Liristis Holdings Pty Ltd v Q-Corp Marine Pty Ltd

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2542/00 LIRISTIS HOLDINGS PTY LIMITED & 2 ORS v Q-CORP MARINE PTY LIMITED

1 HIS HONOUR: Essentially this is an application for an injunction to restrain a manufacturer from terminating a distribution agreement with a distributor. The goods concerned are luxury boats called Mustang Cruisers. The plaintiffs claim that the defendant entered into an exclusive distribution agreement with them in respect of the territory of New South Wales in July 1999 for the term of five years. There is very little agreement in this matter between the parties as to anything. The written agreement that exists is signed only on behalf of the plaintiffs and not on behalf of the defendant. The plaintiffs say that the written offer constituted by the agreement signed by them was orally accepted by the defendant. The defendant denies that this is so and denies that it agreed to deal with the plaintiffs on the terms set out in the written agreement, saying that the writing contains some terms to which the defendant never agreed. Despite this the plaintiffs did act as the defendant's distributor and during the first year of the agreement sold about 12 boats. However, after the end of that first year few, if any, boats have been sold by them and there have been a very large number of disagreements between the parties. Without attempting to be exhaustive these include numerous allegations by the defendant of churlish and unattractive behaviour by the second plaintiff, Tony Liristis, towards customers. 2 The matter first came before the Court in the middle of last year. On 9 June 2000 an interlocutory application was disposed of by consent. That was on the basis that the plaintiffs gave the usual undertaking as to damages and the defendant gave various undertakings including an undertaking that the defendant would not take any steps to sell Mustang boats into the territory of New South Wales other than by supply or sale to the plaintiffs. That agreement in June 2000 was come to on the basis that the parties would cooperate in bringing the matter before an Expedition Judge for speedy trial. However, it is common ground that during 2000 this was not done. Mr Pritchard, of counsel for the defendant, points to the fact that at the end of the year the plaintiffs were apparently having trouble with their legal representation, which was some of the problem, but properly and frankly concedes that during 2000 neither did his client take steps to bring the matter on promptly before the Expedition Judge. This year the matter has come before the Expedition Judge and interlocutory matters have been agitated again. This led to a fresh interlocutory agreement which was incorporated in short minutes of order made on 1 March this year. This regime proceeded by way of further undertakings given until further order. The defendant continued an undertaking that it would not itself sell Mustang boats into the territory of New South Wales, but was given a right to appoint one other distributor or agent from time to time in respect of that territory, being a distributor in the north of the State. It was also noted in the minutes that the defendant's undertaking was given without prejudice to the defendant's position that the plaintiffs never had an exclusive distribution agreement with the defendant and that any distribution agreement which may have existed it had a right to have terminated, rescinded, materially varied or set aside. Pursuant to the right given the defendant has appointed another distributor in northern New South Wales and that distributor has sold six boats in the comparatively short time since the beginning of March. The plaintiffs apparently (and this is a source of bitter complaint by the defendant) have sold virtually no boats during the last 12 months. The minutes of order also provided for a mechanism whereby the plaintiffs would be compensated in case they established at the trial of the proceedings that they had an agreement with the defendant for an exclusive dealership and that that agreement had been wrongfully terminated. To that mechanism I shall have to advert later in this judgment. The matter now appears to be proceeding in a due fashion before Austin J, who is one of the current Expedition Judges. Indeed, the matter is before his Honour again tomorrow. 3 There appears to be only one event of any significance that has taken place since the settlement of 1 March 2001. That is an alleged incident in which the plaintiffs caused the hour gauges on one of the Mustang boats in their possession to be changed in a dishonest fashion which suggested that the engines had run less time than they, in fact, had, in effect, a winding back of the speedometer. Such an action, if the allegation were established, would certainly be a serious matter to be taken into account by a manufacturer in deciding whether to terminate a distribution agreement with a distributor by accepting a repudiation of the agreement. This is what the defendant is now threatening to do, referring to the alleged tampering with the hour gauges and to its other complaints (all of which, however, antedate the March agreement). The tampering with the hour gauges is, however, denied both by the plaintiffs and by the man who is alleged to have done the tampering. There is, on the other hand, a considerable body of evidence which runs in the face of his denial. Nonetheless, it is clear that there is very much an issue to be tried on whether this incident occurred at all or, if it did, in what circumstances and how it is to be characterised. 4 It has been put to me on behalf of the defendant that this is a case of a contract, the enforced continuance of which would impose upon the Court an intolerable and unworkable regime of superintendence such as the Court will not undertake. This was the subject matter of the well-known decision of the High Court in J C Williamson Limited v Lukey and Mulholland (1973) 45 CLR 282. In that decision Dixon J said at 299 - 300: "Probably the true rule is that an injunction should not be granted which compels, in substance, the defendant to perform his side of the agreement when the continuance of his obligation to do so depends upon the future conduct of the plaintiff in observing conditions to be fulfilled by him. If the contract is one the execution of which the Court cannot superintend, it does not seem to be in accordance with principle to bind one party to performance in specie leaving him to a remedy in damages only if the other fails to fulfil the conditions on his side to be observed. But, perhaps, if a clear and negative duty is imposed even by such a contract, an injunction may be granted when the remedy at law is inadequate to the right, at least when, by dissolving the injunction in the event of the plaintiff's own subsequent breach of condition, the parties may be restored to the relative position they occupied before suit."

5 That principle has been the subject of considerable debate since that time and of numerous decisions concerning agreements, many of them distribution agreements. Some of those the courts dealing with them have felt fell in the category of contracts which would require a degree of superintendence which was too great. The defendant has cited to me in that regard Atlas Steels (Australia) Pty Ltd v Atlas Steels Ltd (1948) 49 SR(NSW) 157, a decision of Sugerman J (as his Honour then was). There has also been cited the decision of Macfarlan J in Astor Electronics Pty Ltd v Japan Electron Optus Laboratory Co [1966] 2 NSWR 419. In refusing an injunction in that case Macfarlan J detailed at 428 the numerous points at which he saw that dealings between the parties would be necessary if the contract continued in operation. 6 However, there have been numerous cases where the courts have come to the opposite conclusion and have found in the case of distribution agreements that an express or implied negative stipulation could be enforced without the Court undertaking too onerous a duty of superintendence. Those cases include Evans Marshall & Co Ltd v Bertola SA [1973] 1 WLR 349, a decision of the English Court of Appeal. In that case Sachs LJ said (at 379): "But, in any event, the fact that some degree of … co-operation or confidence is needed does not preclude the court from granting negative injunctions designed to encourage the party in breach to perform his part."

In this Court a similar course had already been taken by McLelland J (as his Honour then was) in Ampol Petroleum Ltd v Mutton (1952) 53 SR (NSWSR) 1. More recent decisions in which a similar course has been taken include Sanderson Motors (Sales) Pty Ltd v Yorkstar Motors Pty Ltd [1983] 1 NSWLR 513, a decision of Yeldham J in this Court; Moonlighting International Pty Ltd v International Lighting Pty Ltd [2000] FCA 41, a decision of Finkelstein J in the Federal Court; and Dalecoast Pty Ltd v Guardian International Pty Ltd [1999] WASC 11, a decision of Wheeler J in the Supreme Court of Western Australia. In the third edition, 1992, the learned authors of Meagher, Gummow and Lehane, Equity Doctrines and Remedies at [2142] discussed the authorities and concluded: "The individual judge's own intuitive sense of what is the most appropriate course to take in the particular circumstances is probably the deciding factor."

The principle was reiterated and the basis on which the deciding judge should proceed were extrapolated recently by the High Court in Patrick Stevedores Operations No 2 Proprietary Limited v Maritime Union of Australia (1998) 195 CLR 1 at [78] - [80]. There the majority (Brennan CJ, McHugh, Gummow, Kirby and Hayne JJ) said: "[78] We see in the orders no defect which sometimes is expressed as the involvement of the court in 'constant supervision' of continued conduct. Reservations of that nature have been expressed in decisions of this Court: JC Williamson Ltd v Lukey (1931) 45 CLR 282 at 298; H Jones & Co Pty Ltd v Talbot (1948) 180 CLR 63 at 66. However, questions of degree rather than absolute restrictions upon the scope of curial relief are involved: Tito v Waddell [No 2] [1977] Ch 106 at 321; Posner v Scott-Lewis [1987] Ch 25 at 36; Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1 at 12-15. Reference was made in the Federal Court judgments and in submissions to this Court to the speech of Lord Hoffmann in Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1. His Lordship affirmed the refusal by the judge at first instance of an order for specific performance of a lease for a term of thirty-five years containing a covenant to keep premises open for retail trade during usual hours of business in the locality. His Lordship's statement that the usual practice was not to grant specific performance to carry on an activity over a period of time was made in response to a submission by the lessor to the effect that the equitable remedy was no longer to be understood as granted in the auxiliary jurisdiction where damages would be an inadequate remedy. The lessor submitted, without success, that in cases such as Argyll Stores the court 'should look at the whole panoply of available remedies and consider the appropriate one rather than the gloss of rules put on them restricting their use' Argyll Stores [1998] AC 1 at 7.

[79] The House of Lords discharged the order for specific performance which the Court of Appeal had made. The significance of Lord Hoffmann's speech for present purposes is not the rejection of the lessor's submissions. That rejection, with respect, was virtually inevitable. What is significant is the acceptance by the House of Lords that the concept of 'constant supervision by the court' by itself is no longer an effective or useful criterion for refusing a decree of specific performance. See Tettenborn, 'Absolving the Undeserving: Shopping Centres, Specific Performance and the Law of Contract' [1998] The Conveyancer 23, at pp 27-28. Rather, Lord Hoffmann placed stress on other propositions. First, a person who is subject to a mandatory order attended by contempt sanction (which 'must realistically be seen as criminal in nature' Witham v Holloway (1995) 183 CLR 525 at 534) ought to know with precision what is required Argyll [1998] AC 1 at 13-14; and, second, the possibility of 'repeated applications for rulings on compliance' with orders requiring a party 'to carry on an activity, such as running a business over a more or less extended period of time' Argyll [1998] AC 1 at 13, should be discouraged.

[80] Reference to constant court applications should not be misunderstood. The courts are well accustomed to the exercise of supervisory jurisdiction upon applications by trustees, receivers, provisional liquidators and others with the responsibility for the conduct of administrations. The reservation of liberty to apply to the Federal Court in respect of certain of the orders to be made is in no way out of ordinary in the exercise of equitable jurisdiction."

The decision of each case therefore turns very much upon its particular circumstances and the degree of supervision which it appears will be involved. 7 This is a somewhat unusual case on the balance of convenience. Mr Pritchard has vigorously reiterated to me the unsatisfactoriness of the relationship in which the defendant finds itself. Challenged with the short time since the agreement of 1 March 2001, when the defendant apparently found the regime adopted by agreement on that day satisfactory, he says that the balance has been tipped by the continuing unsatisfactoriness of the relationship and lack of sales by the plaintiffs. The incident with the hour gauges has occurred since that time, but he is obliged to concede that the very happening and the true characterisation of that incident are matters which are factually in issue. On the other hand, the agreement of 1 March 2001 did provide some mechanism for the ascertainment of damages which diminishes, at least to some extent, the plaintiffs' submission that damages are not an adequate remedy. 8 The defendant emphasises that it will continue caught in a relationship with parties it considers abhorrent. However, I am far from convinced on the evidence that this is a case in which any very constant or close dealings between the parties will be necessary. The lack of sales into New South Wales is certainly, in part, alleviated by the appointment of one other distributor in part of the territory and, although the plaintiffs do not seem to be doing well with the sale of boats at the moment, I am of the view that I must take into consideration the situation they are in. The position they are in with the five boats that they already own is likely to be worsened in ways not entirely easy to assess and their whole position in the market place is likely to be radically altered if the defendant is able, and they are obliged, to announce to any of the public with whom they seek to deal that they have been dismissed from their distributorship. 9 It has been put to me by Mr Pritchard that the defendant is clearly entitled to terminate the distribution agreement. I do not accept that proposition. It seems to me that the plaintiff has an arguable case that the exclusive distribution agreement does exist and that the defendant is not entitled to terminate that agreement. So far as the balance of convenience is concerned both sides appeared to regard the balance of convenience as satisfactorily regulated by the agreement of 1 March 2001 and little has happened since that time to change it. The conclusion that I have come to is that the balance of convenience is distinctly in favour of that regime being maintained and there being an injunction to prevent the defendant from terminating that regime, or essential features of it, by now terminating the distribution agreement by way of acceptance of an alleged repudiation of it. 10 In those circumstances I propose, upon the plaintiffs' proffering the usual undertaking as to damages, to grant an injunction substantially in the terms sought. However, there having been delay in the past, on the part of both sides, I am certainly of the view that the plaintiff ought not be able to retain the additional benefit of this injunctive relief unless it takes all appropriate steps in cooperation with the defendant (and in this regard I remind the parties of the provisions of Pt 1 r 3 of the Supreme Court Rules 1970) to bring the matter on for hearing quickly on an expedited basis. That will be met by a specific liberty being reserved to the defendant to apply if there be default of diligent prosecution by the plaintiffs. The order for costs that I should propose is the usual order in the case of the success of a contested application for an interlocutory injunction, namely, that the costs of the application be the plaintiffs' costs in the proceedings.

[DISCUSSION ENSUED RE TERMS OF ORDER AND COSTS] 11 I think this matter is best dealt with if I do not reserve a specific liberty to apply in the circumstances I foreshadowed, since that may suggest that the defendant is precluded from applying to discharge the injunction in other circumstances. However, I do record that, without purporting to bind the exercise of discretion by any other Judge, the plaintiffs have been warned that they should prosecute the matter with due diligence and that I should regard an application to discharge the injunction if there is a default of due diligence as appropriate. The defendant may, if there be sufficient justification, apply to discharge the injunction on other grounds of change of circumstances, but should not do so lightly, in my view, bearing in mind the principle as to the finality of litigation as it is applicable to interlocutory proceedings: Brimaud v Honeysett Instant Print Pty Limited NSWSC McLelland J 19 September 1988 unreported; Wentworth v Rogers NSWSC Sperling J 28 April 1995 unreported; Nominal Defendant (NSW) v Manning (2000) 31 MVR 524; Continental Conveyor & Equipment Pty Ltd v Williams [2001] NSWSC 402. I have heard that submission but do not propose to take a course other than that I have foreshadowed on the costs of the motion. 12 Upon the plaintiffs by their counsel giving to the Court the usual undertaking as to damages I make the order in prayer 1(a) of the notice of motion dated 18 April 2001. I order that the costs of the notice of motion be the plaintiffs' costs in the proceedings. …oOo…

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