FEDERAL COURT OF AUSTRALIA

Elco Food Co Pty Ltd v Oliana Foods Pty Ltd [2012] FCA 410

Upon the first respondent –

(a)    having led evidence on the oath of its Managing Director that –

(i)    he has not said or represented, and is not aware of any representative of the first respondent ever having said or represented, that the first respondent would be the exclusive distributor of the products of the second respondent; and

(ii)    he has instructed all the staff of the first respondent not to say or to represent to anyone that the first respondent is the exclusive distributor of the products of the second respondent or that the applicant is not authorised to sell the products of the second respondent;

(b)    undertaking that it will not, whether by itself, its servants or agents, say or represent to anyone that it has been appointed the exclusive distributor of the second respondent or that the applicant is not authorised to sell the products of the second respondent;

THE COURT ORDERS THAT:

1.    The applicant’s application for an interlocutory injunction restraining the first respondent be dismissed.

2.    The costs of that application be reserved.

3.    Save to dismiss the applicant’s application for interim relief, the applicant’s application for an interlocutory injunction restraining the second respondent be adjourned to 10:15 am on 11 May 2012.

4.    The second respondent file and serve:

(a)    an application seeking a stay of the proceeding; and

(b)    any application for security for costs

on or before 4 May 2012 to be returnable on 11 May 2012.

5.    Any affidavit material on which the second respondent seeks to rely in relation to the applications in paragraph 4 above be filed and served by 4:00 pm on 4 May 2012.

6.    The applicant file and serve any affidavit material on which it seeks to rely in relation to the second respondent’s applications referred to in paragraph 4 above by 4:00 pm on 8 May 2012.

7.    The applicant file and serve a statement of claim by 4:00 pm on 18 May 2012.

8.    The respondents file and serve their defences to the statement of claim by 4:00 pm on 15 June 2012.

9.    The proceeding be referred to a Registrar of the court for mediation in accordance with Part 28 of the Federal Court Rules 2011 (Cth). The mediation be conducted as soon as practicable after 22 June 2012.

10.    The directions hearing be adjourned to 31 August 2012 at 9:30 am.

11.    The parties’ costs of these directions be reserved.

12.    Liberty to apply.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    The applicant, Elco Food Company Pty Ltd (“Elco”), is an importer, distributor and wholesaler of fine Mediterranean foods throughout Australia and New Zealand supplying major grocery outlets, independent supermarkets, delicatessens, restaurants and other speciality food stores. Since 1981, and with the exception only of the year 1991/92, Elco has been the exclusive Australian distributor of the products of the second respondent, Dodoni SA – Agricultural Dairy Industry of Epirus, (“Dodoni”). Dodoni is Greece’s leading producer and exporter of cheese products. Elco sells, on average, 800 tonnes of Dodoni products per annum in Australia. These products having a wholesale value of $10 million. In each of the financial years ending on 30 June 2010 and 2011, Elco spent $300,000 in direct advertising of Dodoni products, and a further $320,000 and $600,000 in each of those years, respectively, promoting those products with the Coles and Woolworths chains.

2    On 21 October 2011, Elco entered into a contract (“the contract”), with Dodoni at Ioannina in Greece. The contract was written in the Greek language and was subject to Greek law. The contract provided for the purchase by Elco of cheese from Dodoni, for distribution and sale in Australia. The term of the contract is until 31 December 2012.

3    Pursuant to the contract, Dodoni supplied Elco with cheese products, and Elco distributed and sold those products into the Australian market.

4    In February 2012, two representatives of Dodoni visited Elco in Melbourne. They informed the managing director of Elco, Emmanuel Kotis, that they had instructions from one of the Dodoni Board members to enter into discussions with the first respondent, Oliana Foods Pty Ltd (“Oliana”) regarding the distribution of Dodoni products in Australia by Oliana. They said that Oliana had advised Dodoni that it would place orders for 500 tonnes of Dodoni products. Mr Kotis told the representatives that Elco had the exclusive distribution rights for Dodoni’s products in Australia under the contract, but the only response he received from them was to say that they had instructions from one of the Dodoni board members to enter into discussions with Oliana.

5    On 21 March 2012, Mr Kotis was advised by Dodoni that it had decided to supply its products to Oliana. The following day, Mr Kotis received a letter confirming that indication. As translated into English, a paragraph of that letter stated:

Naturally the abovementioned decision of the Board does not affect our existing relationship, to the contrary we believe healthy competition will increase substantially the common goal, that being the growth and strength of the said market.

6    It subsequently came to Mr Kotis’ attention that Oliana had placed orders for Dodoni products for sale in Australia, and that Dodoni intended to fill those orders. According to Mr Kotis’ affidavit, sworn on 17 April 2012, he was informed by some of Elco’s representatives that Oliana had contacted a number of Elco’s customers, and informed them that, with effect from the Greek Easter this year, Oliana would be the exclusive Australian distributor of Dodoni products, and that Elco would not be able to supply Dodoni products in Australia. For reasons to which I shall come, those matters, although controversial in the proceeding as a whole, have been resolved for the time being.

7    Elco took the view that the contract provided for it to be the exclusive Australian distributor of Dodoni products, and that Dodoni’s supply of products to Oliana would amount to a breach of contract. It also took the view that the placement of Oliana’s order with Dodoni constituted, or at least presaged, an inducement by Oliana of Dodoni to breach the contract. In the result, Elco caused its solicitors to send a letter of demand to Dodoni on 27 March 2012, and a like letter to Oliana on 30 March 2012. Those letters allege that the contract did provide for Elco to be the exclusive Australian distributor of Dodoni products, and, in the case of Oliana, alleged that the representations believed to have been made by its representatives to Elco’s customers were misleading and deceptive within the terms of s 18 of Sch 2 to the Competition and Consumer Act 2010 (Cth) (“the CC Act”).

8    Both Dodoni and Oliana rejected Elco’s construction of the contract, taking the position that it did not provide for Elco to have the exclusive right to distribute Dodoni products in Australia. That position led to the commencement of this proceeding on 17 April 2012, and to the making of the interlocutory application, which is the subject of these reasons.

9    By that application, Elco seeks interlocutory injunctions which would restrain –

(a)    Oliana from placing orders for, or seeking the supply of, Dodoni products in Australia, and from representing to any third party while the contract is in force that it is or will be the exclusive distributor of Dodoni products in Australia, or that Elco would not be able to supply Dodoni products in Australia; and

(b)    Dodoni from supplying or filling any orders placed for the supply of its products in Australia to any person other than Elco during the term of the contract, and from representing to any third party that it is entitled to supply Dodoni products to any person other than Elco while the contract is in force.

10    As against Dodoni, Elco’s cause of action (to the extent made relevant by its counsel on the claim for interlocutory relief) is in contract. Elco now seeks that Dodoni be restrained, pending trial, from breaching the contract, its case in that respect being based upon a construction of the contract which would have it that Elco was the exclusive Australian distributor of Dodoni products.

11    As against Oliana, Elco’s cause of action has two elements. The first is that Oliana’s conduct in seeking, and presumptively accepting, the supply of Dodoni products in Australia was, and would be, an inducement of Dodoni to breach the contract, to the extent that it provided for Elco to have exclusive distribution rights in Australia. The second element is based on s 18 of the CC Act and related to the representations which were allegedly made by Oliana’s representatives to Elco’s customers.

12    It is convenient that I deal first with the second element of Elco’s foreshadowed case against Oliana. Through its counsel, Oliana has offered the court an undertaking, the terms of which were set out in an affidavit sworn by the managing director of Oliana, Bill Floropoulos, on 19 April 2012 as follows:

I undertake to the Court as follows:

a.    I have not said or represented and, as far as I am aware no Oliana representative has ever said or represented, that Oliana would be the exclusive distributor of Dodoni products;

b.    I will not say or represent to anyone that Oliana has been appointed the exclusive distributor of Dodoni products or that Elco Food is not authorised to sell Dodoni products; and

c.    I have instructed all Oliana staff not to say or represent to anyone that Oliana is the exclusive distributor of Dodoni products or that Elco Food is not authorised to sell Dodoni products.

Counsel for Elco proposed that the court should receive that undertaking, and, on the assumption that the court would do so, accepted that the undertaking would constitute a sufficient interlocutory restraint in so far as his client’s case arose under s 18 of the schedule to the CC Act. Subject to certain minor adjustments which I consider would be desirable, and which I propose to discuss with counsel, I would accept that undertaking and need say nothing further about this aspect of Elco’s interlocutory case.

13    I should mention next a complication which arises in respect of Elco’s case in contract against Dodoni. Dodoni was short-served, and was not, as a result, in a position to give Elco’s interlocutory application the attention which it deserved. For reasons which will become clear in a moment, one aspect which is, apparently, exercising the mind of those advising Dodoni is whether it should submit to the jurisdiction of the court. In the circumstances, counsel for Elco accepted that the most he could achieve as against Dodoni on the present occasion was what is sometimes referred to as an “interim injunction” made merely in the interests of maintaining the status quo until his client’s interlocutory application against Dodoni could be heard in the normal course. Notwithstanding the inhibitions to which he was thus subject, counsel for Dodoni made some submissions, and sought that I should take them into account in my consideration of Elco’s application for an interim injunction. As I perceived it, counsel for Elco was well able to deal with the limited submissions which were made on behalf of Dodoni, and I propose to take those submissions into account.

14    As it happens, save to assist the court with references to additional authorities, counsel for Dodoni went little beyond the submissions advanced on behalf of Oliana. The latter, of course, were substantially concerned with the contract, as it also formed the basis of Elco’s case in inducement against Oliana.

15    The approach which the court should take on an application for an interlocutory injunction is that identified by the High Court in Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, as explained by the Full Court in Samsung Electronics Co. Limited v Apple Inc. [2011] FCAFC 156. An applicant for such an injunction must establish a prima facie case in the sense of “a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial”. How strong the probability needed to be depends on “the nature of the rights [the moving party] asserts and the practical consequences likely to flow from the order he seeks”. (O’Neill, 227 CLR at 82 [65]). The critical integer in the test (approved in O’Neill) explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 is “the need for the court to assess the strength of the probability of ultimate success on the part of the plaintiff”. (Samsung at [59].) Whether, in the absence of an injunction, a plaintiff will suffer irreparable harm or whether, to the contrary, damages would be an adequate remedy, are considerations to be weighed in the balance at the discretionary level of the court’s adjudication on the interlocutory application. (Samsung at [62]-[63].) At that level –

… the Court is required to assess and compare the prejudice and hardship likely to be suffered by the defendant, third persons and the public generally if an injunction is granted, with that which is likely to be suffered by the plaintiff if no injunction is granted. In determining this question, the Court must make an assessment of the likelihood that the final relief (if granted) will adequately compensate the plaintiff for the continuing breaches which will have occurred between the date of the interlocutory hearing and the date when final relief might be expected to be granted.

(Samsung [66]). The question whether the plaintiff has made out a prima facie case, and whether the balance of convenience favours the grant of an injunction, are related inquiries. The apparent strength of the parties’ cases will often be an important consideration to be weighed in the balance (Samsung [67]).

16    Central to Elco’s case against Oliana is the operation of the contract, and specifically whether, on a proper construction, it incorporates a promise by Dodoni not to supply its products to any other distributor in the Australian market. A translation of the contract has been put before the court, although the court has not, understandably at this stage, had the benefit of an opinion of an expert in Greek law as to the proper construction of the contract. What I say hereunder must be understood as subject to that proviso.

17    In the contract, Dodoni is referred to as “the seller” and Elco is referred to as “the purchaser”. A preamble to the contract recites as follows:

The seller produces dairy and cheese products, which it sells in Greece and overseas, while the purchaser operates in the Australian market, where it trades in various food products, among which dairy and cheese products. Both contracting companies decided to collaborate under the following more specific terms and agreements.

The first group of provisions in the contract is headed “Object – Quantities – Timeframe”, and opens with cl 1.1 as follows:

Object of the present agreement is the purchase on the part of the purchaser of products produced by the seller for reselling exclusively in the Australian market.

Minimum purchase requirements, by weight of product, are then imposed upon Elco, doubtless being the aspect of the contract which is referred to as “quantities” in the heading.

18    The fourth group of provisions in the contract is headed “Obligations of the Purchaser”, and opens with clause 4.1.a, as follows:

4.1    The purchaser is absolutely prohibited from:

a.    Selling products of the seller outside the area, for which the agreement is valid (Australia).

Elco is also prohibited from selling the relevant products in different packaging, from providing related products of other manufacturers to its customers in Australia, from participating in trade with other Greek suppliers of products related to those of Dodoni and from exporting Dodoni’s products from Australia to any other country.

19    Towards the end of the contract, there is a group of provisions under the heading “Final provisions”, within which cls 10.1 and 10.2 are as follows:

10.1    Upon the signing of this agreement any other agreement of any type between the contracting parties ceases to apply.

10.2    The Courts of the town of Ioannina become exclusively authorised for the settlement of any disputes, which may arise from the application and operation of this agreement (e.g. for the filing and hearing of any type of legal actions, issue of orders for payment etc.) and the Greek law is applicable.

20    The provision of the contract upon which Elco relies, in its submission that it had exclusive distribution rights for Australia, is cl 1.1. In terms, that clause is not an operative one, in the sense of giving rise, directly, to legal rights or obligations. Rather, it is a statement of the object of the agreement as a whole. So understood, one would then look for other, operative, provisions of the contract by which effect was given to the object so stated. However, counsel for Elco was unable to point to any other provision of the contract which, even arguably, granted exclusive Australian distribution rights to Elco, or precluded Dodoni from supplying its products to any other Australian distributor.

21    Looking at the English rendition of cl 1.1, which is before the court on the present occasion, it is by no means self-evident that the intent was to grant exclusive distribution rights to Elco. In this respect, all depends upon the appropriate association of the adverb “exclusively”. If it relates to the verb “reselling”, it would provide support for Elco’s argument. If it relates to the qualifying phrase “in the Australian market”, it would provide support for the respondents’ argument. They say that the object was to establish Elco as a reseller in the Australian market only, and that such an understanding of cl 1.1 is reinforced by the existence of a corresponding operative provision in cl 4.1, which precludes Elco from selling Dodoni products outside that market. By contrast, Elco says that the adverb “exclusively” gives content to the kind of reselling in which it will engage within the Australian market, that is, reselling of Dodoni products to the exclusion of any other reseller.

22    It will be seen that, in its reliance upon the contract for the proposition that its Australian distributorship rights are exclusive, Elco confronts two problems: first, the circumstance that the provision upon which it relies is in terms a statement of object only, and secondly, the absence of any explicit operative provision dealing with the subject. By contrast, the construction of cl 1.1 for which the respondents contend derives some support from the presence of an explicit provision which would have the effect for which they contend. The preclusion of a major exporter such as Dodoni from appointing a second Australian distributor would be a very significant restraint upon Dodoni’s trading operations. If other considerations unambiguously supported a view of cl 1.1 which would have that effect, there might be an argument for taking such a view. However, save for the lengthy history of de facto exclusive distribution which Elco has enjoyed no other consideration has been drawn to my attention. A preclusion of this kind and of such seriousness is, in my view, one that would be expected to appear in specific hard-edged terms in the contract. It does not do so.

23    For the reasons I have given, and on the present material and the provisional arguments which have been advanced by the parties, the view I take is that Elco’s case under the contract is a weak one. Consistently with the authorities to which I have referred, if the evidence at trial remains the same, and if the parties’ submissions with respect to the contract are broadly in line with those advanced on this occasion, the view I have is that Elco would confront significant challenges in persuading the court that the contract is to be construed in a way which would deliver to it the exclusive rights of Australian distributorship for Dodoni products.

24    That provisional conclusion significantly compromises Elco’s claim for an interlocutory restraint upon Oliana. Unless Elco is to succeed on the construction point, its inducement to breach case against Oliana must necessarily fail.

25    Additionally, I should point out that unlike some cases this does not appear to be one in which Oliana, the alleged inducer, originally had either the knowledge or the intention of bringing about a situation in which Dodoni was in breach of its contract with Elco. Oliana did wish to distribute Dodoni products in Australia, and it may be inferred that it was, within the relevant industry, notorious that Elco was a, possibly the, current distributor of such products. However, counsel for Elco accepted that, until the sending of the letter of demand on behalf of his client, there was nothing from which Oliana would have been on notice of the position which Elco takes, namely, that its distribution rights operated to the exclusion of other distributors. It was submitted on behalf of Elco, however, that once the letter of demand was sent, Oliana thereafter knew that its dealing with Dodoni were regarded as contrary to Dodoni’s obligations under the contract with Elco and, therefore, that, prospectively, the factual circumstances were such as would warrant an interlocutory injunction, on the assumption that Oliana insisted on carrying through with its intention to distribute Dodoni products in Australia.

26    If it were clear at the provisional level which is appropriate on the present occasion, that the contract operated in the way for which Elco contends, and if it were likewise clear that Oliana, despite being on notice of the contract, intended to do business with Dodoni, I accept that Elco should be regarded as having a prima facie case, and that it would then be appropriate to consider the balance of convenience and other discretionary matters. However, one returns to the proper construction of the contract. On what appears from the material before me, it is no part of Oliana’s purpose to cause Dodoni to be in breach of the contract. There is, in other words, nothing even provisionally tortious about Oliana’s conduct, save that which turns upon the acceptance of Elco’s constructional case. The apparent weakness of that case presents, therefore, a difficulty for Elco with respect to its interlocutory claim against Oliana, no less than it would present a difficulty in an action on the contract as such.

27    At this point, it is necessary to refer to clause 10.2 of the contract, which provides not only that Greek law is applicable to the construction of the contract, but also that the courts at Ioannina are the exclusive forum chosen by the parties for the settlement of any disputes which arise under the contract. The court does not yet know whether Dodoni will seek a stay of the present proceeding upon the ground that the parties have deliberately chosen to have disputes under the contract resolved in Ioannina (as to which see: Huddart Parker Ltd v The Ship “Mill Hill” and Her Cargo (1950) 81 CLR 502, at 508-509; Visions Systems Ltd v Cincom Systems of Australia Pty Ltd (1999) 43 IPR 658, at 660; Incitec Ltd v Alkimos Shipping Corporation (2004) 138 FCR 496, at 504-505; and Global Partners Fund Ltd v Babcock & Brown Ltd (in liq) (2010) 267 ALR 144, at 166, affirmed on appeal Global Partners Fund Ltd v Babcock & Brown Ltd (in liq) [2010] NSWCA 196 at [40] and [82]. Oliana contends that this court should not decide the present application by reference to a construction of the contract adverse to its own position where the parties have made a choice of forum of the kind stated in clause 10.2.

28    In the absence of an application on behalf of Dodoni, and given the preliminary nature of my treatment of Elco’s interlocutory application as against Dodoni, it would be inappropriate for me to determine the application against Elco by reference to an assumption that the construction of the contract would be, or ought to be, decided in Greece rather than in this court. The only alternative, in Elco’s case against Oliana, is to assume that the contract will be subject to construction in this court. There is a certain inconvenience in this course, and it may need to be revisited, depending on the outcome of any application for a stay which is made on behalf of Dodoni. However, changed circumstances are a complication commonly encountered by courts which are obliged to set the parameters of the parties’ relations during an interlocutory period pending trial. All the court can do on the present occasion is to determine Elco’s application against Oliana by reference to the circumstances which currently obtain.

29    I turn next to the balance of convenience and to other discretionary considerations. I commence with the question of whether damages would provide an adequate remedy for Elco, were its present application to be refused, but were it ultimately to prevail at trial. An important consideration here is that the contract will have run its term on 31 December 2012, regardless of any step which the court might now take. The trading and losses which Elco would sustain, therefore, could not exceed the sales which it had lost to Oliana between now and the end of this year. Further, because Oliana would be the only other trader to have made those sales, I would infer, for present purposes, that the amount of them would be calculable.

30    It was submitted that Elco also stood to suffer a diminution in its reputation if the respondents were not restrained as is proposed. The reputation referred to by counsel for Elco was that involved in being the Australian distributor of Dodoni products. However, the stream of reputation cannot rise higher than its contractual source. Any reputation which Elco might have for selling Dodoni products in Australia indefinitely, or even beyond 31 December 2012, would be one which Elco could be heard to assert in this court, only if it were consistent with the legal rights of Elco, derived, as they must be, from the contract itself. I take the view, therefore, that the outer limits of Elco’s loss, damage or detriment, presumptively to be suffered if an interlocutory injunction is granted, would most likely be measured by reference to the sales which it had lost by reason of the co-distribution of Dodoni products by Oliana; and that, necessarily, would be represented by the sales made by Oliana itself.

31    In attempting to anticipate its losses, Elco estimated that the entry of Oliana into the Australian market would deprive it of 50% of its current sales of Dodoni products. That was, however, self-evidently an estimation made on the back of the envelope, and based on little more than the circumstance that the Australian market would now be divided by two, rather than by one. Counsel for Oliana proposed, in their submissions, that it was intuitively more likely that, as the present occupier of the high ground, as it were, Elco would retain more than half of the Australian market for the distribution of Dodoni products, even once Oliana came onto the scene. That intuitive notion, however, is clearly no more reliable than Elco’s own calculations on the back of the envelope.

32    The truth is that, at present, the court has no way of anticipating the extent to which Oliana would succeed in attracting business away from Elco between the present time and the end of the year. That is, of course, a circumstance which counts against Elco in weighing the balance of convenience. If an injunction were granted subject to the usual undertaking, yet Elco’s proceeding against Oliana ultimately failed, the calculation of Oliana’s damages would be likely to be highly problematic, to say the least. Without any trading history, I find it difficult to anticipate what kind of evidence Oliana might be able to lead to demonstrate the extent to which it would have attracted business away from Elco, had it been permitted to trade.

33    The next point relates to the steps which Dodoni and Oliana have already taken, by way of the consummation of their new arrangement for the distribution of Dodoni products in Australia. In good faith (as I would provisionally find on the evidence), Dodoni has dispatched, and Oliana is about to receive, the first 400 kg of cheese products from Greece. I am told that this consignment is in transit, although counsel for Oliana does not seek to rely upon any subsequent shipment also having reached the point beyond which it could not, without undue inconvenience, be returned to store in Greece. On the present application, Elco accepts that Oliana would have to be permitted to distribute the 400 kg of products which are already in transit. Granting the interlocutory injunction sought would not, therefore, wholly achieve Elco’s objective of retaining the Australian distributorship for itself. Indeed, for the receipt of this initial consignment to be of any commercial utility, Oliana would need to make the necessary arrangements with its own customers, thereby giving the appearance that it had the right to distribute the products concerned. Having taken those steps, however limited they might be, Oliana would then, on the course proposed by Elco, be obliged to undertake no further trade in Dodoni products in Australia, only, if it ultimately prevails in the case, to be permitted to reintroduce this same line of trade. I accept the submissions made on behalf of Oliana that all this is likely to introduce a certain amount of confusion into the market, and, although it would be a mistake to give too much weight to considerations of this kind, they certainly do not make Elco’s task on the present application an easier, or less complicated, one.

34    In all of this there are two considerations which stand out. The first is that Elco’s construction case under the contract, which is fundamental to its case against Oliana, is a weak one. The second is that, at most, the loss which Elco would stand to suffer if an interlocutory injunction were not granted is such as it should be compensable in damages, and, as it presently appears to me, the calculation of those damages is unlikely to be complicated or burdensome. Associated with this second factor, of course, is the circumstance that the period over which Elco’s loss might be sustained, and thus the period with respect to which its damages would need to be calculated, is both confined and relatively short.

35    In my opinion, interlocutory justice as between Elco and Oliana is most likely to be achieved if the commercial arrangements which each has made with Dodoni be permitted to play themselves out in the market. If it transpires that those arrangements have visited actionable loss and damage upon Elco, in due course, and subject to Elco’s cause of action against Dodoni, that loss and damage will be to Oliana’s account. In my view, this is not an appropriate case for the imposition of an interlocutory restraint upon Oliana.

36    It follows that, at the interim level as against Dodoni, I should likewise make no order at this stage. I do, however, propose to list Elco’s interlocutory application Dodoni on 11 May 2012, by which time, according to counsel for Dodoni, it will have had the opportunity properly to organise its defence to that application.

Associate:

Dated:    9 May 2012