Real Tech Systems Integration Pty Ltd v Meuross, Douglas Sidney

[1997] FCA 227

IN THE FEDERAL COURT OF AUSTRALIA  )
NEW SOUTH WALES DISTRICT REGISTRY  )
GENERAL DIVISION  )            No. NG 149 of 1997

BETWEEN:REAL TECH SYSTEMS INTEGRATION

PTY LIMITED

(A.C.N. 059 309 161)

First Applicant

EAGLE DEVELOPMENTS INTERNATIONAL

PTY LIMITED

(A.C.N. 063 894 724)

Second Applicant

AND:DOUGLAS SIDNEY MEUROSS

First Respondent

HI‑TECH FREIGHT SOLUTIONS PTY LIMITED

(A.C.N. 077 029 273)

Second Respondent

CORAM:Lehane J

PLACE:Sydney

DATE:4 March 1997

EXTEMPORE REASONS FOR JUDGMENT

LEHANE J:  This is an application made on short notice for orders restraining the respondents, on an interim basis, from making representations as to their alleged ownership of copyright in software known as the CIS program and as to other matters relating to authority to deal with the CIS program.  Secondly, an order is sought restraining the respondents, until a date to be specified or further order, from making representations that either of the applicants is in financial difficulties.  Thirdly, an order is sought to restrain the respondents, on an interim basis, from soliciting or enticing
customers of a business claimed to have been transferred by the first respondent to the second applicant.  There is another order sought in relation to the soliciting of employees; as to that, the respondents have offered, again on an interim basis, an undertaking subject, as I understand it, to one possible exception which is likely to be agreed.

In broad terms what is said is that the first respondent sold the CIS program to the applicants and that the second respondent became a director and an employee of, and a shareholder in, the second applicant.  Towards the end of last year difficulties arose between the applicants and the first respondent resulting in the first respondent's resignation as a director of the second applicant and subsequently the termination of his employment.

It is then alleged that the first respondent commenced to make preparations, at least, for the purpose of entering into competition with the applicants, using the CIS program.  There is evidence given by Mr White, a director of each of the applicants, of conversations between himself and the first respondent as to the first respondent's alleged activities.  Mr White's evidence alleges denials by the first respondent of any proposal to enter into competition with the applicants and acknowledgments by the first respondent that the CIS program, and particularly copyright in it, is owned by the second applicant.

Information which the applicants received as to the activities of the second respondent led to correspondence between solicitors for the parties.  The relevant correspondence commences with a letter of 28 October 1996, following by about a month the termination of the first respondent's employment with the second applicant.  The letter is from the applicants' solicitors to Mr Meuross and it makes assertions as to the applicants' ownership of the copyright in the CIS program and demands for the return of various material.  It also requires that the second respondent not make unauthorised use of what is said to be confidential information obtained by the second respondent in the course of his employment by the second applicant.

That letter received a response in the form of a letter to the applicants' solicitors from solicitors acting for the first respondent.  The letter is important, particularly because it asserts that the CIS program was not transferred to the second applicant and, indeed, that it has never been marketed or sold by the second applicant.  There is a denial that the first respondent has used improperly any confidential information and there is then a series of demands in relation to other matters arising out of the relationship between the parties which are of no significance for present purposes.

The letter from the first respondent's solicitors remained unanswered, despite two reminders, until a letter was sent by the applicants' solicitors to the respondents' solicitors on 21 February 1997.  That letter set out in some detail the basis on which the applicants claimed their entitlement to the CIS program and the applicants' solicitors instructions in relation to the confidential information and the activities in which, they were instructed, the second respondent had engaged. Those included soliciting employees of the second applicant, soliciting its clients, entering into a competing business and making
representations that the second applicant was in financial difficulty and would be unable to service its customers' needs.

That, in turn, ignoring some intervening correspondence on mainly unrelated matters, received a response in the form of a letter from the respondents' solicitors which is important for a number of reasons.  One is that it reasserts that the ownership of the CIS program was not transferred to the second applicant.  Surely, it disputes the applicants' version of the events giving rise to the relationship between the applicants and the first respondent and, thirdly and most particularly, it mentions for the first time the existence of the second respondent, said to be a company in which the first respondent was a shareholder and of which he was a director, "which" the letter continued, "operates in the same industry as Equal Developments Pty Limited", that is the second applicant.  It proceeds to assert that the respondents are not in breach of obligations and expresses a hope that a meeting can be arranged to resolve matters.

It was in that state of the correspondence that late last week the applicants sought and received leave to serve short notice of an application seeking a number of orders against the respondents including the interim relief which I have been asked to grant this morning. 

The only evidence before me is that of Mr White in his affidavit sworn 28 February 1997.  It has been put to me by Mr Foster SC, for the applicants, that the evidence indicates the existence of a strong prima facie case.  I think it is correct to say that the
evidence of Mr White, taken as for present purposes it must be, on its own, does indicate on a prima facie basis the existence of a case supporting the relief that the applicants' seek.  Particularly, it provides evidence of the ownership by the second applicant of the intellectual property rights in relation to the CIS program.  It provides evidence that the first respondent denies the rights claimed by the second applicant in relation to the CIS program.  It provides evidence, also, of competitive activities on the part of the first respondent, including his establishment of the second respondent for the avowed purpose of operating in the same market as the second applicant: that is, to compete with it.

It may be taken, I think, subject to one matter to which I shall return in a moment, that if no interim relief is granted, on the evidence the applicants may suffer prejudice.  The application for interim relief is, however, resisted by the respondents and principally on two bases.  The first is that the grant of interim relief in the form sought is likely to cause substantial prejudice to the respondents in circumstances where it may not be clear - and there is at this stage no evidence as to this - whether what the respondents are, in fact, marketing is the CIS program (or perhaps a derivative of it) and, therefore, whether the marketing of whatever programs the respondents in fact market involve the making of any of the representations which the applicants seek to restrain.

Mr Harrowell, who appeared for the respondents, informed me that it would be possible, as he understood it, within a very short time to obtain instructions as to whether, as he put it, what the respondents were marketing was or was not the CIS program.

That is to be treated, I think, as a matter of asserted prejudice going to the question of the balance of convenience.  The other matter which the respondents strongly pressed was delay.  The delay particularly pointed to was that between the respondents' solicitors response of 1 November 1996 to the initial demands of the solicitors for the applicants and the applicants' substantive rejoinder, which was delivered well over two months later, despite intervening reminders.

On the face of it that is a very considerable delay, in circumstances where, as Mr Harrowell has pointed out, there was not merely a clear claim of right on the part of the respondents in relation to the CIS program but also evidence of Mr White as to conversations and events suggestive of activities on the part of the first respondent of the kind which the applicants now seek to restrain, those events and conversations having occurred over a period of about two months.

To that the answer of the applicants is I think principally this: that it was not until they received a letter from the respondents' solicitor of 25 February 1997, that is last week, that they knew of the existence of the second respondent, nor was it until then that the applicants had been informed by the respondents or their solicitors that the respondents were proposing to operate, indeed were operating, in the same industry as the second applicant.

Nor, it was said, was it clear until relatively recently that there was any active solicitation either of employees or of customers of the applicants.  In short, it is said that the
applicants have a strong prima facie case, and as to the balance of convenience, it is said that there is clear evidence of prejudice to the applicant if interim relief is not granted and that, when the nature and terms of the correspondence are properly understood, there is no countervailing element of delay serious enough to persuade the court that it is inappropriate now to grant interim relief.

Undoubtedly, in my view, the matter which tells most strongly in favour of the respondents' is the question of delay.  I am not by any means convinced that before the letter of 25 February 1997 the applicants were not fully aware, not only of the respondent's claim of right in relation to intellectual property rights to the CIS program but also of a real possibility that the first respondent at least was proposing to enter, and indeed was already entering, into comparative activities, including solicitation.  Nor do I think it makes a great deal of difference to point to the fact that the first respondent had formed the second respondent for the purpose of carrying on competitive activities.  The relevant question, in my view, is not whether the first respondent was proposing to adopt corporate form but whether he was threatening to infringe the rights claimed by the applicants; and it seems to me inescapable that those threats were made, and made fairly clearly on the evidence, considerably before receipt of the letter of 25 February.

Mr Foster said, and rightly, that the strength of a prima facie is a strong element in the balance of convenience.  The conclusion to which I am driven, however, is that the balance of convenience does not favour the making of orders in the form of orders 1 and 2 set out in the short minutes handed up today.  On the other hand, I do think that, upon
the limited evidence I have, the prima facie case is one that demands an answer and I think I should take into account that Mr Harrowell has been unable to obtain instructions before today, despite the length of time during which correspondence has been occurring and the availability of at least three days, albeit including a weekend, in which instructions might have been obtained; nor should I overlook the fact that the respondents' solicitors are not instructed in court today by representatives of their clients.

For those reasons I am not inclined to make interim orders now.  I am not inclined either to allow the matter to remain without being dealt with on a more conclusive basis very promptly.  The conclusion, therefore, is that I decline to make the orders sought by the applicant.  I would, however, be sympathetic to a motion to renew the application for those or similar orders in a very short time.  In my view, subject to further argument, it would not be appropriate to allow the matter to go beyond the next few days, certainly this week.

[Discussion with counsel ensued].

On applicants' by their counsel giving the usual undertaking as to damages, I note the undertaking of the respondents by their counsel, up to and including 5.00 pm on Friday, 7 March 1997 or until further order, that the first respondent will not solicit, attempt to solicit, entice away or attempt to entice away from the employ of the applicants or either of them any employees of the applicants or either of them except Mr Zbignew Byczkowski.

Secondly, I direct that any affidavits of the respondents in relation to the applicants' motion for interlocutory relief be filed and served not later than 5.00 pm on Wednesday, 5 March.  I direct that any affidavits in reply on the part of the applicants be filed and served not later than 5.00 pm, Thursday, 6 March.  I order that costs to date be reserved and I stand over the further hearing of the applicants' motion for interlocutory relief to 2.15 pm on Friday, 7 March 1997.

I certify that this and the preceding 8 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane.

Associate:

Dated:  4 March 1997

Heard:  4 March 1997

Place:  Sydney

Decision:  4 March 1997

Appearances: Mr L G Foster SC instructed by Jenkins & Associates appeared for the applicant.

Mr J G Harrowell of Hunt & Hunt appeared for the respondent.