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[2009] VSC 532
plaintiff. HP's summons filed on 10 November 2009 for interlocutory injunctions was dismissed; no interlocutory injunction granted.
HP sought an interlocutory injunction to stop Mountain buying or making bottles other than from HP under a 2007 supply agreement. The Court found HP had a strong arguable case on breach but declined to grant an injunction because HP had delayed seeking equitable relief in respect of core items, the agreement and proposed injunction were complex and hard to supervise, and the balance of convenience (including relative ease of assessing damages) favoured refusing the injunction. The summons was dismissed.
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1,852 words · generated 16/07/2026
Mountain H2O Pty Ltd and HP Pet (Australia) Pty Ltd entered an Overarching Supply Agreement dated 12 October 2007 (the OSA). The OSA provided that Mountain would purchase "100% of Mountain H2O's bottle requirements" from HP, subject to limited exceptions (notably clause 4 where Mountain could source particular bottle types if HP chose not to supply them), and set minimum annual quantities and price/forecast mechanisms (Appendix 1, clauses 9, 10, 13, 15) [4]-[6]. By mid-2008 HP advised capacity constraints and by August 2008 said it could not supply the generic 600ml bottles "as of next month" [8]-[9]. Mountain sourced alternate suppliers for some products in 2008 and by mid-2009 purchased a Krones plant to produce bottles (from pre-forms), shifting to a 30mm neck bottle profile and signalling a longer-term move away from HP-supplied 28mm bottles [20]-[24], [31]-[33].
No linked legislation citations have been extracted yet.
HP filed a summons on 10 November 2009 seeking interlocutory injunctions restraining Mountain from acquiring PET bottles other than from HP, including manufacturing them internally. HP relied on a strongly arguable breach of the OSA and the need to preserve HP's investment and business capacity [31], [39], [44]. Mountain opposed on grounds including that damages were adequate, HP had delayed in seeking injunctions (accepting damages earlier), injunctive relief would require intrusive ongoing supervision due to the OSA's complexity, and Mountain's commercial necessity to use its Krones plant to fulfil anticipated customer orders [41], [46], [50], [52], [55]. Habersberger J heard the interlocutory application and, while accepting HP had a strongly arguable case, dismissed HP's summons on 3 December 2009 [42], [57]-[58].
The Governing legal framework: the well‑known equitable test for interlocutory injunctions was applied: the applicant must show a serious question to be tried and that the balance of convenience favours granting an injunction (with adequacy of damages, delay, and other discretionary considerations forming part of the latter inquiry). A stronger prima facie case reduces the degree to which the balance must favour the applicant, but it does not negate the other considerations [44]-[45].
Application to the facts:
Serious question to be tried: Habersberger J concluded HP had a "strongly arguable case" that Mountain's planned reduction/cessation of purchases and the decision to manufacture its own bottles amounted to breaches of the OSA, and that Mountain's move to 30mm bottles only avoided breach if Mountain had asked HP to supply the new bottle and HP had declined under clause 4 [42]-[43]. The judge also rejected Mountain's submission that pre-forms were bottles within the clause 4 exception as not persuasive [43].
Balance of convenience: several features weighed against injunctive relief:
Balancing these factors, Habersberger J found that although the matter was not free from doubt, there was a lower risk of injustice in refusing the interlocutory injunction than in granting it and later discovering the injunction had been wrongly granted. On that basis HP's summons was dismissed [57]-[58].
Before: The established equitable principles for interlocutory injunctions, serious question to be tried, balance of convenience, adequacy of damages, delay, and practicality of supervising an injunction, were already settled in Australian jurisprudence and were invoked and applied by Habersberger J in their usual form [44], [46], [50]. The court cited authority (for example Optus Networks v City of Boroondara and Gardena v Nylex) to support the proposition that a stronger case reduces the degree to which the balance must favour the applicant, but does not negate discretionary balancing [44].
After: Mountain H2O v HP Pet does not change those overarching principles. It is an application of established equitable discretion to a set of commercial facts, emphasising these practical points:
Therefore, the case reinforces the accepted approach rather than creating new law; its principal contribution is factual: an illustration of how courts weigh delay and supervision difficulty in commercial supply-contract disputes.
"it does appear to me that HP has a strongly arguable case..." [42].
"The submission that the pre-forms are bottles within the meaning of clause 4 is not strong." [43].
"an interlocutory injunction would probably require continuing supervision by the Court." [50].
"there is a lower risk of injustice to HP in not granting an injunction... than there would be if an injunction were 'wrongly' granted against Mountain." [57].
This decision is most directly instructive where:
In these circumstances Mountain H2O v HP Pet indicates courts will pay close attention to delay, the practicalities of supervising an injunction, the relative ease of damages assessment, and the remaining life of the contractual relationship.
The judgment itself does not contain treatment by courts after 2009. The present deep dive does not attempt to catalogue subsequent citations beyond the judgment's own cited authorities. To determine how later courts have treated Mountain H2O v HP Pet (for example whether it has been cited for delay, supervisory difficulty, or the treatment of pre-forms), a targeted case‑law search (via AustLII, LawCite or other databases) is required. The reasoning and factual emphasis in this decision are, however, squarely anchored in established interlocutory principles, and practitioners should expect later courts to treat it as a fact‑specific application rather than a source of new doctrine.
Construction of "bottle" versus "pre-form" in clause 4: Habersberger J found the submission that pre-forms are bottles "not strong" [43], but the broader construction issue remains for trial where factual and documentary context can be tested more fully. The judgment signals a likely but not definitive stance on the point.
Quantification and proof of damage where an injunction wrongfully granted leads to loss of supermarket contracts: The judge identified the difficulty in assessing Mountain's potential losses if an injunction were wrongly granted (loss of customers) [55]. How such damages should be proved and quantified may be contested at trial, and the case highlights persistent evidentiary challenges in proving lost business in supply-chain contexts.
Supervisory remedies and workable interim orders: The decision emphasised the practical difficulty of devising an interim order that accommodates variable monthly/annual minima and multiple SKUs [52]. There remains an open question as to the range of pragmatic interim orders a court might craft in similar but slightly different circumstances (for example, orders tied to simple aggregate monthly minima, or orders coupled with detailed forecasting protocols overseen by independent experts).
The risk-analysis threshold for 'delay' in commercial contexts: The case treats a year-long delay (in relation to a major SKU) as significant [46]-[49]. It leaves open the question of how courts will treat shorter or differently justified delays, for example where negotiations or alternative remedies were being actively pursued.
Interaction of commercial exigency and equitable discretion: Mountain’s commercial case, that it had to activate its Krones plant to meet urgent customer orders, was influential though not determinative [32], [35]. The boundaries of what constitutes compelling commercial necessity sufficient to displace contractual exclusivity and justify manufacturing internally remain fact-dependent and a matter for trial-level adjudication.
Practical lesson for practitioners: when seeking interlocutory equitable relief in a commercial supply context, secure and exhibit promptness, present a workable and narrowly framed draft order that minimises ongoing supervision, and provide clear evidence about the relative ease of damage quantification and the applicant's capacity to meet an undertaking as to damages. Conversely, a defendant should emphasise any delay, contractual complexity, and the disproportionate hardship an injunction would impose if later found wrongly granted.
INJUNCTION - Interlocutory - Balance of convenience - Adequacy of remedy of damages - Partial delay in applying for injunction - Difficulty of Court supervising relationship between the parties - Ease of assessment of damages of either party if injunction granted or refused - Lower risk of injustice if order "wrong".
1 Since 2000, Mountain H2O Pty Ltd ("Mountain"), the plaintiff in this proceeding and the respondent to the application before me, has manufactured bottled water products from its source located in the Kancoona Valley in north east Victoria. Its head office, warehouse and distribution centre are located in Albury, New South Wales. The bottles it uses are made from polyethylene terephthalate, a plastic known as PET. Mountain sells the bulk of its products to large retailers such as Coles, Woolworths and Aldi.
2 In October 2006 HP Pet (Australia) Pty Ltd ("HP'), the defendant in this proceeding and the applicant in the application before me, purchased Amcor Ltd's PET manufacturing business. It produces its PET bottles in Melbourne from "pre-forms", which are pieces of plastic which, when heated, are capable of being "blown" under pressure into the shape of a bottle. Mountain is HP's biggest customer by volume of water bottles purchased.
3 By a summons in this proceeding filed on 10 November 2009 HP sought (after amendment of the summons to correctly refer to the parties) an interlocutory injunction restraining Mountain from acquiring plastic or PET bottles for the purposes of its business other than from HP, including acquiring such bottles by
(a) purchasing them from a supplier other than HP, or
4 By an agreement in writing dated 12 October 2007, called an "Overarching Supply Agreement for Complete Range of Water Bottle Requirements" ("the OSA"), Mountain agreed to purchase from HP and HP agreed to supply to Mountain "all of their [sic] bottle requirements, unless agreed upon under section 4 of this document".
5 The terms and conditions of the OSA were set out in a schedule. The following clauses should be noted.
The commencement date of this agreement is 1st September 2007 and will run for 3 years. At the end of the 3 years, HP Packaging (Australia) will have an option to roll this contract, provided its pricing remains competitive. Mountain H2O may not present any competitive offer during the term of this agreement.
Mountain H2O Pty Ltd agrees to exclusively purchase from HP Packaging (Australia) Pty Ltd, and HP Packaging (Australia) Pty Ltd agrees to supply Mountain H2O, 100% of Mountain H2O's bottle requirements. Bottle shape drawings are to be approved and signed by both parties.
Should Mountain H2O request supply of a bottle that HP Packaging does not currently offer, and HP packaging chooses not to supply this bottle, Mountain H2O will be free to purchase this bottle from another supplier.
The price of the bottles are detailed in Appendix 1 is per thousand units FIS to Albury. Mountain H2O Pty Ltd acknowledges that the price will be subject to review and alteration from time to time if Mountain H2O's volumes reduce by greater than 25% from the volumes set out in Appendix 1.
...
HP Packaging (Australia) Pty Ltd commit to use all material capacity available to supply Mountain H2O Pty Ltd the monthly forecast requirements to meet the supply volume necessary to supply bottles as per drawing numbers as detailed in Appendix 1.
An appropriate notice period of 45 days must be supplied by Mountain H2O to HP Packaging of a 15% increase or greater in monthly forecast volumes.
HP Packaging will not be held liable for the consequences of supply volumes exceeding 30% of monthly forecast volumes supplied by Mountain H2O. These monthly forecast volumes will be supplied by Mountain H2O Pty Ltd as per the order protocols as described in item 13 as contained in the schedule.
Should HP Packaging (Australia) Pty Ltd not be in a position to supply the monthly forecast volumes, providing these volumes are within the range as described above, HP Packaging must use their best endeavours to source alternative bottles to supply Mountain H2O Pty Ltd.
The additional cost of an alternative source of bottles will be met by HP Packaging (Australia) Pty Ltd to a maximum of $50,000 for each of the 3 years of this supply contract to a maximum of $150,000 over the supply contract period. This cost shall also be payable in situations where HP Packaging (Australia) Pty Ltd is unable to supply fit for purpose products which comply with mutually agreed specifications described in Clause 22.4 of this Agreement.
Therefore if HP Packaging is unable to supply a monthly forecast quantity, HP Packaging will source bottles from an alternative supplier, and carry the cost of the difference between the agreed sell price that HP Packaging supplies bottle to Mountain H2O, and the cost of the bottles from the alternative supplier.
This will continue until HP Packaging is in a position to resupply all forecast requirements, up to the limits set out above. Should future growth requirements warrant capital investment by HP Packaging then the parties will agree to negotiate an extension to this Supply Agreement.
This commitment will not apply under any of the conditions as set out under item (8) of this schedule, Force Majeure.
To assist HP Packaging (Australia) Pty Ltd in planning its production schedule, Mountain H2O Pty Ltd will provide to HP Packaging (Australia) Pty Ltd on or before the 5th business day of each month a written estimate of the volume of bottles that Mountain H2O Pty Ltd will require for the following three month period (a Rolling Schedule).
Both parties acknowledge and agree that a fixed purchase order will be deemed to have been placed by Mountain H2O Pty Ltd for bottles specified in the first 2 months of each Rolling Schedule.
Details of order protocols are detailed in item (13) of this schedule.
...
Forecasting
HP Packaging (Australia) Pty Ltd operates a monthly Sales and Operations Planning cycle. HP Packaging (Australia) Pty Ltd requires forecasts to be updated every month.
Mountain H2O Pty Ltd will provide 12 months of forecasts.
As a minimum, the first 2 months will be broken into weekly buckets, with the following 10 months in monthly buckets.
HP Packaging (Australia) Pty Ltd is authorised to use the first 6 months of forecasts to order raw materials.
Mountain H2O Pty Ltd will advise HP Packaging (Australia) Pty Ltd of any new items to be launched via the Forecast Sheets or in writing to the Sales Manager.
The lead-time for these new items will be negotiated and agreed between both parties, and will be a minimum of 12 weeks from date of signed off drawing of the new item, and purchase order, whichever is the later date.
Mountain H2O will place a blanket order number for a quantity of bottles not less than the quantities set out in Appendix 1.
Mountain H2O Pty Ltd will place a "call-up" for delivery of product, which will be a draw off of volume from the above blanket order.
...
(f) commits a material breach (other than a payment breach) of this letter agreement and fails to remedy that breach within 60 days of receiving notice to do so;
(g) fails to make a payment due and payable under this letter agreement within 60 days of the due date; or
(h) becomes insolvent, stops or suspends (or threatens to stop or suspend) payment of all or a class of debts, has an administrator or controller appointed over any of its assets, is wound-up or dissolved, or an application is made for it to be wound-up or dissolved.
A scale of pricing has been prepared based on bottle weight directly relating to bottle price.
The table below details these weights and prices. Also set out below are the terms and conditions of the application of this price structure. Any supply of bottles outside of these terms and conditions are subject to a price review based on the specific characteristics of that particular bottle supply.
Prices, Minimum Quantity and Minimum Run Sizes
7 The OSA had been entered into by the parties in place of an earlier two year agreement made in December 2006. The OSA followed a period of lengthy negotiations during which Mountain sought, and received, reassurance that HP could meet its supply requirements.
8 Without going into all of the detail of the various ongoing disputes between the parties, the initial dispute between them stemmed from two emails from Henry Hudson, a director of HP, to Steven Pitts, a director of Mountain. The first of these, dated 4 July 2008, included the following:
As you are aware we have had issues in supplying your off-take during the season. This is something we had not anticipated. In addition, your projected growth beyond 30 million units will require investment in capital by us. We are willing to spend this capital but with this require a three year extension to your existing contract.
This investment is necessary to manage both your off-take pattern and growth. We may choose to make this investment in Albury to have some freight savings. However this will be dependent on time available and commercial considerations.
If we do not make this investment, we face issues in supply.
9 The second email, dated 12 August 2008, included the following:
We have had a chance to review your forecasts in detail with comparison to our capacity.
As foreshadowed to you and your Directors over the past three months, we will have capacity issues in meeting your revised forecasts. This was the reason for the whole discussion around a contract extension and our proposed capital investment to meet your needs.
On your forecast volumes sent on Wed 6th August, we will not be able to supply the generic 600ml bottles as of next month.
In accordance with the contract, we will use our best endeavours to arrange an alternative source of your required volumes of the generic 600ml bottles. Alternatively we would allow Mountain H2O to purchase these bottles from another supplier.
Please note that HP Packaging will not be carrying the cost difference in MH2O sourcing other bottles as we have already met our maximum contractual obligations to do so (i.e. up to $150,000 over the term of the contract.)
Could you please advise us as soon as possible whether Mountain H2O would like us to arrange alternative supply or whether MH2O would prefer to source its 600ml generic bottles directly from an alternative supplier?
I can confirm that we currently believe we are able to supply your forecast volumes of all other bottles.
10 By a letter dated 3 September 2008, Mountain's solicitors, Nevin Lenne & Gross, wrote to HP setting out their client's concerns:
We have been provided with a copy of the Supply Agreement. We note that it obliges HP to use all material capacity available to it to supply Mountain's requirements. The minimum requirements are those set out in Appendix one, namely 30 million bottles per annum and, particularly, 12 million generic 600ml bottles per annum. HP must provide these minimum volumes. Further, HP is required to satisfy Mountain's bottle requirements to a point 30% over and above the minimum, that is to say it is required to supply up to a cap of 39 million. If it cannot supply bottles over and above 30 million and up to the 39 million cap, it must make endeavours to find alternative suppliers and meet the differential in cost up to the sum of $50,000.00 per annum.
We have also been provided with copies of email correspondence between HP and our client prior to and since the making of the Supply Agreement. The emails record:
(a) Mountain's concerns to ensure that HP had the capacity to meet minimum volumes and also to deal with fluctuations in demand (which we understand are a feature of the bottled water industry); and
(b) numerous assurances from HP that it was a reputable, reliable and stable supplier upon whom Mountain could rely; and
(c) numerous assurances from HP regarding its capacity to supply not only the original 30 million bottles specified as the "minima" in Appendix 1 to the Supply Agreement, but also the increased levels of production which were discussed in the correspondence, up to a level of 80m to 100m bottles.
HP will be aware that Mountain relied upon these representations in entering the Supply Agreement. Mountain has expended a great deal of time and effort in establishing HP as the sole supplier of all of its bottles.
We have now been provided with further correspondence from HP dated 4th July 2008, in which you stated to Mountain that HP would have difficulty meeting any requirements above and beyond 30 million bottles per annum, and 12th August 2008 in which you announced that HP would not be supplying the generic 600ml bottles "as of" September 2008. We note that that bottle class is a major component of the minima set out in Appendix 1 to the Supply Agreement.
You will appreciate that HP's unilateral decision not to supply a class of bottles stipulated in the Supply Agreement is a serious breach of the Supply Agreement. If HP persists in the course of action foreshadowed in your email of 12th August 2008, Mountain will suffer substantial losses, including but not limited to losses of profit arising from the increased costs of obtaining bottles from alternative suppliers (if any can be found).
11 Mountain commenced this proceeding on 4 September 2008 seeking, in part, orders that HP perform and observe the OSA by supplying to it:
(a) in accordance with orders placed by Mountain pursuant to the OSA; and
(b) up to the maximum volumes stipulated in paragraph 3 of section 9 of the OSA.
A summons seeking interlocutory injunctions to this effect was issued on the same day.
12 By a letter dated 5 September 2008, HP's solicitors, Thomson Playford Cutlers, wrote to Mountain's solicitors stating in part:
We note from the contents of Mr Pitts' affidavit that your client has already obtained offers of supply for the 600ml generic bottles from two suppliers, namely Visy at 12.4 cents per bottle and Full View at 12 cents per bottle inclusive of delivery.
Both those prices are better than the price that HP has currently been able to obtain. Can you therefore please clarify whether Mountain wishes HP to provide bottles to Mountain at the price of 13.155 cents per bottle to meet Mountain's current needs or rather whether Mountain would prefer to source its own bottles.
13 On 10 September 2008, Mountain's solicitors wrote to HP's solicitors accepting HP's "invitation to attempt to source the generic 600ml bottles from an alternative supplier".
14 Although affidavits were filed on behalf of both Mountain and HP, the interlocutory application did not proceed, because by 17 September 2008, Mountain had found another supplier in place of HP in respect of 600ml generic bottles. However, this was at a higher cost and Mountain claimed that HP was in breach of the OSA in failing to pay the additional costs.
15 HP's defence was that any problems with its ability to meet Mountain's orders was the result of the inherent difficulty of meeting spikes in demand, which had been exacerbated by Mountain's failure to provide accurate monthly forecast volumes broken down into weekly buckets in a accordance with clauses 10 and 13 of the OSA and by its failure to give 45 days' notice of an increase of 15% or greater in its monthly forecast volumes in accordance with clause 9 of the OSA. Instead, Mountain had provided forecasts only every couple of months which fluctuated wildly. Another problem was that Mountain's orders were frequently very different to its forecasts. This had caused difficulties for HP in finding "instantaneous capacity". Mr Hudson pointed out, in his affidavit sworn on 9 September 2008, that in August 2008 Mountain submitted orders for 1,477,440 600ml generic bottles (an 83% increase over its 6 August 2008 forecast of 806,383 bottles) and HP supplied 1,043,005 bottles. He said that because he had no confidence that HP could meet the monthly demand that he considered was likely to eventuate based on Mountain's inaccurate forecasts of the previous summer season, he sent the 12 August 2008 email.
16 HP maintained that, from about September 2008, it was again willing and able to supply the 600ml generic bottles to Mountain. It asserted that Mountain was therefore required under the OSA to purchase these bottles from it at the contractually agreed price. However, Mountain did not resume purchasing the 600ml generic bottles from HP at anything like the 12 million minimum annual quantity specified in Appendix 1 to the OSA. Accordingly, HP sought damages from Mountain for this breach of the OSA in its counterclaim in this proceeding.
17 In the affidavit of Farhad Maleklou, the managing director of HP, sworn on 30 October 2009 in support of this application ("Mr Maleklou's first affidavit"), he stated that:
18 In Mr Maleklou's affidavit sworn on 19 November 2009 ('Mr Maleklou's second affidavit"), he deposed that in March 2009 HP had purchased additional manufacturing equipment at a cost of $1.5 million for a new facility at Tullamarine. Additional staff had been hired.
19 In Mr Pitts' affidavit sworn on 11 November 2009 in opposition to this application (Mr Pitts' second affidavit"), he deposed that since 2008 Mountain's business had been "impacted by several major events". First, he referred to a decision by the Victorian Civil and Administrative Tribunal ("VCAT") in respect of a complaint by a neighbour of Mountain's production and bottling facility at Kancoona South that there had been breaches of the no detriment to amenity and no noise nuisance conditions of the relevant planning permits. The decision by VCAT imposed time and other restrictions on the operation of this facility.
20 Secondly, Mr Pitts deposed that in mid 2009 Mountain decided to purchase its own plant and equipment to manufacture its own bottles in Albury. This decision was reached as a result of the VCAT decision and:
Because of the greatly increased level of bottle production that Mountain expected would occur in the second six months of 2009 and thereafter, and because of the delivery and quality problems that we had encountered with HP.
The Krones plant purchased by Mountain takes 30mm pre-forms, blows them to bottles, labels and fills them as one continuous process. Thus, Mountain needs pre-forms and not bottles for use in its new Albury premises. The Krones plant is said to have a maximum capacity of 200 million bottles per annum.
21 Thirdly, Mountain decided to shift from a 28mm standard bottle neck diameter to a 30mm neck diameter. The 30mm bottles are lighter and "greener" because they use less non-renewable resources. But, according to Mr Pitts, they are not easily transportable.
22 Mr Pitts referred, in his second affidavit, to a meeting between representatives of the parties in July 2009. He said that during this meeting the Mountain representatives informed the HP representatives that Mountain would be purchasing plant and equipment to manufacture its own 30mm bottles and invited HP to offer a price to supply Mountain with the pre-forms for those bottles. Mr Pitts deposed that Mr Maleklou said that HP would be happy to support Mountain through the transition, as long as HP was given the opportunity to quote on the supply of pre-forms to Mountain. Mr Pitts said that he subsequently sent pre-form drawings to HP, as requested by its representatives at the meeting. In his affidavit sworn on 19 November 2009, Mr Pitts stated that he had not since then received, on an open basis, any quotation from HP on the supply of pre-forms.
23 Counsel for HP objected to this evidence on the ground that the meeting had been part of without prejudice negotiations, but as Mr Maleklou in his second affidavit gave his version of what was discussed at that meeting, I ruled that the privilege had been waived.
24 According to Mr Maleklou, in the July meeting the Mountain representatives said that it had bought the new equipment and would soon be manufacturing its own 30mm bottles and gradually moving away from the 28mm bottles altogether. Mr Maleklou said that he told the Mountain representatives that HP wanted to be able to continue its relationship with Mountain because it had already made a large investment. As part of an overall settlement, HP wanted the exclusive right to supply the pre-forms at the current price Mountain was paying and Mountain would have to stop buying any 600ml bottles from anyone else and start buying them from HP "as per the OSA". He said that the Mountain representatives agreed.
25 By an email sent on 3 July 2009 to Mr Pitts, Mr Hudson had complained about:
the continuing failure by Mountain H2O to order 600ml generic bottles from us in accordance with the supply agreement between our companies.
Mr Hudson stated that HP regarded this failure as "a material breach of the supply agreement, which needs to be remedied immediately".
26 On 30 July 2009, HP's solicitors wrote to Mountain's solicitors advising that HP considered that the without prejudice negotiations had "now irretrievably broken down". In the same letter HP's solicitors complained about Mountain launching "a new one litre bottled water into the market under the brand name 'Ice House' ", without offering HP the option of choosing whether or not to supply this bottle, pursuant to clause 4 of the OSA. Complaint was again made about "the ongoing failure by Mountain to purchase 600ml generic bottles from HP".
27 There was no response to this letter. However, in Mr Pitts' second affidavit, he deposed that in January and June 2009 HP had been asked whether it was interested in supplying this new one litre bottle and that eventually HP had declined because it did not have a one litre bottle and to purchase new moulds would have cost in the region of $40,000 with a lead-in time for HP of about 12 weeks. HP disputed all of this evidence.
28 Mr Pitts also complained in his second affidavit that in July 2009 there had been "delivery failures and quality issues" with 1.5 litre bottles from HP and that in August 2009 HP had not delivered on a number of Mountain's resumed orders of 600ml generic bottles.
29 In his second affidavit Mr Maleklou agreed that in July 2009 there had been some minor quality issues with one batch of 1.5 litre bottles, but said that they were immediately replaced at HP's cost. He also agreed that there had been some minor delivery delays but pointed out that for the month HP supplied 1.311 million bottles as ordered against a forecast of 1.182 million. Mr Maleklou also agreed that in August 2009 there had been some delays with delivery of the 600ml bottles which were "caused by Mountain failing to provide forecasts for its bottle requirements in weekly buckets". He deposed that:
Further complicating this, Mountain, in its 31 July 2009 orders, required 70% of its August requirements for bottles to be delivered in the first week of August thus making it impossible for HP to dedicate sufficient capacity in time to meet the delivery dates.
30 Then, although it is not completely clear, it appears that in or about early October 2009 Mountain provided to HP either directly, or through the solicitors acting for both parties, two forecasts. One dated 8 October 2009 showed that Mountain was forecasting purchases in October 2009 of 1,691,640 bottles spread over seven products and purchases in November 2009 of 2,067,296 bottles spread over only three products. The other forecast was undated. It showed that apart from pre-forms Mountain was forecasting in September 2009 purchases of 5,450,736 bottles spread over eleven products, purchases in October 2009 of 4,207,460 bottles spread over ten products, purchases in November 2009 of 1,712,000 bottles spread over five products, purchases in December 2009 of 1,327,680 bottles spread over three products, purchases in each of January, February and March 2010 of 292,800 bottles spread over two products and nothing thereafter up to June 2010. The projected total of 13,576,276 for ten months would seem to fall well short of the annual 30 million minimum referred to in the OSA.
31 It was these forecasts which led to HP bringing this application for interlocutory injunctive relief. In his first affidavit, Mr Maleklou stated that, if Mountain ceased ordering bottles from HP or reduced its orders consistent with these forecasts, there would be serious consequences for HP. The new Tullamarine facility would no longer be required, causing redundancy for the equivalent of six or seven full time employees. The investment of $1.5 million would be wasted, at least in the short term. Further, HP would suffer significant loss of profits because it would not be possible to replace the loss of Mountain's business for a long time. This could cause the equivalent of two to three full time employees at HP's Footscray premises to be made redundant.
32 On the other hand, Mr Pitts in his second affidavit stated that, if Mountain was restrained from manufacturing and blowing its own bottles using the Krones plant, he considered that there was a substantial risk that its business would close. Mountain's customers presently required it to supply an estimated 80 million bottles in the next twelve months and there was a possibility of a new customer requiring another 50 million bottles over that period. If Mountain could not fulfil its orders from the major national retailers it would lose its contracts with those customers and "would not be likely to recover the business again for a number of years, if at all".
33 Mr Pitts deposed that he did not believe that HP had the capacity to blow the equivalent of 80 (or 130) million bottles per annum, or pro rata until the conclusion of the OSA on 31 August 2010. Mr Pitts said that HP could not even supply 30 million bottles under the OSA, even with its new machinery. Mr Pitts also deposed that this new machinery, which he had inspected, was "old and limited to outdated technology". Even if HP agreed to change to 30mm bottles, they were not easily transported. Further, there would be a lead-in time of at least 12 weeks before HP would be able to supply 30mm bottles, and the new moulds would cost about $800,000. In addition, Mr Pitts said, HP would not be able to supply the 30mm bottles to Mountain "at a price competitive with the price that Mountain would obtain by manufacturing the 30mm bottles internally". In any event, Mountain only used pre-forms and not bottles in its new plant in Albury.
34 Mr Pitts further argued that the Kancoona plant, which was aged and increasingly unreliable, did not have sufficient capacity, especially with the restrictions imposed by VCAT, to produce sufficient bottles to satisfy the requirements of Mountain's customers.
35 In an affidavit sworn on 19 November 2009, Gary West, an accountant and director of Mountain, stated that if Mountain was restrained from manufacturing and blowing its bottles using the Krones plant, "Mountain's business will close". His opinion was based on the fact that the cost of setting up the internal manufacturing model was approximately $12 million. In order to service such borrowings, Mountain needed to obtain the significant cost savings from the new internal manufacturing model over the old model using the Kancoona South labelling and bottling plant.
36 In his second affidavit, Mr Maleklou disputed Mr Pitts' claims about the future. Mr Maleklou stated that HP could, if asked, supply Mountain with 30mm bottles. It could certainly make and deliver 18 gram 30mm bottles, which would be the lightest bottle available in Australia, thus meeting Mountain's professed need for a marketing advantage. Mr Maleklou said that he believed HP could supply Mountain with its preferred weight of 16.2 grams for 30mm bottles, but this had yet to be tested. If transport was a problem, HP would produce the 30mm bottles weighing 18 grams but charge as if it was produced using the amount of resin required for a 16.2 gram bottle. Mr Maleklou also disputed that HP would not be able to match Mountain's internal price for the new 30mm bottles.
37 Mr Maleklou further stated that HP's Tullamarine plant alone, using three of the four machines there, had the capacity to blow 150 million bottles per year. He also stated that the cost of all of the necessary moulds for the new bottles would be "in the order of $300,000".
38 Finally, Mr Maleklou disputed that Mountain's Kancoona South plant was limited to filling a maximum of 30 million bottles over the next 12 months. Mountain representatives had advised HP that the production rate varied between 9,000 and14,000 bottles per hour (depending on bottle size). Even with the VCAT restrictions, he estimated the site to be capable of bottling 70 million 600ml bottles or 45 million 1.5 litre bottles per annum.
39 In summary, Mr Moore of counsel, who appeared for HP, submitted that Mountain's unilateral decision to manufacture bottles itself and not to honour its obligations under the OSA to acquire "100% of Mountain H2O's bottle requirements" from HP was a blatant breach of contract. He submitted that little or no balance of convenience was required to support an injunction restraining such a blatant breach of contract. Mr Moore further submitted that, in any event, the balance of convenience (or the lower risk of injustice) favoured the grant of interlocutory relief, because of the significant harm that would be suffered by HP if Mountain was permitted to abandon unilaterally its obligations under the OSA. Even though no pleading of HP's new claim had been delivered, it was not disputed by Mountain that there was a serious question to be tried. In those circumstances, Mr Moore submitted, it was just that an injunction be granted to maintain the status quo pending trial thereby preserving for HP a full range of possible relief at trial rather than it being restricted to a claim for damages.[1]
40 Although submitting that HP was entitled to the injunction sought in its summons, Mr Moore made an open offer that it would settle for an injunction that required Mountain to purchase 30 million bottles per annum, being the total of the minimum quantities set out in Appendix 1 to the OSA. This "fall back" position was not accepted by Mountain.
41 In summary, Mr Langmead SC and Mr Smith of counsel, who appeared for Mountain, submitted that there should be no interlocutory relief because:
(a) even if successful at trial, HP would not be granted an injunction as damages were an adequate and appropriate remedy;
(b) there had been lengthy delay on the part of HP in seeking an injunction with respect to the issues of the supply of the 600ml generic bottles and of the Ice House bottles;
(c) the OSA required ongoing dealings between the parties and its troubled history demonstrated that an interlocutory injunction would require continuing supervision by the Court;
(d) the OSA would come to an end in August 2010 as there was no realistic prospect that it would be "rolled" over;
(e) for compelling commercial reasons Mountain was required to purchase the Krones plant, which meant that it now needed pre-forms and not bottles, and in any event it was "transitioning" to 30mm bottles which were not part of the OSA; and
(f) the effect of an injunction would be to restrain Mountain from using its new plant at all, which in turn would prevent Mountain from serving its existing customer demands, since the facility at Kancoona South was subject to operating restrictions, and this failure would result in Mountain losing its major clients and being excluded in the long term from the supermarket and other markets, thereby creating a substantial risk that Mountain's business would close.
42 At this stage of the proceeding and without the benefit of hearing the evidence and considering final submissions, it is not possible to be definitive about the parties' rights and obligations under the OSA. Nevertheless, it does appear to me that HP has a strongly arguable case that Mountain's decision to switch to manufacturing its own bottles and significantly reducing its orders from HP over the coming months and ceasing altogether to purchase bottles from HP by April 2010 are breaches of the OSA. A decision by Mountain to manufacture its own bottles because of commercial considerations does not excuse the contractual breach, in my opinion. Further, any decision by Mountain, again for commercial reasons, to use the 30mm bottle in place of, or in addition to, the 28mm bottle was only not a breach of the OSA if it had first requested HP to supply the new type of bottle and HP had chosen not to supply it.
43 Mr Langmead submitted that the pre-forms required by Mountain were bottles, so that it was entitled to rely on the provisions of the second paragraph of clause 4 and treat HP as having chosen not to supply the new 16.2 gram 30mm bottle. He used the analogy of an uninflated balloon still being a balloon. He further submitted that the parties had conducted themselves in their negotiations in July 2009 as though a pre-form was a bottle. However, as Mr Moore pointed out, Mr Pitts himself talked in his second affidavit of the pre-form being "heated and then blown under high pressure to become a bottle". That is, prior to this treatment, the pre-form was not a bottle. Mr Moore also quoted the Macquarie Dictionary definition of a bottle as "a portable vessel with a neck or mouth, now commonly made of glass [sic], used for holding liquids".[2] A pre-form, he submitted, was not "used for holding liquids". I have, therefore, concluded that the submission that the pre-forms are bottles within the meaning of clause 4 is not strong.
44 Mr Moore submitted that the stronger the case to be tried, the less the balance of convenience must be inclined in favour of the applicant before an injunction will be granted.[3] Indeed, he went further and submitted that where the case is very strong, the impact of an injunction on the party to be restrained carried little weight.[4] These were persuasive submissions pointing towards the granting of an injunction in this case.
45 With respect to the "fall back" injunction, Mr Moore submitted that the balance of convenience was all one way because, unlike the drastic consequences for HP if no interlocutory injunction was granted, there would be no adverse consequence for Mountain if it was required to purchase the minimum quantity of 30 million bottles from HP but was free to use its own plant for the anticipated 50 (or 100) million extra bottles. Again, that submission had some initial attraction.
46 However, although Mountain accepted that under the OSA it had initially been obliged to purchase 30 million bottles from HP each year, it maintained that this was no longer the case by virtue of the operations of the terms of the OSA itself. Clearly, by Mr Hudson's email dated 12 August 2008 HP told Mountain that it could not "supply the generic 600ml bottles as of next month", and that another supplier would have to be arranged. Whether Mr Hudson's email should be read as stating that HP was unable to supply the generic 600ml bottles for the next month or indefinitely, and whether HP was then able to insist that it could resume supplying these bottles to Mountain are issues that will be decided at trial. What is important for present purposes is that, despite HP alleging that Mountain was in breach of clause 9 of the OSA by not again ordering the generic 600ml bottles from it at the required minimum rate, it chose not to seek injunctive relief in September 2008. Instead, it sought damages in its counterclaim.
47 The minimum quantity of the generic 600ml bottles set out in Appendix 1 to the OSA was 12 million bottles. Thus, contrary to equitable principles, HP has delayed for over a year in seeking interlocutory injunctive relief in respect of bottles representing almost 40% of the minimum quantity it says Mountain should be ordering from it over the course of a year. Perhaps more importantly, its decision not to seek an injunction arguably demonstrated an acceptance that damages would be an adequate remedy for Mountain's alleged breach of the OSA.
48 The dispute about whether Mountain complied with clauses 4 (second paragraph) and 14 of the OSA with respect to the introduction of the Ice House one litre bottle in mid 2009 is again a matter that can only be determined at trial. For present purposes it is another example of HP delaying in bringing an application for injunctive relief, and accepting that damages would be an adequate remedy.
49 It is true that the October forecasts indicated for the first time that Mountain was intending to virtually cease ordering bottles from HP over the next few months. Nevertheless, given the delay by HP in seeking any injunctive relief in respect of a large part of its minimum annual order, I am far from satisfied that HP has shown that it would be unjust for it to be restricted to an award of damages should it be successful at trial.
50 Next, it seems to me that Mountain's counsel were correct in submitting that the history of disputes between the parties concerning matters such as alleged late forecasts, unexpectedly high orders and late deliveries demonstrated that an interlocutory injunction would probably require continuing supervision by the Court. I accept that, as Mr Moore submitted, it is now by no means uncommon for an injunction to issue to prevent the termination of an ongoing contractual relationship of the type existing in this case.[5] Nevertheless, in my opinion, in this case it would be very difficult to word an injunction fairly to take into account any changes in the ongoing relationship between Mountain and HP under the complicated provisions of the OSA. Simply granting an injunction in the absolute terms sought by HP in its summons would not be appropriate given the exceptions referred to in clauses 4 and 9 of the OSA.
51 At my request, Mr Moore put forward after the hearing two versions of the injunction finally proposed by HP - the first being HP's preferred position and the second being the "fall back" position. In my opinion, the first version was inappropriate because it did not deal with a situation arising under clause 4 of the OSA, and because it would require Mountain to resume ordering 12 million of the generic 600ml bottles over the course of the year ending 31 August 2010, even though the status quo with respect to that particular bottle was that it was not being supplied exclusively by HP.
52 In my opinion, the second version was inappropriate because it would require Mountain to "continue to place orders" for the supply of plastic bottles by HP in a quantity "of not less than 2.9 million per month". There are very real difficulties with this wording, in my opinion. First, the contractual obligation, as is recognised in draft proposed order, was a minimum of 30 million bottles per year not a minimum of 2.5 (or even the suggested 2.9) million each month. Thus, under the OSA the monthly quantity can vary from month to month over the course of a year but this is only partly recognised in the draft proposed order. Secondly, although I have referred to a minimum of 30 million bottles per year, the original contractual obligation was a minimum total of 30 million bottles spread over six products with their varying annual "quantities" as stated in clause 15 and the table in Appendix 1 to the OSA. The draft proposed order did not grapple with this further complication. Thirdly, there remained the problem with the 12 million generic 600ml bottles referred to above in respect of the first draft proposed order.
53 Further, given that there are existing disputes over the construction of the OSA, I consider that it would be inappropriate to impose on Mountain the risk of being in contempt of court should its construction in the future of a term of the OSA later prove to be incorrect. The same consideration applies to the difficulties of construing a complicated injunction.
54 Related to the argument about the undesirability of the Court becoming enmeshed in the day to day relationship between HP and Mountain, is the further argument that there is only a short time to go before it is more likely than not that the OSA will come to an end. Although Mr Langmead submitted that the part of clause 3 giving HP "an option to roll this contract, provide its pricing remains competitive" was void for uncertainty, I consider that a court would probably be able to give this part of the clause some meaning. Nevertheless, I agree with the submission that it is unlikely that the OSA would be "rolled" over. This means that even if an injunction is granted, HP is in the near future likely to be facing the prospect of not being entitled to supply bottles to Mountain. This is another consideration to take into account when weighing up the balance of convenience.
55 Finally, in terms of the balance of convenience, it is obvious that the granting or refusal of the interlocutory injunction has the potential to cause severe financial difficulties to either Mountain or HP and to result in redundancies for their employees, although I am not satisfied that the consequences would be as drastic as the parties maintained. Accordingly, I have treated with a degree of caution the claims by Mr Pitts and Mr West that an interlocutory injunction would force Mountain's business to close. On the other hand, it seems to me that it is appropriate to take into account that if Mountain were to lose its major clients as a result of the interlocutory injunction, which later turned out to have been "wrongly" granted, the assessment of its damages pursuant to the undertaking would be inherently difficult to assess given that they would be based on an unknown number of lost sales. On the other hand, it seems to me that the damages recoverable by HP would be relatively easy to calculate given that the starting point would be revealed by the number of bottles manufactured or purchased from other suppliers by Mountain in the relevant period.
56 I should mention that I have rejected the submission by Mountain that I should not be satisfied on the evidence that, if an interlocutory injunction was granted, HP would not have been able to meet its undertaking as to damages if called upon to do so. Whilst the evidence of HP's net assets was limited, so was the evidence of the likely quantum of Mountain's possible damages.
57 For all of the above reasons, I have concluded that, whilst the matter is not free from doubt, there is a lower risk of injustice to HP in not granting an injunction, should this turn out to have been "wrong", than there would be if an injunction were "wrongly" granted against Mountain.[6]
58 Accordingly, there will be an order that HP's summons filed on 10 November 2009 be dismissed.
[1] Advanced Communications Technologies Inc v Advanced Communications Technologies (Australia) Pty Ltd [2002] VSC 348, [54] (Habersberger J).
[2] Macquarie Dictionary, Fourth Edition, 2005, p.171.
[3] Optus Networks Pty Ltd v City of Boroondara [1997] 2 VR 318, 329-330 (Charles JA quoting with approval a passage from K-Mart Australia Ltd v Stud Park Investments Pty Ltd (unreported, Full Court, 14 October 1994)). (Ormiston and Callaway JJA agreed with Charles JA).
[4] Gardena (Australia) Pty Ltd v Nylex Corporation Pty Ltd [2008] FCA 1846, [136] (Foster J).
[5] See, for example, Axxess Australia Pty Ltd v Primus Telecommunications (Aust) Pty Ltd [2000] VSC 64, [32]-[37] (Warren J, as her Honour then was).
[6] Bradto Pty Ltd v State of Victoria (2006) VR 65, [35] (Maxwell P and Charles JA).
Mountain H2O Pty Ltd
HP Pet
HP's summons filed on 10 November 2009 for interlocutory injunctions was dismissed; no interlocutory injunction granted.
We are instructed to seek a written assurance from HP that it will not implement the threats contained in your email dated 12th August 2008, but instead will continue to supply the classes of bottles identified in Appendix 1 to the Supply Agreement in the volumes stipulated by Mountain (up to the maximum obligated levels set out in clause 9 of the Schedule to the Supply Agreement) and at prices fixed in accordance with the Supply Agreement, for the duration of the Supply Agreement. We note, in the latter respect, that the parties recently agreed on a price variation in accordance with the variation mechanism set out in the Supply Agreement.