ACD Tridon Inc v Tridon Australia Pty Ltd & 2 Ors

CATCHWORDS : Commercial Arbitration - Leave to appeal and alleged technical misconduct. LEGISLATION CITED : Restraints of Trade Act 1976 (NSW) Trade Practices Act 1975 (Cth) BP Refinery (Westernport) Ltd v Hastings Shire Council (1977) 180 CLR 266 Carr v Berriman Pty Ltd (1959) 89 CLR 327 Interbulk v Aid Shipping 1984 2 Lloyd's Reports 66 Mitchell v Patten Holdings Pty Ltd [2003] NSWCA 212 CASES CITED : Overlook v Foxtel (2002) Aust Contracts Rep 90-143 at 67 Pacol Ltd v Joint Stock Company Rossakhar 2000 1 Lloyd's Reports 209 R v Peto 148 ER 577 Thiess Watkins White Constructions Ltd v Commonwealth of Australia, unrep NSWSC 1992 Upper Hunter 118 CLR 429 PARTIES : ACD Tridon Inc v Tridon Australia Pty Limited & 2 Ors FILE NUMBER(S) : SC 50100/03 COUNSEL : (P) Mr T G R Parker (D) Mr Jacobs SC & Mr Bambagiotti SOLICITORS : (P) Allens Arthur Robinson (D) Cutler Hughes & Harris

• IN THE SUPREME COURT OF NEW SOUTH WALES SYDNEY REGISTRY COMMERCIAL LIST

ACD TRIDON INC (ACDT) v TRIDON AUSTRALIA PTY LIMITED (TAPL), TRIDON NEW ZEALAND (TNZL) and THE HON ANDREW ROGERS

JUDGMENT

1 ACD Tridon Inc seeks: 1. An order pursuant to section 42 of the Commercial Arbitration Act 1984 (NSW) setting aside either wholly or in part orders 2-5 of the Award and remitting those matters to the Arbitrator with such further directions as the Court sees fit.

2. An order pursuant to section 38 of the Commercial Arbitration Act 1984 (NSW) (a) granting the plaintiff leave to appeal from Orders 2-5 of the Award, and (b) that on appeal Orders 2-5 of the Award be set aside, and in lieu thereof: (i) the Award be varied so as to determine that the 2000 Notice (as defined in the Statement of Appeal Grounds) was valid and effective and that the plaintiff validly terminated the DA [Distributorship Agreement] as defined in the statement of Appeal Grounds by notice of March 2003, or (ii) the Award be otherwise varied or remitted for determination in such a manner and with such further directions as the Court sees fit, and (c) Such orders for costs or other orders that the Court sees fit. 2 On 30 June 2003, Mr Rogers, the Arbitrator, published what he described as a Partial Award resolving some five preliminary issues arising out of a Distributorship Agreement between ACD Tridon Inc then known as Tridon Limited and TAPL and TNZL and subsequent events. The Award, which extends over some 56 pages, deals with matters of some complexity and is closely reasoned. The Arbitrator proposed to embark upon the remainder of the hearing as soon as the matters raised by the Summons are resolved. TAPL and TZNL are the claimants in the Arbitration and seek large sums by way of damages for breach of contract against ACDT.

3 In setting out the history necessary to understand the disputes which have arisen I have followed that set out in the Award and used the Arbitrator's language.

4 TAPL is a company incorporated in New South Wales. TNZL is a company incorporated in New Zealand and at all relevant times has been a fully owned subsidiary of TAPL. In about 1986 Tridon Limited, a company incorporated in Ontario, Canada acquired all the shares in TAPL.

5 In 1996 Tridon Limited changed its name to AC Tridon Inc and later in that year to ACD Tridon Inc. As in the award that company, under its various names, is referred to as "ACDT Old". Subsequent to Tridon Limited changing its name in 1996 to AC Tridon Inc, another company incorporated in Ontario has been using the name "Tridon Inc" and in June 1999 it became a wholly owned subsidiary of ACDT Old. On 26 August 1999 ACDT Old purported to amalgamate with Tomkins Canada Acquisition Corporation. The amalgamated entity was also called ACD Tridon Inc (ACDT). It was the respondent in the Arbitration.

6 In 1988 Mr Richard Lennox, then managing director of TAPL negotiated a Distributorship Agreement (DA) between ACDT Old and TAPL and TNZL. The DA was to operate in conjunction with the Shareholder Agreement (SA) of the same date whereby ACDT Old sold two-thirds of its shareholding in TAPL to Mr Lennox for $1 million. In 1988 ACDT Old carried on a business of manufacturing, supplying and distributing industrial and automotive components and products such as clamps, electronic flashers, wiper blades and refills, clips, ties, straps and string wire under the trademark "Tridon". It had a number of manufacturing plants located in Canada.

7 In the DA, which bears date 4 October 1998, ACDT Old is called the company and TAPL and TNZL are jointly and severally called "the Distributor".

8 By the DA, ACDT granted TAPL and TNZL the exclusive right to purchase a large number of Tridon products (as set out in the eight pages of the Second Schedule) for resale in Australia, New Zealand and the Pacific Islands (the Territory). The term of the agreement was 99 years. The Distributor was to place orders for the products required and the company was to sell the products to the Distributor at prices fixed in accordance with cl 3.2 of the agreement.

9 The DA contained these provisions: "3.1(b) Orders placed by the Distributor shall be accepted by the Company within ten(10)working days from the date upon which the order is placed. In accepting such orders the Company shall notify the Distributor of any exception or modification to the order as placed. Both the placing of orders and the acceptance thereof shall be communicated by either facsimile, telex or air courier. In the event that any order placed by the Distributor is not accepted by the Company or in the event that exception or modification thereto is not acceptable to the Distributor then the Distributor shall be entitled to obtain supply of the products comprising such order from any source available to it and such action on the part of the Distributor shall not constitute a breach of this Agreement." "3.4 The products supplied to the Distributor are to be produced by the Company at the Canadian plants, however, the Company and Distributor may agree that products may be produced from any other Company plant, provided that it can be shown that there will be a cost benefit in the landed cost." 10 Extensive provisions were made to deal with the situation if the Company's prices for product groups became uncompetitive. If the Company's prices remained uncompetitive it was, if required, bound to supply the equipment necessary to enable the Distributor to manufacture and/or assemble the Product Groups within the Territory at competitive prices. If the Company could not guarantee to supply such equipment within four months or the cost of such equipment did not allow the Distributor to be competitive in the Territory the Company was required in lieu thereof to provide the Distributor with all technical specifications. If the product groups manufactured in the Territory by the Distributor were still not competitive the Distributor was entitled to obtain supply of similar products from other sources. If the Company became able to supply the product groups to the Distributor in accordance with its current order and at competitive prices (after due allowance for the costs which the Distributor had incurred) the Distributor was required to resume the placing of orders provided this did not involve the Distributor in breaching contractual obligations with another supplier/customer.

11 Clause 7, which sets out the duties of the Distributor provides: "The Distributor hereby undertakes and agrees with the Company that it will at all times during the continuance in force of this Agreement observe and perform the terms and conditions set out in this Agreement and in particular: (a) to promote and extend sales … (b) Not to be concerned with competing products - will not without the previous consent in writing of the Company be concerned or interested either directly or indirectly in the manufacture, production, importation, sale or advertisement of any goods in the Territory which are like or similar to or which either alone or in conjunction with some other product perform or are designed to perform the same or a similar function to or which might otherwise compete or interfere with the sale of any of the products; except in accordance with Clause 12; and clause 4.

(clause 3.1(b) should have been added to the exceptions)

(c) to indicate the capacity in which acting - … as principals

(e) To safeguard Company's commercial monopoly rights - will immediately bring any improper or wrongful use in the Territory of the Company's patents, trademarks, emblems, designs, models or other similar industrial or commercial monopoly rights which come to its notice to the attention of the Company and will in and about the execution of its duties use every effort to safeguard the property rights and interests of the Company and will assist the Company at the request and expense of the Company in taking all steps to defend the rights of the Company;

(f) to pass on any useful information to the company …" 12 Clause 8 which sets out the duties of the Company restricts its ability to sell any of the products to any one else in the Territory or to any one outside the Territory with a view to resale in the Territory. The Company has a duty to supply samples, send representatives and to safeguard the Distributor's exclusive rights. In the event of the Company proposing to discontinue any product it must: "give to the Distributor at least six (6) months prior notice of its intention to discontinue production of any item forming part of the products."

13 Under cl 8(f) and (g) the Company must "advise the Distributor promptly of any new or derivative products in accordance with cl 16 and "ensure that the Distributor has been advised of its full range of products at all times." Under cl 8(i) the Company had to give the Distributor at least three (3) prior months notice of its intention to change specifications of any item forming part of the products. These provisions are of some importance for an agreement extending over 99 years when there are likely to be many changes in the products to meet changing conditions, demands and equipment.

14 Under cl 9(b) the Company reserved the following rights: "9(b) To alter schedule of products - to vary the First Schedule hereto defining the products either by withdrawing therefrom a class or classes of products named therein in the event of the Company ceasing to manufacture that class or those classes of products, subject to Clause 8(e), or by the addition thereto with the agreement of the Distributor a further class or further classes or products of the Company." 15 Clause 10 provides: "10. TRADE MARKS

During the term of this Agreement the Distributor will continue to have full and unfettered use of:-

(i) The TRIDON trade name. (ii) The TRIDON trade mark. (iii) The TRIDON logo

The Distributor will be able to market products under the TRIDON name, logo and mark and shall use its best endeavours to maintain the existing reputation of the Tridon name." 16 Clause 11.1 provides for termination of the agreement: "11.1 Either party shall have the right at any time by giving notice in writing to the other party to terminate this Agreement forthwith on the occurrence of any of the following: (a) On breach - if the other party commits a breach of any terms or conditions of this Agreement;

(b) On liquidation, bankruptcy, etc -" 17 Clause 12A of the DA which applies when the Company had accepted the Distributor's order provides: "12.A FAILURE TO SUPPLY

Notwithstanding any other provision of this Agreement, in the event that supply of any of the products to the Distributor is interrupted for any reason for a period in excess of three (3) months after the Company has accepted the order, the Distributor shall be entitled to obtain supply of products similar to the products from any source available to it; and such action on the part of the Distributor shall not constitute a breach of this Agreement. In the event that the Company can satisfy the Distributor that the Company is in a position to resume supply of the products it shall notify the Distributor of such fact together with evidence in support of its ability to resume supply and the Distributor shall be required to resume the ordering of products pursuant to this Agreement PROVIDED THAT the distributor has not entered into any contract or agreement with third parties which in the Distributor's opinion precludes the Distributor from placing any such order. The provisions of this Clause shall not affect the Distributor's right to terminate this Agreement for breach of the Company's obligations and to pursue any other remedies available to it."

18 Clause 12B provides: "12B. MINIMUM VOLUME SUPPLY In the event that the Company is unable to supply the Distributor with Product Groups equivalent in volume to Ninety percent (90%) of the previous years purchases for any consecutive period of three (3) months and further in the event that the Company is unable to satisfy the Distributor that it is or will be able to make up the lower volume of supply within the next period of three (3) months, the following provisions will apply:-

(i) the Distributor shall have the right to require the company to supply to the Distributor, and the Company shall be required to supply to the Distributor, all equipment necessary to enable the Distributor to manufacture and/or assemble the Product Groups within the Territory, to allow the Distributor to continue to market the products Groups within the Territory.

(ii) the equipment so supplied shall remain the property of the Company and the Distributor shall pay to the Company a manufacturing licence fee (the 'Fee') in respect of its use of such equipment. All shipping, production and maintenance expenses related to equipment supplied by Tridon shall be for the account of the Distributor.

(iii) the fee shall be in an amount equivalent to two percent (2%) of that percentage proportion of the sales value in the Territory of the finished Product as is represented by the component or components produced by use of the equipment supplied by the Company. The Fee shall be paid by the Distributor to the Company on a quarterly basis in arrears in Canadian dollars or any such other current ( sic ) as the parties may from time to time agree.

(iv) in the event that the Company cannot guarantee to supply the equipment as aforesaid within four (4) months (or as mutually agreed between the parties), or the cost of the equipment as aforesaid does not allow the Distributor to be competitive in the Territory, the Company shall in lieu thereof be required to provide the Distributor with all technical specifications, engineering drawings and the like necessary to enable the Distributor to manufacture such equipment in the Territory.

(v) the fee to be paid in respect of the provision of such specifications, drawings and the like shall be calculated in the same manner as provided in sub-clause (iii) hereof provided that such fee shall be less the cost to the Distributor incurred or expended in connection with the manufacture of equipment utilising the said drawings, specifications and the like.

(vi) in the event that Product Groups manufactured and/or assembled in the Territory by the Distributor are still not competitive then the Distributor shall be entitled to obtain supply of similar products from any other source and such obtaining of supply shall not constitute a breach by the Distributors of the provisions of this Agreement.

(vii) it is expressly agreed, however, that in the event that the Company is able to establish to the Distributor's reasonable satisfaction that it is at any time able to offer Product Groups to the Distributor in quantities in accordance with the Distributor's current order requirements and at competitive prices (after due allowance for any and all costs incurred or expended by the Distributor in the manufacture of equipment or products as contemplated in this Clause) then the Distributor shall be required to resume the placing of orders for Product Groups with the Company, provided that this does not breach any contractual obligations the distributor has with another supplier/customer.

(viii) in the event of exercise by the Distributor of the right herein contained the Company shall provide to the Distributor at the distributors expense adequate and detailed training in Canada or such other place as may be agreed between the parties in respect of the operation of the equipment." 19 Clause 16 provides: "16. NEW OR DERIVATIVE PRODUCTS The Company shall promptly advise the Distributor of any new products or derivatives of existing products of the Company available to the Company's customers, whereupon such new or derivative products shall be deemed to be included in the list of the products in the First Schedule hereto unless the Distributor notifies the Company to the contrary."

20 The Arbitrator pointed out in cl 20 of his Award: "Clause 3.1(b) sought to cater for situations where orders were not accepted, clause 12A where orders accepted but not supplied and clauses 4 and 12B for other instances where goods may not be supplied. However, all the provisions are underwritten by the assumption that the Company continues to be a manufacturer of automotive supplies." 21 The Arbitrator made a series of findings which need to be set out:

"31. In 1991, the ACDT Old manufacturing facilities in Ontario closed and the manufacture of products was relocated to the following facilities: (a) Clamp Manufacturing to a Tennessee Company which, after various changes of name from Tridon Inc to ACD Tridon North America Inc, in 1999 became Trico products Corporation of Tennessee ('TPCT'), until 1 September 1999 a wholly owned subsidiary of ACDT and since that date a fully owned subsidiary of Tomkins Canada Group, at is facilities in Smyrna Tennessee; (b) Wiper blades and refill manufacturing was moved to the TPCT facility in Lawrenceburg, Tennessee; and (c) Flasher manufacturing was moved to TCPPY at its facility in Springfield, Tennessee.

32. In approximately April 2000, the production of wiper blades and refills by TPCT at its Lawrenceburg facility ceased and production was transferred in part to Trico Technologies in Brownsville, Texas and in part to the Trico Componentes, S.A.DE C.V. facility in Matamoras, Mexico.

33. In response to an inquiry he made on 21 February 2000, Mr Lennox was informed by a letter from ACDT, dated 6 April 2000, that production was being transferred from Lawrenceburg to Brownsville, Texas, and should be complete by approximately 1 June 2000. The letter went on to say: 'Clause 3.4 of the DA originally contemplated that the products supplied under the Agreement would be produced in Canada. However, given that the particular products in question have been produced in Tennessee for quite some time, we are unclear as to the basis of your belief that a subsequent transfer could be a breach of clause 3.4 of the DA.'

34. On 14 April 2000, TAPL wrote to Mr Rose, a director of ACDT and a partner in the firm of solicitors in Canada acting for ACDT, saying in part 'We understand that the Brownsville plant is not an ACDT Trident Inc plant. As indicated above, the DA requires products to Trident Australia to be manufactured in an ACDT Trident Inc plant. If our understanding is incorrect, and the Brownsville plant is owned and operated by ACDT Trident Inc and not by any other company, such as Trico, we should be pleased to receive confirmation of this.' The letter went on to say that if the intention was to transfer production to Brownsville without the consent of TAPL and without confirmation that the plant was owned and operated by ACDT and without confirmation that the landed cost to TAPL of the products produced by the plant will be less than the landed cost currently paid by TAPL for those products, then arbitration would follow. 35. On 27 April 2000, Mr Lennox wrote again noting that products recently ordered were supplied by Trico products at Lawrenceburg and requested an explanation.

By 1 May 2000, there was no reply and Mr Lennox again sought an immediate response.

Mr Lennox's wrote a further letter dated May 2000. In the letter he identified certain alleged breaches of the DA and indicated that a Notice of Dispute would be given pursuant to clause 20 (sic). This did provoke a response, dated 22 May 2000, in which Mr Lennox was informed that, as a result of corporate reorganisation, the Tennessee plant had discontinued production of wiper products which would in future be produced partly by third party suppliers in Texas, partly by another subsidiary of Tomkins at Brownsville, Texas, the backings would be molded by a different subsidiary in Mexico and some of the blades assembled by third party suppliers in Texas. Other products would also be handled by indirectly owned subsidiaries of Tomkins in Mexico.

As foreshadowed by it earlier TAPL responded by a letter dated 2 June 2000 enclosing a Notice of Arbitration stating that a dispute existed with respect to the true construction of clause 3.4 of the DA. ...

It was following this correspondence and the commencement of arbitration that, on 4 July 2000, Coudert Brothers sent a notice dated 3 July 2000, which purported to remove all products from the Second Schedule in claimed exercise of the power given by clause 9 of the DA. ...

Since 1991, TAPL had faxed its purchase orders for clamps, flashers, wiper blades and refills directly to the TPCT facilities in Smyrna, Tennessee. TPCT fulfilled the orders for clamps from its own manufacturing facility and arranged for the other products to be sent to it from the Company's facility at Springfield, Tennessee and/or Trico Technologies' facility at Brownsville, Texas and/or Trico Componentes, S.A, DE C.V. facility at Matamores, Mexico. The products were then shipped to TAPL by the TPCL Smyrna facility.

In June 1999, Tomkins plc purchased ACDT Old and its subsidiaries from its then shareholder, Devtek Corporation.

The Tomkins Group comprises a broad range of low risk manufacturing companies.

One of the companies is Gates, the world's largest manufacturer of power transmission belts and a major producer of hose and connector products (clamps).

Another subsidiary is Stant, a leading manufacturer of parts and systems for the original equipment and replacement in the automotive, heavy duty and industry markets including hose clamps.

A third subsidiary is Trico which is claimed to have led the industry in the development of windshield wiper and washer systems, and manufactures and sells complete wiper systems such as wiper blades, arms, linkages, motors, electronics and vision modules. Following on the acquisition by Tomkins of ACDT, Trico became the world's largest wiper blade manufacturer, number two in North America and the third largest in the world. It is a world wide leader in the development and manufacture of integrated wiper systems and electronics and supplies products to over 67 countries every day. It has an Australian plant in Victoria. Following upon the purchase of ACDT Old by Tomkins, its business was integrated into Trico products.

Another subsidiary is Ideal, one of the world's largest manufacturers of worm drive hose clamps and its products are marketed under the Ideal and Tridon names. 47. Some of the products of these subsidiaries are in competition with products marketed with the Tridon trade mark (Tp573).

48. Skadden Arps, lawyers for Tomkins wrote to Storey & Gough, then lawyers for TAPL on 18 June 1999 expressing the belief that with the acquisition of ACDT from Devtek Corporation the relationship with provide new opportunities for TAPL 'enabling it to build on its current successes in the market'. The letter went on to say that Tomkins intended to transfer all of ACDT Old's subsidiaries and joint venture interests first to Tomkins Canada Acquisition Corporation, an Ontario Corporation established in connection with the purchase, and then ultimately to Tomkins Overseas Holdings SA ('TOSH') a Luxembourg subsidiary of Tomkins. The letter said: 'The aforementioned transfers are being undertaken by Tomkins for tax and operational purposes.'

The letter said that Tomkins intended to ensure that TOSH complied with its legal obligations under both the SA and DA. It sought TAPL's consent to the transactions. . 49. Storey & Gough responded by a letter dated 23 June noting the advice from Skadden Arps that it was hoped to complete the purchase from Devtek on 25 June and forthwith transfer ACDT Old's assets to a holding company. The letter went on to express TAPL's concerns arising from the transaction, and sought some unspecified undertakings from Tomkins/ACDT.

50. Under cover of a letter dated 2 July 1999, Storey & Gough forwarded to Skadden Arps two draft Deeds for their consideration.

51. The first Deed called 'Deed of Distribution' proposed to be between Tomkins plc, TOSH, TAPL and TNZL, apparently sought to replace the DA.

52. The second Deed, intituled 'Shareholders Deed' was to be again between TOSH, Tompkins plc and Mr Lennox.

53. Storey & Gough wrote again on 4 August 1999 complaining of alleged problems in obtaining supplies from ACDT. The letter went on 'this situation has brought into sharp focus the entire question of your client's willingness and ability to perform its obligations under the DA and is of a grave concern to our client. This problem has highlighted the necessity of providing reasonable safeguards should our client consent to a transfer of the ACDT shares as requested by you.' Amongst other matters, the letter required payment of TAPL's costs in 'finalising this matter' including the costs of 'the writer attending' a proposed meeting in New York.

54 When Mr Lennox declined to give his consent to the transfer to TOSH except under the conditions of the two agreements proposed, the reaction of the Tomkins Group was that 'this is unbelievable in terms of demands that are being made.' (Tp 574/5).

Whilst this exchange was taking place, by an agreement bearing dated 25 June 1999 called the Roll-Over Agreement, ACDT Old had sold its business to Tridon Inc. By clause 3 of the Agreement, the sale did not include the DA nor the shares in APTL owned by ACDT Old.

Unbeknown to TAPL and TNZL, under the terms of a Trade Mark Assignment Agreement also dated 25 June 1999, in consideration of the payment of $1, Tridon Inc became the owner of the registered trade marks theretofore registered in Australia in the name of ACDT Old. Subsequently some, but not all of the ACDT Old trade marks were transferred in the various trade mark registers around the world to different entities. ...

A Funding Agreement was also executed on 25 June 1999 and Amended and Re-Stated on 30 August 1999. By clause 10 of the Agreement, ACDT was required to transfer to Tomkins Canada Group Inc all of ACDT's shareholding in ACD Tridon North America. At that time, that company was producing in Tennessee many of the products the subject of the DA. It is now known as Trico products of Tennessee. Therefore clause 10, ACDT Old and by the Amended Agreement alienated its manufacturing production, research and development capacity to Tomkins Canada Group Inc.

At the end of August 1999, by the combined operation of the Roll-Over Agreement, the Trade Mark Assignment Agreement and the Funding Agreement ... ACDT had divested itself of all its assets with the exception of its shares in TAPL and the rights under the DA and SA. It had no manufacturing or research facilities and was unable to discharge its obligations to sell and supply products to TAPL from its Canadian plants or anywhere else. It was, in every sense of the word a non-trading entity.

On 23 August 1999, there was a meeting in New York between Mr Zimmerman representing ACDT and Mr Lennox, as well as two representatives of Trico products Corp and Ideal Division of Epicor respectively. During that meeting, Mr Zimmerman did not tell Mr Lennox anything about the Roll Over Agreement, the Trade Mark Assignment Agreement or the Funding Agreement. Mr Lennox wished Tomkins plc to enter into the agreement with TAPL drafted by Storey & Gough as the price for its consent to the transfer of the TAPL shares held by ACDT. Amongst other provisions the agreements would have given TAPL distribution rights in Australia to other Tomkins products. Tomkins and TOSH, a worldwide conglomerate, 5 billion pound organisation was not to sell any of its assets without TAPL's prior consent, such consent not to be unreasonably withheld. Tomkins considered the demands to be absolutely inappropriate The meeting terminated without agreement and with the parties deeply suspicious of each other and taking the view that the other was behaving quite inappropriately. It is appropriate to make a point now. Mr Lennox was entitled to think that TAPL had been treated badly in the reorganisation of ACDT Old even before Tomkins came into the picture. If he had known of the three agreements of 25 June 1999 he would have been even more upset. Failing to disclose the agreements added fuel to the fire. For its part, Tomkins considered that the agreements proposed by TAPL sought to extract concessions which would have made the obligations under, what is considered, an already onerous DA impossible.

On 2 September 1999, TAPL wrote to Mr Zimmerman. In the letter Mr Lennox made a lengthy series of demands in respect of matters he claimed to be entitled to under the DA and SA.

Mr Zimmerman responded on 21 September 1999 and confirmed that, as discussed in New York, Tomkins plc no longer wished to transfer TAPL shares held by ACDT to TOSH or ACDT's subsidiaries and joint venture interests to the same company. The letter concluded 'We are of the opinion that all issues are resolved. Tomkins plc looks forward to continuing its business relationship to be conducted under the utmost good faith for our mutual benefit.' (emphasis added)

Contrary to the statement in Mr Zimmerman's letter, it would seem that subsidiaries of ACDT were transferred out of it and moved to TOSH (cf clause 13,2(c) of the Funding Agreement).

In paragraph 5 of the letter, Mr Zimmerman said in part 'Should ACDT decide to change the location for manufacturing "products" it is fully aware of all of its obligations and rights.' By this time, there were no ACDT manufacturing facilities in Canada or at all.

Tomkins and Mr Zimmerman did not tell Mr Lennox what they were doing with ACDT because they did not think they had to (see TR 576)" 22 The Arbitrator was rightly dismayed by the course of the pleadings. By 4 April 2003 they had reached the "Sixth Further Amended Points of Claim" and extended over 36 pages. The Arbitrator felt that they did not sufficiently elucidate the issues and asked the parties to prepare a list of issues suitable for preliminary determination. The issues for preliminary determination dealt with in the Arbitrator's Partial Award were: (1) Whether ACDT (a) is a legal entity cognisable under the laws of New South Wales, and if so (b) is entitled to exercise the rights, and is bound by the obligations of Tridon Limited under the DA.

(The Arbitrator answered this question in the affirmative and made a declaration accordingly. This is not challenged.)

(2) Whether the conduct referred to in paragraph 7(e)(i) to (iv) of the Defence constituted a breach of the DA on the part of the Distributor.

(The Arbitrator answered that question in the negative and made a declaration accordingly. That is challenged.) Paragraph 7(e)(i) to (iv) reads: "(e) ACDT says further that:

(i) the initiation of the Trade Mark Proceedings constituted a breach of clause 7(e) of the Distributorship Agreement, in that: (A) the Proceedings jeopardised ACDT's ability to continue to sell products into the Australian market;

(B) the Proceedings jeopardised Tridon Inc's entitlement to the Existing Australian Tridon Trade Marks and the Extended Trade Mark Application, and thereby jeopardised ACDT's rights and interests as the parent corporation of Tridon Inc;

(ii) the failure by TAPL to advise ACDT of its decision to initiate the Trade Mark Proceedings, and the commercial strategy behind the Trade Mark Proceedings, and the initiation of the Trade Mark proceedings, constituted a breach of clause 7(f) of the Distributorship agreement, in that such information was likely to be of interest use or benefit to ACDT in the marketing of the products;

(iii) the failure by TAPL to withdraw the Trade Mark Proceedings in accordance with ACDT's demand constituted a breach of clause 7(e) of the Distributorship Agreement. In that TAPL thereby failed to assist ACDT in taking steps to defend the rights of ACDT, namely the rights referred to in (i) above and also the rights which TAPL had been advised ACDT would shortly have as assignee of the Existing Australian Tridon Trade Marks;

(iv) the maintenance by TAPL of the Trade Mark Proceedings after the assignment referred to in (c)(viii) above constituted a breach of clause 7(e) of the Distributorship Agreement in that (additionally to the matters in (i)A above) it jeopardised ACDT's rights and interests as assignee of the Existing Australian Trade Marks; (3) Whether, if question 2 is answered in the affirmative, any of the matters alleged in paragraphs 16.15.1 to 16.15.2, 16.20.1 to 16.20.3, 16.21 and 16.19 of the Points of Claim render ACDT's purported determination of the DA: (a) by its Notice despatched at a[proximately noon on 7 March 2003 RMT; or (b) by its Defence dated 18 March 2003 invalid or ineffective.

(Because the Arbitrator answered Question 2 in the negative this question did not arise. However, he answered question 3 in the affirmative and declared that the purported termination of the DA by notice dated 7 March 2003 and by the Defence dated 18 March 2003 was not effective.) (4) Whether the letter dated 3 July 2000 from ACDT to the Distributor was valid and effective for the purposes of clause 9(b) of the DA, and if so, whether it took effect from 3 July 2000 or 3 January 2001.

(The Arbitrator answered this question in the negative and made a declaration accordingly) (5). Whether if question 4 is answered in the negative, the Distributor has nevertheless ceased to be bound by its obligations under clause 7(b) of the DA and if so, from what date. (The Arbitrator declared that the Distributor is not bound by cl 7(b) of the DA.)

This clause of the DA has been set out earlier. On 4 July 2000 ACDT's then solicitors forwarded to TAPL a notice dated 3 July 2000 in these terms: "ACD Tridon Inc (ACD) gives Tridon Australia Pty Ltd notice pursuant to clause 9(b) of the DA dated 4 October 1988 (Agreement) that ACD has ceased manufacture of all classes of products named in the Second Schedule of the Agreement and consequently hereby varies the Second Schedule by withdrawing all such products from the Second Schedule."

A notice in similar terms was sent on the same day to TNZL.

24 The Notice by its terms took effect immediately. However, under cl 8(e) of the DA, ACDT was required to give the Distributor at least six (6) months prior notice of its intention to discontinue production of any item forming part of the products. Clause 9(b) specifically makes the exercise of the power to withdraw under that sub-clause subject to cl 8(e). Thus the notice dated 3 July 2000 and sent on 4 July 2000 was not valid or effective. While that issue was disputed before the Arbitrator ACDT did not press the issue before this Court. It complained that the Arbitrator's reasons were more wide ranging and dealt with the correct construction of cl 9(b) of the DA. ACDT feared that the Arbitrator's construction of cl 9(b) may create an issue estoppel which would prevent it from contesting the accuracy of the Arbitrator's construction of that clause.

25 ACDT contended that if the Arbitrator's ruling was limited to the notice sent on 4 July 2000 being invalid and ineffective because 6 months notice was not given, then ACDT could give a further notice giving 6 months notice of intention in accordance with clauses 9(b) and 8(e).

26 In para 152 of the Award the Arbitrator wrote that the initial question was whether or not cl 9(b) contemplated and permitted a situation whereby ACDT withdrew from the Second Schedule all products mentioned and referred to in that situation. The Arbitrator continued: "153. This is a question not without difficulty. Let it be assumed, for example, that by reason of cheap labour in some other part of the world it became completely uneconomical for ACDT to produce in Canada, or anywhere else, where it could reasonably set up operations, the products set out in the Second Schedule. Was it the intention of the parties that in those circumstances ACDT would be obliged to continue uneconomical production solely for the purpose of satisfying the obligations under the DA, or could it utilise clause 9(b) to vary the Schedule by withdrawing all products there named? It was further submitted that there was no satisfactory yardstick by which to mark an appropriate limit for the excision of items from the list of products. If on the proper construction of Clause 9(b) one was not permitted to excise all products would the deletion of 50% be permitted, or of 30%? Was it within the clause to excise all but a nominal number of items? The converse argument is, of course, that to delete all the products named in he Second Schedule was, subject to the licence of the Trade Marks, to deprive the DA of all sensible commercial operation. The whole raison d'etre for the agreement would disappear.

154. On balance, it seems to me that on its proper construction, it is not "to alter" the Schedule of products, nor is it "to vary" the Schedule to withdraw therefrom all the products there named. Nor is it a case of ACDT ceasing to manufacture that 'class or those classes of products' for the company to totally cease production of all products and to become a non-trading entity.

155. In my opinion, on its proper construction, clause 9(b) did not authorise the notice given on 3 March 2000.

156. I find support for this construction of clause 9(b) in the decision of the High Court in Carr v J A Berriman Pty Ltd (1959) 89 CLR 327. There the main issue was whether, in exercise of the power conferred by Clause 1, the principal could omit steel fabrication from the contract in order to have the work done by a third party. The clause gave power to the architect 'in his absolute discretion … to issue … written instructions … in regard to the … omission … of any work.' Fullagar J (with whom the other members of the court agreed) said (p 347): 'The clause is a common and useful clause, the obvious purpose of which - so far as it is relevant to the present case - is to enable the architect to direct additions to, or substitutions in, or omissions from, the building as planned, which may turn out, in his opinion, to be desirable in the course of the performance of the contract. The words quoted from it would authorize the architect ( doubtless within certain limits …) to direct that particular items of work included in the plans and specifications shall not be carried out. But they do not, in my opinion, authorize him to say that particular items so included shall be carried out not by the builder with whom the contract is made but by some other builder or contractor. The words used do not, in their natural meaning, extend so far, and a power in the architect to hand over at will any part of the contract to another contractor would be a most unreasonable power which very clear words would be required to confer.' (emphasis added)

157. In this case to discontinue manufacture of the products by ACDT altogether and then give a notice excising all the items in the Second Schedule would be a 'most unreasonable power'. The provision should not be construed as permitting this." 27 ACDT complained that the Arbitrator adopted a shorthand approach to cl 9(b) by asking whether to remove all products would be "to alter" or "to vary" the Second Schedule. ACDT submitted that the words "to alter" appear in the introductory words, which is in the nature of a heading or summary and that the operative provision does not use the word "alter" and relevantly confers a power to "vary the Second Schedule … by withdrawing therefrom a class or classes of products named therein." It was submitted that the correct approach was to construe the operative provision and to use the heading only as an aid to construction of the operative provision if that is necessary. The Arbitrator did not err in the manner suggested. He was conscious of the terms of cl 9(b). This was a case where it was permissible to have regard to the initial words of the clause. ACDT pointed out that the power to withdraw was not limited to a "single class of products" but extended to "classes of products" but that does not advance ACDT's case.

28 ACDT submitted that the Arbitrator was wrong to rely on Carr v Berriman Pty Ltd (89 CLR 327 at 347); it involved a building contract where the architect deleted works from that contract and directed that part of the works be undertaken by a different builder. Thus this was not an omission or substitution of any of the specified works; rather the same works were to be done by a different person. Carr provides useful assistance. It Is a reminder that the power to vary the works does not give the power to remove works for other than legitimate reasons.

29 It is a familiar problem in building and engineering contracts and contracts involving the manufacture of goods that the owner will delete sections or endeavour to delete sections of the work to be performed or goods to be supplied pursuant to a power of variation. Numerous problems arise, for example, has the work been given to another, has the work become too costly or will it cost too much and be uneconomical to supply all the goods, are the obligations which arise too extensive?

30 The approach taken by Fullagar J in Carr followed that taken in the Exchequer Division in R v Peto 148 ER 577. The defendant there was bound to erect, build and completely finish a new Custom House for the Port of London according to certain plans and specifications. However, he contended that he was bound to and did follow the directions of the surveyor. The whole scheme was varied entirely. Alexander CB said at p.583: "If there be any such power to vary entirely the whole scheme, it is extraordinary that it should be picked out by argument, and by inference from clauses which clearly had in view other objects at the time they were penned and that it should not be found substantially, distinctly and clearly expressed. That strikes me as an observation which ought to have great weight; for can there be anything which it was more important to introduce than a power of this nature, to vary the whole design?

The most important of the clauses, which it is contended, confer this authority, is that respecting the extra work to be done, and the omissions which are to be permitted. Every person, who is at all conversant with building, knows that, in the course of building it occurs sometimes to add and sometimes to desire that certain things may be omitted."

31 Peto establishes that the words used in a contract to permit omissions and additions should not be used to vary the essence of the contract, even though that power is often couched in terms which are quite wide.

32 While Peto applied to a different set of facts and to a building contract the principle it enunciates is of wider application. It points to the way in which cl 9(b) should be construed.

33 The Arbitrator took the view that the withdrawal of all classes of products from the Second Schedule went beyond what was envisaged by the contract. That amounted to an effective extinguishment of an important part of the contract. The DA was an ambulatory contract. Over its 99 year term many exigencies and changes to meet them were anticipated. Existing and/or derivative products would be deleted and added from time to time as vehicles and associated products changed necessitating variations in the products, and also as improvement were made and technological developments occurred. There were also extensive provisions designed to deal with uncompetitive prices and other problems. Whilst the deletion of 25 per cent of the classes of product may give rise to some debate, the withdrawal of all classes of products cannot be justified. That amounts to the destruction of a substantial part of the substratum of the contract.

34 ACDT submitted that the Arbitrator had, in interpreting cl 9(a) erroneously accepted that if there was a power to withdraw all products from the Second Schedule this would be "subject to the licence of the Trade Marks to deprive the DA of all sensible commercial operation."

35 ACDT submitted that this was an incorrect statement of the commercial position. If products are withdrawn from the Second Schedule, then to that extent, the obligations under clause 7(b) preventing TAPL/TNZL from dealing with other manufacturers cease and TAPL/TNZL can obtain equivalent products from other manufacturers; TAPL/TNZL may also be able to obtain under cl 12B Machinery and technical know-how to manufacture such products themselves. TAPL/TNZL can then, under cl 10 market those products under the TRIDON name and mark. ACDT contended that the provisions of the DA are thus capable of sensible commercial operation despite the withdrawal of some, or indeed all, of the products from the Schedule.

36 This submission cannot be accepted. The essence of the agreement lay in the ordering and supply of goods and not in the alternate provisions if that supply could not take place for a variety of reasons. Implementing the alternative provisions was likely to be costly. The Arbitrator was right to conclude that the withdrawal of all products from the Second Schedule, subject to the licence of the Trade Marks, would deprive the DA of all sensible commercial operation.

37 ACDT contended that the second flaw in the Arbitrator's approach was that it left out of account the parties' intentions as reflected in cl 9(b). It submitted: (a) That clause expressly contemplates that if ACDT ceases to manufacture products, it may choose (subject to giving proper notice) to remove those products from the Schedule. The power is expressed to be reserved by ACDT to itself "notwithstanding anything to the contrary" contained in the DA.

(b) There is no commercial reason why, if the reservation of the right to cease manufacture was accepted by both parties, that right should be exercisable with respect to some products, but not all products.

(c) Clause 3.1(b) emphasises the flexibility intended by the parties. It contemplates that ACDT may refuse to accept orders. No limit is placed on ACDT's right and it may refuse to accept all or any orders.

(d) The result reached by the Arbitrator does not make commercial sense in that the parties remain bound by obligations with respect to products which ACDT does not and cannot supply because it has ceased to manufacture them.

(e) If cl 9(b) is given what ACDT contends is its ordinary and natural meaning, TAPL/TNZL are freed from the effect of cl 7(b) and there is no need for any implication.

(f) The Arbitrator was manifestly wrong to conclude that the power under cl 9(b) did not extend to withdrawing all products. 38 The DA was intended to operate over 99 years and to provide for an ongoing living relationship between the parties. The DA followed on the payment of $1 million under the shareholder's agreement. While variations would take place in the Second Schedule as conditions, needs and demands changed and new products would be added with the consent ot TAPL/TNZL over the years it would never have been contemplated that all products would be removed from the Schedule in the manner which occurred in the present case.

39 In my opinion the Arbitrator did not err in his construction of cl 9(b). That was and is a difficult clause to construe. No manifest error arising out of the Award appears.

40 It is not necessary for me to deal with the further basis on which the Arbitrator found against ACDT, namely, that it was not acting in good faith in giving the notice of July 2000.

41 Do TAPL And TNZL Continue To Be Bound By Their Obligations Under Clause 7(b) of the DA

This question is predicated upon the finding that each of the Notices of early July was invalid and ineffective.

42 In paragraph 190 of the Award the Arbitrator found that the DA was subject to an implied term that the obligation under cl 7(b) was subject to due performance by the parties (i.e, ACDT) of their (i.e, its) obligations under the agreement. (Clause 7(b) required TAPPL and TNZL not to be concerned with competing products). As earlier mentioned the Arbitrator declared that "the Distributor was not bound by clause 7(b)."

43 On 23 June 2003 the draft Partial Award of the Arbitrator was discussed. At that hearing ACDT withdrew its previous concession that in the light of the events occurring after the DA cl 7(b) was unenforceable as being in restraint of trade. Any question of restraint of trade was by law to be assessed at the time the parties entered into the agreement (see para 187 of Award and the authorities there cited).

44 During the discussion the Arbitrator remarked: "In the case of a 99 year term is there some implied term that that covenant will be reasonable only so long as you continue to manufacture … ? I think it enlivens a number of questions which I had never considered until this second and which have certainly never been argued."

45 The Arbitrator asked "What about some sort of implied term that would need to be put in in order to determine whether the operation of the restraint was reasonable. He raised the case of ACDT deciding to throw everything else overboard on day one plus one. At the hearing on 23 June 2003 an implied term along the lines of that implied in the Award was not discussed. The withdrawal of the concession and the resulting consequences took the Arbitrator and TAPL and TNZL by surprise.

46 In their submissions of 25 June 2003 TAPL and TNZL maintained that cl 7(b) was an unreasonable restraint of trade at the time the DA was executed and now. They submitted that future possibilities which could have been foreseen at the time of execution are taken into account. They submitted that cl 7(b) was void as being in restraint of trade under the general law or the Restraints of Trade Act 1976 (NSW). They further submitted that upon its true construction cl 7(b) meant that once all products were withdrawn by ACDT from the Second Schedule, the restraint contained therein would no longer apply, and, alternatively, there was an implied term to the same effect.

47 It was further submitted that ACDT's good faith obligation precludes it from maintaining that cl 7(b) continued to apply where it withdraws all products from the Second Schedule and further that ACDT had acted unconscionably in insisting that cl 7(b) continue in force after it had withdrawn all products. Further, the clause can and should be struck down under s 87 of the Trade Practices Act 1975 (Cth).

48 TAPL and TNZL submitted that once no further products could be obtained from ACDT cl 7(b) had no work to do and was practically useless. They repeated the submission that on its true construction cl 7(b) meant that once all products were withdrawn from the Second Schedule there would no longer be any restraint and, alternatively, that there must be an implied term to the same effect. Submissions were also made based on ACDT's alleged lack of good faith and cl 7(b) being in unreasonable restraint of trade, but it is unnecessary to rehearse these.

49 TAPL and TNZL submitted that on its true construction cl 7(b) did not mean that they "would be restrained in the draconian manner referred to once ACDT withdrew all products from the Second Schedule" and that there must be an implied term to the same effect.

50 In these submissions TAPL sought in substance a decision that cl 7(b) had ceased to have effect as a matter of the construction of the DA and alternatively by way of an implied term to that effect. The Arbitrator made a declaration to that effect.

51 In its submissions of 27 June 2003 ACDT contended that as the restraint in cl 7(b) of the DA corresponds with the grant of an exclusive right to distribute the products in clause 1 it was reasonable in that context.

52 ACDT contended that TAPL in taking up the Arbitrator's suggestion of an implied term and propounding a construction of cl 7(b) (earlier summarised) or alternatively an implied term to the effect that cl 7(b) does not apply if all products are withdrawn from the Second Schedule, had advanced arguments which did not assist it. ACDT contended that the suggested implications were premised on ACDT validly withdrawing all products from the Second Schedule. However, it had already been held (in the Arbitration) that ACDT did not and cannot validly do so. In its submissions ACDT repelled the suggestion that it had not acted in good faith and that it had behaved unconscionably.

53 In para 189 of his Partial Award the Arbitrator gathered and concisely stated all twelve reasons advanced by TAPL as to why cl 7(b) was no longer binding.

54 In paras 190 and 191 the Arbitrator wrote "In my view, the true answer to the question which has arisen is that the agreement between the parties and, in particular, the covenant in clause 7(b), is subject to an implied term that the obligation thereunder is subject to due performance by the parties [ACDT] of their [its] obligations under the Agreement. To make the agreement workable, it is necessary, in my view, to imply such a term. Otherwise, the situation would be that, although ACDT was in breach of its various obligation(sic) to manufacture and supply the goods in the Second Schedule and to make available new or derivative products (clause 16) and the provisions of clause 12 of the Agreement were not applicable to the situation thus created, nonetheless, ACDT would be entitled to restrain TAPL from obtaining its supplies from another source.

That would be quite unreasonable. The doctrine of restraint of trade is bottomed on public policy. That permits only restraints reasonabl required to protect the legitimate interests of the covenantee. In the case of a 99 year agreement it would be unreasonable to restrain the convenantor, without qualification as in the term implied, whilstsoever the covenantee was in breach." That would be quite unreasonable. The doctrine of restraint of trade is bottomed on public policy. That permits only restraints reasonably required to protect the legitimate interests of the convenantee. In the case of a 99 year agreement it would be unreasonable to restrain the covenantor, without qualification as in the term implied, whilstsoever the covenantee was in breach."

55 While the term implied by the Arbitrator differed from that advanced by TAPL the Arbitrator relied heavily in formulating it on the contingency, which occurred, that ACDT was in breach of its various obligations to manufacture and supply the goods in the Second Schedule and to make available new or derivative products (cl 16) with the consequences mentioned by the Arbitrator. In the end the Arbitrator made a declaration which gave TAPL the result it sought in its submissions of 25 June 2003 but by a route different from that advanced by the plaintiff but utilising factors on which TAPL had relied.

56 Not infrequently when a judge implies a term the actual term implied differs from the contentions of both parties. In this case ACDT sought to concentrate attention on the route travelled by TAPL rather than the end result which it sought and of which ACDT had adequate notice.

57 ACDT submitted that "the Arbitrator's implication of the term in question, without it having been the subject of submission from the parties amounted to technical misconduct. That submission does not have sufficient regard to what took place and what TAPL sought. I reject the submission that the course taken by the Arbitrator amounted to technical misconduct.

58 ACDT contended that a fundamental problem with the term implied was that it rested on the assumption that by ceasing to manufacture products (or perhaps by ceasing to manufacture all products ACDT was in breach of the DA. That, it submitted was not so as cessation of manufacture was expressly contemplated and permitted by cl 9(b). The present case is one of ACDT ceasing to manufacture all products. I have earlier explained why the interpretation advanced and the course taken by ACDT were not permitted and perhaps more importantly, that it was open to the Arbitrator to hold as he did and that it did not involve manifest error.

59 ACDT submitted that there was no need for the term implied by the Arbitrator as TAPL was adequately protected by the scheme of the express terms of the DA if ACDT ceased to supply products. I do not agree. Although the DA provided for various contingencies the manufacture and supply of products by ACDT lay at the heart of the agreement.

60 ACDT complained that there were problems with the expression of the term implied by the Arbitrator. The obligation under cl 7(b) "is subject to due performance of the parties (presumably ACDT) under the Agreement." ACDT submitted that this could not be literally correct; there would be many provisions of the DA breach of which would have no necessary connection with cl 7(b) and it would not be reasonable to excuse TAPL/TNZL from performance of their obligations under cl 7(b) on account of a breach by ACDT unless there were a causal relationship between that breach and compliance with cl 7(b): Mitchell v Patten Holdings Pty Limited [2003] NSWCA 212. ACDT pointed out that the Arbitrator did not identify which breaches of the DA, if any, should be treated as having this effect. ACDT submitted that the term implied by the Arbitrator manifestly failed to satisfy the criteria laid down in BP Refinery (Westernport) Ltd v Hastings Shire Council (1977) 180 CLR 266 and as such the implication represented a manifest error of law on the face of the Award.

61 ACDT contended that the form of the declaration made by the Arbitrator, namely, that TAPL and TNZL were not bound by cl 7(b) of the DA, was not justified by his reasoning. ACDT submitted that at the most the Arbitrator's reasoning led to the conclusion that "whilesoever" ACDT was in breach of its obligations under the DA, TAPL and TNZL might, depending on the circumstances, have a good defence to future claims by ACDT of breach of cl 7(b) and that the failure to confine the terms of the declaration to reflect that reasoning amounted to a further and distinct manifest error of law on the face of the Award.

62 ACDT relied upon the decision of the Court of Appeal in Mitchell v Patten Holdings Pty Ltd, supra, a case involving a contract of sale of a strata lot "off the plan" where the contract was conditional on registration of the strata plan "substantially in accordance with draft strata plan." Questions arose whether the strata plan ultimately registered was substantially in accordance with the draft strata plan, whether the vendor failed to use all reasonable efforts to secure registration of the strata plan substantially in accordance with the draft strata plan and whether the vendor was entitled to terminate the contract.

63 At para [55] Powell JA referred to what has been descried as "a rule of construction" based upon a broad proposition that a party is not entitled to take advantage of his own default or wrong. That proposition emerged from a series of cases to which Powell JA referred.

64 Powell JA at para [56] pointed out that this approach often did away with the need for the implication of a term and that in order that a party be disentitled to exercise a right of rescission, it must appear that it was his default which brought about or at least materially contributed to the recurrence of the relevant event.

65 ACDT submitted that given the "rule of construction" there was no need for the Arbitrator to imply a term. This meant that while the particular rescission was avoided there were no further consequences. ACDT also submitted that the requisite causal relationship did not exist in the present case.

66 The application of the rule of construction does not adequately meet the events which occurred and the operation of the Agreement. In my opinion the Arbitrator was correct in implying the term under challenge. As the Arbitrator found, ACDT had not manufactured and supplied goods for many years and had put it beyond its power to do so. Some of the subsidiaries of the Tomkins Group manufacture products which are in competition with products marketed with the Tridon trade mark. I agree with the views expressed in para 191 of the Award. I have read the phrase "the parties " in the implied term as meaning ACDT.

67 While, in other circumstances it may have been desirable to grant a declaration in more limited terms than declaration 5, in the present circumstances it was not objectionable. It was clear and straightforward and accorded with the realities of the situation. This was not a case in which it was appropriate to make a declaration of some complexity with various theoretical possibilities in mind.

68 It follows from the foregoing that there is no manifest error of law on the face of the Award as to either the implied term or the form of the declaration. Nor is there strong evidence that the Arbitrator made an error of law. The Arbitrator did not err in holding that the Distributor was not bound by cl 7(b) of the DA.

69 It is not necessary for me to deal with the further finding of the Arbitrator that it would be a breach of the obligation in para 192 of the Award to act in good faith for ACDT to seek to enforce the provisions of cl 7(b) whilesoever the situation of breach continues. I am far from persuaded that there is manifest error or strong evidence of error evinced in the Arbitrator's stated opinion.

71 At the time of ACDT's Purported Termination of the DA By Notice of 7 March 2003 And/or Defence of 18 March 2003 Were TAPL/TNZL In Breach

Clause 7(e) which requires the Distributor to safeguard ACDT's commercial monopoly rights is set out earlier. It provides, amongst other things, that the Distributor "will in and about the execution of its duties use every effort to safeguard the property rights and interests of the Company.

72 ACDT claimed that TAPL by initiating and subsequently failing to withdraw the applications to revoke the Tridon Trade Marks and transfer the registrations of them to its own name when called upon to do so had acted contrary to its obligations under cl 7(e) of the DA. ACDT contended before the Arbitrator that TAPL's "applications jeopardised ACDT's ability to sell products into the Australian market, to its entitlement to the existing Tridon Trade marks and 'thereby jeopardised ACDT's rights and interests as a parent corporation of Tridon Inc'." (para 126 of Award) There was a purported re-assignment of the Trade Marks by Tridon Inc to ACDT. ACDT submitted that TAPL maintaining its applications especially after such purported reassignment was also a breach of cl 7(e) and that it jeopardised ACDT's rights and interests as assignee of the trade marks.

73 By notice dated 7 March 2003 from ACDT to TAPL & TNZL, ACDT purported to terminate the DA for breach. The notice stated: "… the Applications made by … TAPL … in connection with the Tridon trade marks …:

(a) are inconsistent with its obligations to use every effort to safeguard the property rights and interests of … ACDT … including its rights and interests in its wholly owned subsidiary, Tridon Inc; and

(b) are inconsistent with the Distributor's obligation to use its best endeavours to maintain the existing reputation of the Tridon name,

and consequently the making of those applications is a breach of clauses 7(e) and 10 of the DA." It is necessary to recount events which led to that notice.

74 At a Directions Hearing before the Arbitrator on 4 March 2003 counsel for ACDT warned that the activities of TAPL with respect to the Australian trade marks might lead to ACDT terminating the DA for breach. Senior counsel for TAPL asserted that the action taken was merely an objection to the assignment of the trade mark by ACDT.

75. On 5 March 2003 the solicitors for ACDT wrote to TAPL, its solicitors and TNZL claiming that TAPL's actions constituted a serious and fundamental breach of the Distributor's obligations under the DA and demanded that TAPL immediately withdraw. (a) All applications made by it to remove any of the Tridon trade marks from the Australian trade mark regiuster

(b) All applications made by it to the Australian Trade Mark Register to register the Tridon trade marks or any trade marks equivalent or similar to the Tridon trade marks in its own name;

(c) All Notices of Opposition related to the Tridon trade marks or any related applications including TAPL's opposition to application 876771.

Our client requires that the demands made in (a)-(c) above be complied with, and the proof of such compliance be provided to us, by 5.00 pm on Friday, 7 March 2003. We are further and separately instructed to demand that TAPL execute all such documents required and necessary to transfer to our client or its nominee, any and all registrations in respect of the Tridon trade marks currently held by TAPL on the New Zealand Trade Mark Register. In this respect, our client requires TAPL to provide us with a written unconditional undertaking to comply with this demand by 5.00 pm on Friday, 7 March 2003.

Should TAPL fail to comply with any of the demands made in this letter, our client will take whatever action is open to it as a result of TAPL'S failure to comply with such demands. Such action may include termination of the DA without further notice." The further history is set out in paras 91-95 of the Award which read: "91. On the same day Mr Lennox [the principal of TAPL] who was leaving for Paris that day, sent an email to Mr Lockhardt which I should quote in full: 'Yesterday it was mentioned in Arbitration that we were trying to obtain the Tridon Trademark from ACD Tridon whereas we said we were only objecting to it being transferred to Tridon Incorporated as they did not have the rights to it. There was a statement made that we could be in breach of the Distribution Agreement.

Marcus Jacobs QC was at the hearing and would give you a better analysis than this very quick email as I am heading to the airport to go overseas. Could you ring Marcus on his home number 9958 7622 to discuss and ensure that we are not entering into a possible breach.' 92. What, if anything, was done pursuant to this email is not known.

93. The solicitors for TAPL responded to Allen Arthur Robinson by letter dated 6 March 2003. After alleging that ACDT had acted in an 'insidious, devious and underhand manner' without advising TAPL or TNZL, despite their undoubted interest in the trade marks, sought to frustrate their rights in the trade marks by transferring them to Tridon Inc went on to say that it was to safeguard TAPL's and TNZL's rights 'and to set aside the assignment' that the trade mark proceedings in question were instituted. The letter went on 'insofar as the various objections taken by Messrs Baldwin Shelston Waters, may have exceeded that object, (and this is not admitted), we understand that they have been instructed by Mr Lennox immediately to serve and file the necessary amending papers. We trust that this will be done immediately.'

This is a rather generous interpretation of the email if that is what was being referred to. In any event, no 'amending papers' were filed immediately or otherwise as indeed no 'amendment' was possible. The letter called on ACDT to correct the position with respect to trade marks by taking a reassignment of the trade marks from Tridon Inc and having the relevant documents registered at the trade mark office.

For their part, Allens (sic) Arthur Robinson responded by a letter dated 7 March 2003, in which they asserted that the assignment from ACDT to Tridon Inc had been undertaken as part of a corporate reorganisation of the Group of companies of which ACDT is part. 'It was not intended to frustrate your client's rights under the DA, and self-evidently has not had any practical impact on your client's businesses ... In any event, before receiving your fax, it had been decided to assign the marks back to ACDT. We are instructed that the formal assignment will be executed today, US time.'

A document purporting to be reassignment of the trade marks was executed and signed on behalf of Tridon Inc by a Mr Harris. The legal efficacy of that document is challenged by TAPL on the basis of absence off authority of Mr Harris to execute the document." 76 Before the Arbitrator and this Court ACDT submitted that "interests" in cl 7(e) of the DA does not have a technical meaning but has the broader meaning of commercial benefit or advantage; with the word "property" in the clause safeguarding strict property interests the use of the additional "interests" in the clause would be superfluous. Reliance was also placed, in this Court on the word "interests" being a word of wide import. The Court was referred to the second meaning of "interest" in the New Shorter Oxford Dictionary, p 1393: "A thing which is to the advantage of someone, (a) benefit, (an) advantage. Freq. In pl."

77 On the basis of this meaning ACDT contended that because Tridon Inc was a fully owned subsidiary, an attack on trade marks registered in the name of Tridon Inc was an infringement of ACDT's interests. The Arbitrator held: "130. In my view the clause has to be read as a whole. It commences with the statement of the intention of the clause 'to safeguard the Company's commercial monopoly rights'. What the Distributor is required to do is to bring to attention improper or wrongful use of the Company's commercial monopoly rights. It is in the implementation of this obligation and not otherwise, that is, in and about the execution of those duties, that it has to use every effort to safeguard the company's property rights and interests.

131. Regrettable as TAPL's actions may have been, they were not a breach of clause 7(e) of the DA. Indeed there is a strong argument for saying that ACDT had breached its own obligation to act in good faith by the way it handled the transfer of the Trade Marks.

132. In the result, the first basis on which the notice of 5 March 2003 had to rest namely that TAPL's actions had been in breach of Clause 7(e) of the DA was misconceived. In fact this was recognised by ACDT when it sought the reassignment of the Trade Marks from Tridon Inc.

133. TAPL then contends that, by maintaining the applications on foot after the re-assignment of the Trade Marks by Tridon Inc, executed on 7 March 2003, ACDT infringed its obligations under clause 7(e)."

78 ACDT submitted that an interpretation which rendered the word "interests" superfluous was so inimical to the meaning of cl 7(e) and the approach adopted by the High Court in Upper Hunter 118 CLR 429 as to be a manifest error of law on the face of the record.

79 ACDT submitted that interpreting the obligation upon TAPL and TNZL in cl 7(e) as limited to the performance of the duties under that clause is inconsistent with both the framework of the DA as a whole and the particular wording used in that clause. Such an interpretation, when regard was had to the other obligations of the Distributor under the DA, was unnecessarily restrictive.

80 ACDT contended that the Arbitrator should not have read cl 7(e) as limited by the introductory words "To safeguard the Company's commercial monopoly rights" as these were prefatory, and, in accordance with settled principles of construction, should not have been used to read down the substantive provisions of the clause.

81 The construction of cl 7(e) is a matter of some difficulty. That clause requires the Distributor to immediately bring any improper or wrongful use in the Territory of the Company's trade marks of which the Distributor becomes aware to the Company's attention and to use, in the execution of its duties, every effort to safeguard the property rights and interests of the Company. The applications did not involve any improper or wrongful use of the Company's trade marks. There had been none at that stage and it may never have happened.

82 The Distributor's obligation to safeguard the Company's property rights and interests was in and about the execution of the Distributor's duties under the DA. Clause 7(e) did not oblige the Distributor, in the exercise of some wide ranging duty to safeguard all the interests of ACDT. The construction adopted by the Arbitrator could not be said to be manifestly wrong. The Arbitrator was correct in holding that regrettable as TAPL's actions may have been they were not a breach of cl 7(e) of the DA. I add that TAPL had been placed in an invidious position by ACDT assigning the trade marks to Tridon Inc. This put a large question mark over their future use by TAPL, especially since all the many products in the Second Schedule had been removed.

83 It should be noted that TAPL withdrew its various applications and notices about 20 March 2003, that is about two days after ACDT filed its defence and some 16 days after ACDT had first raised the matter.

84 ACDT contended that in maintaining the applications on foot after the re-assignment of the trade marks by Tridon Inc executed on 7 March 2003 TAPL infringed its obligations under cl 7(e).

85 The Arbitrator described the reassignment as a rather curious document. It purports to be an agreement between ACDT and Tridon Inc. It recited the DA, that TAPL had the right to purchase for resale certain automotive components and products under the Trademark, that pursuant to an agreement made June 25, 1999 (the Rollover Agreement) ACDT had transferred to Tridon Inc as part of a corporate reorganisation all of ACDT's right title and interest in and to the Tridon Trademark and all goodwill associated therewith, that ACDT was obligated under the Rollover Agreement to do all acts and things necessary or advisable in Tridon Inc's opinion, to vest title to and the benefit of the trademark in Tridon Inc and that to better protect the Trademark and ACDT's property interest in Tridon Inc, it was desirable to transfer the intellectual property and other rights arising from the use of the trademark to ACDT. The operative parts of the Agreement stated: "1. Tridon Inc hereby transfers to ACD Tridon Inc all of Tridon Inc's right, title and interest in and to the Trademark Rights.

2. ACD Tridon Inc agrees to use all reasonable efforts to defend the [Trademark] proceedings, and at the request of Tridon Inc, following final determination of the proceedings, to retransfer to Tridon Inc the property transferred pursuant to 1 above." 86 In paragraphs 136 and 137 of the Award the Arbitrator wrote: "136. In the result, quite transparently, the title of ACDT to the trade marks was to last only so long as the application by TAPL remained pending. In my opinion, the reassignment failed to achieve the purpose for which it was entered into for a number of reasons.

137. Most obviously, the agreement was entered into as a legal stratagem to allow ACDT to attempt to rely on clause 7(e) of the DA. Once the purpose of repelling the applications of TAPL was achieved, ACDT itself was to have no further interest in the Trade Marks. In those circumstances, it seems to me that to seek to invoke the provisions of clause 7(e) of the DA by reliance upon the Agreement bears all the trade marks of an absence of good faith." These paragraphs do not involve any manifest error.

87 The agreement of 7 March 2003 was signed by John Zimmerman, President on behalf of ACDT and Brian J Harris, Vice President, on behalf of Tridon Inc. The Arbitrator found that when ACDT was called upon to produce evidence of Mr Harris' authority to sign the agreement it could not do so. When this point was made in the draft partial award circulated to the parties, counsel for ACDT drew the Arbitrator's attention to Article 62 in the By Laws of Tridon which had been tendered as part of Exhibit N5 but not referred to in argument. Neither the Arbitrator nor counsel for TAPL appreciated the use to be made of the Articles at the time they were tendered. The Arbitrator would, if requested, have allowed the case to be re-opened and Mr Harris to be further cross-examined if Article 62 were to be decisive.

88 In para 143 of the Award the Arbitrator described Article 62 as a draftsman's nightmare. It reads: "Contracts, documents or instruments in writing requiring the signature of the Corporation may be signed by any director or officer and all contracts, documents or instruments in writing so signed shall be binding upon the Corporation without any further authorization or formality. The directors are authorized from time to time by resolution to appoint any officer or officers or any other person or persons on behalf of the Corporation either to sign contracts, documents or instruments in writing generally or to sign specific contracts, documents or instruments in writing.

The corporate seal of the Corporation may, when required, be affixed to contracts, documents or instruments in writing signed as aforesaid or by an officer or officers, person or persons appointed as aforesaid by resolution of the board of directors.

The term 'contracts, documents or instruments in writing' as used in this by-law shall include deeds, mortgages, hypothecs, charges, conveyances, transfers and assignments of property, real or personal, immovable or movable, powers of attorney, agreements, releases, receipts and discharges for the payments of money or other obligations, conveyances, transfers and assignments of securities and all paper writings.

In particular, without limiting the generality of the foregoing, any director or officer are (SIC) authorized to sell, assign, transfer, exchange, convert or convey all securities owned by or registered in the name of the Corporation and to sign and execute (under the seal of the Corporation or otherwise) all assignments, transfers, conveyances, powers of attorney and other instruments that may be necessary for the purpose of selling, assigning, transferring, exchanging, converting or conveying any such securities.

The signature or signatures of any such officer or director of the Corporation and/or any other officer or officers, person or persons appointed as aforesaid by resolution of the directors may, if specifically authorized by resolution of the directors, be printed, engraved, lithographed or otherwise mechanically reproduced on all contracts, documents or instruments in writing or bonds, debentures or other securities of the Corporation executed or issued by or on behalf of the Corporation and all contracts, documents or instruments in writing or securities of the Corporation on which the signature or signatures of a(n)y of the foregoing officers, directors or persons shall be so reproduced, by authorization by resolution of the directors, shall be deemed to have been manually signed by such officers, directors or persons whose signature or signatures is or are so reproduced and shall be as valid to all intents and purposes as if they had been signed manually and notwithstanding that the officers, directors or persons whose signature or signatures is or are so reproduced may have ceased to hold office at the date or the delivery or issue of such contracts, documents or instruments in writing or securities of the Corporation."

89 In paras 144, 145 and 146 of the Award the Arbitrator wrote "If the first sentence of the Article stood on its own, then it could be argued that simply by virtue of his appointment as an officer of ACDT Mr Harris was authorized to sign all contracts, documents or instruments whatsoever. However, the second sentence seems to me to cut down the operation of the first sentence and to require a resolution appointing an individual to sign documents either generally or specifically. That obviously was not done in this case. Although neither of the last two paragraphs have relevance to this issue it is of interest to note that the first sentence of the fifth paragraph again seems to contemplate a resolution of directors for the purpose these addressed.

Were it necessary to do so, I would hold that absent a resolution of directors, Mr Harris, Vice President or not, had no authority to sign the Re-Assignment Agreement

Accordingly, the purported re-assignment made no change to the existing legal position." 90 In its Sixth Amended Points of Claim TAPL and TNZL alleged inter alia, that Brian J Harris did not have power to execute the 7 Match 2003 Re-Assignment agreement and put ACDT to the proof of that. ACDT referred to various submissions of TAPL and TNZL and the terms of the draft Partial Award, a copy of which was handed to each of the parties on 12 June 2003.

91 ACDT complains that the construction of Article 62 adopted by the Arbitrator was not propounded by either party. As I follow what happened TAPL and TNZL challenged the validity and effectiveness of the Re-Assignment and the authority of Brian J Harris to sign it on behalf of Tridon Inc. Various grounds relied upon by ACDT were rejected by the Arbitrator in his Partial Award. Prior to 13 June 2003 it had not been submitted to the Arbitrator that Article 62 empowered Mr Harris to sign the Agreement of 7 March 2003. Nor had it been submitted that it did not. Once counsel for ACDT drew attention to article 62 its construction became a live issue ACDT asserting that Mr Harris' authority to sign the Agreement of 7 March 2003 on behalf of Tridon Inc was contained within its By-Laws. It then became apparent that close attention would have to be given to Article 62. TAPL and TNZL maintained their pleaded stand that Mr Harris had not been shown to have authority to execute the Agreement of 7 March 2003 on behalf of Tridon Inc.

92 ACDT submitted that the Arbitrator's construction of Article 62 appears to have occurred to him when considering the question of authority for the purposes of the final version of the Partial Award and that he had engaged in technical misconduct in making this determination and an earlier determination set out in para 135 of the draft Partial Award.

93 Both parties were allowed to speak to the draft Partial Award and, indeed, para 135 of the draft was superseded by the final Partial Award. There was no misconduct on the Arbitrator's part. The pleadings put in issue Mr Harris' authority to sign the Agreement of 7 March 2003 on behalf of Tridon Inc. As from 13 June 2003 it was plain that ACDT was relying on the By Laws of Tridon Inc, especially Article 62, to repel the claim of TAPL of lack of authority on the part of Mr Harris. In the circumstances which had arisen the Arbitrator was bound to consider whether the By Laws of Tridon Inc conferred the claimed authority on Mr Harris.

94 ACDT referred to a number of authorities, for example, Interbulk v Aid Shipping, 1984 2 Lloyd's Reports 66 and Thiess Watkins White Constructions Ltd v Commonwealth of Australia, unreported NSWSC 1992 and Pacol Ltd v Joint Stock Company Rossakhar 2000 1 Lloyds Reports 209. I accept that arbitrators should not decide cases on points which have not been raised but that is not this case. The question of Mr Harris' authority had been raised and ACDT had endeavoured to meet it by, amongst other things, placing reliance on the By-Laws of Tridon Inc.

95 I reject the submission that the arbitrator was guilty of technical misconduct.

96 ACDT further submitted that the construction of Article 62 adopted by the Arbitrator was erroneous. It contended that Article 62 contains two grants of authority, namely, the first sentence conferred authority on directors and officers to sign without any prior resolution and the second sentence permits the directors by resolution, to appoint officers or any other persons to sign.

97 While ACDT accepted that there was an overlap between the two grants of power it submitted that both could stand next to each other without any difficulty and that settled principles of construction would require both to be given full effect in accordance with their terms. ACDT further submitted that not only did the Arbitrator's decision ignore that principle of construction but the requirement imposed by that construction that an officer be authorised to sign by resolution of the directors flies in the face of the express command in the first sentence of Article 62 that a document signed by an officer "shall be binding on the corporation without any further authorisation or formality."

98 ACDT submitted that the Arbitrator further erred when he referred to the fifth paragraph of Article 62 as supporting his construction. That paragraph requires that the mechanical reproduction of a signature as distinct from an actual signature be authorised by resolution and does not qualify the earlier provisions concerning actual signatures.

99 Article 62 poses difficult questions of construction. If paragraph 1 of that article is read as urged by ACDT there is considerable overlapping in the first and second sentences. The second authorises the directors by resolution to appoint any officer or person to sign contracts, documents or instruments in writing generally or specific contracts, documents or instruments. However, under the first sentence contracts, documents or instruments requiring the signature of the Corporation may be signed by any director of officer and all those so signed shall be binding upon the Corporation without further authorisation or formality. The first sentence is directed to allowing third parties dealing with the company to act upon documents by any director or officer without making further inquiry.

100 If the first sentence is not read as the Arbitrator suggested there would be no point in the second sentence authorising the directors to appoint any officer or officers to sign contracts etc generally or specific contracts etc. The second sentence enables the directors to appoint any other person or persons, that is a person other than an officer. Third parties would be put on enquiry if a person other than a director or officer signed the contract etc.

101 Two points need to be made. The Arbitrator's construction appears to be correct. In any event, there is no manifest error.

102 I reject the challenge to the Arbitrator's finding that the evidence did not establish that Mr Harris was authorised to sign the Agreement of 7 March 2003.

103 If TAPL Were in breach of the DA Was ACDT Disentitled From Relying Upon That Breach To Terminate

The Arbitrator determined that even if the Applications by TAPL as to the Australian trade marks were in breach of the DA it was not in the circumstances legitimate for ACDT to act upon the breach. Para 182 of the Award reads: "182. Even if I were wrong in the conclusion to which I came that there had been no breach of clauses 7(e) and (f) of the DA by reason of TAPL's activities in relation to the trade marks, it appears to me that it was not legitimate for ACDT to seize upon the activity to found a termination of the DA. TAPL's attitude was made quite clear by its Senior Counsel at the Directions Hearing where Mr Parker had delivered his warning as to the consequences of TAPL's actions. It was made clear then and was confirmed by the subsequent letter from Cutler Hughes & Harris of 6 March 2003, that whether appropriately framed or not, TAPL was confining its attack to the assignment as distinct from ACDT's ownership of the trade marks. The letter could have been better framed and the withdrawal of the applications made more quickly but it was made crystal clear to ACDT what TAPL's basic concern and wish was. In those circumstances, to give a notice of termination founded upon the applications which were inappropriate to further TAPL's wishes was not to act in good faith."

104 ACDT submitted that the Arbitrator had failed to correctly apply the principles attributed to the doctrine of good faith and that for there to be a finding of the breach of the obligation of good faith it was essential that the party exercising the contractual power in question actually subjectively lacks good faith in doing so: Peden E, Good Faith in the Performance of Contracts 2003 at p 162. She referred to the opinion of Sir Anthony Mason ('Contract and its Relationship with Equitable Standards and the Doctrine of Good Faith', The Cambridge Lectures July 1993 and 'Contract, Good Faith and Equitable Standards in Fair Dealing' (2000) 116 LQR 66) that good faith embraced three notions: (1) an obligation on the parties to co-operate in achieving the contractual objects (loyalty to the promise itself)

(2) compliance with honest standards of conduct, and

(3) compliance with standards of conduct which are reasonable having regard to the interests of the parties 105 Peden also directs attention to these remarks of Barratt J in Overlook v Foxtel (2002) Aust Contracts Rep 90-143 at [67]: "... the implied obligation of good faith underwrites the spirit of the contract and supports the integrity of its character. A party is precluded from cynical resort to the black letter. But no party is fixed with the duty to subordinate self interest entirely which is the lot of the fiduciary ... The duty is not a duty to prefer the interests of the other contracting party. It is, rather, a duty to recognise and to have due regard to the legitimate interests of both the parties in the enjoyment of the fruits of the contract as delineated by its terms."

106 Peden at 162 in referring to the element of honesty wrote: "Honesty in this context must require subjective honesty, that is a consideration of the motivations of the individuals involved, rather than a requirement of objective reasonableness."

107 The third element of good faith suggested by Sir Anthony Mason is reasonableness having regard to the interests of the parties and that would appear to require an objectively reasonable exercise of rights. The third element thus differs from the second element.

108 ACDT submitted that the Arbitrator evidently thought that it ought, as a matter of commercial reasonableness, to have understood that TAPL was only complaining about the assignment of the trademarks to Tridon Inc. It submitted, however, that the Arbitrator made no finding that ACDT did in fact so understand TAPL's conduct, that the circumstances as they appeared to ACDT, were at the least, ambiguous and that in the absence of such a finding the conclusion that ACDT was not acting in good faith was not open.

109 It is necessary to look at the facts a little more closely. This will involve some repetition. At the hearing on 4 March 2003 before the Arbitrator, counsel for ACDT stated that just before Christmas ACDT had learnt that TAPL had "commenced proceedings to have the trademarks under which these products are supplied revoked and to have in effect the benefit of the trademarks transferred into TAPL's own name." Counsel for TAPL said, "No that is not right."

110 Counsel for ACDT replied that applications had been made to the Registrar of Trademarks, Australia. He warned that these activities of TAPL may lead to ACDT giving notice to terminate the DA for breach. In response to the Arbitrator's query, counsel for TAPL said that the application did not go to the revocation of the trade mark . Counsel continued: "As I understand it, ACDT purported to assign or cede the trademarks to another company ... we say that should not have been done."

Counsel stated that there was an objection to the assignment as he understood it. This exchange is recorded: "ARBITRATOR: Can ... Mr Parker and I proceed on the basis that if the document in fact seeks revocation of the trademark that is not what is intended and the only challenge that is intended is to the assignment.

JACOBS: Yes, most definitely." Mr Parker commented that this was an issue.

111 By FAX of 5 March 2003 the solicitors for ACDT reiterated that it had come to its client's attention that "TAPL has made certain applications in connection with the Tridon Trade Marks to the Australian Trade Mark Office. In substance, TAPL appears to have embarked on a strategy of seeking to remove certain of the Tridon Trade Marks from the Australian Trade Mark Register and re-register those marks in its own name. Our client regards this as a serious and fundamental breach of the Distributor's obligations under the Distributorship Agreement."

112 ACDT also relied on the following paragraph of the letter which it complained was omitted from the Arbitrator's summary in the Award, namely: "We have not overlooked the fact that Mr Jacobs QC ... who appeared on behalf of TAPL and TNZL at that hearing denied that the applications had this purpose and went so far as to deny that the applications included an application to remove the Tridon Trade Marks. However, we find Mr Jacobs statements impossible to reconcile with the applications filed to date by TAPL with the Trade Marks Office."

The FAX demanded withdrawal of TAPL's applications and notices of opposition by 5pm on 7 March 2003.

113 By FAX of 6 March 2003 the solicitors for TAPL in the Arbitration pointed out that they were not acting in the trademark matters. TAPL's solicitors asserted that ACDT, despite the undoubted interest of TAPL and TNZL in the trademarks, trade names and logos had sought to frustrate their clients' rights to these trademarks etc by transferring them to Tridon Inc, one of its associated companies and for no consideration.

114 TAPL's solicitors stated: "To safeguard our clients' rights and to set aside the assignment the Trademark proceedings to which you refer were instituted.

In so far as the various objections taken by Messrs Baldwin Shelston Waters, may have exceeded that object, (and this is not admitted) we understand that they have been instructed by Mr Lennox immediately to serve and file the necessary amending papers. We trust that this will be done immediately.

It must be clearly understood that all our clients rights are reserved.

We are instructed by our clients to call upon your client immediately to correct the position by taking a reassignment of the trademarks etc and having the relevant documents registered at the Trademark office." 115 As to the position in New Zealand, TAPL's stated that they had no knowledge of the matter and would not be able to obtain instructions "until sometime next week."

116 By FAX of 7 March 2003 ACDT's solicitors wrote: "The assignment from ACDT to Tridon Inc to which you refer was undertaken as part of a corporate reorganisation of the group of companies of which ACDT is part, It was not intended to frustrate your clients' rights under the Distributorship Agreement and self evidently had not had any impact upon your clients' business.

In any event before receiving your FAX, it had been decided to assign the marks back to ACDT. We are instructed that the formal assignment will be executed today US time ..."

We find your statements as to the purpose of TAPL's conduct impossible to reconcile with the actual terms of the applications and objections filed by TAPL and with the statutory declarations by Mr Lennox which have been filed in support.

The demands made in our earlier FAX to your clients stand." ACDT complained about the Arbitrator omitting any reference to the penultimate paragraph of the FAX of 7 March 2003 from its solicitors.

117 On 18 March 2003 ACDT delivered its defence relying on the trademark applications by TAPL as a serious breach of the DA entitling it to rescind. Apparently TAPL withdrew its trademark applications and notices of opposition of 20 July 2003. ACDT made three points, first those applications and notices should never have been lodged, secondly, it was not bound to accept what was said on behalf of TAPL as to their purpose and thirdly, even when the matter was raised it took a long time for the applications and notices to be withdrawn. There was no explanation for this delay. While the delay was unfortunate and was contrary to what TAPL's solicitors stated, the delay could not be described as gross. There seems to have been a lack of liaison between the solicitors and the patent attorneys.

118 TAPL saw itself as being in a position of considerable difficulty once ACDT assigned the trade marks to an entity with which it had no contractual ties and where the actual manufacturing and supply was being undertaken in a manner not envisaged by the DA. As the Arbitrator found, at least by implication, the new owners of ACDT regarded the DA as being onerous and wanted a renegotiation of the DA.

119 The Arbitrator took the view that both he and ACDT were told in unequivocal terms that, in a situation of some difficulty for TAPL, all that it wished to do was safeguard its position, that the only challenge intended was to the assignment and that it was not intended to seek the revocation of the trademark no matter what was stated the documents lodged with the Trade Mark office.

120 In those circumstances, while it was legitimate for ACDT to want and require the applications to be withdrawn promptly and TAPL was tardy in doing so, it was not legitimate for ACDT to purport to determine he DA in the manner in which it did. As counsel for ACDT told the Arbitrator it had been aware since prior to Christmas 2002 of TAPL's applications. It had said nothing until 4 March 2003 and thereafter acted in a precipitate fashion. Implicit in the Arbitrator's findings is a finding that ACDT subjectively acted with a lack of good faith in purporting to terminate the DA. Knowing that TAPL was only complaining about the assignment, ACDT purported to exercise its powers not for a legitimate reason but to rid itself of onerous obligations which would continue for many years.

121 It was well open to the Arbitrator to take the view which he expressed. There is no manifest error. I would have been surprised if he had reached any other view.

122 Leave to appeal on this point should be refused.

123 Senior counsel for TAPL relied on TNZL being a party to the DA and not being in breach of the DA. At one stage he seemed to be asserting that before ACDT could act there had to be breaches by both TAPL and TNZL. It is unnecessary to pursue this point.

124 Hearing of Applications Under Sections 38 and 42

TAPL and TNZL objected to these applications being heard together and referred to authorities to the effect that in many instances this was undesirable. After I indicated that this was a case in which it was better to hear the applications together TAPL and TNZL continued to press their strike out motion on the basis that applications for leave to appeal under s.38(5)(b)(i) should not be conjoined with a s.42 application.

125 The application under s.42 and part of the application under s.38 covered a lot of the same territory and it would have been a waste of time and effort and delayed matters not to hear them together in the present case.

TAPL and TNZL sought costs on an indemnity basis relying on this letter from their solicitors to ACDT's solicitors in these terms: "We refer you to this Application and we are instructed to advise you that the Application is frivolous and without merit.

Our client's have instructed us that we should seek indemnity costs and this is put to you on notice of that fact. However if the Summons is withdrawn today our clients have instructed us to record their offer that there should be no order as to costs.

We await to hear from you as soon as possible but no later than 5pm tomorrow." 128 I am unable to agree that the application was without merit. Some of the questions raised occasioned me considerable difficulty and if the test had been whether ACDT had raised points which were fairly arguable I would have granted leave. Both parties prepared detailed written submissions. The primary written submissions of TAPL and TNZL extended over 51 pages with several sets of supplementary submissions. Counsel for both parties addressed me at some length. The Award was lengthy and detailed. Considerable time was spent in understanding the somewhat complex factual matrix and the issues which arose.

129 The resolution of the issues raised was important for the future conduct of the arbitration which I was told involved large sums of money. The question of costs is of minor importance in this instance. Both parties will benefit from having the ruling of the Court as the Arbitration proceeds further.

130 While I appreciate the offer which was made, the case involved at least one developing area of the law. I would also distinguish this case from one in which there is an application for leave to appeal or an appeal from a judge of first instance to the Court of Appeal.

131 I do not regard this case as being one for the award of indemnity costs.

132 This is an uncommonly long judgment for an application for leave to appeal but points of some complexity and difficulty were raised.

133 Leave to appeal is refused. I order that ACDT pay the costs of TAPL and TNZL on a party and party basis of the application for leave to appeal.

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