OUTER HOUSE, COURT OF SESSION

 

[2010] CSOH 120

 

CA87/10

 

 

 

 

 

 

 

 

 

 

 

FURTHER OPINION OF LORD MENZIES

 

in the cause

 

WHYTE AND MACKAY LIMITED

 

Pursuers;

 

against

 

CAPSTONE INTERNATIONAL INCORPORATED

 

Defenders:

 

 

ญญญญญญญญญญญญญญญญญ________________

 

 

 

Pursuers: Lord Davidson of Glenclova, Q.C.;, J. Brown; McClure Naismith

Defenders: McBrearty; Brodies LLP

 

11 August 2010

[1] The circumstances of the present litigation are narrated in my Opinion dated 30 July 2010, on which date I granted the defenders' motion for an interim order ad factum praestandum in terms of Section 47(2) of the Court of Session Act 1988 that the pursuers continue, pending the currency of the present litigation and until valid termination of the Distributorship Agreement between the parties dated 3 December 1993 and 8 January 1994, to accept orders from the defenders for the purchase by the defenders from the pursuers of John Barr Scotch whiskies in bottles for resale in the United States of America, all in terms of said Distributorship Agreement; this order being conditional upon the defenders making payment to the pursuers of the sum sought in the second conclusion of the summons, as amended.

[2] One week after I pronounced the above order, the defenders enrolled a motion for interim interdict in terms of the third conclusion of their counterclaim, as amended. The matter came before me on 11 August 2010, when counsel for the defenders sought leave to amend the third conclusion of the counterclaim further. The motion to amend was not opposed, and I granted it. In its final form, the order which the defenders sought was an order for interim interdict against the pursuers pending the currency of the present litigation from accepting or fulfilling orders from any person or entity in the United States of America (with the exception of sales directly to any duty free outlet in the United States of America) other than the defenders for the purchase from the pursuers of John Barr Scotch whiskies in bottles for resale in the United States of America.

[3] For the defenders it was submitted that this motion was the corollary to the order granted on 30 July, and that it would be inconsistent with the interlocutor of 30 July if interim interdict were to be refused. Since 30 July the defenders had become aware that the pursuers had purported to appoint another distributor for John Barr Scotch whiskies in the United States. I was referred to a letter dated 28 June 2010 (number 7/12 of process). This was on the pursuers' headed notepaper and, read short, stated as follows:

"To whom it may concern:

We, Whyte and Mackay Limited, brand owners of ... John Barr ... do hereby appoint Southern Wine & Spirits of America Inc., d/b/a Shaw-Ross International Importers, Miramar, Florida, as exclusive agents for ... John Barr ... and for the sale and distribution of this product in the United States with the authority to post prices, price file, and make distributor appointments in the United States.

This authorization is effective as of 28 June 2010, and any similar authorization previously given with regard to this brand is hereby rescinded as of this date."

This letter bears to be signed by the Chief Executive Officer of the pursuers.

[4] Counsel for the defenders submitted that this was a clear breach of the 1993 agreement (no. 6/1 of process). That agreement appointed the defenders as distributors for John Barr Scotch whiskies in the domestic market of the United of America with the exclusive rights to purchase the brands in bottles for resale in the territory. It was a clear breach of the undertaking given in Clause 4 of that agreement. It was surprising, to say the least, that despite the letter being dated 28 June 2010, no mention of its existence had been made to the defenders or to the Court in the course of the hearings in July. It was inherent in the pursuers' pleadings in the summons that they did not intend to make alternative arrangements for the distribution and sale of their products in the United States until the present dispute had been determined by the Court. Reference was made to this fact in paragraph 33 of my Opinion dated 30 July. The defenders only discovered the existence of the letter dated 28 June 2010 after the interlocutor dated 30 July 2010 was issued. They discovered this not as a result of being told by the pursuers that it existed, but because it was the subject of an announcement by the National Alcohol Beverage Control Association in the United States, which gave publicity to the fact that there was a new distributor for John Barr Scotch whisky in the United States. When the defenders questioned this announcement, the Association sent a copy of the letter dated 28 June 2010 to them. Counsel suggested that it was extraordinary that no mention had been made of this appointment in the course of the Court hearings in the previous week.

[5] With regard to the requirement for the defenders to show a prima facie case, counsel relied on the same factors on which he relied in support of his motion for an order ad factum praestandum. In that regard, senior counsel for the pursuers had accepted that the defenders had made out a prima facie case, and this was recorded at paragraphs 16 and 28 of my Opinion of 30 July. In any event, it was clear from the terms of the preamble to the agreement and Clause 4 thereof, and also the averments in Article 9 of Condescendence in the summons, that the right conferred on the defenders by the agreement was an exclusive right. The purported appointment intimated by the letter dated 28 June 2010 infringed that exclusive right.

[6] Counsel for the defenders also relied on the same factors as he relied on previously with regard to the balance of convenience. The present motion was, he said, the other side of the same coin as was discussed in relation to the previous motion. If interim interdict were not to be granted, the defenders' business would be seriously affected. By contrast, there would be no prejudice to the pursuers if interim interdict was granted. They would simply continue to supply whisky to the defenders, as they had done for almost 20 years.

[7] Senior counsel for the pursuers opposed the motion (a) on the basis that the defenders had not made out a prima facie case for interim interdict and (b) because the balance of convenience did not favour the grant of interim interdict. The basis of the defenders' apprehension is the letter dated 28 June 2010, but this confers an exclusive agency - this is quite different from a distributorship. There was no breach of the terms of Clause 4 of the agreement, because the letter of 28 June was an appointment of exclusive agents, not distributors. There was no question of the pursuers selling the brands directly to customers in the United States; this would be done through their newly appointed exclusive agents.

[8] With regard to the balance of convenience, it was important to note that no payment had been made to the pursuers by the defenders in respect of the sum sought in terms of the second conclusion of the summons, as amended. The condition for the order ad factum praestandum had therefore not yet been purified. The result was that John Barr whisky was not being sold in the United States market. That market was effectively sterilised at present by the defenders' refusal to pay the sum sought. This might be thought to be a crude negotiating tactic by the defenders. The high season for consumption of the brand in the United States is the Christmas period, and it was necessary to stock up in advance of that. Moreover, if interim interdict were eventually found to be unjustified, how would the pursuers recover damages from the defenders? The defenders have already made much of their difficult financial position; there must be a question mark as to whether the pursuers would be able to recover damages for wrongful interdict. There were also difficulties in enforcing a decree in a foreign jurisdiction. Senior counsel suggested that the Court should require assurance that there is substance to the defenders' company and that the pursuers would have a real potential for a remedy if interim interdict was ultimately found to have been wrongfully obtained. He questioned whether the commercial entity now known as Capstone International Incorporated was the same as the entity of that name before its merger with Emerald Brands.

[9] In response, counsel for the defenders submitted that unless interim interdict was granted, the result would be that another company would be distributing the John Barr brand in the United States, and this would be contrary to the letter and the spirit of Clause 4 of the agreement. The first sentence of Clause 4 had two parts - by the first part the pursuers undertook not to appoint any other distributor for the sale of the brands in the United States, and by the second part they undertook that they would not sell the brands directly to customers in the United States. Whether the new arrangement was that of agency or an independent contractor was not relevant - Clause 4 was wide enough to cover both. The reason that the defenders had not paid the sum sought in the second conclusion to the pursuers was that the pursuers indicated about four days after the interlocutor dated 30 July 2010 that they intended to seek leave to reclaim against it, and the defenders then became aware of the letter of 28 June 2010. There was no immediate urgency in making that payment - there was no damage to the pursuers or their brand by a short delay. It remained the defenders' intention to pay this sum, to enable them to order more supplies from the pursuers. Regarding the financial position of the defenders, if interim interdict is granted, the defenders will continue to trade profitably and will be in a position to meet any proper claim for damages by the pursuers. There was no suggestion that there was any other underlying reason for the defenders' difficulties apart from the pursuers' refusal to supply whisky to them. Counsel indicated that the defenders were the same corporate entity as they have always been, and that has not been affected by their merger with Emerald Brands.

[10] I was satisfied that the defenders have made out a prima facie case for interim interdict. Although senior counsel for the pursuers sought to draw a distinction between a distributor and an exclusive agent, nonetheless the letter dated 28 June 2010 appeared to me to amount to a breach of the provisions of the agreement. It appointed Shaw-Ross International Importers as exclusive agents for John Barr and for the sale and distribution of this product in the United States, with authority inter alia to make distributor appointments in the United States. On the face of it, this appears to contravene the undertaking in Clause 4 of the original agreement whereby the pursuers undertook that they would not, during the defenders' appointment, appoint any other distributor for the sale of the brands in the United States, nor would they sell the brands directly to customers in the United States. It also appears to contravene the appointment of the defenders as distributor for John Barr Scotch whiskies in the United States with the exclusive right to purchase the brands in bottle for resale in the United States. (I should perhaps also note that I agreed with the observations of counsel for the defenders that it was surprising, to say the least, that no mention was made to the Court in the hearings in July 2010 of the existence of the letter dated 28 June 2010.)

[11] I reached the view that the balance of convenience favoured the granting of interim interdict. There is no suggestion that the defenders have failed to use their best endeavours to promote the John Barr brand in the United States during the course of the parties' trading relationship which has lasted for almost two decades. The pursuers have been ordained to continue, pending the currency of the present litigation and until valid termination of the Distributorship Agreement between the parties dated 3 December 1993 and 8 January 1994, to accept orders from the defenders for the purchase by the defenders from the pursuers of John Barr Scotch whiskies in bottles for resale in the United States. It has not been argued on behalf of the pursuers in support of refusal of the interim interdict that they would suffer prejudice if they were obliged to continue to supply John Barr whisky to the defenders and to continue with the defenders acting as their exclusive distributors for John Barr whisky within the United States. This is the business relationship that has existed between the parties since 1993. The arguments advanced on behalf of the pursuers with regard to the balance of convenience were (1) that the defenders might not be able to satisfy any claim for damages which might ultimately be found to be due to the pursuers for wrongful interdict, and (2) that the defenders had failed to pay the sum sought in the second conclusion of the summons, payment of which was a condition for the order ad factum praestandum granted on 30 July 2010. With regard to the first of these points, senior counsel for the pursuers did not produce any fresh financial information which might support the argument that the defenders would be unable to meet any decree for damages for wrongful interdict. The defenders had provided some information to the Court in July 2010 which indicated that they would be likely to be financially prejudiced if the pursuers were not ordained to continue to supply them with John Barr Scotch whisky. However, this information (such as it was) did not go so far as to suggest that the defenders' financial circumstances were so parlous as to make it likely that they could not meet an award of damages against them, particularly if the trading relationship between the parties continued in the interim. There was no suggestion of any other cause for the defenders' potential financial difficulties other than the pursuers' refusal to accept orders from the defenders.

[12] With regard to the second point, I accepted the assurance given by counsel for the defenders that they intended to make payment of the sum of ฃ239,882.90 as sought in the second conclusion of the summons, as amended, and I accepted the reason for this not having been paid in the period between 30 July and 11 August 2010. I considered that the potential prejudice to the pursuers which would result from the granting of the interim interdict sought was relatively minor, and was substantially outweighed by the potential prejudice to the defenders by not granting interim interdict.

[13] For these reasons I granted interim interdict in terms of my interlocutor dated 11 August 2010. On 13 August 2010, the pursuers having given an undertaking to the Court which was recorded in the minute of proceedings, I granted leave to the pursuers to reclaim my interlocutors dated 30 July and 11 August 2010.