Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc & Anor

REASONS FOR JUDGMENT HIS HONOUR: This action was commenced by the applicant (BP) on 23 September 1997 to obtain orders restraining the respondent (Manildra) from terminating a supply agreement said to be subsisting between them and restraining Manildra from improperly using information relating to BP's customers and price structure which was said to be confidential to it. Other relief, including damages and an account of profits, is also sought. BP contends that at some time during 1991 to 1993 it was appointed by Manildra as the sole Australian distributor of non fuel products (including ethanol) manufactured by Manildra. The terms of that agreement, according to BP, include the following: (a) that Manildra would not terminate the agreement without first giving BP reasonable notice and (b) that reasonable notice would be at least six months notice. Manildra no longer wishes to sell ethanol to BP. Its intention is to appoint Amcor TradingPty. Ltd. to distribute its ethanol. On 11 September 1997 Manildra had written to BP notifying it that it was "terminating its Arrangement with BP Chemicals as distributor of Manildra Group's ethanol". The termination was to take effect on 22 September 1997. On the following day Manildra extended the date of termination to 11 October 1997. BP was concerned that if Manildra refused to supply it with ethanol it would not be able to meet the commitments it had undertaken to supply ethanol to third parties. BP was also concerned that Manildra might make improper use of its knowledge of the customers which purchased ethanol from BP and the prices at which it sold ethanol. Accordingly on 29 September 1997 BP brought an application for interlocutory orders to restrain Manildra from terminating the supply agreement without first giving six months notice of termination and to restrain Manildra from using the confidential information. The application came on for hearing before Tamberlin J. In support of its case BP relied on an affidavit sworn by its Business Manager, Martin Kirwan, and in opposition Manildra relied on affidavits sworn by its Chairman and Chief Executive Officer, John Honan, and its General Manager, Peter Simpson. It is not necessary to summarise the evidence contained in those affidavits because the relevant facts are set out in the reasons for decision given by Tamberlin J. There are two matters of importance that occurred during the course of the hearing with regard to the relief that was sought by BP. The first is that counsel who then appeared for BP informed the Court that BP would not press for relief in relation to the alleged misuse of confidential information. The reason given was that Mr Honan had deposed in his affidavit that Manildra did not possess any document which contained that information. The second matter is that counsel for BP produced to the Court a document which contained the interlocutory orders that BP was asking the Court to make. Those orders were: 1. Until the trial of this proceeding or further order the respondent is restrained howsoever from terminating the agreement referred to in paragraph 3 of the statement of claim in this proceeding ("the Agreement") until 11 March 1998, provided that the respondent may terminate the Agreement at any time prior to 11 March 1998 upon receipt at the Melbourne offices of its solicitors, Baker & McKenzie, of written notice from the applicant of the fact that the applicant has obtained alternate supply of ethanol for its business in Australia. 2. Subject to paragraph 3 below, the respondent is restrained howsoever from persuading or inducing, or seeking to persuade or induce, any customer or client of the applicant from purchasing or acquiring howsoever ethanol from the respondent, or any person associated with the respondent (such person to include Amcor Limited and any of its related entities), until the termination of the Agreement. 3. The order contained in paragraph 2 above shall not prevent the respondent from selling ethanol to: (a) Amcor Limited, for its internal use only; (b) Ajax Chemical, for repackaging; (c) Schwarzkopf Pty Ltd; (d) Aerosol Supplies Australia; (e) Mauri Brothers The proposed second order was new. The effect of the order, if made, would be that Manildra could not sell ethanol to any customer of BP whilst the supply agreement remained in force. A further effect would be that Manildra could not during the currency of the supply agreement solicit any customer of BP to purchase its ethanol even though any agreement for its purchase would not be made until after the supply agreement had come to an end. When counsel for BP handed the document containing the proposed orders to the Court the following exchange took place: Counsel: If I can take your Honour immediately to the orders first; the application concerned with the proposal is in 1, 2, 3 and 4 His Honour Yes, this relates to termination, does it? Counsel: It does your Honour. His Honour; And approaching of the customers? Counsel: Yes your Honour which is really just a concomitant of the first order because the contention of the applicant is that there was a sole distributorship which has been in place since 1991 which was terminated wrongfully on 11 September by way of only 11 days notice. If BP was able to establish to the satisfaction of the Court that there was "a serious question to be tried" concerning the existence of the supply agreement it might have expected that an order would be made preventing the wrongful termination of that agreement. If it could also establish that it had exclusivity of supply BP might also have expected an order to protect that exclusivity. An order which prohibited sale during the currency of the agreement would give that protection. Such an order could be described as "a concomitant of the first order". However, the prohibition of solicitation during the currency of the supply agreement for an agreement to be made after the supply agreement had come to an end is of a different character and cannot be described in that way. I should point out that counsel for Manildra did not draw this distinction to the Court's attention. At the conclusion of the hearing Tamberlin J reserved his decision. On 3 October 1997 his Honour made orders granting relief substantially in the form requested by BP and on 10 October 1997 his Honour delivered his reasons for making those orders. In those reasons Tamberlin J described the relief that BP had sought as "an interlocutory injunction to restrain [Manildra] from terminating an arrangement whereby BP was appointed as Australian distributor and representative of Manildra in relation to ethanol manufactured by Manildra": reasons page 1. At one stage during the course of his reasons his Honour described that relief as "directed to restrain the termination of a supply arrangement presently in existence, except in accordance with the alleged terms of the arrangement in respect of which there is a dispute": reasons page 9. And in the course of giving his reasons for making the orders his Honour said "I am persuaded that there is a serious question as to whether a six month notice period is required for termination": reasons page 12 My purpose for citing these passages is to demonstrate that, in conformity with the submissions that had been made by both counsel, the only issue that was considered by Tamberlin J was whether BP had made out its case for the grant of an injunction to restrain Manildra from terminating the supply agreement. His Honour's reasons show that he did not address as a separate question whether BP had made out a case that entitled it to an order restraining Manildra from dealing with BP's customers in some other way. The implicit assumption in the reasons is that once the supply agreement remained in force as a consequence of the first order then the second order followed as a matter of course. On the same day that his Honour handed down his reasons, the matter came before me for directions. Orders were made for a trial, confined to issues of liability, to commence on 22 October 1997. Those orders were subsequently varied and the trial has now been set down for hearing to commence on 24 November 1997. One reason why the matter was expedited was that if the action was not heard and determined speedily BP would, in effect, obtain a favourable outcome as a result of the interlocutory orders when, on a final hearing, it might be shown that those orders should not have been made. During the course of his reasons Tamberlin J said that the case warranted an expeditious hearing for that reason. As a result of the directions for an expedited hearing the parties have now filed evidence that is much more extensive than the evidence that was before Tamberlin J. I expect that further evidence will be filed before the hearing is to commence. On 10 October 1997 Manildra orally applied to discharge or vary the restraining orders made by Tamberlin J. I heard that application on 24 October 1997. Manildra does not contend that Tamberlin J erred in granting interlocutory relief. What it does say is that the evidence before Tamberlin J was incomplete, that the position is now different because each party has filed additional evidence in preparation for the trial and that evidence shows that there is no justification for the continuance of the orders. First I need to determine the circumstances in which it will be proper for a court, other than a court of appeal, to revoke or vary an interlocutory injunction. There is no doubt that a court has power to revoke or vary any interlocutory order that it has made: Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc & Anor (1981) 148 CLR 170 at 178. In the case of an order for an interlocutory injunction it is usual for the order to be expressed to be "until further order", as in this case, or, if the order is not so qualified, that qualification will be implied: Chanel Ltd v Woolworth & Co Ltd [1981] 1 WLR 485 at 492. So it is that an application to vary or revoke an interlocutory injunction should be regarded as an exercise of the right conferred by the order itself. Notwithstanding the fact that a court retains the power of revocation or variation, it has often been said that the power should be "exercised only sparingly": Copping v ANZ McCaughan Ltd (1997) 67 SASR 525 at 569. The cases establish that an applicant must show some good reason for the court to intervene. Good reason will be shown where there has been some significant change of circumstances or where a party has become aware of facts which he or she could not reasonably have known at the time of the hearing: Adam P Brown 148 CLR at 178. Another instance is when there has been a change in the applicable law: Regent Oil Co Ltd v J.T. Leavesley (Lichfield) Ltd [1966] 1 WLR 1210. It might also be appropriate for the court to intervene if it appears that an injunction has an effect that is significantly different from that which was perceived to be its effect when the order was made. A court might also intervene when an injunction causes real and unwarranted harm either to a party or to a stranger to the suit: Cretanor Maritime Co Ltd v Irish Marine Management Ltd [1978] 1 WLR 966. No doubt other circumstances will arise when the power should be exercised. But the jurisdiction to revoke or vary an order should not be exercised when the real basis for the application is that the original order was wrongly made. Such an argument should be addressed to a court of appeal. Here is what Manildra says are the circumstances that justify the Court considering the matter. The trial date has been deferred from 22 October 1997 to 24 November 1997. The additional evidence that is now before the Court, which includes evidence obtained on discovery that was not available to Manildra for use before Tamberlin J, throws a different light on the facts of the case as presented to his Honour. Some of this additional evidence is to the effect that senior officers of BP had expressed the view that BP did not have any agreement with Manildra and that BP had conducted itself on that basis. The status quo which Tamberlin J was seeking to maintain by his orders (see his Honour's reasons at page 14) is not in fact being maintained. In particular the third order permits Manildra to supply ethanol to a number of customers notwithstanding BP's claimed exclusivity under the supply agreement. Manildra says that before this order was made it had supplied more customers than are mentioned in the order. Further, since 3 October 1997 BP has been purchasing ethanol from Manildra not for the purpose of meeting the requirements of its customers but to build up a significant stockpile for future use. Finally, it is said that BP has available to it or will soon have available to it an alternative source of supply of ethanol and therefore does not need to maintain the interlocutory orders. I do not think that it will be helpful if I deal with these matters in great detail. In particular, I am concerned to ensure that neither party will be left with the impression that I may have formed a view about the merits of the case bearing in mind that I will be hearing it in a few weeks time. Turning to the submissions, I make the following observations with regard to the injunction restraining termination. BP argues that the supply agreement is partly oral and partly in writing. Mr Kirwan has sworn that the agreement was reached during the course of a conversation with Mr Honan and when asked whether he would sign a document setting out the agreed terms Mr Honan declined to do so for the reason that "my word is my word". The existence of that agreement is denied by Manildra. But there are contemporaneous documents to which Manildra was party that suggest it might exist. Even the termination letter was sent to end some "Arrangement" between the parties. Thus, the additional evidence does not conclusively show that a supply agreement did not subsist between BP and Manildra. Unless the evidence had that effect or made the existence of the agreement appear very unlikely, it would not be appropriate for me to look into this question again. If I was to undertake that task here there really would be no end to the number of applications that might be made to vary or revoke an interlocutory order. Moreover, much of the evidence that is now before the Court concerning the existence of the supply agreement could have been placed before Tamberlin J if Manildra had asked for an adjournment of the hearing. I have no doubt that an adjournment would have been granted as the matter was brought on very quickly although some orders might have been made to preserve the position in the meantime. I accept that in an exceptional case it might still be necessary to hear an application to vary or revoke an injunction even in those circumstances. If the trial of this proceeding was a long way off and serious harm was being suffered by the continuance of the interlocutory orders the Court might be obliged to do so. But that is not the case here. In fact no substantial harm is being suffered by Manildra as a consequence of the injunctions. I do not suggest that no harm is being suffered by it. Far from it. But it is not sufficiently serious to provide a reason for the Court to intervene. There appears to be some truth in the allegation that under cover of the interlocutory orders BP is seeking to stockpile ethanol for future use. It is no surprise to me that BP would seek to protect its position in this way even against the consequences of a lawful termination of the supply agreement. For reasons which will become apparent later it is by no means clear that the purchase of ethanol for the purpose of stockpiling is unlawful in the sense of being in breach of a term of the supply agreement. Even if it was, the stockpiling is not of such magnitude that would require the Court to reconsider the orders made. With regard to the last point, namely that BP has an alternative source of supply of ethanol, I note when the interlocutory orders were made BP undertook to the Court to "use its best endeavours to obtain alternate supply of ethanol for its business conducted in Australia as soon as practicable and to notify the respondent in writing when such alternate supply is available." When BP has an alternative supply of ethanol (according to the evidence it does not have it yet) I have no reason to doubt that it will observe its undertaking and advise Manildra of that fact. If and when that occurs Manildra will be able to apply to the Court to discharge the orders and it is likely to obtain that discharge. The injunction restraining solicitation gives rise to different considerations. Usually an injunction is granted to protect some legal or equitable right. At one time it was thought that this was the only basis for the grant of an injunction: Siskina & Ors v Distos Compania Naviera S.A.[1979] AC 210; Bremer Vulkan Schiffbau Und Maschinenfabrik v South India Shipping Corporation Ltd [1981] AC 909. It is now recognised that this too narrowly describes the power of the court (British Airways Board v Laker Airways Ltd [1985] AC 58) and the precise ambit of the power is not clear. In this case BP asserts that the injunction restraining solicitation was sought to protect a right arising under the supply agreement. In so far as Manildra is prevented from selling ethanol during the currency of the supply agreement the right that is being protected is the right of exclusivity conferred by the agreement. But Manildra is also unable to enter into negotiations with customers of BP during the currency of the supply agreement to sell ethanol to those customers when the supply agreement has come to an end. It is not clear what right is being protected by that part of the order. When I asked counsel for BP to identify the right I was told that BP contends that Manildra is under an implied obligation not to do anything that would undermine the benefits conferred upon BP by the agreement. Here counsel was contending for existence of an ad hoc implied term such as would need to satisfy the requirements laid down by BP Refinery (Westernport) Pty Ltd v President Councillors & Ratepayers of the Shire of Hastings (1977) 180 CLR 266 at 283. An implied term of this character has been recognised in cases such as Secured 1ncome Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 114 CLR 597 at 607 and Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 137-138. To determine whether the implication will be made here the surrounding circumstances must be looked at: Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 354. Some of those circumstances are as follows. Manildra manufactures starch and ethanol is a by-product of that manufacture. The ethanol must be disposed of to allow the manufacture of starch to continue. Ethanol can be sold for use by the industrial chemical market and it can be sold for use as a fuel but at a substantially lower price. It may cause serious harm to Manildra if it could not commence to put in place contracts that would enable it to sell the ethanol produced by it when the arrangement with BP has come to an end. Having regard to those circumstances I doubt whether any term would be implied that would restrict the ability of Manildra to ensure that the sale of its ethanol did not come to an abrupt end, even for a short period, on the termination of the supply agreement. The implication of a term that had that effect would not be reasonable or equitable nor would it "go without saying". I also doubt whether the term is necessary to give business efficacy to the supply agreement. Thus at least three of the five requirements for the implication of an ad hoc term are not satisfied. As I see the issue that is before the Court it is this: should the Court consider an application to vary or discharge an order that restrains Manildra from engaging in conduct that BP says would be a breach of an implied term of their bargain when the Court did not direct its attention to that issue and when, as presently advised, I do not consider it to be seriously arguable that such conduct could breach any implied term of the supply agreement? On one view it would be quite wrong for the Court to allow an interlocutory order to remain in force in those circumstances. A fair minded observer might well think that such an order should be revoked as soon as possible. But in my opinion it is clear that this is not a sufficient basis for a single judge to vary or discharge the order. If all that can be said about an order is that it should not have been made it is for an appellate court to set it aside: Woods v Sheriff of Queensland (1895) 6 QLJ 163 at 165 cited with approval by Spender J in Attorney General of the Commonwealth v Davids Holdings Pty. Ltd. & Anor (No 4) (1993) ATPR 40,919 at 40,922. There must be some other circumstance that would make it inappropriate or unjust for the order to continue and here there is no such circumstance. Accordingly, I decline to vary or discharge the interlocutory injunctions made on 3 October 1997. I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein