The Software Link (Australia) Pty Ltd (ACN 003 386 212) v Texada Software Inc [2005] FCA 1072

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FEDERAL COURT OF AUSTRALIA

The Software Link (Australia) Pty Ltd (ACN 003 386 212) v Texada Software Inc [2005] FCA 1072

THE SOFTWARE LINK (AUSTRALIA) PTY LTD (ACN 003 386 212) v TEXADA SOFTWARE INC

VID 828 of 2005

RYAN J

5 AUGUST 2005

MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 828 of 2005

BETWEEN:	THE SOFTWARE LINK (AUSTRALIA) PTY LTD (ACN 003 386 212) Applicant
AND:	TEXADA SOFTWARE INC Respondent
JUDGE:	RYAN J
DATE OF ORDER:	5 AUGUST 2005
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The injunction granted by paragraph 1 of the order of Weinberg J of 28 July 2005 be dissolved

2. The respondent be restrained until the hearing and determination of the application or further order from, whether by itself, its employees, agents, subsidiaries or otherwise, representing itself to be the applicant, or to have succeeded to any existing contracts between the applicant and any of its customers or using in connection with the sale or servicing of computer software the name “Texada Software Link” or “Software Link” or any name including the words in conjunction “Software Link” or any name deceptively similar thereto.

3. This proceeding go to a mediation before a Registrar or Deputy Registrar of this Court at the Melbourne registry on a date before 30 September 2005 to be fixed by the Registrar.

4. The respondent file and serve its defence and any counterclaim on or before 1 September 2005.

5. The applicant file and serve any reply and defence to counterclaim on or before 22 September 2005.

6. The parties exchange lists of discoverable documents on or before 6 October 2005.

7. Subject to any order of the Court, the parties make discovery of documents in terms of the exchanged lists on or before 3 November 2005.

8. The parties each afford inspection of discovered documents to the other party by 10 November 2005.

9. Subject to any further or other direction of the docket Judge or the Registrar conducting the mediation referred to in paragraph 3 of this Order, the application be adjourned for a directions hearing and fixed for trial as soon as practicable after 10 November 2005.

10. Liberty to apply is reserved to each party.

11. The costs of each party of the application for interlocutory relief including the costs of the hearing on 4 August 2005 be costs in the cause.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 828 of 2005

BETWEEN:

THE SOFTWARE LINK (AUSTRALIA) PTY LTD (ACN 003 386 212)

Applicant

AND:

TEXADA SOFTWARE INC

Respondent

JUDGE:	RYAN J
DATE:	5 AUGUST 2005
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1 There is before the Court an application for interlocutory injunctions restraining the respondent, Texada Software Inc (“Texada”) until the trial of the action from taking certain steps in relation to the business of the applicant, The Software Link (Aust) Pty Ltd (“Software”) as a distributor in Australia and New Zealand of Texada software products.

2 In 1984, Mr Christopher Pannell (“Pannell”), a director and principal shareholder of Software was conducting, through a company, Hire Pool Pty Ltd (“Hire Pool”), a business of hiring out building and construction machinery and equipment. He learned of a computer program which had been developed for use in businesses like that of Hire Pool and made contact with Mr James Lolley (“Lolley”), a Canadian who had written the program. After travelling to Canada, Pannell investigated the program which he agreed to buy for Hire Pool for Can$4,000.00. In the course of their discussions, Lolley and Pannell agreed that Pannell, or a company controlled by him, should become the distributor of the program in Australia and New Zealand. There are disputes in the evidence, particularly on points of emphasis and understanding, as to what was said then and later by Lolley and Pannell by way of establishing the distributorship. Those disputes centre in particular on whether it was to be a sole or exclusive distributorship and when, and in what circumstances, it could be brought to an end. It is undesirable that I attempt finally to resolve those factual issues on this interlocutory application. It is sufficient to observe that, by 1986, Hire Pool was marketing in Australia and New Zealand Lolley’s software which was then being developed and produced by Systematic Software Inc (“Systematic”). Pursuant to the agreement concluded by Pannell and Lolley, Hire Pool was able to purchase Systematic software at fifty per cent of its Canadian list price. It exercised its own discretion as to the prices at which it resold that software to customers in Australia and New Zealand. Hire Pool also required those customers to enter into standard form software licences. In its most recent form the standard form licence agreement recites, amongst other things;

‘This Agreement contains the term’s under which we agree to sell you and provide support for Systematic Software. In thisAgreement, references to “we” and “our” means The Software Link (Australia) Pty Ltd,“Texada” means Texada Software Inc. ofGuelph, Ontario, Canada. References to “you” or the “Licensee” are references to Licenced Users of Systematic Software in Australia & New Zealand. This agreement replaces all and any previous agreements between you and The Software Link (Australia) Pty Ltd. The terms of our agreement are as follows:

…..

1.2 Right to Use Software.We hereby grant you the non-exclusive and non-transferable right and licence to use, from the date hereof (the “Term”), one copy of the Server Software and as many copies of the Client Software that you purchase for your business purposes, for as long as this agreement remains in place. You may make a copy of the Systematic Software for backup purposes. For greater certainty, you may only use the number of copies of the Client Software stated above in this paragraph which have been paid for pursuant to Part 2 of this Agreement. The Systematic Software may only be used or made accessible to persons within the Licensee on a “need to know” basis (i.e. persons who must logically and obviously use the Systematic Software in order for the Licensee to utilise the Systematic Software).

…..

1.4 Software Support During the Term, we will provide you with web-based (“NetHelp”) or telephone support, hereafter “Support” for questions relating to the use of the Systematic Software. You will designate one person as an “Operations Support Coordinator” and a second person as an “Accounting Support Coordinator” (together called the “Coordinators”). Support will be provided to the Coordinators only during the hours of 8:30 a.m. to 5:00 p.m. for the local time zone of your nominated Coordinators, Monday through Friday but not on specified holidays (refer 1.4.3) Saturdays or Sundays (hereafter called “standard support hours”). Support enables your Coordinators to submit support questions via our NetHelp customer service system. If not logged via NetHelp, the telephone support message system is monitored on a regular basis and these support requests will then be logged into our NetHelp web-based support management system and will be responded to in the order of their logged time.

This Agreement does not include providing you with Support with respect to serve or workstation operating systems or network or hardware issues, if such Support is requested and provided then you agree to pay us our current hourly rate for such services. (refer Schedule C, “Schedule of Rates”)

…..

1.5 Software Updates. During the Term, we will provide you with any bug fixes or patches to the Systematic Software that are released by Systematic (the “Updates”). This clause expressly excludes any major version updates to PROIV (or any other 3^rdparty software). PROIV Software Inc (and any other 3^rdparty vendor) reserves the right to charge additional licence upgrade fees for major version updates. Should an update to Systematic Software also require a major version update to PROIV (or any ether 3^rd party software), you will be notified of any costs involved.

You may request modifications to improve or enhance the software (the “Enhancements”). We shall at our discretion determine whether any modifications to the software requested by you may be provided at no cost to you as Updates or are Enhancements for which we reserve the right to charge you our usual fees should you ask us to complete them.

1.6 Ownership of Software. You acknowledge that Systematic own the copyright and all other intellectual property rights in and to the Systematic Software and in all improvements and in all documentation relating to the Systematic Software including for greater certainty any modifications made as contemplated by section 1.5 above, and that your licensing of the Systematic Software only gives you a right to use it on a confidential basis for your business purposes. For greater certainty, you are prohibited from altering Systematic Software.

2. FEE AND RENEWAL

2.1 Initial Fee. The fees payable by you to us for the use of the Server Software and each copy of the Client Software for the Term are outlined Schedule C. “Schedule of Rates”. These fees, together with any related delivery, installation, configuration, data conversion or custom programming fees are payable prior to the permanent Serialisation of the Systematic Software for use.

2.2 Term. This agreement shall remain in force from the date hereof, until terminated by you or The Software Link by giving a minimum of five weeks notice in writing.

2.3 Renewal Fee. The renewal fee payable by you to us for the use of the Server licence and for each copy of the Client Software and payable in advance plus applicable taxes (the “Renewal Fee”) is specified in Schedule C “Schedule of Rates”. If you do not pay the Renewal Fee as set out herein, then this Agreement shall be terminated.

…..

3.1 Representations of The Software Link (Australia) Pty Ltd. We represent and warrant that we are authorised by Texada Software Inc. as their Distributors for Systematic Software in the Pacific Rim Region, which includes all the Territories of Australia and New Zealand. We have the power, authority and capacity to enter into this Agreement, we have the right to arrange for the development of Systematic Software and to sell the Systematic Software to you and warrant that Systematic Software does not infringe any copyright or other intellectual property right of any other person.’

3 A schedule to the standard form software licence agreement sets out prices for the licences according to the number of users on the network and a monthly maintenance fee for a single user licence or increased from a base fee of $150 by $55 for each user of a Multi-User Licence. The same Schedule C also stipulates hourly rates for software installation and training, other on-site work and travelling time. Other prices are quoted for a control pack and various ROTD server licences.

4 In 1987, another company incorporated by Pannell took over the distribution of Systematic software in Australia and New Zealand. In early December 1992 that company was replaced by the present applicant, Software, when Pannell told Lolley “of the change of name of our company”. In fact, it was more than a change of name because on 26 February 1993, the company controlled by Pannell which had formerly been distributing Systematic Software in Australia and New Zealand went into liquidation.

5 Each of the changes in the corporate identity of the distributor apparently occurred with the consent of Lolley, or the company which, at the relevant time, was producing and marketing Systematic software. According to Pannell, Lolley, when told of the change which occurred in December 1993, replied “That’s fine, Chris”. By various mergers and acquisitions and changes of name, that company eventually, by the end of 2001, was transformed into the present respondent, Texada. Those corporate changes also occurred with the apparent acquiescence of the company which at the relevant time was distributing Systematic software in Australia and New Zealand. Since 2002, Systematic software has been marketed as “Texada Software”.

6 Despite the changes to which I have referred, Software, or its predecessors, have at all times until this year acted as the sole distributor in Australia and New Zealand of Systematic, and, later, Texada software. Those companies controlled by Pannell have expended substantial time, money and resources in advertising the software, promoting it at hirer’s trade fairs and conventions, canvassing potential customers and providing after-sales service.

7 From about late 2000 each company from time to time producing Systematic software took steps to formalise Software’s distributorship arrangements by having the parties execute a written agreement. Discussion of such a written agreement was on the agenda for meetings which Pannell planned to have during a visit to Canada. Versions of a proposed form of agreement were sent from Canada to Pannell in late 2000 and early 2001 but by oversight or otherwise he made no substantive response to those proposals.

8 In about October 2001, Willie Swisher had been installed as the Chief Executive Officer of the new corporate entity which was then producing Systematic software. After his appointment had been notified to Software, Swisher sent Pannell an email dated 18 October 2001 which contained this paragraph;

‘Thanks for the note Chris. James has spoke[n] highly of the successful long term relationship he has had with you and Softlink. We do have a global vision for our future and I would agree that a discussion of common visions and common grounds to build future successes is vital. Obviously we want the existing relationship to continue in the interim until we can meet to discuss strategies.’

9 Thereafter in November 2001 a proposal was made by the Canadian interests to acquire the maintenance and support part of Software’s business for a price equal to the value of the annual licence renewal fees. Pannell responded by indicating that on a proposed visit to Toronto in early January 2002 he would be interested in receiving some of Swisher’s “more detailed ideas re the acquisition of all of [Software’s] business here rather than just the support as suggested by [Lolley]”.

10 After the meetings in January 2002, Texada did not pursue its proposal acquisition of any part of Software’s business but revived its endeavours to conclude a formal, written, distributorship agreement. A draft agreement was sent to Software on 21 July 2003, in which Software was described as “the Representative.” It included the following provision governing the duration of the proposed agreement;

‘3.1 Subject to section 11, this Agreement will be effective as of the Commencement Date and continue for a period of one year (the “Term”). The Representative will have the right to renew this Agreement on the same terms and conditions for a period of one year beyond the date of the expiry of the Term (the “Renewal Term”), upon no less than 90 days’ notice prior to the expiry of the Term, provided that the Representative has set all performance targets set by Texada and otherwise completed with this Agreement.’

11 Pannell acknowledged receipt of that draft and suggested that the expression “Representative” should be changed to “Distributor”. He also undertook to advise Texada of further comments on the draft which he would wish to make but it does not appear that he ever did so. At all events no written agreement in the form of the July 2003 draft or otherwise was ever concluded between Texada and Software.

12 In early 2005, Texada decided to establish a direct presence in Australia and New Zealand and, to that end, appointed Mr Bernie Reilly (“Reilly”) as its “Vice President Asia Pacific”. According to Pannell, Reilly told him that Texada intended to take over the software installation, implementation of new systems, data conversion for new customers, the whole customer support business and all customer training services which, to then, had been provided by Software. When Reilly told Pannell that Texada proposed to change Software’s distribution agreement, Pannell disputed Texada’s right to make changes unilaterally and insisted that any agreed changes would have to be accompanied by compensation for losses incurred by Software as a result.

13 On 19 May 2005, Reilly gave the following notice to Software;

‘Notice is hereby given of the termination of any dealership arrangement between the Software Link(Australia) Pty. Limited (SWL) and Texada Software Inc. (Texada).

Texada acknowledges that there has been an undocumented dealership arrangement in place between Texada and SWL. Texada also asserts that various attempts have been made by Texada over the past three years to formalize and document this relationship. In the absence of adequate response tothese attempts, Texada must formally terminate the unofficial relationship.

However, in consideration of the previous, unofficial relationship, Texada expresses its keen interest in establishing a formal arrangement whereby SWL might continue to re-sell Texada product(s).

In consideration of the previous official relationship and to bridge SWL to a new arrangement Texada hereby unilaterally grants the following rights to SWL:

i) SWL shall have the non-exclusive right to provide the following services:

a. Facilitation of preparation and execution of software agreements with End-Users;

b. Other services which Texada may reasonably require and SWL shall agree to deliver relating to the Products.

ii) SWL shall enjoy a 50% discount from Texada’s published price list.

iii) SWL shall have the non-exclusive right to deliver the services in the territories of Australia and New Zealand.

Without a formal agreement, we will require:

The Software Link to delivery to Texada, a named account list.

Texada agrees not to sell directly,nor to cause other dealers to sell to those specified accounts for the period of this grant plus 30 days. SWL shall have 15 days from the date of this notice to supply Texada with said named account list. Upon request, SWL shall document the existing relationship with each of said accounts and may be required to prove recent contact and an active business relationship with each of said accounts. This account list may not include any companies for which Texada has a history of direct sales.’

14 On 25 May 2005, Don Whitbeck, the Chief Executive Officer of Texada (“Whitbeck”), sent Pannell an email to which was attached a letter dated 22 May 2005 which was said by Whitbeck to reflect his “thoughts on where we are today”. That letter, omitting formal parts, was in the following terms;

‘Thank you for taking the time to follow up from our discussion of May 18, 2005. I appreciate you relating your views and your consideration of the options we might explore.

I must, however, take issue with a number of the points raised and remind you of a couple of other points.

Texada has announced its’ intention to establish closer relationships with its own customers in the region. Texada has further announced its’ intentions to establish a world wide support organization serving its customers wherever they might be.

The Software Link (Australia) Pty. Ltd. (SWL) has been operating as a dealer of Texada product and services for sometime. At no time has SWL represented itself as Texada, simply its’ dealer in the region. In addition to the verbal discussions with James Lolley, but never documented, establishing a relationship between the parties, Texada has been trying, through Willie Swisher, CEO for the past 4 years and now Chairman, to document the relationship in a manner consistent between that of a manufacturer and its’ dealer. SWL has consistently frustrated Texada’s attempts to establish a formal agreement and has refused to even negotiate in good faith.

Given the refusal to document the relationship and the continued frustration of any attempt to do so, the current dealership business of Software Link exists entirely at the goodwill and beneficence of Texada Software.

SWL, having represented itself as a Texada dealer has ensured that customers all recognize that the license agreements they have signed and the intellectual property they are using belong exclusively to Texada and its’ suppliers. The fact of signing said license agreements confirms to the customers that they have a direct relationship with Texada.

Texada will not tolerate any interference in the relationship between itself and its’ customers.

The current lack of any documented agreement with SWL is unacceptable to Texada Software Inc. Texada Software. Inc. hereby gives notice that the current agreement, what ever that might be, is terminated with 90 days notice. The document that Texada has been attempting to sign with SWL for 3 years specifies a 90 day termination clause, so that this duration is completely familiar to SWL.

Notwithstanding the notice of termination, Texada has no wish to terminate the business of Software Link. We are simply trying to formalize the dealership agreement such that SWL may continue to re-sell Texada products and services on a non-exclusive basis in the region in a manner consistent withTexada’s business objectives. For the next 90 days, we will continue to negotiate, in good faith, an agreement which allows SWL to continue to act as a dealer of ours in manner consistent between that of a global software manufacturer and its dealers.

Further, Texada has not disclosed any of the current discussions on these matters to any parties outside of SWL and Texada. In order to ensure SWL the greatest opportunity to sign a formal agreement, Texada will continue to respect the discussions and will not communicate the status of the current arrangement to any third parties.

In order to continue the discussions in the most expedient manner possible, I assure you, the Vice President, Asia/Pacific region, Mr. Bernie Reilly has my full confidence to conclude any agreement as might be negotiated on behalf of Texada Software Inc.

I look forward to concluding an arrangement which is mutually beneficial and which respects the dealer/manufacturer relationship.’

15 By letter dated 27 May 2005, Software disputed Texada’s right to give notice of termination of the distributorship and asserted, amongst other things, that;

‘Our advice is that Texada has one customer in Australia; The Software Link (Australia) Pty Ltd. There is a well documented history of dealings that confirms the tenor of the relationship as it exists at present with Texada. As do the current agreements The Software Link has with its customers here. Without mutual consent, our continuing 21 year old agreement with Texada and the executed agreements with each of our customers do not give Texada any additional rights merely because Texada wishes them to be in place.’

16 By the same letter, Pannell offered as a second alternative means of resolving the dispute to transfer the whole of Software’s business and goodwill to Texada with effect from 1 September 2005 for A$780,000. That amount was explained in a later email of 8 June 2005 as being “based on our audited June 2004 fiscal year net profit of A$263,000 being a 33% return on the business value.” On 23 June 2005, Texada made a counter offer to purchase the business of Software for A$222,000 “to be paid out of Australian revenues as follows: $20,000 paid upon closing and $10,000 per month for 20 months thereafter.” That counter offer was not accepted by Software.

17 A further complaint made by Software is that Reilly, on behalf of Texada, approached Software’s then General Manager, Glenn Schwede and persuaded him to leave his employment and work for Texada. As a result, Schwede, on 17 June 2005, gave written notice of his intention to finish employment with Software in one month’s time on Friday 15 July 2005. A related complaint is that Reilly made a similar approach to two other employees of Software, Eric Vizcarra and Mary Caniffe. Although Pannell has deposed that Vizcarra orally advised him on 1 July 2005 that he proposed to accept the offer, I was informed from the Bar table during the hearing on 4 August 2005 that both of those employees are still working for, and being paid by, Software.

18 On 23 June 2005, Texada gave Software a “Confirmation of Termination Notice” which recited;

‘Reference is made to the notice of termination of dealership arrangement dated 19 May 2005, which has been served on your Company.

Since that time you have refused to engage in any meaningful way in negotiating an ongoing and properly documented relationship with Texada.

That is unacceptable to Texada, which now confirms by this notice the termination of the dealership arrangement effective as at Wednesday 17 August 2005.’

19 On 22 July 2005 Reilly sent an email to various unidentified customers of Software requesting the recipient to note that “from August 15^th 2005, your maintenance and support contracts will be can only be fulfilled by Texada Software Inc.” An attached “customer letter” recited;

‘After more than 20 years of customer history in Australia and New Zealand, Texada Software Inc. is proud to announce the opening of our first Asia Pacific Sales and Support Centre. This is part of our aggressive campaign of expansion, designed to ensure we will maintain our status as a premier vendor of Enterprise Asset Management Software, primarily to the Rental. Market.

Texada also announced the appointment of Bernie Reilly, Vice President, Asia Pacific Region. Bernie brings over 20 years of senior software management experience in the region. We believe that Bernie's track record of exceptional service will serve to expand and strengthen our relationship with our many customers in Australia and New Zealand.

As of August 17, 2005, all Texada Inc. sales, support and training will be handled directly by Texada Inc. To keep your support contracts current, please contact Bernie Reilly, on

(02) 9402-7850, breilly@texadasoftware.comfor additional details.

From August 17 2005, to receive all upgrades, licenses, training, support, or sales assistance, you will need to contact us directly.

These changes of contact point for your support and training, will better position Texada Software Inc. toservice our customers with solutions that are both specific to your company needs and will give you the benefit of dealing directly with Texada. Every aspect of our current relationship with you and your firm will remain in place and we look forward to offering you seasoned account personnel, trainers and support staff, all from August 17, 2005.

We can now offer so much more service, value and expertise, than ever before, with direct links to the staff that are designing products for today and the future! We also intend to significantly bolster our existing resources with a range of new products, services and people in the near future.

We thank you for your valued and treasured business. Bernie looks forward to speaking to every one of you directly, to answer questions and listen to your comments. Every one will be in place on the day and we look forward to enhancing your Texada experience.

Contact Bernie Reilly to learn more about our expanded capabilities services and resources here in Australia and New Zealand. We will contact you within the week with information regarding toll free phone numbers for both Australia and New Zealand.

20 On 28 July 2005, Weinberg J, upon Software’s giving the usual undertaking as to damages, granted an interim injunction restraining Texada “whether by itself, its employees, agents, subsidiaries or otherwise” from;

‘(a) acting or purporting to act on its purported termination dated May 2005 of the applicant’s computer software distribution licence and agreement in respect of the respondent’s computer software products for Australia and New Zealand;

(b) approaching, employing or offering employment to any employee of the applicant;

(c) approaching or contacting any software customer of the applicant which name appears on the list annexed (which is a copy of annexure CP 35 to the affidavit of Christopher Pannell sworn in this proceeding on 27 July 2005) to induce or attempt to induce it to terminate its contractual arrangements with the applicant or to inform or to attempt to inform it that its contractual arrangements will henceforth be with the respondent and not the applicant; or

(d) representing itself to be the applicant or to have taken over or be entitled or about to take over the applicant’s business, or to be the direct contracting party with any of the customers in the annexed list, or describing itself as ‘Texada Software Link’, or ‘Software Link’ or anything including the name Software Link or anything deceptively similar thereto.’

21 Software now seeks, effectively, a continuation of that injunction until the trial of the action or further order. However, it is conceded that no injunction can go to restrain the employment by Texada of those persons who have already ceased to be employees of Software or who have given notice which will effectively terminate their employment relationship with Software.

Consideration of the issues

22 Mr Gronow of Counsel for Software contended that there was a serious question to be tried as to whether Texada had the right unilaterally to terminate Software’s distributorship and the balance of convenience favoured the preservation of the status quo until that question could finally be resolved. Mr Gronow referred to Evans Marshall & Co v Bertola SA [1973] 1 WLR 349 where Sachs LJ observed, at 382;

‘If the plaintiffs are right, the disruption caused by the defendants’ action is unjustified,and so great that damages are not an adequate remedy.

It is true to say that specific performance of such an agreement will not be ordered, but it is no less plain that the courts will grant negative injunctions to encourage a party in breach to keep to his contract. As Salmon L.J put it in Decro-Wall International S.A. v. Practitioners in Marketing Ltd. [1971] 1 W.L.R. 361, 371-372, in relation to an undertaking given in lieu of an injunction:

“If the plaintiffs were released from it, they and the concessionaires they appointed in breach of their contract with the defendants would be left free to take advantage of this breach and enjoy the fruits of the time, effort and money which the defendants have expended during the last three years in creating and building up a thriving market for the plaintiffs’ goods in the United Kingdom. Damages in such a case are very difficult to prove and I do not believe that they would by themselves be an adequate remedy.”

In the instant case, as in that case, an attempt is being made which, if unjustified, would deprive the plaintiffs of the benefit of having built up a name for Bertola sherry with the aid of expending the best part of half a million pounds for that purpose in a dozen years.

In my judgment, this is accordingly a case where there is everything to be said for maintaining the status quo up to trial - which ought, if the parties use proper efforts, to commence in not more than four months fromnow. Whatever its result as regards liability, there is nothing to be said at this stage in favour of abrupt and disruptive changes in trading methods and policy.

23 Counsel also referred to Sanderson Motors (Sales) Pty Ltd v Yorkstar Motors Pty Ltd [1983] 1 NSWLR 513 where Yeldham J referred to, amongst other authorities, Evans Marshall v Bertola and Decro-Wall International v Practitioners in Marketing Ltd [1971] 1 WLR 361 in the course of concluding, at 516;

‘The fact that specific performance of the agreement in question may not have been granted is not determinative of the matter. Nor is the fact that the contract is one which concerns a sale of goods by the distributor to the dealer, or that the effect of an injunction may be to continue a relationship which one at least of the parties does not desire to continue. In Thomas Borthwick & Sons (Australasia) Ltd v South Otago Freezing Co Ltd [1978] 1 NZLR 538 the New Zealand Court of Appeal, in a decision with which I respectfully agree, held that the equitable remedy of injunction may, at the discretion of the court, be granted to restrain breaches of negative covenants in contracts that are in part contracts for the sale of goods even though this may amount to ordering specific performance in a round about way and for a long period. To the same effect is the decision of the Court of Appeal in Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 1 WLR 361, at 371-372, 378-379; [1971] 2 All ER 216, at 225, 231, and Acrow (Automation) Ltd v Rex Chainbelt Inc [1971] 1 WLR 1676, at 1683; [1971] 3 All ER 1175, at 1181, 1182. The present case involves far more than the mere sale of goods. The plaintiff has spent considerable sums of money in order to establish and maintain its position as a Mercedes-Benz dealer in the eastern suburbs of Sydney. Plainly it was entitled to expect that the agreement would be “a self renewing agreement” and would not in normal circumstances be terminated. The future rights and obligations of the parties are controlled and determined by the dealership agreement and do not require the supervision of the court. Hence I see no reason why an injunction should not be granted and every reason why it should be. Damages in my view would not be adequate compensation. The true principle is: “Is it just, in all the circumstances, that a plaintiff should be confined to his remedy in damages?” (per Sachs LJ in Evans Marshall & Co Ltd v Bertola SA [19731 1 WLR 349, at 379; [1973] 1 All ER 992, at 1005). My answer to this question is in the negative.’

See also State Transport Authority v Apex Quarries Ltd [1988] VR 187. The same line of authority has been relied on by Warren J (as her Honour then was) in Axxess Australia Pty Ltd v Primus Telecommunications (Aust) Pty Ltd [2000] VSC 64 (3 March 2000) and by Heerey J in this Court in Meridian Financial Pty Ltd v Australian Unity Ltd [2003] FCA 891 (21 August 2003) at [14].

24 However, I am not persuaded that there is a serious question to be tried as to whether the distributorship agreement under which Software claims to be entitled was terminable only with Software’s agreement or was, as Pannell contended “exclusive and perpetual.” On the version of the initial conversations between Pannell and Lolley which is most favourable to Software, Lolley, according to Pannell, said only;

‘You can be the Medimatics Distributor there [in Australia and New Zealand] for as long as you want, should I say for as long as you are making sales there every year. We have nothing at present from your part of the world, everything you sell will be a bonus for me.’

25 In my view, neither that statement nor anything else said in the course of the initial negotiations supports Software’s contention that the arrangement was determinable only with its, or Pannell’s, consent. I consider that the statements about duration of the agreement and the need for the distributor to “make sales” were insufficiently precise to have constituted a contractual term. Even on the construction most favourable to Software of what was said, against the background of the circumstances which existed in 1984, the distributorship agreement was for an indefinite period. To hold that it was terminable only by the distributor or with its consent would entail that Lolley or his company could be compelled to continue producing the software even if it became unprofitable or undesirable for some other reason to do so.

26 On what I regard as the only available construction of the oral agreement as it came to be performed by the parties over the ensuing years the distributorship was one for an indefinite period. It therefore attracts the application of the principle stated in these terms by McHugh JA in Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438 at 443;

‘When the question arises whether a commercial agreement for an indefinite period may be terminated, the answer depends upon whether the agreement contains an impliedterm to that effect: Winter Garden Theatre (London) Ltd v Millenium Productions Ltd [1948] AC 173 at 205; Martin-Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd [1955] 2 QB 556 at 581; Australian Blue Metal Ltd .v Hughes [1963] AC 74 at 97; Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 1 WLR 361 at 371, 376; [1971] 2 All ER 216 at 224, 229 and Barro Group Pty Ltd v Fraser [1985] VR 577at 583-584, 585.Theexistence of the term is a matter of construction. But the question of construction does not depend only upon a textual examination of the words or writings of the parties. It also involves consideration of the subject matter of the agreement, the circumstances in which it was made, and the provisions to which the parties have or have not agreed: Re Spenborough Urban District Council's Agreement [1968] Ch 139 at 147.’

After noting, at 443, authority to the effect that there is no presumption of permanency in the case of an indefinite commercial agreement but if there is it is in favour of termination and not perpetuity, his Honour went on to observe, at 444, 445, and 448;

‘Whether a contract is terminable on reasonable notice instead of at will also depends upon the existence of an implied term: Winter Garden Theatre (London) Ltd v Millenium Productions Ltd (at 206); Martin-Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd (at 581); Australian Blue Metal Ltd v Hughes (at 99). That question is determined by the circumstances existing at the date of the contract: Australian Blue Metal Ltd v Hughes (at 99). However, the reasonableness of the period of notice depends upon the circumstances existing when the notice is given: Winter Garden Theatre (London) Ltd v Millenium Productions Ltd (at 199-200); Australian Blue Metal Ltd v Hughes (at 99); W K Witt (WA) Pty Ltd v Metters Ltd and General Industries Ltd [1967] WAR 15 at 23-24; Decro-Wall International SA v Practitioners in Marketing Ltd (at 370; 224; 376-377; 229; 381; 234).

When a contract is terminable on reasonable notice, the period of notice must be sufficiently long to enable the recipient to deploy his labour and equipment in alternative employment, to carry out his commitments, to bring current negotiations to fruition and to wind up the association in a businesslike manner: Winter Garden Theatre (London) Ltd v Millenium Productions Ltd (at 200-201); Australian Blue Metal Ltd v Hughes (at 99)and W K Witt (WA) Pty Ltd v Metters Ltd (at 24-25). But in the latter case Hale J denied (at 23) that it is relevant to the reasonableness of the period of notice that the recipient needs time to recoup any expenditure incurred.

… … …

It will often be a common purpose of a distributorship agreement that the relationship of the parties will continue for long enough after the giving of a notice of termination to enable the distributor to recoup any extraordinary expenditure or effort. Otherwise a distributor would have no incentive to make or outlay additional effort or expenditure for the mutual benefit of the parties. Inability to reap the benefits of ordinary expenditure or effort incurred during the course of the agreement may be regarded as a business risk which a distributor takes when he enters into an agreement terminable at any time. If the nature of the^, business produces a lapse of time between effort or expenditure and earning, a certain amount of such effort or expenditure will go unrewarded whatever period of notice is given. But extraordinary effort or expenditure by the distributor incurred with the actual or tacit authority of his principal is in a different category. An appropriate period of notice can give the distributor the opportunity to exploit any extraordinary effort or expenditure. In principle, therefore, it is difficult to see why extraordinary effort and expenditure is not relevant to the reasonableness of the notice period even though the agreement has been in existence for more than a reasonable period.

… … …’

Once the business has existed for a reasonable period, the inability to profit from such work or expenditure is part of the business risk the agent or distributor takes in entering into an agreement which is terminable at any time. Further, the prospect of obtaining profits in the future is not a relevant factor to be taken into account except so far as it is consequential upon the incurring of extraordinary expenditure or effort within the scope of the agreement.

The chief purpose of a notice for a reasonable period, therefore, is to enable the parties to bring to an end in an orderly way a relationship which, ex hypothesis has existed for a reasonable period so that they will have a reasonable opportunity to enter into alternative arrangements and to wind up matters which arise out of their relationship. Matters to be wound up will include carrying out existing commitments, bringing current negotiations to fruition, and, where appropriate, obtaining the fruits of any extraordinary expenditure or effort carried out within the scope of the agreement. The line between ordinary recurrent expenditure and effort and extraordinary expenditure and effort will not always be easy to draw. But in general it will be determined by what the parties would reasonably have contemplated was extraordinary effort or expenditure.’

27 The nature of the commercial agreement between Pannell and Lolley and the features of the business which it was proposed that Software and its predecessors should create and conduct in Australia and New Zealand make those observations eminently applicable to the present case. It follows that Software’s entitlement is not to have the distributorship enure indefinitely but is subject to the implied term that it was to be terminable only upon reasonable notice. What is a reasonable term is to be ascertained in the light of circumstances existing when the notice is given. I do not accept that the period of 90 days selected by Texada was necessarily the appropriate period. Nor do I regard the fact that 90 days was specified in the draft written agreement noted at [10] above as available to determine what was an appropriate period of notice in the circumstances existing in 2005.

28 The identification, as the only serious question to be tried, of the issue of what period of notice was appropriate to terminate the distributorship feeds into a consideration of the balance of convenience; see eg Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 at 155 and Trade Practices Commission v Santos Ltd (1992) 110 ALR 517 at 527.

29 The authorities noted at [22]-[23]as being relied on by Counsel for Software are all distinguishable from the present case. In Evans Marshall v Bertola (supra) the distributorship was for a fixed term which had been extended by agreement to 30 September 1986. As well, the distributor in that case marketed a range of wines and other alcoholic drinks in addition to the sherries supplied by the defendant. The repudiation of the distributorship therefore would have had an effect on the goodwill of the plaintiff’s custom beyond the loss of the business in marketing the defendant’s wines. By contrast, Software’s sole business is in selling and servicing Texada software so that the damages resulting from the unlawful termination of the distributorship, even if they sound in the value of the entire business, are capable of reasonably precise calculation.

30 In Sanderson Motor Sales v Yorkstar Motors (supra) the agreement was expressed to continue in force until 31 December 1980 and “unless written notice of termination is given by one party to the other at least three (3) months before the said expiry date, this agreement shall automatically continue in force for another year and thereafter be renewed in the same manner for the same period.” The defendant wrongfully, as Yeldham J held, purported to terminate the agreement forthwith.

31 In State Transport Authority v Apex Quarries (supra) the agreement was expressed to be effective for a fixed term of fifteen years from 1 January 1981 and the defendant, as Kaye J found, had purported to repudiate it. Likewise, in Axxess Australia v Primus Telecommunications (supra) the agreement was for a fixed term of two years subject to a right in Primus to terminate it for unremedied breach or insolvency on the part of Axxess. In Meridian Financial v Australia Unity (supra) Heerey J was satisfied that there was a triable issue on the basis that there had been an agreement to “convert to a formal franchise” which would have been for a five year term with options for renewal.

32 As I have already indicated, Software may have a strong case that the termination of its distributorship required a longer period of notice than the 90 days selected, apparently arbitrarily, by Texada. However, an injunction in the terms sought is not necessary to preserve all its rights to advance that case. As explained above, the case is pre-eminently one where damages can afford an adequate remedy. That is particularly so in light of the ability noted at [16] above of each party to ascribe in the course of negotiations a monetary value to the business which will be lost to Software upon termination. Those respective valuations are not, in the scheme of things, excessively far apart. If I were to continue the injunction and, necessarily, Software’s undertaking as to damages, there is a real risk that the amount which it would ultimately recover might be substantially eroded, if not completely consumed, by an order enforcing the undertaking.

33 Mr Webb SC for Texada has pointed to the delay between 19 May and 27 July 2005 in instituting the present proceedings as a further ground for exercising the Court’s discretion adversely to Software. Ordinarily, little significance would attach to a delay of that comparatively short time, particularly as part of the time has been spent in endeavouring to resolve the dispute without resort to litigation. However, because in the intervening months employees of Software have altered their position and a degree of confusion has been created amongst Australian and New Zealand customers for Texada softwear, I have accorded this consideration some small weight in the exercise of my discretion.

34 In the result, for the above reasons which are necessarily brief because of the need to publish them urgently, I have decided that the interim injunction should be dissolved, save for a restraint on the use by Texada of Software’s name or any name deceptively similar thereto. Because it was not opposed by Counsel for Texada, that restraint will continue in force until the trial of the action or further order and will not be subject to the usual undertaking as to damages. Accordingly, I shall order that;