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International Entertainment (Aust) Pty Ltd v Churchill

 

[2002] QSC 317

 

SUPREME COURT OF QUEENSLAND

 

PARTIES:

FILE NO/S:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

DELIVERED ON:

11 October 2002

DELIVERED AT:

Brisbane

HEARING DATE:

5 September 2002

JUDGE:

Holmes J

ORDER:

Application allowed.  Order as per reasons.

CATCHWORDS:

EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – INTERLOCUTORY INJUNCTIONS – SERIOUS QUESTION TO BE TRIED – BALANCE OF CONVENIENCE – INJUNCTIONS TO PRESERVE STATUS QUO AND PROPERTY PENDING DETERMINATION OF RIGHTS 

INTELLECTUAL PROPERTY – CONFIDENTIAL INFORMATION – WHAT CONSTITUTES AND GENERALLY

CONTRACT – EMPLOYMENT – RESTRAINT OF TRADE CLAUSE

Applicant seeks interlocutory orders restraining respondent from using confidential information and from acting in breach of restraint of trade clause in contract of employment – whether balance of convenience favours granting of injunction – whether serious question to be tried – whether equitable obligation of confidentiality existed – whether obligation breached – whether information of confidential nature – whether respondents bound by express contractual obligations not to disclose confidential information – whether restraint of trade clause in contract enforceable.

Illegal Contracts Act 1970 (New Zealand) s 8

FAI Insurances v Pioneer Concrete Services Ltd (1987) 15 NSWLR 552, considered
Gilford Motor Company Ltd v Horn [1933] Ch 235, considered
H & R Block v Sannot (1976) 1 NZL 213, considered
Hawker de Havilland v Fernandes (1996) ATPR 41-479, considered
Health Services for Men Pty Ltd v D’Souza (2000) 48 NSWLR 448, considered
Lindner v Murdock’s Garage (1950) 83 CLR 628, considered
Schindler Lifts Australia Pty Ltd v Debelak (1989) 89 ALR 275, considered
Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317, applied

COUNSEL:

Mr Crowe SC with Mr Logan for the applicants
Mr Doyle SC with Mr S Lee for the respondents

SOLICITORS:

Kinneally Miley for the applicants
Lees Marshall Warnick for the respondents

[1] The applicant plaintiffs are in the business of fundraising.  They contract with community organisations such as the Lions Club and the Rotary Club to organise film festivals and magic shows.  Funds are raised by contacting prospective sponsors who pledge money for the purpose of sending an underprivileged child to these events.  The process of contacting potential sponsors is contracted out to “promotional directors”.  The funds raised in any given campaign are divided on a percentage basis between the applicants, the promotional director, and the community organisation.

[2] The first and third respondents have both, in the past, acted as promotional directors for the applicants; the first and second respondents were until recently the directors of the third respondent.  The applicants seek interlocutory orders restraining the three respondents from using what they say is confidential information provided for the purpose of sponsor contact, and restraining the first respondent from acting in breach of a restraint of trade provision contained in the contract under which he was engaged as promotional director.  They also seek orders for the preservation, inspection and delivery of certain documents and material in the possession of the respondents.

The parties’ agreements, and the information provided and produced under them

[3] The first respondent was first engaged by the applicants to conduct campaigns for them as promotional director in 1995, but it was only in 1998 that a written promotion agreement, expressed to be for a five year period, was entered by them.  In the agreement, the first respondent acknowledged that his position was that of an independent contractor.  There was no requirement that the applicants assign any particular amount of campaign work to him.

[4] Under clause 5 of the agreement, the applicants undertook to provide the first respondent with “database information cards” prior to his embarking on a marketing campaign to promote a particular performance.  The applicants had, over a number of years, had developed for them specialist software, including a program called “Campaign Manager”, in order to produce a database of contacts and sales histories.  The data are, in the first instance, obtained from telephone directory entries for business phone numbers and addresses, and are updated with details obtained when contacts are made in the course of campaigns.  Information from the database is transferred onto, as their name suggests, database information cards.

[5] The cards fall into two categories: cold cards (for a business which has no previous history of sponsorship), containing only business name, address and telephone number; and TAP cards which include, importantly, the names of particular contacts at businesses and the history of donation to particular organisations in particular campaigns.  The value of the information on a TAP card is that there is a much better chance of sponsorship if the business in question has previously donated and is contacted again in subsequent years through the individual identified on the card as an appropriate contact.  Generally the applicants conduct only one campaign per year for any given organisation, and contact any particular business only once per campaign.  It is important therefore to maintain a record of the contacts made, not only for future use, but also to ensure a sponsor is not annoyed, and possibly alienated, by being contacted at too frequent intervals.

[6] The applicants provided the “Campaign Manager” program to their promotional directors so that they could update it with information received in the course of the campaigns they ran. For each campaign, the database information cards were sent with floppy disks (“ZIP” disks), one per box of cards.  The promotional director used the database information cards in the course of each marketing campaign to identify potential sponsors.  Mr Havea, a data entry supervisor employed by the second applicant, says that the disks contained the same information as the cards.  The first respondent, on the other hand, says there was no sales history information contained on the disks.  At any rate, the first respondent says that he would, on receipt, add the contents of the disks into his copy of “Campaign Manager”.

[7] The first respondent employed a number of telemarketers to make the necessary telephone contacts.  On contacting the prospective donor, the telemarketer making the call would record information as to any donation on the hard copy of the card, for example, as to the number of tickets sponsored; it would then be given to the promotional director who would update the Campaign Manager program accordingly.  Pursuant to clause 15 of the promotion agreement, the first respondent was obliged to maintain and update all information and computer database records, returning the information to the applicants at the end of the campaign.  He did so by returning disks containing the information gathered, as well as the cards.  The information on the returned disks was then used to update the master database. 

[8] In the course of the campaign the telemarketers used by the first respondent would also use sales sheets (referred to by the first respondent as “worksheets”) to record the name of the business called, its identification number and the amount donated to a particular campaign.  The sales sheets did not contain the details of contact names within an organisation; they did however identify by the notation “©” those calls which were cold calls, as opposed to telephone contacts with previous donors.  The first respondent says that although he had been supplied with some sales sheets by the applicants he did not use them but prepared his own.  At some point he sent a number of such sheets completed by telemarketers to Mr Havea, who responded by telling him he had no use for them. 

[9] Mr Havea did not, in the affidavit which was before the court on the hearing of this matter, address this issue.  However, the applicants have subsequently sought and obtained leave to file a further affidavit from him in which he says he does not recall having had any such conversation, and had never been instructed by the applicants to decline the return of sales sheets.  Mr Havea says that his earlier affidavit, which referred to a telephone call in which he asked the first respondent to return the cards and disk for a particular campaign in May 2002, is erroneous in this respect: it omits to mention that in that conversation he also asked for the return of the sales sheets for the campaign.

[10] Relevantly to the current application, the promotion agreement signed by the first respondent contained the following clauses:

“17.On the termination of this Agreement, or on written request from the Producer the Contractor will return forthwith all Confidential Information.  In exchange for the final payment of commission, the Contractor must sign and deliver to the Producer a statutory declaration on such terms as the Producer requires declaring that this clause has been complied with and that the Contractor acknowledges the ongoing operation and enforceability of clauses.

18.The Contractor must not directly or indirectly disclose to any third party or use at any time during or after the termination of this Agreement any secret or Confidential Information, knowledge or data relating to the sale or promotion of Entertainment Performances or the business of the Producer or its Affiliates or any client or customer of the Producer, whether or not it was obtained acquired or developed by the Contractor, without first obtaining the written consent of the Producer or its affiliates to such disclosure or use and must use his best endeavours to prevent the disclosure or publication of any information concerning the business assets or affairs of the Producer or its Affiliates or of any client for the time being of the Producer or its Affiliates or to any person whatsoever except other employees of the Producer or its Affiliates whose duties require them to possess or have access to such information.

19.The Producer and the Contractor have considered their respective positions and agree with each other that it is fair and reasonable that the Contractor will not without the prior written consent of the Producer:-

(a)carry on or be engaged in or concerned with directly or indirectly whether as proprietor, director, associate director, employer, agent, principal, partner, consultant or in any other capacity whatsoever or otherwise engage in the business of the general type and kind for which the Contractor is engaged by the Producer involving fundraising by non-profit organizations or any other business of a similar nature to the promotion of Entertainment Performances except in the capacity of an employee for period of 5 years from the date of termination of this Agreement in Australia, New Zealand or any other country in which the Producer is currently operating.

20.If a Court should hold that the covenant in the previous clause is or becomes invalid or unenforceable for reason of –

(a)it being too wide geographically, then the geographical area which is held to cause the covenants to bed or become invalid or unenforceable will be reduced by such an extent as is necessary so that the covenants shall continue to be enforceable to their fullest possible extent; or

(b)it being too long in terms of time, the Contractor and the Producer will be taken as repeating the obligation in that clause in a number of several covenants substituting each of 4 years, 3 years, 2 years, 18 months, 1 year and 6 months for 5 years to create each of those covenants.”

[11] “Confidential Information” was defined in the agreement in the following terms:

“Confidential Information”: includes all information whatsoever whether stored in hard copy or on disc or in any other medium whatsoever and whether provided by the Producer or otherwise including:-

(a)all data base information cards, sales sheets, turn over sheets or any other information whatsoever provided by the Producer pertaining to any campaign or Campaign Sponsor;

(a)all manuals, advertising formats, software, client and media contact details, financial models, and marketing research;

(b)all other information whatsoever including but not limited to marketing and other information, know-how, ideas, techniques, processes, routines, applications and other information which refers to the promotion or sale of Entertainment Performances; and

(c)trade secrets, knowledge, data or other information which relate to the promotion or sale of Entertainment Performances.”

[12] The first respondent asserts that, contrary to what appears in the promotion agreement, it was the third respondent which undertook most of the campaigns as promotional director, while he or his wife performed the necessary work as its employees.  From about 2000 the applicants began entering tripartite fundraising agreements in respect of specific campaigns, with the various charitable organisations on the one hand, and the promotional director on the other.  According to the first respondent, it was the third respondent which entered those agreements; and certainly in the agreements which are in evidence the third respondent is named as “promotional director”.  The applicants say, however, that it was merely acting as the first respondent’s agent in entering the agreements, under the umbrella of the promotion agreement with him. 

[13] The fundraising agreements contained the following provisions about confidential information:

“For the purposes of this clause “Confidential Information” includes all information whatsoever relating to the Fundraising Performance or other fundraising activities of the Producers or its business activities whether stored in hard copy or on disc or in any other medium whatsoever and whether provided by the Producer or developed or changed in the course of or in connection with the Fundraising Performance by any party or otherwise including without limitation all data base information cards, sales sheets, turn over sheets, referral sheets, contracts or any manuals, advertising formats, software, client and media contact details, financial models, marketing research, or routines.

Ownership of all Confidential Information remains the sole property of the Producer and with all copies must be returned by all parties on conclusion of each series of fundraising performance or on termination of this Agreement whichever is the first to occur.  The Sponsor and Promotional Director must sign a statutory declaration on request of the Producer confirming the return of all Confidential Information.

The Sponsor and Promotional Director must not directly or indirectly disclose to any third party or use other than for the purpose of the Fundraising Performance) at any time during or after the termination of this Agreement any of the Confidential Information, any other secret or the business of the Producer or its clients or customers.”

The first respondent’s resignation and his activities thereafter

[14] On 28 March 2002 the first respondent advised the applicants by facsimile of his “resignation as an independent contractor”.  He effectively ceased work on 14 May 2002, when he delivered the keys to the office he had used as the applicants’ promotional director.  The first respondent says that subject to some minor exceptions, he had sent all cards with new information on them from the campaigns he and his wife had worked on back to the applicants’ Auckland office.  After he resigned he also forwarded a large box of worksheets to the applicants.

[15] Mr Havea says that cards were forwarded to the first respondent for campaigns involving the Bendigo, Hervey Bay, Sunshine Coast, Toowoomba and Brisbane areas in 2001, and campaigns for the Townsville area in January 2002.  The respondent had failed to return some 60,000 cards.  In February 2002 he telephoned the first respondent and asked him for the cards not returned from a campaign on the Sunshine Coast.  The first respondent told him that he had sent back all of the sales cards but had destroyed the cold cards, which accounted for the 16,386 cards missing.  However, Mr Havea, upon counting the amounts recorded on the returned sales cards, found that there was a shortfall of $90,098.50 not recorded on them as compared with the amount banked in that campaign; the inference being that the missing funds were recorded on unreturned cards which would have the donation history on them.  A similar significant shortfall appeared in respect of cards provided for the Townsville campaign and the Brisbane campaign.  No cards at all were returned from the campaign in Bendigo.

[16]  Mr Havea says that in April and May 2002 he made a number of telephone calls to the first respondent requesting him to return the cards, disk and (as he adds now in his later affidavit) sales sheets for the Brisbane campaign.  The Brisbane cards were eventually returned, in May, but the disk has not been sent.  The first respondent says that in the case of the Hervey Bay and Townsville campaigns monies had been received after the sales cards had been returned to the applicants.  Cards from the Bendigo campaign were returned by his solicitors on 22 July 2002.

[17] Mr Cotter, a director of the first applicant, says that the first respondent, at the time of his resignation, informed him that he was currently running a campaign for the Police Citizens Youth Club and intended to undertake telemarketing activities.  The first respondent, on the other hand, says that he told Mr Cotter that he was running a business supporters’ membership campaign for the Police Citizens’ Youth Club, which had nothing to do with film festivals and magic shows.  As to other activities, he says that the third respondent has this year conducted campaigns in the nature of film festivals in Brisbane, Sydney, the Gold Coast and Maroochydore.  Specifically, it had undertaken promotion of a “movie day” for the Maroochydore Lions Club, is presently undertaking a similar campaign for the Brisbane West Rotary Club, and has very recently started telemarketing for a similar event for the Liverpool West Rotary club in Sydney.  It has not undertaken work in connection with magic shows. And he says, he is merely the employee of the third respondent, and has been since that company was registered in February 1997.  On 26 August 2002 he resigned as director of the third respondent leaving his wife, the second respondent, as its sole director.

The applicants’ investigations

[18] Individuals currently working in the applicants’ campaigns have complained that previous donors they have telephoned have said they had already been asked, recently, to donate.  Mr James McGuire worked in July 2002, seeking sponsorship for a magic show on behalf of Golden Valley Keperra and Brisbane McGregor Lions Club.  He had used a TAP card to ring a contact in a firm of engineers.  That person advised that the business had already been contacted by someone who reminded her that last year the business had sponsored 12 children.  As a result of this earlier call, the business had actually made out a cheque to the Brisbane West Rotary Club for 10 children to be sponsored.  Another contact responded similarly, saying that she had been previously telephoned and reminded that last year her business had sponsored three children, with a request that they sponsor to the same level again in the current year.  Similarly, a promotional director for the applicants in Sydney says that sponsors approached by his staff have told them of recent donations to the Rotary Club of Liverpool for a children’s film festival.

[19] In July 2002 a private investigator, Mr Schafferius, acting on the applicants’ instructions, obtained employment as a telemarketer with the third respondent for a period of about a fortnight.  During that time the third respondent was running two campaigns: one on behalf of the Police Citizens Youth Club, and another on behalf of the West Brisbane Rotary Club.  Mr Schafferius worked on the former campaign, beginning by making cold calls. However, while he was on a short induction course he was shown a card referred to as a “TAP” card, which he was told was relevant to businesses which had donated money previously.  He asked where the information on the card came from, and was informed by his instructor that the first respondent had a database of supporters built up over his time in the industry.  In the course of his employment Mr Schafferius made notes of the details contained on some TAP cards and photocopied others.  The details he has taken as to name and address of donor, amount of donation and organisation donated to, correspond in each case with TAP cards held by the applicants, except for this: the applicants’ cards date back to 1998 while those used in the third respondent’s business commence at 2000.  Mr Schafferius says he frequently heard other telemarketers in the course of telephone calls referring to previous assistance given.

[20] A similar approach was taken by an investigator working at the third respondent’s office, run by the second respondent, at Alexandria in Sydney.  Mr Marshall worked on a campaign for the Rotary Club of Liverpool West.  Like Mr Schafferius, he copied some cards, and reports hearing other marketers thanking donors for their past support.  Again, the cards copied by him correspond with the applicants’ TAP cards, with the difference that the details on the former cards commence from the year 2000 rather than 1998.

[21] On 18 July 2002, a private inquiry agent took possession of the contents of a rubbish bin used by the first and second respondents.  There is some debate about whether the bin was on the footpath at the time the contents were taken or on the first and second respondents’ driveway.  I do not propose to resolve it.  Mr Williams, the investigator, found a number of pieces of paper and cards as well as computer disks bearing the name “Rotary Club”.  Mr Cotter has examined the documents and identified them as cards produced by the applicants including a batch which had had the words added to the last card “done 11/4”.  The sheets of paper had information identical to that put on to cards by the applicants with again the word “done” written on the back of bundles.  The data contained on the sheets cover, according to Mr Cotter, the years 1998 to 2002.  The information on the cards ranged over the years 1997 to 2001.  There was also a bundle of daily sales sheets produced by the applicants and some other material including lists of business names and the “pitch” used with a TAP card for a particular campaign undertaken by the applicants.  The disks were ZIP disks with labels referring to Campaign Manager.  A computer consultant who examined them established that the files on them had been created at various times between December 2000 and March 2002.  Some had been modified as recently as March 2002.

[22] Ms Marlana Feige, an articled clerk in the employ of the applicants’ solicitors, was given the unenviable job of sorting the cards allegedly retrieved from the bin.  The first group she assembled was TAP cards, which she divided into subcategories of cards on which contact details in handwriting had been added, cards in respect of which there was a notation as to a call but without further contact details, and cards as to which there was no handwriting at all.  The second category was cold cards, which had neither a contact name nor a sales history.  Again these were divided into subcategories of those in respect of which there was handwritten information as to contact details, cards on which there was a note to show a call had been made, without further detail, and those without any such note.  A similar exercise was carried out with the information on A4 sheets.  Ms Feige found in one box piles of cards with handwritten details of a name and date, for example, “done 6/7 Wendy”.  Some of the details gave also the year indicating that they had been “done” in April or May 2002.  There were 57,383 cards in all.  Ms Feige classified them as follows:

7,560 “TAP – New Info”;
4,083 “TAP – No New Info – Called”;
28,802 “TAP – No New Info – Not Called”;
6 “TAP – Done”
3,139 “Cold – New Info”;
4,314 “Cold – No New Info – Called;
9,485 “Cold – No New Info – Not Called”.

[23] On 19 July 2002, the applicants’ solicitors wrote to the first respondent demanding the return of the applicants’ material in his possession. On 22 July 2002 the first respondent’s solicitors replied, advising that he did not hold any cards for the Sunshine Coast campaign for the Noosa Rotary Club, all cards having been returned or destroyed.  Some 3,200 cards relating to the Bendigo campaign for the Lions Club of Bendigo were returned to the applicants’ solicitor.

The first respondent’s explanation

[24] The first respondent has asserted that all cards with new information on them from the campaigns that he worked on were sent back to the applicants; those which had no new information recorded on them in the course of the campaign were discarded.  That could occur when cards were not used at all for a call because they had been sent twice, or because of lack of time, or because the card related to individuals out of the relevant area.  He says that staff of the applicant asked that cards without new information be thrown away.  Similarly ZIP disks were thrown out; the only disks returned were those that now contained information updated during the course of the campaign.

[25] As to the documents found in his rubbish bin, the applicant says that one set of cards consisted of duplicates.  Others were cards with no new information which he had forgotten about.  He denies that cards containing data handwritten across the bottom of them for the Queensland Police Citizens Youth Welfare Association campaign in 2002 came from his bin, since he claims he returned all such cards to Mr Cameron Maher on behalf of the applicants.  As to the A4 sheets of paper with identical information to that contained on cards, he says that they were forwarded to him with a note by Mr Eugene McCarthy, a director of the applicants, in June 2002 after a conversation in which Mr McCarthy had talked about getting “the old team back together again”.  The sheets were, according to the first respondent, accompanied by a note from Mr McCarthy which he has, unfortunately, mislaid.  Mr McCarthy denies having sent them.  In addition, according to the first respondent, there was a small number of worksheets which he had overlooked previously.  Although Mr Havea had told him not to send his worksheets to the applicants, he had after his resignation returned the large box already referred to. He denies having copied any contact names from information supplied by the applicants or derived while working on campaigns with them. 

[26] The first respondent says that in 2001 a staff member of the third respondent would enter details of telemarketers’ worksheets into a computer software program called “File Maker”; those sheets included (as an affidavit filed after the hearing makes clear) sales sheets produced in the previous year.  The third respondent had also obtained a program “Australia On Disk” which contained the details of all businesses listed in the White Pages.  The program is designed for telemarketers.  The third respondent’s TAP cards were produced from the combination of the Australia On Disk program with the information from worksheets entered from 2001 together with information generated by telemarketers employed by the third respondent since May 2002. 

[27] However, Mr Cotter has noted that some of the cards copied from the third respondent’s records by Mr Schafferius contain certain details which cannot be found in the Australia On Disk database.  Some business names which appear in both the applicants’ and the third respondent’s cards are not to be found in the Australia On Disk database, or appear there but are recorded in different terms; and the names of particular individuals as contacts do not appear on that database.  More tellingly, other errors or eccentricities of recording on the applicants’ cards, which do not appear on the Australia On Disk database, are replicated on the third respondent’s cards.  For example, a typographical error in the spelling of “Milton” now appears on both the applicants’ and the third respondent’s databases as “Milotn”. 

Restraint of trade – the applicants’ arguments

[28] The applicants rely on the restraint of trade clause in clause 19 of the promotion agreement, which, they say, is a reasonable restraint.  In setting that restraint they had, it is argued, a legitimate interest in protecting their confidential information, goodwill, reputation and client base.  They had provided large amounts of confidential information to the third respondent, who had been contracted to them for a long period and involved in many campaigns.  He had a senior position and was in close contact with service organisations.  It is of some significance, they contend, that clause 19 states the agreement of the parties that the restraint is “fair and reasonable”.   

[29] The applicants suggest that if necessary the restraint can be read down by virtue of clause 20 to a period of two years, restraining the first respondent from operating within Australia. Section 8 of the New Zealand Illegal Contracts Act 1970 permits modification of a restraint of trade clause which would otherwise be unreasonable, and there are a number of reasons for contending that New Zealand law is the proper law of the contract.

[30] The first respondent, the applicants assert, has, in his activities with the third respondent, breached the restraint of trade provision.  Mr Crowe SC, who appeared for the applicants argued, although not with great energy, that the words “except in the capacity of an employee” in clause 9 of the promotion agreement qualify only the last of the activities referred to in the clause, that is “any other business of a similar nature to the promotion of entertainment performances”.  Thus the first respondent would have no exemption from compliance in respect of entertainment performances, a term which is defined as including magic shows and film festivals.  That seems to me a most improbable reading.  But perhaps with more force, the applicants contended that the first respondent’s resignation as director did not, in any event, reduce his status to that of a mere employee, because he was in reality in effective control of the company.  They rely on Gilford Motor Company Ltd v Horn[1]; H & R Block v Sannot[2]; Hawker de Havilland v Fernandes[3] for the proposition that the effect of the covenant could not be avoided by carrying on business under a limited company which was a mere veil for the covenantor’s activities, or by using a nominee.

[31] The order sought was in the following terms:

“Until the determination of these proceedings or earlier order the first defendant be restrained from being engaged in or concerned with directly or indirectly, whether as proprietor, director, associate director, employer, agent, principal, partner, consultant or any other capacity whatsoever in the business of the general type and kind in which the plaintiffs are engaged involving fundraising by non-profit organisations EXCEPT in respect of the promotion of magic shows and film festivals conducted in the State of Queensland or in the Sydney metropolitan area.”

The order as framed, Mr Crowe argued, did no more than preserve the status quo.  It enabled the respondents to continue in their current business activities in Queensland and Sydney, but prevented them from expanding their operations.

Restraint of trade - the respondents’ arguments

[32] Mr Doyle SC, for the respondents, said that the first respondent was doing no more than act in the capacity of an employee, which was the subject of a specific exemption from clause 19 of the promotion agreement.  But the clause, in any event, was unreasonable and would not be enforced.  It purported to preclude the first respondent from competing for five years while giving him no assurance of work at the same time.  There was no evidence before the court as to what New Zealand law was, and foreign law being a question of fact, there was nothing upon which the court could act in respect of Mr Crowe’s suggestion of modification under the Illegal Contracts Act (NZ).

[33] Clause 19, Mr Doyle submitted, should be read as confined to the promotion of entertainment performances (defined as involving magic shows and film festivals).  If it were to be read more widely it would be excessive, because it would extend beyond the applicants’ actual activities; and they could point to no commercial interest in requiring such a restraint.  The order sought by the applicants would, he argued, have the effect of precluding the first respondent from carrying on the business supporters’ membership projects he had engaged in, although there was no element of competition with the applicants in those activities.  (In reply, Mr Crowe sought to clarify matters, suggesting a further amendment to the proposed order by adding to the reference to “business of the general type and kind in which the plaintiffs are engaged involving fundraising by non-profit organisations” the words “being the promotion of magic shows and film festivals” to make it clear that it was only activities of that type with which the order was concerned.) 

[34] As to the balance of convenience, Mr Doyle argued it would be extremely difficult to assess the respondents’ damages, were an injunction to be granted precluding the first respondent from carrying out the campaign work.  On the other hand, it would assist the applicants, should they ultimately succeed, in assessing damages if the first respondent were to continue in his activities, because the extent of any profit could then be established.

Restraint of trade - conclusions

[35] It will, of course, fall to the applicants to establish that the circumstances of its arrangements with the first respondent justify the restraint[4].  But there are, I think, serious questions to be tried in respect of whether the restraint of trade clause is enforceable; whether, if not, it can be modified using the provisions in the New Zealand legislation; and whether, in truth, the first respondent has acted and continues to act in a capacity which is more than that of an employee with the company being his “alter ego”, as the situation was described in the authorities referred to by Mr Crowe. 

[36] But the very existence of the questions I have identified means that the applicants’ prospects of success are far from assured; I would not describe its case as strong.  That is a factor which may be taken into account in assessing the balance of the convenience.  Another matter which weighs against a granting of the order sought is the uncertainty of its effect.  While it has been drafted with the best of intentions, so as to avoid too onerous an effect on the first respondent in earning his living as he has done for several years, it would preclude him in its present form from working as an employee in the promotion of magic shows and film festivals except in Queensland or in the Sydney area.  That seems to me impermissible because it goes beyond the terms of the original clause, which specifically excluded from any restraint work undertaken by him in the capacity of employee.  But any attempt to try and amend the order to permit him to work as an employee will lead into the very controversy which will have to be determined on the facts at trial in this case; that is, whether the role he performs in relation to the third respondent is in truth that of employee. 

“It is in general undesirable so to frame an injunction that the question of whether a breach has occurred is likely to be very debatable until settled by an order made in contempt proceedings.”[5]

Given the live question here as to whether what the first respondent is doing goes beyond the bounds of merely acting as an employee, and the difficulty of framing an order which would somehow circle around that question before determination of the issue at trial, I conclude that the balance of convenience is against the making of any such order.

Contractual and equitable obligations of confidence – the applicants’ arguments

[37] The applicants rely on the contractual obligation of the first respondent under the promotion agreement, and of the third respondent under the fundraising agreements it had entered, to return and not to “directly or indirectly disclose to any third party or use” confidential information as defined in the respective agreements. It is to be noted, however, that there is no pleading in the statement of claim of any obligation arising under the fundraising agreement.

[38] In addition the applicants rely on an equitable obligation of confidence.  The information which they say is confidential consists of the client cards, sales sheets, zip disks and Campaign Manager software.  All hold valuable information not available in the public domain, in the form of contact names, mobile phone numbers and contribution history.  It was provided in circumstances importing an obligation of confidence: the promotion agreement and the fund raising agreements included in their definition of confidential information “data base information cards, sale sheets and turnover sheets”, and the information was required to be returned at the end of each campaign. 

[39] There was evidence of breach, on the applicants’ argument, in the form of Mr Havea’s affidavit as to the cards not returned, the material recovered from the first and second respondent’s rubbish bin and the evidence from the private inquiry agents as to use of information on cards.  The explanation that the respondents’ cards are generated from the Australia On Disk program is, the applicants say, unconvincing.  The suggestion that further information was obtained from the sales sheets does not provide an explanation, because they do not give details of address or contact number.  In any event the information on the sales sheets was confidential information belonging to the applicants, whether or not they were prepared for the third respondent; and it was not to the point that the third respondent was an independent contractor.  The information remained subject to the obligation of confidence.  In addition to there being a serious question to be tried as to the first respondent’s breach of his obligation of confidence, there was, the applicants argued, a serious question as to breaches by the second and third respondents on the basis that they were actively and knowingly involved in the same conduct.

[40] As to the balance of convenience, Mr Crowe pointed out that whereas the applicants were substantial companies, the third respondent was a three dollar company.  There was nothing to indicate that any of the respondents could meet an award of damages.  Damages would not in any event be an adequate remedy, because of the difficulty of determining what loss had actually been caused by the respondents’ conduct. It was open to the respondents, if restraining orders were made, to carry on a fundraising business using details from sources other than the applicants’ records.

Contractual and equitable obligations of confidence – the respondents’ arguments

[41] Mr Doyle SC, for the respondents, said that the definition of confidential information contained in the promotion agreement was so broad as to be unenforceable.  The respondents did not presently have in their possession the Campaign Manager software, cold cards or TAP cards.  The sales sheets were documents generated by the third respondent as an independent contractor in the course of its business.  It was under no obligation as employee; there was no implied term of its contract with the applicants pleaded which would give rise to any duty to provide the sales sheets; and there was no pleading of any fiduciary relationship. 

[42] The information itself was not so highly confidential as to warrant the intervention of equity.  There had been an instruction received from the applicants that they did not wish the sales sheets returned to them.  Much of the information on the sales sheets could be gleaned from telephone directories, the internet, and advertisements thanking sponsors, placed by charities in newspapers and magazines.  The information on the sales sheets was not supplied to the respondents by or on behalf of the applicants but rather by the sponsors themselves.  It did not rise to the level of a trade secret.

[43] As to the balance of convenience, Mr Doyle said that if the respondents were precluded from using the information from sales sheets it would be extremely difficult for them to quantify their loss; but they had on the other hand undertaken to keep accounts pending trial which would assist the applicants in establishing what sales and profit the respondents had made.  The information from sales sheets had been merged with information from Australia On Disk and from the respondents’ telemarketers’ activities since May 2002.  It would be impossible for the respondents to use their database if they were restrained from using information from the sales sheets.  They would effectively have to start from scratch with a new database.  Damages were an adequate remedy, particularly having regard to the low level of confidentiality of the information.

Contractual and equitable obligations of confidence - conclusions

[44] As to the claim that the first and third respondents are bound by express contractual obligations not to disclose confidential information, Mr Doyle is correct, in my view, in his submission that the definition of confidential information in the promotion agreement is far too wide to be enforceable.  There is some doubt, too, as to whether it can readily be severed. The applicants have not sought in the statement of claim to rely on the fundraising agreements or the definitions of confidential information contained in them.  That is not to say, however, that the references to confidential information in those agreements cannot be relied on by the applicants as indicative of the importance attached by the applicants to information such as the cards and the sales sheets. But on the whole, I do not think that the case for breach of a contractual requirement of confidence, as presently pleaded, is strong.

[45] But the applicants are, in my view, in a strong position in arguing that the information in the TAP cards was confidential information.  It met the tests proposed by Kirby P in Wright v Gasweld Pty Ltd[6]Skill and effort was expended to acquire it. It was guarded by the applicants and was not obtainable by outsiders.  It was made plain to contractors that it was regarded as confidential and it was only those in the relatively senior position of promotional manager who were permitted, by virtue of their position, to share it.  The fact that a particular contact existed within a sponsor business and the history of previous donations and their amounts was not publicly available information, nor was it trivial.  It was crucial to the applicants’ activities and their profitability. 

[46] I will not dwell on this aspect, but the points made by Mr Cotter as to the resemblances between the applicants’ TAP cards and those now created by the third respondent seem to me to indicate that there is a very strong case for the applicants that the respondents have made use of that information. However, the respondents deny that is the case.  Since they maintain that they have made no use of the information from the cards, they are hardly in a position to argue that there is any  inconvenience to them in being restrained from such use.  There is every reason to make an order in respect of the cards, and the associated software supplied to the first respondent.

[47] The position in respect of the sales sheets is somewhat more complex. The information on them for the most part emanated from the applicants, in that it came from the cards provided to the first respondent pursuant to the promotional agreement.  Those details derived from the applicants’ cards were the name of the businesses contacted and the relevant campaign, with the additional notations indicating “cold” calls. Those notations would serve (by their absence) to identify those businesses which had previously been called, but would not assist as to whether they had any history of donating. (I should say at this point that I do not think it necessarily defeats the claim to a confidential quality that the applicants may not have pressed for the return of the sales sheets or even suggested they did not wish their return.  It does not follow that the information on them was not prized.)

[48] But so far as the sales sheets contained details sourced from the cards, that information does not seem to me of sufficient importance or inaccessibility to give it the necessary quality of confidential information.  It is arguable, however, that the further information recorded by the employees of the third respondent as to the donation made in response to their calls was in fact recorded by them as agents for the applicants; although that is not presently pleaded. 

[49] While I accept that a serious question may well emerge to be tried in respect of these aspects I do not think there is at present a strong case in respect of the information on the sales sheets. The only item of real significance is as to previous donation. It remains to be established by the applicants that that detail was recorded by the third respondent’s employees in such a capacity as to make it subject to an obligation of confidence.  The balance of convenience, given the uncertainty of that case, weighs against preventing the respondents from using the information from the sales sheets and thus from making use of their database.  If it were the case that the database was derived from the applicants’ cards, one would not shrink from that result; but as matters stand the respondents assert that it is only from the sales sheets and other information of their own that their database is derived.  In those circumstances I do not think an injunction should issue in respect of the sales sheet.

The other orders sought

[50] The applicants also sought orders requiring the respondents to make affidavits setting out all documents or information in effect derived from the applicants’ records or the sales sheets or worksheets completed by the respondents’ employees, with details of how they came into the respondents’ possession and details of any deletion or destruction of information. Under the orders proposed, all such documents were to be delivered to the applicants’ solicitors. Other orders, restraining the respondents from disposing of computers and deleting information on the hard drive of their computers, and permitting inspection of the respondents’ computers by an expert on the applicants’ behalf, were also sought.

[51] Mr Doyle pointed out that the first respondent had already sworn that he had no documents of the applicants, and that his information came entirely from the sales sheets and the third respondent’s activities subsequent to his resignation.  There was, therefore, no purpose in the first of the orders sought; and it would be onerous to require details to be given of every document altered, deleted or destroyed, given the nature of the business, which produced constant updating of information.  Delivery of such documents would be impossible because of the merging of the sales sheet information with the programs used by the respondents. It was equally impracticable to require the respondents to refrain from deleting information, given that constant amendment was part of the business. 

[52] The respondents gave undertakings to the court to record all transactions and not to alter any record except in the ordinary course of business.  They also undertook to permit access to their computers by an independent computer expert on behalf of the applicants, and to provide all the sales information contained on the third respondent’s File Maker database on certain conditions restricting access to the information.  In those circumstances, and given the view I have taken as to the strength of the case in relation to the sales sheets, I do not think any further orders should be made of the kind proposed by the applicants. 

The “clean  hands” argument

[53] Finally, Mr Doyle argued that the respondents should be denied any exercise of the court’s discretion in their favour because they do not come with clean hands.  He referred to the fact that the private investigators used by the applicants obtained employment with the third respondent under pretext, and that another private investigator trespassed in order to obtain the first and second respondent’s rubbish bin.  There were also some matters in the evidence relied on by the applicants which it is suggested are not true.  But there is, in my view, no connection shown between the complaints of the applicants’ conduct and the breaches alleged against the respondents which would warrant refusal of relief to the applicants[7].

Proposed order

[54] Subject to submissions as to the detail of the order, I propose to order that until the determination of these proceedings or earlier order, the first, second and third respondents be restrained from directly or indirectly disclosing to any third party and from using the following information (or any of it):

(a)the names of sponsors;

(b)the addresses of sponsors;

(c)the phone numbers of sponsors;

(d)the contact name within a sponsor organisation;

(e)the date of a donation by a sponsor;

(f)the amount of a donation by a sponsor; and

(g)the service organisation in whose campaign the donation was made

being information extracted from cold cards or TAP cards or software provided by the applicants to the respondents (or any of them) in the period January 1998 until 14 May 2002 and/or from TAP cards or cold cards or software in respect of which further information as referred to above was added by employees or agents of the respondents or any of them during the said period.

[55] I will hear the parties as to costs.

Footnotes

[1] [1933] Ch 235.

[2] (1976) 1 NZL 213.

[3] (1996) ATPR 41 479.

[4] Lindner v Murdock’s Garage (1950) 83 CLR 628 at 644.

[5] Schindler Lifts Australia Pty Ltd v Debelak (1989) 89 ALR 275 at p 318; Health Services for Men Pty Ltd v D ‘Souza (2000) 48 NSWLR 448 at 461.

[6] (1991) 22 NSWLR 317 at 334.

[7] FAI Insurances v Pioneer Concrete Services Ltd (1987) 15 NSWLR 552.

Close

Editorial Notes

  • Published Case Name:

    International Entertainment (Aust) Pty Ltd & Anor v Churchill & Ors

  • Shortened Case Name:

    International Entertainment (Aust) Pty Ltd v Churchill

  • MNC:

    [2002] QSC 317

  • Court:

    QSC

  • Judge(s):

    Holmes J

  • Date:

    11 Oct 2002

Litigation History

No Litigation History

Appeal Status

No Status