The Supreme Court of New South Wales has ordered Michael Hill to pay $2,259,971.40, plus interest and costs, in a dispute with Australian paper bag manufacturer Gispac Pty Ltd.
The case arose from a dispute in relation to the supply of packaging in the year 2014 to 2018.
According to court documents, Gispac had been supplying wholesale packaging supplies to Michael Hill from around 2003 to May 2018.
Sales agreements were entered into by the parties over this period for different types of bags, generally described as small or large bags.
By 2014, the arrangement between the parties was that Gispac stored packaging bags for Michael Hill at its Australian and New Zealand warehouses and when Michael Hill required certain types of bags it would “draw down” on the stock of packaging bags held at those warehouses until that stock was depleted.
Around 2014, Michael Hill undertook a major rebranding which included changing the type of packaging it was using in its retail stores.
Also, in or about 2014, Michael Hill commenced a business called “Emma & Roe”, and as a result required bags with “Emma & Roe” artwork.
The issue involved the terms of three sales agreements between Michael Hill and Gispac, including two signed on May 5, 2014, and one on May 8, 2015, with the latter in respect of Emma & Roe.
Gispac contended that the term of the three sales agreements automatically renewed for a second term of 24 months, and that Michael Hill breached three obligations under the them. This included a 'take or pay' obligation, an obligation to purchase the annual quantity, and an exclusivity obligation.
It was found that Michael Hill had breached the 'take or pay' obligation in the contract.
Parent company to Michael Hill Jeweller (Australia), Michael Hill International Limited (ASX:MHJ), released a statement saying it is considering the judgment and its appeal options.