements with Bradford and Balcrom are not in breach of the Licence.
[65] Furthermore, it seems to me there is a serious question as to whether clause
8.2 of the Licence requires consent to an assignment of the whole of Precast’s rights under the Licence or whether consent is required if part only of Precast’s rights are assigned.
[66] I accept the submission of Mr Fisher, who appeared for Precast, that the Licence imposes no obligation on Precast as to how it commercialises the System in New Zealand. The Licence grants Precast grants the exclusive right to use and sell the System in New Zealand. That being the case, in Mr Fisher’s submission, Anystep has no legitimate interest in what arrangements Precast might make with other entities. In my assessment, that is somewhat simplistic. The existence of clause 8 must be taken into account.
[67] Mr Fisher referred to the need, at the substantive hearing, for there to be contextual evidence regarding the meaning of clause 8 including evidence of the factual matrix at the time of the Licence and indeed evidence of the parties’ subsequent conduct.15 In that regard, he referred to Mr Cane’s affidavit which produced an early draft of the Licence in which Precast was to be granted an exclusive licence to use the System and the right to lease or lend the moulds at its discretion. This is in contrast to the final form of the Licence which grants Precast the right to “use and sell in New Zealand” the System, with the reference to leasing
and lending deleted.
[68] I accept that will be material evidence to be considered at the substantive hearing.
[69] I am satisfied there is a serious question as to whether the “sub-licences” to Bradford and Balcrom constitute an assignment of Precast’s rights under the Licence. If not, then no consent from Anystep is required for those agreements and Anystep cannot rely on this ground to terminate the Licence.
Affirmation
[70] Anystep disputes that it has affirmed the Licence, on the basis that any action it has taken was not with full knowledge of the facts, as required by s 7(5) of the Contractual Remedies Act 1979. Anystep says its knowledge of the relevant events was obtained only through the discovery process connected with the litigation.
[71] Anystep’s position is that, while it might have known of the sale of a machine to Bradford, it was not aware of the terms of the agreement between Precast and Bradford whereby an exclusive licence for a specific area was granted. In those circumstances, said Mr Gustafson, it cannot have affirmed any breach.
[72] Mr Fisher sought to respond to that point by relying on the context of the Licence and its breadth, contending that any enquiry must be limited to considering only what legitimate interest Anystep had in the agreement between Precast and Bradford. In my assessment and on the basis only of the affidavit evidence, Precast’s position on the issue of affirmation may be difficult to sustain.
Estoppel
[73] Anystep maintains that Precast cannot succeed on the grounds of estoppel because all Anystep knew was that Precast had sold a machine to Bradford and/or Balcrom, as opposed to knowing that Precast had granted them exclusive sub- licences.
[74] Precast claim estoppel by conduct, and at the hearing specifically relied on estoppel by convention. In Mr Fisher’s submission, the evidence before the Court is sufficient to show there is a serious question to be tried in this regard.
[75] The principles relating to estoppel by convention are referred to in the case of National Westminster Finance New Zealand Ltd v National Bank of New Zealand Ltd which states that for an estoppel by convention to arise the following points must be established: 16
(1)The parties have proceeded on the basis of an underlying assumption of fact, law, or both, of sufficient certainty to be enforceable (the assumption).
(2)Each party has, to the knowledge of the other, expressly or by implication accepted the assumption as being true for the purposes of the transaction.
(3)Such acceptance was intended to affect their legal relations in the sense that it was intended to govern the legal position between them.
(4)The proponent was entitled to act and has, as the other party knew or intended, acted in reliance upon the assumption being regarded as true and binding.
(5)The proponent would suffer detriment if the other party were allowed to resile or depart from the assumption.
(6)In all the circumstances, it would be unconscionable to allow the other party to resile or depart from the assumption.
[76] The issues raised by Mr Gustafson as to Anystep’s knowledge also apply to
estoppel.
[77] In my assessment, the strength of Precast’s case lies in the proposition that the agreements with Bradford and Balcrom do not constitute assignments of Precast’s rights under the Licence.
Mandatory Injunction-- is there a serious question to be tried?
[78] Precast claims Anystep is obliged to supply the rubber extrusions during the time of the Licence. That obligation turns on whether the Licence imposes an obligation on Anystep to supply rubber extrusions as and when ordered by Precast, or, alternatively, whether the obligation is an implied term of the Licence. This issue is necessarily informed by the decision as to whether or not to grant the Injunction. If the Injunction is not granted, Anystep will be able to continue with its termination of the Licence so any obligation pursuant to the Licence to supply the rubber extrusions will be at an end and Precast will no longer have a licence to use the System, in any event.
[79] Mr Gustafson rejected the proposition that, if the Injunction were granted, the Mandatory Order must follow as a logical consequence. In Mr Gustafson’s submission, the Court cannot have a high degree of assurance that at trial it would appear the injunction had been rightly granted. Mr Gustafson maintained that, once the merits of Precast’s claim are examined, it is obvious that Precast has no contractual right to stop Anystep from validly terminating the Licence and will not be able to enforce the continued supply of consumables under the Licence.
[80] Mr Gustafson relied on the case of McDonald Motors v Christchurch
International Airport Limited Ltd:17
While the status quo may support the granting of an injunction, and while the Court undoubtedly has power to grant a mandatory injunction, nevertheless the Court, in the case of a mandatory injunction, should be careful to ensure that it is not creating contractual rights to which the plaintiff will be found ultimately not to be entitled.
[81] That case, however, was in the context of the applicant seeking to obtain legal rights. In contrast, in this case, Precast has existing legal rights under the Licence.
[82] If it is not possible, as a matter of law, for the applicants to achieve an order for specific performance following trial because of the nature of the relationship
sought to be enforced, then that is a matter which is highly relevant to the question of whether there is a serious issue to be tried when a mandatory injunction is sought.
[83] Anystep believes that the rubber extrusions are for the purpose of on supply to Balcrom and, since Anystep’s position is that the agreement with Balcrom constitutes a breach of the Licence, Anystep is entitled to refuse to supply them.
[84] There was affidavit evidence from Gregory Johnston, a manager within the Stresscrete Group, who gave evidence about the supply history between Precast and Anystep in relation to the rubber extrusions which are used when making precast concrete stairs with the System. His evidence was the strips can wear out and need to be replaced. His evidence was that Anystep increased the price after the dispute between Precast and Anystep from $4 a metre to $16 metre.
[85] He gave evidence concerning the January 2016 order for the rubber extrusions saying the orders were not placed on behalf of either Bradford or Balcrom. He has investigated potential suppliers of a suitable or alternative product and has found one source which he described as a temporary alternative in the meantime.
[86] Mr Cane’s affidavit evidence is that from the commencement of the Licence in December 2009 until January 2016, Precast has ordered, and Anystep has supplied, the rubber extrusions which are needed to use an Anystep mould.
[87] Mr Gustafson submitted that Mr Johnston’s affidavit confirms the Mandatory Order is not required because Precast can source an alternative product elsewhere. Indeed, Anystep suggests that it has behaved in an appropriate and responsible manner in offering to supply Precast with a small quantity of strips as an interim measure in order allow a proper wind down of the Licence.
[88] In the letter of 21 January, Anystep’s lawyers said:
We note that the extrusion strips are subject to our client’s patent and it will
vigorously protect its intellectual property from any attempted infringement.
[89] I accept Mr Fisher’s submission that the letter strongly warns against any attempt to have Anystep’s rubber extrusions copied and made by another supplier. Furthermore, Precast could arguably be in breach of the Licence and its use of the System if it were to use an alternative product.
[90] That the product is a patented one produced only by Anystep is a relevant consideration in this case. As Smellie J observed in Peat Mine Ltd v Rural Research Ltd, when considering whether the injunctive relief sought in that case, being mandatory in nature, affected the position: 18
I was also referred to the general proposition that normally the Courts do not order specific performance for the sale of goods. As a general rule, that is, of course, correct, but the rationale for that rule is that specific performance is not necessary because substituted goods can be purchased in the market place.
[91] The Judge went on to observe that the product at issue in that case was not available in the general market.
[92] The evidence shows that a similar situation pertains in this case. The rubber extrusions are a patented product which cannot be sourced elsewhere in the market place.
[93] It is accepted that the extrusion strips are integral to the System, in that they wear out and need to be replaced. As such, it is strongly arguable that it is either an explicit or implicit term of the Licence that Anystep will supply the rubber extrusions. Clause 9.1 of the Licence provides:
The Licensor will provide the Licensee with all parts, drawings and manuals relating to each Anystep mould.
[94] Clause 9.2 would appear to require Anystep to supply the rubber extrusions to Precast, they coming within the definition of a “part”. Alternatively, by granting Precast an exclusive licence to use the System, there is a strong argument that,
implicit in the Licence, is an obligation to provide necessary parts.
18 Peat Mine Ltd v Rural Research Ltd HC Auckland CP 410/94, 14 September 1994 at 12.
[95] The fact of the patented rubber extrusions is a compelling consideration in this case. I am satisfied there is a serious question to be tried in respect of the Mandatory Injunction. The Mandatory Injunction is directed at a relatively simple and summary act, being the production of rubber extrusions which Anystep has provided to Precast over a number of years already. If the Injunction is granted then there is a high degree of assurance that the Mandatory Injunction ought rightly to be granted.
Balance of convenience and overall justice
[96] In American Cyanamid Lord Co v Ethicon Ltd, Lord Diplock said that, all other things being balanced, “it is a counsel of prudence to take such measures as are calculated to preserve the status quo”.19 However, exactly what constitutes the status quo is often difficult to determine and depends very much on the particular circumstances of the case.20 Precast says that the status quo is that the Licence should remain on foot. However, it could also be said that the status quo is that Anystep has served notice to terminate the Licence.
[97] Precast claims that the conduct of the parties is relevant to assessing the overall interests of justice. It refers, in particular, to the following :
·Since the inception of the Licence, Anystep has supplied rubber extrusions as and when ordered.
· Anystep knew of Precast’s sale of the mould to Bradford at the time it
occurred 2011 and was actively involved in the arrangement.
· It was only in July 2015 that Anystep raised any issues.
·Anystep did not purport to terminate the Licence at that time but focused on its proposed counterclaim seeking a declaration.
19 American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL) at 408.
20 As recently noted by Brown J in Heartland Seven Investments Ltd v Waharoa Industrial Park
Ltd [2014] NZHC 202 at [54].
[98] In Mr Fisher’s submission, by its own conduct Anystep has therefore demonstrated that the Licence should continue while legal proceedings take their course. That, Mr Fisher said, is an implicit acknowledgement that the balance of convenience favours the preservation of the status quo pending the substantive trial. Furthermore, there was no suggestion that a continuation of the status quo pending the determination of legal issues would cause any real harm to Anystep.
[99] Mr Fisher said it was not until January 2016 that Anystep suddenly changed its stance and contended it would no longer supply the rubber extrusions until issues surrounding Court proceedings were resolved. That, in Mr Fisher’s submission, amounts to a tactical manoeuvre designed to put pressure on Precast to compel it to forgo its rights rather than incur legal costs in applying for interim relief and having the issues properly determined at trial.
[100] The nature of the contract is also relevant to the general consideration of the balance of convenience. The term of the Licence is for 25 years from 2009 with Precast having a right of renewal for another 25 years. In my assessment, that length of time is a significant consideration when it comes to the assessment of the balance of convenience.
Would damages be an adequate remedy?
[101] Precast has sought the Orders on the basis that damages would not be an adequate remedy because it will suffer reputational damage which will be difficult to quantify, and there is a risk that Anystep might not be able to meet any judgment which Precast might obtain.
[102] Precast’s evidence is that it may not be able to fulfil contractual commitments and the goodwill and reputation of its business will suffer long term harm.
[103] Mr Cane gave evidence of Precast’s significant investment in acquiring the Anystep moulds and promoting their use to the construction industry, including the annual revenue expected to be generated by each mould. He then gave evidence of the disruption and harm to Precast’s business should the application be declined.
[104] Precast’s position is that, if the Orders are granted but Precast is not successful at trial, no real harm or injustice will have been caused to Anystep, given any loss of revenue from February 2016 to the date of determination of the proceedings will be readily quantifiable and recoverable from Precast as damages. In contrast, in Mr Fisher’s submission, Precast’s evidence is that there are reasonable grounds to believe Anystep will not be in a financial position to pay damages to Precast. This issue has been raised by Mr Cane’s affidavit, based on his previous knowledge of Anystep’s financial viability as a past director. Anystep has not provided any evidence to allay those concerns.
[105] Although damages could be considered an adequate remedy, given the material put forward to the Court in Mr Cane’s affidavit and the length of the Licence, those damages could be considerable. The doubts raised as to Anystep’s ability to pay any order of damages is a very important consideration when considering the overall justice of the situation.
Other issues raised
[106] In Mr Gustafson’s submission, the current dysfunctional state of Anystep’s New Zealand operation as a direct result of Precast’s actions is affecting the goodwill and reputation of Anystep in the international market.
[107] Anystep maintains that the agreement with Bradford limits any ability to showcase the System in New Zealand and to earn revenue by the sale of rubber extrusions. However, the Licence gives New Zealand wide exclusive rights to Precast (with one exception) and it is therefore difficult to see that any weight should be given to this submission.
[108] Anystep then relies on what it terms Precast’s delay in bringing the application. Anystep says that Precast’s delay in seeking relief weighs against it when the balance of convenience is considered. Mr Gustafson said that in July 2015
Anystep made it clear to Precast that it intended to terminate the Licence. However, it has taken over six months for the application for interim relief. Mr Gustafson noted that Anystep sought to have the issue relating to the alleged Bradford and Balcrom Breaches resolved first, asking for determination of the question as to
whether Precast’s failure to comply with the Notice entitled Anystep to terminate the Licence. This application was resisted by Precast. That is evidence, in Mr Gustafson’s submission, of Precast’s delay.
[109] I accept Mr Fisher’s submission in this regard. That is, the Notice gave notice that “if the breaches by Precast in the counterclaim remain unremedied” and “if Judgment is given on Anystep’s counterclaim”, Anystep would terminate the Licence. Therefore the termination was contingent not only on any alleged breach being unremedied by the stipulated date but also on Anystep’s success in its counterclaim. That being the case, it was reasonable in the circumstances for Precast not to seek any interim relief. The application for the Orders was made a short time after the January 2016 letter purporting to terminate the Licence.
[110] Finally, Mr Gustafson submitted that Precast does not have “clean hands” in making the application given what Anystep maintains are misstatements of facts in the affidavits of Mr Cane.
[111] Precast does not accept Anystep’s contention that Mr Cane has misled the Court which Anystep alleges he has done on two occasions. The first occasion relates to an affidavit he gave for the purposes of the 2015 hearing about the promotion of Anystep to potential overseas customers. I accept that Mr Cane’s affidavit on this point is not necessarily incorrect and even if it were, there is an issue as to whether, in making that affidavit, he was actually being dishonest.
[112] The second occasion on which Anystep maintains Mr Cane misled the Court is in his 2015 affidavit, wherein he said that Precast’s arrangement with Balcrom was with Bradford’s consent. Despite the August 2015 amendment to the Bradford agreement, Mr Cane apparently still maintains that what he said in the affidavit was correct. Although Anystep presented some information to the Court on this issue, there was no affidavit evidence to contradict Mr Cane’s evidence. I, therefore, accept that the position is not unequivocal and a determination as to Mr Cane’s veracity cannot be made on the basis of the evidence presently before the Court.
[113] In light of all these considerations, I am satisfied that the balance of convenience and overall justice favours the grant of the Orders.
Decision
[114] For the reasons given the application is granted. The Orders are made in the terms sought.
[115] Precast is entitled to costs. If the parties are unable to resolve the question of costs between them, leave is given to refer the matter to me by way of memoranda. Precast is to submit a memorandum within 28 days of issue of this judgment with
any response from Anystep 14 days thereafter.
Thomas J
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