8 On 12 December 2005, Mikohn and ACES entered into a deed amending the Distribution and Service Agreement, the effect of which was to extend the initial term of the agreement to seven years, and otherwise to confirm the original agreement.
9 Clause 6.2.1 of the original agreement, which I have set out above, has the effect that in the event that the agreement were terminated by notice at the expiration of the initial term, then ACES would be entitled to receive its remuneration under clauses 6.1 and 6.2 in respect of fees received by Mikohn for a period of a further 12 months after the expiration of the initial period. As the amending deed extended the initial period to seven years from 10 April 2003, this means that ACES would be entitled to be paid its remuneration, calculated as a percentage of the licence fees received by Mikohn, up to 10 April 2011, a total period of eight years from the date of the original agreement.
10 When the Distribution and Service Agreement commenced, there were about 110 existing installations, for the purposes of clause 6.1. Since then, the number of installations has increased to 189, so that a further 79 are apparently new placements of product during the term of the agreement, for the purposes of clause 6.2.1.
11 PGIC has negotiated with a third party, Shuffle Master Inc, for the sale of various of the assets of PGIC to Shuffle Master, including the business of distribution of table games, for a consideration estimated to be worth in excess of $US40 million. The proposed terms of the sale include the assignment by PGIC or Mikohn of the benefit of the licence agreements between Mikohn and the casinos, which have been procured by ACES under and are the subject of the Distribution and Service Agreement, and from which Mikohn derives its licence fees according to which the remuneration of ACES under the Distribution and Service Agreement is calculated. If the agreement between PGIC and Shuffle Master proceeds, the effect will be that Mikohn will no longer receive any such licence fees as are referred to in clause 6.2.1 of the Distribution and Service Agreement, and ACES' entitlement to remuneration under that clause would thereafter be to 20 percent of nothing.
12 Although, when the Duty Judge initially referred the matter to me yesterday, it had been anticipated that the Contract for Sale between Shuffle Master and PGIC would be exchanged today, the Court was informed yesterday afternoon that it was now anticipated that exchange would not take place until 6 September 2007. ACES seeks an interlocutory injunction in effect to restrain Mikohn from alienating the benefit of the casino licence agreements.
13 On an application such as the present for an interlocutory injunction, the essential questions are, first, whether the plaintiff has a seriously arguable case for a final injunction and, secondly, whether the balance of convenience favours the granting or the withholding of interlocutory relief.
14 As to whether there is a serious question to be tried, the Distribution and Service Agreement contains no express term prohibiting Mikohn from alienating the benefit of the casino licence agreements. Clause 12 of the Distribution and Service Agreement does not prohibit any such assignment; it is concerned with the assignment of rights under the Distribution and Service Agreement, and the rights of Mikohn under the casino licence agreements are not rights under the Distribution and Service Agreement.
15 On the other hand, I do not accept the submission on behalf of Mikohn that clause 2.2.2 expressly contemplates the assignment of the benefit of the licences. In the context of clause 2.2 as a whole, I think it is clear that the "deed of assignment or deed of arrangement" referred to in that clause is one of the type provided for by laws of insolvency, and not any assignment by a party of any of its assets, including the casino licences. In any event, there is nothing to indicate that the proposed assignment would necessarily be by deed.
16 For ACES, Mr Cotman SC submits that a term should be implied in the contract to the effect that neither party would do anything to deprive the other party of the benefit of the contract.
17 There is in every contract an implied term requiring each party to do whatever is reasonably necessary to enable the other party to reap the benefit of the contract. Often this is referred to as the duty to facilitate performance. A corollary of this obligation is that each party is obliged, by implication, to refrain from doing anything that would deprive the other party of the benefit of the contract. This is an implied negative obligation.
18 In Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438, McHugh JA (as he then was) said, with the agreement of Priestley JA, that in a distributorship agreement a common purpose may well be that the relationship of the parties should continue for long enough after the giving of a notice of termination to enable the distributor to recoup any extraordinary expenditure or effort, particularly where that expenditure or effort was incurred with the actual or tacit authority of the principal. The circumstances in Crawford are far from all fours from those in the present case, but a similar intent - to permit the distributor a reasonable opportunity to recoup its investment through the receipt of remuneration - is apparent: the initial fixture of a term of four years, then extended to seven years, in conjunction with the provisions of clause 6.2.4, indicates that the parties contemplated that ACES would have remuneration for at least the initial term, plus a year thereafter, to recoup its investment of expenditure and effort under the agreement.
19 In my opinion, it is seriously if not strongly arguable that this contract contains an implied term to the effect that Mikohn will do nothing to prevent ACES from enjoying the benefits that the parties intended ACES to have and, in particular, to derive for the initial period plus one year remuneration through receipt of 20 percent of the licence fee revenue generated by the licences which ACES procured for the benefit of Mikohn.
20 The alternative - that Mikohn remained free to alienate the casino licence agreements - would involve that, while ACES remained under a continuing obligation, pursuant to clause 3.1, to procure the execution of new licence arrangements on behalf of Mikohn throughout at least the initial term until 2010, Mikohn, on the other hand, each time a licence agreement was negotiated, could, the very day it was negotiated and assigned, assign the benefit of the agreement to a third party, so that Mikohn never received any revenue in respect of the licence agreement, and there was nothing to which ACES's 20 percent entitlement could apply. It seems to me that if an officious bystander had raised that prospect with the parties at the time of the negotiation of the agreement, it is strongly arguable that the parties would have suppressed him testily with the answer, "Of course, Mikohn cannot do that".
21 The proposed assignment of the casino licences will, however, have just that effect, and deprive ACES of the remuneration which the parties intended ACES should derive for the performance of the its obligations under the Distribution and Service Agreement. It follows that, in my opinion, there is at least a seriously arguable case that the proposed assignment would be a breach of contractual obligations binding on Mikohn.
22 However, the question is not just whether there is a seriously arguable case for final relief of some kind, but whether there is a seriously arguable case for a final injunction. It is inappropriate to grant an interlocutory injunction, notwithstanding a seriously arguable case of breach of contract, if it can be seen that as a matter of discretion the Court would not grant a final injunction but, for example, leave the plaintiff to a remedy in damages. This involves consideration of whether, as a matter of discretion, final injunctive relief would be declined, whether because damages would be a sufficient remedy or for any other reason.
23 The first reason that has been advanced is that damages are a sufficient remedy. If the plaintiff obtains a final injunction then, prima facie, ACES will be entitled to continue to receive 20 percent of the casino licence fee revenues derived by Mikohn until 2011; moreover, ACES may increase its revenue by successfully placing further product on behalf of Mikohn during the remainder of the term of the agreement. Mikohn would continue to retain the licences from which it derives its revenue, which would be an asset of Mikohn located in Australia. If, however, the plaintiff were left to a remedy in damages, then ACES would recover by way of damages the present value of its assessed future revenues, being 20 percent of the revenues that Mikohn would derive from the casino licences, discounted for acceleration and discounted for vicissitudes. The proof of such damages would be inexact and less precise than would be the case if the contract remained on foot, although that is not a matter which usually much troubles the Court in assessing damages, since the assessment of the present value of future income streams is an aspect of the assessment of damages well familiar to the courts. In addition, Mikohn may well not receive or retain the proceeds of the sale, as it appears that the sale is being negotiated by its parent and not by Mikohn itself, and that the price may be paid to PGIC and not Mikohn, which may result in difficulties in the enforcement of any judgment.
24 A further significant consideration is that what the Court is being asked to enforce, is a negative contractual stipulation, albeit an implied one, and courts usually readily enforce by injunction negative contractual stipulations, notwithstanding that damages may be a sufficient remedy, on the basis that parties should be held to perform their promises and not permitted to buy their way out of them by paying damages.
25 While I recognise that there is a substantial argument that damages may be a sufficient remedy in this case, I nonetheless think it is seriously arguable that ACES should have a final injunction and not be left to a remedy in damages. Both the circumstance that what is involved is enforcement of a negative contractual stipulation, and the potential disadvantages to which I have referred of damages as against specific relief in the assessment of damages and in the enforcement of any judgment, are the significant determinants of this issue.
26 The other matter that has been urged on discretion is the question of delay. It is true that ACES has known of the proposed sale since at least May of this year. On the other hand, ACES has since then actively pursued Mikohn to ascertain how its rights were to be protected in the event of a sale. The evidence shows that while ACES received responses of sorts to its inquiries, they were responses without real substance. ACES endeavoured, ultimately unsuccessfully, to negotiate a resolution with Mikohn before approaching the Court. Retrospectively, ACES might well think with some justification that it was being toyed with in those communications.
27 Although equity aids the vigilant and not those who sleep, and expect parties who seek interlocutory relief to act with expedition, nonetheless I do not consider that that principle requires a plaintiff to come to Court at the first possible opportunity, when there is apparently a prospect of avoiding litigation by negotiation. The evidence shows that negotiations continued until at least not more than a few days before the Court was approached. Moreover, there was no evidence that delay has occasioned any prejudice to Mikohn. I do not think that there is much prospect that the Court would decline final injunctive relief on the grounds of delay, and I am not minded to decline interlocutory injunctive relief for the same reason.
28 I turn then to the balance of convenience. This involves a comparison between the prejudice that the plaintiff will suffer if an injunction is wrongly refused, against the prejudice to the defendant if an injunction is wrongly granted. If the injunction is wrongly refused, then the contract will presumably be completed; the rights of third parties will intervene, which will make the situation irretrievable; and ACES will be relegated to a claim for damages, with the potential, though not massive, disadvantages to which I have referred. On the other hand, if a injunction is wrongly granted, a sale very valuable to Mikohn and/or its parent, will be jeopardised, and Mikohn will be compelled to retain its business, at least until a final hearing can take place; and it is conceivable that Mikohn and/or its parent may suffer loss if it is not possible thereafter to negotiate a sale on no less favourable terms. Against that, ACES proffers an undertaking as to damages. Although it was submitted that the evidence was insufficient to show that ACES could give an adequate undertaking as to damages, I do not think that, on an application of this type that came on in the circumstances and timeframe in which it did, that the evidence is by any means insufficient. ACES's own balance sheet shows equity at 31 December 2006 of $3.8 million, with a subsidiary having further equity of $1.6 million, indicating a total equity of some $5 million as at December 2006. However, if it transpires that there is further reason to suspect that the undertaking as to damages is inadequate, then it is open to the defendant to re-open that issue.
29 Having regard to the undertaking as to damages, I think the balance of the convenience favours, albeit only relatively slightly, the grant over the withholding of injunctive relief. All prejudice or potential prejudice to the defendant is addressed by the undertaking as to damages, whereas the prejudice to the plaintiff of being left to a remedy in damages means that the plaintiff would be left to a less perfect remedy than might be secured by injunctive relief. Again, I am influenced on this question by the circumstance what is involved is enforcement of an albeit implied negative contractual stipulation.
30 Accordingly, upon the plaintiff by its counsel giving to the Court the usual undertaking as to damages, I make an order until further order in terms of paragraph 1 of the Summons filed 29 August 2007. I order that costs of the interlocutory application be costs in the proceedings.
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