Rocket Records Pty Ltd v White [2001] VSC 368

Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117

Harrison v Project & Design Co (Redcar) Ltd [1978] FSR 81

Hutchinson v Nominal Defendant [1972] 1 NSWLR 443

Roger Bullivant Ltd v Ellis [1987] FSR 172

Universal Thermosensors Ltd v Hibben [1992] 1 WLR 840

Woods v The Sheriff of Queensland (1895) 6 QLJ 163

2. This proceeding was commenced by writ on 13 March 2001. The matter presently before the Court is an application, initiated by summons by the defendants on 7 August 2001, for variation of an order made by consent by Justice McDonald on 27 April 2001 in the proceeding ("the order of 27 April"). Those provisions of that order which are relevant for present purposes may be abbreviated as follows:

Upon the Plaintiffs by their Counsel undertaking to abide by any order the Court may make as to damages in case the Court should hereinafter be of opinion that the Defendants or any of them shall have sustained any by reason of this order which the Plaintiffs ought to pay:

3. The Defendants by themselves, their directors, officers, employees, agents or servants . . . be restrained until the hearing and determination [scilicet of the proceeding] or until further order from directly or indirectly:

(a) taking any steps to set up an export business in relation to recorded music and related media comprising the distribution and sale of compact discs, digital versatile discs, video cassettes, mini discs, vinyl records, cassette tapes and promotional material;

(b) promoting, participating in, conducting or engaging in the business of exporting recorded music and related media comprising . . . ;

(c) taking any steps to set up or conduct an insurance replacement business for recorded music and related media comprising . . . ;

(d) promoting, participating in, conducting or engaging in the business of insurance replacement of recorded music and related media comprising . . . ;

(e) making any use of customer lists, catalogues, pricing information or other information of the First Plaintiff for the purpose of carrying on:

(i) an export business in relation to recorded music and related media comprising . . . ;

(ii) the business of insurance replacement of recorded music and related media comprising . . . ; and

(iii) an Internet and customer order fulfilment business in relation to recorded music and related media comprising . . . ;

(f) . . . approaching or dealing with any supplier or customer of the First Plaintiff or potential customer any of whom are recorded as such in the records of the First Plaintiff as at 9 March 2001, for the purpose of carrying on:

(i) an export business in relation to recorded music and related media comprising . . . ; and

(ii) the business of insurance replacement of recorded music and related media comprising . . . ;

(g) approaching or dealing with any customer recorded in the records of the First Plaintiff as at 9 March 2001 for the purpose of carrying on an Internet and customer order fulfilment business in relation to recorded music and related media comprising . . ;

(h) using the First Plaintiff's catalogue or any part thereof for any purpose; and

[(i) to (l) destroying, altering, parting with possession of, using, etc an extensive list of correspondence, business records and information].

4. Each of the Defendants certify by affidavit . . . that they and each of them have disclosed to and delivered up to the Plaintiffs and or to the Plaintiffs' solicitor all of the Plaintiffs' information:

(a) which was disclosed delivered or transmitted to the third and fourth named defendants by the first and second named defendants at any time;

(b) which is or has been in the possession custody or power of any of the defendants;

(c) which has been obtained by the defendants by any means.

[5 to 11 set out an accelerated timetable for the interlocutory steps in the proceeding]

12. This matter be referred to the Listing Master for fixing with such priority as she is able to give to the fixing of a date for trial after 10 August 2001.

30. The summons seeks that the order of 27 April be varied by:

(i) deleting paragraphs 3(a), (b), (c), (d) and (f); and

(ii) amending paragraph 3(e) by deleting the words "or other information";

or in the alternative ("the alternative claim") by:

(i) deleting paragraphs 3(a), (b), (c) and (d);

(ii) amending paragraph 3(e) by deleting the words "or other information";

(iii) amending paragraph 3(f) by deleting the words "supplier or" and by substituting for the words "or potential customer" the words "(other than Wishlist)"; and

(iv) amending paragraph 3(g) by adding the words "(other than Wishlist") after the date "9 March 2001".

36. The secondnamed and fourthnamed plaintiffs ("Duff" and "Hiscock") are directors of the firstnamed plaintff ("Rocket"), and the thirdnamed plaintiff ("CC Retail") is a company associated with Rocket. The thirdnamed defendant ("Barry") sold shares in Rocket to CC Retail, Duff and Hiscock on 6 May 1998, entering into a three year covenant in restraint of trade which expired on 6 May 2001. Barry is a director of the fourthnamed defendant ("Stomp") of which the fifthnamed defendant ("Jorgensen") is the other director and the chief executive officer. Rocket and Stomp are competitors in the music industry. Both companies are engaged in a number of different activities in that industry, but it is common ground that the core business of Rocket is exporting and the core business of Stomp is importing.

39. Mr Blundy is the chairman of sanity.com Ltd, which is not a party to the proceeding. It is associated with a retail music business known as Sanity, and also with Stomp. By summons filed on 30 August 2001 ("the Sanity summons"), sanity.com Ltd and Mr Blundy sought a further variation of the order of 27 April, and that that application be heard jointly with the application of the defendants.

42. The events giving rise to the proceeding began when the firstnamed and secondnamed defendants ("White" and "Bortignon") were employees of Rocket. In October 2000 Barry offered them employment at Stomp. Between November 2000 and March 2001, they transmitted to Stomp, without the knowledge of the plaintiffs, considerable information relating to Rocket's business ("the information") including extensive lists of customers. They gave notice of resignation to Rocket on 8 March 2001, left on the same day and joined Stomp. An ex parte order for an Anton Piller inspection and an injunction was granted by Justice Beach on 9 March 2001 and this proceeding was commenced by writ on 13 March. The terms of the injunction were similar to, but not identical with, the terms of clause 3 of the order of 27 April. The Anton Piller order was executed at the offices of Stomp on 13, 15, 16, 19 and 23 March and material was found to have been transferred electronically from Rocket to Stomp. I do not understand any of the foregoing to be in dispute.

45. On 16 March 2001 the ex parte injunction was confirmed by a consent order made by Justice Beach ("the order of 16 March") in terms which were similar to but somewhat expanded from that made on 9 March, and which was expressed to apply until 27 April. On its expiry the order of 27 April was made, its terms, insofar as they comprised the injunction, being somewhat expanded from those of the order of 16 March. Thus the defendants have been bound by similar restrictions since 9 March 2001.

48. The affidavits ordered in paragraph 4 of the order of 27 April have been filed and served. A number of interlocutory steps have been taken, but it has not been possible to meet the timetable provided for in paragraphs 5 to 11 of the order of 27 April. At a directions hearing on 29 August the Listing Master informed the parties that, based on a guaranteed estimate that the trial would last ten days, she might be able to set the matter down for hearing on 3 December 2001, subject to completion of all interlocutory steps. However, later that day the parties advised the Listing Master that they could not guarantee the completion of the hearing in ten days, but that it would take no longer than fifteen days. The Listing Master indicated that she would be able, on that estimate, to schedule the hearing to commence on 8 April 2002, again subject to the completion of all interlocutory steps.

51. It is not in issue that the Court has power to amend its interlocutory orders. In Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc [1981] HCA 39; (1981) 148 CLR 170 Gibbs CJ, Aickin, Wilson and Brennan JJ said at 178:

A court must remain in control of its interlocutory orders. A further order will be appropriate whenever, inter alia, new facts come into existence or are discovered which render its enforcement unjust: . . . Of course, the changed circumstances must be established by evidence: . . .

And see the passage from Woods v The Sheriff of Queensland cited at paragraph 16(iv) below. Mr Dreyfus, for the defendants, submitted that there were (as appears from the inclusion of the expression "inter alia" in the passage cited) other grounds on which a court could exercise its discretion to make an order varying its own interlocutory order, but he cited no authority for any other such specific ground.

57. The principal changed circumstance on which Mr Dreyfus relied as justifying the variation of the order of 27 April appears from paragraph 7 above. He submitted that an interlocutory order, by its nature, is intended to preserve a holding position until the trial of the action. When his clients consented to the order of 27 April, they had done so on the understanding that a trial date would be fixed with priority after 10 August 2001. Thus they had been prepared to be bound by that order until late this year. It is now apparent that the hearing will not commence until at least 8 April 2002 and thus the determination of the action may not occur until much later. That being so, his clients would be bound by the order of 27 April for a far longer period than they had envisaged when they consented to its making.

60. The other changed circumstances were that since the making of the order of 27 April new commercial opportunities had arisen, which Stomp was unable to exploit; that White and Bortignon were prevented from using their skills for a significantly extended period; and that any possible justification of the order of 27 April based on the springboard principle (as to which see paragraph 16(v) below) had evaporated. The commercial freedom of the defendants was being restricted, and the defendants were being effectively barred from the export music industry. Further, there were relevant matters arising out of the behaviour of Rocket, including, he submitted, that Rocket had caused Stomp to breach the order of 27 April, had interpreted that order in an inconsistent and selective manner, and had used that order to create adverse publicity.

63. Mr Dreyfus emphasised that the information had all been delivered up to Rocket, and that the variations which were sought to be made to the order of 27 April did not include removal of the restraint on the defendants' using the information. What his clients were seeking by the deletion of paragraphs 3(a) to 3(d) was the removal of the prohibitions on their undertaking an export business, undertaking an insurance replacement business and approaching customers of Rocket.

66. As to the amendment sought to paragraph 3(e) of the order of 27 April, Mr Dreyfus submitted that the words "or other information" which are sought to be deleted were "almost incapable of being given any meaning", and therefore it was not appropriate that they should remain in the order.

69. An amended statement of claim was filed on 4 May 2001 and the amended defence on 14 May. Very briefly, the plaintiffs claim that White and Bortignon are in breach of their employment contracts and in breach of their fiduciary duty as employees by failing to maintain the confidentiality of the information; and that the other defendants induced the breaches of contract or with knowledge assisted in the breaches of fiduciary duty. The plaintiffs seek a permanent injunction restraining the defendants from engaging in the businesses of exporting recorded music and related media, media insurance replacement, media Internet fulfilment and other activities; damages, including exemplary damages; and the delivery up of the information.

72. The plaintiffs indicated at the hearing of this application that they were prepared to vary the order of 27 April by the addition of the proviso set out below ("the proviso") which in effect exempted from the operation of that order three separate aspects of the business of Stomp. Mr Dreyfus, for the defendants, indicated that his clients were prepared to accept the proviso, but that they did not abandon their application for the variations which were sought in the summons. The proviso reads:

Provided that nothing in this order shall prevent or preclude the defendants from:-

(a) engaging in the business of exporting Sanctuary products to New Zealand;

(b) fulfilling orders placed on the Sanity.Com site managed by Wishlist Holdings Ltd;

(c) distributing video and digital versatile disc products of Vidzofoz in Australia, New Zealand and South East Asia.

79. The parties (as well as sanity.com Ltd and Mr Blundy) also consented to the making of an order, arising out of the Sanity summons, to the effect that the order of 27 April be varied by the inclusion of the following paragraph ("the further proviso"):

3A. Provided that nothing in this Order shall prevent or preclude the Defendants from fulfilling orders placed on any sanity.com website or any combined Sanity/Wishlist website except for any sanity.com website or Sanity/Wishlist website which may be set up for the exclusive or dominant purpose of exporting music product on a business to business basis.

The agreement as to the further proviso would appear to dispose of paragraphs (iii) and (iv) of the alternative claim.

85. I am satisfied that it is not appropriate that I exercise the discretion, which the Court undoubtedly has, to vary the order of 27 April, save in accordance with the proviso and the further proviso, to both of which the parties have consented. A number of factors lead me to this conclusion.

(i) The order of 27 April was made by consent. It was the second order made since the initial ex parte order of 9 March. The defendants were assisted at the making of both the order of 16 March and the order of 27 April by solicitors and counsel. They chose not to file affidavits on either occasion. The unchallenged evidence of Mr Morrow, the solicitor for the plaintiffs, is that the terms of the proposed orders were negotiated throughout the morning of 27 April, that the order of 16 March was the result of similar negotiation, and that the final orders agreed to on 27 April were less advantageous to the plaintiffs than those originally sought by them.

(ii) The effect of the proviso and the further proviso is to permit the defendants to engage in several of the commercial opportunities which Stomp wishes to exploit, and which were among the matters relied upon as justifying the making of the variations sought.

(iii) As I have said, the defendants rely principally on what they say is a changed circumstance in that it is now known that the trial of the proceeding will not take place until at least 8 April 2002, whereas they consented to the order of 27 April on the basis that the interlocutory steps would be completed in time to enable the trial of the proceeding to commence in 2001. However, in so doing they took a calculated risk. It must always have been foreseeable that the timetable set out in the order of 27 April might not be met, and if so, that the defendants would be bound by restraints contained in that order beyond the end of this year. Their legal advisers would have been in a position to estimate the extent of the risk that that would occur. I do not propose, on the material before me, to examine the question of responsibility for the failure to meet the timetable, which does not appear to me to be relevant to the issue before me, noting in particular the effect of the change from an estimate of ten days to an estimate of fifteen.

(iv) Much of the material put before the Court by the defendants went to matters which could have been considered at the making of the order of 27 April had it not been made by consent, and which will be very much in issue at the trial of the action. Those matters include the extent to which the information transferred by White and Bortignon from Rocket to Stomp was in the public domain, or otherwise readily available from other sources, and the importance of that information. In Hutchinson v Nominal Defendant [1972] 1 NSWLR 443 at 448 Isaacs J of the Supreme Court of New South Wales quoted with approval a passage from the judgment of Griffith CJ (as he then was, of Queensland) in Woods v The Sheriff of Queensland (1895) 6 QLJ 163 at 164-165 which reads in part:

The same principle that allows relief to be given against continued operation of a final judgment obviously extends also to giving relief against the continued operation of an interlocutory order if after it is made new facts come into existence or are discovered which render its enforcement unjust. . . . An application for such relief is not in the nature of an appeal or re-hearing; each of these is founded on the contention that the order appealed from ought not to have been made. An application for a new order which has the effect of suspending in whole or in part the operation of a previous order starts with the assumption that the order was rightly made. There is therefore no question of reversing or varying or re-hearing the original decision or order. . . . If it should turn out that the application is based upon the assumption that the order, the operation of which it is desired to modify, was wrongly made, it must fail.

I would with respect adopt that passage, which leads to the conclusion that it is not appropriate that I consider those matters in the context of this application.

(v) Mr Dreyfus, as I have said, relied on the limitation imposed on the continuation of an order of this kind by the springboard principle. An injunction may be granted to prevent a defendant who is in a position to misuse confidential information from using that information as a springboard for engaging in activities detrimental to the person from whom the information was obtained. It is recognised that such an injunction should operate only for a limited period, until there is no longer any potential for the defendant to gain advantage from the possession of the information in question. The principle was enunciated by Lord Justice Nourse in the English Court of Appeal in Roger Bullivant Ltd v Ellis [1987] FSR 172 at 183, where his Lordship said, after reference to authorities:

The purpose of Falconer J in granting the injunction was to prevent the defendants from taking unfair advantage of the springboard which he considered they must have built up by their misuse of the information in the card index. Granted first, that such an advantage cannot last forever, secondly, that the law does not restrain lawful competition and, thirdly, that in restraining unlawful competition it seeks to protect the injured and not to punish the guilty, I cannot see that it is right for the term of the injunction to extend beyond the period for which the advantage may reasonably be expected to continue.

His Lordship cited with approval the statement by Graham J in Harrison v Project & Design Co (Redcar) Ltd [1978] FSR 81 at 87-88, after referring to the springboard doctrine, that:

It may be that in some cases one can fix precisely the date upon which it is clear that something which was once confidential ceased to be so. In other cases there may be no evidence which leads to a precise date. Such date must, however, in my judgment, always be a question of fact to be inferred by the court from all the circumstances of this case.

Mr Dreyfus submitted that the appropriate period for an injunction based on the springboard principle had long expired. The defendants had delivered up all of the information in accordance with paragraph 4 of the order of 27 April, had not used the information since March 2001, had no intention of doing so, and did not seek to have the Court remove the restraint on their doing so.

Whatever may be the effect of the springboard principle on the appropriate period for continuation of the order of 27 April, it is not a matter to be determined on this application. It will be a serious question at the trial of the proceeding, when the plaintiffs will be seeking a permanent injunction, and it would not be appropriate for the Court to determine that question at this stage on an application for variation of the interlocutory injunction. The defendants are protected by the undertaking as to damages given by the plaintiffs on the making of the order of 27 April. As Sir Donald Nicholls VC said in Universal Thermosensors Ltd v Hibben [1992] 1 WLR 840 at 858:

If the defendants have suffered material loss by reason of excessive width in the terms of the injunction sought and obtained by the plaintiff in July 1990, in my view they are entitled to look to the plaintiff for damages pursuant to its undertaking. Plaintiffs, and those who advise them, know or ought to know that there is a risk in obtaining interlocutory injunctive relief: the risk is that the plaintiff may have to pay compensation to the defendant if it turns out at the trial that, having regard to the facts and law as established at the trial, the effect of the injunction was to restrain a defendant from activities it ought to have been at liberty to pursue.

(vi) On 12 April 2001 Rocket distributed a circular setting out what had occurred, including the initiation of the proceeding, and a copy of the order of 16 March was posted on its website. Mr Dreyfus submitted that these actions were intended to create publicity adverse to Stomp. However, both of those actions were taken before 27 April, and they cannot therefore be regarded as new circumstances so as to be relevant to the consideration of the matter before me.

(vii) It is claimed for the defendants that the export by Rocket of products purchased by it from Stomp constitutes a breach of the order. That does not appear to me to be the case, and I see no relevance in it to the issue before me.

(viii) It is also claimed that the solicitor for Rocket expressed a view to the solicitors acting for sanity.com Ltd as to whether particular proposed activities would or would not be prohibited by the order of 27 April, and that this was a ground for varying the order because it was "not appropriate" for him to express such a view. I accept the submission of Mr Cawthorn for the plaintiffs that in so acting the solicitor for Rocket was concerned to ensure that the application of the order of 27 April did not prejudice the rights of third parties, a matter which has now been dealt with, in the case of sanity.com Ltd, by the agreement of the plaintiffs to the further proviso. In any case, the expression of that view is not significant in the context of the issue before me.

(ix) I do not accept the submission of Mr Dreyfus that the expression "or other information" in paragraph 3(e) is "almost incapable of being given any meaning". Further, that expression was in the order of 27 April at the time of its making, and no changed circumstance is relied on to justify the submission that it should be deleted.

(x) The defendants claim to be suffering commercial inconvenience as a result of the order of 27 April in that White and Bortignon are prevented from using their skills, the commercial freedom of the defendants is being restricted, and the defendants are effectively banned from the export music industry.

In Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117 at 135-6 Neill LJ, delivering the judgment of the English Court of Appeal, set out as a principle:

While the employee remains in the employment of the employer the obligations are included in the implied term which imposes a duty of good faith or fidelity on the employee. For the purposes of the present appeal it is not necessary to consider the precise limits of this implied term, but it may be noted: . . . that the duty of good faith will be broken if an employee makes or copies a list of the customers of the employer for use after his employment ends or deliberately memorises such a list, even though, except in special circumstances, there is no general restriction on an ex-employee canvassing or doing business with customers of his former employer:

. . .

Counsel for the plaintiffs indicated that their clients would rely on that principle at the trial of the proceeding. No submission was made for the defendants in response to that indication.

I have already cited the passage from Roger Bullivant Ltd v Ellis in which Lord Nourse emphasised that in restraining unlawful competition the law seeks to protect the injured and not to punish the guilty. Similarly, in Universal Thermosensors, dealing with a claim based on misuse of confidential information, the Vice-Chancellor said at 858:

Undoubtedly the defendants' conduct was outrageous and dishonest. . . . Nevertheless, I must keep in mind that in this action I am concerned, so far as this can now be done, to protect the plaintiff's property and rights and to assess fair compensation for loss suffered. Punishment of the defendants is not my function.

Nor is punishment of the defendants my function on this application. Nevertheless, when the application of the defendants to vary an order to which they consented relies in part on commercial inconvenience which they are suffering as a result of the making of that order, it is relevant to the consideration of the exercise of the Court's discretion to have regard to the accepted responsibility for the events which led to the making of that order.

91. For all of these reasons, there will be an order that the order of 27 April be varied only by the addition at the end of paragraph 3 of the words:

Provided that nothing in this order shall prevent or preclude the defendants from:-

(a) engaging in the business of exporting Sanctuary products to New Zealand;

(b) fulfilling orders placed on any sanity.com website or any combined Sanity/Wishlist website except for any sanity.com website or Sanity/Wishlist website which may be set up for the exclusive or dominant purpose of exporting music product on a business to business basis;

(c) distributing video and digital versatile disc products of Vidzofoz in Australia, New Zealand and South East Asia.

98. Counsel may wish to make submissions as to costs and other ancillary matters.