Instant Security Doors & Screens Pty Ltd v Trebilcock
[2014] SADC 114
•27 June 2014
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Interlocutory Application)
INSTANT SECURITY DOORS & SCREENS PTY LTD v TREBILCOCK
[2014] SADC 114
Decision of His Honour Judge Slattery
27 June 2014
INTELLECTUAL PROPERTY - CONFIDENTIAL INFORMATION - REMEDIES - INTERLOCUTORY INJUNCTIONS
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - CONSIDERATIONS UPON WHICH COURT EXERCISES DISCRETION - DAMAGES AFFORDING SUFFICIENT REMEDY
The plaintiff brought an interlocutory application seeking injunctive orders against the defendant, one of its former franchisees. Whether under the tests for the grant of an interlocutory injunction, the Court should exercise its discretion; whether there is a serious issue to be tried; whether the inconvenience or injury to the plaintiff would likely suffer if an injunction is refused outweighs the injury the defendant would suffer if an injunction was granted; whether damages are an adequate remedy. Consideration of questions of the operation of a restraint clause in a franchise agreement.
Held:
(1) There is a serious issue to be tried;
(2) the inconvenience or injury to the plaintiff is outweighed by the injury or inconvenience to the defendant if an injunction was granted;
(3) The plaintiff should, in the particular circumstances of this case, be confined to a remedy in damages;
(4) Upon the undertakings given by the defendant to the Court and the plaintiff, the application by the plaintiff for an interlocutory injunction is refused.
Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57; Acmnet Pty Ltd v Ai Tel Pty Ltd [2007] SASC 96; Cini v Pets Paradise Franchising (SA) Pty Ltd (2008) 102 SASR 177; State Transport Authority v Apex Quarries Ltd [1988] VR 187, applied.
Robb v Green [1885] 2 QB 315; Gilbert v Star Newspaper Co (1894) 11 TLR 4; Ormonoid Roofing and Asphalts Ltd v Bitumenoids Ltd (1930) 31 SR (NSW) 347; Amber Size and Chemical Co Ltd v Menzel [1913] 2 Ch 239; Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167; Austra Tanks Pty Ltd v Running [1982] 2 NSWLR 840; JQAT Pty Ltd v Storm [1987] 2 Qd R 162; Lloyd’s Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505; Hydron Pty Ltd v Harous [2005] SASC 176; Herbert Morris Ltd v Saxelby [1916] 1 AC 688; Buckley v Tutty [1971] 125 CLR 353; Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535; Esso Petrolium Co Lty v Harper’s Garage (Stourport) Ltd [1968] AC 269; Amico Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd [1973] 133 CLR 288; Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126; Lindner v Murdock’s Garage (1950) 83 CLR 628; Butt v Long (1953) 88 CLR 476; Straits Exploration (Australia) Pty Ltd v Kokatha Uwankara Native Title Claimants [2012] SASCFC 121; South Australia v Teachers Appeal Board [2011] SASCFC 3; Tambakis v Ferluga [2010] SASC 122, considered.
INSTANT SECURITY DOORS & SCREENS PTY LTD v TREBILCOCK
[2014] SADC 114
The plaintiff, Instant Security Doors & Screens Pty Ltd (‘the plaintiff’) relevantly applies for the following orders with injunction against the defendant, one of its former franchisees.
1...
2...
3Until further order an injunction restraining the Defendant from using any of the Plaintiff’s Intellectual Property, Confidential Information and Systems for any purpose.
4Until further order an injunction restraining the Defendant from having any direct or indirect interest in a business of a nature similar to the Plaintiff’s business within the South territory for and in any business of on-the-spot fabricating or installation of security doors and window screens, whether as an owner, partner, director, shareholder, officer, employee, consultant, representative, agent or in any capacity direct or indirect.
5Until further order an injunction restraining the Defendant from disseminating any of the Plaintiff’s Confidential Information to Intellectual Property.
6That the Defendant produces all original quote books, work diaries, copy customer invoices, bank statement relating to the bank account used for the Defendant’s franchise business, books of account, and all other business records kept in relation to the Defendant’s franchise business from 17 March 2009 to the date of this order;
7That the Defendant transfers the mobile phone number 0413 557 104 to the Plaintiff;
8That the Defendant pays the costs of and associated with this application.
9...
In support of the application the plaintiff read the first affidavit of Stephen John Frampton sworn the 4th day of June 2014 (FDN 3), the first affidavit of Sanjay Brian Schrapel sworn the 6th day of June 2014 (FDN 4), the second affidavit of Stephen John Frampton sworn the 20th day of June 2014 (FDN 12) apart from paragraph 11 of that affidavit, the affidavit of Michael John Norris sworn the 23rd day of June 2014 (FDN 13) and the ), the third affidavit of Stephen John Frampton sworn the 23rd day of June 2014 (FDN 14). Mr Trebilcock (‘the defendant’) did not object to the reading of those affidavits. The defendant read the first affidavit of the defendant dated 20 June 2014 (FDN 11), the second affidavit of the defendant of 23 June 2014 (FDN 15), and the third affidavit of the defendant sworn 25 June 2014 (FDN 16).
Apart from identifying some of the paragraphs of the affidavits of the defendant which were largely commentary (and were objectionable on that basis), the plaintiff only made objection to paragraph 5 on page 8 of the first affidavit of the defendant (FDN 11). That paragraph reads as follows:-
5. I believe there are three separate businesses operating in South Australia, apart from the plaintiff and its franchisees, which manufacture and install security doors and screens with mobile workshops such as that which I operated as a franchisee of the plaintiff. To my knowledge, they are:
5.1 Onsite Security Doors, which operates around metropolitan Adelaide.
5.2 Down South Security Doors and Screens which operates in the Southern suburbs of Adelaide.
5.3 Cobra Onsite Doors which operates in the Murray Bridge and Murraylands areas of South Australia
The contention of the plaintiff was that this paragraph of the affidavit does not prove the existence of the other businesses operating within the relevant markets in which the plaintiff’s franchisees operated.[1] That paragraph was addressed by Mr Frampton on behalf of the plaintiff in his third affidavit sworn on the 23rd day of June 2014 (FDN 14) at paragraphs 28 and 29. In those paragraphs Mr Frampton on behalf of the plaintiff asserted that there are other on site security door manufacturing and fitting businesses operating in Adelaide. He gave a description of those businesses and differentiated them from the plaintiff’s business. In paragraph 29 of that affidavit he specifically referred to the two other businesses operating within the area formerly serviced by the defendant in the Southern areas of Adelaide. The purpose and clear implication of the paragraphs of the third affidavit of Mr Frampton (paragraphs 28, 29 and 30) was to differentiate those businesses from the plaintiff’s “System”.
[1] There are five franchise areas operated under the plaintiff’s franchise system. Three of those franchises are or were of a five year duration.
In my opinion, the content of paragraph 5 of the first affidavit of the defendant sworn 20 June 2014 (FDN 11) is admissible on this application for interlocutory injunctive and other relief. The defendant avers to the fact that to his knowledge the three other businesses are operating, two of which operate in the area formerly serviced by the defendant. For present purposes I will ignore the area serviced by the third example (Cobra Onsite Doors) because of the geographical area in which it operates. The only significance that I will give to the existence of that business is the fact that it is a mobile workshop system which manufactures and installs security doors and screens on site from a mobile workshop. The same applies to the other two examples set out in sub-paragraphs 5.1 and 5.2 of paragraph 5 of that affidavit. To that extent, I am unable to accept the submission of Mr Ross-Smith for the plaintiff that the defendant should not be permitted to read that paragraph of the affidavit.
Background
The plaintiff and the defendant entered into a franchise agreement for the carrying on of a business in a defined area under the agreement for the on-the-spot manufacturing and installation of security doors and window screens primarily in domestic homes using a mobile workshop.[2] The duration of the agreement was 20 years. There was some contention about this and an assertion of a five year contract (or understanding of a five year contract). Nothing turns on that in this application. I will put that issue to one side. The plaintiff’s primary contention is that the defendant is in breach of its contract reflected in the terms of the franchise agreement of March 2009. That agreement has now been terminated by notice given by the plaintiff to the defendant (as the plaintiff claims that it was entitled to do) bearing in mind that the business formerly operated by the defendant had been abandoned by the defendant.
[2] Exhibit P1- Franchise Agreement of March 2009, Background paragraph A.
The plaintiff’s primary contention is that its rights and entitlements as against the defendant are to be found within the four corners of the Franchise Agreement. The plaintiff also contends that, although well understood, questions of intellectual property such as confidential information, the use thereof or the misuse thereof and the entitlements of the plaintiff against the defendant in that respect are not at the heart of the plaintiff’s claim. The plaintiff confines its claim to questions of contract.
In my opinion, the position as adumbrated by the plaintiff is neatly summarised in an excerpt from a text referred to by the defendant in the course of the defendant’s submissions. I refer to the text of Ricketson, The Law of Intellectual Property[3] at paragraph 43.1 wherein the learned author says as follows:-
[43.1]At the outset, it should be recognised that many instances involving the unauthorised use of or publication of confidential information arise where the parties are in contractual relations with each other. In such cases, there may be an express contractual obligation prohibiting such use or publication or it may be easy to imply such an obligation.[4]In either case, therefore, there will be little need to invoke the action of breach of confidence as the parties’ respective obligations in relation to this confidential information will readily enough be settled in accordance with the agreement between them and it will be easy enough to establish whether a breach of such an obligation has occurred.
[3] (Law Book Co., 1984), 814, [43.1].
[4] As for example in Robb v Green [1885] 2 QB 315; Gilbert v Star Newspaper Co (1894) 11 TLR 4 (Ch); Ormonoid Roofing and Asphalts Ltd v Bitumenoids Ltd (1930) 31 SR (NSW) 347; Amber Size and Chemical Co Ltd v Menzel [1913] 2 Ch 239.
I accept the submission of Mr Ross-Smith and, in the end, the defendant did not effectively attempt to gainsay the proposition. It is further supported by the decision Fullagar J in Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd.[5]
[5] [1979] VR 167 at 190.
The essential features of the plaintiff’s case are that a “System” exists;[6] there are distinguishing characteristics of the system[7] which includes what is described as confidential information.[8] The term “Confidential Information” is described in paragraph 1.1.8 of the Franchise Agreement as follows:-
1.1.8 Confidential Information means the Operations Manual, trade secrets, customer lists, information, methods, formulas, ideas, concepts, prices, forms, techniques, drawings and specifications, copyright materials and records relating to the System.
[6] Exhibit P1 - Franchise Agreement, Background paragraph A.
[7] Ibid, paragraph C.
[8] Ibid, paragraph C (h) ‘Confidential Information’.
The expression “System” is defined in paragraph 1.1.26 of the Franchise Agreement as follows:-
1.1.26 System means a comprehensive business system developed by the Licensor and described in the Background which incorporates the Intellectual Property and the Confidential Information.
“Intellectual Property” is defined in paragraph 1.1.18 of the Franchise Agreement as follows:-
1.1.18 Intellectual Property includes all registered and unregistered copyrights, designs, trademarks, patents, processes and corporate names, customer lists, computer software licensed by the company and the goodwill of any business name and any secret process or confidential information including the marks and the System.
It is not in contest between the parties that the Franchise Agreement exists, that it was executed by the defendant, that the defendant operated under it for a period from March 2009 until early 2014, that the defendant has effectively abandoned the franchise and that he no longer intends to be bound by the Franchise Agreement. It is also not in contention that the plaintiff has thereupon exercised its right to terminate the franchise and seeks to enforce its rights under the agreement. There is no challenge to the propriety, to the fact of or the method of termination of the agreement.
There is also no challenge to the territory in which the defendant formerly operated which is defined in the Third Schedule of the Franchise Agreement which may conveniently be identified as the southern and south-western suburbs (both near and far) of the Adelaide metropolitan area.
In summary, the plaintiff contends that the System as described in the Franchise Agreement constitutes the plaintiff’s confidential information. The Franchise Agreement contains within it the contractual obligations on the defendant to maintain the secrecy and not disclose any confidential information. Those obligations are contained within paragraphs 13.1, 13.2 and, after the term ends, paragraph 13.3. Relevantly therefore, paragraph 13.3 is the operative term (in respect of what is described in the agreement as confidential information) and it reads as follows:-
After Term
13.3The Franchisee and (where relevant) its directors, employees or agents, will not after the expiration or early termination of this Agreement use the Confidential Information without the written consent of the Company first being had and obtained.
The plaintiff also contends that under the Franchise Agreement, the intellectual property is identified, its ownership is acknowledged by the defendant under paragraph 19.2 of the agreement, there is a covenant not to compete in paragraph 19.1 of the agreement and there is a contractual obligation upon termination for the defendant to cease using the System, image and marks under paragraph 23.3 which deals with obligations on termination. That sub-paragraph reads as follows:-
23Obligations on Termination
Cease Systems, Image and Marks
23.3 In the event of a termination of this Agreement the Franchisee shall forthwith cease using the System and the Image including the Marks and Confidential Information.
On the basis of these contractual terms, the plaintiff contends that at any time after termination that the defendant purports to use the “System” then the defendant is in breach of his obligations under the Franchise Agreement and the plaintiff is entitled to seek a restraint of that activity, it being in breach of the contract. Thus, it is said by the plaintiff, that there is to be no enquiry in relation to confidential information because the parties have identified and acknowledged within their agreement what constitutes the confidential information which is protected under the agreement.
The plaintiff contends that there is a breach of the obligation under the contract, and because of the confidential nature of the “System” the plaintiff is entitled to an injunction. Although not set out in the application for interlocutory injunction, on a secondary basis, the plaintiff contends that it is entitled to an order under clause 19 of the Franchise Agreement which is directed to the protection of the intellectual property and contains a covenant by the defendant not to compete in a business of a similar nature to the “Business” within a radius of 2 kilometres, of 5 kilometres or of 10 kilometres of the territory of any franchisee of the company other than in the course of carrying on the business pursuant to the agreement. There is a typical “ladder clause” in relation to the time periods over which the competition restraint operates. In my opinion, the law on this topic is quite settled. Generally, properly drawn restraint clauses using a “ladder clause” system are not void for uncertainty.[9]
[9] Austra Tanks Pty Ltd v Running [1982] 2 NSWLR 840; JQAT Pty Ltd v Storm [1987] 2 Qd R 162; Lloyd’s Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505, 520.
Although these issues were not canvassed at length before me, there are some well settled principles to be applied when considering the enforcement of such provisions. They are usefully gathered and summarised by Bleby J in his Honour’s decision in Hydron Pty Ltd v Harous,[10] particularly as to the “term” at paragraphs [45] – [76] and the governing principles concerning restraints at paragraphs [77] – [86]. That case concerned an employee restraint upon a sale of business and it is distinguishable on that basis from this case. I will address the issues only at the level of principle.
[10] [2005] SASC 176.
Obviously enough, there is a need for any restraint clause to be sufficiently certain as to the restrained conduct, the area of the restraint, and the time of the operation of the restraint.[11] Once certainty is established it is then necessary to look to the question of the reasonableness of the restraint.[12]
[11] Herbert Morris Ltd v Saxelby [1916] 1 AC 688, 700, 707-708; Buckley v Tutty [1971] 125 CLR 353, 377.
[12] Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535, 565; Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269, 299, 307, 318; Amico Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288; Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126, 139.
In this case, there is no evidence before the court about the territory covered by any other franchisee of the plaintiff. This is important because the plaintiff bears the onus of proof of reasonableness in this regard and because that assessment must be made as at the date of the execution of the contract.[13]
[13] Lindner v Murdock’s Garage (1950) 83 CLR 628, 633; Butt v Long (1953) 88 CLR 476, 486.
There is no evidence to inform the Court what may have been the position at the date of the creation of this contract and in my view there arises the possibility of real uncertainty here. Again, these are matters for the trial judge and I do not need to consider them further in respect of their enforceability. The only question for me is to identify that the contract itself contains the covenants not to use the “System” and so the confidential information and that, on a secondary basis (standing outside of the breach of contract claim) the plaintiff also would seek to enforce the covenant not to compete which the plaintiff says is imposed upon the defendant.
In my view, there is only sufficient certainty about the conduct of the franchise at the date of its creation concerning what is defined as the “South territory”. In the absence of any further evidential material before the Court, my focus must remain on that area. This is logical enough and easily explicable because that was the area in which the defendant operated as a franchisee. There is no suggestion in the evidence that the defendant operated in the franchise area of any other franchisee of the plaintiff or, for that matter, outside of the area of the “South territory” as defined under his franchise agreement. It also follows that at this interlocutory level, I am unable to address questions of the restraint of conduct occurring outside of the “South territory”.
The defendant sought to resist the application on two bases. The first was on the question of contract simpliciter. The effect of the defendant’s contention was that, in the grant of an interlocutory injunction, a court would not readily grant an injunction to restrain a breach of contract unless there were particular circumstances associated with, for example, intellectual property owned by the plaintiff which placed the position of the plaintiff and the defendant in a different circumstance than merely a contract between them which has allegedly been breached. The defendant also contends that, accepting the plaintiff’s primary position in contract, it is necessary to closely scrutinise the terms of the contract in order to understand whether, on the primary basis as contended for by the plaintiff, there is an arguable case in breach of contract. This requires an examination of the terms of the contract to identify that which it is said to be breached. This submission was put on the basis of the need to identify the integers of the confidential information, and thus indentify the subject matter of the contract. Only when this occurs may an assessment be made about an alleged breach. The defendant also contends that in the exercise of the discretion, the question of the adequacy of damages plainly arises and that, on the balance of convenience, having regard to the reliance of the defendant upon the defendant’s new business (which the defendant operates outside of the defined area in the Franchise Agreement) a disproportionally heavy burden would fall upon the defendant by being unable to operate his business.
At the outset of the hearing, the defendant gave a number of open undertakings in Court.[14] The defendant also did not object to a number of paragraphs in the interlocutory application (which I have not set out above as they concern the suppression from publication of particular parts of the evidence). They are contained within paragraphs 1 and 2 of the interlocutory application.[15] The defendant gave an undertaking to the Court, in reference to paragraph 3 of the interlocutory application, that he would not, for 12 months, use any of the plaintiff’s intellectual property, confidential information and System in the 27 suburbs named in the “franchise area” of the Third Schedule of the Franchise Agreement which is called the “South territory”.
[14] These are now to be found in the third affidavit of the defendant sworn 25 June 2014 (FDN 16).
[15]1 That the First Affidavit of Stephen John Frampton be suppressed from publication or dissemination to any person other than the Plaintiff, Defendant, Solicitors, Counsel and their support staff acting for the Plaintiff or Defendant in connection with these proceedings without the written consent of the Plaintiff.
2Until further order an injunction restraining the Defendant from using the Mobile Workshop installed in the Ford Transit van in the possession of the Defendant.
In relation to paragraph 4 of the interlocutory application, the defendant gave an undertaking to the Court that he will not have any direct or indirect interest in a business of a nature similar to the plaintiff’s business or in any business of on-the-spot fabricating or installation of security doors and window screens within the South territory (as defined in the Third Schedule of the Franchise Agreement). There is one qualification to this as the defendant lives in the South territory and he must store his vehicle there.
These undertakings are given without any concession that the information is in any way confidential as asserted by the plaintiff but the defendant is prepared to undertake not to disseminate the information to any other party. The only way that the defendant could do that, in a general sense, was to keep the door of his truck closed when it operated in an area outside of the “South territory” as defined in the Third Schedule of the Franchise Agreement.
The defendant also gives an undertaking, when addressing paragraph 5 of the interlocutory application, not to disseminate any of the plaintiff’s confidential information or intellectual property until further order. In relation to paragraph 6 of the interlocutory application, the defendant also gives an undertaking to produce all original quote books, work diaries, copy customer invoices, bank statements relating to the bank account used for the defendant’s franchise businesses, books of account and all other business records kept in relation to the defendant’s franchise business from 17 March 2009 to date.
In relation to paragraph 7 of the interlocutory application, the defendant would not resist an order for the transfer of the relevant mobile phone number[16] to the plaintiff which, according to the submissions of counsel, entails the handing over of the SIM card relative to that phone. This must be on the basis of the plaintiff honouring the terms of the phone plan on that phone.
[16] As described in FDN 5, paragraph 7.
Having regard to those undertakings given by the defendant, the question for my consideration is therefore within a very narrow focus. It revolves around the terms of the contract itself and whether, under the tests for the grant of an interlocutory injunction, the Court would exercise its discretion to grant such an order in favour of the plaintiff against the defendant. It is therefore necessary to turn to the question of the applicable tests for the grant of an interlocutory injunction.
The grant of an interlocutory injunction
Following the decision of the High Court in Australian Broadcasting Corporation v O’Neill[17] the applicable test has been summarised as follows:-
(1) Whether there is a serious issue to be tried, namely that there is a sufficient likelihood of success of the applicant to relief at trial.
(2) Whether the inconvenience or injury the plaintiff would be likely to suffer if an injunction is refused, outweighs the injury the respondent would suffer if an injunction is granted.
In addition there is a third requirement to be satisfied, namely that damages are not an adequate remedy. [18]
[17] (2006) 227 CLR 57.
[18] Acmnet Pty Ltd v Ai Tel Pty Ltd [2007] SASC 96, [19] – [20].
It is not necessary to show that there is some real prospect of success at trial.[19] Ultimately, my task is to do complete justice between the parties.[20] The focus of the plaintiff’s claim is in contract. The contractual obligations and so any differences arising between the parties to the contract will “readily enough” be settled in accordance with the agreement between the parties. The question is to form a proper appreciation of the obligations within the contract which the plaintiff contends sets out the basis upon which the plaintiff’s claim is made. Because this is an interlocutory application, it is not necessary or appropriate for me to make any findings one way or the other about the agreement. However, in the context of the grant or otherwise of an interlocutory injunction, it is necessary that I make some observations in relation to the contractual terms upon which the plaintiff relies.
[19] Cini v Pets Paradise Franchising (SA) Pty Ltd (2008) 102 SASR 177, [46].
[20] See Straits Exploration (Australia) Pty Ltd v Kokatha Uwankara Native Title Claimants [2012] SASCFC 121; South Australia v Teachers Appeal Board [2011] SASCFC 3.
I have previously set out the relevant terms of the agreement upon which the plaintiff relies including the definitional provision in clause 1 of the Franchise Agreement. It is pertinent to identify that each of those provisions refers back to what is described as the “System” and that, in turn, refers to the confidential information. It is therefore necessary to identify what it is that, according to the contract, has been created as the “System” and what may be said to be the features of the “System” that are identified within the contract. This, in turn, addresses the defendant’s second point in relation to concepts of confidential information, which, on the plaintiff’s case, do not arise on this application.
Under the ‘Background’ provision of the agreement, it is stated that the company has licensed a business system for the on-the-spot manufacture and installation of security doors and window screens primarily in domestic homes and using a mobile workshop. This is the definition of the “System”. It may immediately be noticed that under this broad description there may be no claim of intellectual property in relation to the system that is licensed as the “System”. It is described broadly as being an on-the-spot manufacturer and installer of screens and doors from a mobile workshop. It is known that this activity is conducted by others in Adelaide and other places in Australia. That process is not in any sense novel in the broadest use of that term.
Plaintiff’s counsel submitted that the mobile workshop is an integral component of the plaintiff’s system.[21] He then went on to say the following:-
Telling your Honour also though that whether it is or not wouldn’t make any difference to our case because of the covenants that are contained in the franchise agreement.
[21] T12.29.
Counsel went on to make the following submission:-
We contend that there is no defence which could be available or can be discerned from the defendant’s material to the covenants in clause 23.3[of the Franchise Agreement]...that’s the one about forthwith ceasing using the system and confidential information. And secondly, clause 19.1.1 which is... the covenant to not have any direct or indirect interest in the system by using it in the Southern Territory...[22]
[22] T13.7-16.
When asked to explain the “System”, counsel for the plaintiff said:-
That’s all of what is inside the mobile workshop, and it’s more particularly a better answer is it’s the configuration of what’s inside the mobile workshop. So it’s not the saw itself, because you and I can go and buy one of those from Bunnings, so it’s no[t] the saw. It’s the way that each of the operating parts of the mobile workshop are juxtaposed and so it’s the management and logistics of each of the components which constitute the mobile workshop. That’s what’s protected.... these parties have covenanted what it is that’s confidential.[23]
[23] T20.26-36.
In light of those submissions, it is necessary to refer again to the agreement. ‘Background’ paragraph A on page 1 of the agreement does not define the “System” except by reference to what is done. As has been indicated, the process of using a mobile workshop to create security doors and windows is not novel in any sense of that word. It appears that the drafter of the agreement has recognised this by then identifying in ‘Background’ paragraph C what is described as the distinguishing characteristics of the “System” to include:-
a.the registered business name “Instant Security Doors & Screens”;
b.certain logos or trade marks for which registration has been sough or is pending in the Commonwealth of Australia.
c.extensive training of franchisees;
d.developed marketing concepts;
e.an Operations Manual
f.distinctive colour schemes;
g.distinctive uniforms bearing the “Instant Security Doors & Screens” logo;
h.Confidential Information.
It is clear from discussions between Bench and Bar in the hearing that the matters contained in points a-g are no longer relevant or are matters that have already been dealt with. For example, the Operations Manual has been returned. The focus of the distinguishing characteristics is therefore upon the “Confidential Information”. I have already set out a definition of the term “Confidential Information”. There is some repetition – e.g. the further reference to the Operations Manual. There is no focus in the plaintiff’s case here upon trade secrets, customer lists, formulas, prices, forms, drawings and specifications, copyright materials and records.[24] The focus of the plaintiff’s case is upon the expressions “information, methods... ideas, concepts,... techniques”.[25] It may immediately be seen that, contractually, these are the matters that the parties identify as the confidential information. However, there is no definition of what may be described within the scope of these terms. There is no identity of the information, there is no description of the methods, there is no classification or other description of what are the ideas and concepts and matters of techniques that may, by the very general nature of that term, relate to any particular practical method, skill or art that may also be applied to a particular task.
[24] It is apparent that these are all tangible things that are often associated with paper or electronic records.
[25] Thus the focus is upon the more intangible aspects of what may be described as confidential information as an aspect of intellectual property.
As I have already said, it is not necessary for me in this interlocutory application to reach any concluded view about the matter. My task here is to identify whether a prima facie case is made out and that task incorporates a decision about whether there is a sufficient likelihood of success of the applicant to relief at trial.
Mr Ross-Smith, counsel for the plaintiff, when explaining what the plaintiff contends constitutes confidential information said:-
...Information, methods, ideas, concepts and techniques relating to the system. And those words, both on their own and cumulatively amount to what I’ll describe as the configurations within and adjust the position of the components, which constitute the mobile workshop.
So it’s how they’re relative to each other, so that they fit in a van, not a truck, which has the consequence for where you can put the van, so that you can put it in a driveway, so that you can do the work in the customer’s house, if one likes. And the driveability of it, and that has a consequence on the mobility of it, and it has a consequence for the expenses to run it.[26]
[26] T22.3-16.
In my opinion it is apparent that there is a tension between what is described as the “System”, the more colloquial description of that system given by counsel in submissions and what may otherwise be described as the ordinary operation of the words used to describe what constitutes the confidential information. However, in the end, this means that there are questions that must be finally decided by the trial judge.
In my view, there is no doubt that the miniaturisation of a particular practical system or method or the combination of a number of well known steps into a novel practical application of the combination of those steps is a matter that constitutes protectable intellectual property. It is a matter for the trial judge whether, contractually, the position is reached that the terms of the contract themselves would lead to the Court to make the orders that the plaintiff seeks. So much so is apparent from the comments of Ricketson set out above. The application for breach of contract is “readily enough” settled in accordance with the agreement and the assessment of that agreement leads to a determination of whether there has been breach. The learned author did not in terms or otherwise, identify that the absence of a specifically certain delineation of the terms of the contract about matters to be protected under the contract, means that the contract could merely be asserted and a remedy would follow. However, notwithstanding any view that I may have in relation to the terms of this contract, it is sufficient to say that there is an identifiable serious issue to be tried concerning its application. Ultimately, that will be a question for the trial judge.
My concluded view in relation to whether or not there is a serious issue to be tried, does not ignore the submissions that have been made by the defendant in relation to questions of intellectual property. In my opinion, those matters are best ventilated before the learned trial judge. It is sufficient to say currently that a decision will need to be made by the learned trial judge in relation to the relevant terms of the contract between the parties both in the context of the terms themselves and in relation to concepts of intellectual property. In summary, the defendant’s position was that either under the terms of the contract, or in equity, there was no proper definition of confidential information or alternatively there was no confidential information involved within the franchise process which would justify any form of injunction restraining the defendant. That is a matter that I have taken into account in forming my view that there is a serious issue to be tried. Because of the comments that I have already made, it is not sufficient that I say more about that matter here at this interlocutory stage.
I then turn to the second question namely whether the inconvenience or injury to the plaintiff would be likely to suffer if an injunction is refused outweighs the injury the defendant would suffer if an injunction was granted.
The plaintiffs submitted that whatever undertaking was made by the defendant should not be accepted because of the dishonesty of the defendant exposed by the activities of the defendant. There were a number of factors that were referred to: the failure of the defendant to inform the plaintiff of its intentions; the refusal of the defendant to communicate with the plaintiff despite many invitations to inform the plaintiff of what he intended; the failure of the defendant to act until such time as proceedings were issued; and the activity of the defendant after proceedings were issued through the evidence given by the “agent provocateur”, Mr Norris. In my view, the criticisms of the plaintiff are both substantive and properly made. The contentions of the defendant were that, on his understanding of the contract (a 5 year not a 20 year contract) the defendant considered himself no longer bound by the franchise agreement and that none of the contentions raised by the plaintiff in the correspondence needed to be attended to. The defendant also points to the fact that the affidavit of Mr Norris reflected an intention to entrap him and in those circumstances, absent any evidence of actual conduct by the defendant, that affidavit could be ignored. In that respect, it is sufficient to say that no meeting between Mr Norris or anyone on his behalf and the defendant actually took place and there was no quotation given by the defendant in respect of an address within the “South territory”.
Leaving those matters aside, the inconvenience or injury that the plaintiff would likely suffer is focused upon what competition there may be within the “South territory” (and, for example, 2 kilometres outside of the “South territory” if one iteration of the restraint provision is to be enforced) coming from the defendant. It appears plain on the materials that there is already competition within the “South territory” from other proprietors although the extent of that competition is not clear. The defendant has said in his affidavit that he has no intention of operating within the “South territory” for 12 months and that his focus is upon the area to the south of the “South territory” and what may be described as generally, the Fleurieu Peninsula area. There was no definition of that area given during argument.
The other inconvenience for the plaintiff, is the fact that the defendant would intend to use the van which he purchased and that he owns in doing that work. There are two aspects to this argument. The first is the restraint/system/intellectual property argument that I have already addressed. The second is the inconvenience to the plaintiff in attempting to secure a new franchisee within the “South territory” in a vehicle which, in all likelihood, will need to be constructed. It is worth noting that the evidence before me discloses that the relevant work vehicle is established upon a base of a Ford Transit vehicle. The workshop bolted to that base is constructed by a company called Aldom Engineering Pty Ltd. That company, as I understand the papers, has not only constructed all of the mobile workshops for the plaintiff, it has also constructed other mobile workshops for other competitors but based upon a larger wheel based vehicle with extra tray area and therefore more room within the mobile workshop (and consequently less “miniaturisation”). There was no evidence before me about how difficult it would be for the plaintiff to procure another vehicle. One of the principal features of this matter is that an undertaking has been given by the defendant that for 12 months he will not to operate within the “South territory” (his previous area of operation under the franchise). This is a formal undertaking given to the Court. It is to be accepted on that basis. It leaves the plaintiff in a position where it may freely seek to procure a new franchisee within the “South territory” free from competition from the defendant.
Another matter for consideration is the level of income generated by the plaintiff from the operations of the defendant in the franchise area. The third affidavit of the defendant (FDN 16) discloses that in the 2012 calendar year he received gross revenue of $194,080 and paid $14,558.28 in franchise service fees. In the 2013 calendar year he received gross revenue of $186,075 and he paid to the plaintiff a franchise service fee in an amount of $13,955.68. In the 2014 calendar year he received gross revenue of $46,595.00 and paid a franchise service fee of $3,494.64.
It is not possible to make any comparison of the level of success of the franchise compared to others. It may be fairly accurately said that, based on these figures, the business in the “South territory” was not highly successful. That said, there may be a number of variables at play here. There remains two key features. The first is that the defendant is most likely to be very adversely affected financially by an injunctive order because it may be assumed that the defendant has not derived a very high income base in those years (and that base is dwindling). The second is that the plaintiff should be protected by an order for an account by the defendant disclosing, on a monthly basis, sales, costs of sales, overheads, and net profits as required under the Australian Accounting standards, until further order. The account should be calculated in writing, monthly and no later than 30 days after the end of the month and be provided to the Court as and when required by it.
In those circumstances, it is then necessary to compare what may be the injury to the defendant to be suffered if an injunction was granted. The defendant has informed me in his affidavits that following the commencement of this type of business in March 2009, he had terminated his involvement with his previous employer in a completely different industry. He tells me that at his age he would be unlikely to be able to re-enter his former employment area. No challenge was made to that proposition by the plaintiff and, as a matter of commonsense, the defendant’s evidence may be accepted. The defendant says that the relevant vehicle is his only means of generating income. He informs me that he has a dependant wife and children and that he had no other source of income or capital outside of what he is able to generate through the vehicle. It is apparent, that the defendant would suffer a significant “injury” in the sense that he would lose his livelihood in the event that he was not able to use the vehicle, of which he is the legal and beneficial owner, in the business which he would intend to operate outside of the “South territory” under the Franchise Agreement. In those circumstances, it is my opinion that the inconvenience or injury to the plaintiff is far outweighed by the injury or inconvenience to the defendant if an injunction was granted.
I turn then to the question of whether damages are an adequate remedy. The proper test to be applied is whether the plaintiff should be confined to a remedy in damages.[27] It is to be noted that the plaintiff claims a proprietary interest in the intellectual property which constitutes the workshop attached to the van in the form as I have described it above. I am mindful of the fact that damages would not ordinarily be an adequate remedy where the plaintiff has a proprietary interest in an asset sought to be preserved by an interlocutory injunction.[28] However, in this instance the question of whether or not the plaintiff has a proprietary interest in the workshop (of which the defendant is the legal and beneficial owner) is a question for the trial judge. In my opinion, it is the anterior question which is to be addressed namely whether it is just in all of the circumstances that the plaintiff should be confined to a remedy in damages. I have had significant difficulty in reaching a decision on this matter. The plaintiff has gone to great lengths within the franchise agreement to identify what it claims to be the “System”, to have provided the “System” to the defendant and to have engaged with the defendant in a contractual setting, to permit the defendant to carry on the business using the “System” within the franchise area.
[27] State Transport Authority v Apex Quarries Ltd [1988] VR 187.
[28] Tambakis v Ferluga [2010] SASC 122, per Gray J.
Conversely, a matter that has weighed heavily upon my considerations in this matter is the fact that the defendant has give clear open undertakings not to compete with the plaintiff within the franchise area for a period of 12 months. What the defendant has done is to have removed any connection between the relevant van and the plaintiff’s business, to have moved out of the “South territory” and to have commenced a new business in that other area using the van. And under an order for an account, the Court, in its discretion, will be aware of the level of activity of the defendant for the relevant period.
Another matter that in my opinion is significant is the fact that the defendant has identified that he has made substantial adjustments to the mobile workshop. The defendant contends that the adjustments that have been made are sufficient to identify the van currently as being in a unique configuration standing outside of what may be described as the confidential information/system described by the plaintiff. I am not able to make any assessment of that matter. It is sufficient to identify the contentions of the defendant in this regard and those are matters ultimately for the decision of the trial judge. What is important in this context is to identify that there is a direct challenge to the position of the plaintiff under its contract concerning what it may contend to be the damages that it has suffered as a result of the breach of the contract. That challenge is not a ground to be taken into account on the question of granting or refusing an injunction. Rather it is a matter to be taken into account in the assessment about whether the plaintiff should be confined to a remedy in damages.
With a little hesitation I have reached the conclusion that based upon the undertakings of the defendant which I will set out hereunder and which forms the foundation of the decision which I have made, I have reached the conclusion that the plaintiff should, in the particular circumstances of this case, be confined to a remedy in damages.
In the whole of those circumstances, I have reached a decision to refuse the application by the plaintiff for an interlocutory injunction. It is necessary that I set out clearly the basis upon which I have reached that conclusion. I do so hereunder and these comments may be used for the basis of any minutes of order.
I indicate that, upon the consent of the defendant, I am prepared to make an order that exhibit RLT1 to the affidavit of Richard Leon Trebilcock sworn on 20 June 2014, filed in this action, be kept confidential and that no person be entitled to inspect those parts of that affidavit without an order of this Honourable Court and upon notice of the plaintiff of an application for such order; and
That exhibit RLT1 to the affidavit of Richard Leon Trebilcock sworn on 20 June 2014 not be disclosed to any person other than the defendant, his wife Melodee Trebilcock, and the defendant’s solicitor and barrister; and
Upon the undertaking of the defendant that in any business that he operates that involves the manufacture and/or installation of security doors and window screens, for a period of 12 months commencing on the date of his third affidavit, namely 25 June 2014, he will not service customers who require security doors or window screens to be installed in properties situated in the territory as defined in the franchise agreement dated 27 March 2009, which consists of the following suburbs, namely Aberfoyle Park, Chandlers Hill, Morphett Bale, Brighton, Dover Gardens, Craigburn Farm, Flagstaff Hill, Hallett Cove, Happy Valley, Hove, Kingston Park, Marion, North Brighton, O’Halloran Hill, Old Reynella, Reynella, Reynella East, Seacliff, Seacliff Park, Seacombe Downs, Seacombe Gardens, Seacombe Heights, Seaview Downs, Sheidow Park, Trott Park and Woodcroft (“the former franchise territory”); and
Upon the undertaking of the defendant that if he receives an enquiry during the period of 12 months commencing on the date of his third affidavit, namely 25 June 2014, from a potential customer whose property is located in the former franchise territory, he will obtain the contact details of the customer and forward those details to the franchisor or to a person nominated by the franchisor; and
Upon the undertaking of the defendant that during the period of 12 months commencing on the date of his third affidavit, namely 25 June 2014, he will not actively solicit for business or otherwise market the services of any such business that he operates within the former franchise territory, save and except that his home is located in Flagstaff Hill, which is located within the former franchise territory, and his vehicle which includes the signage of his business will be located at his home when he is not out visiting customers or otherwise engaged in business activities; and
Upon the undertaking of the defendant that he will not disclose or disseminate to any person any information regarding the configuration of the mobile workshop located on the back of his truck as depicted in exhibit SJF16 to the first affidavit of Stephen John Frampton sworn on the 4th day of June 2014 (FDN 3) and he will take all steps that he considers reasonably necessary to prevent access to third parties to the mobile workshop until further order of the Court; and
Upon the undertaking of the defendant to provide to the plaintiff all of his quote books for the last 12 months prior to the termination of the Franchise Agreement within 7 days of the date of this order; and
Upon the undertaking of the defendant to transfer the relevant mobile phone number[29] which is to be done by way of the transfer of the SIM card relevant to that telephone number to the plaintiff within 7 days of this order but only upon the basis that from the date of transfer, the plaintiff honours and pays for the mobile phone contract plan held by the plaintiff with Telstra Corporation until 19 February 2016; and
[29] As described in FDN 5, paragraph 7 and FDN 16, paragraphs 7-9.
Upon the undertaking by the defendant to keep a monthly account of the business activities of the defendant: by the calculation of all sales, costs of sales, overhead expenses and net profits generated in accordance with the requirements of the Australian Accounting standards and which are to be provided from time to time as required by the court;
The plaintiff’s application for an order with injunction restraining the defendant from using the mobile workshop installed on the Ford Transit van depicted in SJF 16 to the first affidavit of Stephen John Frampton is dismissed.
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