Premier Pizza Distributors Pty Limited v Baingold Pty Limited

[2004] NSWSC 1218

CITATION:	Premier Pizza Distributors Pty Limited v Baingold Pty Limited & Ors [2004] NSWSC 1218
HEARING DATE(S):	27, 18 October and 1 November 2004
JUDGMENT DATE:	14 December 2004
JURISDICTION:	Equity Division
JUDGMENT OF:	Windeyer J at 1
DECISION:	Plaintiff entitled to injunction restraining further breach of deed of restraint. Claims against first, third, fourth and fifth defendants dismissed
CATCHWORDS:	TRADE AND COMMERCE - restraint of trade - sale of business - defendants sold business to plaintiffs subject to clause that they (excepting the third defendant) would not engage in similar business within 10 kilometres within three years - where third defendant set up rival business - whether lease guarantee/financial gifts constituted breach of contract - meaning of "involvement" in business
LEGISLATION CITED:	Trade Practices Act 1974 (Cth)
PARTIES :	Premier Pizza Distributors Pty Limited (Plaintiff) Baingold Pty Limited (First Defendant) Gioacchino Faraone also known as Jack Faraone (Second Defendant) John Faraone also known as Giovanni Faraone (Third Defendant) Maria Faraone (Fourth Defendant) GGM Specialised Distributors Pty Limited (Fifth Defendant)
FILE NUMBER(S):	SC 1937 of 2004
COUNSEL:	Ms P M Sibtain (Plaintiff) Mr D L Warren (Defendants)
SOLICITORS:	Diamond Peisah & Co (Plaintiff) G Cerin (Defendants)

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IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER J

TUESDAY 14 DECEMBER 2004.

1937/04 PREMIER PIZZA DISTRIBUTORS PTY LTD V BAINGOLD PTY LTD & ORS

JUDGMENT

Facts

1 Premier Pizza Distributors Pty Ltd (Premier Pizza), then Gumleaf Property Pty Ltd, by contract dated 4 June 2003, purchased from Baingold Pty Ltd (Baingold) its business as a supplier of packaging and ingredients for the pizza industry. The purchase price was $410,000 comprising $337,100 for goodwill and $72,890 for plant and equipment.

2 The directors of Baingold were the second defendant Gioacchino Faraone (Jack) and his wife Maria Faraone (Maria). The third defendant Giovanni Faraone (John) is the son of Jack and Maria. The fifth defendant GGM Specialised Distributor Pty Ltd (GGM) is a company owned and controlled by John. The sole director and sole shareholder of Premier Pizza is Mrs Beck. She is the wife of Mr Beck, who was and is the manager of the company.

3 The agreement was completed on 3 July 2004. It included a term that Baingold would not engage in conduct derogating from the purchaser’s right to obtain the full benefit of the goodwill of the business purchased. The agreement for sale included a term which required covenants to be given by Jack and Maria, they being the directors of Baingold by deed. That deed was duly executed and contained the following terms:

In consideration of the Purchaser having entered into the Contract with the Vendor the Covenantors as the Key Persons in the Contract covenant and agree with the Purchaser that they will not, without the prior written consent of the Purchaser, be involved in a business which is the same or a similar type of business to the Business during the Restraint Time within the Restraint Distance
The Covenantors must not during the Restraint Time engaged [sic] in any conduct derogating from the Purchaser’s right to obtain the full benefit of the goodwill of the Business pursuant to the Contract

The deed includes the following definitions:

(a) Involved includes being involved as a Sole Trader, Partner, Joint Venturer, Manager, Agent, Appointor, Assistant, Clerk, Director, Majority Shareholder or person with the capacity to exercise substantial control of corporation;
(b) Restraint Time means three (3) years from the date of completion of the Contract; and
(c) Restraint Distance means an area of ten (10) kilometres outside the Sydney Metropolitan Area

4 There is no contention about the validity of the covenant.

5 Mr Beck inquired from Jack as to the position of John, who was working in the business and considered whether or not a restraint covenant should be sought from him. According to Mr Beck, Jack said:

It is not necessary, he hasn’t got the money to set up a business; anyway he’s too lazy.

Mr Beck said that he accepted this and relied upon it in not seeking a covenant.

6 At the time of contract John was contemplating setting up his own business. He registered a business name GGM Suppliers and Distributors on 23 June 2003. The business was the distribution of imported pizza boxes and other pizza making products.

7 Jack was aware of the proposals of John as was Maria. I find that Jack was aware of this when he made the statement about John’s business abilities. Later on the fifth defendant was formed with the same name and business. Jack paid the accounting fees for this.

8 John and his company are now in direct competition with Premier Pizzas. They compete in much the same market, although John at one stage represented that he was a wholesaler. Some of the prior customers of the business purchased are now customers of GGM, but not all of the customers who did not continue with Premier Pizzas are customers of GGM.

9 The boxes sold by Baingold and subsequently by the plaintiff are produced by a company called T.E.V.E Food Packaging Pty Ltd. The design for the boxes belonged to Baingold, albeit that some pizza shops paid for special designs. The design was part of the assets of Baingold purchased by Premier Pizza. John, while working for Baingold and prior to settlement obtained the computer software CD package containing the designs and he sent a copy to Transindo Traders which company subsequently produced boxes for GGM. There is no doubt that this was an appropriation of the property of the plaintiff without its consent.

10 After the date of completion Jack and Maria went on an overseas holiday. They left some cheques on the account of Baingold, signed but with the payee left blank, in case these were needed. One of these John took from a desk in his father’s house and completed it in favour of Transindo for $15,0000 being a security deposit for the purchase of boxes by GGM from Transindo. While there is no doubt that John used the cheque for this purpose for the benefit of GGM, I find that neither Jack nor Maria nor Baingold knew of this or authorized it.

11 There was some other assistance given to John by his parents. They gave their son the sum of $20,000 out of the proceeds of sale of the business. They said they had always told him they would do this as he had worked hard there. $14,000 was used to pay Transindo for pizza boxes. Maria also gave to her son, the sum of about $6,000 to pay for a motor vehicle. She said that this was a loan. Finally GGM has leased a warehouse at Mortdale for the purposes of carrying on its business. Jack has guaranteed performance of the lease by the lessee.

12 One of the claims of the plaintiff is that Jack and Maria have breached their restraint covenant and perhaps through them that Baingold has breached its agreement by acting in a way to deprive the plaintiff company of the full benefit of its purchase, although it seems this last claim was not pressed in final argument. So far as Maria is concerned there is no evidence of this unless it could be said that the gift of the $20,000 or the loan of moneys to buy the motor car was involvement in the business. I do not think such an interpretation is possible. I think that the same finding applies to assistance by means of the guarantee. That is, in ordinary terms, not being involved in the business. There is, however, another matter which concerns Jack but not Maria. Video evidence taken on 25 and 29 June 2004 shows Jack engaged at the warehouse, driving a forklift, moving materials around the warehouse, carrying files, conversing with customers and carrying stock from the warehouse to the cars of customers. Jack said that he had been there on only two occasions, meaning those when the investigator took the film. He denied the giving of any assistance. He said he was there to copy documents and fax applications for employment. I do not accept that evidence. I consider the evidence of both Jack and John to be quite unreliable and I would be hesitant to accept any of it without support from a witness I found to be reliable. I believe Mr Hanna’s evidence that he was threatened by John. Jack was present when boxes were delivered by Transindo. He helped unload them. I find that he was doing more than he admitted that he was doing and I find that he has been involved with his son’s business as he has assisted with it in breach of the covenant. The evidence does not enable me to find the extent of the involvement. I should say that I also accept the evidence of Mr Hanna that Mr John had said to him “We are back in business, me and my father”. There is, however, no evidence that Jack has any financial interest in the business, or that he is receiving any salary or payment from GGM or from his son. He is and has been assisting in the business.

13 I move now to the pleaded claims.

The claim against Baingold

14 As I have stated the claim is that Baingold engaged in conduct derogating from the sale of the business to the plaintiff company. The first claim is that Baingold did not supply a complete list of suppliers to Premier Pizza. There is no evidence of this and it was not pressed. The second claim relates to the artwork. It is I consider a claim against John and not against Baingold. John exploited the artwork Baingold did not. All that Baingold is claimed to have done was to make a payment of $15,000 but this payment was not within its knowledge. The claim against Baingold should be dismissed.

Claim against Jack for breach of contract

15 As I have said I find that there is a breach of the restraint agreement. I do not think that the furnishing of the guarantee amounted to involvement. The breach is that of involvement through working in the business. The plaintiff is entitled to an injunction to restrain further breach and is entitled to an enquiry as to damages resulting from that breach. However the plaintiff would bear a risk as to costs of the enquiry.

Claim against John and GGM

16 There is a claim that John removed a list of Baingold’s clients prior to settlement and had used this in his own business. He denied this. He said that he either remembered the names of customers, or found these out through the telephone book. In evidence he has said he found them through the Internet White Pages. While his evidence about this was not compelling it does not lead to a finding that he took the customer list. The plaintiff has not established this to be the case. He had dealt with customers, and he would have remembered a great many names of customers of Baingold. It is not difficult to find lists of pizza shops.

17 I turn to the artwork claim. This is not a claim for breach of copyright. The original claim for an order for delivery up of the boxes was ultimately not pressed. What was pressed was a claim for damages against John and GGM for providing a computer copy of the artwork, and so furnishing it to Transindo and using it in a somewhat altered form. There is no evidence of damage resulting from this which could justify a reference to a Master.

18 The claim against the third and fifth defendants should be dismissed.

Misleading and deceptive conduct

19 I find that the statements about John’s competence were made by Jack and made by him in his position as a director of Baingold. I accept that as a result of these statements Mr Beck did not seek to obtain a covenant from John. The statements were made at a time when Jack knew of his son’s proposals to set up a business. I find that he knew this was a business which would compete with the business of the plaintiff, although he denied that.

20 Reliance on the statements of Jack was pleaded in the statement of claim. Mr Beck gave evidence that had he known the true position he would have sought a restraint covenant from John. That does not mean that one would have been given. There might have been the chance of its being obtained, but that is all. The plaintiff company might still not have proceeded with the purchase. I find that statement difficult to accept. No doubt had the true position been known and a covenant was not given Mr Beck would have considered the matter further. The fact is, however, that the business appears to have prospered under him and increased turnover and presumably profit. The more important matter is that the attitude or reliance of Mr Beck is not a matter which can carry the day. There is no evidence from anyone responsible as to the plaintiff’s reaction had it known the true position. Mrs Beck has not given evidence. Mr Beck as manager, has not been shown to be the responsible decision maker on this matter so far as the company is concerned, a company in which he was neither director nor shareholder. The claims against the various defendants under s52 of the Trade Practices Act 1974 (Cth) and s75B of that Act are not made out.

21 As I have said the plaintiff is entitled to an injunction restraining Jack from breaching the restraint deed and for an inquiry as to damages sustained by the plaintiff as a result of breach. The claims against Maria should be dismissed.

22 The parties should bring in draft orders to give effect to these reasons before the end of term.

I certify that this and the preceding 7 pages are a true copy of the reasons for Judgment herein of The Honourable Mr Justice Windeyer.

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Associate
Date………………………..
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Last Modified: 12/17/2004