Tyco (Australia) Pty Ltd T/AS ADT Security v Signature Security Group Pty Ltd

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 779 of 2009

BETWEEN: TYCO (AUSTRALIA) PTY LTD TRADING AS ADT SECURITY

JUDGE: PERRAM J DATE: 30 MAY 2011 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 These proceedings are listed for trial today. I was informed from the bar table that, insofar as the first, fourth, fifth, sixth and seventh respondents are concerned, the proceedings have been compromised and in a number of cases discontinuances filed. I was also informed that the cross-claim had been settled. The proceedings, however, remain on foot between the applicant and the second and third respondents - Simecorp Pty Ltd ('Simecorp') and Mr Salazar respectively. When the matter was called on there was no appearance for Mr Salazar nor for Simecorp and the matter was called outside three times. There is, on the Court file, a notice of solicitor ceasing to act, filed by Gibsons Solicitors Pty Ltd, who had formerly acted for Simecorp and Mr Salazar. That notice of ceasing to act was filed on 27 May 2011. 2 There is no doubt that the second and third respondents are fully cognisant of the fact that the matter is proceeding to a trial this morning. Upon there being no appearance by those respondents, Ms Rees of counsel, who has appeared throughout these proceedings for the applicant, sought leave to file in court a notice of motion, supported by an affidavit. The notice of motion sought dispensation of the obligation to serve it and pursued an order that the Court give judgment against the second and third respondents, in a nominated sum; that a costs order be made against the second and third respondents; and that permanent injunctions of various kinds be put in place against them as well. 3 The affidavit read in support of the notice of motion was the affidavit of Mr McDonald, who is the solicitor for the applicant. Very briefly, he deposed to there having been regular correspondence between the applicant's solicitor and the second and third respondents' solicitor during the last two months, until a very short time before the end of last week. The flavour of that correspondence, not all of which was read on the application before me, some of it being subject to 'without prejudice' privilege, nevertheless demonstrated what is obvious in any event; namely, that the second and third respondents are more than aware that the matter is proceeding to trial today. 4 Ms Rees seeks judgment under O 35A r 3(2) of the Federal Court Rules. That rule provides that if a respondent is in default, that the Court may: (c) if the proceeding was commenced by an application supported by a statement of claim or the Court has ordered that the proceeding continue on pleadings - give judgment against the respondent for that relief: (i) the applicant appears entitled to on the statement of claim; and (ii) the Court is satisfied it has power to grant; or (d) give judgment or make any other order against the respondent; 5 The provisions of O 35A r 3 marked, at the time of their introduction, a departure from the former requirement that evidence needed to be put before the Court before a judgment of that kind could be given: see, for example, Luna Park Sydney Pty Ltd v Bose [2006] FCA 94 at [17]-[18] per Jacobson J. However, it has been accepted in this Court by a number of judges that the effect of O 35A r 3 is to dispense with that requirement and that it will be sufficient, instead of evidence being put before the Court, that 'on the face of the statement of claim there is a claim for relief sought and that the Court has jurisdiction to grant that relief': Australian Competition and Consumer Commission v 1Cellnet LLC [2005] FCA 856 at [14] per Nicholson J citing Arthur v Vaupotic Investments Pty Ltd [2005] FCA 433 at [3] per Heerey J; see also Luna Park Sydney Pty Ltd v Bose [2006] FCA 94 at [20] per Jacobson J; Wu v Avin Operations Pty Ltd [2006] FCA 36 at [57] per Kenny J; Australian Communications and Media Authority v Mobilegate Ltd A company incorporated in Hong Kong (No.2) [2009] FCA 887 at [19]-[20] per Logan J; Turner; in the Matter of LA Technologies Pty Ltd (in Liquidation) [2009] FCA 805 at [13] per Gordon J. 6 The first requirement of O 35A r 3(2) is that the second and third respondent be 'in default'. Rule 2(2) defines the concept of 'in default', insofar as a respondent is concerned (there being a different definition in the case of an applicant). Ms Rees put the applicant's case on the basis that the second and third respondents were in default on subclause (h), which provides: 'the respondent fails to defend the proceeding with due diligence'. 7 Rule 2(2) does not, in terms, deal with a situation obtaining where a respondent simply fails to attend at trial. However, I accept Ms Rees' submission that a party who fails to attend at the time that a trial is called on is a respondent who has failed to defend the proceeding with due diligence. The settled operation, then, of O 35A r 3(2) requires me to be satisfied that the statement of claim discloses, on its face, a claim for relief and that the Court has jurisdiction to grant that relief. 8 The proceedings before the Court have been on foot for some time and they are, in some ways, of considerable complexity. At the heart of the applicant's claims is the proposition that each of the respondents misrepresented to the applicant's customers that the applicant was no longer doing business and that the respondents were taking that business over; also, that the respondents had either been involved in the misappropriation of, or had come into the receipt of, a list of customers which, in truth, belonged to the applicant. Those two sets of claims are, of course, not the same, but it can be seen that they are interconnected. There were, prior to the commencement of the trial, a number of other parties to the proceedings. Those parties are no longer before the Court. 9 The claim against Mr Salazar and his company, Simecorp, is of the nature just outlined. The first part of the claim contends that Mr Salazar and Simecorp made a number of misrepresentations to the applicant's customers which were, in their nature, likely to lead a customer to the conclusion that the applicant was no longer providing its services. So, for example, the pleading alleges in paragraph 9.3 that Simecorp represented to the applicant's customers that it had installed a security system for ADT Security's customers at a time when Mr Salazar worked for ADT Security, the respondent thereby became aware of the customers' details and that the respondent had since left ADT Security and was working with Signature Security Group Pty Ltd (formerly the first respondent, against whom the proceedings have now been brought to an end). 10 The material attached to the amended statement of claim in the form of a table (picked up by reference in the further amended statement of claim) sets out in considerable detail the manner in which the applicant was proposing to prove their claim. It does so by setting out in a tabular form accounts of conversations which took place between staff of the applicant and various customers who were ringing the applicant in a state of confusion as to the contacts which had been made with them by the second and third respondents. That confusion, so it was said, arose because those customers were naturally concerned about their privacy and were unclear as to how their confidential information had come into the possession of someone like Mr Salazar. The statement of claim alleges that the representations made were misleading and deceptive and that, in consequence, trade or custom was diverted away from the applicant and towards Mr Salazar and Simecorp. 11 The second part of the pleading against the second and third respondents relates to a customer list. The pleading alleges that the customer list belonged to the applicant and was wrongly misappropriated from it by a Mr Michael Starvaggi or a Mr Shaun Warner. Mr Salazar and Simecorp were formerly engaged by the applicant as dealers of their business products and, whilst that relationship was extant, it was governed by certain contractual provisions which erected confidentiality arrangements. The pleading alleges that Mr Salazar and Simecorp came into the possession of the missing list and that, by reason of their knowledge of the applicant's business, they would have been well aware of what the list was and of its confidential nature. 12 The pleading goes on to allege that thereafter, by using the customer list, Mr Salazar and Simecorp were engaged in a breach of confidence, being aware of the confidential nature of the material, and also various other causes of action including that they used the list to induce a breach of contract; that there was a breach of trust; that there was a knowing assistance in a breach of trust; and that there was also conversion of the list. On the basis of those allegations, the pleading and the application seek injunctive relief against Mr Salazar and Simecorp, restraining them from informing customers that the first respondent is taking over ADT Security, or ADT Security's customers, and various other injunctions of a similar kind. Also, the applicant seeks damages in the sum of $1,739,643 with interest at $287.42 per day. 13 It will follow from what has been said already that so long as I am satisfied that the statement of claim discloses a claim for relief and that this Court has jurisdiction to make orders giving effect to that relief, then the Court can give judgment under O 35A r 3. I have no doubt that the Court has the power to grant the injunctions sought; to give damages; and to make the orders for costs which are sought, from which it follows that the applicant is entitled to judgment under O 35A r 3. However, the applicant has placed before the Court evidence by which it seeks to quantify the damages to which I have just concluded it is entitled. A better view is probably that it is necessary for evidence of damages to be put before the Court, otherwise all that will result is a judgment without a judgment sum. 14 Ms Rees primarily sought to discharge that obligation by relying upon some expert evidence prepared by a Mr Potter, who is a forensic accountant. Mr Potter made a number of assumptions about the way in which the claim was made and, on the basis of those assumptions and analysing the data to which he had access, reached some conclusions. Very properly, in order to make good the admissibility of Mr Potter's affidavit, Ms Rees read the material upon which Mr Potter's report was based. These were an affidavit of Mr Whelan, three affidavits of Ms Bloye, an affidavit of Mr Califano and an affidavit of Mr Pryde. 15 There was also tendered substantial documentary evidence in the form of exhibits GW1, MEB1, MEB2, MPC1, MPC2 and SP1. The affidavit of Mr Potter of 24 September 2010 was read and his expert report was exhibit TMP1 to that affidavit. 16 The report of Mr Potter assesses the lost profits which the applicant has suffered on two bases: one is a high basis and one is a low basis. On the high basis, Mr Potter assesses the damages, the lost profits caused to the applicant by Simecorp, at $1,668,363 and on a low basis at $1,391,460. He sets out, in extensive detail in his report, how he has arrived at those figures. I do not find it necessary to dwell upon the detail of those calculations, it is sufficient to say that there is nothing on its face about this report, which would lead one to think that its conclusions were in any way suspect. 17 I see no reason to award the lower level of damages, indicated as a possible one by Mr Potter. I therefore accept that the evidence before me justifies an award of damages at the higher level. The evidence of Mr Potter establishes that those damages are $1,668,363 as at the date of his report, which is 24 September 2010. I accept Ms Rees' submission that interest continues to accrue on that sum, in the manner indicated in Mr Potter's report, at the rate of $287.42 per day and that results in a judgment sum as at today of $1,739,643. Accordingly, I accept that there should be a judgment against the second respondent in that sum, together with interest at $287.42 per day thereafter. 18 A case was also put in the pleading against the third respondent, Mr Salazar, that he was knowingly concerned in the conduct of Simecorp in making the representations. Plainly, that is open on the face of the pleading and accordingly it is appropriate to enter judgment against Mr Salazar on the same basis. 19 I make each of the orders sought in the notice of motion in paragraphs 1, 2 and 3. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.