High Court enforces contract despite previous illegal actions…

The High Court has recently awarded an interim injunction to a business requiring a company to complete their contractual obligations, despite a previous Court judgment that held the applicant was acting illegally.

The applicant was associated with a business which faced proceedings earlier in the year in which it was held it had breached the Employment Relations Act through the exploitation of the children working for it.

In response to that judgment, a company that collected and distributed the applicant’s products refused to continue working with the business and in doing so, breached their contract.

This company’s refusal to continue was based on the fear that the negative views resulting from the judgment would lead to a loss of sales for the company.

The business applied to the Court for an interim injunction requiring the company to continue their business relationship with the applicant.

The company relied on a termination clause in their contract with the applicant to try to prevent the interim injunction. The company said that the termination clause was invoked because the applicant’s products were “not produced in compliance with any legal requirements”, and that it was not in their “best interests” to continue working with the applicant.

The company produced evidence that it lost one customer as a result of the applicant’s affiliation to the business.

The Court found that there was no evidence to support the claim that the applicant was acting illegally at the time the injunction was applied for, and so the termination clause could not be effectively relied on by the company.

The company also argued that it had the contractual discretion to terminate work with the applicant.

The Court held that there is a general principle that parties will exercise their discretion reasonably when in a contractual relationship.

In this case, it decided that it was not reasonable for the company to breach its contract with the applicant simply because of one lost customer. The company had suffered no material loss as a result of its relationship with the applicant, and there was no evidence that other customers planned to sever their ties.

On the “balance of convenience”, the Court found that the applicant would have faced significant harm If the contract was terminated. The Court found in favour of the applicant, stating that refusing the injunction would be unjust.

The Court awarded the interim injunction sought, and required that the company continue completing work for the applicant under the contract.

There are important legal requirements which parties to contracts must comply with. If you are confused about these requirements, it pays to seek advice from a professional with experience in the area.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.

Alan Knowsley and Hunter Flanagan-Connors