Whyte And Mackay Limited V. Capstone International
| Jurisdiction | Scotland |
| Judge | Lady Paton,Lord Abernethy,Lord Hardie |
| Judgment Date | 09 November 2010 |
| Neutral Citation | [2010] CSIH 87 |
| Court | Court of Session |
| Published date | 09 November 2010 |
| Docket Number | CA87/10 |
| Date | 09 November 2010 |
| EXTRA DIVISION, INNER HOUSE, COURT OF SESSION | |
| Lady Paton Lord Hardie Lord Abernethy | [2010] CSIH 87 CA87/10 OPINION OF LADY PATON in the cause WHYTE & MACKAY LIMITED Pursuers and Reclaimers; against CAPSTONE INTERNATIONAL INC. Defenders and Respondents: _______ |
Alt: Dunlop Q.C.; McBrearty; Brodies LLP
9 November 2010
[1] For the reasons given by Lord Hardie, with whom I agree, I would allow the reclaiming motion to the extent of recalling the interim order ad factum praestandum pronounced on 30 July 2010. Quoad ultra I would refuse the reclaiming motion.
| EXTRA DIVISION, INNER HOUSE, COURT OF SESSION | |
| Lady Paton Lord Hardie Lord Abernethy | [2010] CSIH 87 CA87/10 OPINION OF LORD HARDIE in the cause WHYTE & MACKAY LIMITED Pursuers and Reclaimers; against CAPSTONE INTERNATIONAL INC. Defenders and Respondents: _______ |
Alt: Dunlop Q.C.; McBrearty; Brodies LLP
9 November 2010
Introduction
[2] As is narrated in the opinion of the Lord Ordinary dated 30 July 2010, the reclaimers carry on business as distillers of whisky. The respondents carry on business as distributors of alcohol in the United States of America. The parties entered into a Distributorship Agreement dated 3 and 20 December 1993 and 7 January 1994 ("the agreement") in which the reclaimers granted to the respondents the exclusive right to purchase John Barr Scotch Whiskies ("the Brands") in bottles for resale in the domestic market of the United States of America. Clause 2 of the agreement required the respondents to use their best endeavours to maximise sales throughout the United States of America and to promote the Brands as top quality Scotch whiskies. That clause also provided that, unless otherwise agreed in writing, sales targets and promotional programmes for each 12 month period of the agreement would be agreed in advance in writing and the sales target for each subsequent 12 month period would not in any event be less than that for the previous 12 month period.
[3] Clause 4 of the Agreement was in the following terms:
"We [the reclaimers] will not during your appointment appoint any other distributor for the sale of the Brands in the Territory [the United States of America] nor will we sell the Brands directly to customers in the Territory. It is understood, however, that it will not constitute a breach of this Agreement on our part if we sell the Brands to a customer outside the Territory who subsequently imports the Brands into the Territory. Notwithstanding the foregoing we shall be entitled to sell directly to any Duty Free outlet in the Territory."
[4] The reclaimers aver that the distribution and sale of alcohol in the United States of America is an activity which is regulated both by the Federal Government and by individual states; that in order lawfully to distribute and sell alcohol in the United States of America the respondents would require to hold a Federal Basic Import Permit issued by the Federal Alcohol Tax and Trade Bureau ("the TTB"); that they would require certificates of label approvals issued by the TTB for each product; and that they would also require the regulatory permissions applicable to each individual state in which they distributed the product. While the respondents are in agreement about the general regulatory framework they deny that it is necessary for them to have issued in their own name the import permit and certificates of label approvals. They aver that U.S. law permits an importer such as the respondents to conduct operations via third party licensed entities.
[5] Early in 2010 the parties were negotiating about the possibility of the reclaimers purchasing the respondents' business. In the course of these negotiations the reclaimers' advisers were carrying out due diligence in respect of the respondents' business. The reclaimers aver that, in the course of these investigations, they discovered that the respondents did not hold any of the permits, certificates or permissions referred to above. Rather the requisite permissions were held by another company, Emerald Brands Incorporated ("Emerald"). The reclaimers aver that the respondents' failure to obtain the permissions necessary lawfully to discharge their obligations under the agreement, and their purported discharge of these obligations in an unlawful manner, were material breaches of the agreement. The respondents deny these averments. Rather they aver that valid permits, held either by the respondents or by Emerald as a third party licensed entity, existed for all imports arranged with the reclaimers. Emerald and the respondents had been closely associated with each other throughout and, following service of the notice of termination mentioned below, were merged on 12 April 2010. The respondents also aver that at all material times the reclaimers were aware that Emerald was the permit holder for the importation of the reclaimers' products. These averments are denied by the reclaimers.
[6] Clause 3.3(c) of the Agreement provides as follows:
"Either party shall be entitled to terminate this Agreement forthwith by serving notice in writing on the other upon the occurrence of any of the following events:
(c) any material breach of the provisions of this Agreement by the other party (not remedied with (sic) 14 days of notice requiring remedy having been served)."
[7] By letter dated 6 April 2010 the reclaimers served notice upon the respondents in terms of clause 3.3(c) of the agreement requiring the respondents to remedy (and to demonstrate to the reclaimers' complete satisfaction such remedy including by way of obtaining appropriate releases from liability from the TTB and all relevant subject state regulatory authorities) all such material breaches of the agreement within 14 days of the notice. By letter dated 19 April 2010 the respondents' American attorneys replied, denying that the respondents were in breach of the agreement and asserting that they had always performed and continued to perform fully their obligations under the agreement. The letter also explained that a merger had taken place between Emerald and the respondents which would have the effect that any licensing error that previously existed had been fully remedied. By letter dated 23 April 2010 the reclaimers wrote to the respondents observing that the 14 day period for remedy of material breaches had expired and that the respondents had been unable to demonstrate to the reclaimers' satisfaction that the material breaches had been remedied. In particular, appropriate releases from liability from the TTB and all relevant subject state regulatory authorities had not been obtained. Accordingly the reclaimers maintained that they were entitled to terminate the agreement forthwith in terms of clause 3.3(c). They confirmed that the agreement was so terminated with immediate effect.
[8] The reclaimers seek declarator that the agreement was validly terminated by their letter dated 23 April 2010. A second conclusion for payment by the respondents to the reclaimers of an outstanding debt of £239,882.90 has been satisfied as the debt was paid following the hearing before the Lord Ordinary.
[9] In a counterclaim the respondents seek an order ad factum praestandum ordaining and requiring the reclaimers to continue, pending the currency of the current litigation and until valid termination of the agreement, to accept orders from the respondents for the purchase by the respondents from the reclaimers of John Barr Scotch Whiskies in bottles for resale in the United States of America, all in terms of the agreement, and for such an order ad interim in terms of section 47(2) of the Court of Session Act 1988. Failing such an order, the respondents seek payment by the reclaimers to them of the sum of $10,000,000 as damages for the reclaimers' breach of contract.
Decision of Lord Ordinary dated 30 July 2010
[10] On 22 and 23 July 2010 the Lord Ordinary heard an opposed motion on behalf of the respondents seeking an interim order in terms of the first conclusion of the counterclaim. Before the Lord Ordinary it was a matter of agreement that in considering an application under section 47(2) of the Court of Session Act 1988 the Lord Ordinary required to apply the principles set out by the Inner House in Scottish Power Generation Limited v British Energy Generation (UK) Limited 2002 SC 517. These principles are as follows:
"First, the Lord Ordinary has to identify the issues in the action, including the legal basis of the claims with which he is dealing. Secondly, he has to consider whether the party seeking the order has demonstrated a prima facie case that an obligation exists, and that there is a continuing or threatened breach of that obligation which the order will address. Thirdly, he has to avoid significantly innovating on the parties' contractual rights and obligations. Fourthly, he has to consider whether the balance of convenience is such as to justify the making of the interim order, bearing in mind the nature and degree of the harm likely to be suffered on either side by the grant or refusal of the interim order, and the relative strength of the cases put forward by each party." (Paragraph [26]).
The Lord Ordinary records that there was no dispute between the parties with regard to the first two principles. The issue was whether the reclaimers were required to perform their contractual obligations and that depended on whether they had been entitled to terminate the agreement on the basis that the respondents were allegedly in breach of contract. As far as the second principle is concerned, the Lord Ordinary states that it was not disputed before him that the respondents had made out a prima facie case. In view of the averments to the effect that it was lawful for the respondents to conduct operations in the United States of...
To continue reading
Request your trial