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  • Unreported Judgment

Queensland Cosmetic Manufacturers Pty Ltd v Greig

 

[2005] QSC 334

 

SUPREME COURT OF QUEENSLAND

  

CITATION:

Qld Cosmetic Manufacturers P/L v Greig & Ors [2005] QSC 334

PARTIES:

QUEENSLAND COSMETIC MANUFACTURERS PTY LTD (ACN 002 385 122)
(applicant)
v
WILLIAM VICTOR GREIG
(first respondent)
and
PAMELA DAWN GREIG
(second respondent)
and
INLINE COSMETICS PTY LTD (ACN 114 132 035)
(third respondent)
and
KARMA RAE HARDIE
(fourth respondent)
and
CHRISTOPHER LEIGH HARDIE
(fifth respondent)

FILE NO:

BS8759 of 2005

DIVISION:

Trial Division

PROCEEDING:

Application

DELIVERED ON:

17 November 2005

DELIVERED AT:

Supreme Court, Brisbane

HEARING DATE:

3 November 2005

JUDGE:

Wilson J

ORDER:

Application dismissed.

CATCHWORDS:

EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – INTERLOCUTORY INJUNCTIONS – BALANCE OF CONVENIENCE – where applicant had purchased a cosmetics manufacturing business from the company controlled by the first and second respondents – where there was also an assignment of copyright – where allegations of breach of restraint of trade and misuse of confidential information – where applicant sought an injunction - where respondents had offered undertakings designed to limit the potential damage to the applicant while allowing the third respondent to remain in business – whether injunction ought be granted

Fatimi Pty Ltd v Bryan (2004) 59 NSWLR 678, cited

COUNSEL:

DR Cooper SC for the applicant

D Savage SC for the respondent

SOLICITORS:

Quinn & Scattini for the applicant

Damien Bourke & Associates for the respondent

  1. WILSON J: This is an application for an interlocutory injunction restraining the respondents from communicating confidential information of the plaintiff and from acting in breach of a restraint of trade. It was common ground that there is a serious question to be tried as to the respondents’ conduct, and that the issue for determination is whether the balance of convenience favours the making of the orders sought. As I shall explain, the respondent proffered certain undertakings, but the applicant sought more extensive relief: thus the contest is between two alternative interlocutory regimes.
  1. Because the relative strength of the applicant’s case on liability was submitted to be relevant to the balance of convenience, it is necessary to go into the facts relating to liability to some extent.
  1. The first and second respondents (who are husband and wife) were at all material times the directors of Hair Advisory Centre Manufacturing Pty Ltd (“HAC”), a hair and body cosmetic manufacturing company. On 9 October 2003 HAC entered into a contract to sell the business to the applicant for $4,346,178-00. HAC provided vendor finance to the extent of $1,026,178 repayable 2 years after settlement (i.e. on 20 November 2005), interest being payable at the rate of 8% per annum. The contract included a restraint of trade clause (standard condition 13) and a clause requiring the vendor HAC to cause its shareholder and directors to enter into a deed agreeing to be bound by the terms of the restraint.
  1. By a Deed of Restraint made on 20 November 2003 the first and second respondents covenanted jointly and severally –

“not in any manner whatsoever either directly or indirectly [to] be concerned or interested either alone or in partnership with or as manager, servant or agent for any other person, company or corporation in cosmetic manufacturing or any other business of a similar nature within Australia (‘area’) for a period of three (3) years from the date of completion of the contract of sale (period’)…”

  1. The first respondent claimed copyright in a number of formulae used by HAC to manufacture hair and body products. By a deed styled Assignment of Copyright also made on 20 November 2003, in consideration of the applicant completing the contract, he assigned his copyright in the formulae to the applicant.
  1. The fourth and fifth respondents are the daughter and son-in-law of the first and second respondents. The fourth respondent worked for HAC in product development prior to the sale of its business to the applicant. After the sale was settled, she stayed on in the business as an employee of the applicant until she resigned in April 2005. Thereafter she was involved in setting up a rival business, which is now conducted by the third respondent. It was incorporated in May 2005, and commenced business in August 2005 employing a number of persons who formerly worked for the applicant, including the fourth respondent. The fourth and fifth respondents are its directors. The first and second respondent provided funds to help set up the business and appear to have been providing some ongoing financial assistance in the form of direct debits.
  1. On 18 October 2005 the applicant obtained an Anton Piller order on an ex parte application against the respondents. It was executed the next day at the residence of the first and second respondents and at the factory where the third respondent conducts its business. The present application for an interlocutory injunction was filed on 24 October 2005; it came before the Court first on 25 October 2005 when it was adjourned by consent to 3 November 2005 upon various undertakings:

(1) the undertaking of the applicant until further order not to communicate with any of the existing clients of the third respondent;

(2) the undertaking of the solicitors for the applicant Quinn & Scattini by their counsel not to disclose or disseminate to any person any of the information obtained from the execution of the Anton Piller order; and

(3) the undertaking of the respondents until further orders:-

3.1not to communicate the confidential information of the applicant including:-

3.1.1information identified in:-

3.1.1.1the contract of sale dated 9 October 2003 which is at pages 5 – 22 of the affidavit of Boudewyn Styne filed 17 October 2005;

3.1.1.2the Deed of Assignment of Copyright dated 20 November 2003 which is at pages 23 – 26 of the affidavit of Boudewyn Styne filed 17 October 2005;

3.1.1.3the order of this Court of 17 October 2005;

3.1.2the following records of the Applicant:

3.1.2.1formulae;

3.1.2.2method statements;

3.1.2.3customer lists;

3.1.2.4supplier lists (“the confidential information”)

to any other person or entity;

3.2using, or assisting any other person or entity to use, the confidential information;

3.3providing product, or assisting any other person or entity to provide product, to any current or former customers of the applicant save that:-

3.3.1 the third respondent may supply product to any person necessary to enable the fulfilment of existing orders but will not obtain new orders from former clients of the applicant;

3.3.2 from the proceeds received on the sale of that product the third respondent pay its normal operating expenses including but not limited to wages (including wages to be paid to the fourth and fifth respondents), rent of premises, rent of equipment and purchase of stock;

3.3.3 that any proceeds after payment of those expenses be paid as received to the trust account of Damien Bourke & Associates to be held in trust pending the outcome of these proceedings and that such proceeds not be released save and except by order of the Court or by agreement between the parties;

3.4soliciting or assisting any other person or entity to solicit, any customers of the applicant;

3.5soliciting or assisting any person or entity to solicit any employees of the applicant;

(4)the undertaking of the first and second respondents whether by themselves, their servants, agents, directly or indirectly or otherwise howsoever from:-

4.1acting in breach of the Deed of Restraint dated 20 November 2003 which is at pages 37 – 38 of the affidavit of Boudewyn Styne filed 17 October 2005 and;

4.2having any involvement with the business of the third respondent. 

These undertakings mirrored the relief sought in the application filed on 24 October 2005 with the addition of the parts underlined. By consent directions were given for the further conduct of the proceeding.

  1. When the application came before me on 3 November 2005, the respondents by their counsel proffered similar undertakings until trial as well as an undertaking by the third and fifth respondents to keep proper records and books of account so as to allow a proper accounting. (It is not clear to me why the fourth respondent did not proffer a similar undertaking.)
  1. The evidence establishes that a number of former employees of the applicant now work for the third respondent, including its former accountant, Angela Mutton, and that the third respondent is producing products for former clients of the applicant. While the fourth respondent and Ms Mutton were employed by the applicant they had unrestricted access to its customer database, supplier database, material master list, formulations and methodology statements for its products, the general ledger and all its financial documentation. The applicant contends that it is because they had access to this information that the third respondent has been able to establish its business so quickly. The applicant alleges that it has lost three major customers due to solicitations by the first and fourth respondents.
  1. The applicant contends that the first and second respondents are acting in the third respondent's business in breach of the restraint of trade and in breach of an implied term of the business sale agreement that the vendor will not derogate from its grant by soliciting former clients of the business thereby destroying its goodwill. It contends that the respondents have conspired to injure the applicant by unlawful means, ie by breach of contract and misuse of confidential information. (See Fatimi Pty Ltd v Bryan (2004) 59 NSWLR 678).
  1. The respondents contend that they have not misused any confidential information. In particular, the identity of the clients who have gone over to the third respondent was not something ascertainable only by some confidential list; to the contrary they are few in number and have longstanding personal relationships with the fourth respondent. There is no suggestion of any confidential list of employees or of the respondents having wrongfully induced employees of the applicant to breach the terms of their employment.
  1. The use of product formulations is highly contentious. The allegations centre around the product formulations for two substantial clients - Natural Australian Kulture Pty Ltd ("NAK") and Lenan Corporation. The applicant contends that these formulations are its intellectual property. Mr Rigney of NAK and Mr Niperess of Lenan Corporation maintain that the respective formulations are their property, and that they were entitled to make them available to the third respondent so that their products might be manufactured. Mr Rigney points to correspondence predating the sale of the business about an agreement that if NAK were to purchase from the previous owner for 2 years or 50,000 units (whichever came first) the relevant formulations would belong to it. Although the first order was placed in about September or October 2003, the goods were not received until February 2004 (after the sale of the business). I cannot determine on this application issues such as whether that agreement was binding on the applicant, whether there was a novation of it on sale of the business, and when  (if at all) the 50,000 units threshold was reached. There is some evidence of a similar arrangement with Mr Niperess. The applicant points to the notation "Queensland Cosmetic Laboratories - Confidential Do Not Duplicate" at the top of numerous product formulation documents, to evidence that the formulations were made available to Lenan Corporation to enable it to satisfy export requirements and for no other purpose, and to Mr Rigney's not having deposed to why formulations were actually sent to NAK.  The applicant contends that the fourth respondent, who had electronic access to the formulations for work purposes, wrongfully copied them and misused the information, but she says she used it only for the benefit of the applicant and that she then deleted the relevant computer files. Again, these are issues which I cannot determine on this application.
  1. An assessment at this level of the relative strengths of the competing cases is necessarily somewhat broadbrush. Suffice it to say that there are some major issues of credit to be resolved, as well as the need for a thorough analysis of the trading relationships between these clients on the one hand and HAC, the applicant and the third respondent on the other hand.
  1. I turn then to the balance of convenience.
  1. The applicant submitted that to refuse the injunction would be to allow the third respondent the benefit of a springboard created by the respondents' misconduct, while the respondents submit that if an injunction were granted the business of the third respondent would cease with prejudice to various third parties not parties to the litigation. I think that the undertakings proffered by the respondents provide a fair reconciliation of these competing interests: they would prevent the respondents from communicating or misusing confidential information, prevent them from providing product to former or current customers of the applicant (except in fulfilling existing orders) and prevent them from soliciting any employees of the applicant to work for the third respondent. Before accepting these undertakings I would want "existing orders" to be defined by reference to the date the proceeding was commenced, and I would want the fourth respondent to join in the undertaking to keep proper records and books of account.
  1. The respondents submitted that the applicant had not proffered a valuable undertaking as to damages. They submitted that if the injunction were granted and the business closed down wrongfully, there would be a very substantial claim for damages. The applicant's assets are all charged in favour of creditors, and its directors have no ascertainable property apart from some real estate one of them owns jointly with his wife and which is mortgaged. Payment by the applicant of the balance purchase price on the business (over $1,000,000-00 plus interest) is due this week. Balanced against that is the fact that the allegedly wrongful activities of the respondents are having an adverse effect on the applicant's financial position.
  1. Directions for the further conduct of the proceeding have already been given by consent. If both sides conscientiously endeavour to keep to the timetable that has been set, an early trial date should be obtainable.
  1. In my view the balance of convenience is against the granting of the injunction sought, provided the respondents give undertakings in the terms I have discussed. On that basis, I would dismiss the application.
Close

Editorial Notes

  • Published Case Name:

    Queensland Cosmetic Manufacturers P/L v Greig & Ors

  • Shortened Case Name:

    Queensland Cosmetic Manufacturers Pty Ltd v Greig

  • MNC:

    [2005] QSC 334

  • Court:

    QSC

  • Judge(s):

    Wilson J

  • Date:

    17 Nov 2005

Litigation History

No Litigation History

Appeal Status

No Status