Perkier Foods Ltd v Halo Foods Ltd

Factual and Procedural Background

The Applicant sought urgent interim injunctions against the Respondent concerning their commercial relationship. The Applicant designs and creates recipes and specifications for food snack products marketed and supplied to the wholesale market. The Respondent assists companies like the Applicant in product development and manufacture of such food snack products.

In late 2016, the Respondent approached the Applicant to undertake manufacturing of the Applicant's products, which were then made by another company. Subsequently, the parties entered into two agreements: a Manufacturing Agreement dated 5 July 2017 and a Memorandum of Understanding (MOU) signed by the Applicant on 5 July 2017 and the Respondent on 10 July 2017.

The Manufacturing Agreement detailed arrangements related to ordering, manufacture, sourcing, packaging, design, stocking, pricing, and supply of the Applicant's products according to its recipes and purchase orders. Initially, these products included Perkier Bars, a range of allergy-friendly healthy snacking bars.

Key contractual provisions included payment terms requiring invoices to be settled within 30 days, dispute resolution mechanisms, and interest on overdue amounts. The agreement had a three-year term with termination provisions allowing either party to terminate on six months' notice after two years, or immediately on certain grounds including insolvency.

Section 12 addressed further product development and production trials, setting out terms for new product additions and cost responsibilities. The Respondent reserved a right of first refusal to manufacture new products within its competencies.

The MOU focused on developing "Perkier Bites," a new concept of smaller spherical bite-sized snacks. The Respondent planned to purchase a unique machine capable of producing these shapes, with the MOU recognizing that the equipment was not for the Applicant's exclusive use but restricting the Respondent from using the technology for similar products for other customers.

Production trials for Bites were claimed complete by the Applicant, with agreed costings and specifications finalized by late 2018. The Applicant pursued a full product launch, placing several orders including larger production runs anticipated to build up over six months.

The Applicant asserted that the Bites product was critical to its growth and funding efforts, warning that interference would be catastrophic. On 14 January 2019, the Respondent's Managing Director informed the Applicant that it would no longer produce the Bites.

The Respondent contended that the Applicant had been uncooperative in adapting product specifications necessary for efficient large-scale production, asserting the product could not be produced efficiently at agreed prices. The Applicant countered that the Respondent had successfully produced initial large orders and must continue to fulfill contractual obligations, seeking a mandatory injunction to compel manufacture and delivery of Bites.

The Respondent later imposed a credit limit on the Applicant and declined to undertake new product development (NPD) in 2019, though clarified it would continue ongoing NPD on existing Bars.

On the hearing day, the Respondent purported to terminate the Manufacturing Agreement immediately under clause 10.2.d., citing the Applicant's alleged inability to pay its debts within the meaning of Section 123 of the Insolvency Act 1986.

The court was asked to determine a preliminary question on whether the purported termination was valid, as the injunction application depended on this issue.

Legal Issues Presented

1. Whether the Respondent validly terminated the Manufacturing Agreement under clause 10.2.d. based on the Applicant's alleged insolvency under Section 123 of the Insolvency Act 1986.
2. Whether the Respondent could unilaterally impose a credit limit on the Applicant contrary to the payment terms in the Manufacturing Agreement.
3. Whether the Applicant is entitled to a mandatory injunction compelling the Respondent to continue manufacturing the Bites product under the Manufacturing Agreement.

Arguments of the Parties

Applicant's Arguments

• The Respondent's purported termination of the Manufacturing Agreement is invalid because the Applicant is not insolvent within the meaning of Section 123 of the Insolvency Act 1986.
• The imposition of a credit limit by the Respondent is without contractual basis and contradicts the clear payment terms requiring settlement within 30 days.
• The Respondent must continue manufacturing the Bites product as it has fulfilled initial orders and the product is fundamental to the Applicant's growth and funding efforts.
• Damages would be an inadequate remedy due to the uniqueness of the manufacturing technology and the competitive market context.

Respondent's Arguments

• The Applicant is unable to pay its debts, justifying termination under clause 10.2.d. of the Manufacturing Agreement referencing Section 123 of the Insolvency Act 1986.
• The product specifications require adaptations which the Applicant has not cooperated with, making efficient large-scale production impossible at agreed prices.
• The Respondent has an implied right to impose a credit limit separate from the invoice payment terms.
• The Manufacturing Agreement is a commercial supply contract with a short remaining term, and the Respondent intends to continue supplying the main product (Perkier Bars) but not the Bites.
• There must be a high degree of assurance of success for mandatory injunctions, referencing case law on the test for such relief.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first addressed the preliminary question of whether the Respondent validly terminated the Manufacturing Agreement under clause 10.2.d. by alleging the Applicant's insolvency within the meaning of Section 123 of the Insolvency Act 1986. The court reviewed the statutory provisions, focusing on the cash-flow test (s.123(1)(e)) and the balance-sheet test (s.123(2)), applying the Supreme Court's guidance in Eurosail and the Court of Appeal's analysis in Re Casa Estates.

The court found that although the Applicant's balance sheets showed a negative figure, this was attributable to director loans not expected to be called in imminently, with intentions to convert these loans into equity upon further funding. The court rejected the Respondent's claim that the Applicant was insolvent on either test and concluded there was an arguable case that the Manufacturing Agreement had not been effectively terminated.

Regarding the imposition of a credit limit, the court found no express or implied contractual term permitting the Respondent to unilaterally impose such a limit. It applied the principles from Marks and Spencer plc v BNP Paribas to reject the Respondent's argument, concluding there was a serious issue to be tried on this point.

On the injunction to compel manufacture of the Bites product, the court considered the Respondent's concession that there was a serious issue to be tried and undertook an assessment of the merits, finding a substantial degree of assurance that the Applicant would succeed at trial.

The court found damages would be inadequate to compensate the Applicant due to the unique manufacturing technology and the critical nature of the product to the Applicant's business and funding. Conversely, the Respondent's claimed losses if compelled to perform were deemed exaggerated and manageable under a cross-undertaking in damages.

Balancing the factors, the court determined that interim injunctions were appropriate to maintain the status quo and prevent irremediable harm to the Applicant, noting that the contract contained provisions to manage disputes and compliance, mitigating concerns about ongoing court supervision.

Holding and Implications

The court granted the Applicant's application for urgent interim injunctions, prohibiting the Respondent from imposing a credit limit and mandating the Respondent to continue manufacturing the Bites product under the Manufacturing Agreement.

The court held that the Respondent's purported immediate termination of the Manufacturing Agreement was ineffective and that there was a serious issue to be tried on the credit limit imposition and manufacturing obligations. The injunctions aim to preserve the status quo pending trial, preventing catastrophic harm to the Applicant's business and funding prospects.

No new legal precedent was established; the decision primarily applies existing insolvency and contract law principles to the facts. The Respondent was ordered to pay the Applicant's costs summarily assessed at £51,843.64, and permission to appeal was refused.