Century Yuasa Batteries v Heel & Heel & Ors [1999] QSC 255

5( qa..jRSS- -Pi \,;~ 37 06'0 State Reporting Bureau TRANSCRIPT OF PROCEEDINGS Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the DIrector, State Reporting Bureau. SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION SHEPHERDS ON J No 56351 of 1999 CENTURY YUASA BATTERIES ACN 009 685 232 and ALAN HEEL and YVONNE HEEL and FERNHOPE INVESTMENTS PTY LTD ACN 052469726 and NOONBET PTY LTD ACN 070 507 612 and JAMES HEEL and PAUL HEEL BRISBANE .. DATE 19/07/99 JUDGMENT 1 REVISED COPIES ISSUED State Reporting Bureau Datejo / Plaintiff First Defendants Second Defendant Third Defendant Fourth Defendants II Flllllr, The Law COllrls, Gl'or"c Sireel, Brishal1c, Q. 4000 l' I I (117) '2'7 '1~11 /" (117) l' '7 <;<;1' .... e ep IOI1C: ,1 -t 't, II 'ax: , _-t ...1_ -- 1 of 15 -- 190799 T02/LZG14 M/T 4635/99 (Shepherdson J) "EX TEMPORE JUDGMENT" HIS HONOUR: The applicant plaintiff has sought injunctive relief until the trial of this action restraining the first defendants Alan Heel and Yvonne Heel, the second defendant 10 Fernhope Investments Pty Ltd and the third defendant Noonbet Pty Ltd whether by themselves, their servants or agents or otherwise howsoever from selling automotive lead acid batteries in competition with the plaintiff. It further seeks injunctive relief requ~.ring all of the above cited 20~~\ ( i defendants, that is, the fin:t defendants, the second defendant and the third defendant, to deliver up the plaintiff's records and additional information about names / I and addresses of and business done by any of the first, second and third defendants with the plaintiff's customers 30 and not previously identified to the plaintiff. On 15 October 1986 Repco Limited appointed Mr and Mrs Heel as their exclusive agents fo]" the Mackay territory. In 1986 Mr and Mrs Heel registered t~e business name Alvon Distributors. Mr and Mrs Heol remained the sole members of the firm trading under that Eame. On 1 March 1988 Repco sold its Centu'ry Batteries D).vision to Repco century (South Queensland) Pty Ltd, and that latter company changed its name to century Yuasa Batteries Pty Ltd, which is the plaintiff in this action. I have omitted to mention that it was in 1986 that Mr and Mrs Heel became exclusive agents for century Batteries Division fCJr the Mackay Terri tory. 2 JUDGMENT 40 50 60 -- 2 of 15 -- 190799 T02/LZG14 M/T 4635/99 (ShepherdsonJ) Between 1986 and 1999 the product range of the Heels ' agency was enlarged from century Batteries to Yuasa (1993) Besco (1994) and G-Force (1996) types of battery. In 1991 Mr and Mrs Heel, the first defendants, had acquired the company Fernhope Investments Pty Ltd and thereafter utilised it in 10 conducting the business unde~~ the name Alvon Distributors. In 1995 Mr and Mrs Heel acquired another company, Noonbet Pty Ltd, and it appears that at some stage thereafter used this company as Trustee of the A andy Heels Family Trust in running the business conducted under the name Alvon 20 Distributors. The Heels, Fernhope and Noonhet have their business premises at Mackay. On 18 September -'995 the first defendants leased to Fernhope Investments certnin plant and equipment and 30 certain land and building. 7his was subject to a lease agreement dated 18 September 1995, and this document shows \ , that Fernhope Investments Pty Ltd was trading as trustee for / the Heel Family Trust at 7 Cemetery Road, Mackay. On the same date Mr and Mrs Heel, the first defendants, entered 40 , --,-' into a written agreement witl! Noonbet Pty Ltd as Trustee for the A and Y Heel Family Trust, also of 7 Cemetery Road, Mackay, of certain plant and equipment and building more particularly set out in the ~greement. I do not propose to say much more about the earlier agreement. It appears that 50 the first agency agreement, although lasting for a specified time, was not extended, but it seems that the parties continued to operate on the basis that there was some sort of agency agreement between them. 60 3 JUDGMENT -- 3 of 15 -- 190799 T02/LZG14 M/T 4635/99 (Shepherdson J) On 9 June 1999 the plaintiff and the second defendant entered into what was called a multi-brand agency agreement. Mr and M~s Heel, who were the directors of Fernhope Investments, the second defendant, executed the document on behalf of Fernhope Investments. They also signed separately. Within a week of signing that agreement the first defendants, by their solicitors Stephens and Tozer, notified the plaintiff that they had changed their mind and this agreement, this multi~brand agency agreement, was termina ted. fj~, The commencement date specified in that document was 1 July 1999 so effectively the agreement did not come into force. Quite a large amount of material has been filed and read. I should add, before I go further, that the persons named in the claim and in the statement of claim as fourth defendants, James Heel and Paul Heel, are sons of the first defendants, and it appears to date that at all times they ohave acted as servants and agents of the second and third defendants. o Mr Lennon QC, who has appeared for the applicant, has sought the present relief to preserve the status quo and he relies on the agreement dated 9 June 1999 and provisions contained therein as to express notice and restraint on trade. In terms of that agreement - it contains certain special conditions - the agreement was to last four years, however there was power for the second defendant to terminate it on the giving of not less than six months written notice to 4 JUDGMENT -- 4 of 15 -- 190799 T3/JB M/T 4635/99 (Sheph~rdson J) the plaintiff provided that Fernhope, as agent, and the "directors/partners used their best endeavours to transfer the loyalty of the customers of the agency to the principal". I should add that the directors and partners named in that agreement are Alan Heel and Yvonne Heel. In the events which have happened since the second defendant, the third defendant and Mr and Mrs Heel have said they have had a change of heart concerning the agreement, it C~'! has become clear from evidence placed before me that the second and third defendants and Mr and Mrs Heel have told a number of customers of the plaintiff that they intend to no longer service their needs for century batteries and that they propose to sell a battery known as a Triton battery. I do not propose to refer in detail to evidence but merely mention an affidavit of Mr Grealy, particularly two I affidavits sworn on 6 July. I mention also an affidavit of) Mr Keneally sworn on 16 July and an affidavit of Mr Woodford sworn on 16 July. An affidavit of Mr Draper sworn on 16 July also supports the submissions made by Mr Lennon to the effect that the second and third defendants and the first defendants are alienating or attempting to alienate persons and bodies who were customers of the plaintiff. The agreement of 9 June cont&ins obligations on the part of Fernhope and on the part of the first defendants. In clause 11 one finds a restraint on trade clause. Clause 11 (b) provides that Fernhope and the first defendants agree that 5 ORDER -- 5 of 15 -- 190799 T3/JB M/T 4635/99 (Shepherdson J) they will not, for a period of three years following termination or assignment of the agreement, for any reason within the total area of the territory, which is defined in the agreement, and without the prior written consent of the plaintiff, whether directly or indirectly, to in effect carryon or be engaged in or concerned with any business which includes the selling, distributing or marketing of batteries. There are other provisions there which I find it unnecessary to recite here. () Now, there is agreement between parties that there is a serious question to be tried as to whether or not the first odefendants and the second defendant have breached the agreement of 9 June 1999 but Mr North QC, for the defendants appearing today, has raised arguments to which I shall shortly turn. I should mention an affidavit of Mr Anderson because it obears on the issue that was flOSt seriously debated. And that is whether the plaintiff has satisfied me that on the balance - or satisfied me thc.,t the balance of convenience 0 falls in it's favour such that the relief sought should be granted. Mr Anderson is the current Queensland state manager of the plaintiff. He has sworn two affidavits, the second of which filed on 6 July discusses the effect on customer losses of the trading of the first defendants and the second defendant since about 15 June. 6 ORDER -- 6 of 15 -- \ / 190799 T4/ALE19 M/T 4635/99 (Shepherdson J) It is apparent from Mr Ander:~on' s affidavit that the plaintiff places great store on giving personal service to it's customers and he swears it is of greater significance in country areas than metropolitan areas. In paragraph 5 he swears: "In country areas century's wholesale customers place a priority on personally knowing the person who serves them. Where there's a breakdown in the relationship with an agent it's likely that the customer will be lost to century and gained by the Heel's (trading through Alvon Distributors) for a competitor such as Triton. There's also a real possibility that the customer will be lost to both century and the Heels should the Heels not be restrained and the customer become subject to sellillg pressure by the Heels particularly if misinfQjomation as given by the Heels causes loss of confidence or confusion." I should add there is some evidence which suggest strongly that there has been misinformation given by the Heels and their staff to persons who had been for a numb~r of years customers of the plaintiff. I should mention now that Mr Anderson has sworn that immediately following advice being received from the Heels on 10 June 1999 that they were discontinuing the agency from 15 June, the plaintiff took immediate steps to try to ma~ntain it's service to it's customers. It has leased prt mises on a month to month basis but according to Mr Anderson these are unsuitable because they are not well positioned in that they are not in a prominent location with substantial passing traffic, there is no telephone system in place (as at 2 July) and Workplace Health and Safety and Dangerous Goods legislation requirements are of a temporary nature only. 7 JUDGMENT -- 7 of 15 -- 190799 T4/ALE19 M/T 4635/99 (Shepherdson J) He points out correctly that batteries are dangerous because of their acid and lead content. He swears. that the plaintiff is losing customers because of the unsatisfactory location of the premises and because of the one telephone line into the premises and no telephone system. He estimates that the plaintiff· is paying approximately 30 percent more rental than it would otherwise be paying in the market and that the premises he has obtained are the best Century can obtain on a short notice on a month to month basis. Mr Anderson also swears to the effect that Century is unable at present to appoint an agent fbr a number of reasons set out in paragraph 10 of his affidavit. His affidavit also exhibits a document, PA10, wLich is a photocopy of a flyer from Alvon Distributors (Noonbet Proprietary Limited) trustee for A and Y Heel Family Trust trading at Mackay. It points out that the plaintiff has opened it's own depot on 15 June 1999 and then proceeds to say, "However James, Mark, Paul and Gavin will still service all your ancillary products as we always have done such as," then follows a list. But significantly none include automotive lead acid batteries. Mr Lennon has emphasised that the evidence on the plaintiff's behalf shows that the plaintiff over the years has worked to preserve it's goodwill by service to it's customers through agents who are presumed to have acted 8 JUDGMENT o o o o -- 8 of 15 -- ) 190799 T4/ALE19 M/T 4635/99 (Shepherdson J) faithfully. The plaintiff is concerned that it may lose customers permanently and that merely the obtaining at trial of an account of profits from the defendant may not do justice to the plaintiff. I should add that there is some evidence before me to show that the second or third defendant, I forget which, has been on-selling the plaintiff's goods at a profit and not accounting for that. He submits that damages are not an adequate remedy because there is an unc~rtain area in this case where in the circumstances both sides can lose customers and an account of profits is insufficient. It is apparent that the critical period in the case occurs - what has happened after about 10 or 11 June 1999. Mr North has argued that the new agreement really came to an end before it commenced on 1 July. He argues that no agency occurred under the new agreement. He also points out that the first agreement which was that entered into in 1986 was not apparently renewed and tllat it contained no restraint on trade clause. He pointed out too that that agreement could have been terminated on three months notice and that in terms of clause 11 of that agreement the defendant might sell competitors I products. However, there was no restraint on trade clause preventing the defendants selling after the agreement had ended. 9 JUDGMENT -- 9 of 15 -- 190799 T5/ST4 M/T 4635/99 (Shepherdson J) He has submitted that there are a number of reasons why the restraint on trade clause in the 1999 agreement does not apply or, alternatively, should not be enforced by injunction in the exercise of the Court's discretion. He points to the length of time during which the parties had formerly conducted the relationship of principal and agent without a post contractual restraint and other matters which he has set out in his submissions in paragraph 9. He has argued that the restraint on trade for three years is unreasonably long for a term of appointment of four years, and that this has made an even stronger argument because the agreement signed on 9 June only lasted for six or seven days. I should, I think, say at this stage that the agreement of 9 June appears to have been negotiated and signed by the 1st and 2nd defendants at a time when their solicitor was present. It is not apprdpriate for me to go into the highways and the byways of how the Heels came to sign that agreement. Certainly, Mrs Heel and Mr Heel have sworn affidavits subsequently, but neither of them, it seems to me, to say that they had a "change of heart" which was the phrase us~d by their solicitor in notifying the plaintiff that the 1st and 2nd defendants had decided not to proceed further with the agreement. I do not propose to make any ruling as to whether or not the restraint on trade clause is too wide. That is a matter 10 JUDGMENT o o o -- 10 of 15 -- \ 190799 T5/ST4 M/T 4635/99 (Shepherdson J) which will have to be determined at trial and it seems to me that on that basis the status quo should be preserved. Mr North has further argued that damages are an adequate remedy, but in the view which I take of the matter it is certainly arguable that in ttlis particular case and at this interlocutory stage the matter of the customers is of prime importance, and I am not prepared at this stage to say damages are an adequate remedy. It seems to me that the loss of the plaintiff's customers may at trial prove to be a matter of considerable importance, that the protectJon of goodwill is, as Mr Lennon submitted, important in the early days of the contract and arguably more important then than it would be once the agency in terms of the new contract had become well established. Another argument raised by Mr North is that the material furnished by the 1st and 2nd defendants showed that if injunction were granted, although it might not destroy the defendants I business it would cause it considerable harm. He has pointed to evidence cc)ntained in Mrs Heel's affidavits. In her affidavi~ filed on 16 July 1999 she has deposed to the average weekly expenses of Noonbet trading as Alvon Distributors as being ~;15,242.51. In Exhibit YMH15 to her later affidavit sworn today, she has said: "Since the imposition of the interim injunction of 7 day of July 1999 to 16 day of July 1999, Noonbet Pty Ltd, the 3rd defendant, has made sales totalling twelve 1 1 JUDGMENT -- 11 of 15 -- 190799 T5/ST4 M/T 4635/99 (Shepherdson J) thousand and eighty-three dollars ($12,083). This is over a period of eight and a half working days. The normal week is five and a half working days (Monday to Friday and half day Saturday). II It is argued that this information combined with the weekly expense of $15,242.51 shows that the company is, in effect, headed to be wound up. However, I am not prepared to take that approach. It seems to ~e that if Mr and Mrs Heel wished to seriously have Mr i10rth advance that argument, then it is my view they could have put before the Court and should have put before the Court information as to the income other than on a selective period of about one week. In fact, there is no evidence before as to the size of the plaintiffls business. There is nothing as to annual or monthly sales volume and there is nothing as to assets in the bank, although I should ~orrect that. And I refer to an affidavit of Mr Grealy filed on 6 July. This was a 11-paragraph affidavit sworn on 6 July and for what itls worth he said this at paragraph 8: "Ilm informed and verily believe that of the Century customers whold been visited by a representative of Alvon Distributors since the Heells/Fernhope Pty Ltd ceased to be the Century agent in Mackay represent $552,471.32 of a total year to June 10, 1999 sales volume for the Mackay territory of $1,303,673.62." If that figure is correct it suggests that the Alvon Distributors turnover is of the order of 1.3 million part of which is for the Century products. Mr North has referred me to a number of authorities on this point of an injunction 12 JUDGMENT o o o -- 12 of 15 -- 190799 T6/MT1 M/T 4635/99 (~hepherdson J) being refused because to do .:;0 would destroy at this early stage a company. I am not satisfied that this is likely to happen in this particular ca:,e and I'm not satisfied that it is a reason for refusing the relief which is sought. I should now place on the record that Mr Lennon, before lunch, made the following offer in open Court as I noted it, it is this: "As a condition of askillg the Court to grant some restraining relief rega:.:ding automotive lead acid batteries the plaintiff will immediately purchase all stock mentioned in paraqraph 17 of Mrs Heel's affidavit at landed invoice costs and will employ James Heel and Gavin Bozier until tria:, of this action or further order on their present ~;alaries." In paragraph 17 of Mrs Heel's affidavit sworn today she swears: "At the present Noonbet has stocks of batteries that it has purchased but is prevented from selling. This stock will deteriorate if not sold. Batteries have self (sic) [shelf] lives of about six (6) months. This stock comprises of different batteries of different brand names and approximate values as below: Century batteries - app:'oximately $20,000 - $30,000. Tri ton batteries - appn)ximately $40,000 - $45,000. Delkor batteries - approximately $10,000." It is agreed these batteries are automotive lead acid batteries. I propose to grant the injunctive relief and to make the offer made by Mr Lennon a condition of the relief which is sought. For the sake of completion Mrs Heel in her affidavit sworn today said tbe total stock holding for Noonbet is approximately $15f,OOO and that batteries 13 JUDGMENT -- 13 of 15 -- 190799 T6/MT1 M/T4635/99 (Sbepherdson J) therefore comprise two thirds of Noonbet's present stock. She swears: "The financial consequences on Noonbet may be disastrous if they cannot be sold and they become unsaleable." I must say that the two thirds is a rather loose proportion because on my reading of paragraph 17 the values range from approximately (total) $70,000 - $85,000. The maximum figure is just over half of the $150,000 mentioned by Mrs Heel. I should say that in paragraph 71 of her affidavit filed on 16 July 1999 Mrs Heel has sworn that Alvon Distributors has stock in its warehouse wai tirLg to be sold and that the value of that stock as at 14 July 1999 is $159,656.30. It is my view that if the condition in accordance with Mr Lennon's offer is performed then the situation will be that the third defendant will be placed in funds to a considerable amount and be in a position whereby for several months I should imagine they will be able to manage their affairs satisfactorily. In this case the plaintiff has given the usual undertaking in damages and that is the p~ice it pays for the injunction which I propose to grant. I therefore order that until the trial of this action or until further earlier order the first and second defendants and the third defendant and each of them, whether by themselves, their servants or agents or otherwise howsoever be restrained and an injunction is hereby granted restraining them from selling automotive lead 14 JUDGMENT C) o o -- 14 of 15 -- ( 190799 T6/MT1 M/T 4635/99 (jhepherdson J) acid batteries within the territory described in the agreement dated 9 June 1999 until trial. HIS HONOUR: I propose to certify this action as one that ought to be tried speedily and I will give directions for the taking of the necessary steps. 1 5 JUDGMENT -- 15 of 15 --