Stefanovski v Digital Central Australia (Assets) Pty Ltd

Case [2018] FCAFC 31

FEDERAL COURT OF AUSTRALIA

Stefanovski v Digital Central Australia (Assets) Pty Ltd [2018] FCAFC 31

Appeal from: Digital Central Australia (Assets) Pty Ltd v Stefanovski(No 2) [2017] FCA 1000
File number(s): QUD 426 of 2017
Judge(s): MCKERRACHER, ROBERTSON AND DERRINGTON JJ
Date of judgment: 9 March 2018
Catchwords:

PRACTICE AND PROCEDURE – Judgments and orders – Judgment for claims not pleaded – No agreement to litigate issues beyond matters raised in pleading – Judgment set aside in part

PRACTICE AND PROCEDURE – Pleading – Adequacy of pleading – Incoherency – Failure to plead essential elements

EQUITY – Confidential information – Whether information provided pursuant to franchise agreement had the quality of confidence

EQUITY – Injunctions– Width of injunction – Limits on scope of injunction granted under the Australian Consumer Law – Injunction limited to that necessary to prevent further breaches
Legislation: Competition and Consumer Act 2010 (Cth) Sch 2 (Australian Consumer Law) ss 18, 21, 22
Cases cited:

Australian Competition and Consumer Commission v Sensaslim Australia Pty Ltd (in liq) (No 7) [2016] FCA 484

Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279

Browne v Dunn (1894) 6 R 67

Del Casale v Artedomus (Aust) Pty Ltd (2007) 73 IPR 326

Fractionated Cane Technology Ltd v Ruiz-Avila [1988] 1 Qd R 51

Gould & Birbeck & Bacon v The Mount Oxide Mines Ltd (in Liq) (1916) 22 CLR 490

Holdway v Arcuri Lawyers (a firm) [2009] 2 Qd R 18

Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653

Krueger Transport Equipment Pty Ltd v Glen Cameron Storage & Distribution Pty Ltd (2008) 78 IPR 262

Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414

NRM Corp Pty Ltd v ACCC [2016] FCAFC 98

Saltman Engineering Co Ltd v Campbell Engineering Ltd (1948) 65 RPC 203

Seager v Copydex Ltd [1967] 2 All ER 415

Water Board v Moustakas (1988) 180 CLR 491

Wyzenbeek v Australasian Marine Imports Pty Ltd [2017] FCA 1460
Date of hearing: 3 November 2017
Registry: Queensland
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Commercial Contracts, Banking, Finance and Insurance
Category: Catchwords
Number of paragraphs: 127
Counsel for the Appellants: Mr S Couper QC and Mr P Afshar
Solicitors for the Appellants: KB Legals
Counsel for the Respondent: Mr C J Crawford
Solicitors for the Respondent: Rouse Lawyers

ORDERS

QUD 426 of 2017
BETWEEN:

TOME STEFANOVSKI

First Appellant

KYLIE CLARK

Second Appellant

ANT PRINTING PTY LTD ACN 607 685 325 (and another named in the Schedule)

Third Appellant
AND:

DIGITAL CENTRAL AUSTRALIA (ASSETS) PTY LTD ACN 114 113 709

Respondent

JUDGES:

MCKERRACHER, ROBERTSON AND DERRINGTON JJ

DATE OF ORDER:

9 MARCH 2018

THE COURT ORDERS THAT:

1.The appeal be allowed in part.

2.Orders numbered 4, 9, 10, 11 and 15 of the orders made on 25 August 2017 be set aside.

3.Order number 1 of the orders made on 25 August 2017 be set…

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AGLC
Stefanovski v Digital Central Australia (Assets) Pty Ltd [2018] FCAFC 31
Case
[2018] FCAFC 31
Decision Date

CaseChat Overview and Summary

In the case of Stefanovski v Digital Central Australia (Assets) Pty Ltd, the Federal Court of Australia addressed several legal issues surrounding the protection of confidential information, the adequacy of pleadings, and the scope of injunctions granted under the Australian Consumer Law. The primary dispute centred around the use and disclosure of confidential information provided by the franchisor, Digital Central Australia (DCA), to the franchisees, including the appellants, Stefanovski and others. The franchisees were found to have misused this confidential information by setting up a competing business, which led DCA to seek injunctive relief and compensation.

The court was required to decide whether the information provided to the franchisees under the franchise agreement had the quality of confidence necessary to be protected as confidential information. Furthermore, the court had to determine the appropriate scope of the injunctions to prevent further breaches without being overly broad. The adequacy of the pleadings was also scrutinized, as the original claims did not include all the issues that were eventually decided by the court.

The court's reasoning focused on the nature of the information provided to the franchisees and whether it was reasonably expected to remain confidential. It was found that the information, including client lists and pricing details, was indeed confidential and commercially sensitive. The court also concluded that the injunctions granted should be limited to what was necessary to prevent further breaches, rather than encompassing broader restrictions that could unduly hinder the franchisees' legitimate business activities. Additionally, the court highlighted the inadequacies in the pleadings, which resulted in the franchisees not being adequately informed of the claims against them, leading to a partial setting aside of the judgment.

The outcome of the appeal resulted in the setting aside of certain orders that went beyond the scope of the pleadings and were overly broad. The court ordered specific injunctions tailored to prevent the misuse of the identified confidential information and awarded equitable compensation to DCA. The court also directed the parties to further address the issues of interest and costs in subsequent submissions. This decision underscores the importance of clear and adequate pleadings and the necessity for injunctions to be precisely tailored to the nature of the breach.

Orders

Orders of the court

1. The appeal be allowed in part.

2. Orders numbered 4, 9, 10, 11 and 15 of the orders made on 25 August 2017 be set aside.

3. Order number 1 of the orders made on 25 August 2017 be set aside and in lieu thereof it be ordered that:

From the date of this Order until 31 March 2018, the first respondent must not (personally or through employees, agents or in any other way) use, or disclose to any third party, and must not cause or permit the third or fifth respondents or any other person to use or disclose to any third party, any of the following information:

(a) the technique described in the Franchise Manual as to how successfully to apply (or remove) a vinyl print to a signboard; and

(b) any information derived from the password-protected part of the website realestate.digitalcentral.com.au which is pricing information concerning customer product preferences or customer purchasing history.

4. Order number 5 of the orders made on 25 August 2017 be set aside and in lieu thereof it be ordered that:

The first respondent pay to the applicant the sum of $47,234 as equitable compensation.

5. Order number 7 of the orders made on 25 August 2017 be set aside and in lieu thereof it be ordered that:

From the date of this order until 31 March 2018, the second respondent must not (personally or through employees, agents or in any other way) use, or disclose to any third party, and must not cause or permit the third or fifth respondents or any other person to use or disclose to any third party, any of the following information:

(a) the technique described in the Franchise Manual as to how successfully to apply (or remove) a vinyl print to a signboard; and

(b) any information derived from the password-protected part of the website realestate.digitalcentral.com.au which is pricing information concerning the customer product preferences or customer purchasing history.

6. Order number 12 of the orders made on 25 August 2017 be set aside and in lieu thereof it be ordered that:

The second respondent pay to the applicant the sum of $47,234 as equitable compensation.

7. Order number 14 of the orders made on 25 August 2017 be set aside and in lieu thereof it be ordered that:

From the date of this order until 31 March 2018, the third respondent must not (personally or through employees, agents or in any other way) use, or disclose to any third party, and must not cause or permit any person to use or disclose to any third party, any of the following information:

(a) the technique described in the applicant’s Franchise Manual as to how successfully to apply (or remove) a vinyl print to a signboard; and

(b) any information derived from the password-protected part of the website realestate.digitalcentral.com.au which is pricing information concerning the customer product preferences or customer purchasing history.

8. Order number 16 of the orders made on 25 August 2017 be set aside and in lieu thereof it be ordered that:

The third respondent pay to the applicant the sum of $47,234 as equitable compensation.

9. Order number 19 of the orders made on 25 August 2017 be set aside and in lieu thereof it be ordered that:

From the date of this order until 31 March 2018, the fifth respondent must not (personally or through employees, agents or in any other way) use, or disclose to any third party, and must not cause or permit any person to use or disclose to any third party, any of the following information:

(a) the technique described in the Franchise Manual as to how successfully to apply (or remove) a vinyl print to a signboard; and

(b) any information derived from the password-protected part of the website realestate.digitalcentral.com.au which is pricing information concerning the customer product preferences or customer purchasing history.

10. Order number 21 of the orders made on 25 August 2017 be set aside and in lieu thereof it be ordered that:

The fourth respondent pay to the applicant the sum of $47,234 as equitable compensation.

11. The parties are to be heard further on the question of interest and costs.

12. In respect of order 11, by 4.00pm 23 March 2018 the appellants shall file and serve written submissions (being no longer than five pages in length) in relation to the amount of interest which ought to be awarded on the sum allowed by this Court as well as to the question of costs at first instance and of the appeal.

13. In respect of order 11, by 4.00pm 6 April 2018 the respondents shall file and serve written submissions (being no longer than five pages in length) in relation to the amount of interest which ought to be awarded on the sum allowed by this Court as well as to the question of costs at first instance and of the appeal.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

As appears from the orders to be made on this appeal, DCA must fail against a number of the appellants in various respects. There are two central reasons for this. First, there was a lack of attention paid by DCA to protecting its business interests and, particularly, its alleged confidential information. DCA did not seek to contractually bind to confidentiality covenants relevant persons associated with the operation of its south west Sydney franchise to protect the information provided in the course of the franchise agreement. The second reason is the identified inadequacies in the pleading. In retrospect, and as we have said, it can be seen that this placed the learned trial judge in a very difficult situation. Not only was the case sought to be agitated by DCA obscurely articulated, DCA found it necessary to seek to add an essential respondent at the end of the case but without any thought whatsoever as to the appropriate manner in which any consequential causes of action might be asserted. The effect of that was that DCA succeeded at first instance upon a number of causes of action that do not appear in the Statement of Claim. The appellants, not without some justification, assert that they were entitled to be, but were not, informed of the case they had to meet. Background facts The manner in which the litigation was conducted has generated much unneeded complexity. For that reason it is necessary to set out the background to the matter and the findings of the trial judge in some considerable detail. DCA is the franchisor of a network of franchised businesses which operate throughout Australia. The nature of the franchise business is the offering for sale or hire and supply of high graphic quality signage to real estate agents. In particular, it is the provision of the service of creating graphically designed artwork which, when approved by the customer, is printed onto a vinyl sheet that is then affixed to signage to be erected on or in front of properties for sale. The graphic depictions on the sign generally include enlarged photographs of the subject property as well as the real estate agents name, logo and contact details. As is usual in business arrangements of this nature, each franchisee granted by DCA had the exclusive right to operate its digital signage business within contractually described geographical franchise territory. The franchise the subject of these proceedings was referred to by DCA as its “Sydney South West franchise” (the SSW Franchise). The franchisees were responsible for the marketing and selling of signs to the real estate agents within their franchise territory. Each had their own unique password which entitled them to log on to a website maintained by DCA (realestate.digitcalcentral.com.au). On receipt of an order from a customer the franchisee would forward it to DCA via the website and DCA was responsible for the graphic design work in respect of it. The finalisation of the graphic design work might take some time and, indeed, some “toing-and-froing” between the franchisee and the customer in relation to the determination of the final design. Once the design was agreed upon, it would be sent electronically to one of DCA’s graphic printers which were geographically distributed such that all franchisees would have relatively easy access to them. The printers would print the final design on to large vinyl sheets which would be either collected by the franchisees or dispatched to them via courier. Once the printed vinyl sheet was received, the franchisee was responsible for affixing it to a sign. Signs came in a variety of sizes and shapes which would be selected by the real estate agent. The franchisee would then construct and erect the sign at the requested location. The franchisees were also responsible for the maintenance of the sign and its removal once it was no longer needed.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

On the last day of the hearing, 11 May 2017, DCA sought to join TK Signs to the action. That was allowed over the appellants’ objection. No new Statement of Claim was filed and no cause of action against TK Signs was pleaded. Additionally, no further causes of action against the appellants were pleaded to the effect that they were “knowingly concerned” in the wrongful conduct of TK Signs.The decision of the learned trial judge The decision of the learned trial judge was given in two separate judgments and the findings relevant to the ultimate orders are to be located in both of those reasons. A first set of reasons was handed down on 30 June 2017, at which time his Honour gave leave to the parties to file further submissions as to the appropriate form of orders. An oral hearing then occurred on 1 August 2017, and his Honour delivered a second set of reasons and made final orders on 25 August 2017. For present purposes it is important to note that in the first set of reasons (dated 30 June 2017), it was found that Mr Stefanovski was the franchisee or, at least, was bound by the terms and covenants in the SSW Franchise agreement as the franchisee along with TK Signs. That was upon the basis that he had executed the franchise agreement under his hand and by his name. However, in the second reasons (dated 25 August 2017), his Honour concluded that the SSW Franchise agreement had been entered into by Mr Stefanovski for and on behalf of TK Signs, which had ratified the agreement once incorporated. It followed that TK Signs, alone, was the franchisee under that agreement. His Honour also found (at [16] of the second set of reasons) that Mr Stefanovski was not bound by the terms of the SSW Franchise agreement. Although there does not appear to be any express finding that TK Signs breached the restrictive trade covenant in the SSW Franchise agreement (clause 24) or threatened to do so, the learned trial judge nevertheless granted injunctions restraining it from any future breach. This was justified on the basis that neither Mr Stefanovski nor Ms Clark “is without guile and the awarding of damages is emphatically not an adequate remedy”. It is to be recalled that no cause of action was pleaded against TK Signs and no facts were pleaded which could be taken as an allegation it had breached the franchise agreement or more importantly that, unless restrained, it would do so in the future. The learned trial judge found that Ms Clark was intimately involved in the operation of the SSW Franchise business from December 2013. His Honour accepted that she was involved in all aspects of its operation (apart from the production and installation of signs) including the soliciting of business, dealing with the franchisor and the carrying out of orders received. His Honour noted that Ms Clark was granted access to the password protected area of the DCA website (see [40] of the first set of reasons) and observed that DCA seemed to have inadvertently omitted to obtain an agreement to bind her as a “key person” in terms of the franchise agreement. That is an important finding as the pleaded case against Ms Clark, apart from the misleading or deceptive conduct claim and the unconscionability claim, rested upon the assertion that she was bound to the terms of the franchise agreement as a “key person”. Clearly, she was not.

Ratio Decidendi

Legal Principle Established

The provision of a password gave Ms Clark access to the non-public area of DCA’s website which contained commercially sensitive information. It included detailed client lists, which identified agency names and addresses, email addresses and mobile numbers of agents who were customers of DCA, the names of key persons in real estate agencies who were responsible for hire signs and which signs various entities preferred to use. The learned trial judge found this collation of information to be confidential and commercially sensitive.An issue at the trial concerning the involvement of Ms Clark in the operation of the SSW Franchise from early 2015 The trial judge found that Ms Clark’s involvement in the business of TK Signs was extensive and, indeed, that she was the person who communicated mostly with DCA in relation to franchising matters. In his second set of reasons, he found that Mr Stefanovski and Ms Clark were engaged in what was, essentially, a joint venture in the operation of TK Signs. However, it appears that during the course of 2015, Mr Stefanovski obtained independent employment with an entity referred to as Esprit Digital and his new work involved the repair and maintenance of 600 digital screens throughout 18 Westfield shopping centres in New South Wales. That was a fulltime position and it is not surprising his Honour also found Mr Stefanovski’s interest in the franchise business suddenly declined from around September 2015. It was around this time that TK Signs determined it wished to sell the SSW Franchise and, in August 2015, Ms Clark corresponded with DCA regarding that potential sale. It was a term of the franchise contract that a franchise business could only be sold with the agreement of the franchisor. In September 2015, ANT Printing was incorporated and registered. Ms Clark was the sole director, secretary and shareholder of that company. At that time it commenced using the business name “Australian Real Estate Signs” (ARES). For the purposes of the promotion of its business it established a registered domain name and website. That website commenced in January 2016. It is apparent that the substantial growth in franchise business experienced by TK Signs from the operation of the SSW Franchise in 2014 and 2015, began to fall away in 2016. No doubt this was due to the fact that Mr Stefanovski had taken up full time employment with Esprit Digital and Ms Clark had established and commenced to operate her own competing business. The ANT Printing business was, and is quite clearly, a competitor to the SSW Franchise business. It provides the same services as TK Signs; specifically, the production and installation of high quality graphic signs for the real estate industry. As with the franchise business, the ANT Printing business produces vinyl sheets with graphic design artwork on them. Those sheets are affixed to signs of the same type and nature as those used by DCA’s business. Importantly, it provides those services in a geographical area which includes that of the SSW Franchise.The pleaded case