Ultra Tune Australia P/L v Marsmark Auto P/L

[2001] NSWSC 516

CITATION:	ULTRA TUNE AUSTRALIA P/L v MARSMARK AUTO P/L & ORS [2001] NSWSC 516
CURRENT JURISDICTION:	EQUITY
FILE NUMBER(S):	SC 2397/01
HEARING DATE(S):	14/06/01
JUDGMENT DATE:	22 June 2001
PARTIES :	Ultra Tune Australia Pty Ltd - Plaintiff Marsmark Auto Pty Ltd - First Defendant Mario Alimonti - Second Defendant Mark Lawrence Birkett - Third Defendant Jesson Investments Pty Ltd - Fourth Defendant Jessica Alimonti - Fifth Defendant Sonya Birkett - Sixth Defendant
JUDGMENT OF:	Bryson J at 1

COUNSEL :	N. Francey - Plaintiff J. Fernon - Defendants
SOLICITORS:	McCabes Terrill - Plaintiff Cutler Hughes & Harris - Defendants
CATCHWORDS:	CONFIDENTIAL INFORMATION - INJUNCTION - interlocutory injunction - plaintiff claimed interlocutory injunction against use of Customer Lists - defendants bought franchised business from franchisee, conducted the business from November 1999 to April 2001, used Customer Lists and negotiated with plaintiff for Franchise Agreement but did not reach agreement - held that any confidentiality of Customer Lists had been lost - interlocutory injunction refused.
LEGISLATION CITED:	Trade Practices Act 1974 (Cth)
DECISION:	Dismiss the Notice of Motion of 15 May 2001 with costs.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRYSON J

Friday 22 June 2001

2397/2001 - ULTRA TUNE AUSTRALIA PTY LTD v MARSMARK AUTO PTY LTD & ORS

1    HIS HONOUR: The plaintiff’s Notice of Motion of 15 May 2001 claimed interlocutory orders which would prevent the defendants from using the contents of Customer Lists and require them to deliver the Customer Lists to the plaintiff. I heard the Notice of Motion on 14 June 2001, and now state the grounds on which I then dismissed it. The plaintiff’s counsel put forward several bases for the claim, principally the protection available in equity for confidential information. Counsel also told me that the plaintiff relies on provisions in s 51AC of the Trade Practices Act 1974 (Cth) which deal with engaging in conduct that is, in all the circumstances, unconscionable. The Customer Lists are maintained on software which the plaintiff placed in the hands of Mr Sprang the principal of Sprang & Son Pty. Limited which was the defendants’ predecessor in business.

2    The plaintiff had the protection of contractual provisions in its relationship with Mr Sprang and his company which I was prepared to assume for the purpose of determining the Notice of Motion had the effect that the material recorded on the software, including customer lists, was confidential as between the plaintiff and Sprang & Son Pty. Limited, so that the plaintiff was entitled to protection of confidence in that material. The matter assumed appears to me to be reasonably open to argument as it is not clear that confidentiality extended to the identity of customers, or to any material which the franchisee recorded on the software. Contractual provisions between the plaintiff and Sprang & Son Pty. Limited speak in very general terms about anything which could be thought to establish the confidentiality of Customer Lists. Counsel referred to cl.5 of the Centre Franchise Agreement (at Ex A p.23), which refers among other things to computer software and electronic systems but not in any clear way to the information recorded in them by the Franchisee, and to cl.6(22) which gives the Franchisor a discretionary obligation to provide assistance in methods and procedures. Counsel also referred to the obligations of the Franchisee in cl.7(1) (at Ex A p.31) with the definition of Intellectual Property (at Ex A p.59) and to the prohibition on assignment in cl.10(1) (at Ex A p.44). These gave sufficient colour to warrant the assumption for limited purposes, although the absence of any reference to the Franchisor’s furnishing Customer Lists or to their compilation is striking, particularly in the light of the extensive prescriptions of the obligations of the Franchisor in cl.6 and of the Franchisee in cl.7, the references to lists of other kinds, and the absence of any reflection of contemplation that the plaintiff would provide any Customer Lists. Submissions too readily made an equation between computer software and the information recorded in it; this in my view is open to further examination, and I do not now act on any conclusion on it.

3    The first defendant agreed to purchase the business of Sprang & Son Pty. Limited, and the terms of the purchase contract show that the business was treated as an Ultra Tune franchise business and that they bought it knowing that it was. The first defendant did not give Sprang & Son Pty. Limited any commitment to preserve confidentiality of the plaintiff. There is evidence that the first three defendants knew the terms on which the plaintiff was prepared to make franchise agreements from negotiations they had earlier conducted with the plaintiff for a franchise arrangement relating to a business at another place. When the first three defendants took over conduct of the business under the purchase agreement they acted in many ways as if they were themselves a franchisee. In particular they followed the plaintiff’s business systems, used the plaintiff’s name uniforms and livery and paid royalties as was appropriate for a franchisee. However they did not enter into any written or other agreement giving any commitment to protect confidentiality, in express terms or on any terms. They did not enter into any arrangement with the plaintiff or give any undertaking to observe contractual obligations and restrictions to which Sprang & Son Pty. Limited had been subject.

4    Counsel referred to an entry in the List of Equipment to be purchased which forms part of the Agreement for Sale of Business dated 10 December 1999 between Sprang & Son Pty. Limited and the first defendant. The inclusion in the List (at Ex A p.166) of the entry “Computer 2Y Compliant and loaded with GST Compliant Ultra Tune Software” does not in any way show that the first defendant or any defendant assumed any obligation relating to confidentiality.

5    The first three defendants conducted negotiations with the plaintiff, extending over many months, for entering into a written franchise agreement, but they did not ever do so. Prima facie it was established for the purposes of this application that they knew the terms on which the plaintiff wished to deal, and knew whatever implication for confidentiality those terms would have established on their proper interpretation. At the time when they took over the business system and in particular achieved control from Sprang & Son Pty. Limited of the software with particulars of customers incorporated in it they were, on the assumption earlier stated, amenable to control by injunction in respect of the confidentiality of the information if the plaintiff had applied promptly for an injunction restricting their use of the confidential information, or if the plaintiff had achieved any other means of control over their use of the information such as a contractual commitment or I would think any other commitment to respect confidentiality of the information. However there is nothing in the circumstances in evidence which shows that they either expressly or impliedly gave any commitment to preserve confidentiality.

6    In particular the circumstances that they engaged in desultory negotiations with the plaintiff, which did not lead to any written agreement dealing with confidentiality or with anything else, do not show that. They did give a limited confidentiality undertaking for specific purposes, but it related to a different and limited subject, emphasising both the view of the plaintiff that an express arrangement was necessary to protect confidentiality, and the absence of any arrangement relating to the matter in hand. The inference from the facts in evidence is that the first three defendants took the information about the identification of customers in the software they received from Sprang & Son Pty. Limited, used it for their own purposes and (it should be inferred) altered it and added to it from time to time as appropriate for their own business purposes. The information relating to customers and the lists which the first three defendants received from Sprang & Son Pty. Limited probably became considerably admixed with information contributed by themselves. As they did this for their own purposes without having given the plaintiff any commitment as to the use of the information, and continued from November 1999 until April 2001 without the plaintiff establishing any control over them or obtaining any commitment from them, it is in my view quite clear that the information lost any confidential character it had earlier had and they ceased to be subject to any control available to the plaintiff over the use of it.

7    In my view the defendants’ being left uncontrolled for so long a period deprived of any continuing substance contentions that their conduct was unconscionable in the respect that they knew when they purchased the business from Sprang & Son Pty. Limited that their vendor had given some such commitment or in the respect that they knew the terms on which the plaintiff had dealt with Sprang & Son Pty. Limited and wished to deal with them, or that they should have regarded confidentiality of the information as being in the nature of property of the plaintiff entrusted to Sprang & Son Pty. Limited. To deal with a theme to which the plaintiff’s counsel gave much emphasis, I see no substance whatever in a view that by entering into and continuing negotiations with the plaintiff the defendants in some way made a representation that they would respect the plaintiff’s confidentiality. Quite to the contrary, entering into negotiations with the plaintiff for an agreement which was to be in writing emphasised, as a matter of what the defendants might be thought impliedly to have represented to the plaintiff, and as a matter of the defendants’ revealed attitude, that they were not bound in any respect as to which the plaintiff sought a commitment from them unless and until they gave the commitment.

8 There is no substance in the suggestion that their conduct in conducting negotiations and in regarding themselves as free to act as they wished while they did so was unconscionable. There is no substance in the supposed reliance on s 51AC. There is nothing unconscionable about not complying with the plaintiff’s wishes, even if they were known; an obligation of confidentiality exists if control is available and is exercised or if the obligation is accepted, but nothing in the circumstances conveyed by any reasonably available implication an assurance by the defendants to the plaintiff that confidence was to be observed.

9    Counsel referred to the Confidentiality Agreement dated 27 October 2000 (at Ex A p.179); that establishes confidentiality in respect of a different matter, not material which had come to the defendants from Sprang & Son Pty. Limited, and if the plaintiff’s obtaining that Confidentiality Agreement from the defendants during the negotiations has any implication, it is that there was no other relationship of confidence.

10    Submissions by the plaintiff’s counsel included extravagant overstatements and inflammatory material related to claims that the defendants’ conduct was unconscionable. It was said that they always knew that what they were acquiring was a franchise business and that they adhered to that until 12 April 2001, and that in the mean time they were leading the plaintiff to believe that they were going to continue to use the plaintiff’s property only as an Ultra Tune franchise; that the plaintiff took action as soon as the defendants changed their course, and that it was the defendants’ lack of good faith that caused the plaintiff’s hand to be stayed until then.

11    It was contended that it was significant that the plaintiff took action and commenced litigation as soon as the defendants changed their course and ceased to conduct business in the way which purported to be an Ultra Tune franchise. That to my mind is not in point; that would only be significant if in some way the defendants had given a commitment to preserve the plaintiff’s confidentiality while they acted, without any formal appointment, as if they had an Ultra Tune franchise. It was alleged by counsel that it was the defendants’ lack of good faith which caused the plaintiff’s hand to be stayed until then; this contention was unjustified either by any evidence or by any rationally available line of argument. It was so extravagantly unjustified and baseless that it was the signal for my terminating counsel’s opportunity further to develop submissions, which had already been availed of more than fully.

12    In disregard of the restriction I had imposed counsel referred to the following passage in a letter written on 7 March 2001 (at Ex A p.200-201) by the solicitor then conducting negotiations on behalf of the first defendant:

I further advise that my client’s present lease is due to expire on the 30 June 2003 and the landlord’s agents have recently advised my client that the landlord will not, at this point of time, negotiate an option to renew the lease.
In view of the above my client’s directors have negotiated for a third party to lease another property in a nearby location for the purpose of operating a tyre business. This business does not compete or conflict with the company’s existing business. My client’s directors have an indirect interest in such third party.

13    This passage was entirely unable to support the contention that there was a lack of good faith, and reliance on it had no effect but to demonstrate the vacuity of the contention. Counsel contended that this was an acknowledgment of the right claimed by the plaintiff. There was of course no substance in this and putting it forward earned counsel my rebuke, which I now record. If counsel is to assist the Court, procedural directions must be complied with and observations must be confined to matters which could reasonably be thought to be in point. A ruling ending counsel’s opportunity to make submissions can of course be reconsidered if something of importance has been overlooked, but to disregard my ruling to make some completely insubstantial further submission invited consideration of professional discipline; I though it sufficient to rebuke counsel.

14    For the reasons I have stated I dismissed the Notice of Motion of 15 May 2001 with costs.

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Last Modified: 06/25/2001