Ross & Anor v IceTV [2010] NSWCA 272 | Case summary

Ross & Anor v IceTV [2010] NSWCA 272 | Case summary | Zoe

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COMPETENCY OF THE APPEAL 4 Mr Ross and Mr Vogel were, respectively, the Chief Executive Officer ("CEO") and Chief Technical Officer ("CTO") of IceTV until they left their employment on 4 October 2006, having served out a period of three months notice. Their contracts of employment, in addition to non-competition and non-solicitation clauses, included confidentiality obligations. IceTV claimed that after their employment was terminated Mr Ross and Mr Vogel, through the third appellant, Vogel Ross Pty Ltd ("Vogel Ross"), breached their contracts of employment, inter alia, by undertaking consulting work on behalf of Mobilesoft Pty Ltd ("Mobilesoft"), a software engineering company which was a customer or potential customer of IceTV. IceTV also alleged that Vogel Ross had intentionally induced and procured the breaches. (In this judgment I use the term "appellants" to refer to all three appellants or only to Mr Vogel and Mr Ross, as the context requires.) 5 The appellants, who were not legally represented, filed a notice of appeal appealing against the whole of the primary Judge's decision. No point was taken by IceTV as to the competency of the appeal. However, in the course of argument, the Court raised the question of whether the appellants required leave to appeal, having regard to the fact that the judgment was for less than $100,000: Supreme Court Act 1970, s 101(2)(r). 6 The parties were invited to file written submissions on the issue. IceTV submitted that leave was required and should be refused. The appellants submitted that leave was not required because the cross-claim, if their appeal were successful, would result in a damages award in excess of $100,000 or at least would give them a realistic chance of such an award. 7 The appellants' cross-claim was founded on an undertaking as to damages given by IceTV in connection with the grant of an interlocutory injunction restraining the appellants, inter alia, from competing with the business of IceTV and from soliciting custom from persons who had been in discussions with IceTV. The appellants argued at trial that the interlocutory injunction had been incorrectly granted and that they were entitled to claim damages pursuant to the undertaking. 8 The test for determining whether an appeal is available as of right under s 101(2)(r)(i) of the Supreme Court Act is whether the claimant has a reasonable prospect of obtaining an award of damages exceeding $100,000 if the appeal succeeds: Cole v Commonwealth [1961] HCA 87; 106 CLR 653, at 656, per curiam; Trad v Harbour Radio Pty Ltd [2010] NSWCA 41, at [15]-[19], per Tobias JA, and authorities cited there. In my view, although there would be significant obstacles in the path of the appellants in establishing a damages claim in excess of $100,000, their claim for loss of income while the injunction was on foot involves a realistic prospect of securing an amount in excess of $100,000. The appeal is therefore available as of right.

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CREDIT BASED FINDINGS 9 At the trial, which occupied five hearing days, the respondent attacked the credibility of the appellants and invited the primary Judge to find that they were untrustworthy people who betrayed their duties to IceTV in the last weeks before their departure from the company. The primary Judge accepted IceTV's invitation, finding (at [69]) that neither Mr Ross nor Mr Vogel was a reliable witness. His Honour also found (at [73]) that the appellants, while they were still working for IceTV, had engaged in conduct which: "was not designed to promote IceTV but to promote their own interests directly and indirectly by setting up an opportunity for them to do work for Mobilesoft, to endeavour to assist Mobilesoft to take opportunities which had been or could have been available to IceTV … [T]hey deliberately provided incomplete information to IceTV as to their activities prior to their departure …" 10 It is not easy to see why the appellants' credit and their motives should have loomed so large at the trial. It is true that IceTV's statement of claim pleaded that the appellants had used business information of IceTV for purposes other than their employment and that they had improperly used confidential information. But as the primary Judge observed (at [44]), the motives of the appellants were irrelevant to the question of breaches of the non-competition and non-solicitation clauses of the employment contracts. As he said, if the appellants were in breach of the restraints and the restraints were effective, that was sufficient for IceTV to succeed. In other words, the grant of an interlocutory injunction and the award of damages for breach of the non-competition or non-solicitation clauses of the contract did not depend on findings of bad faith or deliberate impropriety. 11 The primary Judge himself appeared to be somewhat puzzled at the emphasis on the appellants' motives in the evidence and submissions. He explained the emphasis on these matters (at [46]) as flowing from the appellants' reliance on good faith actions as a defence and IceTV's rejection of their claims. 12 Given the way the trial was conducted, it is not surprising that the written submissions on the appeal devoted close attention to the primary Judge's credit-based findings. Understandably, the appellants saw the findings as a stain on their commercial reputation and argued vehemently that the findings were flawed. Mr Ireland QC, who appeared with Mr Cooke for IceTV, submitted that the findings, being based on the primary Judge's assessment of the witnesses, were unimpeachable. 13 As will be seen, the appeal can be disposed of on the basis that the appellants breached the non-solicitation clauses of their contracts, without resolving their challenge to his Honour's credit-based findings. It must be said, however, that there is a strong argument that the primary Judge's credit-based findings were flawed, at least insofar as they involved findings that the appellants set out to betray IceTV's interests. 14 As the appellants pointed out, his Honour's assessment of the credibility of the appellants' evidence and of their motivation rested heavily on a particular finding. The critical finding was that neither Mr O'Brien (a substantial shareholder and director of IceTV) nor Mr Kossatz (the incoming Managing Director of IceTV) knew prior to February 2007, four months after the appellants left IceTV, that Mobilesoft had been dealing with Video Ezy, a distributor of videos and DVDs. Mr Ross consistently maintained that at the time he and Mr Vogel left IceTV, Mr O'Brien was well aware of Mobilesoft's dealings with Video Ezy, a matter of potential significance to IceTV. The primary Judge rejected Mr Ross' evidence taking into account (at [65]) that there was: " no evidence that Mr O'Brien or Mr Kossatz was aware prior to February 2007 that Mobilesoft had been dealing with Video Ezy." (Emphasis added.) 15 The reference to the absence of evidence on this issue was wrong. Quite apart from Mr Ross' evidence, Mr O'Brien had expressly stated in an affidavit dated 4 May 2007 that: "from my meeting with Mr Ross and Mr Kossatz in October 2006 I became aware that IceTV has had discussions with Mobilesoft about a potential deal to use IceTV's EPG for the Video Ezy service." 16 The passage in Mr O'Brien's affidavit was actually identified by IceTV in its further and better particulars as a matter on which IceTV would rely in support of its pleaded case. The appellants explicitly referred his Honour to this paragraph in their written and oral submissions at trial to resist the proposition that they had engaged in a covert plan to deal with Mobilesoft. 17 In the light of these matters, it should be said, in fairness to the appellants, that it would not be safe to rely on the primary Judge's findings as to the appellants' motives in their dealings with Mobilesoft prior to their departure from IceTV.

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UNCONTENTIOUS FACTS 20 The following account of the facts is largely taken from the primary judgment. 21 IceTV distributed an electronic program guide ("EPG") for television known as the Ice Guide. The Ice Guide could be downloaded onto personal video recorders ("PVRs"), set-top boxes ("STBs") and similar equipment. The EPG enabled details of forthcoming free-to-air television programs to be viewed and programs selected by the user. By 2006, IceTV distributed the only EPG that was available to PVR and STB customers not tied to Foxtel, a pay television provider. IceTV distributed the Ice Guide to individual free-to-air customers on a subscription basis, but was also seeking to "bundle" EPGs with products supplied by companies which supplied digital video discs ("DVDs") or similar products to customers. 22 Mobilesoft's business included buying STBs from an overseas supplier. The STBs were fitted with a terrestrial receiver to enable the consumer to access free-to-air television. Mobilesoft sought to enter arrangements with companies that had a significant movie or DVD library. One of these companies was Video Ezy, which had many outlets in Australia. Video Ezy was interested in delivering movies to customers in digital form. One model for delivery of movies was a system that allowed customers to download up to 40 movies on a "thumb drive" (also known as a "USB memory stick") on a pay-per-view basis. Mobilesoft was interested in supplying STBs that would enable the thumb drive to be used. The STBs supplied by Mobilesoft were to include an EPG. 23 In about February 2005, Mr Ross was engaged as IceTV's CEO and Mr Vogel as the CTO. Both had previously worked for a company called ZapTV and IceTV took over the technology and products developed by ZapTV. Messrs Ross and Vogel became shareholders (6% and 4% of the shareholding respectively) in IceTV's parent company. Mr O'Brien and his wife were the largest shareholders in the parent company. 24 It was common ground that the relevant employment contracts between IceTV and the appellants were entered into on or about 24 March 2006 (Mr Ross) and 16 April 2006 (Mr Vogel). (Mr Ross' contract was mistakenly dated 24 March 2005, but nothing turns on the error.) Each contract contained the following clauses: " Non-Soliciting of Customers or employees You must not, either during your employment with the Company and for a period of twelve (12) months thereafter, or such other lesser period as may be judged by a court of competent jurisdiction as being reasonable in the circumstances and necessary to protect the Company's goodwill and confidential information: (a) carry on or otherwise be engaged or involved in any business similar to or competitive with the business of the Company … carried on during the twelve (12) months prior to the termination of your employment; … (c) canvass or solicit the custom of any person who has entered into discussions or negotiations with the Company or a related body corporate during the twelve (12) months prior to the termination of your employment with a view to becoming a customer of the Company … and Confidentiality … you will not, except in the proper course of your duties, either during or after your employment, divulge, or permit to be divulged, to any person by any means, any information in any form relating to the Company, or … (a) any … performance reports, operation reports, profitability forecasts or business plans; … (d) … any financial information in relation to the Company's activities which may be of commercial value to a competitor …"

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I refer to these as the non-solicitation and confidentiality clauses respectively. 25 The contracts provided that the employees could terminate their respective appointments by giving 12 months written notice. IceTV could terminate the appointments by paying an amount equivalent to three months remuneration. 26 A public float of IceTV was set in train in April 2006 with the objective of raising $3 million in capital. However, before the float could make substantial progress, Nine Network Australia Pty Ltd commenced proceedings against IceTV claiming that IceTV had infringed its intellectual property. Although IceTV ultimately succeeded in the High Court (IceTV Pty Ltd v Nine Network Australia Pty Ltd [2009] HCA 14, 239 CLR 458), the institution of the legal proceedings brought about the demise of the float and left IceTV in a parlous financial position in mid-2006. 27 On 4 July 2006, Mr Ross and Mr Vogel were each given three months notice by IceTV terminating their contracts of employment. However, they were asked to continue working until the last day of the notice period and they did so. 28 On 27 July 2006, while working out his period of notice, Mr Vogel attended a meeting on behalf of IceTV with Mr Simms of Mobilesoft and others. At that meeting there was discussion of a Community Program Guide ("CPG"). Reference was also made to Video Ezy's extensive network of retail outlets. 29 On 4 August 2006, Mr Vogel wrote an important letter to Mr Simms on IceTV's letterhead, as follows: "Thanks for your time last Thursday, it was very exciting to get some feeling for potential of a Mobilesoft/IceTV joint venture. As discussed, this letter is to summarise some of the opportunities we touched on. 1. EPG/CPG We would be delighted to be Mobilesoft's supplier of EPG for FTA [Free-to-Air] TV. We would also be pleased [t]o undertake development of the proposed Community Program Guide extensions we discussed . As you know, there are many benefits associated with having complete editorial control over the EPG control. For example we would recommend complementary videos available from Video Ezy from within the synopsis of a show on the FTA guide. For example: … IceTV owns significant intellectual property in this field including pending and issued patents. In the following example the guide includes community noticeboard 'virtual channels' interleaved with the usual FTA TV channels. This makes them hard to miss and convenient to locate. … Events can be added by the community groups themselves. A secure website is provided for entering/editing details and groups are issued with an access code. … It will also be possible to upload audio or video files to the community noticeboard … Development cost: Without having completed a detailed design, we estimate that development of the server and user-interface aspects of CPG would involve 2 engineers and one graphic designer for 4 weeks. The approximate charge for this would be $60,000 . 2. PIMP … Our 'Personal Interactive Media Planner' technology allows users to remotely schedule recordings on their PVR using a web browser or mobile phone. 3. TiVo We have a good relationship with TiVo inc [a US company providing extensive broadcast and cable media content to subscribers] … and for the past three years have been discussing introduction of the product to Australia. This would require introduction of suitable commercial partners, and as they do not have a suitable DVB product IceTV will be responsible for sourcing a suitable device. Given Video Ezy's market dominance, unique expertise and access to a vast content library, a partnership with IceTV as the EPG and technology provider could bring TiVo to the Australian market very successfully. 3. PVR engineering Being Australia's only provider of interactive EPG data, IceTV has established long-standing relationships with the world's major set-top-box manufacturers. Our knowledge of FTA digital TV, STBs [set-top boxes], PVRs and EPG and media centres is second to none. We have also developed capability to interface to PC-based media centres which are now proliferating. IceTV niche expertise could complement Mobilesoft's capabilities to great mutual benefit. IceTV already 'owns' the EPG space in Australia … … IceTV's team has proven its ability to deliver. Backed by Video Ezy's retail presence, IceTV could take the market by storm. 4. Investment IceTV was intending to raise development capital via an IPO earlier this year. The IPO did not succeed, and as a result the company is currently raising $3m via an Information Memorandum … A strategic alliance with IceTV by Mobilesoft and Video Ezy would result in formidable synergy as each party brings to the table enormously valuable intellectual property. Most importantly both Video Ezy and IceTV have real-world experience of delivering their respective services to their subscribers. By investing in IceTV, Mobilesoft could secure favourable terms for any licensing deal (for example provision of EPG for FTA TV) and IceTV would benefit greatly from the other parties' hard-won commercial direction and industry expertise. If you would like to explore this possibility further please let me know as soon as possible and I will arrange a meeting with our CEO Duncan Ross and any other parties you would like to be involved." (Emphasis added. The numbering is incorrect in the original.) 30 On 5 September 2006, Mr Ross attended a breakfast meeting with Mr Simms and Mr Pickup of Mobilesoft. The meeting was also attended by Mr Danovitz of TiVo who was visiting Australia at the time. After the meeting, Mr Danovitz sent an email to Mr Simms and Mr Pickup of Mobilesoft, with a copy to Mr Ross, as follows: "It was a pleasure to meet you and to hear about Mobilesoft's entry into the home video space. After our meeting, Brian [Lanyer of TiVo] and I discussed several ways that we could work together.' Once the NDA is signed, it would be very helpful to receive some documents on your box so that we can understand the opportunities of porting TiVo to it. Based on the timing/difficulty of that, we can discuss other options including potentially offering the Mobilesoft related video service on TiVo boxes. There are a lot of potential ideas here. As you have committed yourself to a box already, we can start with that and see." 31 On the same day, Mr Ross sent an email to Mr Simms attaching a document headed "New Media Opportunity". The objective was said to be to establish Australia's leading "New Media service company" and to float that company within 12 to 18 months. The future business activities would include "Branded TiVo services" and "Independent subscription based EPF to Media Centres and DVRs". The document outlined an "Acquisition Strategy": "I believe that the best strategy is to secure an option to acquire a controlling interest in IceTV while securing rights for TiVo, along with other opportunities - such as the Seven deal. In this way it is 'business as usual' for TiVo who have already verbally offered IceTV a MOU to represent them in Australia. I think that TiVos desire to secure an 'easy' early deal with Mobilesoft would be a great catalyst for them to commit to IceTV." 32 On 24 September 2006, Mr Ross sent an email to Mr Danovitz as follows: "This is Peter Vogels [sic] and my last week with IceTV … Needless to say that we are still very supportive of IceTV and both retain a shareholding in the business. From our last conversation I accept your concern that IceTV may not be perceived as independent enough to act for TiVo in respect to relationships with Channel Seven and others. However, I think that outside the IceTV structure Peter and I can help considerably, also to the benefit of IceTV in the case where a [sic] EPG is required. Be good to catch up on the phone over the next few days to discuss a way for us to operate to the benefit of TiVo, IceTV and Peter and my new business." 33 Shortly before Mr Vogel and Mr Ross were due to leave IceTV, Mr Ross met with Mr O'Brien and Mr Kossatz. Mr Ross provided Mr O'Brien with "exit notes" he had prepared. These made no reference to the letter of 4 August 2006. The notes included the following in relation to Mobilesoft: "Having been dealing mainly with Tom Sims [sic], and to a lesser degree Peter Urbanec [a computer programmer who had previously worked for IceTV] who now contracts to them. They are looking for EPG data for a PVR they are building for a client. There is an acceptance test due in October which peter U is working towards, and we've agreed to let them use some of our libraries to quicken the development process. The commercial discussions are not well advanced, still mainly dealing with technical compatibility issues. However, the ball park figure proposed for the EPG per customer is in the $1.00 to $1.50 mark. As yet we have not done any technical work ourselves, but should we, there would also be an engineering charge that they would accept. Action Follow up with Tom and/or Peter U on the integration of the EPG into their box." 34 The exit notes said this about IceTV's dealings with TiVo: " TiVo Have had one phone conversation with Joshua [Danovitz] since he returned. He said that Seven were at the point of decision and he thought they were likely to go ahead with it - especially as he knew the majic [sic] numbers to present. Doubted there was much chance that Ice could get into the mix as the company was not seen as independent enough. He is appreciative of what we've done for him and its [sic] likely that he would support IceTV putting out a TiVo service, initially analogue, followed by digital in the future. If Ice was able to launch a service, or take new deals to TiVo I think there could be a role for the company. However, as there is neither the sales resource or experience to do so, I don't think that is likely. Action Keep in touch with TiVo and try and position Ice as the provider of the EPG to the Seven service if they do go ahead - probably through TMS (Tribune)." 35 It appears that Vogel Ross was formed at about the time the appellants left their employment at IceTV. On 25 October 2006, three weeks after their departure, Mr Ross sent a letter to Mr Simms of Mobilesoft on Vogel Ross letterhead. The letter was headed "Proposal to establish Mobilesoft New Media Division": "This letter outlines the proposal we discussed today whereby Vogel Ross Pty Ltd helps to establish and manage a business unit within Mobilesoft Limited (MSO) devoted to New Media projects. … By 'New Media' we refer to the rapidly-emerging opportunities arising from the convergence of computers, television and the internet including entertainment, education, information, advertising and multiple related revenue opportunities. MSO's New Media division will build on the hardware platform provided by the Home Media Centre (HMC) already under development. It will also seek to acquire other platforms, such as TiVo, in addition to enabling other generic technology for New Media functionality. Vogel Ross will manage and coordinate the New Media division's media play, encompassing both engineering and commercialisation aspects. The New Media Division will initially undertake the following tasks: 1. Clever Networks grant applications; 2. Bid for and negotiate TiVo rights for Asia Pacific; 3. Manage the HMC project, in both CTO and Business Development roles;

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On a broader scale, the New Media division will seek revenue opportunities through development and deployment of turnkey PVR solutions including headend and backoffice functions, platform-agnostic media applications, and various media delivery business models ranging from pay-per-view to advertiser supported." 36 Soon after this letter was written, Mr Ross and Mr Vogel, through Vogel Ross, commenced performing consultancy work on behalf of Mobilesoft. During the period of the consultancy, as the primary Judge found, Vogel Ross earned $230,000 in consultancy fees. His Honour also found (at [28]) that notwithstanding the absence of any resolution by Mobilesoft's board authorising their engagement, Mr Ross worked as Mobilesoft's CEO and Mr Vogel as Mobilesoft's CTO from 12 February 2007. 37 The consultancy work undertaken by Vogel Ross included the preparation of an application for a grant of $22 million from the Commonwealth Government's "Clever Networks" scheme which was designed to assist regional and rural communities. The application, entitled "The Community Hub: Broadband and digital TV converge in the livingroom", was ultimately unsuccessful. 38 The contents of the application nonetheless are important. Mr Ross described the substance of the application in a draft email he prepared on 11 December 2006, as follows: "We propose to bid a system that provides a community guide off the back of a set-top-box DVR that receives digital free-to-view TV and plays Video Ezy movies. The system is called the Hub … A major focus of the system is the delivery of government information to regional, rural and remote communities. We are looking to have this service commercially underwritten by the sale of advertising carried on the DVR and believe there is a market to revenue share with internet advertisers." 39 The application included a "Proposal Overview"; as follows: "Convergence of the Internet and television is finally a reality. This project leverages the benefits of digital free-to-view TV and broadband Internet to turn the livingroom TV into a window to the world. The key innovation of this project is a software application called The Community Hub, which can be thought of as 'web pages on your TV', with the pages being designed to be easy to read from the couch and simple to navigate using a remote control. The Hub utilises a Home Media Centre (HMC) to deliver Internet access through the household's primary entertainment device, the TV. As well as providing a convenient and sociable way to watch free-to-view digital TV or rented movies, the Hub provides easy access to community and government information, 10-cent untimed phone calls to anywhere in Australia, and connectivity to tele-health systems for in-home patient monitoring and remote diagnosis. HMCs are readily available from a number of manufacturers. This project particularly targets a Scientific Atlanta set-top-box (STB) and the Microsoft Media Centre (MCE) but is adaptable to many other platforms. … Key innovations of this project include: Provides web-like access to information without the need for a PC Combines the power of the Internet with the accessibility of television Familiar, non-threatening user-interface Local communities contribute and maintain their own content, keeping it relevant and dynamic (submissions are reviewed for suitability by a moderator) VoIP phone using traditional cordless handset provides free calls to any other Hub user or 10c untimed calls to any phone in Australia Tele-health provides user-friendly remote health monitoring, reducing hospitalisation rates and improving quality of life Movie rentals made practical in remote/regional areas (including latest releases) Provides digital free-to-view TV reception Economical access to an unlimited range of Indigenous, community-produced, foreign language and special-interest programming TV can be recorded off-air and time-shifted (TiVo-like functionality) Works well even with limited broadband speed as all content is cached on local disk Affordable wireless Internet can be established where ADSL is not available." 40 On 5 May 2007, IceTV commenced proceedings against the appellants. IceTV applied for interim injunctions against the appellants restraining them from continuing their activities on behalf of Mobilesoft. The application for interlocutory relief was heard by Brereton J, as the Duty Judge, on 28 May 2007. 41 In a reserved judgment delivered on 3 July 2007 (IceTV v Ross [2007] NSWSC 635), Brereton J made the following restraining orders: "1. Upon the plaintiff by its counsel giving to the Court the usual undertaking as to damages, Order that until the hearing or further order the defendants be restrained from, by themselves their servants or agents: 1.1 until 4 October 2007, carrying on or otherwise being engaged or involved in any business similar to or competitive with the business of the plaintiff carried on during the twelve month period prior to 4 October 2006, including the development and/or pursuit of the commercial opportunity of media content provision to set-top-boxes, Personal Video Recorders or similar devices; 1.2 until 4 October 2007, canvassing or soliciting the custom of any person who had entered into discussions or negotiations with the plaintiff during the twelve month period prior to 4 October 2006, including Transact, CEOS, Mobilesoft, Media Review International, and Yahoo!7; 1.3 divulging or permitting to be divulged to any person by any means the following confidential information, in any form (written, recorded or stored in documentary or electronic form or in any other manner, including copies of or extracts from it), relating to the plaintiff: (a) plans or strategies relating to the marketing of product and services developed by IceTV; (b) the design of IceTV's EPG and the method of how it works …" 42 On 21 August 2007, Mobilesoft was placed into administration at the behest of a secured creditor. Its business was rationalised and it subsequently emerged from administration. 43 On 28 September 2007, Brereton J discharged the injunction he had previously granted: IceTV v Ross [2007] NSWSC 1232. His Honour's reasons for doing so were as follows: "4 In my original judgment, in discussing the balance of convenience (at [70] - [72]), I pointed out that on the evidence then before the Court, to the extent that the defendants would be deprived by an injunction of the opportunity to provide further services in the field which the injunction would prohibit them from entering, IceTV's undertaking as to damages would protect them. I concluded (at [72]) that the balance of convenience favoured, "although not very strongly", the granting rather than the withholding of interlocutory injunctive relief … 5 It is, I think, quite plain that I proceeded on the basis that IceTV's undertaking as to damages was a valuable one which would afford protection to the defendants in the event that it turned out that an interlocutory injunction was wrongly granted.

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(d) therefore Mobilesoft and IceTV were not in a business similar to or competitive with one another." 54 The primary Judge rejected (at [94]) this argument. "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 … If the [appellants'] 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." 55 His Honour also rejected (at [95]) a submission that the work done by the appellants for Mobilesoft was not work that IceTV could and would have done: "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." 56 His Honour noted that IceTV sought damages for breach of the non-solicitation clause. IceTV claimed $50,250, being 50% of the amount invoiced by Vogel Ross for the Clever Network proposal. His Honour considered it likely that Mobilesoft would have engaged IceTV to undertake the Clever Networks proposal, but that a discount had to be applied to cover the possibility that Mobilesoft would have asked someone else to do it. His Honour ultimately (at [99]) arrived at an award of $35,000, to which he added interest. 57 In relation to the appellants' cross-claim, the primary Judge found (at [101]) that IceTV had produced documents on subpoena prior to the interlocutory hearing, including a set of draft accounts which showed that "IceTV was in a parlous economic state". His Honour also found (at [103]) that the appellants knew of the parlous state of IceTV's finances, since that was the very reason for termination of their employment, and that they were well aware of the position at the time IceTV gave the undertaking as to damages to the Court. In particular, they knew that IceTV was being propped up by loans from the directors, but did not ask Brereton J for the directors to give personal undertakings. In his Honour's view (at [104]), a party found to have breached covenants in restraint of trade had no: "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." 58 The primary Judge made the following orders:

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Appellants' Submissions 59 As I have noted, the appellants made lengthy submissions attacking the primary Judge's findings adverse to their credit. In view of what has already been said, it is not necessary to summarise those submissions further. 60 The appellants' written submissions were very detailed and incorporated many cross-references to lengthy submissions made to the primary Judge. While the submissions reflected careful preparation, some of the appellants' contentions were founded on misconceptions as to the law. For example, the appellants submitted that, because the primary Judge had read down the non-competition clause under the RT Act in order to avoid holding the clause invalid as an impermissible restraint on trade, it followed that the interlocutory injunction granted by Brereton J on the basis of the original non-competition clause was "invalid". However, in the absence of an application for leave to appeal from the judgment granting the interlocutory injunction, the orders made by Brereton J were valid and remained in force until his Honour set them aside subsequently. The following outline of the appellants' principal submissions omits references to contentions founded on misconceptions of this kind. 61 The appellants submitted that the contracts of employment had been frustrated by the failure of the public float. The cancellation of the float frustrated the "common venture" and thus the non-solicitation and confidentiality clauses had come to an end. The appellants supported this argument by reference to their entitlement to options which were not to vest until 12 or 24 months after the commencement of their contracts of employment. These entitlements showed that the parties envisaged that the contracts would last for at least 24 months. 62 The appellants next contended that the primary Judge erred in finding that they had breached para (a) of the non-competition clause. In particular, his Honour erred in finding that Mobilesoft was a competitor of IceTV. The appellants argued that Mobilesoft, unlike IceTV, did not supply or want to supply an EPG, but intended only to use IceTV's EPG. According to the appellants, there was no evidence that Mobilesoft was a potential supplier of an EPG to anyone. 63 The appellants also submitted that the primary Judge was wrong to find that their conduct contravened para (c) of the non-solicitation clause. His Honour, so the appellants argued, failed to distinguish between developing a CPG and writing a grant application that merely mentioned a CPG. According to the appellants, at least at one stage of the argument, the idea of the CPG was introduced to IceTV by Mobilesoft at the meeting of July 2006 and it was never intended that the appellants would develop the CPG for Mobilesoft. 64 According to the appellants, the primary Judge had erred in finding that Mobilesoft would have engaged IceTV to prepare the Clever Networks application. IceTV had never carried out consultancy work in preparing a grant application and, in any event, "IceTV's expertise was not particularly useful for that purpose". Moreover, all that the appellants had done for Mobilesoft was to apply for funding that would have been used to pay for the development of a CPG by Mobilesoft. 65 The appellants further submitted that even if their conduct breached the non-solicitation clause of the contracts of employment, the clauses were void for uncertainty. This followed because the clauses applied for a period of twelve months "or such other lesser period as may be judged by a court of competent jurisdiction as being reasonable in the circumstances". It was not open to IceTV to enforce a covenant which left it to the Court to determine the duration of the restraint or, for that matter, the territory to which the restraint applied and the relevant business of the company. 66 The appellants submitted that, in any event, the non-solicitation clause was invalid as an impermissible restraint of trade. Their argument was not easy to follow, but the principal contentions appear to be that:

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See also Veremu Pty Ltd v Ezishop.Net Ltd (in liq) [2003] NSWCA 317, at [3], per Giles JA (with whom Handley JA and Santow J agreed). 71 Each contract of employment in the present case provided for a starting date (24 March 2006 for Mr Ross as CEO and 16 April 2006 for Mr Vogel as CTO). Each appointment was to continue "indefinitely until terminated in accordance with this agreement". Each contract provided for the employee to terminate the appointment by giving 12 months written notice. The Company (IceTV) could terminate the appointment by paying an amount equal to three months of remuneration, calculated at the then current rate, and other entitlements up to the date of termination. However, the Company could, at any time after giving notice, terminate the employment of Mr Ross and Mr Vogel on payment of their remuneration and other entitlements. 72 Mr Ross' duties and responsibilities included directing, promoting and managing the Company to reach and maintain profitable trading; providing "executive management stewardship over the Company's resources"; and preparing, submitting and executing the Company's business plans, strategies and policies. Mr Vogel's duties and responsibilities were set out at somewhat greater length and included performing the roles that might be expected of the CTO of a business directed to the home entertainment market. 73 Neither contract specifically required Mr Ross or Mr Vogel to undertake any particular work in connection with the proposed float or listing of IceTV on the Australian Stock Exchange. However, Mr Vogel's contract included a special condition as follows: "Subject to the Company successfully listing on the Australian Stock Exchange, you will be paid an advance of $30,000 on your first years annual salary in June 2006." 74 Mr Vogel's contract of employment provided for him to be issued with 250,000 options in IceTV's parent company, at an exercise price of 50 cents. Half of the options were to vest on 20 March 2007 and the balance on 20 March 2008. His rights to exercise the options was dependent on his "continuous employment with the Company". The expression "continuous employment" was defined to mean that Mr Vogel had not resigned and that his employment had not been terminated without notice for cause. Mr Ross' contract contained no reference to options, but it would seem that he was granted options on similar terms by a separate arrangement. 75 It is difficult to see how the failure of the public float could have frustrated the contracts of employment. Each contract of employment was perfectly capable of applying to the circumstances prevailing after the failure of the float. Each appellant continued to have rights and responsibilities under his contract of employment which were capable of surviving the failure of the float. Mr Ross and Mr Vogel, for so long as they were employed by IceTV, had to perform the duties and responsibilities set out in each contract. IceTV had to pay them their salaries and other entitlements until their contracts were duly terminated. 76 This is not a case of a contract becoming impossible to perform by reason of a supervening event that could not have been anticipated by the parties: cf Davis Contractors, at 721-722, per Lord Reid. On the contrary, Mr Vogel's contract specifically contemplated the possibility that the float would fail, since his entitlement to an advance payment was subject to IceTV successfully listing on the Stock Exchange. Each contract provided for IceTV to terminate the appellants' employment, in effect by paying them three months salary and entitlements. This provision was capable of being invoked in the event of the failure of the float and was apparently invoked primarily for that reason. However, if funds had been raised from some other source, as Mr Vogel contemplated in his letter of 4 August 2006, there may have been no occasion for IceTV to have terminated the appellants' employment. 77 Nor is this a case of the parties entering into a contract on a common assumption that some particular state of affairs essential to its performance will continue to exist or will come about, and the common assumption proves to be mistaken: cf Codelfa at 357, referring, inter alia, to F A Tamplin Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916] 2 AC 397, where a charter party of a vessel was held to be frustrated by the requisitioning of the vessel during wartime. It was not suggested by the appellants that their contracts of employment were entered into at a time when the public float was reasonably considered to be certain of success. In any event, such a suggestion would have been implausible. 78 As Viscount Simonds observed in Davis Contractors (at 715), disappointed expectations do not lead to frustrated contracts. The appellants' frustration argument must be rejected.

[64]

J D Heydon, Restraint of Trade Doctrine (3 rd ed, 2008), at 35. 88 The courts generally take a stricter and less favourable view of covenants on restraint of trade entered into between employer and employee than of covenants in other commercial agreements: Geraghty v Minter [1979] HCA 42; 142 CLR 177, at 185, per Gibbs J. An employer is not entitled to protect itself against mere competition from a former employee: Kone Elevators Pty Ltd v McNay [1997] Aust Contract Reports 90-080, at 90,594, per Sheller JA. Nonetheless, an employer may have interests capable of protection by a restraint. Such interests include the trade secrets and other confidential information and the employer's connection with customers: Woolworths Ltd v Olson [2004] NSWCA 372, at [38], per Mason P (with whom McColl and Bryson JJA agreed); J D Heydon, The Restraint of Trade Doctrine, ch 5. The validity of a restraint is tested at the time of entering the contract and by reference to what the restraint entitled or required the parties to do, not what they have actually done: Woolworths v Olson, at [40]. 89 In New South Wales, it is necessary to take account of the RT Act. The approach taken by McLelland J in Orton v Melman [1981] 1 NSWLR 583 to the RT Act has been consistently followed. His Honour said (at 587) that: "The mischief or defect [addressed by the legislation] was that in determining the validity of a restraint, the courts were bound to consider all possible breaches within its terms (after any permissible severance) and determine whether public policy was infringed by the restraint of all such breaches, rather than by the actual or threatened breaches proved in the particular case; or as stated succinctly in the report [of the New South Wales Law Reform Commission, Covenants in Restraint of Trade (LRC 9, 1970) (par 12)]: 'The Court does not consider the actual breach, it considers imaginary breaches'." 90 His Honour explained the correct approach as follows: "In my opinion where the court is to determine, in relation to a restraint to which s 4(1) applies whether (having regard to public policy) the restraint is enforceable in respect of an alleged breach (or threatened breach), it is proper first to determine whether the alleged breach (independently of public policy considerations) does or will infringe the terms of the restraint properly construed, and if so, then to determine whether the restraint, so far as it applies to that breach, is contrary to public policy. If the restraint, so far as it applies to that breach, is not contrary to public policy then by force of s 4(1) the restraint is to that extent valid, subject always of course to any order which may be made under s 4(3).

[68]

Paragraph (c) of the Non-Solicitation Clause 93 It is convenient to start with para (c) of the non-solicitation clause. It will be recalled that this provided that each appellant for a period of 12 months after his employment ended (or such other period judged by a court to be reasonable), was not to: "canvass or solicit the custom of any person who has entered into discussions or negotiations with the Company or a related body corporate during the twelve (12) months prior to the termination of your employment with a view to becoming a customer of the Company …" 94 An agreement in restraint of trade is to be interpreted independently of the rules prescribing the tests of reasonableness for the purpose of ascertaining its validity under the general law: Butt v Long [1953] HCA 76; 88 CLR 476, at 487, per Dixon CJ. Nonetheless, as Dixon CJ observed in Butt v Long (at 487) an agreement in restraint of trade is to be construed with respect to its subject matter and descriptive words can be restricted in their operation by reference to the circumstances in which the parties contract. 95 The letter of 4 August 2006 from Mr Vogel to Mr Simms of Mobilesoft is critical in relation to the operation of para (c) of the non-solicitation clause. While the letter was signed by Mr Vogel, the appellants did not dispute that Mr Ross approved of or was otherwise a party to the letter and the discussion that preceded it. Indeed, Mr Ross accepted in his evidence that he was aware of the terms of the letter at the time it was sent. 96 The letter, as the opening words indicate, was written in the context of discussions about the possibility of a joint venture between IceTV and Mobilesoft. Nonetheless, it is perfectly clear from the letter that the appellants were negotiating with Mobilesoft for IceTV to supply an EPG to Mobilesoft for the purposes of free-to-air television. The letter pointed out that IceTV was Australia's only provider of interactive EPG data and had long-established relationships with the manufacturers of STBs. As the primary Judge found (at [31]), the letter claimed that the use of IceTV's EPG technology could be of great benefit to Mobilesoft in its relationship with Video Ezy, and clearly demonstrated that IceTV was keen to provide the technology to Mobilesoft. 97 The letter also makes it clear that the appellants were negotiating with Mobilesoft for IceTV to undertake development "of the proposed Community Program Guide extensions we discussed". For this purpose the letter contemplated that it would be necessary to develop "the server and user-interface aspects of the CPG", utilising the services of two engineers and a graphic designer for four weeks. The charge for this work was said to be approximately $60,000. Mr Simms was invited to explore the possibility of taking the proposal further. 98 The appellants appeared to argue at one point that they could not have been in breach of para (c) of the non-solicitation clause because his Honour had wrongly found that IceTV had invented the CPG. But this argument, even if correct, is beside the point. Whether the actions of the appellants breached para (c) of the non-solicitation clause does not depend on who "invented" the CPG. As the appellants expressly accepted in oral argument, IceTV had the capacity to develop the CPG and the appellants were negotiating with Mobilesoft to do precisely that. 99 The letter of 4 August 2006 clearly demonstrates that, for the purposes of para (c) of the non-solicitation clause, Mobilesoft, within the period of 12 months prior to the termination of the appellants' employment, had "entered into discussions or negotiations with [IceTV] … with a view to Mobilesoft becoming a customer of [IceTV]". 100 The next question is whether the appellants canvassed or solicited the "custom" of Mobilesoft within twelve months of the termination of their employment. The primary Judge interpreted the word as limited to: "custom in the product or service field in respect of which [IceTV] was in negotiations or discussions with … Mobilesoft." 101 However, his Honour reached this result by reading down the word in reliance on s 4(1) of the RT Act. In the first instance, paragraph (c) is to be construed independently of s 4(1). 102 Applying the principles of construction laid down in Butt v Long, independently of s 4(1), I think that the word "custom" in paragraph (c) might well bear the limited meaning given to it by the primary Judge. If this is the correct construction, in my opinion it is clear that within 12 months of the termination of their employment with IceTV the appellants solicited the custom of Mobilesoft. 103 In the letter of 25 October 2006 to Mobilesoft, Vogel Ross offered to help establish a division within Mobilesoft devoted to "New Media projects", using the "considerable expertise" the appellants had acquired "over many years". The concept of "New Media", according to the letter, included taking advantage of the rapidly emerging opportunities resulting from the convergence of computers, television and the internet including entertainment, information and advertising. The New Media division would build on the hardware platform already under development and would utilise "other generic technology for New Media functionality". 104 Vogel Ross envisaged that the tasks performed by the New Media Division would include Clever Networks grant applications. As Mr Ross explained in his email of 11 December 2006 ([40**] above), the application was designed to finance a system providing a CPG "off the back of a set-top box DVR". The Clever Networks application prepared by Vogel Ross claimed that the "key innovation" of the project was "a software application called the Community Hub which can be thought of as 'web pages on your TV'." The Hub was "a software application designed to operate in a number of Home Media Centres" such as DVR STBs. 105 The appellants, through Vogel Ross, were seeking to obtain funding to enable the New Media Division of Mobilesoft to establish a CPG by means of the "Community Hub" software application. This is almost precisely the work that the appellants had proposed in August 2006 that IceTV should perform for Mobilesoft, although the same terminology had not been used. 106 The appellants sought to avoid this result by arguing that they had merely prepared a grant application and had not actually developed the software required for the Community Hub. But the very point of the application was to enable Mobilesoft to do what IceTV had offered to do earlier, namely set up a working CPG system. Moreover, the Clever Networks application, as the appellants had promised in their proposal of 25 October 2006, reflected their technical expertise and incorporated a detailed specification for the system. 107 No error has been shown in the primary Judge's finding that the appellants breached para (c) of the non-solicitation clause.

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In my opinion, for the reasons already given, the evidence supports this finding. 117 The primary Judge also found (at [87]), reproduced at [54**] above) that the appellants were senior executives in a small scale enterprise. They were involved with high-level negotiations with potential customers including Mobilesoft and TiVo. Moreover, they each had knowledge of matters relevant to pricing and technology and had developed relationships with TiVo and Mobilesoft. There was no challenge to these findings, which were amply justified by the evidence. 118 IceTV clearly had a legitimate interest in preventing its most senior executives, once their employment had terminated, from canvassing or soliciting any persons with whom IceTV had had discussions with a view to those persons become customers of IceTV. In particular, IceTV had a strong interest in preventing its most senior executives from canvassing or soliciting suppliers of DVR and Media Centre products with whom IceTV had held discussions with a view to "bundling" EPGs with those products. If the appellants were free to use their connections with the suppliers with whom they had conducted negotiations or discussions and to do so by exploiting information acquired in their capacity as senior executives of IceTV, the potential damage to the latter's business is obvious. 119 It is not to the point that the suppliers with whom IceTV had held discussions or negotiations had not yet ordered products or services from IceTV. The process of building up a relationship to the point where a bundling arrangement could be entered into can be prolonged and delicate, as the evidence in this case suggest. The actions of a former senior executive in attempting to entice a potentially important customer away from his former employer may do as much, if not, more damage than attempting to entice an existing customer. Thus in Stenhouse Australia v Phillips [1974] AC 391, a clause upheld as valid by the Privy Council prevented the managing director of an insurance broker from soliciting business from any "client". The term "client" was defined to include a prospective client whose insurance business was the subject of negotiation through the services of the managing director. The submission that IceTV had no interest in protecting its connection with potential customers, with whom it had held discussions or negotiations with a view to attracting their custom, is not sustainable. 120 It is perhaps arguable that the wording of paragraph (c) is too broad to satisfy the common law test of reasonableness. The paragraph applies to any person with whom discussions or negotiations of the relevant kind have taken place. Such persons include individual free-to-air subscribers as well as corporations supplying products with which IceTV's EPG might be bundled. It might be argued (although this was not put by the appellants) that the prohibition is too wide in that it prohibits the appellants from soliciting IceTV's individual subscribers (or potential subscribers with whom discussions took place), even in relation to products or services different from those provided by IceTV. 121 I think the better view is that this argument is not correct and that paragraph (c) of the non-solicitation clause satisfies the test of reasonableness. A prohibition on solicitation has been described as "narrow" because it leaves a wide field of competitive action unrestrained: Stenhouse v Phillips, at 401. On orthodox principles of interpretation, the prohibition on solicitation in paragraph (c) should be read as confined to soliciting the custom that IceTV sought to attract during the twelve months period prior to the termination of the appellants' employment. On that basis, in my opinion, the prohibition does not extend beyond what is reasonable for the protection of IceTV's legitimate interests. 122 In my opinion, the period of twelve months during which restraint is to operate is reasonable. It is true that the appellants' employment could be (and was) terminated on three months notice. But the senior positions they occupied and their knowledge of IceTV's operations made a restraint of that duration reasonable in the circumstances. As this Court has very recently pointed out, there is no legally mandated test for determining the reasonableness of the duration of a restraint. It is a matter for the Court to evaluate the evidence about connection and adopt an appropriate approach to assessing what is required to protect reasonably the connection of the former employer: Hanna v OAMPS Insurance Brokers Ltd [2010] NSWCA 267, at [43], per Allsop P (with whom Hodgson JA and Handley AJA agreed). That is precisely what the primary Judge did in the present case and I consider his Honour's conclusion to be correct. 123 If I am wrong in this conclusion, s 4(1) of the RT Act permits paragraph (c) to be read down so that it applies only to canvassing or soliciting the custom of corporations with whom IceTV had conducted discussions or negotiations during the relevant period with a view to providing EPGs or similar software to be incorporated (bundled) into their products. If paragraph (c) is read down in this way, the appellants still breached its terms by canvassing or soliciting the custom of Mobilesoft in relation to services that IceTV could have provided to Mobilesoft. 124 Paragraph (c) of the non-solicitation clause is therefore valid in its application to the appellants. 125 In these circumstances, paragraph (a) of the non-solicitation clause can be dealt with more briefly. For the reasons I have given, IceTV had legitimate interests to protect by way of a covenant restraining the appellants from using their contacts and knowledge of IceTV's business to compete with that business following termination of their employment. It is arguable that paragraph (a) is too wide under the general law because it restrains the appellants from carrying on or otherwise being engaged or involved in any business similar to or competitive with the business of IceTV carried on by it in the twelve months prior to the termination of the appellants' employment. However, as the primary Judge held, even if that is so, paragraph (a) can be read down so as to omit the words "similar to". The paragraph is then confined to involvement by the appellants in a business competitive with that of IceTV. So read, it is valid in its application to the appellants.

[76]

Damages 126 The appellants submitted that the primary Judge erred in awarding damages for breach of the non-solicitation clause because IceTV had not shown that it would have been engaged to perform the work carried out by the appellants as consultants to Mobilesoft. The appellants contended that if IceTV and Mobilesoft were competitors, it was not likely that Mobilesoft would have engaged IceTV to prepare a Clever Grants application. 127 The primary Judge rejected this contention. His Honour found (at [97]), on the basis of Mr O'Brien's unchallenged evidence, that IceTV had the capacity to prepare the application, with or without the appellants' involvement. Mr O'Brien's evidence was that the cost to IceTV of providing the services would have been 50% of the appellants' invoiced charges of $110,550. His Honour accepted (at [99]) this evidence. 128 The primary Judge observed (at [99]) that Mobilesoft had a dual relationship with IceTV as a competitor and potential customers for certain services. He found that there was no impediment to Mobilesoft engaging IceTV to develop the CPG and to prepare the grant application for this purpose. His Honour thought it likely that Mobilesoft would have engaged IceTV to undertake the Clever Networks application, particularly since it had to be assumed that the appellants would not have been available to do the work as consultants to Mobilesoft by reason of the non-solicitation clause. Nonetheless, his Honour recognised that the damages award had to be discounted to allow for the possibility that Mobilesoft would not have asked IceTV to do the work. He applied a discount of 25% for this purpose, after taking into account that the appellants may not have been prepared to work on the project as consultants to IceTV. 129 The findings made by the primary Judge in relation to damages are consistent with the evidence. The appellants have not shown that his Honour erred in making those findings or in making the evaluative judgment as to the appropriate discount to allow for the possibility that Mobilesoft would not have engaged IceTV to prepare the grant application.

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The Appellants' Cross-Claim 130 The appellants' cross-claim sought an inquiry into damages pursuant to the undertaking as to damages given by IceTV to the Court when Brereton J granted the interlocutory injunctions in favour of IceTV. The undertaking was expressed to be the "usual undertaking as to damages". The Uniform Civil Procedure Rules ("UCPR"), r 25.8, provides that: "The 'usual undertaking as to damages', if given to the court in connection with any interlocutory order or undertaking, is an undertaking to the court 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) affected by the operation of the interlocutory order or undertaking or of any interlocutory continuation (with or without variation) of the interlocutory order or undertaking." 131 The authorities indicate that the undertaking as to damages will ordinarily (although not invariably) be enforced if the plaintiff who obtained the interlocutory injunction "ultimately fails": Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1979) 146 CLR 249, at 261, per Aickin J, affirmed (1981) 146 CLR 249, at 309ff. The general principle is that if the "defendants turn out to be right … they can, under the undertaking, obtain compensation for all injury sustained by them from the granting of the injunction": Griffith v Blake (1884) 27 Ch D 474, at 476, per Baggally LJ, cited in Air Express, at 261. For similar statements of principle, see at 311, per Gibbs J; at 322-323, per Mason J. 132 The appellants argued that they were entitled to enforce the undertaking and to have an inquiry into damages because they had not breached the non-solicitation clauses and thus no injunctions should have been granted. However, IceTV has succeeded in upholding the primary Judge's conclusion that the appellants breached the non-solicitation clauses. The appellants have therefore not established that there was no contractual breach that could have justified the injunctions. 133 The appellants also argued that, regardless of IceTV's ultimate success on the question of contractual breach, the injunctions should not have been granted because IceTV's undertaking as to damages was worthless because of its parlous financial condition. It followed, so they argued, that the undertaking as to damages could be enforced against IceTV. The appellants cited the observations of Dr Spry, The Principles of Equitable Remedies (7th ed 2007), at 656-657: "even if, when the matter in question is finally disposed of, the plaintiff finally succeeds in obtaining relief, such as through the issue of a perpetual injunction or through the making of an order of specific performance, it may be that the court will nonetheless be called on, in special cases, to exercise its discretion so as to require him to pay damages, on the basis that the defendant has unjustly suffered damage through the inappropriate imposition of an interlocutory restraint. This position may arise where, for example, the plaintiff is shown not to have disclosed a material fact that he was under a duty to disclose when he was granted the relevant interlocutory relief and where it is just that the defendant be compensated accordingly. Or again, it may appear at the final hearing, on some ground unrelated to his duty of disclosure, that although the plaintiff is then entitled to a perpetual injunction he was not earlier entitled to interlocutory relief or that he was entitled only to an interlocutory injunction in materially narrower terms; and here also it may be appropriate, in accordance with the particular circumstances, that the plaintiff should be obliged to make a payment of compensation to the defendant pursuant to his undertaking." (Citations omitted.)

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The same observations are made in The Principles of Equitable Remedies (8 th ed 2010), at 656-657. 134 Dr Spry cites the judgment of Jessel MR in Smith v Day (No 2) (1882) 21 Ch D 421, at 425 in support of the principle that might be applied in "special cases". Jessel MR said that where an interlocutory injunction is dissolved for delay or some cause which disentitles the plaintiff to an interlocutory injunction, the Court has a discretion whether, in all the circumstances, the defendant ought to have damages. 135 Assuming that Dr Spry has stated the relevant principles correctly, I do not think that the primary Judge erred in declining to order an inquiry into damages by reason of IceTV's alleged failure to disclose its parlous financial position. 136 Brereton J, in his judgment of 28 September 2007, did not find that there had been any "wilful deception" involved in the non-disclosure of IceTV's financial position, although he did say that it was a material matter to be disclosed. Nor did his Honour say that he would not have granted the injunctions had he known the true position. He said that he would not have granted the injunctions without requiring security, or at least requiring IceTV's directors to "make themselves amenable to the undertaking as to damages". 137 At the hearing before the primary Judge, IceTV adduced evidence that the appellants had issued a subpoena prior to the hearing on IceTV's application for interlocutory injunctions. The primary Judge found (at [101]) IceTV had produced documents in response to the subpoena, including draft accounts which revealed IceTV's "parlous economic state". His Honour also found (at [103]), despite the appellants' denials, that both they and their then solicitor had inspected the draft accounts before the hearing and that IceTV had not withheld any documents. Moreover, the primary Judge found (at [103]) that the appellants were well aware of IceTV's parlous state, because their employment had been terminated for that very reason. Indeed they had submitted to Brereton J that IceTV's undertaking as to damages was of "limited value given [IceTV's] limited means of satisfaction". 138 In these circumstances, his Honour was not in error in refusing to order an inquiry into damages. As the primary Judge observed, there must be considerable doubt as to whether IceTV was obliged to reveal to the Court any more than it did, having regard to the documents produced on subpoena and the appellants' knowledge of IceTV's financial position. But even if IceTV should have explicitly disclosed the position to the Court, the appellants and their solicitor had all the information they required to substantiate the submission that IceTV's undertaking as to damages was of limited value. There is no basis for concluding that the appellants have unjustly suffered damage by IceTV's failure to disclose to the Court that which the appellants perfectly well knew. 139 On the contrary, there was evidence before the primary Judge that IceTV was being propped up by loans from directors at the time the interlocutory injunctions were granted. The inference may well be available that had IceTV explicitly disclosed to Brereton J its financial position, the directors would have given any undertaking required and the injunctions would still have been granted. 140 The appeal against the dismissal of the appellants' cross-claim fails.

Ross & Anor v IceTV

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Cases Cited (19)

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