FEDERAL COURT OF AUSTRALIA AAV Australia Pty Ltd v ISIS Broadcast Media Pty Ltd [2002] FCA 691 INTERLOCUTORY INJUNCTION – applicants seeking an injunction to restrain conduct of respondent – agreement between parties to distribute dubs of television commercials via satellite transmission – distribution of dubs by courier – whether distribution is competitive with agreed mode of distribution – whether conduct of respondent is in breach of Agreement – whether serious question to be tried – whether restraint would be in breach of Part IV of the Trade Practices Act 1974 (Cth) – restraint of trade – effect of damages clause – balance of convenience Trade Practices Act 1974 (Cth) ss 45(2) and 47(6) Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 cited Castlemaine Tooheys Ltd v Williams & Hodgson Transport Pty Ltd (1986) 162 CLR 395 applied South Sydney District Rugby League Football Club Ltd v News Ltd (2001) 111 FCR 456 referred to Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) 36 FLR 134 referred to AAV AUSTRALIA PTY LIMITED AND OMNILAB PTY LIMITED v ISIS BROADCAST MEDIA PTY LIMITED N 423 OF 2002 TAMBERLIN J SYDNEY 6 JUNE 2002 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 423 OF 2002 BETWEEN: AAV AUSTRALIA PTY LIMITED (ACN 080 533 955) FIRST APPLICANT OMNILAB PTY LIMITED (ACN 002 585 391) SECOND APPLICANT AND: ISIS BROADCAST MEDIA PTY LIMITED (ACN 006 415 443) RESPONDENT JUDGE: TAMBERLIN J DATE OF ORDER: 6 JUNE 2002 WHERE MADE: SYDNEY THE COURT ORDERS THAT: The applicants are to file and serve draft short minutes of proposed orders in accordance with these reasons to be considered in the event of any dispute at a suitable time to be arranged with my Associate. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 423 OF 2002 BETWEEN: AAV AUSTRALIA PTY LIMITED (ACN 080 533 955) FIRST APPLICANT OMNILAB PTY LIMITED (ACN 002 585 391) SECOND APPLICANT AND: ISIS BROADCAST MEDIA PTY LIMITED (ACN 006 415 443) RESPONDENT JUDGE: TAMBERLIN J DATE: 6 JUNE 2002 PLACE: SYDNEY REASONS FOR JUDGMENT 1 A Notice of Motion was filed on 10 May 2002 seeking interlocutory orders restraining the respondent from carrying on, being concerned in, or interested in, any business which is competitive with what is known as the "Dubsat Business". 2 The Dubsat Business was established on 2 December 1998 by way of a Deed of Sale ("the Deed") which was entered into between the first applicant ("AAV") and Comcopy Pty Limited ("Comcopy") as asset sellers. Global Television Hitech Pty Limited ("Global") and Beridale Investments Pty Limited ("Beridale") were also party to the Deed as buyers. Comcopy later changed its name to ISIS Broadcasting Pty Limited ("ISIS"). Beridale also subsequently changed its name to Omnilab Pty Limited ("Omnilab"). Fifty percent of shares in Omnilab is owned by a family company of Grahame Mapp, with the other fifty percent being held by Global. 3 Dubsat Pty Limited ("Dubsat") was also a party to the Deed as Trustee of the Dubsat Unit Trust. 4 The subject matter of the sale was transmission technology known as the "Dubsat System" which enables the distribution of television commercials and programs to television stations by means of digital satellite transmission. 5 The Deed provided for further development of the technology by Dubsat which included programming systems analysis, conversion, implementation and commissioning of software. The initial purchase price was $700,000.00. 6 On 2 December 1998, the parties also entered into a Shareholders and Unit Holders Agreement ("the Agreement"), which provided that AAV, Beridale, Global and Comcopy should each have 250 shares being 25 per cent of the issued share capital in Dubsat and 25 units, being 25 per cent of the issued units in the Dubsat Unit Trust. 7 The Unit Trust was established to carry on the business of distributing television commercials to television stations by means of the Dubsat technology using satellite distribution. 8 When the matter came on for hearing I granted leave for Dubsat to be joined as a party to the proceedings. 9 The basis of the applicants' claim is that ISIS has breached cl 7.1(b) of the Agreement which provides: "(b) Subject to Clause 7.6, each Participant must not do, and must ensure that its related corporations do not do, any of the following without first obtaining the written consent of the other Participants: (i) directly or indirectly carry on (whether alone or in partnership or joint venture with anyone else) or otherwise be concerned with or interested in (whether as trustee, principal, agent, shareholder, unit holder or in any other capacity) anywhere in: A. the world; B. any continent; C. any country; D. Australia and New Zealand; E. Australia; F. New Zealand; G. any state or territory of Australia, whilst it holds an interest in the Technology, Shares or Units and for – H. five years thereafter; I three years thereafter; J. one year thereafter; any business which is the same as the Dubsat Business, is competitive with the Dubsat Business, or which involves the exploitation of technology similar to, or which achieves the same effect as, the Technology; (ii) at any time use, reproduce or disclose to any third party (for any purpose whatsoever, other than use for the purposes of the development of the Technology) any trade secrets, product information or confidential information of the Business which is not generally known or available in the market place or which but for a breach of this clause would not be generally known or available in the market place; or (iii) within one year after ceasing to hold an interest in the Technology, Shares or Units induce or attempt to induce any person who is at the time of that cessation, or who later becomes, an employee or contractor of the Company (or any related corporation) to terminate his or her engagement with the Company (or related corporation)." (Emphasis added) 10 Clause 7.6 provides: "7.6 Exception Nothing in Clause 7.1 will prevent a Participant or a related body corporate of a Participant from distributing television commercials to television stations by courier or other means as part of its business of post production of audio-visual programs and materials, during the period commencing on the Commencement Date and concluding on the date that is up to three months after the Technology becomes fully operational (as determined by the Board)." 11 Clause 7.1(a)(i) defines the expression "competitive with the Dubsat Business" to include competition with part only of the "Dubsat Business". 12 The "Dubsat Business" is defined in cl 1.1 of the Agreement, to mean the business of: " … distributing television commercials to television stations using the Technology; and (b) the exploitation (including by licensing and sub-licensing) of the Technology;" (Emphasis added) 13 The expression "technology" is defined to mean: "… the technology known as the 'Dubstat System' which allows for the distribution of television commercials and programs to television stations by means of digital satellite transmission including - (a) any related computer programs together with any enhancements or modifications … (b) all other assets ... relating directly or indirectly to the Technology …" the claim 14 The applicants claim that while AAV and Omnilab ceased the copying and physical distribution of dubs of television commercials on 31 December 2001, ISIS has continued to copy and physically distribute the dubs in breach of the Agreement. ISIS has also refused to give undertakings requested by the applicants to cease these activities. For present purposes there is no substantial disagreement in relation to the conduct in question. Rather, the dispute is as to the characterisation of the conduct of ISIS in the light of the Agreement. Legal principles 15 The relevant legal principles governing the grant of an interlocutory injunction are not in dispute. The purpose of such an injunction is generally to maintain the status quo between the parties pending the hearing. It is a discretionary remedy which takes into account the relative hardships that would be visited on the parties and whether irreparable harm to the applicant is involved, whether damages are an adequate remedy and any undertakings which may be given as to damages and other relevant equitable defences and considerations. There must also be shown an arguable serious question of fact or law that ought to be tried. There is no necessity to establish a prima facie case, but the strength of the case is a matter which is relevant to the Court's discretion: see Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148. Submissions for the respondent Serious question 16 The respondent first submits that it is necessary to consider the serious consequences in the nature of forfeiture which flow from any breach provided for in cl 10 of the Agreement. That clause provides for compulsory transfer notices in the event of a breach. Therefore, it is said that the provisions of the Agreement with respect to breach must be read strictly and the Court should not lightly find a breach to exist unless there is a clear case. 17 The respondent further submits that there is no serious question raised because it is clear that ISIS is not directly or indirectly carrying on, nor is it concerned or interested in any business competitive with the Dubsat Business. 18 The distribution business, it is submitted, is carried out by the couriers who physically carry the dubbed copy videos to the television stations and ISIS is not involved in that "business" of carriage. In so far as there is any modification or duplication of the videos prior to the process of delivery, then it is said that this is anterior to any distribution process by the couriers. The respondent says that the courier business of distribution is discrete and separate from that of the business of ISIS, if indeed there is any distribution business being carried on which is competitive with the satellite distribution technology used by Dubsat. 19 It is pertinent to note that cl 7.1 of the Agreement is subject to the exemption provided for in cl 7.6 which refers to "distributing television commercials by courier or other means." This supports a conclusion that the Agreement contemplates circumstances in which prohibited competition will include delivery by courier. Moreover, it does not necessarily follow that because ISIS is employing an independent contractor as a courier rather than using its own employees to distribute the dubs, it is not "concerned with" that business of distribution. It is the party which arranges for the delivery by courier. There is a live question, in my view, as to whether the use of an independent contactor by the respondent, rather than by using its own employees, is within cl 7.1. 20 The words "competitive with" are wide and capable of including distribution even if carried into effect by means which are less technologically advanced than satellite distribution. The essential element, in respect of which there is contemplated competition in the Agreement, is in the distribution of the dubs. The fact that the physical distribution of the dubs involves duplication prior to delivery arranged by ISIS does not mean that the activities of ISIS are not part of the same business as that of the applicants. It is not necessary that the entire business should be identical, as is indicated by the reference in cl 7.1(a) to competition "with part only" of the Dubsat Business. 21 In my view, on the material presently before me there is a serious question raised as to the meaning and operation of cl 7. The trade Practices Act 22 The respondent also submits that the restraint in cl 7.1 is contrary to ss 45(2) and 47(6) of the Trade Practices Act 1974 (Cth) ("the Act"). 23 Section 45(2)(a) of the Act provides as follows: "(2) A corporation shall not: (a) make a contract or arrangement, or arrive at an understanding, if: (i) the proposed contract, arrangement or understanding contains an exclusionary provision; or (ii a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or …" 24 In relation to s 45(2)(a)(ii), on the limited material before me, there is a serious factual question, whether cl 7.1 has the purpose or is likely to have the effect of substantially lessening competition. 25 With respect to s 45(2)(a)(i) it is necessary to consider the definition of "exclusionary condition" in s 4D(1) of the Act which provides: "A provision of a contract … shall be taken to be an exclusionary provision for the purposes of this Act if: … (b) the provision has the purpose of preventing, restricting or limiting: (i) the supply of goods or services to, or the acquisition of goods or services from, particular persons or classes of persons; or (ii) the supply of goods or services to, or the acquisition of goods or services from particular persons or classes of persons in particular circumstances or on particular conditions; by all or any of the parties to the contract. …". (Emphasis added) 26 In this case I am satisfied there is a basis for a reasonable argument that "couriers" are not a particular class of persons within s 4D(1)(b)(i) of the Act. There can be many diverse ways in which courier services can be provided. The challenged covenant is not limited to the business of couriers but is directed to all businesses which operate in any competitive way with the Dubsat Business. This would include classes of persons who are involved in the distribution of dubs using satellite technology. The class is arguably far too wide to constitute an exclusionary provision. To use the language of Moore J in South Sydney District Rugby League Football Club Ltd v News Ltd (2001) 111 FCR 456 at 506: "… the provision would be an exclusionary provision if it was to operate on identified or identifiable persons but it would not be if it was to operate only on the generality of persons." 27 Having regard to these considerations, in my view, there is a live issue on this question. 28 Section 47(6) of the Act is also referred to by the respondent. The section provides: "(6) A corporation also engages in the practice of exclusive dealing if the corporation: (a) supplies, or offers to supply, goods or services; (b) supplies, or offers to supply, goods or services at a particular price; or (c) gives or allows, or offers to give or allow, a discount, allowance, rebate or credit in relation to the supply or proposed supply of goods or services by the corporation; on the condition that the person to whom the corporation supplies or offers or proposes to supply the goods or services or, if that person is a body corporate, a body corporate related to that body corporate will acquire goods or services of a particular kind or description directly or indirectly from another person." 29 In my view it is reasonably arguable that the services in question, namely distribution by satellite, are supplied to the respondent and there is no condition that the respondent will not obtain the services from any other person. The supply of the services of Dubsat to the respondent is on the condition that the respondent does not compete with the Dubsat Technology: cf Castlemaine Tooheys Ltd v Williams & Hodgson Transport Pty Ltd (1986) 162 CLR 395. At 401, Gibbs CJ, with whom Wilson and Dawson JJ agreed, said: "There can be no doubt that if the condition is that the services should be provided to the corporation which is alleged to be engaged in the practice of exclusive dealing there is no contravention of s 47(6)." 30 The decision in that case is not relevantly distinguishable from the circumstances presently before me. 31 The High Court in Castlemaine distinguished the decision of the Full Court in Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) 36 FLR 134, where the Building Society engaged in a practice of imposing a requirement, in respect of loans made to its members, that the property mortgaged to secure repayment of the loan should be insured with a particular nominated insurer. In that case the majority considered there was a contravention of s 47(6). 32 In this case it is ISIS which is required to use the Dubsat services and not the customer so that there is no requirement that a third party, namely the customer, must obtain services from Dubsat. Accordingly, there is a live issue on this question but I consider it is reasonably arguable that the decision in Castlemaine is determinative and therefore the provision does not apply. 33 The respondent's submission is that to the extent that an injunction would prevent the use of couriers and requires the use of Dubsat, this would have the effect of mandating exclusive dealing contrary to s 47(6). The respondent is said to be left with the unreal choice of not making or copying dubs of television commercials at all or requiring customers who wish to acquire its services in the making or copying of duplicates of television commercials to also indirectly acquire Dubsat's distribution services. 34 Accordingly, there is a live issue on this question but I consider the decision in Castlemaine is applicable and therefore the provision does not apply. COMMON LAW restraint of trade 35 The respondent submits that any construction of cl 7 which prevents ISIS from distributing dubs via courier is an unreasonable restraint of trade at common law because it can serve no public, or other, purpose to restrain those who wish to compete by offering to make or copy duplicates of television commercials from retaining a courier to send the duplicate to the customer in accordance with the customer's preferred method. 36 I consider that this is a case where the applicants have a reasonable and legitimate commercial interest to protect and it is arguable that the restraint as to time and nature is no more than reasonably necessary to give that protection. There is no inhibition at common law to the protection of the interest of the applicants and I consider that there is an arguable case that no public interest is to be served in the preservation of inefficient delivery methods which are technologically inferior and time consuming and duplicative. In my view, it is arguable that there has been no breach of the common law principles relating to restraint of trade. damages 37 The parties have agreed in cl 11 of the Agreement that in the event of default or breach, damages will not be an adequate compensation. It is also agreed that non-defaulting parties are entitled to seek an injunction in the event of non-compliance. 38 Such a provision cannot of course oust the Court's jurisdiction in its discretionary power to refuse an injunction, but it is a powerful discretionary consideration because the provision was inserted by informed and legally advised commercial parties. To some extent, because it is an assessment made by the parties to the Agreement, it may evidence and provide support for a conclusion that damages may not be an adequate remedy. Some weight must be given to the considered views and intent of parties as to the consequences of breach when dealing in a technologically advanced and sophisticated industry such as satellite broadcasting and what is necessary to protect such dealings. balance of convenience 39 The evidence indicates that the respondent is in a fragile financial situation and that leakage of revenue arising from the breach of cl 7 could have a significant benefit for it and its creditors. The applicants offer the appropriate undertaking as to damages. Moreover, the injunction sought is in respect of an alleged breach of a negative covenant where the Court is inclined to grant injunctive relief without requiring a great deal in the nature of damage being established. The countervailing hardship raised by the respondent does not, in my view, outweigh the applicants' hardship or inconvenience. Accordingly, I consider that an interlocutory injunction should be granted upon the proffering of an appropriate undertaking and I direct the applicants to bring in Short Minutes for consideration at a date to be arranged with my Associate. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin. Associate: Dated: 6 June 2002 Counsel for the Applicants: R Macfarlan QC A Leopold Solicitor for the Applicants: Holding Redlich Counsel for the Respondent: B Walker SC R Brender Solicitor for the Respondent: Phillips Fox Date of Hearing: 10 May 2002 Date of Judgment: 6 June 2002