Sky Scrapers General Trading LLC v Zoono Limited
[2020] NZHC 2960
•10 November 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-001374
[2020] NZHC 2960
BETWEEN SKY SCRAPERS GENERAL TRADING LLC
PlaintiffAND
ZOONO LIMITED
First Defendant
AND
ZOONO GROUP LIMITED
Second Defendant
Hearing: 28 September 2010 Appearances:
S W B Foote QC and J Moss for the Plaintiff
D T Street and M W Denton for the First and Second Defendants
Judgment:
10 November 2020
JUDGMENT OF HINTON J
[Application for Interim Injunction]
This judgment was delivered by me on 10 November2020 at 4.30 pm pursuant to Rule 11.5 of the High Court Rules
…………………………………………………………………… Registrar/Deputy Registrar
Solicitors/Counsel:
MDS Law, Christchurch Simon Foote QC, Auckland
Jai Moss, Barrister, Christchurch Chapman Tripp, Auckland
SKY SCRAPERS GENERAL TRADING LLC v ZOONO LIMITED [2020] NZHC 2960 [10 November 2020]
[1]Fitting with these COVID-19 times, this is a case about hand sanitiser.
[2] The plaintiff, Sky Scrapers General Trading LLC, seeks an interim injunction mandating that the first defendant Zoono Ltd (Zoono) continue to perform its obligations under a distributorship agreement between them pending the trial of this matter. Zoono and the second defendant Zoono Group Ltd, a related company, oppose the application.
Background
[3] Sky Scrapers is a company incorporated under the laws of the United Arab Emirates (UAE). Its registered office is in Dubai.
[4] The first and second defendants have their registered offices in Auckland. They manufacture and supply sanitising products under the Zoono brand name to various customers around the world.
[5] The plaintiff and the first defendant signed an exclusive distributorship agreement on 5 November 2018, well before COVID-19. Under the agreement Sky Scrapers obtained the exclusive right for an initial term of 10 years to import into the UAE, Oman, and Lebanon (the exclusive territories) Zoono’s hand sanitiser and other sanitary soap cleaning solutions.
[6] It is undisputed that Sky Scrapers was obliged to pay Zoono USD 250,000 the day the agreement was signed and to exercise best endeavours to purchase no less than USD 250,000 worth of Zoono products during the first year, the USD 250,000 advance being treated as credit towards the purchases as orders were placed. The USD 250,000 sum was paid, albeit about six weeks late, but without issue taken over that by Zoono.
[7] Sky Scrapers placed about USD 153,000 worth of orders in the first year, well short of the deposit made at the outset and of the agreed minimum purchase. Zoono had an obligation of good faith under the agreement. It says that pursuant to that obligation it tried to help Sky Scrapers make further sales and use up its credit following the end of the first year. Despite these efforts, Zoono says, it was only on 3 March 2020 that Sky Scrapers exhausted the credit from its initial payment.
[8] Sky Scrapers says that in early 2020 – that is, early in the second year of the agreement – it heard that at least two other parties were importing Zoono products into the exclusive territories. It says this was confirmed by conversations with representatives of those other parties.
[9] It was at about this time, I note, that the COVID-19 pandemic ensued; precipitating, Sky Scrapers says, a significant increase in global demand for products like those sold by Zoono.
[10] Sky Scrapers alleges that, when it challenged Zoono, Zoono admitted it was selling to third parties in the exclusive territories but said Sky Scrapers had not bought enough product or won enough business to warrant Zoono’s continued support. At this point, Sky Scrapers says, it put Zoono on notice that it considered Zoono in breach of the agreement.
[11] Zoono, according to the affidavit evidence of its Chief Operating Officer Mr MacKinnon, responded by denying it had made sales in breach. Zoono also said that it considered Sky Scrapers to be in breach of the agreement, saying Sky Scrapers had failed to make a “first anniversary payment” that Zoono said had fallen due on 5 November 2019. In his affidavit evidence, Mr Montgomery, Zoono’s General Manager for the Middle East and Africa, says Zoono had earlier reminded Sky Scrapers of its obligation to make that payment prior 5 November 2019, but that Sky Scrapers ignored that reminder.
[12] Zoono supplied products to Sky Scrapers until 27 March 2020, at which point the supply ceased altogether. This, Sky Scrapers says, occurred notwithstanding Sky Scrapers having made a payment of USD 62,500 in respect of an outstanding order. That amount has not been returned.
[13] By letter dated 12 May 2020, Zoono told Sky Scrapers it was terminating the agreement on the stated grounds of non-payment of the USD 350,000 sum.
[14] By return emails of 12 May 2020, Sky Scrapers rejected Zoono’s notice of termination, saying it was under no obligation to make an anniversary payment. It also denied that it had ever been invoiced or put on notice that such a payment was
due and said that Zoono had failed to take the steps required under the dispute resolution provisions of the agreement prior to issuing its termination notice.
[15] By email dated 13 May 2020, Zoono offered to vary the agreement to remove the exclusivity provisions while maintaining that USD 350,000 was due and owing under the agreement. Sky Scrapers, by return email of the same date, rejected the offer to vary the agreement and maintained it was under no obligation to make any anniversary payment.
[16] Despite further negotiations, no agreement was reached. Zoono has not supplied any further product and continues to hold the USD 62,500 referred to above.
The Parties’ Positions
[17] Zoono’s position is that Sky Scrapers had an obligation to make ongoing annual advance payments, such that a further lump sum was due on 5 November 2019.
[18] As noted, Zoono initially contended that Sky Scrapers was obliged to make a first anniversary payment of USD 350,000 and purchase Zoono products to at least that value during the second year of the agreement (those figures increasing to USD 450,000 the following year, and by ten per cent per annum thereafter). But, in submissions filed just before the hearing, Zoono acknowledged that it was in error. It says it initially sought that amount while negotiating the agreement, but accepted a variation sought by Sky Scrapers that the first anniversary payment and minimum spend for the second year of the agreement be reduced to USD 275,000, thereafter increasing by ten per cent per annum.
[19] Sky Scrapers says the only advance payment required was the initial sum of USD 250,000. It accepts it was required to purchase at least ten per cent more Zoono product in each subsequent year (so, product with a value of at least USD 275,000 in the second year of the agreement and so on), but without any advance payment due in the second and following years. The affidavit evidence of Mr Wehbe, Sky Scrapers’ general manager, is that Zoono agreed to delete the anniversary payments provision during the negotiations.
[20] Moreover, counsel for Sky Scrapers, Mr Foote QC, submits that Zoono did not comply with the dispute resolution provisions of the agreement in not giving Sky Scrapers ten days’ written notice of its intention to cancel the agreement prior to sending its letter dated 12 May 2020.
The Substantive Claim
[21] On the basis of the above, by its statement of claim dated 18 August 2020, Sky Scrapers says Zoono’s purported termination of the agreement is invalid, and that the agreement remains on foot.
[22] It pleads that, with the onset of the COVID-19 epidemic, it expected to make a significant profit from the distributorship agreement. It claims it has lost, and continues to lose, sales of at least USD 330,000 per month due to Zoono’s non- performance of its obligations and that USD 4,000,000 of Zoono products have been imported into the exclusive territories by third parties.
[23] Sky Scrapers seeks damages of not less than USD 3,600,000 and orders for specific performance of the agreement by Zoono, requiring it to recommence supplying products to Sky Scrapers under the agreement and to desist in supplying products to third parties in the exclusive territories in breach of the exclusivity provisions.
This Application
[24] On Monday 20 August 2020, Sky Scrapers filed the without notice application for interim orders that is the subject of this judgment. In summary, the application is for orders, pending further order of the Court:
(a)prohibiting the defendants from terminating the agreement;
(b)mandating that the defendants recommence supplying products to Sky Scrapers pursuant to the agreement;
(c)prohibiting the defendants from directly or indirectly approaching or doing business with any party other than Sky Scrapers for the purpose
of importing or exporting Zoono products directly or indirectly into the exclusive territories; and
(d)prohibiting the defendants from restricting Sky Scrapers from selling Zoono branded product to any customer in the exclusive territories.
[25] On 21 August 2020, Lang J as Duty Judge determined it was not appropriate to deal with the injunction application on a without notice basis and directed the proceeding be served on the defendants. On 4 September 2020, the defendants filed their notice of opposition.
Discussion
[26] It is well established that an application for an interim injunction is to be determined by examining, in sequence, whether the plaintiff has established there is a serious question to be tried; whether the balance of convenience favours the grant of relief; and whether the overall justice of the case is consistent with relief issuing.1 The third limb is in the nature of a check on the position reached following the first two evaluations; the assessment not being a rigidly formulaic one, but rather a discretionary assessment.2
Serious question to be tried
[27] Suffice to say, it is not clear what the final form of the agreement was insofar as the annual payments clause is concerned. The affidavit evidence put forward by the parties contains different versions of the relevant schedule to the agreement. That put forward by Sky Scrapers does not require any anniversary payment. The version put forward by Zoono requires payments of USD 350,000 on the first anniversary and USD 450,000 on the second anniversary. That is now, as noted above, accepted by Zoono not to be the operative version of the agreement. Zoono does not however accept the veracity of Sky Scrapers’ version.
1 NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at [12], applying American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL); Eng Mee Yong v Letchumanan [1980] AC 331 (PC); Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 140 (CA) at 142; and Intellihub Ltd v Genesis Energy Ltd [2020] NZCA 344 at [20]-[24].
2 Klissers, above n 1, at 142.
[28] Zoono’s chief executive, Mr Hyslop, deposes that he did not check the version of the agreement he signed when he travelled to Dubai to execute it but merely signed it. He deposes Zoono understood itself to be executing an agreement containing the anniversary payment provisions. He and Mr Montgomery depose these are standard terms Zoono inserts in all of its agreements. They depose Zoono did not agree to remove that clause from the agreement. They point to text communications supporting their position.
[29] As noted above, Mr Wehbe deposes that during negotiations he had sought to eliminate the anniversary payments provision and that Mr Montgomery eventually agreed to this on behalf of Zoono. He attaches to his affidavit relevant correspondence between Sky Scrapers and Zoono dating from the period of the negotiations.
[30] There is a clear conflict of evidence on the affidavits. This is a matter for trial.3 The defendants apparently accept, and I agree, that Sky Scrapers has put forward a sufficiently precise evidential foundation to establish a serious question as to the validity of Zoono’s purported termination of the agreement.4 This is the case in any event in terms of Zoono’s apparent failure to give ten days’ notice in writing before terminating, in respect of which Mr Street, counsel for Zoono, was unable presently to provide an answer. I would go so far as to say in that regard that Sky Scrapers, as matters presently stand, has a strong case.
Balance of convenience
[31] The balance of convenience is the guiding consideration in determining whether an injunction should issue.5 This because the overall objective of the balance assessment is to determine whether granting or withholding an injunction is the course that will allow the Court, once the substantive issue is tried, to adjust the rights of the parties in a just manner.6
3 American Cyanamid, above n 1, at 407.
4 See Re Lord Cable [1976] 3 All ER 417 (Ch) at 431.
5 Eng Mee Yong, above n 1, at 337.
6 National Commercial Bank Jamaica v Olint Corp [2009] UKPC 16, [2009] 1 WLR 1405 at [16], adopted Interclean Industrial v Camp [2015] NZHC 3177 at [36]. See also Congoleum Corp Ltd v Poly-Flor Products (NZ) Ltd [1979] 2 NZLR 560 (CA) at 571.
[32] It is now clearly recognised that claims for both mandatory and prohibitory interim injunctions are to be assessed by reference to this same principle. In practice however, fewer claims for mandatory interim injunctions will succeed because of the more onerous consequences of a mandate than a prohibition and the impact of this on the balance of convenience.7
[33] Various considerations are relevant to assessing where the balance of convenience lies; and the categories are not closed.8 The Courts have often begun by assessing whether damages will be an adequate remedy to the applicant.9 Where, and generally only where,10 the Court is satisfied the adequacy of damages may be in doubt, a wider consideration of other factors such as the comparative impact of an injunction issuing on the respondent, or an injunction not issuing on the applicant, and the impact on third parties and the wider public is then called for.11 Also relevant is the general desirability of the preservation of the status quo pending trial. That is simply one of the several factors to be weighed, however, and is not to be afforded primacy in the assessment.12
[34] Beginning then with the adequacy of damages, Mr Foote submits damages “are not a practical remedy” for Sky Scrapers, pointing to the difficulty of calculating Sky Scrapers’ damages over the ten or twenty year term of the agreement. He says this will require detailed expert forensic accounting and economic evidence. He says these difficulties can be avoided by the imposition of an interim mandatory injunction pending trial of the issues.
[35] This submission conflates Sky Scraper’s unconventional claim for an order enforcing specific performance of commercial contractual obligations for its full term in the substantive proceeding, and its claim for interim mandatory relief during the much shorter period until trial. I am not satisfied it would be an insurmountable burden for either the parties or the Court to calculate damages during the interim period if necessary, or for that matter over the term of the agreement. I see no reason
7 Commerce Commission v Viagogo AG [2019] NZCA 472, [2019] 3 NZLR 559 at [90].
8 American Cyanamid, above n 1, at 408-409; Supertreats Asia v Grace & Glory [2018] NZHC 1612 at [51].
9 American Cyanamid, above n 1, at 408.
10 At 408-409.
11 Western Work Boats Ltd v Kelly [2016] NZHC 2577.
12 Intellihub Ltd, above n 1, at [57].
why Sky Scraper’s damages would not be reasonably capable of calculation with the assistance of expert evidence. This is the sort of exercise the Courts regularly have to engage in.
[36] The computation of damages in this case is not nearly as difficult as in a case such as Tui Foods v NZ Milk Corp where damages were seen to be an inadequate remedy in an application for interim relief pending resolution of a passing-off claim because of the difficulty of determining to what extent the complained of colour- coding of certain milk bottles would influence customers in the period before trial.13 In contrast, Mr Wehbe deposes to Sky Scrapers’ calculation that it is losing revenue of USD 330,000 per month during the COVID-19 pandemic because of Zoono’s claimed breach. That in itself suggests that the extent of Sky Scraper’s losses is susceptible of calculation. Sky Scrapers will also be entitled to discovery of relevant financial information as to the sales made by the new distributor.
[37] Also, as Zoono notes, this is not a case where the claim would otherwise be for the entire loss of a business, which has been acknowledged as being more difficult to calculate.14 Here the claim is for lost profits in respect of one of several classes of goods Sky Scrapers sells as part of its business, loss of which type is generally amenable to an award of damages.15
[38] As follows, I am not satisfied that damages would be an inadequate remedy for Sky Scrapers.
[39] Largely for this reason, I am satisfied the balance of convenience does not favour the award of interim relief sought by Sky Scrapers.
[40] Though very different facts, I agree with Palmer J’s reasoning when he arrived at the same conclusion in Western Work Boats Ltd v Kelly. There, Mr Kelly’s former business partner sought an interim injunction requiring him to comply with a restraint of trade obligation pending trial of the question of whether he was in breach of that obligation. Palmer J dismissed the application for an interim injunction, saying:16
13 Tui Foods Ltd v New Zealand Milk Corporation Ltd [1997] 2 NZLR 214 (HC).
14 See Eco Maintenance Ltd v Leighton Contractors Pty Ltd [2014] NZHC 2340 at [22] and [26].
15 See at [23]-[24].
16 Western Work Boats Ltd v Kelly [2016] NZHC 2577 at [28]-[31].
Mr Stevens, for the Western Work Boats and Seaworks, says there is a difference between the contractual obligation that derives from the restraint of competition obligation and the obligation to comply with a court order. That is because Mr Kelly and Pacific will dispute that they are subject to the contractual obligation. They wish to argue at trial that the obligation was not reasonable and therefore it is not an enforceable obligation at law.
If Mr Kelly and Pacific were to succeed with this argument at trial an interim injunction would have significantly altered the rights of the parties in the interim. Instead of being allegedly bound by a contractual obligation they dispute, and could ignore if they have the courage of their convictions, they would be bound by a court order they cannot dispute or ignore for the term of the interim injunction. Correspondingly, the Western Work Boats and Seaworks would be put in a better position than they would be otherwise.
[41] Here, similarly, Zoono disputes it is still bound by the agreement. If it is correct in that, it will have been put to significant unjustified loss if an interim injunction is granted, although I note that would be as calculable as the loss Sky Scrapers claims. While I agree with Mr Foote that Zoono has not put forward satisfactory documentary evidence as to the value of the alternative distribution arrangements it has now concluded, Mr Hyslop has deposed to these being far more lucrative to Zoono than those it has in place with Sky Scrapers. That is in fact part of Sky Scrapers’ claim. On the present evidence, granting interim relief in the terms sought would oblige Zoono to forgo the opportunity to make substantially greater sales to its new distributor.
[42] I place little weight on the asserted possibility that Zoono might be exposed to a claim by its new distributor in the event interim relief is granted as claimed. As noted, the terms of the new distributorship agreement are not in evidence. In any event, that new agreement was entered into in full knowledge of the contentious termination of the agreement with Sky Scrapers. For similar reasons, I do not agree with Mr Street that I am required to give weight to the potential effect of the injunction on Zoono’s new third-party distributor.
[43] However, even placing little weight on any such potential claim, or the potential consequences for third parties, there is nonetheless a risk of Sky Scrapers being put, during the period of any interim injunction, in a significantly better position than it ought to be if it does not succeed at trial, and Zoono in a significantly worse position, if injunctive relief is granted. Conversely, if injunctive relief does not issue, and Sky Scrapers succeeds, it will then obtain relief. Declining interim relief better preserves, viewed in this manner, the status quo pending trial.
[44] Also, I note that the defendants’ ability to pay damages is not seriously challenged. By memorandum dated 28 September 2020, Mr Street confirms that Zoono Ltd holds substantial assets of over NZD 22,000,000, including cash reserves of over NZD 7,000,000. He further advises that Zoono Group Ltd will stand behind Zoono Ltd in the event of a damages award, though it in fact holds fewer assets than Zoono Ltd and for this reason has not given a formal undertaking to this effect. I am therefore not concerned as to the practical adequacy of damages as a remedy for Sky Scrapers if it were to succeed at trial.
[45] On the other hand, I consider that Zoono would have difficulty enforcing Sky Scrapers’ undertaking as to damages. New Zealand does not have a reciprocal enforcement regime with the UAE, so enforcement will be a comparatively difficult and costly exercise.17 Moreover, Sky Scrapers has not provided information about its ability to honour its undertaking as to damages.
[46] In these circumstances, I am not persuaded it is appropriate to significantly alter the present position of the parties by mandating performance of the agreement in the interim. I consider it more convenient to leave the parties to their contractual rights, as those are eventually determined to be, than to impose the coercive control established by a Court order, at least on an interim basis.
[47] I acknowledge Mr Foote’s submission that it is necessary to assess the balance of convenience against what he submits is Sky Scrapers’ strong case. However, it is well established that it is appropriate to have regard to the strength of the parties’ cases only where the extent of uncompensatable disadvantage to the parties is found to be
17 As noted in Almarzooqi v Smith [2020] NZHC 1049 at [25].
largely equivocal. Even then, reference can only be made to matters in respect of which there is no credible dispute, resolution of material evidential conflicts and difficult legal questions being for trial.18 While Sky Scrapers’ position in respect of the notice issue is, as I have said, apparently quite strong, the extent of uncompensatable disadvantage here is not equivocal. Also, so far as the other issues are concerned, these are very much material evidential disputes for trial.
[48] Finally, I consider the grant of mandatory interim relief in this case would prove practicably unworkable. This is not a contract in respect of a discrete transaction, or for the on-going supply of goods according to narrowly defined terms. Rather, the distributorship agreement creates an ongoing relationship between the parties in broad, wide-reaching, terms. In the absence of good faith between the parties, and it emerges clearly that Sky Scrapers and Zoono’s relationship has significantly degraded, there is a real possibility of multiplying claims by both parties of contravention of any interim injunction.
Other Matters
[49] I note that Zoono agreed in the course of the hearing that the sum of USD 62,500 received by it from Sky Scrapers would be repaid forthwith. I expect that to have been done.
[50] There was also discussion as to a priority four-day fixture being allocated in order to keep alive the possibility of a final order for specific performance following hearing of the evidence, and also timetabling for such a hearing. While I would endorse a priority fixture, separate application will have to be made for it.
Result
[51]Sky Scrapers’ application for interim relief is dismissed.
[52] If the parties cannot agree on costs, counsel for the respondents is to file a memorandum within two weeks from the date of this judgment, with counsel for Sky
18 American Cyanamid, above n 1, at 409; Klissers Farmhouse, above n 1, at 142.
Scrapers having two weeks to respond. Memoranda are not to exceed five pages, excluding intituling pages and supporting materials such as invoices.
Hinton J
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