While business conditions remain tight under the influence of the Global Financial Crisis it is likely that competitors will push the envelope in seeking to gain new business. These remedies do not necessarily require you to engage in costly and time-consuming litigation.

Typical scenarios

You might have an agreement to supply a customer all its requirements of goods or services. While the contract is on foot, a competitor supplies the customer some of these requirements. What should you do? If the customer can terminate the contract on say 30 days’ notice and then obtain its requirements from the competitor is there anything you can do? What if the customer has disclosed your prices or product formulae to the competitor to get a better deal? What if the competitor has made false or misleading representations about the benefits of its goods or services?

The above questions may arise in many situations, such as franchising and supply and distribution of goods and services generally. Another scenario might involve information technology, media and telecommunications. You might have the right under a contract to repackage a software product with your own value added software. You will have contracts with customers who use the package. While your contract is on foot, a competitor might offer your supplier a better deal. Your supplier purports to terminate your contract and introduce the competitor to your customers. You believe the termination was unlawful because, for example, you were not given sufficient notice. Again, if your customer can terminate the contract on say 30 days’ notice and then obtain its requirements from the competitor is there anything you can do? What if the supplier is forcing the end-users (your customers) to obtain the value added software from your competitor?

Legal remedies

It is unlawful for a third party to knowingly interfere with your contracts by causing the other party to your contract to breach the terms. But the third party must know of your contract and must intend to cause or procure the breach. It is not necessary that the third party know the detailed terms of your contract. So, for example, if a third party does something in the scenarios above in ignorance of your contractual rights or in the genuine belief that your customer or supplier is free to deal with the third party, then you will not have a cause of action against the third party. You will of course have your claim for breach of contract against your customer or supplier, but that leaves you in the unenviable position of having to enforce the claim by legal proceedings. It will be rare for such a course of action to bring about the result that the customer or supplier will return to do business with you.

Some scenarios are mentioned above where the third party does not cause your customer or supplier to breach its contract with you, that is, there may be a proper termination on notice. The recent decision of the House of Lords in a series of decisions in 2007, the OBG, Hello! and Mainstream cases upheld a separate cause of action where the third party causes injury by unlawful means. The existence of this cause of action has been accepted in Victoria since the Airline Pilots case. The House of Lords decisions have been mentioned in recent Australian cases this year before single judges of the Federal Court and Supreme Court of Victoria. However, the position remains that the High Court has not considered the implications in Australia. Until it does, the position appears to be as stated in the Airline Pilots case, namely, that there is persuasive authority which it would be wrong for Australian judges not to follow.

Accordingly, it seems to be the current law in Australia that if your customer or supplier does not breach its contract, you will nevertheless have a cause of action against a third party if the third party has intentionally used unlawful means to injure your business, such as if it has procured the customer to breach confidence by disclosing your prices or product formulae to the competitor or if the competitor has procured the business by making false or misleading representations about the benefits of its goods or services. In the software example mentioned above, unlawful means may be constituted by the supplier and competitor breaching the “third line forcing” provisions of the Trade Practices Act.

What you should do

There are a number of things you can do to protect and assert your rights without the need to initiate litigation.

The first step is to review contracts and where possible renew or extend existing contracts to give you greater security. If contracts do not specify a fixed period (for example, contracts may have continued by mutual agreement after an initial fixed period has expired), you should renew them for a further period or reach agreement on a specified period of notice to terminate, that will give you greater security.

The second step is that you need to regularly put competitors on notice of your contractual relationships. You may find competitors from time to time supplying your customers contrary to your exclusive rights. You should be vigilant about writing to these competitors to put them on notice of your contract. It is not necessary to go into details of the contract terms. There is a risk that if a competitor enters into a contract with your customer for a fixed period without notice of your rights, and genuinely believes the customer is free to do so, your only remedy will be an action for damages against your customer for breach of contract.

The third step is, if parties infringe your rights, you will have to act promptly to protect your rights, that is, to obtain advice and formally through your lawyers demand undertakings from the other parties to cease and desist the infringing conduct, and on an appropriate case, you may have the right to go to court to obtain an immediate injunction to prevent a third party dealing with your supplier or customer in circumstances where both the third party and your supplier or customer would be infringing your rights.