Auswide Home Improvements Pty Ltd v IFO Pty Ltd [2004] NSWSC 201

New South Wales Supreme Court

CITATION : Auswide Home Improvements Pty Ltd v IFO Pty Ltd [2004] NSWSC 201 revised - 26/03/2004 HEARING DATE(S) : 10/03/2004 and 11/03/2004 JUDGMENT DATE : 24 March 2004 JURISDICTION: Equity JUDGMENT OF : Brownie AJ at 1 DECISION : I give judgment for the defendants. I order the plaintiff to pay the costs of the defendants.

CATCHWORDS : Restraint of trade - confidential information - Injunctions - no question of principle. CASES CITED : Industrial Rollformers Pty Limited v Ingersoll-Rand (Australia) Limited [2001] NSWCA 111 at 78. Auswide Home Improvements Pty Ltd - Plaintiff PARTIES : IFO Pty Ltd - First Defendant Philip Peyton - Second Defendant FILE NUMBER(S) : SC 6505/03 COUNSEL : Mr S Coleman - Plaintiff Mr B. Debuse - Defendants SOLICITORS : Owen Hodge Lawyers - Plaintiff Kells the Lawyers - Defendants

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

BROWNIE AJ

WEDNESDAY, 24 MARCH, 2004

6505/03 AUSWIDE HOME IMPROVEMENTS PTY LIMITED v IFO PTY LIMITED JUDGMENT 1 HIS HONOUR: By a contract dated 8 October 2002 the plaintiff employed the first defendant as a sales commission agent. The second defendant is a director of the first defendant, and he executed the contract on behalf of the first defendant. It seems that he effectively controlled the affairs of the first defendant. The contract contained these provisions: " BACKGROUND A. Auswide Home Improvements P/L is involved in businesses in the construction industry including restoration and replacement of roofing and guttering, and of concrete ("the Services"), and uses business names including Sydney Roof Restoration and Sydney Concrete Restoration and other trade marks, logos, designs, names and systems ("Intellectual Property") in conducting its businesses. B. The Contractor seeks to be appointed by Auswide to act as a sales commission agent to market and sell the Services. IT IS AGREED that: APPOINTMENT 1.1 In consideration for commission payments as provided in this Agreement, Auswide appoints the Contractor to market and sell the Services within the area stipulated in Schedule A to this Agreement ("the Territory"). …… OWNERSHIP OF SEVICES 2.2 The Licensor retains all right, title and interest and copyright in the Intellectual Property and other materials in relation to the Services. This provision shall survive termination of this Agreement. …… INTELLECTUAL PROPERTY 6.1 The Contractor acknowledges that Auswide is beneficially entitled to and owns all rights in respect of the Intellectual Property. The Contractor shall not use the Intellectual Property except as expressly authorised and directed by Auswide. Should the Contractor become aware of any infringement or suspected infringement of the Intellectual Property then it shall immediately notify Auswide of that infringement. ….. CONTRACTOR'S RESTRAINTS 8.1 The Contractor must not, without the prior written consent of Auswide, during this Agreement and for a period of eighteen months following the termination of this Agreement, by itself or through an interest in any other entity whether as a proprietor, partner, shareholder, joint venturer or in any other manner whatsoever, engage in any business which competes with any business of Auswide nor have any contact with any persons or companies who are or have been customers or prospective customers of Auswide either during or prior to the term of this Agreement. 8.2 In the event that a court of competent jurisdiction decides that the period of eighteen months referred to in the previous paragraph is unreasonable in the circumstances then that period shall be read down to twelve months and shall constitute a binding restraint upon the Contractor. 8.3 The directors of the Contractor by executing this Agreement on behalf of the Contractor agree to be personally bound by the same restraints as the Contractor as contained in clause 8.1. ……. CONFIDENTIALITY 9.1 The parties agree to keep confidential all information provided by other parties which relate to private details of any party's business or internal structure or trade secrets, and without prior written consent shall not use or disclose or otherwise make available this information except as required by law. This provision shall survive the termination of this Agreement and each party indemnifies the other against any breach of this clause. …. MISCELLANEOUS 11.6 Any provision of this Agreement which is void or voidable by a party or is or becomes at any time unenforceable shall, to the extent that it is void or voidable or unlawful or unenforceable be severable and severed from this Agreement without affecting the validity or enforceability of the remaining provisions." 2 The plaintiff does not seek either damages or an account of profits, but it seeks injunctions in these terms: "(a) An order restraining the defendants or either of them, or any servant and agent, from using or disclosing information concerning the plaintiff's sales and quotation or building method, within the area set out in Schedule A of the Contract (area 1) for such period of time as the Court determines…… (c) An order that the defendants and either of them be restrained from engaging in any business which competes with the business of the plaintiff within the area set out in Schedule A of the Contract (area 1) for a period of eighteen months, except that if the Court determines that this period is unreasonable in the circumstances, then for a period of twelve months". 3 Clause 8.1 of the contract can conveniently be considered as consisting of two fragments, the second of them beginning with the word "nor". I think it is clear that the second fragment cannot be enforced: the words used are wide enough to prevent the defendants from having any "contact", whether business, social or even political, with too large a category of persons; and the problem is accentuated by the expression "prospective customers". 4 Assuming however that this second fragment can be deleted, the first fragment presents significant difficulties: it forbids the defendants from engaging "in any business that competes with any business of Auswide" and without speaking of any geographic area. Preamble A to the contract speaks of the plaintiff being involved in "businesses", "including" those mentioned, and of the plaintiff using business names "including" the two mentioned; and there is no limitation. On the face of the contract, it might be that the plaintiff had other businesses, but if the plaintiff is to obtain an injunction, then the injunction needs to be framed in terms telling the defendants precisely what is to be forbidden. 5 The plaintiff sought to overcome these difficulties by limiting the form of the injunction sought, but the terms of the clause 8.1 are expressed more widely than are the terms of the injunction sought, and on conventional principles, one cannot "read down" the clause so as to achieve a more limited form of restraint. In this case, the result for which the plaintiff contends can only be achieved by inserting into clause 8.1 words which do not appear there. 6 Their position is not so clear as to the other injunction sought. The contract contains its own definition of "intellectual property" in Preamble A and what the plaintiff seeks to do is to keep confidential certain of its processes, on the basis that they fall within the definition of the plaintiff's "systems", in that definition; and it contends that the defendants came to learn about that confidential information, and that they had used it as a "springboard", in the sense that the confidential information has been used by the defendants to assist in another business venture embarked upon after the plaintiff terminated the services of the first defendant. 7 As the defendants submitted, it is for the plaintiff to identify the particular information said to be deserving of protection: Industrial Rollformers Pty Limited v Ingersoll-Rand (Australia) Limited [2001] NSWCA 111 at 78. Additionally, one needs to bear in mind the need to frame any injunction which is granted in sufficiently precise terms. The contract spoke only of "systems", but the injunction sought speaks of "information concerning the plaintiff's sales and quotation or building method". 8 Mr Whyte of the plaintiff, whose evidence I accept, described how the plaintiff conducted its business generally, and the procedures adopted by the plaintiff's sales representatives, including for this purpose the second defendant, represented by the first defendant. He said that whilst there were others conducting businesses generally similar to the plaintiff's businesses, he had set out to establish a clear difference between the way in which the plaintiff conducted its businesses, and the way in which its competitors conducted theirs, particularly in terms of achieving sales; and the plaintiff established a training course for newly employed sales representatives, and then gave these people quite extensive training. At the risk of over-simplification, the plaintiff eschewed trying to achieve sales by selling its products and services more cheaply than did others. Instead, it emphasised the quality of its products and services, and the central thrust of the training scheme, and of the approach taught by the plaintiff to its sales representatives, focused upon the delivery of superior products and services. 9 Each sales representative attended a training course, and was given various refresher courses, and each was given a large lever arch file, and urged to use the contents of the this file, together with a standard approach towards "sales prospects", when out working in the field. 10 The defendants submitted that it could not be said that there was anything confidential about the standard sales approach urged: every time a representative of the plaintiff used that approach, trying to solicit business, the approach was put into the public domain; and this contention seems irresistible. 11 However, there is a good deal of other material in the training course and in the file mentioned that I am content to assume is able to be described as confidential information, in the sense in which this expression is often used, and which might in some senses have been as a "springboard" for the establishment or expansion of another business. However, I do not think that it would be proper to grant an injunction restraining the use or disclosure of information concerning the plaintiff's sales, or sales method, or concerning the plaintiff's quotation, or quotation method, or concerning the plaintiff's building method, without framing the injunction in a way that is much more precise, and that would tell the defendants, in unambiguous terms, what it is that they must not do. 12 The file mentioned runs to 116 pages, some of them double-sided, and a significant proportion of those pages contain descriptions that might be described as the plaintiff's systems, or building method or methods. Some parts of this information (the evidence does not establish which parts of it) have been in the public domain since before the date of the contract, whilst others might fairly be described as confidential, but the point upon which I conclude that the plaintiff must fail is that the evidence does not justify the framing of an injunction in sufficiently precise terms. One must not forget that an injunction is an order, the breach of which might possibly lead to imprisonment, so that such an order must be expressed in language that tells the party or parties bound by the order exactly what it is that must not be done. 13 I give judgment for the defendants. I order the plaintiff to pay the costs of the defendants. **********************