Oracal Int. v Int. Professional Traders

[1999] NSWSC 753

CITATION:	Oracal Int. v Int. Professional Traders [1999] NSWSC 753
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	3070/99
HEARING DATE(S):	22/07/99
JUDGMENT DATE:	28 July 1999
PARTIES :	Oracal International Pty Ltd & Anor v International Professional Traders Pty Limited & Ors
JUDGMENT OF:	Bryson J at 1

COUNSEL :	R. Darke for Plaintiffs J.S. Wheelhouse for Defendants
SOLICITORS:	Potts Latimer for Plaintiffs John M Barboutis for Defendants
CATCHWORDS:	INJUNCTIONS - Interlocutory injunction refused where plaintiff claimed that defendant was diverting a commercial opportunity from a joint venture in breach of fiduciary obligations - interlocutory injunction refused on discretionary decision after review of the parties' dealings.
DECISION:	Interlocutory injunction refused.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRYSON J.

WEDNESDAY 28 JULY 1999

3070/99 ORACAL INTERNATIONAL PTY LTD & ANOR v INTERNATIONAL PROFESSIONAL TRADERS PTY LIMITED & ORS

JUDGMENT

1   HIS HONOUR: The plaintiffs claim that the defendant have breached duties of confidentiality by carrying on the business of selling computers to Tandy Electronics a leading retailer of electronic goods. By their Notice of Motion of 8 July 1999 the plaintiffs claimed an interlocutory injunction and other controls over the defendants’ conduct. On 22 July 1999 I dismissed that application, and now state my reasons. 2   The first defendants trade under the firm name Datcom Computers, and the second and third defendants are the principals in the firm’s affairs. Mr Jalal Sayed (known as Jay) is the director of the first of the Datcom companies and Mr Sammy Sayed is employed by it as manager. An interlocutory application is not an occasion for disposing finally of disputed issues and my statements about the facts in these reasons should be so understood. The plaintiff is an importer and distributor of telecommunications products including cordless telephones, and for some time before March 1999 supplied cordless telephones branded “Eagle” and accessories to Tandy. In March 1999 Mr Basker Joseph who is Tandy’s senior buyer approached Mr Magafa, who is the principal of Oracal, and initiated business for a supply of computers. Oracal did not then deal in computers but early in March 1999 Datcom Computers installed some office computers in Oracal’s sales and administration office at Belmore. In a series of conversations Mr Magafa arranged with Mr Jay Sayed for a supply of a range of computers to Tandy, and this led Mr Magafa to introduce Mr Sayed to Mr Joseph. In conversations with Mr Joseph arrangements were made for a range of computers at a variety of the prices to be obtained and delivered to Tandy; discussion settled on four models and on wholesale prices to Tandy for these. The computers were to be branded “Eagle”. Some practical arrangements were made for handling orders. Tandy was to give orders to Oracal, and only Oracal would be entitled to payment by Tandy. Oracal would arrange delivery within two days of receipt of the order. Mr Magafa came to arrangements with Mr Jay Sayed to the effect that Mr Magafa would arrange the orders from Tandy, fax them to Datcom, Datcom would deliver the computers to Tandy and the profits would be shared 50-50. In this arrangement Datcom was to invoice Oracal at wholesale prices for the computers and could only look to Oracal for payment. 3   Negotiations about the terms of a long-term arrangement continued in various forms but no agreement was ever reached. The positions taken on one side and the other in a draft agreement and in letters stipulating negotiating positions do not establish obligations of the parties. 4   Relations between Datcom and Oracal were at two different levels. The computers were sold by Datcom to Oracal, giving rise to obligations to pay prices and to the ordinary flow of commercial documents, that is invoices and claims for payment. There was however another level at which there was at least some element of a joint-venture, shared-venture or partnership, in that the profits of the dealings were to be shared equally. It was the plaintiffs’ case that the defendants have appropriated for their own benefit a business opportunity which was the subject of the joint venture, and that in so doing they are in breach of fiduciary obligations and duties of good faith. 5   Payment by Oracal to Datcom for the computers sold was a basic practical necessity for the existence and continuation of the second relationship. Datcom Computers had to obtain supply, from other suppliers and by assembly and manufacture of its own, and the business could not take place and the flow could not continue unless the goods were paid for by Oracal. Datcom had no contractual relationship with Tandy and no access to the payments from Tandy to Oracal. 6   There was no formal expression of the arrangement at either level. In point of fact there were no express arrangements establishing how long either relationship was to continue, or establishing any need to give notice before withdrawing from it. There was no express arrangement dealing with confidentiality in the introduction of Tandy’s business or with confidentiality of knowledge relating to Tandy’s needs, and there was no arrangement however informal on the subject of restricting Datcom from dealing with Tandy or with any other person to whom Datacom could sell computers. 7   In my judgment Oracal has very poor prospects of establishing that there was a fiduciary relationship between Oracal and Datcom in relation to any transactions other than those which actually took place. It was only to those that the arrangement for profit sharing applied, there was no contractual undertaking or informal arrangement that transactions would continue, and there was no reason why it would be a breach of faith for either party to withdraw at any time and thenceforward to decline to continue the relationship but act in its own interests solely. 8   It is necessary to define the scope of activities to which the joint venture related in order to test whether some conduct of a party to it is a departure from the joint venture or a breach of any fiduciary obligation arising from it. Where there was no obligation to continue to participate in the venture, and the venture did not extend to any transactions other than those in which the parties chose to participate, it cannot be said that there has been breach of any duty of good faith by desisting from participating and carrying on business in some other way. 9   The continuance of the negotiations and their inconclusive outcome assist in demonstrating the limited nature of the venture and of the obligations associated with it. 10   The arrangements were acted on in a number of sales in March, April and May 1999. By May Datcom expressed dissatisfaction with the rate at which payments were being received. Communications between the parties were inconclusive in establishing the plaintiffs’ position about Datcom’s entitlement. Even at the hearing the plaintiffs did not put forward and disclaimed the need to put forward any ascertainable position about what sums were payable to Datcom, when payment should be made and would be made, what parts of Datcom’s claim for payment were disputed, and on what grounds. By the time of the hearing Datcom’s detailed reconciliation of the account and assertions about its claim for payment had been before the plaintiffs for many weeks, but the plaintiffs had not adhered to any clear or identifiable position. The evidence given by the plaintiffs did not establish any reason for difficulty in stating what difficulties or matter of dispute there are about the defendants’ claims, or in making payments. On the facts it is highly probable that significant sums of money are long overdue for payment to Datcom. The defendants’ reconciliation figures include claims for expenses which are allowable to it only under the profit sharing arrangement and go beyond simple claims for payment for sales of goods. 11   Continuance of payments to Datcom would be an essential part of sincere adherence by Oracal to the venture; as otherwise it would soon become distorted, and indeed it appears to me that it did become distorted, into an arrangement in which Datcom supplied goods of significant value over an extended period and was not paid, while Oracal received payments for the goods without having given value. A distorted arrangement like that has no real claim to equitable protection. 12   At a relatively late stage in the transactions the second plaintiff OICP Pty Ltd was introduced into the parties’ relationship as the company which was to stand between Datcom and Tandy as purchaser from Datcom and seller to Tandy. The object was to give Datcom, one of the principals of which became one of the two directors of OICP, some control over the flow of funds received from Tandy. Its introduction had little effect on events as very few or possibly no transactions were actually conducted through it. OICP’s part was not as a principal but as an integer or means for facilitating the relations between the principals which already existed. The presence of OICP as a company and the fact that one of the defendants held office as a director in it gave some colour to a claim against that director and those associated with him based on breach of fiduciary duty towards OICP; but it appears to me that there is no real prospect of relief being granted on that basis, as OICP’s role was no more than as an integer and it never became the principal to whom fiduciary duties were owed. 13   In June 1999, when Datcom’s dissatisfaction appears to have been complete and it had not received either payment or any clear response to its reconciliation and assertions about what was due to it, Datcom began dealing directly with Tandy for the supply of computers. It is those direct dealings which the plaintiffs seek to restrain in those proceedings. 14   It appears clearly on the evidence that the plaintiffs are not in the position to say that their relationship with the defendants was conducted in a regular way, or that the defendants’ rights with respect to payment for the supply of computers was respected, or that entitlements to open dealing and a clear acknowledgment of their position in a joint venture were accorded to the defendants. The defendants’ ability to continue the relationship and to comply with any fiduciary duties which they may have incurred is interdependent with compliance with the plaintiffs’ obligations to make payments to the defendants. It is basic to the relationship at both levels that Datcom should be paid for supply, as unless that happened it would become commercially impossible for Datcom to continue to participate. It is clear that payments have not been made in a regular course and that Datcom has not been given by Oracal payments which in the nature of business it would need to have if Datcom was to carry on. The practical basis for the venture to continue has not been put in place by the plaintiffs. In my view this is very adverse to a decision by a court to enforce other duties under the relationship which fall on the defendants. It is important when the Court is asked to enforce some contractual or analogous obligation by an equitable remedy to consider whether the whole skein of contractual obligations on both sides has been complied with or can be enforced. In this regard the plaintiffs’ counsel proffered the usual undertaking as to damages, pointed out that the plaintiffs have claimed an inquiry before the Master to establish the amount due to the defendants, and submitted that it was open to me to grant relief on any appropriate terms. None of these measures could provide a ready or practical solution to the difficulty with which the defendants have been confronted arising from there not having been a regular flow of payments, or appropriate acknowledgment of their entitlements or statements of the grounds of dispute. The plaintiffs’ failures in this regard are factors adverse to the grant of an interlocutory order, while the measures put forward by the plaintiffs’ counsel do not appear to me to be complete or satisfactory remedies, or to assist the defendants at the appropriate time. 15   The plaintiffs’ counsel also made submissions based on protection of confidential information. There was no express agreement or arrangement establishing that information was or was to be treated as confidential, or limiting the defendants’ future use of it. There is nothing in the nature of a secret process or any other characteristic which makes the information inherently appropriate for protection. It is not in any sense a secret or a confidence that Tandy, which has an extensive retail chain of stores selling electronic goods, is in the market to purchase them. What Oracal knew and could impart in March 1999 was somewhat more specific, and it related to an inquiry by Tandy’s senior buyer for a particular class of goods, but not so specific as to create any realistic prospect of its being held that it was inherently confidential in character. 16   The plaintiffs’ counsel also offered the usual undertaking as to damages. No evidence was put forward establishing that the plaintiff companies are financially responsible and in a position to fulfil such an undertaking. OICP manifestly is not, while Oracal has had remarkable difficulties even in making some of the payments which have already been made, resorting to expedients which are not ordinarily followed in commerce, such as paying an account with a customer’s cheque endorsed on to the payee, arranging for an account to be paid by being charged to the Mastercard of an individual whose connection with Oracal does not appear (and payment in that way was only obtained after the relevant bank had declined approval on several occasions) and another strange event in which a cheque for $30,000 drawn by one of the principals of Oracal on his private account, and not on the company’s account, was handed over on account but was later cancelled. These events and also the difficulties relating to obtaining reconciliation of accounts and payment to which I have earlier referred, leave me to doubt the plaintiffs’ financial responsibility and the suitability of the court’s acting on its undertaking as to damages. 17   A very significant circumstance affecting the balance of convenience is that dealings with Tandy should not be disturbed. Tandy is, in relation to these parties, a powerful operator in the market and has a full range of choices about the sources from which it will obtain goods. Involvement in Tandy in disruptions or disputes must be avoided. 18   The prima facie picture presented by the evidence is a fairly simple one in which there was a flow of commerce in which the parties participated, the flow altered because Datcom could not get payment at appropriate times for the goods which it was contributing, and then the flow altered as Datcom began to deal directly with Tandy and could get payment for its goods. The likely result of any interlocutory injunction would be no more than to prevent any transactions taking place at all; the injunction would not compel the plaintiffs to meet their obligations, there is significant doubt about their capacity or willingness to do so, and intervention by the court would probably do no more than destroy the opportunity for any party to deal with Tandy. 19   Overall I felt great reluctance to compel the defendants to comply with what the plaintiffs alleges is the defendants’ side of the arrangements when the defendants have not received the benefits of compliance by the defendants with the most elementary and basal obligation of the whole relationship. 20   For these reasons I refused to make an interlocutory injunction. 21   The defendants’ counsel was prepared, if the Court thought right, to undertake, on terms which require to be settled, to keep accounts of its transactions, but I did not regard it as appropriate to require this undertaking to be given.

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