Rimcost v Alarm Monitoring and Procter - [2003] FMCA 269

FEDERAL MAGISTRATES COURT OF AUSTRALIA

RIMCOST v ALARM MONITORING & PROCTER

[2003] FMCA 269

TRADE PRACTICES – Whether there was misleading and deceptive conduct by a party in soliciting for customers when the use of customers details constituted a breach of contract and/or of the respondent’s obligations of confidentiality – whether the letter constitutes a misrepresentation that the respondent was legally entitled to enter into contractual relations with the recipient.

CONTRACT – ASSIGNMENT – Where the respondent entered into a contract with a party who was not the applicant – where the respondent took over the original party’s business and business name – whether the applicant was the beneficiary of an equitable assignment of a sub-contract agreement between the first respondent and the original company.

CONTRACT – IMPLIED TERMS – Where the respondent entered into a sub-contract to provide Alarm Monitoring services – where the respondent was provided with details of the applicant’s customers – where these details were necessary for the proper carrying out of the contract – whether a term of confidentiality of the information can be implied.

EQUITABLE OBLIGATION OF CONFIDENTIALITY – Whether a list of customers and details is considered confidential information – where the respondent used customer details for its own business purposes – whether the information was of a commercial value – whether additional and updating information obtained by the respondent was information collected by an agent for the use of its principal – whether an equitable obligation of confidentiality extends to an assignee.

DAMAGES – Nature of damages to be awarded for breach of contract and breach of equitable obligation of confidentiality – whether the applicant is entitled to damages for lost chance – whether the respondents were aware of the likelihood of the chance when entering into the contract or upon renewal – application of second rule in Hadley v Baxendale – whether damages for breach of equitable obligation of confidentiality are different from damages for breach of contract in the circumstances of this case – calculation of damages.

Trade Practices Act 1974, s.52, 75B, 82
Fair Trading Act 1987 (NSW), s.42
Conveyancing Act 1919 (NSW), s.12

Robb v Green (1895) 2QB 1; on appeal, (1895) 2QB 315
Wessex Dairies Limited v Smith (1935) 2KB 80
Faccenda Chicken Limited v Fowler (1987) 1Ch 117
Peninsula Real Estate Limited v Harris (1992) 2NZLR 216
NP Generations v Fenseley (2001) 80 SASR 151
Centaur Mining and Exploration Ltd v Anaconda Nickel Ltd [2001] VSC 224
Burger King Corp v Hungry Jack’s Pty Ltd [2001] NSWCA 187
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Hughes Aircraft Systems International v Air Services Australia (1997) 76 FCR 151
Service Station Association Ltd v Berg Bennet & Associates Pty Ltd (1993) 45 FCR 84
United Dominions Corporation Ltd v BrianPty Ltd (1985) 157 CLR 1
Byrne & Frew v Australian Airlines Ltd (1995) 131 ALR 422
Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) FCA 858
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 Bevanere Pty Ltd v Lubidineuse (1985) 7 FCR 325
Dart Industries Inc v David Bryar & Associates Pty Ltd (1997) 38 IPR 389
NT Power Generation Pty Ltd v Power & Water Authority [1999] FCA 828
The Ohio Art Company v Hunter Leisure Pty Ltd (Unreported, FCA, 2 September 1998)
Malec v JC Hutton (1990) 169 CLR 638
Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64
Sellars v Adelaide Petroleum (1994) 179 CLR 332
Aquaculture Corporation v New Zealand Green Mussel Company (1990) 3 NZLR 299.
Australian Breeders Co-Operative Limited v Jones (1997) 150 ALR 488

Applicant:

RIMCOST PTY LIMITED

First Respondent:

ALARM MONITORING PTY LIMITED

Second Respondent:

ROBERT PROCTER

File No:

SZ 1237 of 2002

Delivered on:

7 July 2003

Delivered at:

Sydney

Hearing date:

29 May 2003
(Final submissions received 30 May 2003)

Judgment of:

Raphael FM

REPRESENTATION

Counsel for the Applicant:

Mr C C Hodgekiss

Solicitors for the Applicant:

Goldbergs

Counsel for the Respondent:

Mr J M Ireland QC

Solicitors for the Respondent:

McGirr James Hall & Associates

ORDERS

Judgment for the applicant against the first and second respondents in the sum of $4,125.50.
The first and second respondents to pay the applicant’s costs to be assessed pursuant to Part 21 and Schedule 1 of the Rules of the Federal Magistrates Court.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SZ 1237 of 2002

RIMCOST PTY LIMITED

Applicant

And

ALARM MONITORING PTY LTD

First Respondent

ROBERT PROCTER

Second Respondent

REASONS FOR JUDGMENT

Introduction

The applicant in these proceedings, by way of an amended application dated 26 May 2003 and filed in court, seeks damages against the respondent in the sum of $110,652.95 claiming that the respondent was in breach of s.52 of the Trade Practices Act 1974 and/or s.42 of the Fair Trading Act (NSW) 1987, alternatively that the respondent was in breach of an equitable obligation of confidence by utilising for its own purposes certain client details provided to the respondent by the applicant or alternatively was in breach of contract by failing to keep the said details confidential and utilising them for its own purpose.
The respondent denies the allegations stating that it did not enter into any contract with the applicant nor did it have any equitable obligations of confidence towards the applicant in the circumstances which existed at the time the arrangements between the parties ceased. The respondent denies that by its conduct towards customers it engaged in misleading and deceptive conduct in breach of s.52 of the Trade Practices Act. The second respondent, a director of the first respondent, also denies the alleged breaches of s.52 so that he was not a person knowingly involved in the contravention pursuant to s.75B of the Act which makes such a person liable to pay damages pursuant to s.82.

History

At the beginning of 1997 a company known as R & D Security Pty Limited was the owner of a business name R & D Security (“R & D”). The company operated the business in the northern beaches area of Sydney. The business had a number of operations in the security area including an answering service known as “Three Gs Answering Service”, a base station service for security patrols, a security patrol service and an alarm monitoring service. The company was owned by a Mr Kenneth McKenzie Wray and others. In about April 1997 Mr Wray decided to dispose of the answering service and contacted the second respondent. The second respondent was a director of the first respondent which had a similar business to that of R & D Security in Waverley. During the course of discussions between Mr Wray and Mr Procter, in which Mr Procter reluctantly agreed to take over the answering service, Mr Wray indicated that he was interested in divesting his company of the alarm monitoring service and base station facilities. He did not intend to sell the business, rather he intended to bureau it. By this he meant sub-contracting the provision of a base station and alarm monitoring service to another operator.
When a person purchases a back to base alarm system he or she will enter into an agreement with a monitoring service whereby the alarm reports to the service on a daily basis and in the event of a breach in security. The monitoring service then sends out a message to the patrol service who make the physical check upon the premises. Monitoring also includes making telephone calls to customers in the event of an incident that does not appear to be a break in, such as a fault in the alarm system. An important part of the work of an alarm monitoring base station in relation to commercial premises is to note whether persons are on the premises after the time when the customer has indicated the premises will be closed. Customers who bought alarm systems from R & D were originally provided with these services by R & D. Their alarms were configured so that they rang R & D’s premises. Those customers had a contract with R & D by which it undertook to provide the services.
The parties discussed the possibility of the applicant bureauring its services to the first respondent between April and June 1997. Eventually terms were agreed. No contract was drawn up between the parties but there were discussions on a protocol, i.e. what the first respondent would do in certain circumstances when particular alarm messages were received and a price schedule was also agreed.
The applicant shut down its own base station and transferred all its client data in electromagnetic tape form and in hard copy to the first respondent at the end of June 1997. The number in each customer’s alarm system was changed so that it reported directly to the first respondent’s base station. There was evidence that when a customer telephoned the first respondent it did so on a line dedicated to the applicant which was answered in the applicant’s name.
The information which was provided by the applicant to the first respondent contained all the necessary particulars of each customer to enable the first respondent to monitor that customer’s alarm. The information included the name of the customer, the address of the premises, the contact details of the customer by telephone and fax, the contact details of persons in the customer’s employ who might be advised if an alarm incident occurred and, in the case of commercial premises, the opening and closing times of those premises.
The First respondent claims, and I accept, that the information originally provided to it was not complete and as part of its housekeeping arrangements to ensure a smooth transition to its monitoring service all clients were contacted to update these particulars. I also accept that from time to time the applicant provided the respondent with updated particulars. These particulars would include particulars of customers who were no longer contracted to the applicant or new customers who became contracted to the applicant as a result of utilising the applicant’s alarm installation services.
In September 1997 some minutes were prepared of a meeting between the parties concerning operational procedures and a copy of those minutes are included as Exhibit “E” to the affidavit of Mr Wray. There is a third page to that exhibit which looks like the first two and is headed “Alarm Bureauring”. However, for reasons which will be given later, it is unlikely that that document was produced in September 1997.
On or about 12 December 1997 the applicant verbally agreed with R & D Security Pty Limited to take over the business name R & D Security. R & D Security Pty Limited changed its name to Sukamane Australia Pty Limited and the applicant became registered as the owner of the business name in which it commenced to trade. According to Mr Wray the first respondent had agreed with R & D Security Pty Limited to invoice it monthly for the monitoring services but no invoices were sent until December 1997. According to Mr Procter his company had its agreement with R & D Security which was the entity that it billed and continued to bill. He stated that he was not aware that the business name R & D Security now belonged to the applicant as opposed to R & D Security Pty Limited.
The business relationship between the parties continued smoothly. Between 1997 and late 1999 or early 2000 the first respondent also rendered other services to R & D Security in respect of the supervision and management of control guards for which separate charges were made. There were approximately 360 customers at the time of the commencement of the bureauring arrangement. By March 2001 these had reduced to approximately 264.
At some time, possibly in late 1999 or early 2000, Mr Wray commenced discussions with Chubb Security for the purchase of his business. The first part of his business to be sold to Chubb was the patrol division. The first respondent was the base station for the patrol division so Mr Wray went to tell Mr Procter that that work would be removed from him because Chubb had their own base station from which they could monitor their own patrolmen. The content of this conversation, which took place in early 2000, was probably the only area in which there was any serious disagreement of evidence between Mr Procter and Mr Wray. Both of the witnesses agreed that there was no animosity in this conversation because Mr Procter was quite happy to give up the patrol monitoring area to Chubb. Mr Wray said that he told Mr Procter at the time that he was considering selling the whole business to Chubb. He said that Mr Proctor told him that they were not people to do business with and that they were offering silly prices based upon a large multiple of each month’s monitoring fees. Mr Procter denies this part of the conversation. He said that Mr Wray did not mention the sale of the monitoring service to Chubb nor the price of 29 × 1 month’s purchase nor the fact that he believed that was excessive and he would only pay 18 months.
I had the opportunity of seeing both the parties in the witness box. They both gave their evidence in a straightforward way and I have no reason to believe either of them intended to dissemble. In regard to this matter I prefer the evidence of Mr Procter because Mr Wray gave evidence that he did not receive the first draft of any contract with Chubb until September 2000 and the final document was not itself executed until 22 February 2001. Mr Wray’s later conduct indicates he was concerned at what might happen when he told the first respondent that the bureauring arrangements were to come to an end and so I think it unlikely that he would have telegraphed this information to him over a year prior thereto. I am satisfied that the matter was not discussed in any way which would have led Mr Procter to assume that it was only a matter of time before Mr Wray sold out to Chubb.
The contracts between R & D and its clients were generally short term. The contract between R & D and the first respondent was a contract from month to month. The contract which the applicant signed with Chubb on 22 February 2001 provided that Chubb would pay the applicant up to $382,274.00 for the business split between patrol’s clients and monitoring clients. There is no dispute concerning the patrol clients. The maximum sum payable for monitoring clients was $284,258.00. The payment arrangements are contained at clause 2.14 of the contract as follows:
“Purchase Price Calculation
2.14The Purchaser shall pay the Vendor, in accordance with clause 3, the aggregate of the following amounts for the Business:
(a)    for the Monitoring Clients, an amount equivalent to twenty-nine (29) months of annualized Ongoing Revenue from such Clients based on revenue to which the Purchaser is entitled on the last day of the Adjustment Period, or annualized Contract Revenue based on revenue to which the Purchase is entitled at the commencement date under each Client’s standard form of contract with the Purchaser.
2.11The term “Ongoing Revenue” means:
(a)  in the case of Clients who have not executed a contract with the Purchaser on the basis provided in clause 21.12, an amount equivalent to 75% of repetitive (permanent) revenue derived from Clients who within a three (3) months period after the Patrols Completion Date have not terminated or given notice of termination to the Purchaser of the security services being provided to them by the Purchaser during such period, other than for reasons attributable to Client dissatisfaction with the Purchaser, but excluding Clients:
(i)     for whom the Purchaser no longer provides security services for reasons attributable to a material default on the part of the Clients; and
(ii)    with accounts for security services which have remained unpaid for sixty (60) days or more at the expiry of the Adjustment Period;
(iii)      with accounts for security services which have remained unpaid for ninety (90) days or more as at the Patrols Completion Date.
(b)in the case of Monitoring Clients, Ongoing Revenue excludes any telecommunications carrier costs.”
The evidence was that the standard Chubb agreement which entitled the vendor to 100% of the twenty-nine months purchase was an annual agreement. If a customer did not sign an annual agreement but remained with Chubb for three months then the vendor received 75% of the twenty-nine months purchase.
Mr Wray realised that it was important for him to ensure that as many customers as possible transferred from R & D to Chubb. In March 2001 he wrote to each of his customers advising them that the business was being transferred to Chubb and then he approached them to get them to sign a contract in Chubb’s standard form. As soon as they agreed to do this the customer’s alarms would be reprogrammed so that the messages went back to Chubb and not the first respondent. It soon became obvious to the first respondent that something was going on. Mr Procter or his staff made some telephone calls and discovered what had occurred. R & D had not given the first respondent any notice of the terminations. One of R & D customer’s Shoetech Pty Limited gave the first respondent a copy of the applicant’s letter of 1 March 2001. This letter was received by Mr Procter in early April 2001. The letter confirmed his fears and he decided to take action. He immediately sent out to all customers of R & D whose names, addresses and contact details he had by virtue of the monitoring arrangement with R & D a circular letter of his own. The letter is in the following terms:
“Monitoring System at Your Premises.
We understand R & D Security have had existing arrangements with you for the carrying out of monitoring services at your premises.
We are informed that Chubb Security Australia Pty Limited has acquired R & D Security.
We would be pleased to continue the monitoring services directly to you on competitive terms. We are also a service company with our own technicians should you have any problems with your alarm system.
You will be aware that we are a small Australian owned and operated business and are proud of the personalised service we have given to our customers.
If you are interested in continuing our services please contact our office.
Our representative will also be contacting you in the near future.”
Members of the first respondent’s staff then followed up the letter with telephone calls. They succeeded in holding on to approximately 60 of the applicant’s customers. This was as a result of its first circular letter, it’s telephone follow ups or a further circular letter and fly sheet sent around 30 May 2001.
On 6 April 2001 the first respondent wrote to R & D Security Pty Limited for the attention of Mr Wray in the following terms:
“We enclose a copy of letter to Mr Schott dated 1 March 2001 which has come to our notice (copy enclosed).
We are most upset that you have sought to transfer the business without any notification to us whatsoever. We therefore formally advise that our arrangements are at an end and enclose our final account up to Friday 20 April 2001.”
Immediately R & D received the letter from the first respondent it set about urgently transferring all the remaining customers for Alarm Monitoring Services to Chubb. It physically went around and altered the telephone number in each and every alarm. In the meantime it continued trying to sign the customers up to individual contracts with Chubb. In the end it signed almost all but sixty of its former customers.
The first respondent continued monitoring those few customers that had not yet been transferred over to Chubb until 20 April when all contractual relations between it and R & D ceased. During this time there was correspondence between the applicant’s solicitors and the first respondents and its solicitors. The applicant maintained that the first respondent had no rights to contact any of the applicant’s customers or to solicit for their business.

Findings

The factual matrix set out above gives rise to a number of legal questions, the first of which is whether the information which was used by the first respondent to send out circulars to the customers, was information which would be protected either in contract, by equity or by the Trade Practices Act. If I find that it is, then the next question is whether or not there is any relationship between the first and/or second respondents and the applicant which would give rise to the obligations asserted by the applicant. Thirdly, I must decide whether the conduct of the respondents constituted a breach of their equitable duties or their contractual obligations or their obligations under the Trade Practices Act and finally, if I so find, I must consider the appropriate measure of damages.

Does the information have the necessary properties of confidentiality?

Lists of customers are capable of being confidential information: Robb v Green (1895) 2QB 1; on appeal, (1895) 2QB 315; Wessex Dairies Limited v Smith (1935) 2KB 80; Faccenda Chicken Limited v Fowler (1987) 1Ch 117 at 136–138; Peninsula Real Estate Limited v Harris (1992) 2NZLR 216 at 218-219 and NP Generations v Fenseley (2001) 80 SASR 151 at 155. Whether a customer list is confidential information or not will depend on the particular facts and circumstances of each case: Faccenda Chicken (at 136). NP Generations involved the use of information by an ex employee of a real estate agency. She utilised information from a rent role which it had been her responsibility to manage. This included the names and addresses of clients, the names and addresses of properties being managed and the tenants, their contact details such as fax numbers, telephone numbers and mobile telephone numbers plus the names and addresses of trades persons. The extra details, over and above the names of the customers transformed this information into the trade secret category defined at first instance in Faccenda Chicken.
In Centaur Mining and Exploration Ltd v Anaconda Nickel Ltd [2001] VSC 224 at [60] Warren J laid down the test for the protection in equity of allegedly confidential information set out in previous authorities:
“(60) In Corrs Pavey Whiting and Byrne v Collector of Customs (Vic) (1987) 14 FCR 434 at 443 Gummow J adopted the test of confidence laid down by Lord Green in Saltman Engineering [15] Gummow J stated:
‘It is now settled that in order to make out a case for protection in equity of allegedly confidential information, a plaintiff must satisfy certain criteria. The plaintiff: (i) must be able to identify with specificity, and not merely in global terms, that which is said to be the information in question; and must also be able to show that (ii) the information has the necessary quality of confidence (and is not, for example, common or public knowledge); (iii) the information was received by the defendant in such circumstances as to import an obligation of confidence…’
61.In Coco v AN Clark (Engineers) Ltd [16] Megarry J stated that, in order for equity to provide protection, three elements are required. First, the information must have the necessary degree of confidence about it; secondly, it must have been imparted in circumstances importing an obligation of confidence. If the circumstances are such that any reasonable man standing in the shoes of the recipient of the information would have realised that upon reasonable grounds the information was being given to him in confidence, then this suffices to impose upon him the equitable obligation of confidence, Relevantly here, Megarry J stated at 48:
‘In particular, where information of commercial or industrial value is given on a business-like basis and with some avowed common object in mind, such as a joint venture or the manufacture of articles by one party for the other, I would regard the recipient as carrying a heavy burden if he seeks to repel a contention that he was bound by an obligation of confidence.’
Was this information received by the respondent in such circumstances as to import an obligation of confidence? It is to be remembered that the information that was imparted was information that was essential for the respondent to properly carry out its obligations under the agreement. It could not monitor alarms unless it knew where the premises were; it could not monitor alarms unless it had a person to contact in the event that the alarm went off; it could not monitor alarms efficiently unless it could speedily get in touch with such persons or their alternates. The information was not being provided to any other person. It would not have been provided to the first respondent unless the first respondent was carrying out the task which R & D had contracted with its own customers to undertake. There must be considerable doubt as to whether the customers themselves would have wanted this information to be given out to other persons except in confidence. Altogether I am satisfied that any reasonable man standing in the shoes of the recipient of the information would have realised that upon reasonable grounds the information was being given to him in confidence.
I do not accept the respondent’s argument that the manner in which the claim is pleaded in paragraph 9 of the application restricts the claim to “client names” which do not constitute material capable of having a confidential character. The pleading first refers to “client details” which more accurately describes the information given. The pleading may be inelegant but it does not so restrict the applicant. It seems to me that the phrase “utilisation of the names” must include contacting the names by utilising the additional information provided.
I am of the view that this information was information of commercial value given on a business like basis with some avowed common object in mind. The first respondent argues that the information which it utilised at the end of the arrangement with R & D was not the same as the information provided by R & D insofar as it had been checked and brought up to date by the first respondent over the period of years during which the contract was in existence. There was a sotto voce claim that some of the information may have been belonged to the first respondent. There was a suggestion that R & D had permitted the first respondent to collect this information for its own purposes. More particularly it was alleged that no obligation of confidentiality could arise where information was being imparted by one person to an acknowledged competitor because the impartor of the information must have realised that unless it bound the impartee by covenant not to disclose the information or to otherwise utilise it for its own benefit it would do so. Obviously, if the parties had entered into some confidentiality agreement or contractual promise to restrict the use of the information these proceedings might not have been necessary.

I think the conduct of the parties indicates that they both considered that the information was being given for a specific use only. The contract was on foot for about four years during which time there was no suggestion that the first respondent had made any attempt to bring customers over from an indirect to a direct relationship. This is the case notwithstanding the month to month basis of the arrangement and the fact that the first respondent had collected some information.

I would not regard this information as the first respondent’s information.
Firstly, it could only have been collected by utilising the information given to the first respondent by R & D. Secondly, it was information that was vital to the first respondent to enable it to carry out its obligations to R & D to monitor R & D’s customers. To my mind it was information collected by an agent for the use of its principal.
The applicant claims that the information is protected and capable of being the subject matter of these proceedings either because there was an equitable obligation of confidentiality or an implied term of the agreement between the parties that the information would be kept confidential and not be used by the first respondent to the detriment of R & D. I do not believe that these grounds are mutually exclusive and would venture to suggest that the existence of such an equitable obligation would give strength to the proposition that it is implied as a term of the agreement. In other words the existence of the equitable obligation lends strength to the suggestion that the term was reasonably necessary to give business efficacy to the arrangements.
There is a substantive discussion of the incidence of implied terms of good faith and reasonableness in contractual situations in Burger King Corp v Hungry Jack’s Pty Ltd [2001] NSWCA 187. In that case the NSW Court of Appeal in a judgment of the court considered the acceptance into Australian jurisprudence of implied terms following the seminal judgment of Priestly J in Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234. The Court of Appeal noted that in Hughes Aircraft Systems International v Air Services Australia (1997) 76 FCR 151 Finn J had departed from the view expressed by Gummow J in Service Station Association Ltd v Berg Bennet & Associates Pty Ltd (1993) 45 FCR 84 at [96] that it required a “leap of faith” to convert well established equitable doctrines and remedies “into a new term as to the quality of contractual performance implied by law.” The court in Burger King came to the conclusion that obligations of good faith and reasonableness can be implied into a contract and noted that traditionally specific terms had been implied as a matter of law into contracts of a certain class. These included contracts between and employer/employee where there was an implied term not to disclose secret processes. Whilst I accept that the case before me is not one of an employer and employee and not one in which fiduciary obligations will be imposed upon the respondent of the type found to exist in United Dominions Corporation Ltd v BrianPty Ltd (1985) 157 CLR 1, I do think that in this case such a clause is both reasonable and necessary. In Byrne & Frew v Australian Airlines Ltd (1995) 131 ALR 422 at 450 McHugh and Gummow JJ said:
“Many of the terms now said to be implied by law in various categories of case reflect the concern of the court that, unless such a term be implied, the enjoyment of the rights conferred by the contract would or could be rendered nugatory, worthless, or perhaps be seriously undermined.”
It seems to me obvious that the sub-contract between R & D and the first respondent could not be carried out if the first respondent was actively utilising the information provided to it in order to carry out the contract for the purposes of soliciting the same work for itself. This activity would not be considered to be acting in the first respondent’s own legitimate interests (see Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) FCA 858).
Finally, in support of the view that this information was of a confidential nature I would note the evidence of Mr Procter, the second respondent, found at T86-88 on his own attitude towards that type of information that belongs to his company. It is clear that he considered it to be confidential in his own hands.

Can the applicant enforce the obligations?

Whilst I have come to the view that the information imparted by R & D to the first respondent was information which the first respondent was bound to keep confidential either by virtue of an equitable obligation or an implied term in its agreement with R & D it is now necessary to consider whether or not this arrangement can be enforced by the applicant. It is to be remembered that the applicant was not in existence at the time that the information was imparted by R & D Security Pty Limited to the first respondent. That company operated under the name R & D Security and the first respondent continued to bill that entity. Mr Procter’s evidence was that he had never heard of Rimcost Pty Ltd and this is corroborated in the letter which he wrote to R & D on 6 April. That was addressed to R & D Security Pty Ltd.
The applicant argues that an assignment of the benefit of the sub-contract between R & D Security Pty Ltd and Alarm Monitoring was made to Rimcost Pty Ltd. It was not a legal assignment pursuant to s.12 of the Conveyancing Act 1919 (NSW) because that section requires an assignment to be in writing and notice to be given to the debtor. However, it would seem that an equitable assignment has taken place. Although there doesn’t seem to be any formal agreement, it would appear that Rimcost gave consideration for the transfer to it of the business of R & D by promising to comply with R & D’s obligations to its customers and sub-contractors. It did do this. In those circumstances the assignment of the business to Rimcost Pty Ltd could be effective without giving notice to Alarm Monitoring. One of the benefits which was assigned to Rimcost was the benefit of Alarm Monitoring’s obligations of confidentiality in relation to the information imparted to that company by R & D Security Pty Ltd. It could be argued that Alarm Monitoring was actually given notice of the assignment. The memo entitled “Alarm Bureauring” which forms the third document in annexure E to the affidavit of Mr Wray starts with the following:
“Rimcost Pty Ltd agrees to bureau its alarm clients with Alarm Monitoring Pty Ltd.”
Mr Wray deposed to the fact that this document was provided to the first respondent at the time the original arrangement was entered into. This cannot be the case because at that time Rimcost had not come into existence. Mr Procter does not say that he did not get this document, he says in his affidavit that another document was produced by him. That is exhibit A to his affidavit of 2 May. Given that I have found that an equitable assignment took place it is probably not necessary to come to a view of whether notice was given, especially as notice without a written assignment would not fulfil the requirements of s.12.
I have found that the first respondent was under an obligation to keep confidential the information which it had received from R & D and not to use it for its own purposes contrary to the interests of R & D. I have found that this obligation can be enforced by the applicant. I also found that the obligation existed both in equity and in contract. Do the actions of the first and second respondents breach s.52 of the Trade Practices Act?
The way in which the applicant puts the TPA claim is that Alarm Monitoring, when it wrote to the customers of the applicant and followed up that writing with telephone conversations engaged in conduct that was misleading or deceptive by representing to the customers that it was legally entitled to solicit for and accept their business. It has long been accepted that representations made to an identifiable section of the public ground an action in breach of s.52 (Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; Bevanere Pty Ltd v Lubidineuse (1985) 7 FCR 325). Where the representation is made to identified individuals and is of a particular nature then the test to apply to find whether or not the representation constitutes deceptive or misleading conduct is objective. Would a reasonable person standing in the place of one of the recipients of the first respondent’s letters and telephone calls have assumed that there was no legal impediment to the first respondent making the offer to contract with those customers?
Now it seems to me that the representation argued for by the applicant does not go far enough. It was not illegal for the applicant to enter into contractual relations with persons on the list. The respondent was not entitled to use the list to contact the customers of the applicant for purposes other than the carrying out of the sub-contract into which it had entered. Although the respondent might have been entitled to obtain an injunction preventing the respondent contacting those persons or from entering into a contractual relationship with persons so contacted, once the contact had taken place and the relationship had been established all that is left to the applicant is a claim in damages. The court would not exercise its discretion to grant an injunction which would have the effect of disadvantaging an innocent third party by depriving them of the respondent’s services (See Dart Industries Inc v David Bryar & Associates Pty Ltd (1997) 38 IPR 389, NT Power Generation Pty Ltd v Power & Water Authority [1999] FCA 828, The Ohio Art Company v Hunter Leisure Pty Ltd (Unreported, FCA, 2 September 1998)). If this is the proper analysis of the legal position then the letter does not make the misrepresentation claimed for it by the applicant. There is no legal impediment to the entering into of the contract in the absence of an existing injunction. I am not satisfied that a breach of s.52 of the Trade Practices Act has occurred in these circumstances and therefore the other relief claimed under the Act is not available.

Damages

The claim of breach of contract is one made against the first respondent company only. The claim for breach of equitable obligations is made against both the first and second respondent. I have considered the transcripts and the submissions made by the respondents and it does not appear to have been argued that there is no liability on the part of the second respondent to pay equitable compensation if it is established that he has breached his equitable obligations. As Mr Procter was a director of the company and the information was provided to him and used by him, it would seem that he is jointly liable with the company for any breaches.
Mr Ireland argues that no damage has been proved. At T2-51 he says:
“One could concede that if it had been possible to show on a calculable basis who had gone to Chubb, how long they had stayed… your Honour knows nothing of the success or strike rate of Chubb. You do not know the reasons why any of the particular 87 clients that we now have did or did not re-sign with Chubb. We do not even know, actually, from Mr Wray whether he approached them himself – any one of them. … There was a pretty high strike rate and for you to conclude here that the reason why he did not get the rest, in the absence of evidence about those cases is attributable to us, is just simply not open, and my learned friend has not attempted that exercise, understandably.”
It is agreed that of the customers contracted to Rimcost at the time of the sale of the business to Chubb, 85 did not sign with Chubb. The applicant argues that there is evidence in the transcript at [T46] that the applicant persuaded approximately 50% of the persons he contacted to enter into a twelve month contract. The balance entered into shorter term agreements. The applicant argues that this establishes a “loss of chance” claim which, based on the terms of the contract between the applicant and Chubb, would make its maximum claim $103,725.00 or a minimum claim of $79,624.00. It argues that using the 50% strike rate the damages figure should be $90,759.00.
However, not all of the 85 people were diverted by the first respondent. Only 62 were. The others left Chubb for reasons which are not known and then went to the first respondent. In the absence of any further evidence I cannot see why the calculation should include those people. Assuming that only 50% of these people were likely to have signed on for a full year’s contract with Chubb the maximum damages available for this loss of opportunity on the calculations produced by the applicant would be $66,200.00.
These expectation damages or damages for the loss of the chance that the applicant had to earn the capital sum set out in the agreement between itself and Chubb is certainly claimable, see Malec v JC Hutton (1990) 169 CLR 638, Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 and Sellars v Adelaide Petroleum (1994) 179 CLR 332 but as Deane J said in Amann at 119:
“It has been truly said that the assessment of damages in contract and tort is a “pragmatic subject”… [which] does not lend itself to hard and fast rules.” (Takaro Properties Limited v Rowling [1986] 1 NZLR 22 at 69).
“The explanation of that is to be found in the fact that the assessment of common law damages for breach of contract or tort was traditionally seen as a matter for the good sense of the jury. Within the context of the principles laid down in Hadley v Baxendale (1854) 9 Ex 341, the more particular rules for assessing damages for repudiation or breach of contract should be treated not as “rigid rules of universal application” but “as prima facie rules which may be displaced or modified whenever it is necessary to do so in order to achieve a result which provides reasonable compensation… without imposing a liability upon the other party exceeding that which he could fairly be regarded as having contemplated and been willing to accept.” (Wenham v Ella (1972) 127 CLR 454 at 466) (Emphasis added)
In the context of Hadley v Baxendale this case falls within the second limb of special circumstances. I do not believe that it can be said the loss that is alleged to have been sustained here (being the loss of a capital sum on disposal of the business to Chubb) would be within the ordinary contemplation of the parties at the time they made the contract. I have found that neither the first nor second respondent knew of any proposed sale to Chubb until the respondents were alerted to this by one of the applicant’s customers. Unless the potential loss had been communicated to the respondents when the contract was entered into (or, given the form of the contract, its monthly renewals, but in these circumstances the first respondent would have to have had an opportunity to decline to undertake the contract on that basis) damages for loss of chance cannot be awarded.

Although the applicant repudiated its contract with the respondent by transferring customers away from its sub-contractor, and the first respondent accepted that repudiation by terminating the contract, it did not terminate the contract immediately. The contract was therefore on foot during the period in which the first respondent proceeded to utilise the confidential information. If there had been no contract with Chubb then the evidence is that the applicant held three monthly contracts with each of its customers. The damages which would be available to the applicant in those circumstances would be the loss of three months net income. The monthly fees payable by each client are found as Annexure A to the Chubb agreement which is itself Annexure I to the Affidavit of Mr Wray of 16 April 2003. These figures vary although many of them are $43.33 per month. In Annexure U to the same affidavit there is set out the value of lost clients which totals $102,739.00 which is presumably based on the 29 month purchase. There are 85 clients listed. I have calculated the average monthly rental as $41.68. The only evidence about the sub contract fees paid to the first respondent is contained in the documents forming part of Exhibit E to the Affidavit of Mr Wray of 16 April 2003. That is not very precise. Doing the best I can I take a figure of $4.50 per week being $19.50 per month in respect of the 62 customers I have found to have been diverted. Over three months the damages are calculated as 3x 62x 41.68 – 3x 62x 19.5 = $4,125.50.
The amount referred to above is the damages which would be available to the applicant on a contractual basis. Do these damages change if they are awarded for breach of confidence? The damages in this instance are compensatory as equitable compensation, see Aquaculture Corporation v New Zealand Green Mussel Company (1990) 3 NZLR 299. The quantum as a general rule should be the same as common law damages, see Australian Breeders Co-Operative Limited v Jones (1997) 150 ALR 488 per Wilcox and Lindgren JJ. In these circumstances the only difference between the two awards is that in respect of the equitable breach the applicant would be entitled to the moneys from the first and second respondents whereas in respect of the contractual claim, only from the first respondent.
The applicant has succeeded in its claim although in a figure which is considerably less than that for which it contended. It should be entitled to its costs to be assessed in accordance with Part 21 and Schedule 1 of the Federal Magistrates Court Rules. I certify that the proceedings were appropriate for the employment of an advocate pursuant to Rule 21.15.

I certify that the preceding thirty-nine (39) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: