FEDERAL COURT OF AUSTRALIA

Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd [2018] FCA 142

ORDERS

UPON THE APPLICANT UNDERTAKING TO THE COURT BY ITS COUNSEL TO:

(a)    submit to such order (if any) as the Court may consider to be just for the payment of compensation, to be assessed by the Court or as it may direct, to any person, whether or not a party, adversely affected by the operation of order 1 below or any continuation (with or without variation) thereof; and

(b)    pay the compensation referred to in (a) to the person or persons there referred to.

THE COURT ORDERS THAT:

1.    The fifth and twelfth respondents be restrained from acting upon the Hanhwa Korea Notice as defined in paragraph 129 of the statement of claim dated 13 December 2017 in this proceeding until 17 May 2018.

2.    The costs of and incidental to the applicant’s interlocutory application dated 14 February 2018 be reserved.

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

REASONS FOR JUDGMENT

BEACH J:

1    These reasons concern the applicant’s application for an interlocutory injunction restraining certain conduct of the fifth and twelfth respondents. The application has been focused upon a very narrow aspect of the parties’ dispute the subject of the principal proceedings.

2    The applicant, Directed Electronics OE Pty Ltd (Directed OE), is an Australian automotive electronics products and solutions developer and supplier, specialising in the development and distribution of in-vehicle electronics, hardware, telematics and related technologies.

3    The fifth respondent, Hanhwa Hightech Co., Ltd, and the twelfth respondent, Leemen Co. Ltd, both South Korean companies (together the Hanhwa Korea Parties), manufacture and supply audio visual units and accessories or component parts to Directed OE for supply by Directed OE to its customers. They have done so since 2009 in the case of the fifth respondent and since 2015 in the case of the twelfth respondent. Directed OE has contended that the supply to it from the Hanhwa Korea Parties has been under a supply agreement constituted predominantly by conduct over an extended period, particularly in relation to the fifth respondent.

4    Directed OE’s customers include Isuzu, Fuso, Hino, Mercedes Benz, UD, International Trucks and CATepillar (Directed OE Customers). Products supplied by the Hanhwa Korea Parties to Directed OE for on-sale to Directed OE Customers presently account for approximately 95% of Directed OE’s total sales.

5    On 17 November 2017, the Hanhwa Korea Parties informed Directed OE that they intended to cease supply and to terminate the supply arrangements, but the Hanhwa Korea Parties stated that they would continue to accept purchase orders from Directed OE up to 28 February 2018 and to supply products pursuant to any such orders placed before that date (Hanhwa Korea Notice).

6    By interlocutory application dated 14 February 2018, Directed OE has sought orders that the Hanhwa Korea Parties be restrained from:

(a)    acting upon the Hanhwa Korea Notice until 17 November 2018;

(b)    refusing to accept and otherwise supply products in accordance with orders placed by Directed OE for products in reliance upon the Hanhwa Korea Notice;

(c)    further or alternatively, refusing to accept orders and supply of products in accordance with orders placed with them by Directed OE on or before 30 June 2018 in reliance upon the Hanhwa Korea Notice.

7    Directed OE has submitted that the period of the restraint sought by the injunction is directed to enabling it to lodge its final purchase orders with the Hanhwa Korea Parties by 30 June 2018 with the supply of that product to occur between September and October 2018. It has said that this time period was required so that it could put alternative supply arrangements in place to enable continuity of supply to Directed OE Customers. It has said that without this time to put in place alternative suppliers, it was likely that the Hanhwa Korea Parties would appropriate Directed OE Customers after 28 February 2018.

8    Directed OE has contended that the premature termination of the supply arrangements with the Hanhwa Korea Parties would:

(a)    deprive Directed OE of a reasonable opportunity to maintain its business by making other supply arrangements; and

(b)    facilitate the commercial objectives of the Hanhwa Korea Parties in the broader proceedings that Directed OE alleges have been pursued by unlawful means.

9    On 19 February 2018 I granted an interlocutory injunction, but only in limited terms and only for the period to 17 May 2018. These are my reasons for that grant.

Some principles

10    Directed OE has said that it is not uncommon for an interlocutory injunction to issue to prevent the termination of an ongoing relationship of the type existing in the present case. By way of example, Directed OE has pointed to the decision of Edelman J in Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 2] [2013] WASC 375.

11    Directed OE has conceded that an injunction restraining the breach of a negative stipulation may have a similar effect to a mandatory injunction, but it has contended that the authorities show that this does not warrant any departure from the relevant balancing exercise. Further, it accepts that the court is to exercise a level of caution prior to granting an injunction if the effect may be akin to final relief; see for example Australian Rugby Union Ltd v Hospitality Group Pty Ltd [1999] FCA 1136 per Sackville J at [29] to [31]; Samsung Electronics Company Ltd v Apple Inc (2011) 217 FCR 238 per Dowsett, Foster and Yates JJ at [87]; Metro Investments Holdings Pty Ltd v GM Holden Ltd [2017] FCA 1523 per White J at [14].

12    Directed OE has pointed to a large number of cases in various fields and industries in which an applicant has obtained an interlocutory injunction in order to restrain the purported termination of a contract. I do not need to refer to them, save to note that it has relied upon Moonlighting International Pty Ltd v International Lighting Pty Ltd [2000] FCA 41 (Moonlighting (No 2)).

13    Contrastingly, the Hanhwa Korea Parties have contended that the injunction sought although negative in form is mandatory in substance. Moreover, they have contended that to grant the injunction sought would be tantamount to granting relevant final relief in relation to the Hanhwa Korea Notice.

14    In the context of the present dispute, it is appropriate to make the following brief observations in terms of questions of principle.

15    First, in relation to the test in Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 at [65] to [72] per Gummow and Hayne JJ and the prima facie case limb, it is necessary to show a sufficient likelihood of success to justify the grant of the injunction, with such sufficiency being dependent upon the nature of the right being asserted and the practical consequences that are likely to flow if an injunction was granted. The prima facie case formulation commanded majority support in ABC v O’Neill. It was expressly referred to by Gummow and Hayne JJ, supported by Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618; further, Gleeson CJ and Crennan J agreed with the exposition of the principles set out by Gummow and Hayne JJ. Further, many decisions of this Court have used the prima facie case language. Contrastingly, the serious question to be tried formulation had its genesis with earlier authority where the bar might be perceived to have been set too low as a consequence of the use of such phraseology. Earlier authority did not colour such a formulation with the flexibility and nuance that is now expressly required.

16    Second, the relief sought by Directed OE in substance could be considered to have the effect of a mandatory injunction, that is, an obligation to continue to supply. But there is no separate test. The ABC v O’Neill test is equally applicable to mandatory injunctions in terms of the formulation of the test as distinct from its application in a particular case. The applicant for an injunction does not have to show anything additional, such as a “high degree of assurance”. This has been discussed in earlier authorities, including by Gummow J in Businessworld Computers Pty Ltd v Australian Telecommunications Commission (1988) 82 ALR 499; [1988] FCA 206.

17    Sometimes, the approach in the context of mandatory injunctions has been to view the matter through the lens of taking the course that produces the lesser risk of injustice if it should turn out that the decision of the court is “wrong”, in the sense of either granting an injunction where a party fails or would fail to establish its right at trial or failing to grant an injunction to a party who succeeds or would succeed at trial. It has been previously thought that, generally, a mandatory injunction will usually have the consequence of creating a greater risk of injustice if granted and the decision turns out to be “wrong”, rather than if it were to be with-held.

18    Now several points. This lens is not, in form, how the second limb (balance of convenience) of the ABC v O’Neill test has been formulated, but some aspects of this lens are not mutually inconsistent with that second limb. Further, one cannot generalise in relation to mandatory injunctions in any event. But it may be that for a particular form of mandatory injunction in a particular case, if such a lens were to be used, that the strength of the prima facie case may be relevant to that lens; the stronger the prima facie case, the less the likelihood of being “wrong” if the injunction was to be granted. Now this is not a backdoor for some requirement for a “high degree of assurance” being necessary to be shown for mandatory injunctions in general, but rather suggests that the strength of the prima facie case should be in the mix in dealing with the balance of convenience at least. Moreover, even on the first limb, the strength of the probability required depends, in part, on the consequences likely to flow. If the consequences are more severe with respect to a particular mandatory injunction, then the probabilities required might rise.

19    Third, the balance of convenience looks at what the inconvenience, injury or injustice to Directed OE would be if the injunction were refused and seeks to weigh that against the inconvenience, injury or injustice to the Hanhwa Korea Parties if the injunction were granted. Only if the balance lies in favour of Directed OE, that is, if the inconvenience, injury or injustice to Directed OE if the injunction were refused outweighs the Hanhwa Korea Parties’ prejudice, would an injunction be granted. It was submitted before me that I should assess the balance of convenience also in the context of considering the strength of the prima facie case: Samsung Electronics Co Limited Ltd v Apple Inc (2011) 217 FCR 238 at [67]. I agree that the stronger the prima facie case, then the less strong the balance has to weigh in favour of Directed OE (and, of course, vice versa). Putting it slightly differently, if the balance is more equally poised, but Directed OE has a strong prima facie case, then the interaction between the two limbs may tip the balance in favour of granting an injunction. Moreover, if mandatory orders are in substance sought, the relevance of the strength of the prima facie case may take on an additional dimension for the reasons previously discussed, but not in the previously discarded “high degree of assurance” threshold sense.

20    Let me now turn to the specific arguments.

Prima facie case

21    Directed OE has said that the dispute between the parties concerns:

(a)    whether there is any form of binding agreement between the Hanhwa Korea Parties and Directed OE that might concern future supply;

(b)    if so, whether there is an implied term requiring reasonable notice of any termination of that agreement; and

(c)    what time period should be regarded as “reasonable notice” if there is any such implied term.

22    Directed OE has contended that it has a strong prima facie case in relation to the matters in (a) and (b). As to (c), Directed OE has submitted that reasonable notice would require the continuation of the supply of products for 12 months or the fulfilment of orders placed within 8 months which Directed OE has contended amounts in effect to the same period of time.

23    Contrastingly, the Hanhwa Korea Parties have submitted that Directed OE has not established a prima facie case as to the following matters.

(a)    First, the existence of an overarching agreement terminable on reasonable notice.

(b)    Second, that insofar as any notice of termination was necessary, which is disputed, the notification given on 17 November 2017 confirming that they would honour all purchase orders placed prior to 28 February 2018 was not reasonable in the circumstances.

Is there a long-term agreement between the parties or an ad hoc supply arrangement?

24    Directed OE has contended that it has a strong prima facie case that there is a supply agreement, on a long term basis, rather than some kind of ad hoc supply arrangement based solely on purchase orders. It has said that so much was clear from the following context, background and dealings between the parties, relying upon the evidence of Mr Stavros Siolis, director of Directed OE:

(a)    The complex nature of the needs of Directed OE Customers.

(b)    A lead time of between 6 to 18 months in developing relevant products for supply, which involved design and development, working with employees of the Hanhwa Korea Parties who during periods of time worked at Directed OE’s premises in Australia, the need to determine manufacturing costs, the engagement of sampling, testing and modifications and so forth.

(c)    The costs of tooling manufacture, samples and prototypes which were paid by Directed OE to the Hanhwa Korea Parties.

(d)    The period of the relationship, being 9 years in the case of the fifth respondent.

(e)    The large quantum involved in payments, in the context of the above matters. In the period 2009 to 2017 Directed OE paid the Hanhwa Korea Parties around AUD 106 million for products to supply to the Directed OE Customers.

(f)    In recent years, Directed OE has paid the Hanhwa Korea Parties substantial amounts for products to supply to Directed OE Customers:

(i)    in 2016 – AUD 22 million;

(ii)    in 2017 – AUD 21.5 million; and

(iii)    in 2018 to date – AUD 3 million.

(g)    Directed OE currently has AUD 3.6 million worth of products on order from the Hanhwa Korea Parties to supply to Directed OE Customers.

(h)    In the period 2009 to 2017 Directed OE made payments to the fifth respondent of AUD 2.3 million for tooling to manufacture products for Directed OE to its order.

(i)    Directed OE has paid the Hanhwa Korea Parties in advance USD 149,100 to secure the supply of 21,000 CLM7700 units for inclusion in the forecast 21,000 AV units to be supplied to Directed OE during 2018. And typically for AV units, the time between Directed OE placing an order with the fifth respondent and delivery has been about 3 to 4 months.

25    Directed OE has contended that with one exception, each of the Directed OE Customer’s AV units and the accessory/component parts have been made to the specific requirements of each customer and are not substitutable for supply to another Directed OE Customer. It has said that Directed OE Customers typically order the particular design of an AV Unit exclusively from Directed OE for about 4 to 5 years before moving to an entirely new design or upgrade, and that they typically provide Directed OE with rolling orders 3 months in advance which vary depending on their forward supply requirements. Directed OE would then place orders with the Hanhwa Korea Parties on a back-to-back basis when such orders were received from Directed OE Customers.

26    Directed OE has said that it does not have committed forward orders from Directed OE Customers for their requirements beyond April 2018. However, Directed OE believes that Directed OE Customers will continue to order products as they have done in the past throughout 2018. Directed OE has said that the spreadsheet of Mr Kon Floudas that was provided to the Hanhwa Korea Parties detailed Directed OE’s anticipated ordering requirements from the Hanhwa Korea Parties for AV units between February and September 2018. The anticipated total number of AV units set out in Mr Floudas’ spreadsheet was for 21,000 AV units for supply to Isuzu, Hino, Fuso, UD and Mercedes Benz. However, the number of orders actually placed by Directed OE Customers with Directed OE has fallen below these expectations.

27    These additional circumstances were said to be further support for the existence of an ongoing supply agreement between the parties.

28    Contrastingly, the Hanhwa Korea Parties have submitted that Directed OE has pointed to no communications, written or oral, which established any legally enforceable arrangement beyond one where a separate supply contract came into existence upon the acceptance of each purchase order. They have said that the absence of mutuality supportive of such an arrangement is striking. Further, they have said that their arrangement with Directed OE has not been a distributorship whereby Directed OE has been distributing Hanhwa Korea branded products (which is different to the scenarios in Moonlighting (No 2) and Sanderson Motors (Sales) Pty Ltd v Yorkstar Motors Pty Ltd [1983] 1 NSWLR 513 per Yeldham J). Further, they have noted that Directed OE has not been bound to purchase from the Hanhwa Korea Parties particular quantities. Further, they have noted that there was no price list. Prices were not fixed (unlike in Moonlighting (No 2)) and prices were re-negotiated from time to time as commercial considerations arose.

29    Now I accept that there is some force to the Hanwha Korea Parties’ submissions, but in my view Directed OE has shown sufficient to establish that it has at the least a reasonable prima facie case as to the existence of a legally enforceable supply agreement.

Does the supply agreement contain an implied term of reasonable notice?

30    Directed OE has alleged that its agreement with the Hanhwa Korea Parties includes various implied terms that arise from the course of dealings between them in relation to the supply of products since 2009. It has contended that the following terms were express or implied in fact as necessary and in order to give it business efficacy:

(a)    That the Hanwha Korea Parties would source or manufacture components and products for Directed OE for supply to Directed OE Customers.

(b)    That Directed OE would pay to the Hanwha Korea Parties their costs for the manufacture of the tooling to manufacture products.

(c)    That Directed OE would provide future ordering forecasts and written orders for products in writing.

(d)    That Directed OE would pay 20% of the purchase price of products ordered as a deposit at the time of placing an order in writing.

(e)    That Directed OE would pay the balance of the purchase price prior to shipment.

(f)    That the Hanhwa Korea Parties would give reasonable notice to Directed OE of their intention to terminate the agreement or the supply of a particular product or component part.

31    Directed OE has said that terms (d) and (e) above have been expressly agreed as between the parties, relying on correspondence between the parties. Further, Directed OE has contended that once one accepts that there is more than an ad hoc supply agreement between the parties, then absent some express provision, such an agreement is subject to an implied term that the agreement may be brought to an end only upon either party giving the other reasonable notice of termination.

32    Now the Hanhwa Korea Parties did not respond to this specific contention, instead relying upon their submission that no ongoing supply agreement existed in the first place.

33    I consider that Directed OE has established at the least a reasonable prima facie case that the relevant supply agreement contained such an implied term dealing with termination on reasonable notice. The subject matter of the supply arrangements, the relationship between the parties including the length thereof, and the significance of the supply arrangements to the business of Directed OE well support such an implied term.

What time period is reasonable notice?

34    Directed OE has submitted that the reasonableness of the period of notice must reflect the circumstances in existence at the time that the notice was given. It has said that the whole of the relationship between the parties as it stands when notice was given must be considered, not simply the circumstances at the inception of the contract (see Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438 at 444 per McHugh JA (as he then was); Moonlighting International Pty Ltd v International Lighting Pty Ltd [1999] FCA 1872 at [10]; Moonlighting (No 2) at [4]). I quite agree and have nothing to add to the discussion on this aspect by McHugh JA in Crawford.

35    Directed OE has said that here, the factors outlined in Moonlighting (No 2) were apposite. It has said that the period of notice must be sufficiently long to enable the recipient to secure a replacement supplier if one is available, to fulfil existing contractual commitments, to carry out other commitments, to bring current negotiations to fruition, and to wind up the business relationship in a businesslike manner. Applying these factors to the present case, Directed OE has pointed to the following:

(a)    Mr Siolis has given evidence regarding the length of time required by Directed OE to address the said matters and why that amount of time was required.

(b)    Directed OE has said that it is entitled to have sufficient time to find an alternative supplier and to fulfil its commitments to Directed OE Customers.

(c)    Directed OE has said that the 28 February 2018 deadline for orders was not sufficient time for Directed OE to put alternative arrangements in place. It has said that there appeared to be no reasonable rationale for this deadline, given the commitments already made by the Hanhwa Korea Parties to supply 21,000 AV units in 2018.

36    Contrastingly, the Hanhwa Korea Parties have submitted that Directed OE has not established a prima facie case that the notification given on 17 November 2017 was unreasonable, or that 7.5 months (until 30 June 2018) was required, noting the following. First, they have said that no further period was required in order to allow Directed OE to supply products in respect of which it had accepted orders from customers. The 28 February 2018 deadline (3.5 months) was not unreasonable in the circumstances. Second, they have said that ordering prior to 28 February 2018 would allow Directed OE to supply committed orders from its customers up until 31 May 2018. Third, they have said that no further period was required in order to allow Directed OE to supply products in respect of which it could anticipate supply requirements and that Directed OE must bear the commercial risk that customers may not place orders with it in accordance with its forecasts. Finally, they have said that there was no evidence that further time was required in order to permit Directed OE to recover the costs and expenses of quoting for work to its customers.

37    In my view, and after considering the evidence, I consider that Directed OE has a reasonable prima facie case to establish a termination provision of around 6 months given the long term supply arrangement, the significance of the supplies to Directed OE and the other matters mentioned above. However, I consider that it has a weak case to establish a 12 month notification period. Of course, at this stage I am not deciding any of these matters.

Balance of convenience

38    Directed OE has contended that the balance of convenience lies in favour of granting the relief sought. It has said that if no injunction was granted and Directed OE was successful in the main proceeding, Directed OE would suffer the irreparable and “catastrophic” damage described as a consequence of the unlawful termination of supply arrangements by the Hanhwa Korea Parties. Alternatively, it has said that if the injunction were granted, the Hanhwa Korea Parties would continue to supply to Directed OE and would continue to make the profits that they are currently making from the existing supply arrangements; that is, there would be no prejudice to the Hanhwa Korea Parties flowing from the grant of the injunction.

39    Contrastingly, the Hanhwa Korea Parties have contended generally that having regard to the weakness of Directed OE’s prima facie case and to the offer by the Hanhwa Korea Parties to fill purchase orders placed by 28 February 2018, the balance of convenience favours the refusal of interlocutory relief.

40    Now I should say at the outset that I accept that the strength of the prima facie case is something to weigh in and with the balance of convenience. But I have not accepted that Directed OE’s prima facie case is weak, at least in relation to the 6 month termination period as compared with the 12 month termination period.

Are damages an adequate remedy?

41    Directed OE has said that it will suffer irreparable harm if the injunction sought was to be refused. Irreparable harm means injury “for which damages would not be adequate compensation” (SPAR Licensing Pty Ltd v MIS Qld Pty Ltd (No 1) [2011] FCA 1054 per Perram J at [6]). Directed OE has said that this was such a case, having regard to the consequences of termination, and to the practical difficulties involved in Directed OE enforcing a civil monetary judgment in South Korea.

42    Indeed, Directed OE has described the consequences of termination on its business as “catastrophic”. It has said that termination was likely to result in the need to retrench at least 20 employees, the loss of up to approximately 95% of Directed OE’s current income, the need to postpone and/or abandon plans to move by September 2018 into purpose built facilities in excess of 20,000 square metres proximate to Isuzu in Melbourne, and “huge long term reputational damage as a reputable and trusted supplier … from which it may never recover”.

43    Directed OE has said that its practice of placing back-to-back orders with the Hanhwa Korea Parties to match orders received from customers (which has been the system and practice for 9 years) did not permit it to place orders for products from the Hanhwa Korea Parties more than 3 months in advance. It has said that requiring it to order all products for supply up to November 2018 by 28 February 2018 would place it at substantial risk of purchasing millions of dollars of stock that may never be purchased by its customers. It has said that because many products are of a bespoke design, it would render unsold products valueless.

44    Further, Directed OE has said that damages are not an adequate remedy because the enforcement of any court order for damages was likely to carry significant risk. The affidavit evidence of Directed OE’s solicitor was to the effect that enforcing a civil monetary judgment in South Korea would be neither straightforward nor easy and could take a long time. Directed OE has said that there was also no evidence that the Hanhwa Korea Parties have any assets in Australia.

45    Contrastingly, the Hanhwa Korea Parties have submitted that damages are an adequate remedy, saying that the only damage to Directed OE if it places orders prior to 28 February 2018 is set out in Mr Siolis’ affidavit evidence being:

(a)    the possible write-off (deductible expense) of obsolete stock of some undetermined amount.

(b)    a “finance” cost occasioned by having to pay for goods from the Hanhwa Korea Parties earlier than Directed OE wishes (circa USD 1.68 million), which Directed OE appears to have the capacity to meet.

46    The Hanwha Korea Parties also point to the fifth respondent’s balance sheet which they say is strong. Further, contrary to Directed OE’s evidence, they have also submitted that the South Korean legal system is “generous” in its recognition and enforcement of foreign monetary judgments. By this I understand them to have contended that an award of damages could be satisfied and that the enforcement process in South Korea would not be onerous.

47    Further, the Hanhwa Korea Parties have submitted that the evidence of Mr Siolis conflated on the one hand the damage that would be suffered by Directed OE if the injunction was not to be granted, and on the other hand the practical effect that it would be unable to secure replacement supply arrangements from manufacturers other than the Hanhwa Korea Parties and that it would be unable to secure long-term ongoing relationships with its own customers. They have said that the latter is the result of legitimate commercial competition.

48    On balance, in my view I do not consider that damages would be a sufficient and adequate remedy for the reasons advanced by Directed OE including reputational questions and also problems of enforcement, although I do note as a matter of interest that it was Directed OE who first chose to sue the Hanhwa Korea Parties in this jurisdiction.

Undertaking as to damages

49    There was some dispute between the parties regarding whether the usual undertaking as to damages would be adequate.

50    As to its capacity to pay any damages under the undertaking it would be required to give, Directed OE referred to a confidential annexure comprising its balance sheet and financial statements as at 31 December 2017. It has said that these documents, along with the affidavit of Mr Floudas, establish that Directed OE and the related entities of Directed OE are in sound financial health. It has said that Directed OE is a company with substantial turnover and is very profitable, with a healthy balance sheet with readily realisable assets.

51    The Hanhwa Korea Parties have responded that where Directed OE was already exposed via an undertaking as to damages in respect of an earlier injunction I granted in the proceeding on another matter, there was real doubt as to the adequacy of any undertaking as to damages, and that its future manufacturing supply pipeline, much less the terms of any future supply, have not been secured.

52    On balance I consider that Directed OE, on the present material before me, has sufficient financial strength to support the usual undertaking as to damages.

Other factors affecting the balance of convenience

53    First, Directed OE submitted that if the injunction was granted, the likely scenario was that the Hanhwa Korea Parties would continue to derive revenue and make profits for the supply of products ordered by Directed OE as they had done for the last 9 years. It noted that the Hanhwa Korea Parties have already committed to supply Directed OE through 2018 and in respect of which they have already purchased component parts for and at the cost of Directed OE. This is anticipated to be in the order of USD 8.4 million for products over the next 8 months. It has submitted that it is hard to conceive how the Hanhwa Korea Parties could suffer loss and damage should they be required to continue accepting orders from Directed OE for supply of products up to 30 June 2018 rather than if Directed OE is forced to place its anticipated orders for 21,000 AV Units all by 28 February 2018. It is said that it was likely that the same products would be ordered, manufactured and delivered by the Hanhwa Korea Parties to Directed OE over the same time period during 2018. The only difference would concern the payment of the 20% deposit (USD 1.68 million). The money would not be paid in advance, but rather on a staggered basis as had been the case for the last 9 years when orders were placed on a 3-monthly rolling cycle.

54    Second, Directed OE has submitted that it is unlikely that ongoing supervision by the court would be required if the injunction was granted. Further, it notes that even if this were required occasionally, it would not necessarily be fatal to the granting of the relief it seeks. In relation to the present case it has said:

(a)    The agreement has operated without any legal or court intervention for 9 years, and has operated after the commencement of this proceeding for 4 months.

(b)    It could be inferred that the Hanhwa Korea Parties consider that the supply agreement can operate for the balance of 2018 given that they are willing and able to accept and fulfil the orders that were set out in Mr Floudas’ spreadsheet or indeed any orders if placed before 28 February 2018. Further, the Hanhwa Korea Parties have already purchased component parts for inclusion in relevant units at the cost of Directed OE.

(c)    Further, the specifications and design of all products which will be ordered is set and does not need to be altered. The only variable is how many units of each product type are ordered by Directed OE.

(d)    Further, there was no need for any new product development or negotiations regarding the payment for tooling as no new products will be designed or developed.

(e)    Further, there was no need for any negotiations regarding pricing of products as the existing pricing for products was set, and in the normal course would not be reviewed or revised by negotiation before June 2018. Further, payment terms were also set consistent with the arrangements that have been in place for the last 9 years.

55    Third, Directed OE says that concern has been expressed by Directed OE Customers relating to continuity of supply. It alleges that someone within the Hanhwa Korea Parties has advised Isuzu that Directed OE cannot obtain supply of products after 28 February 2018. It says that this is to the benefit of the Hanhwa Korea Parties. It says that as a consequence, certain customers are now becoming non-committal as to the placing of orders for supply of products beyond the end of February 2018, which is likely to result in those customers sourcing the supply of products elsewhere and most likely directly from the Hanhwa Korea Parties. Further, it says that there will be long term reputational damage to Directed OE as a reputable and trusted supplier in the Australian and New Zealand automotive markets, from which it may never recover. It says that the injunctions are necessary to protect Directed OE from the long term consequences of this conduct by the Hanhwa Korea Parties.

56    Fourth, Directed OE says that this is not the kind of case where there is uncertainty in relation to the prospect of successfully securing supply, such that there is a risk that any time extension would be arid. Rather, it says that it has been diligent in securing alternative sources of supply, but requires time to put these arrangements in place.

57    In summary, I consider that there is force in each of these points, although I have a residual concern relating to the potential supervision that may be necessary as to the ongoing contractual relationship during the termination period. But generally speaking, Directed OE’s points, supported by the evidence, further fortify its position on the balance of convenience.

58    Contrastingly, the Hanhwa Korea Parties submit that it is plain that any necessary relationship of trust and confidence between the parties has gone. They say that regular communications are required between the parties, that no price had been agreed or set for the price of products beyond 28 February 2018, and that there are already apparent allegations by Directed OE of “slow” engagement and supply by the Hanhwa Korea Parties (these are denied). They say that in such circumstances it is likely that the Court will have to supervise the injunction, which is obviously undesirable, and a difficulty arguably exacerbated by the fact that the Hanhwa Korea Parties are foreign companies. Now I accept that all of this may be so and I have taken it into account. Nevertheless, it does not tip the balance in favour of the Hanhwa Korea Parties.

59    Second, the Hanhwa Korea Parties contend that, in reality, Directed OE seeks protection from competitive activity from the Hanhwa Korea Parties (and also the second respondent in the proceedings Hanhwa Aus Pty Ltd) for a sufficient period of time, so as to allow it to secure 3 year supply arrangements with its customers without the Hanhwa Korea Parties (or Hanhwa Aus) being able to compete with it for such business. They contend that such anticompetitive activity is:

(a)    harmful to the Hanhwa Korea Parties;

(b)    harmful and potentially “catastrophic” for Hanhwa Aus (and its employees); and

(c)    harmful to the end customers who are denied the potential benefit of commercial competition.

60    Now I have considered such matters and am alive to such concerns. But various points may be noted. First, the Hanhwa Korea Parties’ concerns in some respects seem to be over-stated. Second, the consequences asserted in part may not be considered to be unjust given that Directed OE has established a prima facie case to be given reasonable notice of termination, and the asserted consequences may be said to flow from meeting such requirement.

61    Finally, I have also taken into account the Hanhwa Korea Parties’ arguments that the effect of granting the injunction may be to in effect give final relief and also in substance to mandatory effect. But in all the circumstances, I do consider that Directed OE is entitled to an injunction that in essence pushes the termination period back from 28 February 2018 to 17 May 2018. This is a period of 6 months from 17 November 2017 rather than the 12 months sought by Directed OE, which in my view is a reasonable compromise in all the circumstances.

62    In summary, whilst I consider that the Hanhwa Korea Parties’ submissions have some force, I consider that on balance Directed OE would suffer greater harm if I refused the injunction than the Hanhwa Korea Parties would suffer if I granted the injunction, and that it is problematic as to whether damages will be an adequate remedy. But mindful of the position of the Hanhwa Korea Parties, I have considered that a more limited form of injunction through and until 17 May 2018 (reflecting a period of 6 months) is more appropriate.

Conclusion

63    It is for the foregoing reasons that I granted the injunction against the Hanhwa Korea Parties, albeit in more limited terms than that sought by Directed OE.

Associate:

Dated:    22 February 2018

SCHEDULE OF PARTIES