Australian Fire Control P/L v Beinke, Rennis P/L & Tryant
[2007] SADC 11
•20 February 2007
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Interlocutory Application)
AUSTRALIAN FIRE CONTROL P/L v BEINKE, RENNIS P/L & TRYANT
[2007] SADC 11
Reasons for Decision of Her Honour Judge Simpson
20 February 2007
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS
Plaintiff’s application for orders restraining the defendants from servicing, contacting or soliciting business of ‘plaintiff’s clients’, for delivery up of ‘plaintiff’s property’, and preservation of defendants’ computer data – Held: an award of damages likely to be adequate compensation in the event that the plaintiff succeeds at trial – in any event, the plaintiff’s case does not have the requisite strength of probability of ultimate success, having regard to the nature of rights asserted and practical consequences of orders sought – Application dismissed
American Cyanamid Co v Ethicon Ltd [1975] AC 396; Kolback Securities v Epoch Mining NL (1987) 8 NSWLR 533; Castlemaine Tooheys Ltd & Others v The State of South Australia (1986) 161 CLR 148; Australian Broadcasting Corporation v O’Neill (2006) 229 ALR 457, applied.
AUSTRALIAN FIRE CONTROL P/L v BEINKE, RENNIS P/L & TRYANT
[2007] SADC 11
This is an application, filed on 24 January 2007, by the plaintiff, Australian Fire Control Pty Ltd, for an interlocutory injunction. By draft Minutes of Order handed up by the plaintiff at the hearing of the application on 16 February 2007, the plaintiff seeks orders restraining the defendants, Dennis Beinke, Rennis Pty Ltd and Chris Tryant, as follows:
1.That until further orders the first and third defendants be restrained and an injunction be granted restraining them whether by themselves, their servants or agents or otherwise from:
1.1Contacting, either directly or indirectly or soliciting, either directly or indirectly the clients of the plaintiff detailed on the list annexed and marked ‘A’ (‘clients of the plaintiff’);
1.2Using, disclosing, making copies of or otherwise dealing with the information contained in the list of clients of the plaintiff;
1.3Providing services to clients of the plaintiff, such services being of the same or similar nature as those provided by the plaintiff.
2.That the defendants within 7 days deliver up to the plaintiff any of the plaintiff’s property (which includes the plaintiff’s documents, including any electronic copies) which are in their possession, custody or control.
3.That the defendants maintain a copy of their computer data as at the date of this order and provide reasonable access to the plaintiff to inspect, take an image of, and investigate the contents of the computer data for the purpose of these proceedings.
4.That the defendants return the list of plaintiff’s clients annexed and marked ‘A’ at the conclusion of the proceedings.
5.That the plaintiff have the costs of and incidental to the application.
Counsel for the plaintiff advised that with respect to paragraph 3 of the orders sought, the plaintiff would be seeking only an order that the defendant preserve and maintain a copy of computer data, and was not pursuing an order for inspection, copying or investigation of the computer data in the defendants’ possession at this time.
In support of its application, the plaintiff handed up a draft statement of claim and filed affidavits of Graham Leslie St Claire, sworn on 24 January 2007, two affidavits of Cynthia Pearl Hynes, sworn on 24 January 2007, and her further affidavits sworn on 12 February 2007 and 15 February 2007 respectively. The defendants filed answering affidavits of Rebecca Margot Butler, sworn on 30 January 2007, of the first and third defendants, sworn on 9 February 2007, and of John Irving, sworn on 9 February 2007. I have read the affidavits filed on behalf of the parties. Most of the facts are in dispute.
The plaintiff claims that it went into possession of premises at 501-503 South Road Ashford, previously occupied by a company, Alpha (SA) Pty Ltd, trading as Adelaide Fire Control, on 1 September 2006. Adelaide Fire Control went into liquidation on the same day. The plaintiff claims it commenced trading from the premises, using the same telephone numbers and servicing the same customers as Adelaide Fire Control. The plaintiff claims that ‘it effectively took over the business of Adelaide Fire Control, after the liquidator told its managing director, Mr St Claire, that the plaintiff could ‘have ownership of and use’ property and documents left at the premises by Adelaide Fire Control. The documents included boxes of old invoices rendered to clients of Adelaide Fire Control. The plaintiff also claims that a director of Adelaide Fire Control, Mr Brett Taylor, through his solicitor, offered to sell to the plaintiff and the plaintiff agreed to purchase the database of Adelaide Fire Control.
On 25 August 2006, before the plaintiff went into occupation of the premises formerly occupied by Adelaide Fire Control, the plaintiff arranged a meeting of employees and contractors of Adelaide Fire Control at the offices of the plaintiff’s accountants. The plaintiff claims that the employees and contractors, including the first and third defendants, were told that the plaintiff would provide opportunities for continuing ‘engagement with the plaintiff’ on the same terms as those on which they had been engaged by Adelaide Fire Control. The plaintiff would treat any employment or contractor relationship in good faith and regard employees or contractors as ‘family’.
The plaintiff claims that the first and third defendants accepted the offer of engagement on 28 August 2006. The engagement of the first and third defendants by the plaintiff are said by the plaintiff to be on the same terms as those contained in a pro forma ‘Independent Contractor Agreement’ exhibited to the affidavit of Mr St Claire, between Brett Taylor, trading as Adelaide Fire Control, and the other party. It is unclear why Mr Taylor was named in any pro forma agreement as a party to the agreement, rather than the company.
It is the plaintiff’s claim that:
1.the plaintiff began occupying the premises formerly used by Adelaide Fire Control and effectively took over the business of Adelaide Fire Control on 1 September 2006;
2.the plaintiff acquired property in the lists of clients formerly serviced by Adelaide Fire Control first, through the liquidator of Alpha (SA) Pty Ltd effectively abandoning old invoices at the premises and telling the plaintiff’s managing director that the plaintiff could use all the property left there and secondly, through the acquisition of a database from Mr Taylor, a director of Alpha (SA) Pty Ltd.
3.the plaintiff engaged the first and third defendants as independent contractors on 28 August 2006 on terms impliedly identical to the Independent Contractor Agreement exhibited to Mr St Claire’s affidavit, gave them monthly customer contact lists and paid them an agreed commission for the work they did in servicing clients of the plaintiff;
4.the terms of engagement:
4.1 bound the first and third defendants, inter alia, to provide the services to the plaintiff set out in Schedule 1 to the agreement, i.e. ‘sales to customers’;
4.2 the fees for services provided were paid on a commission basis;
4.3 the first and third defendants were bound to treat ‘all matters pertaining to this Agreement and (AFC’s) business as strictly confidential’, ‘not to assist or be involved in or contribute in any material way to the targeting or servicing of existing customers of (AFC)’, and on termination of the agreement, were subject to a 12 month restraint from their engaging in targeting, soliciting, or interfering with customers so as to entice customers away from (AFC), and from servicing of any customers of (AFC); and
4.4 the first and third defendants were in a fiduciary relationship with the plaintiff obliging them to protect the interests of the plaintiff.
5.the first defendant operated through the company, Rennis Pty Ltd, the second defendant, which traded as ‘Mr Fireman’;
6.the first defendant advised the plaintiff in writing that as from 1 January 2007, the second defendant would no longer contract its services to the plaintiff;
7.the third defendant traded as ‘Eastern Fire Service’;
8.in or around the second or third week of January, the third defendant orally advised the plaintiff that he would not be continuing to provide his services to the plaintiff;
9.in breach of the terms of their agreement with the plaintiff, and in breach of section 56 of the Fair Trading Act 1987, the defendants have contacted customers of the plaintiff and set up in competition with the plaintiff;
10.the plaintiff has been advised by several customers serviced by the defendants that they will not require the services of the plaintiff in the future;
11.if the defendants are not restrained from using the plaintiff’s intellectual property, the plaintiff will suffer loss and its business reputation will be damaged;
12.the plaintiff offers an undertaking as to damages, or in the alternative, Theseus (Australia) Pty Ltd, the sole share holder and ultimate holding company of the plaintiff, is prepared to offer an undertaking on behalf of the plaintiff. A trading profit and loss statement and balance sheet for the plaintiff for the period 8 September 2006 to 31 December 2006 discloses an operating profit.
For the sake of convenience, and because the responses of the first and third defendants to the application are similar, I will refer to the first and third defendants as ‘the defendants’. The defendants deny, and it is not asserted against them in any event, that they entered into a written agreement of any kind with the plaintiff. The defendants say that they were told that the plaintiff was owned by a multi-national corporation and had taken over the business of Alpha (SA) Pty Ltd, trading as Adelaide Fire Control, which had gone into liquidation. Mr St Claire asked them what their duties had been with Adelaide Fire Control. He told them the plaintiff had employees, not independent contractors, but it was not necessary to provide written terms of employment.
The defendants agreed to provide services to the plaintiff on a job-by-job commission basis. In servicing clients on behalf of the plaintiff, they used equipment they had remaining in their possession from working for Adelaide Fire Control. They initially assisted the plaintiff with the compiling of client lists, on the basis that they had been led to believe the plaintiff had acquired the rights to that information.
In around November 2006, the defendants sought legal advice. Their solicitor made enquiries on their behalf from the liquidator of Alpha (SA) Pty Ltd regarding any transfer of client information by the liquidator to the plaintiff. As a result of advice the defendants received, they commenced servicing on their own behalf clients they had previously serviced in the course of their work for Alpha (SA) Pty Ltd. The defendants say that notwithstanding any entitlement they believe they have to continue to service former clients of Alpha (SA) Pty Ltd, they do not propose to and will not provide services to any client, the identity of which was brought to their attention by servicing the client on behalf of the plaintiff.
The affidavit of Mr Irving, the liquidator of Alpha (SA) Pty Ltd, discloses that he was appointed on 1 September 2006. He says that in accordance with his usual practice, he arranged for retrieval and securing of the company’s property at the premises on South Road, Ashford, including books and records relevant to the liquidation. Mr Sims understood the premises were owned by Mr Brett Taylor, a director of Alpha (SA) Pty Ltd. When he left the premises, Mr Sims was not aware that the plaintiff was to move into them and commence trading.
Westpac Banking Corporation (‘Westpac’) hold a fixed and floating charge as security over the assets of Alpha (SA) Pty Ltd. It appears that Westpac may also be the mortgagee in relation to the land. Mr Sims has been realising the company’s assets and accounting to Westpac. While there have been negotiations with the plaintiff in relation to the sale of the premises and certain assets, including client lists, no agreement had been reached as at 9 February 2007. Mr Irving says he did not give, transfer or assign to the plaintiff any property, including intellectual property, belonging to Alpha (SA) Pty Ltd, nor has he authorised any other person to do so.
On an application for an interlocutory injunction:
It is no part of the court’s function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations. These are matters to be dealt with at trial. One of the reasons for the introduction of the practice of requiring an undertaking as to damages upon the grant of an interlocutory injunction was that ‘it aided the court in doing that which was its great object, viz, abstaining from expressing any opinion on the merits of the case until the hearing’: Wakefield v Duke of Buddleugh (1865) 12 LT 628, 629.
(American Cyanamid Co v Ethicon Ltd [1975] AC 396 at 406)
The searches conducted by the solicitor for the defendants of the plaintiff company and its parent company, Theseus (Australia) Pty Ltd, provide no confirmation of affiliation with any multinational corporation, or that either company owns any significant assets, which might be called upon in the event the defendants were entitled to damages pursuant to any undertaking given by the plaintiff or Theseus Pty Ltd. The financial statements of the plaintiff are for a period of just over three months. The overall financial status of the plaintiff and its holding company is unclear. The defendant submits that the plaintiff has not demonstrated that it has sufficient resources, either itself or through the holding company, to satisfy any order for damages, in the event an order was made against the plaintiff. The plaintiff has asked for an opportunity to put forward further evidence on the adequacy of its undertaking as to damages. I have in the circumstances not had to resolve the issue of the adequacy of an undertaking as to damages.
The relevant legal principles to be applied to an application for an interlocutory injunction are well settled. First, the court is required to decide whether there is a serious question to be tried.
Unless the plaintiff can show that there is at least a serious question to be tried which if resolved in its favour would entitle it to final relief, then the requirements of justice as between the parties will dictate that an interlocutory injunction should be refused: (Australian Course Grain Pool Pty Ltd v Barley Marketing Board of Queensland (1982) 57 ALJR 425; 46 ALR 398; Tableland Peanuts Pty Ltd v Peanut Marketing Board (1984) 58 ALJR 283; 52 ALR 651; AV Hayden (No. 1); Castlemaine Tooheys Ltd v State ofSouth Australia (1986) 60 ALJR 679; 67 ALR 553 and Cohen v Peko Wallsend Ltd (1986) 61 ALJR 57: 68 ALR 394)
(Kolback Securities v Epoch Mining NL (1987) 8 NSWLR 533, 535)
If there is found to be a serious question to be tried, the court is to consider whether, if the plaintiff were to succeed at the trial, it would be adequately compensated by an award of damages for the loss it would have sustained as a result of the defendants’ continuing to do what was sought to be enjoined, between the time of the application and the time of trial.
If damages in the measure recoverable at common law would be an adequate remedy, and the defendants would be in a financial position to pay them, no injunction ought normally be granted, however strong the plaintiff’s claim appears to be at that stage.
If damages are not likely to be an adequate remedy for the plaintiff, then the court is to consider whether, if the defendants were to succeed at the trial in establishing their right to continue in the business against which the injunction is sought, they would be adequately compensated under the plaintiff’s undertaking. If damages would be an adequate remedy for the defendants, and the plaintiff can pay them, there is no reason on that ground to refuse an interlocutory injunction.
If there is a doubt as to the adequacy of the respective remedies in damages available to either party, the question of the balance of convenience arises. Where other factors appear to be evenly balanced, the counsel of prudence is to preserve the status quo.
(American Cyanamid v Ethicon Ltd [1975] AC 396 at 406-409; Castlemaine Tooheys Ltd & Others v The State of South Australia (1986) 161 CLR 148 at 153)
In considering the balance of convenience, the court ought to give full weight to the practical realities of the situation to which the injunction will apply. It is often likely that there will be some disadvantage caused to the unsuccessful party which it will be impossible fully to compensate. The extent to which the disadvantage would be incapable of being compensated is a factor in assessing where the balance of convenience lies. (American Cyanamid, above, at 409)
In my opinion, the plaintiff has established that there is a serious question to be tried regarding first, the ownership of any intellectual property in client lists of Alpha (SA) Pty Ltd, trading as Adelaide Fire Control. Secondly, if the plaintiff establishes its right to client lists, there will be a question of the engagement of the first and third defendants by the plaintiff and the terms of the engagement. Thirdly, there will be a question of whether the first and third defendants are in breach of the terms of their engagement, or other obligations to the plaintiff, or of the Fair Trading Act 1987, and if so, what remedy should apply.
It is necessary then to consider whether if the plaintiff were to succeed at the trial, there would be adequate compensation by an award of damages for the loss sustained as a result of the defendants’ competing with the plaintiff in the market place. The plaintiff claims it is in a vulnerable position on account of the poor financial position of Adelaide Fire Control historically, the fact that it has just begun to re-establish confidence in former clients of Adelaide Fire Control, and ‘any activity on the part of the defendants that damages the plaintiff’s reputation or indicates weakness has the potential to cause irreparable damage’.
In my opinion, acknowledging this is an early stage of the proceedings, the evidence suggests that if the plaintiff succeeds at trial, damages will be an adequate remedy for any loss the plaintiff sustains as a result of the defendants’ continuing to work in the same industry as the plaintiff between the time of the application and the time of trial.
The financial statements of the plaintiff show that the plaintiff has only been trading since 8 September 2006. While the plaintiff claims it ‘effectively took over’ the business of Adelaide Fire Control, its acquisition of the business has not been established and the evidence is, at the moment, the other way. The plaintiff may be unable to establish any loss associated with an expectation based on the business, including reputation and goodwill, of Adelaide Fire Control. The sales realised by the first and third defendants while they were engaged as independent contractors for Adelaide Fire Control have not on the present material been shown to be a proper measure of any loss which might be sustained in the future by the plaintiff.
There is no evidence regarding the ability of the defendants to pay any damages that may be awarded to the plaintiff, but neither is their incapacity to pay damages an issue raised by the plaintiff.
In accordance with principle, a finding that an award of damages will adequately compensate the plaintiff, if successful at trial, is sufficient to dispose of the application. However, I go on to consider whether, if damages are not an adequate remedy for the plaintiff, an injunction should be granted. The question of the convenience, or relative inconvenience or harm, as between the parties needs to be considered.
The defendants as well as the plaintiff have recently embarked on new business ventures. There is little evidence on the question of whether damages will be adequate compensation to the defendants, if the defendants were ultimately successful in the action. The plaintiff seeks orders inter alia preventing the defendants from servicing, contacting or soliciting ‘clients of the plaintiff’ contained in the list to be annexed to the draft Minutes of Order and marked ‘A’. Putting to one side the issue of ownership of the client list, it is not too difficult to conclude that the orders sought, prohibiting the defendants from servicing, contacting or soliciting the business of all the named clients on the list, may put the defendants out of business. The defendants say that if the orders are made, they will be significantly prejudiced and will lose the opportunity to compete in the relevant market.
The question of the convenience, or relative inconvenience or harm, as between the parties is fairly evenly balanced. It is appropriate then to go on to consider the relative strength of each party’s case. In my opinion there are a number of matters, raised on the material presently before the court, which suggest that the plaintiff may have difficulty in establishing its right to relief at trial. My opinion is necessarily limited on account of the very early stage of the litigation. However, on the material presently before the court, the plaintiff’s case does not have the requisite strength of the probability of ultimate success, having regard to the nature of the rights asserted and the practical consequences likely to flow from the interlocutory orders sought. (Australian Broadcasting Corporation v O’Neill (2006) 229 ALR 457 at 478-480)
First, the evidence of Mr Irving, the liquidator of Alpha (SA) Pty Ltd, trading as Adelaide Fire Control, suggests the plaintiff may have difficulty establishing it has acquired client lists belonging to that company. In my opinion, the orders sought by the plaintiff rely on assuming that the first question to be tried should be answered in favour of the plaintiff at this early stage of the proceedings. The list, the annexure to be marked ‘A’, is not a list of the plaintiff’s clients. It is comprised of a bundle of documents which include a ‘Card List [Summary] of Adelaide Fire Control, not the plaintiff, and a record of some monthly sales for the period 1 May 2005 to 31 May 2006, and the months of March to December 2006 inclusive. The period covered by the list comprising annexure ‘A’ depends on an assumption that Adelaide Fire Control information belongs to the plaintiff.
On the evidence, the plaintiff occupied the premises of Alpha (SA) Pty Ltd, trading as Adelaide Fire Control, on 1 September 2006 and the plaintiff commenced trading in the same business on 8 September 2006. In so far as it is alleged that the plaintiff has a right to relevant client information otherwise than through occupying the premises of Alpha (SA) Pty Ltd or through the agreement reached with one of its directors, that is, by the conduct of the liquidator, the affidavit of the liquidator suggests otherwise. It could not be said that the evidence establishes the plaintiff’s ownership of any client lists of Alpha (SA) Pty Ltd. That raises a question about whether the plaintiff has established any sufficient basis on which interlocutory injunctive orders could be made.
Secondly, there are no written terms of engagement of the first and third defendants by the plaintiff. The terms of the engagement will depend on evidence called at trial. Establishing that the terms agreed between the parties were as the plaintiff alleges, and that the defendants have breached them, may be difficult.
In summary, the plaintiff has established that there is a serious question to be tried. If the plaintiff is successful at trial, having regard to the short period of trading by the plaintiff, an award of damages is likely to be an adequate remedy for any loss associated with any breach by the defendants of obligations owed to the plaintiff, or of the Fair Trading Act 1987. Putting that conclusion to one side, the relative inconvenience or harm of orders being made or refused, as between the parties, is finely balanced. However, the plaintiff has not shown a sufficient likelihood of success to justify the orders, which the plaintiff submits would preserve the status quo pending the trial. In my opinion, the injunctive orders sought would not preserve the status quo, but rather would afford an advantage to the plaintiff before the plaintiff has established a proper basis for it.
Having regard to maintaining a position that will most easily enable justice to be done when final orders are made, and the most just and convenient regulation of the parties’ conduct in the meantime, I am not satisfied that injunctive orders should be made. In my opinion, for the same reasons, no basis has been established by the plaintiff for orders directing the defendants to deliver up any property, the plaintiff’s right to which is, at this stage of the proceedings, not sufficiently established. Nor is there any basis on which an order could be made directing the defendants to preserve and maintain computer records of their own.
The application is dismissed.
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