Connect Four Labour Solutions Pty Ltd v C4 Labour Solutions Pty Ltd - [2019] WASC 462

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   CONNECT FOUR LABOUR SOLUTIONS PTY LTD -v- C4 LABOUR SOLUTIONS PTY LTD [2019] WASC 462
CORAM:   MASTER SANDERSON
HEARD:   10 DECEMBER 2019
DELIVERED          :   11 DECEMBER 2019
PUBLISHED           :   17 DECEMBER 2019
FILE NO/S:   CIV 3018 of 2019
BETWEEN:   CONNECT FOUR LABOUR SOLUTIONS PTY LTD
Plaintiff
AND
C4 LABOUR SOLUTIONS PTY LTD
First Defendant
JOSHUA DENIS FOWLER
Second Defendant
MILENA DJURASINOVIC
Third Defendant

Catchwords:

Practice and procedure - Application for interlocutory injunction restraining defendants from carrying on business - Turns on own facts

Legislation:

Nil

Result:

Plaintiff's application for interim injunction dismissed

Category: B

Representation:

Counsel:

Plaintiff	:	Mr K Robson
First Defendant	:	Mr P Weeks
Second Defendant	:	Mr P Weeks
Third Defendant	:	Mr P Weeks

Solicitors:

Plaintiff	:	Mossensons
First Defendant	:	Steenhof Brothers Barristers & Solicitors
Second Defendant	:	Steenhof Brothers Barristers & Solicitors
Third Defendant	:	Steenhof Brothers Barristers & Solicitors

Case(s) referred to in decision(s):

Nil

MASTER SANDERSON:

This was the plaintiff's application for an interlocutory injunction. After hearing argument I dismissed the plaintiff's application. For reasons which follow I determined that although there was a serious question to be tried the balance of convenience did not favour the grant of the injunction.
The writ of summons was filed 25 November 2019. The indorsement of claim on the writ was in the following form:
The Plaintiffs claim is for:
1.An injunction:
(a)restraining the Defendants from using the name C4 Labour Solutions, the name Connect Four Labour Solutions and the name Connect Four Solutions and any name or logo associated with those names; and
(b)restraining the Defendants from directing or encouraging any persons, including, but not limited to, clients, suppliers or financial providers, to cease or suspend dealing with the Plaintiff.
2.A mandatory injunction:
(a)requiring the Defendants to hand over the username and password to the domain name CONNECTFOURSOLUTIONS.COM.AU to Calvin Cheung.
(b)requiring the Defendants to hand over the login, customer number and password to the Facebook account known as Connect Four Labour Solutions to Calvin Cheung.
(c)requiring the Defendants to hand over the employee database and other documents and items relating to the Plaintiffs business. This includes but is not limited to information, records and documents, intellectual property and other information relating in any way to the Plaintiff or its clients.
(d)requiring the Defendants to hand over the login name and password for the Plaintiffs account with SEEK to the Plaintiff.
3.An order that the Defendants pay $4,100 in compensation for the credit card misuse identified above to the Plaintiff.
4.Damages sustained as a result of:
(a)the Defendants interference in the contractual relationships between the Plaintiff and its clients;
(b)the Defendants passing themselves off as the Plaintiff;
(c)the First Defendants breaches of his duties as a Director of the Plaintiff; and
(d)the First Defendants breaches of his fiduciary duties.
5.Interest on any damages awarded at 6% per annum pursuant to section 32 of the Supreme Court Act.
6.Costs.
During his submissions, counsel for the defendants claimed the indorsement was defective and was liable to be struck out. Counsel made that submission not because he was actually seeking an order that the indorsement be struck out but rather because, he maintained, the indorsement did not succinctly state the nature of the plaintiff's claim and explain why it was entitled to relief. The submission is not without merit. The indorsement of claim is directed at the relief the plaintiff says it is entitled to as a consequence of actions on the part of the plaintiff. Although [4] of the indorsement is directed at damages it is the only paragraph which gives any hint of the plaintiff's claim. Based upon that paragraph it is reasonable to assume the plaintiff seeks relief on a number of different grounds.
First, it would seem the plaintiff says the defendants are interfering with the contractual relationship between the plaintiff and its clients. That suggests the plaintiff is saying the tort of interference with contractual relations is being committed by the defendants. But, it may also mean that the plaintiff says the defendants are breaching a contractual relationship between the plaintiff and the defendants. That possibility involves a very broad reading of [4(a)] of the indorsement and, it must be said, arises in part because of the evidence filed in support of the injunction application. Nonetheless it seems to me that the paragraph does raise the prospect of both a claim in tort and a claim in contract.
The second claim is straight forward. It is a claim for passing off. It is worthy of note that the name of the plaintiff and the name of the first defendant are very close. At least on a prima facie basis it would appear in substance in the plaintiff's complaint. The relief sought as a consequence of the alleged passing off is found in [1(a)] of the indorsement.
The third claim is more problematic. The reference in [4(c)] is to the first defendant. That should presumably be a reference to the second and third defendants ‑ the first defendant is a corporation and the second and third defendants are directors of the first defendant. The evidence shows neither the second nor the third defendant is presently a director of the plaintiff. It is not then immediately apparent how the plaintiff is entitled to any relief against the second and third defendants.
Similar comments apply in relation to the fourth aspect of the claim. Assuming reference should have been made to the second and third defendants it is not clear to whom it is alleged these defendants owe fiduciary duties and how they arise in the context of this application. Presumably the fiduciary duties referred to are duties owed to the plaintiff. There are no facts in the indorsement which could give rise to such duties.
In support of the plaintiff's application, reliance was placed on an affidavit of Calvin Cheung sworn 21 November 2019. Mr Cheung is a director of the plaintiff. He says the plaintiff was incorporated on 27 November 2018 with two equal shareholders. These shareholders were trustee companies. One was associated with Mr Cheung and one was associated with the second defendant. The directors of the company were Mr Cheung and the second defendant. The third defendant is the partner of the second defendant. The plaintiff operated a labour hire business. Initially it operated from a residential property in Noranda but from 1 September 2019 it leased premises in Beaufort Street Inglewood.
The parties fell out. Their differences were irreconcilable. On 27 October 2019 Mr Cheung said he and the second defendant reached an agreement which embodied the following terms:
1.Mr Cheung would pay the second defendant $20,000, later increased to $25,000;
2.a vehicle which was provided to the second defendant by the plaintiff would be transferred to the second defendant;
3.a lap top computer would be transferred to the second defendant;
4.the lease on the Beaufort Street property would be transferred to the second defendant;
5.the second defendant would resign as a director of the plaintiff;
6.the second defendant would cause his shares to be transferred to Mr Cheung; and
7.the second and third defendants would exit the business.
A number of points can be made about this alleged agreement. First, it appears to have been a share sale agreement ‑ that is to say for $25,000 and some further consideration the shares in the plaintiff held by the second and third defendants (or their trust) would be transferred to Mr Cheung. The agreement appears to anticipate the second and third defendants continuing in the labour hire business. That is at least implicit from the fact the lease for the Beaufort Street premises was to pass to the second and third defendants. Further, there is no mention in the agreement of any restraint at trade. It would not be unusual in an agreement such as this for a restraint on the second and third defendants to be part of the agreement. It follows from that, Mr Cheung could reasonably have expected the second and third defendants to compete with the plaintiff as soon as they withdrew as directors and shareholders of the plaintiff.
Mr Cheung says that the second and third defendants resigned as directors on 29 October 2019 and transferred their shares in the plaintiff to him on 3 November 2019. Mr Cheung says despite demand the defendants have refused to hand to the plaintiff control and access of the plaintiff's domain name, email accounts and Facebook account and database. None of these items featured in the agreement between Mr Cheung and the second and third defendants. Presumably it is alleged there is an implied term in the agreement the items the property of the company would be left with or transferred to the plaintiff. On the face of it at least, that is not an unreasonable position.
Paragraphs 12 through to 24 of Mr Cheung's affidavit appear under the heading 'The defendants had already secretly poached the plaintiff's clients for a new business'. It is not necessary for me to detail all of the evidence in these paragraphs. Suffice it to say, that if the evidence in those paragraphs were accepted it is arguable the plaintiff would have a cause of action against the defendants either in contract ‑ for breach of an implied term ‑ or in tort. This being an interlocutory application it is inappropriate that I draw any conclusions. But, I accept the position is arguable. The same comments apply to [26] through to [29] which appear under the heading 'The defendants placed advertisements designed to confuse the plaintiff's clients'.
For the sake of completeness I should note that [25] which appears under the heading 'The defendants interfere with the plaintiff's capital funding arrangements' does not appear to be relevant to any cause of action a plaintiff may have against the defendants. Further, the plaintiff alleges that the defendants' diverted income that was the plaintiff's to their own bank account and abused the plaintiff's credit card for their own purposes. The defendants took particular exception to those allegations and they are of such serious nature they would have to be proved, to some extent at least, before they could be considered in granting an injunction. For the purposes of this application, I did not take that evidence into account.
In opposition to the application the defendants relied on an affidavit of the second defendant sworn 9 December 2019. Paragraphs 12 through to 15 of the second defendants' affidavit appear under the heading of 'Transfer of business property'. These paragraphs detail efforts allegedly made by the second and third defendants to transfer to the plaintiff certain property which the defendants appear to acknowledge belongs to the plaintiff. For instance, [13] details the defendants attempts to transfer control of the Facebook page to the plaintiff. What the affidavit does not set out is what the defendants say were the terms of the share sale agreement between Mr Cheung and the second and third defendants. However, Mr Cheung's version of the agreement is nowhere challenged. Nor does the affidavit explain why the first defendants' name ‑ that is the business conducted by the second and third defendants ‑ is so similar to the business name employed by the plaintiff. In other words, the defendants do not grapple with the allegation that the name of the first defendant is so close to the name of the plaintiff that the defendants are passing off their business as the plaintiff's.
Taking the evidence in totality, I am satisfied there is a serious question to be tried. That is particularly so in relation to the passing off claim. It also extends to interference with contractual relations ‑ either the tortious claim or the claim in contract. However, there seems to me to be nothing in the evidence which would found a cause of action for breach of directors' duties or breach of fiduciary duties by the second and third defendants. That is not to say I would have been prepared to issue injunctions in the terms sought by the plaintiff. But, I am satisfied the first limb of the test for the grant of interlocutory injunction has been satisfied.
In [16] through to [23] of his affidavit the second defendant sets out the effect upon the defendants of the grant of the injunction. As he rightly notes any injunction which restrains him will bring the first defendant's business to a halt. The second defendant says, and I accept, the result will be the destruction of business relationships he has built up with certain customers to whom he supplies labour hire services. He notes the labour hire business is built on relationships developed with clients over many years. He says the business is intensely competitive. Were an injunction to issue it would doubtless have to be served by the plaintiff on various clients who may deal with both the plaintiff and the defendants. The inevitable consequence must be adverse to both the plaintiff and the defendants. Nowhere in the affidavit of Mr Cheung is there any attempt to assess the impact on either business of the grant of the injunction.
That being the case the evidence does not satisfy me the balance of convenience favours the grant of an injunction. If it is the case the defendants are passing off their business as the plaintiff's business or if the defendants are breaching the terms of the share sale agreement then the defendants in due course could be ordered to account to the plaintiff. This is a better option than issuing an injunction which may have an adverse effect on both the plaintiff and the defendants.
For these reasons I refused the plaintiff's application for an interlocutory injunction. However, this is a matter which requires prompt attention and on the next return date I would propose to make orders for an early trial. The costs of this application are reserved.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
DG
Associate to Master Sanderson
17 DECEMBER 2019