G & A Ltd. v HN Jewelry (Asia) Ltd.

A commercial agreement expressed to be for three years rolling must be construed in its commercial and contractual context, including annual planning arrangements and reciprocal obligations. It does not naturally mean either a three-year term measured afresh every day or termination by short notice at any time. The proper construction here allowed reasonable notice in a year to expire on 31 December of the first year of a three-year block, leaving two further years to run. The construction could be determined without evidence, but the length of reasonable notice required evidence and should not be fixed on appeal. A mandatory interlocutory injunction may be granted where, despite its form, it substantially preserves the status quo and carries the lower risk of injustice. The order must still state clearly what the defendants must do in practical terms.

G & A Ltd and HN Jewelry (Asia) Ltd entered into an exclusive supply agreement expressed to be for three years rolling from 1 January 2001. HN purported to terminate the agreement at the end of 2003. Crane J, in the Queen’s Bench Division, held that the agreement was terminable only on three years’ notice and granted mandatory injunctions against certain defendants following a restructuring of the HN group: [2003] EWHC 3179.

The Court of Appeal considered the proper construction of the rolling term and whether the mandatory injunctions were sufficiently clear. The central issues were the contractual termination mechanism and the practical effect of the interim orders.

The Court of Appeal allowed the appeal to the limited extent concerning the construction of the agreement and declined permission to appeal against the mandatory injunctions.

1. Construction of the rolling term. The phrase for three years rolling had to be read with the agreement’s annual meetings, capacity planning, target discussions, delivery obligations and seasonal trading structure. The parties contemplated an ongoing commercial relationship reviewed annually, rather than a contract terminable by short notice at any time.
2. The court rejected both a three-year term measured afresh from every day and the suggested construction under which notice could leave only one further year. The preferred construction allowed reasonable notice in any year to terminate the three-year commitment at the end of that year’s first year in the relevant three-year block, leaving two further years to run.
3. On the proper construction of the agreement, Heng Ngai was obliged to deliver goods ordered by G & A under clause 6. G & A was obliged to buy from Heng Ngai products to be supplied by G & A where Heng Ngai was technically capable of producing them. The absence of agreed minimum quantities for the second and third years did not prevent the agreement from operating as a three-year rolling arrangement.
4. The construction issue could be decided without further evidence. The period of reasonable notice was a separate evidential question, and the Court of Appeal should not fix it without evidence. The annual meeting on 15 November provided a possible indication that six weeks might be appropriate, but that was guidance rather than a binding determination.
5. Interim mandatory injunctions. The relevant inquiry was which course carried the lower risk of injustice if wrongly granted or refused, as explained in Zockoll Group Ltd v Mercury Communications Ltd [1998] Fleet Street Reports 354, adopting guidance from R v Secretary of State for Transport ex parte Factortame Ltd (No.2) [1991] 1 AC 603 and Nottingham Building Society v Eurodynamics Systems [1993] F.S.R. 468. A high degree of assurance of success was relevant but not indispensable.
6. The clarity requirement stated in Redland Bricks Ltd v Morris [1970] AC 652 was satisfied. Although the orders were mandatory in form, much of their practical effect was negative and served to preserve the status quo pending trial. The defendants could understand what steps were required. Permission to appeal against the injunctions was therefore refused. Costs and the final form of order were left for later argument.

• Court of Appeal (Civil Division) — In [2004] EWCA Civ 674, the appeal was allowed to the limited extent concerning the construction of the rolling contract. Permission to appeal against the mandatory injunctions was refused.
• Queen’s Bench Division — Crane J, in [2003] EWHC 3179, declared that the agreement was terminable only on three years’ notice and granted mandatory injunctions against certain defendants.