Ingersoll-Rand (Aust) Ltd v Industrial Rollformers Pty Ltd

Supreme Court of NSW|2000-02-11|Before: Hamilton J

CITATION : Ingersoll-Rand (Aust) Ltd v Industrial Rollformers Pty Ltd [2000] NSWSC 177 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 4997/99 HEARING DATE(S) : 4, 7-9 & 11 February 2000 JUDGMENT DATE : 11 February 2000

Ingersoll-Rand (Australia) Limited (P) PARTIES : Industrial Rollformers Pty Limited (D1) Strata Control Pty Limited (D2) JUDGMENT OF : Hamilton J

COUNSEL : F M Douglas QC and D T Kell (P) D E Grieve QC and F P Donohoe (D1 & 2) SOLICITORS : Baker & McKenzie (P) John Spence & Associates (D1 & 2) CATCHWORDS : EQUITY [335], [338] - Equitable remedies - Injunctions - Interlocutory injunctions - Serious question to be tried - Intellectual property cases - Balance of convenience - Tidy Tea doctrine. LEGISLATION CITED : Restraint of Trade Act 1976 A v Hayden (No 1) (1984) 59 ALJR 1 A Schroeder Music Publishing Co Ltd v Macaulay (formerly Instone) [1974] 1 WLR 1308 American Cyanamid Co v Ethicon Ltd [1975] AC 396 Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 Buckenara v Hawthorn Football Club Ltd [1988] VR 39 Castlemaine Tooheys Ltd v The State of South Australia (1986) 161 CLR 148 CASES CITED : Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 Kone Elevators Pty Ltd v McNay (1997) ATPR 41-564 Martin Engineering Company v Trison Holdings Pty Ltd (1988) AIPC 90-511 Tableland Peanuts Pty Ltd v The Peanut Marketing Board (1984) 58 ALJR 283 Taylor v Delcove Pty Ltd 9 December 1996 SCWA unreported Tidy Tea Ltd v Unilever Australia Ltd (1995) 32 IPR 405 The Australian Coarse Grain Pool Pty Ltd v The Barley Marketing Board of Queensland (1982) 57 ALJR 425 Watson v Prager [1991] 1 WLR 726 DECISION : Extension of injunctive relief sought by plaintiff granted.

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4997/99 INGERSOLL-RAND (AUSTRALIA) LTD v INDUSTRIAL ROLLFORMERS PTY LIMITED & ANOR

HIS HONOUR: 1 This matter arises from an agreement entered into between the plaintiff and the first defendant on 18 April 1984 ("the 1984 contract") concerning the manufacture of mining roof supports known as split sets ("the split sets"). The agreement contains the following two recitals. Clause 15 of the agreement provides: "During the term of this Agreement and for five (5) years following its termination, except as authorized by Buyer, Seller shall not make a mining roof support which is similar in design to the mining roof support covered by this Agreement."

Also relevant is clause 16 which provides: "Either party may terminate this Agreement for its convenience upon one hundred and eighty (180) days prior written notice to the other party. Such notice shall be addressed to the registered office of either the Buyer or Seller and delivered by registered mail." 2 It is clear that the parties assumed at the time the agreement was entered into and have assumed until very recently that the plaintiff in fact held a valuable patent in respect of the manufacture of the split sets. That is plain from the evidence of Mr James Fergusson, the principal witness on behalf of the defendant. He acknowledged in an affidavit that the plaintiff, to his knowledge, invented the split set and also referred in the same affidavit to the plaintiff's "patent rights" and its statutory monopoly. A surprise during the course of the interlocutory hearing before me was that Mr Grieve, of Queen's Counsel for the defendants, pointed out that the patent put forward in the plaintiff's evidence as the relevant patent was in fact a method patent concerning the method of insertion of roof supports in mines, and that the actual patent in respect of the split sets, which was then produced to the Court, was held in the name of a person, so far as the evidence goes, unrelated to the plaintiff. This having happened suddenly, and in light of the basis upon which the parties have proceeded for years, it may well prove in the long run that the plaintiff did, at the material time, have rights in relation to the relevant patent by licence or otherwise. It should be noted that there is no doubt that the relevant patent expired before the end of 1992, and that the split sets have not had patent protection since that time. The existence or non existence of patent rights in the defendant is, however, not vital to the decision of this application in light of the views I have taken, which will appear hereafter. 3 It is to be noted, and some play was made of the fact during the hearing, that the 1984 contract in its terms did not give the first defendant sole manufacturing rights. Indeed, it left the plaintiff at liberty to have the split sets manufactured by other manufacturers. It was and is not compelled to have any of the manufacturing done by the first defendant. However, the history of the matter is that, from the time of the agreement up to the present, more than 15 years, the plaintiff has procured the manufacture by the first defendant, or in later times perhaps the second defendant, of all split sets which it has ordered. Indeed the whole history of the matter, on the evidence before me, shows that from 1984 up until 1999 there had been very considerable loyalty under the agreement and in their general relationship between the plaintiff and the defendants. As I have already said, the plaintiff has had all its manufacture carried out by the defendants, albeit not compelled to do so. The evidence shows on the other hand that over the years the defendants, on occasion, rebuffed attempts by consumers to procure split sets from the defendants direct rather than through the plaintiff. 4 However, it has been said, particularly by Mr Grieve, that commercial circumstances have changed over the years and this appears undoubtedly to be so. It would seem that the present rift between the parties has been caused by increasing competitiveness in the market for these products and particularly the entry into that market of entities which manufacture similar products and sell them direct to consumers in the mining industry. It has become a problem for the plaintiff and the defendants to compete in a tight market when, for their product to be sold, its price must meet the administrative costs of two organisations rather than one. It seems to have become or be becoming a market in which there is no, or certainly reduced room, for a middle man. The atmosphere of cooperation between the plaintiff on the one hand and the defendants on the other has been manifested in various ways. The defendants have established a manufacturing plant in Western Australia as well as one in New South Wales, so that the customers in the hard rock mining industry in Western Australia may be serviced with split sets without the product bearing the cost of transport of finished product from New South Wales to Western Australia. Another form which the cooperation has taken has been input from both sides, in general terms, to the product over the years in consultation the one with the other. 5 When the factory came to be established in Western Australia, the first defendant indicated to the plaintiff that it desired that that manufacturing activity be conducted as a separate business. This has in fact subsequently occurred in two ways. That business has been conducted under the name of Strata Control. At times it has been conducted by the first defendant itself under the business name Strata Control. At other times it has been conducted by a company established for the purpose as a separate entity, being the second defendant, Strata Control Pty Limited ("Strata Control"). There has been some suggestion during the course of the proceedings on behalf of the defendants that Strata Control's was a totally independent operation and that the 1984 contract had nothing to do with it and it could not be regarded as bound by it. It seems to me clear from evidence of the conversations that took place at the time that the plaintiff has an arguable case that the 1984 contract was extended to cover Strata Control, in the sense that Strata Control, insofar as it entered into the manufacture and supply of split sets, did so pursuant to the terms of the 1984 contract including clause 15 thereof. 6 As a result of the developing crisis, apparently induced by increased competitiveness in the relevant market, the defendants had communications with the plaintiff on 5 August 1999, including a fax of that date, in which they indicated that they intended to commence the manufacture of split sets on their own account, and not in response to orders from the plaintiff. They did not at that stage, however, give notice to terminate the 1984 contract under clause 16. That matter becomes of materiality, because it has been said on the defendants' part that the plaintiff had, upon receiving that letter, taken steps to procure the manufacture of such split sets as it wanted by other parties. Notice terminating the 1984 contract was, in any event, given on 29 November 1999 and it will expire on 29 May 2000. It seems to be acknowledged by both parties that the 1984 contract continues in existence until that time. The plaintiff has now set about procuring the manufacture of split sets by other parties and the evidence indicates that it may be able to obtain the manufacture and delivery of split sets otherwise than by the defendants by April 2000. It has not, however, entered into any firm agreement to do so. The evidence indicates that the sale of split sets and associated components constitutes 50 per cent or more of the plaintiff's business in Australia. The defendants, as I have indicated, have two factories. Each of those factories manufactures about 50 per cent of the split sets manufactured by the defendants. The split sets are about 80 per cent of the output of the Western Australian factory and somewhere about 50 per cent of the output of the New South Wales factory. About 20 per cent of the plaintiff's sales up to the end of 1989 were to Western Mining Corporation. 7 After the notice of termination was given at the end of November 1989 a tender for the supply of split sets made by the second defendant was accepted by Western Mining Corporation, and orders were placed by Western Mining Corporation with the second defendant pursuant to that tender. After that, these proceedings were commenced and were first dealt with in this Court on an applicatiom for interlocutory injunction by Simos J. To cover the January vacation period his Honour granted relief in the following terms: "The court orders that up to and including 4 February 2000 by consent and without admissions and upon the plaintiff giving the usual undertaking as to damages and upon the first and second defendants' [sic] undertaking to the court not to continue to supply the mining roof supports presently known as Strata Bolts or any mining roof support similar thereto to the corporations referred to in paragraph 2(c) hereof for such period as may be ordered by the Court if the plaintiff is ultimately successful in these proceedings in establishing that the entering into the contract referred to in paragraph 2(c) hereof was a breach of the obligations owed by the defendants or either of them to the plaintiff: 1 The first and second defendants, by themselves, their servants or agents are restrained from making a mining roof support which is similar in design to the mining roof supports covered by the Agreement dated 18 April 1984 which is Annexure 'D' to the affidavit of Roger Moore sworn on 9 December 1999, those mining roof supports being more practically described in drawings SSD-001B09E REV AB-46mm diameter; SSD-001B01E REV AC-39mm diameter; and SSD-001B02E REV AC-33mm diameter, and which are known when marketed by the plaintiff as 'Split Sets', except as authorised by the plaintiff. 2 The court notes that the prohibition on manufacture set out in order 1 hereof shall not apply to: (a) contracts entered into on and prior to Friday 10 December 1999 by the first and second defendants for the supply of mining roof supports, except insofar as those contracts contain provision in the nature of options which may be exercised by the first or second defendants for the manufacture and supply of additional quantities of mining roof supports; (b) contracts with the entities identified in Groups 1 and 2 of Confidential Exhibit B to a value in total of $150,000 per month maximum investment of Group 1 and $100,000 per month maximum in respect of the entities identified in Group 2 of Exhibit B until further order; and (c) any contracts entered into with WMC Resources Pty Ltd, WMC (Olympic Dam Operation) Pty Ltd and Central Norseman Gold Corporation Limited pursuant to tender number GS-WA-GRP-TC-0175. 3 The court further notes that up to and including 4 February 2000 the first and second defendants undertake to the court to keep accounts in relation to the manufacture and sale of the mining roof supports referred to in paragraph 2 hereto. 4 The court further orders that: (a) the first and second defendants are restrained from soliciting, approaching or enticing away the plaintiff's employees; (b) these proceedings are stood over to the Expedition List on 4 February 2000; and (c) costs are reserved."

Subsequently there was some dispute as to the meaning of those terms and on 3 February 2000, to clarify this, Simos J ordered that order 2(b) be amended to read: "Contracts with the entities identified in Groups 1 (other than the companies referred to in para 2(c) below) and 2 of Confidential Exhibit B to a value of $150,000 per month maximum in respect of Group 1 and $100,000 per month in respect of the entities identified in Group 2 of Exhibit B until further order." 8 Upon expiry of his Honour's orders, application has been made before me by the plaintiff for further relief. This has not been done in general but in specific terms and short minutes have been brought forward propounding the precise relief claimed by the plaintiff. Those are in the following terms: "Until 29 May 1999 or the determination of the proceedings at first instance, whichever first occurs ('the Interim Period'), by consent and without admission and upon the parties by their Counsel giving the following undertakings to the Court: (a) by the plaintiff - the usual undertaking as to damages; (b) by the plaintiff - to obtain all supplies of the mining roof supports known as SPLIT SETS ('the Product') from the Defendants in respect of orders placed in the Interim Period; (c) by the plaintiff - in respect of all Product orders made in the Interim Period, to pay to the Defendants the wholesale price that applied in respect of the Product immediately prior to 29 November 1999, being those prices under the heading 'I.R.F Cost' in the document that is Annexure A hereto, provided that the Plaintiff supplies to the Defendants the steel required to fulfil those orders. To the extent that the Plaintiff does not supply to the Defendants the steel required to fulfil particular product orders, the Plaintiff will pay to the Defendants the wholesale price in respect of the Product as set out in the Schedule annexed to the First Defendant's letter to the Plaintiff dated 29 November 1999 (which is Annexure X to the affidavit of Roger Moore sworn 9 December 1999). (d) by the Defendants - not to continue to supply the mining roof supports presently known as Strata Bolts or any mining roof support similar thereto to the corporations referred to in paragraph 2(c) of the Orders made by Justice Simos on 23 December 1999 (as varied and extended) for such period as may be ordered by the Court if the Plaintiff is ultimately successful in these proceedings in establishing that the entering into the contract referred to in paragraph 2(c) of those orders was a breach of the obligations owed by the Defendants or either of them to the Plaintiff. (e) by the Defendants - to use their best endeavours promptly to satisfy, in accordance with the terms of the agreement dated 18 April 1984, all orders for manufacture of the Product placed by the Plaintiff (f) by the Defendants - to keep accounts in relation to the manufacture and sale of the mining roof supports presently known as Strata Bolts or any mining roof support similar thereto; the Court ORDERS: 1 The orders made by Justice Simos on 23 December 1999 as varied by His Honour on 3 February 2000 and extended by Justice Hamilton on 4 February 2000 be continued in force. 2 Liberty to apply on three days' notice. 3 Costs be costs in the cause."

Mr Grieve has indicated on the defendants' behalf that a continuation of relief on this basis would be consented to provided certain amendments were made. The amendments which Mr Grieve sought to have inserted in the orders to be made were that after 2(a) there should be inserted the following additional paragraph: "(ab) contracts entered into with any company which was not on November 1999 a customer of the plaintiff for split sets."

Mr Grieve has also said that the continuation of the orders of Simos J sought by the plaintiff should be on the basis of substitution for the figure of $100,000 in order 2(b) as amended of the figure of $250,000. The evidence in support of the latter change was oral evidence given before me by Mr Crick that he was the person who had provided the $100,000 assessment that was included in Simos J's orders, and that that was a figure which was provided by him with January in mind, a month during which the expected orders he anticipated would be diminished both by the general holiday nature of January and by the fact that consumers had stocked up heavily in December. He said that he would expect orders greater than that during an ordinary month and claimed that $250,000 was the relevant figure. 9 It is accepted on both sides that I should not, in making orders in the matter, go outside the formulations which the parties have respectively put forward. In other words, there is to be further relief up to and including 29 May 2000 by agreement. The dispute is as to whether, in granting that, I should insert paragraph (ab) as set out above and increase the relevant figure of $100,000 to $250,000. It has also been said to me, and it seems correct, that, although that is all I am called upon to decide, I must look at the general considerations relating to interlocutory relief in the matter in deciding whether I shall further limit the interlocutory relief in the way sought by Mr Grieve. In other words, in deciding whether or not to put the capstone on the pyramid, I must look at the whole pyramid for the matter to have any sense. The submissions as they were put to me and as I deal with them must be viewed in light of the ambit of the contest as thus defined. 10 The interlocutory injunction is a remedy sought and granted daily in the exercise of equitable jurisdiction by the courts of this and other common law countries. There has been a discussion over centuries of the principles on which such injunctions should be granted. A formulation commonly referred to in the courts of this State was also referred to in this case, that is the formulation of the former Chief Judge of this Division in Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 at 535-6 where his Honour, then McLelland J, said: "As I see it, the position is as follows. Where a plaintiff's entitlement to ultimate relief is uncertain, the Court, in deciding to grant or refuse an interlocutory injunction, must consider what course is best calculated to achieve justice between the parties in the circumstances of the particular case, pending the resolution of the uncertainty, bearing in mind the consequences to the defendant of the grant of an injunction in support of relief to which the plaintiff may ultimately be held to be entitled: see, eg, Appleton Papers Inc v Tomasetti Paper Pty Ltd [1981] 3 NSWLR 208 at 216; A v Hayden (No 1) (1984) 59 ALJR 1 at 4-5; 56 ALR 73 at 79. Where the uncertainty depends in whole or in part on a contested question of fact it is not appropriate for the Court to decide that question on the interlocutory application. Where the uncertainty depends in whole or in part on a contested question of law, it may or may not be appropriate for the Court to decide that question on the interlocutory application, depending on circumstances, eg, A v Hayden (No 1) (at 4; 78); Cohen v Peko-Wallsend (1986) 61 ALJR 57 at 59; 68 ALR 394 at 397. If the Court does decide the question of law the uncertainty is to that extent removed. Unless the plaintiff shows that there is at least a serious question to be tried which if resolved in its favour would entitle it to final relief, then the requirements of justice as between the parties will dictate that an interlocutory injunction should be refused: Australian Coarse Grain Pool Pty Ltd v Barley Marketing Board of Queensland (1982) 57 ALJR 425; 46 ALR 398; Tableland Peanuts Pty Ltd v Peanut Marketing Board (1984) 58 ALJR 283; 52 ALR 651; A v Hayden (No 1); Castlemaine-Tooheys Ltd v South Australia (1986) 60 ALJR 679; 67 ALR 533 and Cohen v Peko-Wallsend Ltd . Apart from this, although normally the Court 'does not undertake a preliminary trial, and give or withhold interlocutory relief upon a forecast as to the ultimate result of the case' ( Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 622), there are some kinds of case in which for the purpose of seeing where lies the balance of convenience (or more specifically 'the balance of the risk of doing an injustice' - see per May LJ in Cayne v Global Natural Resources plc [1984] 1 All ER 225 at 237, cf per Brennan J in Brayson Motors Pty Ltd v Federal Commissioner of Taxation (1983) 57 ALJR 288 at 292; 46 ALR 279 at 285), it is desirable for the Court to evaluate the strength of the plaintiff's case for final relief: see, eg, Brayson Motors Pty Ltd v Federal Commissioner of Taxation (at 292; 285); Castlemaine-Tooheys Ltd v South Australia at 682; 559. One class of case to which this applies is where the decision to grant or refuse an interlocutory injunction will in a practical sense determine the substance of the matter in issue: see, eg, NWL Ltd v Woods [1979] 1 WLR 1294 at 1306-1307; [1979] 3 All ER 614 at 625-626 per Lord Diplock; Cayne v Global Natural Resources plc . The present is such a case. The substantial matter in issue is whether Epoch should be permitted to proceed with the issue of non-renounceable rights in accordance with the announcement of 13 March 1987. That will be irrevocably determined in a practical sense by the grant or refusal of an interlocutory injunction."

What his Honour there said, of course, took account and must be read against the background of the decision of the High Court of Australia in Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 622 by the Full Court of the High Court, particularly what was said there as to the criterion of the fairly arguable case and the relevance of the relevant strength of the parties' cases. Whilst the formulation in American Cyanamid Co v Ethicon Ltd [1975] AC 396 is now to be preferred to that in the Beecham Group case (see The Australian Coarse Grain Pool Pty Ltd v The Barley Marketing Board of Queensland (1982) 57 ALJR 425; Tableland Peanuts Pty Ltd v The Peanut Marketing Board (1984) 58 ALJR 283; and A v Hayden (No 1) (1984) 59 ALJR 1), the strength or weakness of the plaintiff's case may still be a factor in the assessment of the balance of convenience: see Castlemaine Tooheys Ltd v The State of South Australia (1986) 161 CLR 148 at 153 - 5 per Mason ACJ. 11 In Martin Engineering Company v Trison Holdings Pty Ltd (1988) AIPC 90-511, Gummow J, then a Judge of the Federal Court, discussed the application of the principles relating to interlocutory injunctions in patent cases, and drew attention to the consideration applicable in many such cases that a defendant who sets out to act in the face of a claimed patent does so with eyes open to the possibility that the patent will be found valid and enforced. That principle was applied also by Burchett J in the Federal Court in Tidy Tea Ltd v Unilever Australia Ltd (1995) 32 IPR 405. Whilst that proposition was enunciated in patent cases, it seems to me that it is not limited to cases that are strictly or technically patent cases, but has, in appropriate circumstances, wider application. In cases where it is known that there is a claim that the defendant's actions are in breach of a duty of confidentiality, or even in the face of a known claim that there is a restraint by contract of its activity, unless the claim is manifestly bad, the situation that the defendant faces is that it has chosen, for its own commercial reasons, to embark on its course of action, knowing that the claim has been made and may ultimately be enforced by the courts. A useful discussion of a number of the considerations in cases such as the present is contained in the judgment of Malcolm CJ in the decision of the Supreme Court of Western Australia in Taylor v Delcove Pty Ltd 9 December 1996 SCWA unreported, on an appeal from the Chief Judge of the District Court of that State, as follows: "In the context of a covenant in restraint of trade, it is apparent that for a restraint of trade to be reasonable in the interests of the parties, it must afford no more than adequate protection to the party in whose favour it is imposed and it is in this case the duty or burden upon the person who seeks to rely upon the restraint, namely, the respondent, to establish that it is reasonable in all the circumstances. In this context the learned Chief Judge came to the conclusion that this was truly 'a trade agreement between traders' as in Esso Petroleum Co Ltd v Harpers Garage (Stourport) Ltd [1968] AC 269. In that case at 327, Lord Pearce stated the test as being whether it was in the interests of the community that the restraint should as between the parties be held reasonable and enforceable. The relevant authorities in this area were recently collected in my judgment in Britten v Bishop , unreported; FCt SCt of WA; Library No 960560; 25 September 1996 at 3-5. On the application of the principles there stated at an interlocutory stage, I am of the opinion that there is a serious question to be tried in this case in relation to the reasonableness of the restraint. So far as the balance of convenience is concerned, a number of factors have been adverted to. The first is that related to the adequacy or otherwise of damages at common law. It was argued below that there had already been two businesses opened in contravention of the contract, giving rise to questions of delay and estoppel or acquiescence in relation to the application for an injunction. So far as the question whether damages would be an adequate remedy is concerned, the learned Chief Judge concluded that this was an instance where the injunction ought to be granted 'because of the manner in which this situation is developing' His Honour came to the conclusion that damages may not be an adequate remedy if the appellants continued to open businesses in the restrained area. While the claim which the respondents make is a claim for damages for loss of the goodwill of the business which they acquired and sounds in damages, that, of course, is not their only claim. They claim they have lost that amount as of the date of the issue of the writ. They also claim what is in effect a permanent injunction in the sense that it is an injunction to last for the balance of the 5-year period in relation to the benefit of the covenant. In the circumstances as they now stand, damages will not themselves necessarily be an adequate remedy. As has been held previously, damages are regarded as rarely constituting an adequate remedy for the invasion of proprietary or possessory rights: Beswicke v Alner [1926] VLR 72 at 77. In such a case as this, the purpose of the interlocutory injunction is to restrain the appellants from activity which could cause further damage to the respondent and inhibit the respondent's ability to sell the business if it were minded to do so or otherwise protect the goodwill which was sought to be protected by the relevant clause. On the other hand, there is no reason why the appellants would not be adequately protected by the undertaking which they have obtained from the respondent to compensate them if it turns out that the interlocutory injunction should not have been granted. In my opinion, the ground that the learned Judge was in error in holding that the respondent would not have an adequate remedy in damages as an alternative to the grant of injunction has not been made out." 12 Bearing those matters in mind, I turn to the contentions in this application. It was contended by Mr Douglas, of Queen's Counsel for the plaintiff, that it had shown that it had a fairly arguable case that it had a proprietary right because, at the time of the agreement, it had a monopoly by the patent; or that it had imparted confidential information to the first defendant (and through it to the second defendant); and/or that there was a fiduciary relationship between the plaintiff and the defendants. Even if none of the above alone sufficed, in conjunction with such rights it had contractual rights arising from the 1984 contract, and in particular from the provisions of clause 15 thereof. He said further that, even if none of the other bases was made out, it undoubtedly had a claim arising from the contract itself. This alone provided it with a fairly arguable claim for relief. Damages, he said, were not an adequate remedy because the plaintiff's proprietary interest, in the sense set out earlier, would be infringed, or, even if there were no proprietary interest, the plaintiff clearly had a substantial share in the market for mining supports at the time that contention between the parties broke out in 1999, and had the goodwill arising from that market share, which would be destroyed or eroded by the defendants being allowed to manufacture and supply direct while the matter came to court for final decision of the rights and wrongs. He said that damages are inadequate, because it is always difficult to assess damages in relation to the erosion of goodwill, and particularly would it be so in this case. Here, if the plaintiff claimed subsequently that it had lost customers or market share by reason of the defendants' actions, the defendants would answer that it could not be demonstrated whether the market share was lost by reason of their actions, or simply by reason of the increasing competitiveness of the market, ie, even if the defendants gained customers, the customers would have been lost by the plaintiff in any event to other competitors, were the defendants kept out of the market in the meantime. These questions would obviously be difficult to determine. 13 Mr Grieve made bold assertions in answer to the plaintiff's claim for the greater interlocutory relief it sought. He said that, insofar as the plaintiff's claim depended on breach of contract, damages would be sufficient, and, in any event, if the defendants were wrongly kept out of the market, they would have to depend on the plaintiff's undertaking as to damages, and they would face the same difficulty with assessment under the undertaking as the plaintiff would face if thrown back solely upon its remedy in damages. He drew attention to the onesidedness of the 1984 contract as written, and characterised as important the public interest in competitiveness in this market, particularly in the context of the importance given to competition in the markets of the world in the 1990s. So far as the contract claim is concerned, he boldly said that I should find that the plaintiff had no arguable case, because the restraints imposed by clause 15 were palpably bad, or there was little chance of their being upheld. In this regard he pointed to the vagueness of the promise by reason of the presence of the words "similar to", to the lack of geographical definition of the restraint, and to the length of the five year restraint after termination of the contract. He said that the Tidy Tea doctrine can have no application if any lawyer worth his (or her) salt who looked at a restraint would say that this restraint "hasn't got a snowball's chance" of being upheld. And that was the situation in relation to this restraint. 14 What I have set out above does not do full justice to the detailed arguments of law and of fact put to me by Mr Douglas and by Mr Grieve in their vigorous debate upon this application. However, it does draw attention to some of the major factors which I have taken into account in determining the application. 15 The first thing I should say is that I do not accede to Mr Grieve's submissions in so far as they suggest either that the plaintiff has not made out a reasonably arguable case, or that that case is very weak. In my view reasonable arguments have been put forward in support of the plaintiff's case, especially upon the contract, and bearing in mind that the restraint as sought is wholly within the period of the continuing existence of the contract. In saying this I am not unmindful that it is possible for a restraint, even within the contract period, to be struck down as unreasonable: A Schroeder Music Publishing Co Ltd v Macaulay (formerly Instone) [1974] 1 WLR 1308; Buckenara v Hawthorn Football Club Ltd [1988] VR 39; Watson v Prager [1991] 1 WLR 726. However, it is true on the other hand that a reasonably arguable case has been put forward for the defendants that the contractual restraint may be struck down, and that the plaintiff may not succeed upon any of the other bases it contends for. This brings me back to the exercise as outlined by McLelland J, subject to the additional argument put by Mr Grieve that this was a case within the class referred to by McLelland J, where closer examination has to be made of the strength of the respective cases, because the decision of the interlocutory application in practical terms decides the issue between the parties. That submission, however, I do not accept. Whilst what occurs in the next two to four months may have some effect in this market, I do not think that that will foreclose the situation as between the parties. The questions of whether, and the degree to which, the contractual restraint will be upheld will have effect on the parties in the market far beyond that period. 16 Putting that contention aside, in deciding what is the just and convenient result, I have taken the whole of the evidence and all the contentions before me into account, including the contentions that I have outlined above. It does seem to me that this is a case in which the Tidy Tea doctrine does have application. I do not accept Mr Grieve's "snowball's chance" argument. Therefore, one factor to be taken into account is the fact that the defendants, knowing the existence of the contractual restraint, have chosen to enter on the course of action that they have entered on. Whilst they may suffer disadvantage in being restrained from open competition in the market during the short period about which we are speaking, what will be denied to them is the possibility or opportunity of taking further market share, which they do not now have. On the other hand, what will be eroded on the plaintiff's side, to the extent that erosion occurs, is an already existing market share. The defendants entered on their present course of action bearing in mind the risk that emanated from the restraint clause. It is important to remember the possibility that if the restraint as it stands is invalid it may be saved in part through the mechanism of the Restraint of Trade Act 1976, which the plaintiff has indicated its intention to rely on: see Kone Elevators Pty Ltd v McNay (1997) ATPR 41-564. 17 In all the circumstances, I have come to the conclusion that I ought to grant the continuing relief as sought by the plaintiff and ought not accede to the defendants' arguments that the restraint when granted should include the proposed clause (ab) and the increase of the figure of $100,000 to $250,000. The relief, even without these exceptions, substantially ameliorates the defendants' position by enabling it to use part of its manufacturing capacity to manufacture split sets to be sold direct. The plaintiff will during the restraint continue to source split sets from the defendants. In light of this, on the somewhat vague evidence given, I do not accept that the defendants' factories will need to be closed down or their staff put off in the comparatively short term during which relief is granted. Even without the limitations contended for by the defendants, the regime gives the defendants opportunity for further market penetration in respect of new customers and, in my view, the plaintiff's complaint is just that the further exceptions sought to the operation of the restraint even in the short term, would go too far and give it no effective or sufficient protection of its position. 18 Because of the urgency of the situation as it appears from the debate before me, it seems to me that every week will count. I do not intend simply to stand the matter over to Bergin J's expedition list on today week. I intend to give any direction that may be appropriate in the short term for the further advancement of the matter. In particular, I repeat the view which I expressed during argument that, whatever occurred on this application, the plaintiff should prepare the statement of claim, which is obviously necessary for the orderly conduct of the matter, by today week, and have that available before Bergin J when the matter goes before her Honour. I shall consider the necessity or appropriateness of any other directions that the parties come forward with when they bring in short minutes to give effect to the decision I have just announced. Upon the plaintiff by its counsel giving to the Court the usual undertaking as to damages, the existing restraints are continued up to and including Monday, 14 February 2000. The proceedings are stood over before me until noon on that day to bring in short minutes and for further consideration as to the question of costs.

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Judgment (12 paragraphs)

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Cases Cited (10)

Cited By (3)