Smith Elements & Controls Limited v EPI Group Limited [2018] NZHC 99 (12 February 2018)

Last Updated: 6 March 2018

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2017-419-364 [2018] NZHC 99

BETWEEN	SMITH ELEMENTS & CONTROLS LIMITED Plaintiff
AND	EPI GROUP LIMITED First Defendant INTROL PRODUCTS LIMITED Second Defendant

Hearing:	8 February 2018
Counsel:	M J Fisher for Plaintiff S J Rawcliffe for Defendants
Judgment:	12 February 2018

_{JUDGMENT OF WHATA J}

This judgment was delivered by me on 12 February 2018 at 11.00 am, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ...............................

Solicitors: Clancy Fisher Oxner & Bryant, Hamilton

Harkness Henry, Hamilton

SMITH ELEMENTS & CONTROLS LIMITED v EPI GROUP LIMITED [2018] NZHC 99 [12 February 2018]

[1] This matter came before me under urgency. Smith Elements & Controls Limited (SECL) has issued proceedings against the first and second defendants, EPI Group Limited (EPI) and Introl Products Limited (Introl). In short, SECL claims EPI is engaging with SECL customers in breach of a supply agreement. EPI responds that disputes under the supply agreement must be resolved by way of arbitration under the Arbitration Act 1996 (the Act).

[2] The specific applications before me are:

(a) An application to set aside EPI’s protest jurisdiction; and

(b) To make “interim/interim” orders prior to a hearing of an application for interim relief.

[3] It transpires the parties agree there is no basis for protest as to jurisdiction provided the proceedings are limited to an application for an interim measure pursuant to art 9 of the Act. The focus therefore of this judgment is whether there should be what the parties have termed “interim/interim orders”. EPI is not yet in a position to defend an application for interim orders as they have not filed evidence.

[4] The jurisdiction to grant interim relief in the present case is set out at art 9 of the First Schedule of the Act, together with the criteria specified at art 17B of the same schedule.

[5] Those articles state:

9 Arbitration agreement and interim measures by court

(1) It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure and for a court to grant such measure.

(2) For the purposes of paragraph (1), the High Court or the District Court has the same powers as an arbitral tribunal to grant an interim measure under article 17A for the purposes of proceedings before that court, and that article and article 17B apply accordingly subject to all necessary modifications.

(3) Where a party applies to a court for an interim injunction or other interim order and an arbitral tribunal has already ruled on any matter

relevant to the application, the court shall treat the ruling or any finding of fact made in the course of the ruling as conclusive for the purposes of the application.

[6] Art 17B states:

17B Conditions for granting interim measure

(1) If an interim measure of a kind described in subparagraph (a), (b), or (c) of the definition of that term in article 17 is requested, the applicant must satisfy the arbitral tribunal that—

(a) harm not adequately reparable by an award of damages is likely to result if the measure is not granted; and

(b) the harm substantially outweighs the harm that is likely to result to the respondent if the measure is granted; and

(c) there is a reasonable possibility that the applicant will succeed on the merits of the claim.

(2) If an interim measure of a kind described in subparagraph (d) of the definition of that term in article 17 is requested, the applicant must satisfy the arbitral tribunal of the matters specified in paragraph (1)(a) to (c), but only to the extent that the arbitral tribunal considers appropriate.

(3) If an interim measure of a kind described in subparagraph (e) of the definition of that term in article 17 is requested, the applicant must satisfy the arbitral tribunal that the applicant will be able to pay the costs of the respondent if the applicant is unsuccessful on the merits of the claim.

(4) A determination by the arbitral tribunal on the matter specified in paragraph (1)(c) does not affect its discretion to make any subsequent determination.

[7] The agreement in issue contains the following non-compete clause:

5.0 NON COMPETE & PRODUCT DISTRIBUTION

5.1 SEAC will have the first opportunity to distribute goods produced by EPIG to SEAC’s New Zealand customers and potential customers. If a customer not listed as schedule 1 or potential customer of SEAC approaches EPIG directly they will be referred back to SEAC. If the customer does not wish to deal with SEAC then before EPIG is allowed to supply the customer directly EPIG must do the following:

5.1.1 Meet with SEAC to see if there is an opportunity for SEAC/EPIG or an affiliate to do a joint venture to obtain the customer; however

5.1.2 If it is agreed this is not workable EPIG or an affiliate will be allowed to deal with the customer directly with the written approval of SEAC.

5.2 At the date of signing this Agreement it is agreed that in principle EPIG will not compete directly with SEAC in New Zealand by supplying SEAC customers or competitors with EPIG products, however, recognising there are supplier agreements already in place between EPIG and the following companies that have been disclosed and agreed to by SEAC as detailed in Schedule 1.

5.3 EPIG undertake that they will use commercially reasonable endeavours to prevent Australian distributors of EPIG products from selling directly into the New Zealand market.

[8] SECL contends this clause confers on SECL an “exclusive customer relationship” with SECL customers in relation to the supply of EPI’s products for the period of the agreement, namely, until 18 May 2018. EPI submits the clause does no more than set out an exclusive supply arrangement for the stated period and does not purport to preclude EPI from engaging with those customers for the purposes of supply beyond the date of that agreement.

[9] As I indicated to the parties, in the context of an application for “interim/interim” relief or, using the language of the Act, an interim “measure”, the Court will simply do its best to preserve the position of the parties for the short period required to have an application for interim relief heard proper. There must, of course, be at least some proper basis for the imposition of injunctive-type relief and the Court must have regard to the impact of any such relief on the respective parties.

[10] In the present case, it is arguable that cl 5 of the agreement confers, in context, on the plaintiff an exclusive customer relationship in relation to the supply of the defendants’ products for the period up to 18 May 2018. I am advised from the bar the supply deal was brokered to provide EPI access to SECL’s supply chain in the period stated; access that it otherwise would not have had. Clause 5 was therefore designed to enable this to occur while protecting SECL’s exclusive customer relationship. There is also evidence before me that EPI has been engaging with at least some of SECL’s clients to establish supply relationships, although for the period after the agreement has expired. I am prepared to find therefore, albeit in the absence of any evidence from the defendants, that there is a prima facie basis for the plaintiff’s claim.

[11] In terms of the respective impacts on the parties, interim relief preventing EPI

from engaging with the SECL customers may afford SECL an unfair advantage in

terms of post-May 2018 contracts of supply. If ultimately it transpires that SECL’s argument is wrong, EPI could be irreparably harmed insofar as the contracts with those customers are secured by SECL in the interim.

[12] Further exploration of this issue with EPI, however, revealed that there is only one tender process of primary concern to EPI, namely, with Rexel New Zealand Limited (trading as Ideal Electrical). Mr Fisher, for SECL, adopted a practical approach and conceded, quite properly in my view, that that tender process should be excluded from the ambit of any interim/interim measure. Furthermore, given that SECL could be unfairly advantaged by a one-sided interim measure, Mr Fisher accepted, again quite sensibly in my view, that any such interim/interim measure should apply to both parties, pending an opportunity to be heard on the substantive application for interim measure.

[13] On that basis, I indicated to the parties that I would grant an interim/interim order and invited the parties to settle on the terms of that order and the parties appeared happy to proceed on this basis, provided an urgent fixture could be found. In the result, I instructed the parties to prepare an agreed form of order. The parties reported back to me with a proposed order.

[14] Discussing the matter with the Registry, backup fixtures have been identified for 20 February and 26 February, with a firm fixture on 19 March 2018. Given the significance of the interim orders to the parties, I indicated to the parties that every endeavour would be made to ensure that their matter came on for hearing as soon as possible.

[15] Accordingly, there shall be an order, pending further order of the Court or 31

May 2018 (whichever event occurs first), restraining both the plaintiff and the first defendant (by their directors, agents and employees) from approaching any customers or competitors of the plaintiff with a view to supply them products or goods, as defined in the supply agreement, subject to:

(a) The exception set out in cl 5.2 of the supply agreement;

(b) The agreed right of the plaintiff and the first defendant to approach Rexel New Zealand Limited (trading as Ideal Electrical) in connection with the supply of goods/products after 31 May 2018; and

(c) The plaintiff is entitled to supply the products/goods to its customers under existing supply arrangements and meet orders but it is not permitted to seek new or extended supply arrangements for supply after

31 May 2018.

[16] There shall also be the following timetabling directions:

(a) The first defendant is to file its notice of opposition and evidence by

5.00 pm, Thursday, 15 February 2018;

(b) The plaintiff is to file its reply evidence by 5.00 pm, Friday,

16 February 2018;

(c) The plaintiff is to file its submissions in support of the application by

9.00 am, Monday, 19 February; and

(d) The first defendant supply its submissions by 5.00 pm, Monday,

19 February 2018.

[17] The hearing is set down as a backup fixture on 20 February 2018. Every endeavour will be made to ensure that it occurs on that date and the parties will be advised as soon as the Court can confirm the date. The parties also have leave to seek the assistance of the Court.