Sabmiller Africa BV v Tanzania Breweries Ltd

On an application for interim injunctive relief, the court applies the usual principles governing injunctions, including adequacy of damages and the balance of convenience. Those principles are flexible guidelines and do not restrict the statutory jurisdiction to grant relief where justice requires it. The court may preserve contractual rights pending arbitration where the arbitral tribunal cannot yet act effectively.

A breach capable of remedy cannot become irremediable merely because the innocent party delayed serving a notice requiring its remedy. Whether a breach is remediable is assessed when it occurs. A commercially negotiated restraint may protect a pecuniary interest in a competing business, and a negative injunction may be granted even where its practical effect is that contractual performance continues, provided the order does not compel performance of personal services.

Sabmiller Africa BV and Tanzania Breweries Ltd sought interim injunctions against East African Breweries Ltd pending the constitution of an ICC arbitral tribunal. The dispute arose from agreements under which Tanzania Breweries brewed and distributed East African Breweries’ products in Tanzania and East African Breweries agreed to restraints on competing in that market.

East African Breweries had purported to terminate the brewing and distribution agreement for fundamental breach, exercised or proposed to exercise a put option, and entered into agreements to acquire an interest in and finance Serengeti Breweries, Tanzania Breweries’ principal competitor. The applicants contended that those transactions breached the contractual restraints and exclusivity provisions. The central questions were whether termination was valid, whether the transactions were prohibited, and whether interim relief was just and necessary pending arbitration.

1. The application was granted in substantial part. East African Breweries was restrained, until further order of the arbitral tribunal or the court, or 17 January 2011, whichever occurred first, from implementing the SBL sale and purchase agreement, the SBL brewing and distribution agreement, the SBL loan facility agreement, and related security transactions. The applicants and SABMiller Plc were required to give the usual undertakings in damages and the applicants were required to apply promptly to the tribunal for directions.

2. The court applied the established interim injunction approach derived from American Cyanamid Co Ltd v Ethicon [1975] AC 396. There was a serious question to be tried. The court considered the adequacy of damages, the balance of convenience and the lower risk of injustice. The approach was flexible and did not fetter the jurisdiction under section 37 of the Supreme Court Act 1981. The court also considered the guidance in Lansing Linde Ltd v Kerr [1991] 1 WLR 251 (CA), because the restrictions might expire before a final trial.

3. Under section 44 of the Arbitration Act 1996, the court had power to preserve contractual rights because the tribunal had not yet been constituted and could not act effectively. The court should generally approach the application in the same way as an ordinary injunction application, rather than adopting a special holding role pending arbitration.

4. The applicants had a strong case that the alleged price and best-endeavours breaches were capable of remedy and therefore required a written notice to remedy before termination. Remediability had to be assessed when the breach occurred. A party could not refrain from serving a notice and later rely on the passage of time to argue that a previously remediable breach had become irremediable. The advertising expenditure allegations did not clearly establish a fundamental or repudiatory breach.

5. Implementation of the SBL sale and purchase agreement would breach the restraints. The loan facility agreement was more finely balanced, but there was a realistic prospect that the financing, security and restrictive covenants formed a sufficient interest in the competing business. The SBL brewing and distribution agreement involved a direct pecuniary interest in SBL’s turnover and was within the restraint. The contractual provisions permitting alternative sourcing and distribution operated during the currency of the existing agreement and did not justify refusing relief.

6. The restraints were not, at the interlocutory stage, so unreasonable as to defeat relief. They had been negotiated by sophisticated commercial parties and were expressly recognised as necessary to protect goodwill and confidential information. The brewing and distribution agreement was not a contract for personal services. A negative injunction could therefore be granted without ordering East African Breweries affirmatively to perform the agreement. The court declined to restrain East African Breweries from treating the agreement as terminated and declined to prohibit exercise of the put option.

7. Damages were inadequate for Tanzania Breweries because the transactions were designed to create a stronger competitor, the resulting loss of market position and goodwill would be difficult to quantify, and confidential information was at risk. The contractual obligation to continue performing pending dispute resolution and the need to preserve the status quo favoured relief. The relief was intended to remain interim and to be reviewed by the arbitral tribunal.