Financial Integrity Group Pty Ltd v Farmer and Bravium Pty Ltd

Supreme Court of the ACT|2013-08-16|Before: Refshauge J, Connolly J

1. On or before 30 August 2013, the parties file and serve any written submissions they wish to make as to whether the Plaintiff gave an undertaking as to damages on 28 August 2007 and at the same time advise whether they wish to be heard orally in addition to those submissions.

1. The plaintiff, Financial Integrity Group Pty Limited (Financial Integrity) employed the first defendant, Mr Scott Farmer (Mr Farmer) from 23 November 2004 to 25 April 2007 when he left its employ to become employed by his own company, the second defendant, Bravium Pty Limited (Bravium).

2. Disputes arose between the parties as a result of Mr Farmer's departure because it was said that, when he joined Bravium, he had misused confidential information he had gained during his employment with Financial Integrity.

3. When the disputes could not be resolved, these proceedings were commenced by Originating Claim issued on 27 August 2007. The next day, 28 August 2007, Connolly J gave Financial Integrity injunctive relief as follows:

The defendants, by themselves, their servants or agents, do not approach directly or indirectly any customer of Financial Integrity Group Pty Ltd.
The defendants be restrained from soliciting or canvassing business in respect of investment or financial planning services or providing advice to persons who were clients of the plaintiff as at 25 April 2007.
If any customer of the plaintiff as at 25 April 2007 approaches the first or second defendant they refuse to deal with them up until 25 April 2008.
The defendants, by themselves, their servants or agents, be restrained from using, publishing and/or disclosing confidential client lists, client information including financial information and other confidential client information belonging to the plaintiff.
The defendants within 7 days of the date of this Order deliver up to the plaintiff's solicitor all originals and copies (including electronic copies in the possession, custody or power of themselves, their servants or agents of:

(b) Names, addresses and other personal and financial information of persons who were clients of the plaintiff as at 25 April 2007.

(c) Letters, emails or other correspondence sent after 25 April 2007 to persons who were clients of the plaintiff as at 25 April 2007.

The defendants within 7 days of the date of this Order file with the Court and serve on the plaintiffs an affidavit:

(d) confirming that all documents and copy documents referred to in paragraph 5 above have been delivered up to the plaintiffs' solicitors; and

(e) disclosing the names or any other person other than the defendants or their servants or agents to whom they have disclosed or published any of the information referred to in paragraph 4 above, the dates of such disclosures or publication, and the form in which the disclosure or publication was made.

4. Although it was not such, the terms of the order, at least orders 1, 2, 3 and 4, are more appropriate to a final order than to an interlocutory order. See, for example, Precedent 310.1 in LexisNexis Butterworths, Court Forms, Precedents and Pleadings New South Wales, vol 3 (at Service 71) at 51,145.

5. A final hearing was conducted on 20 March 2008. I discharged the orders made on 28 August 2007 and on 27 October 2009 struck out a number of paragraphs of the Amended Statement of Claim.

6. I gave Financial Integrity leave to apply to amend the Statement of Claim further but ordered:

If the plaintiff does not make an application to amend the Statement of Claim in accordance with this order, the balance of the Statement of Claim be struck out on 1 December 2009 and the defendants be entitled to enter judgment with costs.

7. No such application was made and on 11 December 2009, I ordered, inter alia, that the defendants have leave to enter judgment in the action and that the plaintiff pay the defendants' costs on a party/party basis.

8. It does not appear that any judgment has formally been entered.

9. Nevertheless, on 12 July 2010, Bravium applied for the following orders:

The Court declares that the second defendant has suffered loss arising from the injunction granted to the plaintiff on 28 August 2007.
That the plaintiff pay the second defendant damages to be assessed.

10. The application was adjourned a number of times at the request of the parties and ultimately came on for hearing on 16 July 2012.

11. I raised with the parties a question about the nature of the application, which appeared to be based on an undertaking as to damages presumably said to be given when the interlocutory injunction was first made.

12. At the time, although ordered, I did not have a transcript of the proceedings on 28 August 2007. The parties, however, urged me to proceed with the hearing nevertheless, which I did and the question I had raised could be dealt with in due course.

13. The issue was that the sealed order, curiously, did not show that Financial Integrity had given an undertaking as to damages, the almost invariable pre-condition for the grant of an interlocutory injunction: Graham v Campbell (1878) 7 Ch D 490 at 494; Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618 at 623. Special cases may justify a court not insisting upon such an undertaking: Attorney-General v Albany Hotel Co [1890] 2 Ch 696 at 700; Szentessy v Woo Ran (Australia) Pty Ltd (1985) 64 ACTR 98 at 104.

14. In I C F Spry, The Principles of Equitable Remedies (Law Book Co, 3rd ed, 1984), the following passage appears at 466:

Indeed, in the absence of a contrary intention, an order granting an interlocutory injunction is made on the implied basis that an undertaking by the plaintiff in the ordinary form is given, and an undertaking is therefore included in the formal order of the court when it is drawn up; and similarly, where no injunction is granted, but instead an undertaking is given by the defendant not to perform the particular acts that are complained of before the matter is finally disposed of at the final hearing, it is assumed in the absence of a contrary indication that an undertaking as to damages is given by the plaintiff. (citation omitted)

15. In National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] VicRp 31; [1991] 1 VR 386 (Bond Brewing Case), the Appeal Division of the Supreme Court of Victoria expressly stated (at 5601) that this did not represent the law in Victoria. It also referred to Kerridge v Foley (1968) 70 SR (NSW) 251 which was to the same effect as to the law in New South Wales.

16. The passage cited above was reproduced in the 6th edition of Dr Spry's book on 483, but stated as to be limited to the law in England.

17. Given the historical roots of the laws in this Territory in the law of New South Wales and, perhaps, the original procedural basis of the Territory's Supreme Court Rules originally copied from the Victorian Rules, I would consider the position as described in the Bond Brewing Case to represent the law in this Territory. In any event, I should ordinarily follow a decision of an intermediate Court of Appeal even of another jurisdiction: Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at 151-2; [135].

18. There are many authorities that make it clear that an undertaking as to damages is the almost invariable pre-condition to the grant of an interlocutory injunction. A frequently cited authority, no doubt because of its distinguished and highly experienced author, is Southern Tableland Insurance Brokers Pty Ltd (in liq) v Schomberg (1986) 11 ACLR 337 at 340-1 where Young J said:

The reason for requiring an undertaking to be given is, of course, that over and above damages which may be payable as a matter of law, the grant of an interlocutory injunction may occasion parties and non-parties damages, which, unless the court takes an undertaking, may not be able to be recovered and it is the price of a person obtaining the boon of an interlocutory injunction that he undertakes to the court to make good any damage that has been suffered by anybody as a result of that boon. Indeed, it has been the invariable practice for over one hundred years in this court and for longer in England to require such an undertaking. This is made abundantly clear from English cases such as Smith v Day, to which I have already referred, Graham v Campbell (1878) 7 Ch D 490, Attorney-General v Albany Hotel Co (1896) 2 Ch 696, F Hoffmann-La Roche & Co AG & OIS v Secretary of State for Trade and Industry [1975] AC 295, and in this country Cooper v Smyth [1883] NSWLawRp 46; (1883) 4 LR (NSW) Eq 39, Kerridge v Foley (1968) 70 SR (NSW) 251 at 255, Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd [1981] HCA 75; (1981) 146 CLR 249, especially per Aickin J at 260-1 and Gibbs J at 311.

All the formulations of the practice of requiring the plaintiff to give an undertaking as to damages have expressed the practices as subject to an exception. In Kerridge v Foley Sugarman JA spoke of the undertaking as the price of the injunction, at 255, and recognised that: 'An undertaking as to damages should, except in special circumstances, be required in every case of an interlocutory injunction.' That is a judgment of the Court of Appeal, which is binding on me.

...

What then are special circumstances within the meaning of the exception to the general requirement? Although many judges and authors speak of the exception, I do not know of any case where it has been reported that a judge has found that special circumstances exist so that an undertaking should not be given. As this is a matter of practice and procedure, with the consent of the parties I did speak to some other judges of this Division and they were not able to bring any illustrations to mind, nor have I had any personal experience of one. Spry in the third edition of his Equity [sic] Remedies at p 465 says that the circumstances where it is not just and reasonable that an undertaking should be given are extremely rare.

19. Campbell J in Varley v Varley [2006] NSWSC 1025 at [66] commented on this case as follows:

The usual practice of the courts in the exercise of the general law jurisdiction is to require an undertaking as to damages as a condition of interlocutory relief. The authorities are extensively reviewed by Young J in Southern Tableland Insurance Brokers Pty Ltd (in liq) v Schomberg (1986) 11 ACLR 337. His Honour recognised that there is frequently stated to be special circumstances in which an undertaking as to damages might not be required, but said that he did not know of any case where such special circumstances existed. Given his Honour's vast experience, such cases must indeed be extremely rare.

20. Nevertheless, none of these cases suggest that in the absence of an express undertaking as to damages, it is to be implied. Indeed, authority is said to hold that such an undertaking is to be given personally by the applicant for the injunction: see Golf Lynx v Golf Scene Pty Ltd (1984) 75 FLR 303 at 313 and the commentary in Thomson Reuters, Injunctions: Law and Practice (at Update 14) at 1-1062; [1.240].

21. In J M Paterson, Kerr or Injunctions (Sweet & Maxwell, 5th ed, 1914), the learned author states (at 660-1) that the Court cannot compel a party applying for an injunction to give an undertaking as to damages.

22. The importance of the express giving of the undertaking, which is, of course, a solemn promise to the Court with potentially serious consequences, is underlined by the following comments in the useful text by N R Burns, Injunctions, A Practical Handbook (Law Book Co, 1988) at 20:

The undertaking as to damages is given to the court by the plaintiff's counsel. The plaintiff must give express instructions for the undertaking to be given on his or her behalf.

In most cases it will be insufficient to simply seek instructions to give the undertaking; the terms of the undertaking and the possible liability arising under it should be explained so that the instructions received are properly informed. Often, an undertaking will be given in circumstances where the probability that any damage will be suffered by the defendant is remote. But in some instances, the possible consequences will require careful analysis. For example, an order which freezes a bank account, requiring a bank to dishonour cheques presented for payment, may have wide ranging consequences for the defendant and third parties to whom the undertaking applies.

23. I respectfully agree with those comments which underline the need for any undertaking to be expressly and unambiguously given.

24. As I have noted, there was no reference in the sealed order to any undertaking as to damages; it should, where given, appear next to the entry "other matters" in the approved form of order (Form 2.42; AF2006-473). In this case, nothing appeared there.

25. This matter is important for it appears to me clear in principle and on the authorities that the only basis on which Bravium would be entitled to any relief was in consequence of an undertaking as to damages.

26. In Chisholm v Rieff (1953) 2 FLR 211, 214-6, Kriewaldt J traced the history of the undertaking as to damages. His Honour concluded that there was a requirement for such an undertaking as necessary to found any claim for compensation for any damages suffered by an enjoined party. His Honour said (at 215):

I have not been able to locate any decision to the effect that damages caused by an interim injunction, procured without any undertaking having been given, cannot be recovered; but I am of opinion that the failure to locate any such decision is due to the fact that such an undertaking is nearly always required. On principle, I see no escape from the conclusion that the undertaking is required for the very reason that in the absence of such an undertaking the party obtaining the injunction would not be liable if the party enjoined suffered any damages.

27. The High Court referred to this decision with apparent approval in Mansfield v Director of Public Prosecutions (DPP) (WA) [2006] HCA 38; (2006) 226 CLR 486 at 497-8; [31], though expressly in respect of the history his Honour traced of the undertaking as to damages.

28. Nevertheless, McLaughlin M followed it in Commonwealth Bank of Australia v Caplowe Pty Ltd (Unreported, Supreme Court of NSW, McLaughlin M, 12 July 1994). The learned Master in that case dismissed an application for damages flowing from an interlocutory injunction which had been dissolved. No undertaking had been given and McLaughlin M held (at 10) that the absence of the undertaking as to damages was fatal to the application for damages.

29. I have now had an opportunity to inspect the file and to consider the relevant transcript.

30. The original application for an interlocutory injunction was supported by four affidavits. Two were made by persons describing themselves as "partner[s] of the plaintiff" notwithstanding that Financial Integrity, the plaintiff, is, and was pleaded in the Statement of Claim to be, a company. Another was made by an employee. These three were relatively short and deposed to conversations and dealings concerning former clients of Financial Integrity suggestive that Bravium was then acting for them in apparent breach of alleged contractual terms binding Mr Farmer.

31. A further affidavit was made by the Managing Director of Financial Integrity. It was more detailed and set out the circumstances of the employment of Mr Farmer, the circumstances of his departure from Financial Integrity and matters supportive of the application for an injunction. It did not state, however, that Financial Integrity was prepared to give an undertaking as to damages or that the deponent was authorised on its behalf to give such an undertaking.

32. The transcript of the proceedings does not record that any undertaking was actually given. It could, of course, have been in a short form. Practice Direction No 3 of 1999 provides:

The 'usual undertaking as to damages' if given to the Court in relation to any interlocutory order made by it or any interlocutory undertaking given to it, is an undertaking:

(a) to submit to such order (if any) as the Court may consider to be just for the payment of compensation, to be assessed by the Court or as it may direct, to any person, whether or not a party, adversely affected by the operation of the interlocutory order or undertaking or any continuation (with or without variation) thereof; and

(b) to pay the compensation referred to in (a) to the person there referred to.

33. The transcript, however, records two (and only two) references to an undertaking as to damages. The first is the following exchange between counsel for Financial Integrity and his Honour:

HIS HONOUR: Yes. Yes. It seems to me that on an interim basis you'd be entitled on its face and subject to the obvious undertaking ---

MR PURNELL: Of course, your Honour.

HIS HONOUR: --- given the difficulty with the nature of the contract, but no doubt you'll be telling me that, even though it may not have been a registered AWA, and that may have certain consequences, in terms of enforcement and AWA rights and legislative provisions ---

34. It may be argued that this amounts to the giving by counsel of the undertaking as to damages, but it is certainly not clear nor unambiguous. No other mention of that issue was made during the hearing by counsel, who was, of course, eminent and highly experienced in such applications.

35. The implication may, however, be strengthened because of the second reference. The circumstance of that reference is that Mr Farmer appeared personally at the hearing. He had instructed lawyers but his lawyer was not present. The procedure was briefly explained by his Honour and he did not object to the interim hearing proceeding, which it did but without any participation by him. Arrangements were made for the parties to approach his Honour's associate or the list clerk to have the matter relisted later for reconsideration of the orders, apparently intended to be interim orders although not so expressed.

36. His Honour proceeded to make the formal orders as set out above (at [3]). As I have noted, they appeared to be in terms of final orders, where no undertaking is required, rather than in terms that would be appropriate for interlocutory relief.

37. His Honour then spoke directly to Mr Farmer and explained what had occurred. During this explanation, his Honour said:

So the plaintiff on its face is entitled to interim relief stopping you from taking their clients. And they allege that you had a computer, you were using a laptop computer in your employments that that had in your ordinary duties and your former employer you had access to client lists. They want orders which I've granted saying you can't use that client list and you've got to surrender that client list back, or otherwise reply to what's happened to it. I've made those orders on an interim basis restraining you from doing that on Mr Purnell's undertaking as to damages. That means at the end of the day, after I hear your side of the argument, I'm persuaded that no relief should have been granted, in fact, you may get some damages if you were prohibited for a day or a week from otherwise dealing with clients.

38. Counsel for Financial Integrity was not heard to demur from anything that his Honour said, though it was a longer explanation than this extract alone shows.

39. That may be suggested to make the position clear. It does seem to me, however, that I should at least give Financial Integrity the opportunity to make any submissions it wishes in respect of what I have indicated.

40. The undertaking as to damages is the source of the court's jurisdiction to make an order for damages to be paid. It ought to be very clear whether the court has jurisdiction. As Barton J said in Federated Engine Drivers' & Firemen's Association of Australia v Broken Hill Pty Co Ltd [1911] HCA 31; (1911) 12 CLR 398 at 428, "[i]t is as wrong to accept jurisdiction without sufficient inquiry as to refuse it with precipitancy".

41. It is also clear that a concession as to jurisdiction will not bind the court nor give it jurisdiction it does not otherwise have. The off-repeated phrase that jurisdiction cannot be conferred by consent is largely true. As Rares J said in Luck v University of Southern Queensland [2009] FCAFC 73; (2009) 176 FCR 268 at 292; [97]:

The grant of leave to appeal is a jurisdictional condition that depends on the Court or a judge being satisfied that it is appropriate. Jurisdiction does not derive from consent of parties. It is important that the basis on which the Court's power to deal with a matter in its appellate jurisdiction be identified. If leave to appeal is required the Court must be satisfied that the primary judge's decision is sufficiently doubtful to warrant the grant of leave and that substantial injustice would result if leave were refused: Bienstein v Bienstein [2003] HCA 7; (2003) 195 ALR 225 at [29] per McHugh, Kirby and Callinan JJ.

42. Accordingly, I will invite the parties to make any submissions they wish to make on whether an undertaking as to damages was given on 28 August 2007 and, if they wish, to be heard orally as to the position. If no submissions are received or any received submit that the passages from the transcript are accepted as disclosing that an undertaking was given, I shall proceed to decide whether I have jurisdiction and, if so, what, if any, damages should be awarded under it.

I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Refshauge.

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