FEDERAL COURT OF AUSTRALIA Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd (No 2) [2018] FCA 1097 File number: VID 1157 of 2017 Judge: BEACH J Date of judgment: 5 June 2018 Date of publication of reasons: 24 July 2018 Catchwords: PRACTICE AND PROCEDURE – interlocutory injunction – where applicant alleges that product supplied by second respondent to third party was developed using applicant's information or resources – strength of prima facie case – balance of convenience and impact on third party – application dismissed Cases cited: Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd [2018] FCA 142 Date of hearing: 5 June 2018 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 18 Counsel for the Applicant: Mr M Wise QC and Ms N Hickey Solicitor for the Applicant: K&L Gates Counsel for the Second to Fifth, Eighth and Twelfth Respondents: Mr M Osborne QC and Mr T Warner Solicitor for the Second to Fifth, Eighth and Twelfth Respondents: Mills Oakley ORDERS VID 1157 of 2017 BETWEEN: DIRECTED ELECTRONICS OE PTY LTD (ACN 130 647 737) Applicant AND: OE SOLUTIONS PTY LTD (ACN 119 188 019) First Respondent HANHWA AUS PTY LTD (ACN 614 943 092) Second Respondent HANHWA HIGHTECH AUSTRALIA PTY LTD (ACN 153 718 435) (and others named in the Schedule) Third Respondent AND BETWEEN: JOHNNY MENESES Cross-Claimant AND: DIRECTED ELECTRONICS OE PTY LTD (and others named in the Schedule) First Cross-Respondent JUDGE: BEACH J DATE OF ORDER: 5 JUNE 2018 THE COURT ORDERS THAT: 1. The applicant's interlocutory application contained in paragraphs 1 to 3 of the interlocutory application dated 25 May 2018 be dismissed. 2. The applicant pay the respondents' costs of and incidental to the injunction application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT BEACH J: 1 These reasons explain my dismissal of an application by Directed Electronics OE Pty Ltd (Directed OE) for an interlocutory injunction restraining certain conduct of the second respondent Hanhwa Aus Pty Ltd (Hanhwa Aus). 2 This is not the first interlocutory injunction application pursued by Directed OE in these proceedings. On 19 February 2018, on the application of Directed OE I granted an interlocutory injunction preventing termination of a supply arrangement between Directed OE and the fifth and twelfth respondents. I published reasons for that decision (Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd [2018] FCA 142). Those reasons set out some background to the proceedings (at [2] to [5]) and some of the applicable legal principles (at [15] to [19]), which I will not repeat. But whilst that decision in substance concerned a mandatory injunction requiring the fifth and twelfth respondents to continue to supply to Directed OE, the present application principally concerns a more classic prohibitory injunction. 3 Let me sketch out some background to the present application. Directed OE says broadly that the second to fifth, eighth and twelfth respondents (together the Hanhwa parties) have developed a new audio visual unit (the Hanhwa New Unit) and that Hanhwa Aus has entered into a contract with Isuzu Australia Limited (Isuzu) to supply the Hanhwa New Unit and associated accessories and navigation software. But Directed OE says that the Hanhwa New Unit was developed using its know-how, resources and confidential information, which it says in essence were misappropriated by the sixth respondent and former Directed OE employee Mr Johnny Meneses. 4 On 25 May 2018, Directed OE filed the present injunction application seeking, inter-alia, the following orders: (a) First, an order restraining Hanhwa Aus from supplying the Hanhwa New Unit to Isuzu, as well as any accessories and navigation software licenced by Hanhwa Aus to Isuzu. (b) Second and alternatively, on the assumption that I did not grant such an injunction, orders that Hanhwa Aus pay into a separate account 35% of the amount received from Isuzu for supply of the Hanhwa New Unit and related accessories and navigation software. Further, ancillary orders were also sought requiring Hanhwa Aus to keep an account of all amounts received from Isuzu in relation to the Hanhwa New Unit. 5 Directed OE relied upon various affidavits of Mr Stavros Siolis, director of Directed OE and the second cross-respondent in the cross-claim commenced by Mr Meneses, sworn on 24 May and 1 June 2018 respectively and various affidavits of Mr Anthony Watson, solicitor for Directed OE. The Hanhwa parties relied upon two affidavits (one confidential and one non-confidential) of the eighth respondent Mr Kichang (Ryan) Lee sworn on 4 June 2018, and a further affidavit sworn by him on 5 June 2018. 6 On 5 June 2018, I heard submissions from the parties and dismissed Directed OE's application, largely for the reasons debated with counsel. But as Directed OE has requested written reasons, it is appropriate to elaborate further but only in summary. 7 Directed OE's assertion of a prima facie case it must be said evolved significantly during the hearing of the injunction application. But ultimately it was said that: (a) first, the fifth and twelfth respondents breached an implied term of what has been described as the Hanhwa Korea Agreement and that the other Hanhwa parties induced such a breach; and (b) second, the Hanhwa parties were knowingly concerned in Mr Meneses' breach of his employment agreement and various fiduciary obligations, being his involvement in the development, marketing and promotion to Isuzu of the Hanhwa New Unit, which it was said directly or indirectly embodied Directed OE's confidential information. 8 As to the first aspect, in my view Directed OE demonstrated only a weak prima facie case (if at all) concerning: (a) the existence of the relevant implied term; (b) the breach of the relevant implied term; and (c) the inducement by some of the Hanhwa parties of any breach of any such implied term. 9 I so concluded based largely upon my acceptance of the respondents' submissions. Indeed, during the hearing of the application, this part of the case was only faintly pressed. 10 As to the second aspect concerning Mr Meneses' conduct and the asserted knowing involvement by the Hanhwa parties, I did not consider that Directed OE had established a strong prima facie case. And on this aspect, I would note that although I permitted some cross-examination of Mr Lee, if I may say so such cross-examination did not seem to carry Directed OE significantly forward. It is not appropriate to elaborate further as I am likely to be the trial judge. 11 But nevertheless I was prepared to assume in favour of Directed OE on this second aspect that it had established a prima facie case albeit less than strong. But even so assuming, in my view Directed OE failed on the question of balance of convenience for the following principal reasons. 12 First, the principal injunction sought would have significantly prejudiced the interests of a third party, namely, Isuzu if it had been granted. 13 Second, even if the principal injunction was granted, Isuzu may not have ordered new units from Directed OE in any event. 14 Third, the injunction if granted would have significantly prevented Hanhwa Aus from exploiting a significant commercial opportunity to its substantial detriment. And in this context, there were significant doubts as to the value of any undertaking as to damages. 15 Fourth, Directed OE had not established a strong prima facie case. As I noted in my previous decision, the strength of the prima facie case is to be weighed on the balance of convenience question. In the present context, that weighing did not favour Directed OE. 16 Fifth, Directed OE's fall-back position of seeking an order that Hanhwa Aus pay a percentage of receipts into a separate account was little more than seeking security for any damages that it might be awarded. This is an insufficient reason to grant any injunction. Further and in any event, payment into an account of the percentage sought would have compelled Hanhwa Aus to operate at a loss in cash flow terms for the duration of any such injunction. This was a further reason not to condone Directed OE's fall-back position. I would note two other matters on this aspect. As I discussed with counsel, the circumstances relating to the Hanhwa New Unit were to be distinguished from orders that I had previously made concerning the HAU8000. Further, the ancillary orders were not justified. 17 Finally, the injunctions sought were also refused due to the delay of Directed OE in bringing the present application. As the Hanhwa parties correctly contended, Directed OE knew of Isuzu's decision to select the Hanhwa New Unit over Directed OE's own product on 28 March 2018, being more than two months prior to the hearing of the injunction application. At that point, therefore, it became aware of the facts giving rise to its claimed entitlement. But in the time between 28 March 2018 and 25 May 2018, the Hanhwa parties devoted significant effort and resources towards fulfilling Isuzu's first purchase orders for the Hanhwa New Unit. Belatedly, Directed OE's solicitors wrote to the Hanhwa parties' solicitors at approximately 4.42 pm on the afternoon of Friday, 25 May 2018 informing them for the first time of the injunction application, and attaching the accompanying materials. In my view and accordingly, there was unreasonable delay by Directed OE in commencing its application for interlocutory relief, and an alteration by the respondents of their position during the period of that delay. 18 For all of the above reasons in summary, I dismissed Directed OE's application. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beach. Associate: Dated: 24 July 2018 SCHEDULE OF PARTIES VID 1157 of 2017 Respondents Fourth Respondent: LEEMEN AUS PTY LTD (ACN 621 821 190) Fifth Respondent: HANHWA HIGHTECH CO., LTD Sixth Respondent: JOHNNY MENESES Seventh Respondent: CRAIG MILLS Eighth Respondent: KICHANG (RYAN) LEE Tenth Respondent: GRIDTRAQ AUSTRALIA PTY LTD (ACN 154 515 394) Eleventh Respondent: WEBHOUSE SOFTWARE SOLUTIONS PTY LTD (ACN 152 567 416) Twelfth Respondent: LEEMEN CO. LTD Thirteenth Respondent: QUANTUM TELEMATICS PTY LTD (ACN 159 485 051) Cross-Respondents Second Cross-Respondent STAVROS SIOLIS Third Cross-Respondent ANTHONY TSELEPIS