Saxby Bridge Mortgages v Saxby Bridge

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1618/99 - SAXBY BRIDGE MORTGAGES PTY LIMITED v SAXBY BRIDGE PTY LIMITED

1 HIS HONOUR: This is an application by notice of motion filed on 25 June 1999. By that application the plaintiff sought urgent relief designed to permit it to continue to use some twenty-four telephone numbers, and four additional numbers with respect to facsimiles, all of which it currently uses in its business, at the new premises to which it proposed to move yesterday evening or today. 2 I was told by the plaintiff's counsel at the commencement of yesterday's hearing that it was necessary that the application be determined on that day. The defendant also encouraged me to do so. Although I was not entirely convinced that the matter was so urgent, I heard the application fully and when the hearing concluded I announced my decision as requested by the parties, and directed the plaintiff to bring in short minutes. I adjourned the case to this morning for the purpose of delivering my ex tempore reasons for judgment. 3 I mention these circumstances because it seems to me that there was a real inconsistency between the parties' eager request for an urgent interlocutory determination and their conduct of the case yesterday. In the course of a five-hour hearing fifteen affidavits were read, ten exhibits were tendered, a witness gave oral evidence and was cross-examined and there were substantial oral submissions in which I was taken to case law and a learned text concerning legal issues which are far from straightforward. I did my best to assess all of the evidence and argument but I must say that in my view neither side had sufficiently pruned marginally relevant material from their cases. In my opinion it was an unreasonable imposition on the Court to seek a decision yesterday evening. 4 The notice of motion sought principal relief on two alternative bases. The first was by way of order that the defendant immediately take all steps within its power to transfer the telephone numbers to the plaintiff at its new address in Bligh Street. The alternative, in the event that transfer was not for some reason technically possible, was that the defendant be ordered after the plaintiff leaves the O'Connell Street premises to attach to the telephones and facsimile numbers an answering machine message re-directing the caller to the new telephone number of the plaintiff. At the end of the recorded message the caller would be automatically disconnected. 5 In addition to those principal forms of relief the plaintiff also sought an order that the defendant refer to the plaintiff at its new premises and telephone number any inquiry made by any person to the defendant with respect to Saxby Bridge Mortgages. 6 The circumstances in which this relief is sought are as follows. In late 1994 or early 1995 there were discussions between Mr Kingston, who has been described loosely as the principal of the plaintiff, and Mr Braysich of the defendant with respect to setting up a new mortgage company. In March 1995 the plaintiff commenced trading. The plaintiff was constituted so that eighty per cent of its shares were held by the Kingston interest and twenty per cent was held by the defendant. During its initial months of trading the plaintiff shared the premises at Level 6, 4 O'Connell Street, Sydney, with the defendant. During a start-up period the premises were supplied rent-free by the defendant and telephones were supplied. As at the hearing yesterday the plaintiff remained in those premises though the arrangements with respect to telephones changed in mid-1996. 7 During the period from 1995 to early 1999 the plaintiff's business prospered and expanded and the plaintiff came to employ staff, to pay a commercial rent and to pay for all telephone lines and advertising necessary for its business. The business of the plaintiff is conducted to a considerable degree by use of the telephone, so that the provision of telephone lines was important to it. 8 In mid-1996 an arrangement was made between the plaintiff and the defendant whereby the plaintiff acquired its own dedicated telephone numbers for which it paid. This arrangement was achieved by the defendant procuring from Telstra itemised bills for telephone rental and use directed to the defendant, separately identifying the telephone lines dedicated to the plaintiff and attributing part of the common costs of the telephone service, such as directory costs, to the plaintiff. The practice emerged that upon receipt of Telstra's itemised bill directed to it, the defendant would render an account to the plaintiff for that part of the bill payable by the plaintiff. 9 The dedicated lines used by the plaintiff included the telephone line 9202 2424, which appeared against the plaintiff's name in telephone directories and advertising material, as I shall note later. It also included the facsimile line 9202 2411 which was also widely advertised. Additionally, there were other facsimile lines and a substantial number of lines allocated to individual staff of the plaintiff. I shall return to the way in which those numbers were used. 10 On 23 February 1999 the defendant purported to cease doing business with the plaintiff and to evict the plaintiff from the premises in O'Connell Street. Mr Braysich resigned as a director of the plaintiff, saying that he wished to avoid a conflict of interest. Shortly afterwards two companies were incorporated or commenced as wholly owned subsidiaries of the defendant, named Saxby Bridge Mortgages and Finance Pty Limited and Saxby Bridge Home Loans Pty Limited. 11 These events, and some arguments about the defendant's entitlement to trail commissions with respect to mortgage referrals to the plaintiff, led to the commencement of proceedings. Proceedings 1618/99 were instituted by the plaintiff to obtain relief with respect to allegations which may be colloquially referred to as allegations about the poaching of customers. I was informed from the bar table that there are also oppression proceedings in the expedition list of the Equity Division, instituted by the present defendant against the plaintiff. 12 The application to me is an application in proceedings 1618/99. In those proceedings an interlocutory application was made to Hamilton J in March of this year and on 22 March 1999 his Honour granted interlocutory relief to the plaintiff upon the usual undertaking as to damages. That relief included an order restraining the defendant from poaching persons specified in the order who have made an application for mortgage finance to the plaintiff or to whom the plaintiff has communicated approval for finance or to whom the plaintiff has provided finance. The order prevents the defendant from making an approach to those people which would seek their application for mortgage finance to any entity other than the plaintiff. Additionally, Hamilton J ordered that the defendant be restrained from interfering with the plaintiff's quiet use and enjoyment of Level 6, 4 O'Connell Street until further order. 13 In his reasons for judgment Hamilton J noted that the latter relief was framed so that the defendant could seek to procure the plaintiff's ejectment from the premises if in fact the defendant ceased to occupy them before 30 June 1999, but that has not occurred. The basis for the order was that the plaintiff had tendered to the defendant twelve months rent for the period expiring on 30 June 1999, so effectively the order ensured the plaintiff's quiet enjoyment until that date. 14 It appears from the evidence that the plaintiff is actively engaged in moving from O'Connell Street to new premises in 25 Bligh Street, and that it was in the course of the planning of the arrangements for moving that the plaintiff raised with the defendant the question of taking the telephone numbers associated with its business to the new premises. The issue was raised in a letter by the plaintiff's solicitors to the defendant's solicitors dated 23 June 1999. The defendant's solicitors refused the plaintiff's request and consequently the present motion was filed. 15 It is trite law that the plaintiff can succeed in the present application only if it satisfies the requirements for the grant of interlocutory relief and, in particular, only if it shows that there is a serious question to be tried and that the balance of convenience favours the making of the orders. 16 As to the issue whether there is a serious question to be tried, the plaintiff says it has a better title to the telephone lines than the defendant and asserts a proprietary right to the telephone numbers which it uses, in the nature of goodwill, because of the association of the telephone numbers with its business. The plaintiff relies on Young J's decision in Rahme v Telstra Corporation Limited (1995) 119 FLR 426. There Young J said (at 428): 'It may be that the subscriber does not have a proprietary right like it might have in a book or a pencil, but it seems to me that there is at least some proprietary right in the nature of goodwill in the association of the telephone number with the business.' 17 His Honour declared (at 432) that as between the plaintiff, which was the purchaser of a business, and the vendors of the business, the plaintiff had a better right and title to the telephone numbers. 18 In the present case there is evidence that the telephone numbers 9202 2424 and 9202 2411 have been used in a manner which associates them with the plaintiff's business as regards the persons with whom the plaintiff deals, and that this has taken place since mid-1996. The yellow and white pages telephone directories for 1998/99 list the general telephone number against the name of the plaintiff and it is anticipated that the new telephone directories for 1999/2000 will do likewise. There is evidence that letterheads, promotional brochures, advertisements and business cards also give particulars of the general telephone and facsimile numbers. 19 Most of the other numbers which are the subject of the application are direct lines used by staff and consultants of the plaintiff. The evidence is that they are encouraged to give the numbers out to customers, but it appears that the numbers are not printed on their business cards. Mr Kingston estimates that of all customers' calls about 80% come through direct lines. There is also evidence that a fax number which is frequently used provides access to the plaintiff's accounts department. 20 There is surprisingly little evidence before me as to the contractual position of the defendant vis a vis Telstra, and of the plaintiff and the defendant with respect to use of the telephone lines. Mr Braysich has given evidence that the contract with Telstra is for a spectrum system under which there is a fixed obligation to take a specified number of lines over a fixed period of time regardless of usage. There is also evidence, which is contested, as to the arrangement between the parties. It is clear that the contract with Telstra remains with the defendant and it is also clear that the defendant has licensed the use of specified lines to the plaintiff. What is contested is the nature and terms of the contract between the plaintiff and the defendant. 21 There is a basis on this evidence for arguing that the plaintiff is entitled to relief on the ground that as against the defendant it has a better title to the telephone numbers. As presented to me yesterday, the argument was far from robust both with respect to facts and law. As to the facts, the plaintiff has no direct contractual relationship with Telstra and, moreover, the nature of the subscriber's rights against Telstra is very unclear in the present case because of the limited evidence of that contractual relationship. In Rahme's case Young J noted that after 1992 Telstra supplied services under general tariff conditions which expressly stated that the customer has no title, goodwill or interest in any telephone number to be allocated to it. I do not know whether that tariff condition still exists and if it does, whether it applies to the kind of telephone service which is in dispute in this case. 22 As to the law, in my opinion the Rahme decision is distinguishable on a number of grounds. First, it related to a telephone service which was provided prior to the commencement of the general tariff conditions to which I have just referred. Second, the decision relates to the rights of the subscriber. In the present case the defendant, not the plaintiff, is the subscriber. Even if the defendant has proprietary rights the plaintiff may be a mere contractual licensee. Third, the dispute in that case was between the vendor and purchaser of a business in circumstances where the vendor had falsely asserted to Telstra that the business was theirs and that the purchaser had not in fact bought it but was merely their manager. Here the dispute is between the defendant, who at all relevant times had contractual rights as against Telstra, and the plaintiff whose claim to use the lines can only be asserted through or under the defendant. The defendant has not dropped out of the picture. Fourth, the plaintiff claims proprietary rights in respect of twenty-eight lines but it is questionable whether any more than two of them can be said to be associated with the plaintiff's business in the manner described by Young J or in any other way that generates value in the nature of goodwill. 23 If the Rahme case was intended to lay down that where a telephone number becomes associated by customers with the user's business the proprietor of the business has in all cases a proprietary right in the nature of goodwill, I would respectfully doubt that such a wide proposition was correct. The true principle may be more limited. Equity will protect the contractual rights of the subscriber and any licensee of the subscriber by injunction in the usual way, provided there are relevant contractual provisions to enforce. Equity will also restrain an apprehended passing off where the ingredients of the tort and the risk of harm to the plaintiff are made out. In cases of passing off it is sometimes said that the basis of equitable intervention is protection of the goodwill of the plaintiff's business, but that could be misleading if taken to imply that equitable relief is available simply to protect goodwill, regardless of whether grounds of apprehended tortious misconduct are established: Meagher Gummow and Lehane, Equity Doctrines and Remedies, 3rd ed, 1992, pars. 4203 and 4212. 24 Although the plaintiff did not specifically rely on the point in oral submissions, it may be contended that on the evidence there was a reasonable ground to apprehend that the defendant would engage in conduct amounting to passing off or misleading and deceptive conduct. There is some evidence to that effect constituted by the establishment of two companies with names which are misleadingly similar to the plaintiff's name. There is also evidence, all of which is contradicted, about confusion in the minds of the customers of the plaintiff. That evidence may be enough to establish a serious question to be tried, if some other kind of relief was sought. Hamilton J thought it appropriate to grant relief arising out of such concerns on 22 March 1999. But it seems to me that apprehensions of that kind do not justify relief of the absolute kind sought in the present application concerning the telephone numbers. 25 My conclusion is that I doubt, all things considered, that the plaintiff has established that there is a serious question to be tried with respect to the present application; but I need not resolve that matter because I am satisfied that even if there was a serious question to be tried, the plaintiff would fail on balance of convenience. 26 As to balance of convenience, both the plaintiff and the defendant are about to move their business premises. The plaintiff is about to move, or possibly has already moved, to Level 30, 25 Bligh Street. The defendant proposes to move some of its business operations into Level 6, 4 O'Connell Street when the plaintiff departs. The evidence is that Level 6 will be turned into meeting rooms and rooms for the location of the most senior consultants of the defendant. Both parties need telephone lines for the conduct of their businesses, businesses which in both cases rely heavily on telephone contact with customers. 27 The plaintiff submitted that there was no evidence that the defendant needs any additional phone lines, whereas the evidence demonstrated that the plaintiff clearly needs to continue the lines it currently uses. But the evidence shows that as from February 1999 the defendant expected the plaintiff to return the twenty-eight phone lines to it, and can be presumed to have made its business plans on the basis that those lines would be available. Installation of senior consultants on Level 6 implies that phone lines would be needed there to permit them to operate. 28 The plaintiff submitted that the defendant could obtain new telephone lines from Telstra easily as an existing subscriber. There is evidence in Mr Best's affidavit that it would be 'no trouble' for the defendant to add twenty lines to its existing system. I am inclined to doubt that evidence. It appears that the information obtained from Telstra by Mr Best was based on a misdescription of the defendant's telephone system. An affidavit by Mr Braysich tends to confirm that I should be sceptical of Mr Best's evidence. In any event, that evidence does not indicate the cost of establishing new phone lines, the time frame for delivery or whether it would be easy to set up the new lines on Level 6. 29 Having regard to the evidence I cannot reach the conclusion the defendant would be able to satisfy its telephone requirements for Level 6 expeditiously enough to avoid real disruption to its business plans, even assuming that the plaintiff's undertaking as to damages would be sufficient protection to the defendant with respect to the costs of installing new lines. 30 While both the plaintiff and the defendant had business needs with respect to the telephone lines which are in dispute, the difference between their respective positions is that the plaintiff has been on notice since February 1999 that the defendant would expect the return of the lines when the plaintiff vacated the O'Connell Street premises. 31 The relevant facts are these. By letter of 23 June 1999 the plaintiff's solicitor demanded that the telephone numbers be taken with the plaintiff when it moved from the O'Connell Street premises. However, as the defendant's solicitors pointed out in a letter of 24 June 1999, the defendant had given the plaintiff notice by letter of 23 February 1999 that the telephone numbers would be withdrawn from the plaintiff's use. At the hearing before Hamilton J on 19 March 1999 the following occurred, according to the transcript: 'Mr Hartnell submitted that the defendant should not be required to continue to provide the plaintiff with a telephone service because there was no ongoing business relationship. Mr Webb said he had not turned his mind to that issue. His Honour said at the moment he could not see any ground for an order that the defendant should continue to pay the plaintiff's telephone service.' 32 In his reasons for judgment on 22 March 1999, par.10, Hamilton J noted that the plaintiff had informed the Court that it would not regard the cutting off of its telephone services as a breach of the injunction relating to quiet enjoyment, whatever other rights that act might give rise to. 33 Thus, the plaintiff was aware from February of this year that the defendant had a claim with respect to the telephone numbers used in the plaintiff's business. Given the plans for relocation of business activities to which I have referred, it is appropriate for me to infer, in the absence of any timely contest by the plaintiff to the defendant's position, that the defendant made its business plans in reliance on the availability of the telephone lines which are currently used by the plaintiff. The question of use of the telephone lines was raised by the plaintiff very late, after the main part of the relocation plans of the parties must have been well and truly made. I do not find that these facts constituted estoppel or acquiescence or laches in the strict sense, but it seems to me that in the exercise of my discretion with respect to the balance of convenience, those facts are very significant. 34 It is also relevant that the plaintiff has had under way arrangements for the installation of telephone lines at the Bligh Street premises for some months. The evidence indicates that a proposal was made to the plaintiff by Siemens Communication Limited by letter of 29 April 1999. There is also some evidence of an application made on behalf of the plaintiff to Telstra, the evidence being annexed to an affidavit of Mr Perry who is a director of the defendant. 35 In his oral evidence Mr Kingston denied that a facsimile signature, which appears in an annexure to the affidavit and purports to be his signature, was in fact affixed to the relevant telephone application form by him. It is not necessary for me to determine whether Mr Kingston signed that document. It is enough for present purposes to note that the annexure to Mr Perry's affidavit includes a letter from Telstra to 'Melita' with respect to the plaintiff dated 18 May 1999. That evidence confirms that the plaintiff's telephone plans have been under way for some time and well before its letter of 23 June to the defendant. 36 The final matter relevant to balance of convenience is an offer which was made by the defendant's solicitor to the plaintiff's solicitor in writing on 28 June 1999. The offer was made in an effort to limit the legal expenses associated with having an interlocutory argument and was made without admissions. It was that the defendant was willing to consent to an order whereby the plaintiff was given use of five telephone numbers including the principal advertised telephone number and the principal fax number for the period of time which is the earlier of twelve months and the determination of the substantive proceedings in the Supreme Court. The offer was rejected on behalf of the plaintiff. It seems to me, however, that the principal difficulty for the plaintiff would be overcome if the plaintiff was able to take with it the principal advertised lines, and it is this that the offer made available. In the course of argument yesterday I asked the defendant's solicitor whether the offer would remain open and he said that it would remain open, available for acceptance by the defendant today. I indicated to counsel for the plaintiff that I was disposed to take appropriate steps to ensure that the offer would be available for acceptance by the plaintiff, but I was not inclined to make an order, even with the plaintiff's usual undertaking as to damages, compelling the defendant to make those lines available. My reason was that, given the defendant's willingness to make an agreement of the kind outlined, it seemed to me undesirable and unnecessary for an order of the Court to be made. 37 This morning the legal representatives of the parties informed me, after some argument about what occurred yesterday, that their clients were prepared to make an agreement reflecting the substance of the offer in the letter of 28 June 1999. Their agreement means that I can achieve the objective which I articulated yesterday evening of ensuring, if I deny the application, that nonetheless the plaintiff will be able to take advantage of the offer of 28 June. 38 My conclusion therefore is that the plaintiff's application with respect to telephone lines must be denied, but that the Court should note the agreement of the parties along the lines of the offer contained in the letter of 28 June. 39 I have heard argument on the question of costs and I have concluded that the plaintiff should pay the defendant's costs of the application. The parties have now handed up short minutes of orders which I have amended after discussion with the parties. The plaintiff accepts that the short minutes reflect the orders which I outlined yesterday evening and the reasons for judgment which I have just delivered. I initial and date the short minutes for the purposes of identification. I note the matter in par.1 and I make the orders in pars. 2, 3 and 4. * * * * * * * * *

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