Ross v IceTV Pty Ltd

Case [2010] NSWCA 272

NEW SOUTH WALES COURT OF APPEAL

CITATION:
Ross & Anor v IceTV [2010] NSWCA 272

FILE NUMBER(S):
2009/298554

HEARING DATE(S):
22 July 2010

JUDGMENT DATE:
22 October 2010

PARTIES:
Stuart Duncan Ross (First Appellant)
Peter Samuel Vogel (Second Appellant)
Vogel Ross Pty Ltd (Third Appellant)
IceTV Ltd (Respondent)

JUDGMENT OF:
McColl JA Macfarlan JA Sackville AJA   

LOWER COURT JURISDICTION:
Supreme Court

LOWER COURT FILE NUMBER(S):
SC  2577/07

LOWER COURT JUDICIAL OFFICER:
Rein J

LOWER COURT DATE OF DECISION:
18 September 2009

LOWER COURT MEDIUM NEUTRAL CITATION:
IceTV Pty Ltd v Ross [2009] NSWSC 980

COUNSEL:
Mr John Ireland QC, Mr Julian Cooke (Respondents)

SOLICITORS:
Stuart Ross & Peter Vogel (Self-Represented)
Bartier Perry (Respondent)

CATCHWORDS:
APPEAL – civil – whether appeal as of right – monetary threshold – Supreme Court Act 1970 (NSW), s 101(2)(r)(i)
CONTRACTS – termination – frustration – allegation that employment contracts were frustrated by failure of respondent company's public float
TRADE AND COMMERCE – restraints of trade – contracts of employment of senior executives – non-solicitation clauses – whether restraints were void for uncertainty – whether challenged provisions were severable
TRADE AND COMMERCE – restraints of trade – whether non-solicitation clauses were breached – whether clauses were unreasonable as to scope and duration – application of Restraints of Trade Act 1976 (NSW), s 4
EQUITY – interlocutory injunction granted to restrain contraventions of non-solicitation clauses – cross-claim for damages on ground that injunction should not have been granted – significance of undertaking as to damages being of little value

LEGISLATION CITED:
Supreme Court Act 1970 (NSW)
Restraints of Trade Act 1976 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)

CASES CITED:
Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1979) 146 CLR 249
Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249
Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd [1973] HCA 40;133 CLR 288
APLA v the Law Society of New South Wales [2005] HCA 44; 224 CLR 322
Austra Tanks Pty Ltd v Running [1982] 2 NSWLR 840
Butt v Long [1953] HCA 76; 88 CLR 476
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; 149 CLR 337
Cole v Commonwealth [1961] HCA 87; 106 CLR 653
Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696
Davies v Davies (1887) 36 Ch D 359
F A Tamplin Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916] 2 AC 397
Geraghty v Minter [1979] HCA 42; 142 CLR 177
Griffith v Blake (1884) 27 Ch D 474
Hanna v OAMPS Insurance Brokers Ltd (ACN 005 543 920) [2010] NSWCA 267
Herbert Morris Ltd v Saxelby [1916] 1 AC 688
IceTV Pty Ltd v Nine Network Australia Pty Ltd [2009] HCA 14, 239 CLR 458
IceTV v Ross [2007] NSWSC 635
IceTV v Ross [2007] NSWSC 1232
IceTV Pty Ltd v Ross [2009] NSWSC 980
Industrial Rollformers Pty Ltd…

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AGLC
Ross v IceTV Pty Ltd [2010] NSWCA 272
Case
[2010] NSWCA 272
Decision Date

CaseChat Overview and Summary

The appeal concerned a dispute between IceTV Pty Ltd and two former senior executives, Mr Ross and Mr Vogel. Mr Ross and Mr Vogel had been employed by IceTV, which distributed an electronic program guide known as the Ice Guide. Their employment contracts contained non-solicitation and confidentiality clauses. Following their departure from IceTV, IceTV alleged that they had breached these clauses by engaging in business with a competitor, Mobilesoft. The matter came before the Supreme Court of New South Wales, and subsequently the Court of Appeal.

The legal issues before the Court of Appeal included whether the appeal could be heard as of right, given the monetary threshold, and whether the non-solicitation and confidentiality clauses in the appellants' employment contracts were void for uncertainty or were unreasonable restraints of trade under the *Restraints of Trade Act 1976* (NSW). The court was also required to determine whether the appellants had breached these clauses and, if so, whether the restraints were severable. Furthermore, the court considered the significance of an undertaking as to damages given by IceTV in relation to an interlocutory injunction that had been granted and later discharged.

The Court of Appeal dismissed the appeal. It found that the appeal could proceed as of right. Regarding the restraints of trade, the court noted that the primary judge's findings on the appellants' motives were unsafe due to an error in assessing the evidence concerning Mr O'Brien's knowledge of Mobilesoft's dealings. However, the court ultimately found that the restraints, when properly construed and applied, were not unreasonable and were valid to the extent they were not against public policy. The court also determined that the appellants had breached the non-solicitation clauses.

The appeal was dismissed, and the appellants were ordered to pay IceTV's costs of the appeal.

Orders

Orders of the court

(1) Appeal dismissed.

(2) Appellants pay IceTV’s costs of the appeal.

Background

Background to the litigation

“Public policy” is defined in s 2(1) to mean “public policy in respect of restraint of trade”. “Restraint of trade” includes “a restraint of trade created by contract” s 2(2). The RT Act applies notwithstanding any stipulation to the contrary: s 3(2).UNCONTENTIOUS FACTS The following account of the facts is largely taken from the primary judgment. IceTV distributed an electronic program guide (“EPG”) for television known as the Ice Guide. The Ice Guide could be downloaded onto personal video recorders (“PVRs”), set-top boxes (“STBs”) and similar equipment. The EPG enabled details of forthcoming free-to-air television programs to be viewed and programs selected by the user. By 2006, IceTV distributed the only EPG that was available to PVR and STB customers not tied to Foxtel, a pay television provider. IceTV distributed the Ice Guide to individual free-to-air customers on a subscription basis, but was also seeking to “bundle” EPGs with products supplied by companies which supplied digital video discs (“DVDs”) or similar products to customers. Mobilesoft’s business included buying STBs from an overseas supplier. The STBs were fitted with a terrestrial receiver to enable the consumer to access free-to-air television. Mobilesoft sought to enter arrangements with companies that had a significant movie or DVD library. One of these companies was Video Ezy, which had many outlets in Australia. Video Ezy was interested in delivering movies to customers in digital form. One model for delivery of movies was a system that allowed customers to download up to 40 movies on a “thumb drive” (also known as a “USB memory stick”) on a pay-per-view basis. Mobilesoft was interested in supplying STBs that would enable the thumb drive to be used. The STBs supplied by Mobilesoft were to include an EPG. In about February 2005, Mr Ross was engaged as IceTV’s CEO and Mr Vogel as the CTO. Both had previously worked for a company called ZapTV and IceTV took over the technology and products developed by ZapTV. Messrs Ross and Vogel became shareholders (6% and 4% of the shareholding respectively) in IceTV’s parent company. Mr O’Brien and his wife were the largest shareholders in the parent company. It was common ground that the relevant employment contracts between IceTV and the appellants were entered into on or about 24 March 2006 (Mr Ross) and 16 April 2006 (Mr Vogel). (Mr Ross’ contract was mistakenly dated 24 March 2005, but nothing turns on the error.) Each contract contained the following clauses:“Non-Soliciting of Customers or employeesYou must not, either during your employment with the Company and for a period of twelve (12) months thereafter, or such other lesser period as may be judged by a court of competent jurisdiction as being reasonable in the circumstances and necessary to protect the Company’s goodwill and confidential information:(a)carry on or otherwise be engaged or involved in any business similar to or competitive with the business of the Company … carried on during the twelve (12) months prior to the termination of your employment;…(c)canvass or solicit the custom of any person who has entered into discussions or negotiations with the Company or a related body corporate during the twelve (12) months prior to the termination of your employment with a view to becoming a customer of the Company …andConfidentiality… you will not, except in the proper course of your duties, either during or after your employment, divulge, or permit to be divulged, to any person by any means, any information in any form relating to the Company, or …(a)any … performance reports, operation reports, profitability forecasts or business plans;…(d)… any financial information in relation to the Company’s activities which may be of commercial value to a competitor …”I refer to these as the non-solicitation and confidentiality clauses respectively.

Evidence

Evidence Before The Court

As the appellants pointed out, his Honour’s assessment of the credibility of the appellants’ evidence and of their motivation rested heavily on a particular finding. The critical finding was that neither Mr O’Brien (a substantial shareholder and director of IceTV) nor Mr Kossatz (the incoming Managing Director of IceTV) knew prior to February 2007, four months after the appellants left IceTV, that Mobilesoft had been dealing with Video Ezy, a distributor of videos and DVDs. Mr Ross consistently maintained that at the time he and Mr Vogel left IceTV, Mr O’Brien was well aware of Mobilesoft’s dealings with Video Ezy, a matter of potential significance to IceTV. The primary Judge rejected Mr Ross’ evidence taking into account (at [65]) that there was:“no evidence that Mr O’Brien or Mr Kossatz was aware prior to February 2007 that Mobilesoft had been dealing with Video Ezy.” (Emphasis added.) The reference to the absence of evidence on this issue was wrong. Quite apart from Mr Ross’ evidence, Mr O’Brien had expressly stated in an affidavit dated 4 May 2007 that:“from my meeting with Mr Ross and Mr Kossatz in October 2006 I became aware that IceTV has had discussions with Mobilesoft about a potential deal to use IceTV’s EPG for the Video Ezy service.” The passage in Mr O’Brien’s affidavit was actually identified by IceTV in its further and better particulars as a matter on which IceTV would rely in support of its pleaded case. The appellants explicitly referred his Honour to this paragraph in their written and oral submissions at trial to resist the proposition that they had engaged in a covert plan to deal with Mobilesoft. In the light of these matters, it should be said, in fairness to the appellants, that it would not be safe to rely on the primary Judge’s findings as to the appellants’ motives in their dealings with Mobilesoft prior to their departure from IceTV.LEGISLATION One of the principal arguments advanced by the appellants at trial and on the appeal was that the restraints contained in their contracts of employment were invalid as unreasonable restraints of trade. To evaluate this argument, it is necessary to take account of the Restraints of Trade Act 1976 (NSW) (“RT Act”). Section 4 of the RT Act provides as follows:“4 Extent to which restraint of trade valid (1)A restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable terms or not.(2)Subsection (1) does not affect the invalidity of a restraint of trade by reason of any matter other than public policy.(3)Where, on application by a person subject to the restraint, it appears to the Supreme Court that a restraint of trade is, as regards its application to the applicant, against public policy to any extent by reason of, or partly by reason of, a manifest failure by a person who created or joined in creating the restraint to attempt to make the restraint a reasonable restraint, the Court, having regard to the circumstances in which the restraint was created, may, on such terms as the Court thinks fit, order that the restraint be, as regards its application to the applicant, altogether invalid or valid to such extent only (not exceeding the extent to which the restraint is not against public policy) as the Court thinks fit and any such order shall, notwithstanding sub-section (1), have effect on and from such date (not being a date earlier than the date on which the order was made) as is specified in the order.(4) …(5)An order under subsection (3) does not affect any right (including any right to damages) accrued before the date the order takes effect.”

Decision

Reasons for decision

On 28 September 2007, Brereton J discharged the injunction he had previously granted: IceTV v Ross [2007] NSWSC 1232. His Honour’s reasons for doing so were as follows:“4 In my original judgment, in discussing the balance of convenience (at [70] – [72]), I pointed out that on the evidence then before the Court, to the extent that the defendants would be deprived by an injunction of the opportunity to provide further services in the field which the injunction would prohibit them from entering, IceTV's undertaking as to damages would protect them. I concluded (at [72]) that the balance of convenience favoured, "although not very strongly", the granting rather than the withholding of interlocutory injunctive relief …5 It is, I think, quite plain that I proceeded on the basis that IceTV's undertaking as to damages was a valuable one which would afford protection to the defendants in the event that it turned out that an interlocutory injunction was wrongly granted. 6 On the present application, the defendants have tendered evidence which shows that in and about June of this year the financial position of IceTV was a deficiency of funds of about $2.7 million. That makes manifest that IceTV's undertaking as to damages is not a valuable one. Had that been the state of the evidence on 28 May 2007, or when I gave judgment on 3 July 2007, I cannot conceive that I would have granted an interlocutory injunction without requiring that security for it be provided – or, at the very least, that IceTV's directors make themselves amenable to the undertaking as to damages. 7 As things presently stand, I would not find that there was any wilful deception involved in the non-disclosure on 28 May of IceTV’s financial position, but it was a material matter to be disclosed. It seems that IceTV produced material to the Court in response to a Notice to Produce, and a faint submission was made by the defendants on the interlocutory hearing to the effect that an undertaking as to damages "is of limited value given the plaintiff's limited means and assets", but evidence does not seem to have been adduced on either side to show just how precarious the plaintiff's financial position really was. 8 That said, the question is what should or can be done about it now; in circumstances where the relevant interlocutory injunctions expire, in any event, on 4 October, only a few days away ……10 In the circumstances, I think the only solution is to discharge the interlocutory injunctions.”THE PRIMARY JUDGMENT The final hearing of IceTV’s claim took place over five days between 27 April 2009 and 3 July 2009. The twelve month period of contractual restraint having expired, IceTV did not seek permanent interlocutory relief, but only damages for breach of contract. Its claim was limited to the actual earnings by Vogel Ross from Mobilesoft during November and December 2006, less an allowance for the amounts IceTV would have had to outlay in order to achieve these earnings. The appellants resisted the claim on the grounds that the restraints were not valid and that, in any event, they had not breached the restraints.

Ratio Decidendi

Legal Principle Established

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