An arguable case on appeal
23 An exceedingly large number of grounds of appeal are included in the Notice of Appeal although it is not likely that they will all ultimately be pursued. For present purposes there is no need to consider them all but a consideration of a few of them will adequately reveal the general nature of the appeal.
24 A central ground of appeal is that the learned trial judge wrongly concluded that the Manual was provided by DCA to Mr Stefanovski and by him to the other appellants. It is submitted by the appellants, and it appears to be correct, that the evidence on this matter was very limited. The only positive evidence (albeit hearsay) appears to have been from a witness for DCA who gave evidence that he had been informed by a third party that the manual had been provided to Mr Stefanovski. Whilst it is alleged that such evidence was obviously hearsay and inadmissible, it does not appear that objection was taken to it at the trial. Nevertheless, Mr Stefanovski gave evidence in the course of the trial that he had not received the Manual and, importantly, he was not cross-examined on that testimony. It is also submitted that there was no evidence that either Ms Clark or ANT Printing had received the Manual or the information in it. There does not appear to be any dispute that there was no direct evidence of the transmission of the information by Mr Stefanovski to Ms Clark or ANT Printing. That said, it may be that the learned trial judge considered that there was sufficient material from which he could infer that the information in the Manual was passed on. There is no need to delve too deeply into this question, it suffices to observe that, by reason of the apparent lack of direct evidence on the topic, the grounds of appeal relating to the insufficiency of evidence surrounding the use to which the Manual and other allegedly confidential information was put are arguable.
25 It is similarly alleged that there was no evidence that the signboards produced by the third appellant were produced using any of the techniques set out in the Manual. Although the trial judge found to the contrary it does not appear that this issue was explored at trial in any great detail. The appellants submitted that, as a result of the manner in which the matter evolved during the course of the trial, there was no direct evidence given on this topic. The absence of direct evidence that DCA's techniques were used by the ARES business is a point which does not appear to be contentious. Again, the determination by the trial judge may have been founded upon a matter of inference but the lack of direct evidence about this significant point discloses that the ground of appeal is, at least, arguable.
26 At trial the learned primary judge was not assisted by a great deal of evidence concerning the confidential quality of the information in the Manual. In order for the information to be "confidential" it would need to be shown that it was in the nature of a secret and that it could not be obtained from other sources; Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37, 49, 50. DCA had asserted at trial that the information contained in the Manual were "trade secrets" or "confidential information" attracting the protection of equity. This was disputed by the appellants. There appears to be a not unreasonable argument to the effect that there was insufficient evidence before the learned trial judge which would have enabled him to conclude that "all" the information in the Manual was of such a nature that it might be described as trade secrets. Certainly, as information which was contractually protected by the terms of the franchise agreement, all of it was entitled to protection from misuse by the erstwhile franchisee. However, that did not render it "confidential" for the purposes of equity such that third parties who had received that information might be restrained from using it. The appellants submit that the learned trial judge treated all of the information as being confidential when there was insufficient evidence to sustain that finding. That submission is, at least, arguable on the material presently before the Court.
27 One unusual matter in this action was that the company, TK Sign Installations, was joined as the fifth respondent in the proceeding after the evidence had closed. At no time were any allegations against TK Sign Installations pleaded and nor were any related allegations against the first and second appellants. In this respect it is submitted by the appellants that the learned trial judge's finding that the first and second appellants were engaged in a "joint venture" or other joint enterprise in relation to the establishment and operation of TK Sign Installations was not open. Again, this argument is not unarguable.
28 Perhaps the grounds of appeal which have most solid foundations relate to the nature of the injunctive relief which was granted against Ms Clark and ANT Printing. In this respect it is apt to recall that in the course of its business DCA, as the franchisor, recovered a percentage of the franchisee's revenue as well as receiving other fees and charges. The case as agitated by DCA was that by reason of the representations by Mr Stefanovski (and perhaps others) it allowed a termination of the franchise agreement with TK Sign Installations. It also alleged that but for the misrepresentations it would have discovered the contraventions of the franchise agreement (and alleged breaches of confidential information) sooner and brought proceedings which would have prevented continuation of the breaches or further breaches. It appears that at trial there was, ultimately, no real dispute as to the quantum of loss caused to DCA by reason of ANT Printing's use of the alleged confidential information in competition to DCA. The uncontested evidence was that by reason of the breaches of the franchise agreement and the alleged misuse of confidential information, the commissions which were paid to DCA by TK Sign Installations, in the first instance, and the subsequent purchaser of the franchise in the second instance, were lower than what they would have been had the confidential information not been misused in ANT Printing's competing business. The trial judge accepted the unchallenged evidence of the appellants' expert as to the quantum of these losses (see paragraphs [103] - [108] of his Honour's principal reasons for judgment.) The damages awarded by the learned trial judge covered periods which represented the losses to the date of trial and, further, losses from the date of trial until the expiration of the contractually agreed period of restraint. The total quantum of those losses was assessed at $58,476.
29 The precise basis for the assessment of the amount of damages is not entirely clear on the face of the trial judge's reasons. During the course of submissions I was not taken to the material which disclosed the basis of the expert's report. However, it did not seem to be contentious that the learned trial judge assessed the loss suffered by DCA as being caused by ANT Printing carrying on business in competition with DCA utilising DCA's confidential information. Mr Sweeney of Counsel for DCA, in effect, acknowledged this in the course of argument (see pages 50 - 51 of the transcript of the hearing on 11 September 2017).
30 On the basis of the above the appellants advance two major grounds of appeal. They are:
(a) First, given the learned trial judge was able to assess the economic loss flowing from the alleged contraventions of the franchise agreement and the alleged breaches of confidential information, it was not possible for his Honour to reach the conclusion that damages were an inadequate remedy for those alleged breaches;
(b) Second, given that the learned trial judge had actually awarded damages to compensate for losses flowing from the breach of confidential information and breach of the franchise agreement, including prospective damages on the assumption that the breaches would continue into the future, there was no warrant for granting an injunction to further restrain the use of any confidential information.
31 In relation to the first matter there is significant force in the submission of the appellants that the conclusion that damages were an inadequate remedy for the alleged breaches of the franchise agreement and misuse of confidential information is inconsistent with the ascertainment and calculation of damages resulting from that conduct. Given that there was uncontested expert evidence as to the financial consequences to DCA from the alleged breaches and that evidence was accepted, the conclusion that damages would not be an adequate remedy would appear to be somewhat fragile. Mr Couper QC for the appellants directed attention to certain paragraphs in the reasons for the second judgment which were to the effect that the learned trial judge was convinced by DCA that the adequacy of an award of damages was to be determined by reference to matters other than the financial or economic consequences of the impugned conduct (see paragraphs 32 and 39 of the second decision of the learned trial judge in Digital Central Australia (Assets) Pty Ltd v Stefanovski (No 2) [2017] FCA 1000). Whilst there is certainly room for debate about how the learned trial judge reached this conclusion, the language used by him, in particular at paragraph 39 of the reasons, seems to suggest that in concluding that damages would not be an adequate remedy, his Honour was not confining his consideration to the economic consequences of the appellant's conduct. There, his Honour said:
39 As I concluded at [120] of the principal judgment, information has a limited "useful life" - 2 years from March 2016. At the conclusion of this period, any "head start" secured by Mr Stefanovski, Ms Clark and ANT Printing will have passed. The respondents are correct in their submission that such success as DCA has enjoyed in demonstrating a misuse of confidential information and a related springboard does not entitle it, in equity, to an order the effect of which would be to prevent competition: Zomojo Pty Ltd v Hurd (No 2) (2012) 299 ALR 621, at [394] - [395]. The foundation for the latter type of relief, and then only for a limited period and otherwise in a limited way, is, as I have already indicated, in statute. Again because of the behaviours and dispositions of Mr Stefanovski and Ms Clark as described in the principal judgment, I do not consider that damages alone are an adequate remedy.
32 The reference in the last sentence to the "behaviours and dispositions of Mr Stefanovski and Ms Clark" tend to suggest that his Honour's consideration of the adequacy of damages went beyond considering whether DCA's losses could be adequately compensated for by an award of damages.
33 The second point arising from the ascertainment of the quantum of damages and the awarding of the same is that a reasonable argument arises that the grant of the injunctions was, in effect, giving DCA double relief. It was submitted by the appellants that, as the learned trial judge ascertained the prospective economic loss suffered by DCA on the hypothesis that the misuse of confidential information would continue to occur and awarded damages on that basis, there was no foundation for granting the injunctions. Those injunctions restrained the appellants from engaging in business which "might" have used the confidential information. (See paragraphs 9 and 15 of the orders of the learned trial judge below). If it is the case that DCA has been compensated by the award of equitable compensation and damages for loss arising from the competition which was consequent upon a breach of the restraint in the franchise agreement and the misuse of the confidential information, it is difficult to see how an injunction which restrains that competition can be justified.
34 A related issue concerns the granting of the injunctions in paragraphs 9, 10 and 15 of the trial judge's orders against the second and third appellants (Ms Clark and ANT Printing Pty Ltd). The relief granted against them was founded upon a conclusion that they were "knowingly concerned" in the conduct of TK Sign Installations which constituted a breach of the good faith obligations in s 6 of the Franchising Code of Conduct and unconscionable conduct within the meaning of s 21 of the Australian Consumer Law. The difficulty here is that in the first set of reasons the learned trial judge had concluded that there was "a disjunct" between the acts of the first, second and third appellants and any entitlement to injunctive relief. In essence, the conduct allegedly giving rise to the relief claimed was conduct amounting to misleading or deceptive conduct. However, that conduct did not cause the occasioning of loss which the granting of the injunctions would avoid. In in this matter the appellants assert that in the second set of reasons his Honour founded the injunctive relief upon a different footing, being that the conduct was unconscionable and contrary to the Franchising Code of Conduct. However, they assert that the "disjunct" which allegedly previously existed was not bridged with the consequence being that no injunction ought to have been granted. Again, this argument is not without foundation.
35 It might be added that whilst the injunction restraining the second and third appellants from misusing DCA's confidential information can be understood on the basis that it was determined that they were in possession of such information, the same cannot be said of the wider business restraint injunctions. Whilst there would be an obvious breach of DCA's rights were Ms Clark and ANT Printing to use DCA's confidential information in a competing business, there is no breach of any such right for Ms Clark and ANT Printing to engage in a competitive business without using that information. In this respect it is not easy to identify the existing right or interest of DCA which the business restraint injunctions (in orders 9, 10 and 15) have been granted to protect.
36 The appellants also assert that the allegations that the first, second and third appellants were persons who were "knowingly concerned" in alleged contraventions by TK Sign Installations of s 21 of the Australian Consumer Law were not pleaded against them. That does not appear to be disputed. In this respect the appellants submit that the first, second and third appellants ought not to be held liable on a cause of action which was not pleaded against them and in respect of which factual allegations additional to those existing in the pleading would have to have been alleged. Again, this submission is not without foundation.
37 Although there were other grounds of appeal asserted by the appellants, it is not necessary to consider them in detail. It suffices to say that on the basis of the grounds identified above, the proposed appeal is not spurious and the arguments made in support of the grounds in the Notice of Appeal are not without merit. In the absence of further explanation some of the grounds appear to have, at least, a moderate chance of success. Nothing in that conclusion should be taken as suggesting that any of these grounds will succeed.
38 In its written submissions DCA asserts that the grounds of appeal lack merit or sufficient prospects. In particular, reliance is placed upon the proposition that the appellants will be required to overturn findings of fact of the trial judge and, indeed, findings in relation to the credibility of witnesses. However, whilst that is so in some circumstances, on a number of key issues the matters in question are issues of law which do not require a Full Court to overturn any finding of fact.
39 Somewhat surprisingly DCA also asserts that the action before the trial judge was run solely on the pleaded case. That submission cannot be accepted. It is apparent that DCA's claim at the end of the trial went well beyond that which was pleaded. Where a matter is brought to trial on the basis of pleadings (as opposed to statements or affidavits), it is the issues which crystallise on the allegations and counter-allegations in those documents which are to found the relief sought. Here, even on the face of the reasons for judgment, it is fairly apparent that the relief granted exceeded that which was agitated for in the pleadings.
40 DCA also submits that the complaint about the injunctive relief necessarily encounters the difficulty that it was granted pursuant to the exercise of the trial judge's discretion. Whilst that may be so, the appellants' argument that the learned trial judge was led into error in granting the injunctions in circumstances where it was inappropriate to do so is clearly open.
41 In relation to DCA's submission that there was no form of double punishment by reason of the grant of the injunction on the one hand and the awarding of damages on the other, its arguments are less than pellucid. As identified above, Mr Sweeney for DCA seemingly accepted that the amount of compensation awarded was reflective of an amount of money equal to the royalties which would be lost by reason of ANT Printing engaging in competition with DCA and utilising the alleged confidential information until August 2018. On the basis of that concession, as I understand it, the injunctions in paragraphs 9, 10 and 15 of his Honour's orders protect DCA from the very loss for which it has been compensated.