Arena Promotional Facilities (Australia) Pty Ltd v Carty, N.C trading as Noel Carty and Associates Marketing

[1991] FCA 39

NOT FOR CIRCULATION

IN THE FEDERAL COURT OF AUSTRALIA )

)

SOUTH AUSTRAL1 AN DISTRICT REGISTRY )

)

GENERAL DIVISION ) No. SG 9 of 1991

BETWEEN:

ARENA PROMOTIONAL
FACILITIES fAUSTRALIA1
PTY LTD and AUSTRALIAN

FORMULA ONE GRAND PRIX

Applicants

- and -

NOEL CHRISTOPHER CARTY
trading as NOEL CARTY &

ASSOCIATES MARKETING

Respondent

PEASONS FOR JUDGMENT

Coram: von Doussa J.
22 February 1991

On this application for interlocutory injunctive relief the background facts are clearly set out in the affidavits of Mr Daniels and the respondent Mr Carty. The disagreements between the parties on matters of true fact as opposed to the legal conclusions flowing from them concern detail only on which the outcome of the notice of motion does not depend. I do not propose to repeat the factual background.

seek to enforce clauses 3.15 of each of two Contracts of	In the accrued jurisdiction of the Court the applicants also
Service pursuant to which the respondent was employed first by the applicant Arena Promotional Facilities (Australia) Pty Ltd ("Arena") and then by the applicant Australian Formula One Grand Prix Board ("the Board").
On an application for interlocutory injunctive relief it is not appropriate that the Court express final conclusione on the issues between the parties and in what I am about to say I do not intend to do so. As to the merits of the claim it is sufficient that the applicants demonstrate serious questions
to be tried - and I am satisfied that they have done so.
Indeed I think the applicants have demonstrated a strong case
that the respondent has acted in breach of his fiduciary
obligations regarding confidential information, in particular
knowledge of customers of a e n a and potential contacts with
two of those customers Newcastle Stadium and Bendigo
Basketball Stadium. Breaches of fiduciary obligations of this
kind would amount, in my view, to improper uses of information -
contrary to s.232(5), of the Corporations Law. I also think
respondent has acted in breach of his contractual obligations the applicants have demonstrated a strong case that the
under clauses 3.15.2 of each of the Contracts of Service. The expression of these tentative conclusions reflects a number of other tentative conclusions which I have reached on issues raised by the parties in argument. I mention them briefly.
I think it likely that each of the Contracts of Service remains on foot imposing obligations on the respondent under clause 3.15. What was brought to an end when the respondent ceased to work for the particular applicant was not the contract itself but service of the respondent as an employee
under the contract.

The substantive application is brought under 6.1324 of
the Corporations Law based on conduct of the respondent which
is said to be a breach of s.232(5) of the Corporations Law.

I think it is unlikely that the respondent can make good the argument that the Board lacks statutory power to carry on the "Business" described in the relevant Contract of Service with the respondent. The powers in 6.10 of the Australian Formula One Grand Prix Act 1984 (S.A.) are widely expressed.

I think it is unlikely that the respondent's contention that the two stadiums are not "customers" of the applicants or either of them within the meaning of clause 13.5 of the Contracts of Service will succeed. The contention is that as neither applicant successfully concluded a contract for the hire or purchase of seating from either applicant before 13 November 1990 (the date when the respondent left the Board's

employment) the stadiums were at best potential customers.

The Shorter Oxford Dictionary defines "customer" to include "a	person with whom one has dealings", "a buyerw, and "a
purchaser". The applicants or one of them had been negotiating with each stadium and had made tenders for the supply of seating which were still under consideration at 13 November 1990. It seems to me that the word "customer" should receive its ordinary meaning which would include both of the stadiums.
The point that the Board was not carrying on the "Business" referred to in the second of the Contracts of Service is also unlikely to succeed. It is no misuse of ordinary language to say that the Board is conducting the Business even though it does so through the agency of its wholly owned subsidiary Arena.
To succeed on the present notice of motion the applicants must however go further and show that the balance of convenience is in favour of granting the injunctive relief sought. In determining where the balance of convenience lies it is necessary to consider whether the rights of the applicants could be sufficiently protected and enforced by an award, in due course, of pecuniary damages; whether the grant
of an injunction - if the trial shows that the applicants' rights have not been invaded - will cause harm to the
respondent which cannot be appropriately compensated by pecuniary damages from the applicants; and whether, in the instant case, the rights of third parties will be prejudiced.
I confess that during argument yesterday my mind vacillated about where the balance of convenience lay. However upon reflection overnight I have come to the conclusion that injunctive relief should not be granted.
The respondent's opposition to the relief sought is based firmly on the contention that by the end of January 1991 the applicants had divested themselves of their respective interests in the business of distributors and hirers of seating systems. The applicants negotiated to sell the business to Australian Seating systems Pty Ltd in December 1990, and the terms of an agreement to sell were reduced to writing and signed by the parties on 13 January 1991. The terms of clause 4 of the Agreement for Sale are relied on in particular.

Based on the applicants' apparent sale of the business

the American corporation Hussey Seating Corporation ("Hussey") purported to cancel the Sole Distributor Agreement dated 20 April 1989 under which Arena had been the sole distributor of the Hussey Seating system in Australia, and to appoint a company recently established by the respondent in its stead.

The negotiations with the two stadiums concerned the Hussey system. If an injunction is not granted it seems reasonably clear that the respondent's company will take over the negotiations for the supply of the Hussey system to the

with whom negotiations with the applicants were underway on 13	two stadiums, and perhaps to other customers of the applicants
November 1990 when the respondent ceased his employment with the Board. If sales result the respondent, not the applicants, will gain the immediate benefit of the sale.
On the other hand if an injunction is granted that will effectively prevent the respondent from continuing those negotiations, and whilst the injunction remains in place, prevent the respondent from acting as a distributor of the Hussey system in Australia. An injunction is also likely to make it difficult for Hussey to pursue sales of its products in Australia.
The applicants contend that Hussey has wrongly purported to cancel the Distributor Agreement with Arena. The Distributor Agreement requires that Arena shall under no circumstances assign or purport to assign the benefits of the Distributor Agreement. Arena contends that the Agreement for Sale between Arena and Australian Seating Systems Pty Ltd made the assignment of the Distributor Agreement to Australian Seating System Pty Ltd subject to the consent of Hussey. As it happened, Hussey refused consent, and Arena says that it has always made it clear that in this event it would, and has, continued to operate as the Australian Distributor. The applicants contend that no event has arisen justifying Hussey to cancel the Distributor Agreement. Possibly it may now have the right to cancel the Distributor Agreement on three months
notice under clause 7 but it has not purported to do so.
The respondent however says it is clear that the applicants have given up the whole of the relevant business in favour of Australian Seating Systems Pty Ltd and by clause 4 of the Agreement for Sale have made it quite clear that in substance even if the Distributor Agreement remains on foot, it will operate for the benefit of Australian Seating Systems Pty Ltd. There is therefore no relevant business remaining in the applicants to be protected. Further if Arena sold a Hussey system at this stage under the Distributor Agreement the customer would be misled into thinking it was dealing with Arena, whereas in reality it would be dealing with Australian Seating Systems Pty Ltd.
On the information before the Court it is anything but clear what the respective rights of Arena and Hussey are under the Distributor Agreement. If an injunction is granted on the notice of motion it cannot be said that it is probable that Hussey will revert to distributing through Arena. The result may well be a stalemate in which no Hussey system is sold to either stadium or to any other customer in Australia for quite some time. All parties will lose, and the applicants, for their parts may have very great difficulty in later establishing that they lost sales which would otherwise have eventuated. On the other hand if no injunction is made, whatever sales to customers would have eventuated but for the present disruption in distributor rights are likely to
eventuate, and the applicants can then seek to establish the legal right of Arena to be the distributor and to claim
damages for lost commissions and profits from Hussey and from the respondent.
As by the terms of the Agreement for Sale Arena has divested itself of its goodwill in its former seating business, there is no real question of the applicants protecting an ongoing goodwill. In reality the applicants are
seeking to obtain a pecuniary benefit from a few potential sales perceived to be in the pipeline, and to do so even though by the terms of the Agreement for Sale any potential profits from these sales were to be assigned to Australian Seating Systems Pty Ltd for no additional monetary consideration under the Agreement for Sale.
In these circumstances I think any invasion of the applicants' rights which has occurred by the conduct of the respondent will be adequately compensated in damages.
The applicants contend that this may not be so as the respondent may not have the financial resources to meet the award of damages. There are a number of answers to this submission. The evidence does not provide the foundation to estimate what the damages might be. As the applicants were prepared to assign the benefit of the Distributor Agreement for no additional monetary consideration there is reason to suspect that the potential profits from pending negotiations
and potential sales would not be great. Further, the
applicants' claim for damages against the respondent would be
dependent - at least in large measure - on Arena establishing
a continuing legal right to act as the Hussey Distributor
under the Distributor Agreement. If that right could be established it would seem likely that Arena would have a right to damages against Hussey which could also be enforced.

Looking at the position of the respondent, he has

recently set up in business, formed two companies, and taken on distributorships for various seating systems. If an injunction were granted it is likely that the goodwill of those businesses and their development would be seriously affected. It could be difficult to adequately compensate the respondent in damages if it later turned out that the respondent was entitled to judgment on the merits of the application.

In my opinion the balance of convenience is in favour of dismissing the claim for an interlocutory injunction. The claims for ancillary relief which would require the respondent to disclose his communication with the applicants' pre 13 November 1990 customers raise matters which can be pursued independently by discovery and interrogatories.

I certify that this and the
preceding pages are a
true copy of the Reasons

for Judgment of Mr Justice

von Doussa

1

Associate: (,(!4a	-C-	+!L:	L L L L L % L
Dated- 2	I
--

(qcr ,

Counsel for the applicants	: MS C M Branson
Solicitor for the applicants	: Thompson Simmons
Counsel for the respondent	: Mr N L Strawbridge
Solicitor for the respondent	: Baker OrLoughlin
Date of hearing	: 21 & 22 February 1991