DB Marketing Solutions Pty Ltd (formerly known as Auto Xtreme Electronics Pty Ltd) v Cause

Federal Court of Australia|2014-10-28|Before: Collier J, Rangiah J

REASONS FOR JUDGMENT 1 The applicants seek leave to appeal against part of a judgment of Collier J. The applicants wish to appeal against her Honour's refusal to grant injunctions against the second and third respondents.

Background 2 The substantive dispute concerns a business operated in partnership by the first respondent, Trent David Cause, and the second respondent, Ashley Grant Cause. The applicants have also joined the third respondent, On Highway Electronics, which is the business name under which the partnership operates. 3 The primary judge was informed that the first applicant, DB Marketing Solutions Pty Ltd (formerly known as Auto Xtreme Electronics Pty Ltd) ("DBMS"), operates a business called Auto Xtreme Electronics ("Auto Xtreme"). In October 2009, DBMS (under its former name) purchased that business from Playing to Win Pty Ltd and the Untouchable Unit Trust ("the Trust"). Trent Cause was a beneficiary of the Trust. Her Honour was informed that he was then employed by DBMS as its general manager until he was retrenched in November 2013. 4 Trent Cause acquired shares in the second applicant, WorldMark Group Holdings Pty Ltd ("WorldMark"), in 2010 and sold the last of his ordinary shares on 20 January 2014. 5 The primary judge found that Ashley Cause was employed by Motor One Group Pty Ltd. That company, DBMS and WorldMark appear to be related entities which operate as a group of companies. 6 There was in evidence an agreement made in July 2008 between Ashley Cause and Playing to Win Pty Ltd described as a "Contract for Services Agreement". Ashley Cause apparently performed services for one or both of the applicants after the sale of the business, but ceased to do so in about June 2014. 7 Under the terms of a shareholders' agreement with WorldMark, Trent Cause agreed that he would not, until 12 months after he ceased to hold any share, compete with the Auto Xtreme business. Under his employment agreement with DBMS he agreed that he would not for a period of up to 12 months after the conclusion of his employment engage or be involved in any business competing with Auto Xtreme and would not seek to induce any employee of Auto Xtreme or its related entities to be engaged in or to be involved in any business competing with Auto Xtreme. Her Honour found, assuming the validity of its terms, that the shareholders' agreement restrains Trent Cause until 20 January 2015. The employment agreement restrains him until November 2014. 8 On 30 April 2014, Trent Cause and Ashley Cause registered the business name "On Highway Electronics". In June 2014, they informed an employee of DBMS that they intended to go into business for themselves and target existing clients of Auto Xtreme in the trucking industry. The partnership business has apparently been successful in attracting a number of major clients of Auto Xtreme. Against this background, the applicants sought urgent interim injunctions restraining Trent Cause, Ashley Cause and On Highway Electronics from competing with Auto Xtreme.

The judgment of the primary judge 9 The primary judge granted injunctions against Trent Cause. The injunctions restrain him until further order from, inter alia, conducting any business which is similar to or competes with the applicants' business or any part of the applicants' business within Australia. 10 Her Honour was satisfied that, prima facie, Trent Cause was contractually restrained from competing with Auto Xtreme until 20 January 2015. Her Honour considered that damages would not be an adequate remedy because the evidence suggested that Trent Cause would not be able to satisfy any judgment against him. Her Honour decided the balance of convenience favoured the grant of injunctions. 11 Her Honour was not, however, satisfied that it was appropriate to grant injunctions against Ashley Cause or against On Highway Electronics. 12 The applicants' case for the grant of injunctions against Ashley Cause was that: (a) He was employed by or a party to an employment agreement with either DBMS or WorldMark and was restrained by the agreement from competing with Auto Xtreme. (b) DBMS had been assigned the benefit of the contract for services by Playing to Win Pty Ltd in which he had agreed to "execute and comply with the Confidentiality and Restraint Agreement annexed to this Agreement" (although no such annexure was in the evidence before her Honour). (c) He had breached s 182(1) of the Corporations Act 2001 (Cth) which provides, relevantly, that employees of a corporation must not improperly use their position to gain an advantage for themselves or for someone else or cause detriment to the corporation. (d) He had breached s 183(1) of the Corporations Act which provides that persons who obtain information because they are or have been an employee of a corporation must not improperly use that information to gain an advantage for themselves or someone else or cause detriment to the corporation. 13 The applicants also contended that there should be an injunction, not only against the partners conducting On Highway Electronics, but also against On Highway Electronics in that name. The applicants seem to suggest that they asserted a cause of action against On Highway Electronics which was separate to their causes of action against Trent Cause and Ashley Cause, but there was no clear articulation of their case. 14 Her Honour held that the applicants had not established a serious question to be tried against Ashley Cause. Her Honour noted that the highest the applicants' case went was that Ashley Cause was employed by or otherwise a party to a service agreement involving one or other of the applicants, but that no such agreement was placed in evidence. As there was no evidence that Ashley Cause was an employee of either of the applicants, ss 182(1) and 183(1) of the Corporations Act could not apply. 15 The applicants' case for an injunction against On Highway Electronics relied upon the fact that it is a firm, the partners of which were Trent Cause and Ashley Cause. Her Honour noted that the applicants had drawn attention to ss 8 and 9 of the Partnership Act 1891 (Qld), but said it was difficult to identify the relevance of those provisions. Her Honour considered that the fact that a business name had been registered did not mean that the partnership could be restrained, except in so far as proceedings could be commenced against the individual partners of that firm. Her Honour was not satisfied that there was a serious question to be tried concerning Ashley Cause in his capacity as an individual, so there was no serious question to be tried concerning Ashley Cause in his capacity as a partner of the firm. Accordingly, her Honour refused to grant injunctions against the second and third respondents.

The application for leave to appeal 16 Section 24(1A) of the Federal Court of Australia Act 1976 (Cth) requires an application for leave to appeal to be made from an interlocutory judgment of a single judge exercising the original jurisdiction of the Court. 17 The Court has a discretion as to whether to grant leave to appeal, but such leave will not usually be granted unless the judgment is attended by sufficient doubt to warrant the grant of leave and substantial injustice would result from the refusal of leave to appeal: DÉcor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 at 398-399; Minogue v Williams [2000] FCA 125 at [19]. However, there is no hard and fast rule and each case must be considered on its merits: Samsung Electronics Co Ltd v Apple Inc (2011) 217 FCR 238 at [29]. 18 The grant of an interlocutory injunction is a matter of practice and procedure: Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 at [53]. However, if the order, while interlocutory in its legal effect, has the practical operation of finally determining the rights of the parties, a prima facie case exists for granting leave to appeal: Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564 at [43]. 19 The grounds of the proposed appeal are as follows: 1. That the learned judge erred in finding that there was no serious question to be tried against the Second Respondent and/or the Third Respondent. 2. That the learned trial judge erred in failing to restrain the Second Respondent in his role as a partner within the partnership. 3. That the learned trial judge erred in finding that the balance of convenience favoured the Second and Third Respondents not being restrained. 4. That the learned trial judge erred in finding that the Second Respondent in his capacity within the Third Respondent was not competing with the applicant's [sic] business. 5. That the learned trial judge erred in her construction of the Third Respondent partnership and the contractual obligations that the First Respondent had when finding that the restraint against the First Respondent was adequate to address the possible contraventions of his contractual obligations and ongoing injury to the applicant's business interest. 20 The proposed grounds of appeal are general in nature and do not themselves specify the errors that the applicants assert the primary judge committed. It is necessary to consider the submissions made in order to identify what errors are asserted.

Consideration 21 The applicants initially argued that her Honour erred in failing to find that Ashley Cause was employed by DBMS or WorldMark. They eventually accepted that her Honour's finding that he was employed by Motor One Group Pty Ltd, a company which is not an applicant in the proceeding, was correct. Accordingly, the applicants cannot succeed in any appeal on the basis that Ashley Cause breached a contract of employment with one of the applicants or that he breached ss 182(1) or 183(1) of the Corporations Act. 22 The applicants argue that her Honour erred in failing to find that DBMS is entitled to enforce the confidentiality and restraint agreement annexed to and forming part of the contract under which Ashley Cause agreed to provide services to Playing to Win Pty Ltd. The applicants point to an agreement for the sale of the business by Playing to Win Pty Ltd to DBMS, under its former name. The agreement provides for the assignment to DBMS of the vendor's rights and interests in its "Business Contracts", a term that appears to be defined widely enough to include the contract with Ashley Cause. 23 In the application before the primary judge, the applicants placed into evidence the written contract between Playing to Win Pty Ltd and Ashley Cause, but not the annexure containing the confidentiality and restraint agreement. As there was no evidence as to the terms of any restrictions on Ashley Cause, it was impossible for her Honour to find that there was a serious question to be tried as to whether Ashley Cause had breached the agreement, irrespective of the ability of DBMS to enforce the agreement. 24 The applicants propose to adduce evidence in their appeal of what they assert is the annexure containing the confidentiality and restraint agreement. That agreement requires that Ashley Cause not disclose "Confidential Information" to any person, which includes all information which is by its nature likely to be confidential and which relates to customers or the business. The agreement also prevents Ashley Cause from soliciting customers of Playing to Win Pty Ltd for up to one year from the termination of the contract. The applicants assert that DBMS is entitled to the benefit of the agreement and is entitled to enforce it. 25 It would be necessary for the applicants to obtain the leave of the Full Court to adduce this further evidence pursuant to s 27 of the Federal Court of Australia Act. The applicants would ordinarily have to explain why this evidence was not placed before the primary judge and satisfy the Full Court that the further evidence would have produced a different result if it had been available at the trial: Guus v Johnstone [2000] FCA 1455 at [33], [45]. The applicants have not sought to raise any such explanation in this application. In the absence of such an explanation, I consider that their prospects of being permitted to adduce this further evidence on appeal are poor. Their prospects of succeeding in the appeal on this ground are insufficient to justify a grant of leave. In addition, there is at least the possibility of making another application for an injunction based on what may be the applicants' recent discovery of the annexure, so I am not satisfied that the applicants would suffer substantial injustice if leave were refused. 26 The applicants argued next that her Honour erred in failing to appreciate a part of their argument concerning why injunctions should be granted against Ashley Cause and On Highway Electronics. Their argument commences that if only Trent Cause, but not the other respondents, is restrained, Ashley Cause is able to continue to operate the partnership business. Their argument continues that under ss 8(1) and 9(1) of the Partnership Act, acts carried out by Ashley Cause relating to the partnership business are carried out on behalf of Trent Cause and those acts bind him. The applicants argue that Ashley Cause is continuing to carry on the partnership business and the effect of ss 8(1) and s 9(1) of the Partnership Act is that Trent Cause is effectively also carrying on the business. The applicants argue that, therefore, the injunction against Trent Cause is ineffective and could only have been made effective if the primary judge also granted an injunction against Ashley Cause and On Highway Electronics. 27 There are several difficulties with the applicants' submission. The first is that the submission that the applicants wish to make in the appeal was not made, or not obviously made, to the primary judge. The applicants' written submissions before the primary judge did not mention ss 8(1) or 9(1) of the Partnership Act. The only reference in the transcript to either of those provisions was their submission that the effect of s 9 is that the partnership is bound by the actions of one partner. It appears that the argument now sought to be made was not made, or at least not clearly articulated, in the proceeding before her Honour. That is not necessarily fatal to the ability of the applicants to run the argument before the Full Court. The argument is one that may have had substance if it had been clearly made. 28 The second difficulty, however, is that the respondents submit that there is no evidence that Ashley Cause is continuing to operate the partnership business and, therefore, there is no evidence that the injunctions against Trent Cause are ineffective. The applicants have provided evidence that the website of On Highway Electronics has not been taken down. However, this does not prove that the partnership business is still operating. 29 The respondents' legal representative frankly accepted that if the partnership business continued to operate, then ss 8(1) and 9(1) of the Partnership Act would have the effect that Trent Cause is operating the business. He argues that the applicants' remedy would then be to bring proceedings for contempt against Trent Cause. 30 I accept the submission of the respondents' legal representative. The applicants have not demonstrated that the partnership business is still operating. It has therefore failed to demonstrate that the injunctions against Trent Cause are ineffective. The consequence is that the applicants have not shown that they will not suffer substantial injustice if leave to appeal is refused. If they can demonstrate that the partnership business is continuing to operate then they have an alternative remedy, namely the ability to bring proceedings against Trent Cause for contempt. 31 There is another fundamental problem that the applicants face. Their written submissions in support of their application for leave to appeal describe the business and business assets purchased by DBMS from Playing to Win Pty Ltd as the "Business". Those submissions go on to say: 10. The First Applicant operated the Business upon acquisition until 30 June 2011 and assigned the Business on 1 July 2011 to the Third Applicant, who then conducted the Business from that date onwards and continues to conduct the Business. 32 It may be noted that there is presently no "Third Applicant", but the submissions indicate that the applicants propose to join Motor One Group Pty Ltd as the third applicant. The submissions indicate that it is Motor One Group Pty Ltd, not DBMS, that has conducted the Auto Xtreme business since 1 July 2011. This contrasts with the clear indication in the applicants' submissions to the primary judge that DBMS conducts the Auto Xtreme business. 33 The applicants' admission that the Auto Xtreme business is carried out by a company that is not a party has the potential to affect each of the proposed grounds of appeal. Precisely how they may be affected was not explored. It at least seems possible that DBMS lacked standing to seek and obtain injunctions against Trent Cause and it may lack standing to seek injunctions against Ashley Cause. It is not clear, for example, whether the benefit of the contract between Playing to Win Pty Ltd and Ashley Cause has been assigned by DBMS to Motor One Group Pty Ltd. 34 In circumstances where the basis upon which at least the first applicant has standing is quite unclear and where only one ground is demonstrated to have any real prospect of success, but where the refusal of leave would not create substantial injustice, I decline to grant leave to appeal. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rangiah.

Corporations Act 2001(Cth)ss 182(1)

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