IceTV Pty Ltd v Ross

IceTV Pty Ltd v Ross - [2009] NSWSC 980 - NSWSC 2009 case summary — Zoe

[32]

(1) A restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable terms or not. (2) Subsection (1) does not affect the invalidity of a restraint of trade by reason of any matter other than public policy. (3) Where, on application by a person subject to the restraint, it appears to the Supreme Court that a restraint of trade is, as regards its application to the applicant, against public policy to any extent by reason of, or partly by reason of, a manifest failure by a person who created or joined in creating the restraint to attempt to make the restraint a reasonable restraint, the Court, having regard to the circumstances in which the restraint was created, may, on such terms as the Court thinks fit, order that the restraint be, as regards its application to the applicant, altogether invalid or valid to such extent only (not exceeding the extent to which the restraint is not against public policy) as the Court thinks fit and any such order shall, notwithstanding sub-section (1), have effect on and from such date (not being a date earlier than the date on which the order was made) as is specified in the order. (4) Where, under the rules of an association, a person who is a member of the association is subject to a restraint of trade, the association shall, for the purposes of subsection (3), be deemed to have created or joined in creating the restraint. (5) An order under subsection (3) does not affect any right (including any right to damages) accrued before the date the order takes effect. 15 The relevant principles governing validity and reasonableness of restraints of trade were helpfully summarised in Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717 by Brereton J: "[10] Although at common law a restraint of trade is contrary to public policy and void unless it is justified by the special circumstances of the particular case (for which purpose it is sufficient justification that the restriction is reasonable having regard to the interests of the parties concerned and in reference to the interests of the public, so that while affording adequate protection to the party in whose favour it is imposed, it is not injurious to the public) [ Nordenfelt v Maxim Nordenfelt Guns & Ammunition [1894] AC 535 at 565; Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 706 and 707; Lindner v Murdock's Garage (1950) 83 CLR 628 at 653], in New South Wales a restraint is valid to the extent to which it is not against public policy, even if not in severable terms [ Restraints of Trade Act , 1976 (NSW) s 4(1); Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449, [26]-[27]]. The effect of the Restraints of Trade Act is that, in New South Wales, one approaches this type of case by determining, first, whether the alleged breach (independently of public policy considerations) does or will infringe the terms of the restraint properly construed; secondly, whether the restraint in its application to that breach is against public policy; and thirdly, if it is not, then in its application to the alleged infringing conduct, the restraint is valid unless the court makes an order under Restraints of Trade Act, s 4(3) [ Orton v Melman [1981] 1 NSWLR 583; Woolworths Ltd v Olson [2004] NSWCA 372, [42]]. That is because the effect of the Restraints of Trade Act , s 4(1), is to require that, for the purpose of determining the validity of a restraint, attention be focussed on the actual or apprehended breach, rather than on imaginary or potential breaches.

[33]

[11] While the same general principle applies in all cases of restraint of trade, a stricter and less favourable view is taken in respect of covenants in restraint of trade between employer and employee than in commercial agreements for sale of goodwill [ Nordenfelt , 566; Mason v Provident Clothing & Supply Co Ltd [1913] AC 724 at 731 and 738; Herbert Morris Ltd v Saxelby ; Geraghty v Minter (1979) 142 CLR 177 at 185; Woolworths Ltd v Olson , [38]; J D Heydon, The Restraint of Trade Doctrine , 2nd Ed, pp 68-69]. An employer is not entitled to be protected against mere competition, and the legitimate interests of an employer which may be the subject of protection by covenant are in the nature of proprietary interests [ Vandervell Products Ltd v McLeod [1956] RPC 185 at 192; Tank Lining Corp v Dunlop Industrial Pty Ltd (1982) 140 DLR (3d) 659 at 664], including the employer's trade secrets and confidential information, and the employer's goodwill including customer connection. In this case, Cactus seeks to support the restraint on solicitation of customers on the basis of protection of both its confidential information and its customer connection." 16 Again, in Cactus, Brereton J summarised the law relating to restraints of trade dealing with confidential information: "[12] An employer has an interest in its confidential information, which it may legitimately protect by a restraint of trade, even if the information is not in the nature of a trade secret such as to attract equitable protection in the absence of any contractual agreement [ Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 326F, 333G-334E, 341G]. Although Mr Gye, who appeared for Mr Peters, submitted, with reference to Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117 and ANI Corporation Ltd v Celltite Australia Pty Ltd (1990) 19 IPR 506, that only a trade secret or equivalent was capable of protection by a restraint in an employment contract, that is not the law in this State, where the Court of Appeal, has declined to follow Faccenda Chicken in that respect in Wright v Gasweld [see, in particular, per Samuels JA at 340-341].

[37]

Further History 18 In December 2005 IceTV had established a subscriber customer base for its service of 1400 people but it was hoping to expand at the rate of 150 per month and indeed it appears by September - October 2006 it had approximately 4000 subscribers. The IceTV EPG was developed to work with a number of well-known brands in the set-top box and PVR market such as Topfield, Beyonwiz and Elgato. Apparently as at 2006, the IceTV EPG was the only EPG on that market that was available to PVR and set-top box customers who were not tied to Foxtel. 19 I have referred earlier to a claim brought against IceTV by Nine. Nine was unsuccessful in its claim against IceTV in the Federal Court at first instance, successful on appeal in the Full Court of the Federal Court and unsuccessful in the High Court. The High Court's decision was handed down in April 2009 - a few days, coincidentally, before the hearing in this Court commenced before me. The Federal Court proceedings had brought about the demise of the float and left IceTV in mid-2006 in parlous financial circumstances. 20 As mentioned, the Board of IceTV had resolved, following the commencement of litigation and after the float was abandoned, that IceTV could not continue to employ Mr Ross and Mr Vogel (their salaries were substantial) and they were each given notice. Mr Ross and Mr Vogel believed that there was some antagonism towards them by Mr O'Brien at that time and this is a possibility, particularly since Mr O'Brien appears to have regarded them as having been responsible for him investing $500,000 in a business that he felt had not performed as it was represented it would. Whilst the defendants assert personal animus towards them by Mr O'Brien there is no suggestion that IceTV was not in a financial crisis: see Mr Ross' affidavit of 7 May 2007 at paras 30 - 32, and see Mr Sutherland's affidavit of 4 May 2007 at para 7. Mr O'Brien and Mr Sutherland wanted to sell their shares in IceTV if possible and exit the company. 21 Mr Ross and Mr Vogel were, on 4 July 2006, given three months notice under their contracts with their last day at IceTV being 4 October 2006. However, Mr O'Brien asked or directed Mr Ross and Mr Vogel not to disclose for a one month period that they were leaving the company. They were asked to keep working in their positions until the last day and Mr O'Brien promised Mr Ross and Mr Vogel that if they could find a buyer for the shares of Mr and Mrs O'Brien, and Mr Sutherland at a minimum price of $3 million, they would receive a bonus: see Exhibit A4 at p 2123. Mr Ross and Mr Vogel did continue to work for IceTV until 4 October. 22 Shortly before Mr Vogel and Mr Ross were due to depart from IceTV Mr Ross met with Mr O'Brien and Mr Matt Kossatz ("Mr Kossatz") who had become or was shortly to become the new Managing Director of IceTV. Mr Ross provided to Mr O'Brien a document which has been called 'Exit Notes' in which he purported to summarise the matters of interest to IceTV before his departure: see Exhibit A1 at pp 22 - 28.

[39]

24 Although the work continued to be described as consultancy, Mr Ross and Mr Vogel were each given a letter of appointment signed by Mr Thomas Simms ("Mr Simms"), as Chief Executive Officer in the case of Mr Ross and Chief Technical Officer in the case of Mr Vogel, but the Mobilesoft Board did not approve the appointments. Mr Simms, the Managing Director of Mobilesoft, says he regarded Mr Ross and Mr Vogel as playing a significant role in Mobilesoft: see the affidavit of Mr Simms of 22 August 2007 at paras 22 - 29, 36 - 38. According to Mr Simms there were those on the Board who did not think that Mr Ross and Mr Vogel were suitable for appointment and Mr Simms explained that there were factions who were opposed to Mr Ross and Mr Vogel. There is evidence of employee antipathy towards Mr Ross and Mr Vogel: see Exhibits L and M. In February 2007 Mr O'Brien tried to speak with Mr Simms about Mr Ross and Mr Vogel and IceTV's claim that Mr Ross and Mr Vogel were in breach of their employment contracts with IceTV but Mr Simms did not do so (he says because he was unavailable). Subsequently, however, Mr Simms did meet with Mr O'Brien. Mr O'Brien made no secret to Mr Simms of his antipathy to Mr Ross and Mr Vogel whom he regarded as having breached their obligations under their employment contracts by working for Mobilesoft and attempting to take business from IceTV. 25 The consultancy work undertaken by Mr Ross and Mr Vogel for Mobilesoft at an early stage included the preparation of an application for a grant of $22 million from the Commonwealth Government Clever Networks scheme which would assist rural and regional communities. The application was not successful. The thrust of the application was that by providing the EPG to subscribers in the bush those subscribers could be informed through a Community Program Guide ("CPG") about activities in their local area as part of the content of the EPG. The details of the work undertaken by the defendants in November 2006 is found at Exhibit COB1 to the affidavit of Mr O'Brien of 8 December 2008. There did not seem to be any dispute between the parties that the work which is the subject of invoices 504, 505, 506, 507 and 508 related to the application for the grant. 26 Mobilesoft had three strands to its business, two of which have nothing to do with this case. The third strand was that it was buying set-top boxes from a Hong Kong company ("Astria") and endeavouring to embark upon an arrangement with a company with rights to a significant movie or DVD library. Video Ezy, a company involved in the movie rental market with many franchises across Australia, was interested in a means of delivering to customers movies that could be managed digitally to avoid the loss of custom to online computer devices which offered this effectively in competition with movie rental stores. One model for delivery of movies was a system that enabled customers of Video Ezy to have downloaded at the store up to 40 movies onto a 'thumb drive' (also known as a 'USB memory stick') which they would pay for on use. Mobilesoft sought to provide a PVR or set-top box that would enable the thumb drive to be utilised and thus earn Video Ezy revenue, with Mobilesoft taking a share of that. The PVRs or set-top boxes purchased from Astria were also fitted (as is usual) with a terrestrial receiver to enable free-to-air television to be received by the consumer. It was thus part of Mobilesoft's strategy to include within the set-top boxes and PVRs sold an EPG. Mr Simms said he did not intend Mobilesoft to develop an EPG and his strategy was to incorporate the IceTV EPG in the Mobilesoft product, but there is evidence from Mr Kossatz and Mr O'Brien that Mr Ross was asserting in early 2007 that Mobilesoft did not need IceTV for an EPG. There is also material which points to Mr Ross regarding the incorporation of the IceTV EPG as of very limited importance to Mobilesoft: see Exhibit A2 at p 640, and Mr Vogel at T335.5 said that Mobilesoft "was not interested in having anything to do with the EPG". 27 Mobilesoft was, in 2007, experiencing its own difficulties, both financial and technological. It was experiencing difficulties in coming up with the software solution for the delivery of its product and it was "burning cash" as Mr Simms describes it. On 21 August 2007, Mobilesoft was placed into administration at the behest of a secured creditor. Mr Sutherland, coincidentally, accepted appointment as a joint administrator. The business of Mobilesoft was rationalised (the two other areas of its business closed down or were sold) and in recent times it has come out of administration. Mr Simms was shut out of Mobilesoft both literally and metaphorically from January 2008. 28 The contracts with Mr Ross and Mr Vogel evidenced by letters of appointment signed by Mr Simms were never approved by the Board. Vogel Ross did, however, earn approximately $230,000 in consultancy fees from Mobilesoft: see Exhibit N. Notwithstanding, a lack of Board resolution, apparently Mr Ross worked as Chief Executive Officer of Mobilesoft and Mr Vogel as Chief Technical Officer of Mobilesoft from 12 February 2007.

[83]

Credibility 47 IceTV called Mr O'Brien, Mr Sutherland and Mr Kossatz in its case. I do not think their credibility was dented in any respect by cross examination. The defendants argued that the fact that Mr O'Brien admitted that he was forgetful (see: T57.40 - .41, when he admitted that under stress he would forget things) was a relevant matter affecting credibility. They also asserted that Mr O'Brien had lied about his motivation for bringing the proceedings and that he had confirmed that he was motivated in his dealings with Mobilesoft by his desire to avoid the defendants. I do not accept that Mr O'Brien was shown to have lied about his motivations. I thought he was candid about his dislike of the defendants and in my view he had good reason to be keen to avoid any dealings with them when he discovered they were working for Mobilesoft and, as he understood the position, endeavouring to take over IceTV: see Mr Sutherland's affidavit of 4 May 2007 at para 11 and T66.11 - .29. I do not think his acceptance that he was at times forgetful under stress established that he was not a reliable witness on the matters upon which he gave evidence in this case. I do not accept that any improper motive for these proceedings by IceTV has been established. 48 The defendants attacked the credibility of Mr Sutherland on the basis that he had accepted appointment as an administrator of Mobilesoft and had failed to fully disclose IceTV's relationship with Mobilesoft. Mr Sutherland explained that he did not view the appointment as involving a conflict. Whilst I have some doubt about that conclusion I accept that he did not perceive himself to be in conflict and his evidence was in no other respect impugned or even subject to challenge. 49 No attack was launched on the credit of Mr Kossatz. I accept Mr Kossatz, Mr O'Brien and Mr Sutherland as witnesses of truth. 50 IceTV alleges that Mr Ross and Mr Vogel were deliberately coy about what they had been doing ostensibly for IceTV in the period from 4 July to 4 October 2006 because what they were trying to do was to assist themselves to obtain work from Mobilesoft that could have been done by IceTV and/or to engineer a takeover by Mobilesoft of IceTV at a price favourable to Mobilesoft. This description or characterisation of events is strenuously refuted by Mr Ross and Mr Vogel. 51 Mr Ireland submitted that the credibility of Mr Ross and Mr Vogel was impugned by their evidence. He pointed to their attempts to explain their conduct which he submitted were implausible when faced with what they had in fact done and written. I should note that Mr Ross and Mr Vogel presented as intelligent men who embarked upon the difficult task of representing themselves with considerable application and skill, especially having regard to their lack of training as lawyers.

[84]

52 I think the documents to which I have earlier referred demonstrate that the assertion of Mr Ross and Mr Vogel that what they were endeavouring to achieve through Mobilesoft was for IceTV's benefit is not an accurate characterisation of their endeavours and I accept Mr Ireland's submission. Of particular relevance is the cross examination of Mr Vogel at T324 - T339 and Mr Ross at T232 - T238 and T239 - T241, some of which I have set out below. Their answers in cross examination strengthened rather than diminished my view that their actions were not taken to benefit IceTV as they sought to maintain. It is clear that Mobilesoft was seeking to position itself as the commercial partner with TiVo and to exclude IceTV from any deal with TiVo, and that Mr Ross and Mr Vogel were actively attempting to assist Mobilesoft in that endeavour, although at times encouraging the idea that IceTV's EPG could be utilised. 53 Mr Ross had met with TiVo and knew that TiVo was considering a deal with Mobilesoft (and Video Ezy) utilising the IceTV EPG. 54 The Exit Notes include reference to the matters to which I have referred but they omit important material. Thus the reference to discussions with Mobilesoft do not reveal that the 'client' of Mobilesoft is Video Ezy, nor that a contract had been signed between Video Ezy and Mobilesoft, nor that Mobilesoft had been given by Mr Vogel an indicative price for CPG development, nor that Mr Vogel had proposed a strategic alliance with IceTV, Mobilesoft and Video Ezy. 55 The Exit Notes do not refer to the meeting which Mr Ross attended with TiVo at which Mobilesoft was present. There is no reference to Mobilesoft being involved nor to the potential involvement of Video Ezy in a deal with TiVo. 56 The Exit Notes refer to an agreement to let Mobilesoft use "some of our libraries" (emphasis added) but the permission conferred in the email of 22 September 2006 is for any software and documentation required to implement the proposed trial. The Exit Notes do not refer to the fact that on 14 July 2006 IceTV entered into a non-disclosure agreement with Mobilesoft. 57 In October 2006 Mr Ross and Mr Vogel proposed that they would establish a 'New Media' section of Mobilesoft that would negotiate with TiVo: see Exhibit A1 at p 386, as set out at [41(4)] above. That proposal had as part of its strategy for Mobilesoft the possible acquisition by Mobilesoft of IceTV's "intellectual property" and "recurrent revenue".

[85]

58 It is clear that TiVo was a company with whom IceTV had had discussions relevant to IceTV's EPG and that the defendants were after 4 October 2006 working for a company, Mobilesoft, that was attempting to secure a business relationship with TiVo in lieu of IceTV. I accept that Mr Ross and Mr Vogel considered that IceTV's EPG would be or at least could be a useful vehicle for a deal with TiVo but it is clear that at least in late 2006 they envisaged IceTV as being precluded from any direct deal with TiVo, and even with Mobilesoft, except as a takeover target at minimum cost to Mobilesoft. That Mr Ross and Mr Vogel had in mind a takeover strategy which was in their own interests is evidenced by the conversation referred to in para 16 of Mr Kossatz's affidavit of 4 May 2007. 59 The 4 August 2006 letter to which reference has earlier been made is also relevant on credit. It is clear that Mr Ross knew about the letter and Mr Vogel's discussions with Mobilesoft: see T221, and Mobilesoft's negotiations with Video Ezy. Mr Ross said nothing about its contents in his Exit Notes and I find that he did not say anything to Mr O'Brien that would have alerted Mr O'Brien to the nature and content of the discussions between Mr Vogel and Mr Ross on the one hand, with Mobilesoft on the other. There is evidence that a copy of the letter was found in Mr Ross' deleted files and evidence from Mr Kossatz that he found no hard copy of the letter in searches undertaken. I am not satisfied that Mr Ross and Mr Vogel left a copy of the letter of 4 August at the premises of IceTV but even if they did, they did nothing to ensure that it was readily accessible or brought to Mr O'Brien and Mr Kossatz's attention. There is evidence of other potentially relevant emails that were deleted and not recovered and I am not persuaded that all the deleted emails were 'backed up' by Mr Ross and Mr Vogel: see Mr Kossatz's affidavit of 4 May 2007 at paras 28 - 29 and Mr Kossatz's evidence at T129 - T130. 60 The Exit Notes in dealing with TiVo make reference to a concern by TiVo that IceTV may be seen as "not independent enough". This is also reflected in Mr Ross' memo of 24 September 2006 to TiVo. The acceptance by Mr Ross of what he describes as TiVo's concern and which he repeats in the Exit Notes is rather surprising (and see T324.6 and T326 of Mr Vogel's evidence). Be that as it may, the Exit Notes express the view that IceTV could be the provider of the EPG to the Channel Seven service "probably through TMS (Tribune)". The email to TiVo on 24 September, however, proposes an arrangement with TiVo outside the IceTV structure that will operate "to the benefit of TiVo, IceTV and [Mr Vogel] and [Mr Ross'] new business". There is, of course, no mention of that proposal in the Exit Notes and nor is there mention of the fact that it had been proposed to TiVo. Further the optimistic tone of the letter to Mobilesoft of 4 August 2006 in relation to the IceTV-TiVo relationship seems to have been much reduced in the Exit Notes. 61 Mr Ross did not mention to Mr O'Brien that Mobilesoft and he and Mr Vogel had discussed the details of a deal for Mobilesoft to use IceTV's EPG nor the idea of TiVo entering into a deal with Mobilesoft with a Video Ezy and IceTV connection. The presence of Mr Ross at a meeting with TiVo and Mobilesoft is itself a very significant matter. If it was not designed to promote Mr Ross' (and Mr Vogel's) future connection with Mobilesoft it was a most significant step on behalf of IceTV and the absence of any reference to it by Mr Ross on or before his departure is inconsistent with Mr Ross' presence having been for IceTV's benefit. 62 Mr Ross accepted (at T229.35 - .45) that he had not mentioned in the Exit Notes that Mobilesoft was negotiating with Video Ezy and he was not able to explain this. 63 Mr Ireland put to Mr Ross and Mr Vogel the proposition that they were endeavouring to arrive at a situation where Mobilesoft took over the business of IceTV at the lowest possible cost to Mobilesoft and to the detriment of IceTV. Mr Vogel and Mr Ross both denied that this was their purpose and asserted that in fact they were simply following Mr O'Brien's instructions: see T232.4 (Mr Ross) and T325, T327 and T329 (Mr Vogel). 64 Given the importance of the prospective Video Ezy deal with Mobilesoft and the potential utilisation of the IceTV EPG, the failure of Mr Ross to mention to Mr O'Brien that this was under consideration by Mobilesoft and Video Ezy is remarkable. That the absence of any reference to Video Ezy in the Exit Notes was damaging to the defendants' case and supportive of IceTV's case was, I think, fully recognised by Mr Ross. It started with his asserting that he left a lot of correspondence in files when he departed (see T239 - T240) but the following exchange at T240.8 - T241.50 is instructive: "Q. It was your duty to identify the state of negotiations between IceTV and Mobilesoft at the time you left wasn't it? A. To identify the state of negotiations, yes.

[143]

77 The defendants assert that there was a lack of consideration. The defendants seem to assert that as they were already employed when they signed the contracts there was no consideration for the new contracts; the increased salaries were not sufficient and that, in fact, because their employment was terminated they only received a small amount of that increase and other emoluments offered, which were also part of their remuneration, turned out to be of no significance. I do not accept these submissions because 'consideration' is not measured or determined by events as they transpire - at the time of the contracts there were new terms and conditions, including increased salary, and there was clearly sufficient consideration for the new agreements: see J L R Davis, Contracts: General Principles The Laws of Australia, (2006) Sweet & Maxwell. 78 One point raised in the defence but not the subject of any submissions was an assertion that the defendants had been coerced into signing the contracts, but no final submissions were advanced on this - no doubt as a result of an absence of evidence to support such a claim. 79 The defendants assert in their submissions that the contract was frustrated because the float did not proceed. The existence of the float was not expressed to be a condition of the employment agreements and its existence was not necessarily essential to the ongoing employment of the defendants. Nor was the existence of the float an implied term. There was nothing in the contracts to indicate that the existence or continuation of the float was the basis upon which the contracts were entered into and no evidence led that showed that this was the mutual contemplation of both parties to enable it to be said that there was a radical difference between the new situation and that contemplated by the contracts so that the new situation would be a different thing from that contracted for: Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 150 CLR 29, see also Veremu Pty Ltd v Ezishop.Net Ltd [2003] NSWCA 317 per Handley, Giles and Santow JJA. 80 Another theme asserted in the defendants' submissions is that the proceedings brought by IceTV were a personal vendetta against them by Mr O'Brien (and Mr Sutherland) and an abuse of process. I do not accept that IceTV's motivation was a vendetta or that there was any abuse of process by IceTV. 81 The defendants assert that the restraints are invalid because: (a) the duration is uncertain;

[149]

86 The defendants assert that the restraint is invalid because there is no definition of the 'business' of the company. I do not think that this is a difficulty because even if it were correct, the business of IceTV was marketing subscriptions for its EPG directly and indirectly, including add-ons such as video links, CPGs and VPGs, and the clause can be read down as limited to that business. 87 The defendants assert that the restraints do not protect any legitimate interest of IceTV and are against the public interest because they preclude the defendants from working in what is a very small industry. I do not accept either submission. Mr Ross and Mr Vogel were senior executives in a very small enterprise who between them had significant control over the course and direction of the business, and who were involved in high-level negotiations with potential customers including Mobilesoft and TiVo. They also had knowledge of matters relevant to pricing and technology (particularly Mr Vogel in the latter respect) and had developed relations with TiVo and Mobilesoft in their roles as IceTV senior executives. It is true that neither Mobilesoft or TiVo had actually become a customer of IceTV but it is clear that efforts had been made to bring about such a result. The importance of rank in this area is discussed by J D Heydon in The Restraint of Trade Doctrine, (2008) 3rd edition LexisNexis at pp 127-129. This is not a case of a salesman having visited a large number of prospects but a case of senior personnel dealing with other senior personnel on deals potentially very significant to IceTV. As Harvey CJ in Eq said in Coote v Sproule (1929) 29 SR (NSW) 578 at 580, (cited by Brereton J in Koops Martin Financial Services Pty Ltd v Dean Reeves [2006] NSWSC 449 at [30]): "An employer is entitled to hold his employee to an agreement not to injure the former's business connection by virtue of the special relationship which has existed between the employee and the employer's customers as a consequence of his employment." 88 I do not accept the defendants' argument that they are precluded from working in the media content delivery industry. For example, they asserted that they would not be able to work for YouTube. There is no inhibition on them working for YouTube, because YouTube is not a company with whom discussions were held, it is not in competition with IceTV and it is not engaged in the provision of an EPG with or without add-ons. 89 It is true that the restraints prevent the defendants from working for 12 months for a competitor of IceTV in the EPG domain or for companies with whom IceTV was in discussions or negotiations, but that, in my view, is a legitimate interest to be protected and there is no obvious public interest that outweighs the need for fair protection of IceTV. I accept that the fact that the contracts were terminated early, and not because of any breach by Mr Ross and Mr Vogel, is a factor to be taken into account in considering whether the restraints, as matters have transpired, are reasonable but the clearly critical nature of the opportunities presented by Mobilesoft (and TiVo) to the business of IceTV need to be weighed in the balance as well. I also take into account the fact that the industry is a new industry with rapid development of technology, but on the other hand it appears from the amounts invested that the expenses of establishment of IceTV are not small. 90 I have regard to the fact that Mr Vogel and Mr Ross were employees of IceTV, but they were senior employees and they were persons who had brought into IceTV the intellectual property of another company in which they had a significant interest. They held 4% and 6% respectively of the shares in IceTV (an admittedly small stake) as recognition of this prior connection. 91 So far as confidential information is concerned, IceTV's case does not focus upon source codes and subscriber lists or intellectual property owned by Gaia Technology or patents as claimed in the defendants' written submissions. What the defendants were restrained from doing was divulging to any person "performance reports, operations reports, profitability forecasts or business plans" and any financial information in relation to IceTV's activities which "may be of commercial value to a competitor". 92 IceTV maintains that by the New Media Opportunity document the defendants did pass on information that was of commercial value to a competitor or potential customer. The information, on the balance of probabilities, was useful to Mobilesoft: see Exhibit A1 at pp 357 - 358, and see also T166 - T167 and T192 - T193, notwithstanding Mr Simms' reluctance to agree that it was. 93 The defendants argued that even if the non-solicitation restraint was valid they were not in breach, in summary because: (a) the relevant 'business' is Video on Demand (" VOD ") being linked with an EPG; (b) Mobilesoft is in the VOD business; they have never supplied or wanted to supply an EPG (Mobilesoft was seeking an EPG supplier to partner with);

[152]

94 It is not correct to say that Mobilesoft never supplied or wanted to supply an EPG (Mr Simms said there was one in the Astria box but it was inadequate), but it does seem that at some time Mobilesoft was seriously considering attempting to incorporate IceTV's EPG in its PVR. I have dealt with this earlier, but Mobilesoft had a dual relationship with IceTV - it was discussing becoming a customer but it was also considering how it might compete with IceTV by dealing directly with TiVo and Mr Simms said it did have the technical capacity to make its own EPG: see T152.40. If the defendants' view were accepted, i.e. that Mobilesoft was not a competitor, then it was a prospective customer of IceTV. There is also the distinction, which I have already mentioned, that Mr Ross and Mr Vogel seemed to be encouraging Mobilesoft to obtain access to IceTV's technology by acquisition rather than through a customer relationship. The proposal of Mr Ross' that Mobilesoft acquire the know-how and customer base of IceTV demonstrates that Mobilesoft was a competitor if it was not a customer. Mr Kossatz's evidence at T105 - T106 also deals with this dual aspect. I should add that, contrary to a submission made by the defendants that Mr Sutherland's appointment as an administrator of Mobilesoft establishes that Mobilesoft was not a competitor, that appointment - even if it did involve a conflict of interest - is not evidence or an admission by IceTV that Mobilesoft was not a competitor or potential competitor of IceTV. I would add that to the extent that Mobilesoft was seeking to provide VOD to Video Ezy or its customers, that is not a product or service in respect of which IceTV was a competitor - what made it a competitor (or customer) is linking VOD with an EPG. 95 The defendants submit that they did not do work for Mobilesoft that IceTV could and would have done. These submissions are founded, in part, upon the assertion that the CPG was a Mobilesoft invention and that IceTV had nothing to do with the concept - an assertion contrary to the finding I have made. It is also based upon the assertion that the Clever Networks grant application involved areas in which IceTV had no expertise, such as tele-health and remote medicine. IceTV does not assert that it had expertise in tele-health and remote medicine but it did have expertise with EPGs and CPGs and I accept Mr O'Brien's evidence that it could have developed the CPG, as Mr Vogel offered to do on behalf of IceTV: see paras 12 - 13 of Mr O'Brien's affidavit of 22 May 2007. I think it is clear that Mr Ross and Mr Vogel's work in preparing the Clever Networks grant application was work that they were doing because of their technical and industry knowledge, which IceTV could have replicated had it been given the opportunity.

[153]

Damages 96 Given that Mr Ross and Mr Vogel were employed in activities that went beyond preparation of the Clever Networks grant application and given my conclusion that they were, in all their activities for Mobilesoft, in breach of the covenants imposed by the contract, it is a difficult matter to assess damages in such circumstances. The parties said very little about this. 97 IceTV seeks damages for the breach of the non-solicitation clause and puts its claim in the following way. Vogel Ross was working on the Clever Networks grant application for Mobilesoft - they invoiced Mobilesoft a total of $110,550 by invoices 504 to 508: see Exhibit COB1 to the affidavit of Mr O'Brien of 8 December 2008. Mr O'Brien's unchallenged evidence was that IceTV had the capacity to prepare the application which Mr Ross and Mr Vogel worked on for Mobilesoft with or without the involvement of Mr Ross and Mr Vogel: see paragraphs 27 - 31 of Mr O'Brien's affidavit of 8 December 2008, and he details the likely cost to IceTV at 50% of the amount invoiced leading to a claim of $50,250 plus interest and costs. 98 The defendants resist this claim on the basis that if Mobilesoft is in fact a competitor of IceTV then it is unlikely that Mobilesoft would have utilised the services of IceTV if the defendants' services had not been available to Mobilesoft. 99 I have referred to the dual nature of Mobilesoft's position. When Mr Ross and Mr Vogel were still with IceTV the relationship between IceTV and Mobilesoft seemed positive and there appeared to be no impediment to Mobilesoft engaging IceTV to develop the CPG. It is apparent, by late February 2007, by which time IceTV had made its opposition to Mr Ross and Mr Vogel working for Mobilesoft clear, that Mr Simms was interested in resuming discussions with IceTV on IceTV supplying the EPG. As I have explained, I think the activities of Mr Vogel and Mr Ross in September and October 2006 were designed to push Mobilesoft away from becoming a customer of IceTV and given that those activities involved a breach of the restraints, they cannot be taken into account in determining hypothetically what would have occurred if the defendants had not been in breach of the restraint: see in relation to the general approach to damages in such cases: Griffiths & Bereens Pty Ltd v Duggan [2008] VSC 201; (2008) 66 ACJR 472 at [171] - [173], Placer (Granny Smith) Pty Ltd v Theiss Contractors Pty Ltd (2003) 196 ALR 257. I think that the likelihood is that Mobilesoft would have engaged IceTV to undertake the Clever Networks application, but some factor needs to be applied to account for the possibility that Mobilesoft would not have asked IceTV to do that work even if Mr Ross and Mr Vogel had been willing to work on a contractor basis for IceTV and also that they might not have done so if Mr Ross and Mr Vogel were not willing to work as contractors to IceTV. I would apply a discount of 25% to take these uncertainties into account. I would add that the figure so arrived at of $35,000 is very close to the amount that I would regard as effectively nominal damages for a breach of the restraints in any event, although this was not how the plaintiff put its case.

[154]

The interlocutory injunction 100 The defendants assert in their first cross claim that due to the lack of value of the undertaking as to damages given by IceTV, the injunction should never have been granted. They rely on Brereton J's comment in his judgment on 28 September 2007 when dissolving the injunction that had he been aware of the impecuniosity of IceTV he would not have granted the injunction. Brereton J did, at [7] of his judgment, hold that IceTV's financial position was a material matter to be disclosed. The defendants assert that IceTV did not produce documents that showed the impecuniosity of IceTV in response to a subpoena issued on behalf of the defendants. 101 Shortly before the interlocutory hearing before Brereton J on 28 May 2007, the defendants' solicitor, Mr Goldie, issued a subpoena to IceTV which IceTV answered producing documents over which a claim for confidentiality was asserted and documents for which no such claim was made. Mr Petrucco, IceTV's solicitor, gave evidence as to production of the documents and the process embarked upon by him. The documents produced on subpoena and the subpoena itself became an exhibit in the proceedings (Exhibit P) and included in the documents is a copy of a set of draft accounts which shows that IceTV was in a parlous economic state. 102 The defendants said that they had inspected the documents over which no claim for confidentiality was asserted and that Mr Goldie had inspected those documents and the documents over which a claim for confidentiality was asserted. They and Mr Goldie said that the draft accounts were not included. 103 Mr Petrucco's credit and reliability were unshaken in cross examination. I accept Mr Petrucco's evidence that he provided all of the documents held in the Registry that are now Exhibit P to the Court on or before 28 May 2007. I think it is most unlikely that the Registry did not make all of these documents available to Mr Goldie and far more likely that Mr Goldie and the defendants examined those draft accounts. Mr Goldie asserted that he had been expecting to find the draft accounts and on his evidence none were there, yet he took no steps to complain about the adequacy of the production either by letter or telephone call to Mr Petrucco or through counsel when the matter came before Brereton J. The defendants knew of the parlous state of IceTV's finances because their employment had been terminated for that very reason, as they were well aware: see Mr Ross' affidavit of 7 May 2007 at paras 30 - 32. A submission was made to Brereton J on 28 May 2007 that "[A]n undertaking as to damages is of limited value given the plaintiff's limited means of satisfaction". That submission evinces a knowledge of a lack of financial wherewithal on the part of the defendants, which is consistent with the defendants having obtained confirmation of IceTV's lack of funds. Indeed, the defendants' final written submissions in these proceedings assert (and the evidence supports their contention) that they well knew the financial position of IceTV at the time the undertaking was given. Whether or not Mr Goldie or the defendants did see the draft accounts produced by IceTV, I am satisfied that Mr Petrucco did, on behalf of IceTV, provide the documents sought in the subpoena, and I do not accept that IceTV withheld any documents. 104 The defendants had the onus of proving that the undertaking proffered was worthless. The defendants in their written submissions point out that the company was being propped up by loans from the directors (indeed the defendants describe the company as "solvent by virtue of the Directors personally funding the company as needed": see para 272 of the defendants' written submissions) and Mr Ireland pointed out that had it been necessary the directors of IceTV could have given personal undertakings as to any damages flowing as a consequence of the injunctive relief being granted. Brereton J indicated in his judgment of 28 September 2007 at [6] that this could have been required when the injunction was granted in place of the usual undertaking from the plaintiff. I have some doubt as to whether a party seeking to obtain an injunction is required to advise the Court that the company, without its directors' support, is or would be insolvent, but in any event, I do not think that where a party is found to have breached covenants in restraint of trade, it has any claim against the party that obtained the injunction because the undertaking was of no, or limited, value, at least in circumstances where it is well aware of the lack of worth of the undertaking and had the means of establishing that fact, which is the case here.

At a glance

Court

Decision date

Before

Source

Judgment (159 paragraphs)

Parties

Cases Cited (16)

Cited By (5)