Bartercard New Zealand Limited v Tradecard Limited HC Christchurch CP 135/00

[2001] NZHC 499

IN THE HIGH COURT OF NEW ZEALAND
CHRISTCHURCH REGISTRY CP.135/00

BETWEEN BARTERCARD NEW ZEALAND LIMITED
Plaintiff

AND TRADECARD LIMITED
First Defendant

AND ALT-FINANCE NEW ZEALAND LIMITED
Second Defendant

AND PAUL MAIHI
Third Defendant

Hearing: 13 June 2001

Counsel: J. H. Olphert and J. D. West for Plaintiff
P. R. Kellar for First and Second Defendants
No appearance by Third Defendant

Judgment: 15 June 2001

JUDGMENT OF FRASER J.

[1] This is an action seeking an injunction and damages.

[2] In 1992 the plaintiff (“Bartercard”) commenced a trade exchange business the basis of which is that members are provided with the opportunity, and the necessary infra-structure and administration, to exchange goods and services with one another for what are called “trade dollars”. It has a membership of over 4,000.

[3] There are other similar, although not necessarily identical, trade exchanges in New Zealand. The evidence is that there are a large number of businesses which are members of more than one exchange and some are members of all of them.

[4] One of these other exchanges was commenced by Mr L. W. Welch in September 1999 in Christchurch. This business is now (since April 2000) operated by the second defendant. It and the first defendant are closely associated and for present purposes can conveniently be referred to together as Alt-Finance. Mr Welch is the chief executive of Alt-Finance. Although operating initially from Christchurch and in the South Island, the company has entered into franchise agreements under which the business is operated in other parts of New Zealand. One of the terms of these franchise agreements is that Alt-Finance is remunerated with a percentage of the commission charged by the franchisee. About August 2000 Alt-Finance entered into such a franchise agreement with the third defendant (Mr Maihi) in respect of the Auckland area.

[5] At an earlier stage Mr Maihi was the managing director of a company called, The Home and Business Directory Ltd, operating in Auckland, which in September 1999 became a member of Bartercard. On 6 March 2000 The Home and Business Directory Ltd, as a member of Bartercard, asked to be supplied with the brokerage labels and database information for the North Auckland and South Auckland Bartercard brokerages. Prior to selling the labels and providing the information Bartercard required advice as to the proposed use of the information and was told that the purpose was to “pre-sell advertising space in our Auckland directory’”. A sample of the proposed letter to be sent to prospective clients was sent to Bartercard. On this basis the labels and information were supplied at a cost of $200.

[6] Ms Henry produced a copy of a flyer, Exhibit K, advertising Alt-Finance and impliedly inviting prospective customers to contact Mr Maihi or Alt-Finance. There is no reference to Bartercard on this document and the only evidence relating to it is from Ms Henry. That evidence is dealt with in a later section of this judgment.

[7] Also in September 2000 Mr Maihi approached Mr M. G. Osborne the managing director of Aquarius Data Management Ltd in Auckland proposing that it should become a member of Alt-Finance. In the course of the discussion he told Mr Osborne that he had purchased the electronic database of members from Bartercard when he had been a member of Bartercard through The Home and Business Directory Ltd. Mr Osborne says it was clear to him from the tenor of the conversation that his details had been obtained through the Bartercard database. Nothing ensued from the discussion and there was no further contact from Mr Maihi, but the information as to his possession and use of the database was passed on by Mr Osborne to Bartercard.

[8] In July/August 2000 Ms J. A. Lassen, on behalf of Alt-Finance, contacted Mr H. J. Clare, a director of Sharpen It Ltd, a company carrying on business in Christchurch to arrange an appointment to tell him about Alt-Finance with a view to getting his business to become a member. Mr Clare says that he asked how Ms Lassen got his details and he was told that, “we acquired your details through the Bartercard Trade Exchange”. Ms Lassen denies that such a statement was made.

[9] On 27 October 2000 Bartercard commenced proceedings, seeking damages and an injunction, against Alt-Finance and Mr Maihi alleging breach of confidence, deceit and breach of copyright. An application for an interim injunction was resolved as between Bartercard and Alt-Finance by agreement, formalised in an order of the Court made on 13 December 2000, the effect of which was that each undertook to desist from disseminating any information about the other’s business and from holding itself out as in any way attached to or working in association with the other.

[10] Mr Maihi, although duly served has at no time taken any step in the proceedings.

[11] By the second amended statement of claim it is pleaded that at all material times Mr Maihi was working for or acting as an agent for Alt-Finance and that all defendants made use of the confidential information contained in the Bartercard material sent to The Home and Business Directory Ltd and have jointly or severally held themselves out to be allied to or connected with Bartercard in order to market and promote Alt-Finance to Bartercard members. There are causes of action in breach of confidence, deceit, breach of copyright and breach of ss.9 and 13 of the Fair Trading Act 1986. Damages and costs are sought from all parties and an injunction against Mr Maihi.

[12] The damages claimed are not quantified by Bartercard. No figure was included in the statement of claim or put forward in the course of submissions. It was acknowledged by counsel that quantification is not easy, but it was submitted that that difficulty cannot deter the Court from making an assessment of an appropriate award.

[13] Counsel made submissions as to the law and provided me with copies of relevant judgments. There is, however, no dispute about the law and the case turns on its own facts and the application to them of established principles. I turn now to the evidence and the facts.

[14] Exhibit K, the advertising flyer shows that there was such a document in existence emanating from Mr Maihi and advertising Alt-Finance, but on the face of it, there is no connection with Bartercard or the information obtained by The Home and Business Directory Ltd from Bartercard. Ms Henry said:

“I am aware that the third defendant was working for the first defendant in Auckland in approximately September 2000 and wrote to a large number, if not all of Bartercard’s Auckland clients in an effort to recruit new members to the first defendant’s trade exchange. (See Exhibit K.)

I believe that he used the plaintiffs confidential information sourced through his directorship of The Home and Business Directory Ltd to contact the Bartercard members.”

[15] I am not being critical of Ms Henry, who I think gave her evidence frankly and honestly, as to what her understanding of the position was, but objectively what she says is apparently hearsay (although not formally objected to when the evidence was given), and in any event it is vague, general and completely lacking in information as to the source of her knowledge and belief. How an employee in Christchurch became “aware” of events in Auckland is unexplained. In my view it is impossible to attach the weight to it which would be required to accept it as proving that the flyer was sent by Mr Maihi “to a large number, if not all of Bartercard’s Auckland clients”, their names and addresses having been obtained from Bartercard’s database.

[16] I accept the evidence of Mr Welch, Mr McColl and Ms Lassen that neither they nor Alt-Finance have ever had or used the material which Mr Maihi obtained from Bartercard. I think that Mr Clare is mistaken when he says that Ms Lassen told him that, “we acquired your details through the Bartercard Trade Exchange”. This was a statement which he says was made in the course of a telephone conversation many months ago. There was no particular reason or need at the time to pay attention to the exact words used. There was no other evidence of any sort that these parties had possession of the material referred to, nor any evidence from any other person that a statement to the like effect was made to them. Taking this in conjunction with the positive evidence, which I accept, that they did not have the material, I conclude that although Mr Clare’s evidence was honestly and genuinely given it was mistaken and cannot be accepted in that respect.

[17] Mr G. W. Mathews of Hitech Auto Parts Ltd gave evidence that his company had been a member of Bartercard for some time. In February 2000 after learning of Alt-Finance he approached it and after some discussion with Mr Welch, became a member of it as well. He says that Mr Welch:

“Indicated to me that the Alt-Finance trade exchange was similar to Bartercard, however, I accept that he never specifically said that Alt-Finance and Bartercard worked together.”

By agreement the joining fee of $350 was paid in Bartercard dollars. This incident pre-dates the commencement of business of Alt-Finance Ltd as an incorporated company and it is clear that the arrangement was initiated by Mr Mathews himself. In respect of the form of payment, Mr Mathews said:

“I assumed that Bartercard and Alt-Finance had an arrangement in respect of these funds.”

An acceptance of payment in the particular way agreed here, does not seem to me to amount to holding out that Mr Welch’s business under the Alt-Finance name was allied to, or connected with Bartercard. Clearly Mr Mathews was dissatisfied with the way in which their business relationship turned out, but in my view his evidence does not advance Bartercard’s case.

[18] Ms Henry produced the trading histories of the 48 Bartercard members who were also members of Alt-Finance and a schedule showing the average monthly trade volume of each for the calendar year 2000 and the average monthly trade volume for the first five months of 2001. The total monthly averages for the 2000 year were $358,878 and for the first five months of the year 2001, $309,987. She acknowledged that these figures related to New Zealand as a whole, not only to Auckland, that there were seasonal and other fluctuations in the volume of business transacted by members and that the drop in trade volume shown in the schedule could be attributed to a variety of causes. There is no reason to doubt the figures Ms Henry produced, but the reason for the variations was not established.

[19] Mr Welch also produced a schedule, with a relevant analysis of the business conducted by persons or companies who were members of both Bartercard and Alt-Finance. In respect of the Auckland area 21 names were listed; of these 13 had not yet traded with Alt-Finance at all, and one was said to be not a member. Of the remaining seven who had traded with Alt-Finance the volume was slight, the income resulting to the Auckland franchisee being $134.28 and to Alt-Finance head office, $57.55. Eight are listed in the Wellington region. Of these five had not undertaken any trade with Alt-Finance and in respect of the remaining three, the trade had been negligible. Thirty-two members were listed in respect of the South Island. Most of them have had previous business association with Mr Welch in other companies. I accept that Mr Welch’s figures are correct.

[20] I infer from the tenor of the conversation between Mr Maihi and Mr Osborne that Mr Maihi obtained Mr Osborne’s company’s details from the Bartercard database and used that information to select Mr Osborne’s company as being a potential customer of Alt-finance. However, that approach and use of unauthorised information did not result in Mr Osborne’s company becoming a customer and did not cause any detriment to Bartercard.

[21] Mr Maihi told Mr Osborne that he had purchased the database when he was a member of Bartercard and had an absolute right to use it, or words to that effect and that it was his. This does not, in my view, amount to him representing that Alt-Finance was allied to or connected with Bartercard.

[22] I now set out my conclusions based on the findings of fact already made.

[23] As to breach of confidence, I conclude:

[a] That the information had the necessary quality of confidence.

[b] It was conveyed to Mr Maihi’s company in circumstances importing an obligation of confidence.

[c] The information was not communicated by Mr Maihi to Alt-Finance.

[d] The only proved unauthorised use of the information was Mr Maihi’s obtaining from it Mr Osborne’s company’s name and address and approaching Mr Osborne with a view to his company becoming a member of Alt-Finance.

[e] There was no detriment to Bartercard from this unauthorised use.

In these circumstances the cause of action based on breach of confidence has not been made out.

[24] With regard to deceit, no relevant representation of fact has been proved so the cause of action has not been established.

[25] Assuming that the database is a work in which copyright can subsist and that copyright does subsist in that work, which is owned by Bartercard, there is no evidence that the database was copied and made available to Alt-Finance and the only proved use of it seems to me to be that in relation to Mr Osborne’s company. In my view that use, while amounting to an unauthorised use of confidential information, does not constitute an infringement of copyright. Even if it did, there is no evidence that Bartercard suffered loss as a result of it as pleaded. This cause of action has not been established.

[26] In respect of the alleged breach of s.9 of the Fair Trading Act the misleading or deceptive conduct relates to the various representations said to have been made that Alt-Finance had been referred to a potential customer by Bartercard and that Alt-Finance was working in conjunction with Bartercard. No relevant representation has been proved. The cause of action has not been established.

[27] These findings of fact likewise dispose of the fifth cause of action, breach of s.13 of the Fair Trading Act.

[28] In the result Bartercard’s case has not been made out as against the first and second defendants and there will be judgment for them, together with costs, as to which I invite counsel to submit memoranda.

[29] As to Mr Maihi, although the unauthorised use of confidential information on an occasion in September 2000 has been established, no damage resulted from it and there was no evidence of any repetition or likelihood of repetition. In these circumstances I decline to grant the injunctive relief sought.