Supreme Court New South Wales Medium Neutral Citation: Capercorp Pty Limited v Brasam Pty Limited as trustee for Brasam Investment Trust [2017] NSWSC 608 Hearing dates: 8 May 2017 Decision date: 08 May 2017 Before: Sackar J Decision: See para [24] Catchwords: Interlocutory application – serious question to be tried – balance of convenience – restraint of trade – misuse of confidential information – inducement of breach of contract. Cases Cited: Wright v Gasweld Pty Limited (1991) 22 NSWLR 317 Category: Procedural and other rulings Parties: Capercorp Pty Ltd (Plaintiff) Brasam Pty Ltd (ACN 153 814 361) atf Brasam Investment Trust (First Defendant) Bradley John Gill (Second Defendant) Samantha Lynn Gill (Third Defendant) Port Macquarie Subway Pty Ltd (Fourth Defendant) Gill Brothers Holdings Pty Ltd (Fifth Defendant) Representation: Counsel: M Gunning (Plaintiff) D Mahendra (Defendants) Solicitors: Oliver Jones, Retail Food Group (Plaintiff) Wilson Solicitors Pty Ltd (Defendants) File Number(s): 2017/122323 Publication restriction: n/a Judgment – ex tempore 1. HIS HONOUR: The Plaintiff, by summons filed 24 April 2017, brings proceedings against five Defendants. The Plaintiff is a company which provides franchises to various persons or entities in Australia, principally in Queensland, and to a lesser extent New South Wales, for the purposes of running a pizza business which trades as Pizza Capers. 2. The First Defendant entered into a franchise agreement with the Plaintiff in or about 23 January 2012, operating a Pizza Capers franchise in Port Macquarie (Franchise Agreement). The Second Defendant, Mr Bradley John Gill, guaranteed the obligations of the First Defendant under that Franchise Agreement. The Third Defendant is Mr Gill's wife, Ms Samantha Gill. The Fourth Defendant is a company owned or controlled by one or other of the Gills and relates to the operation, in part, of a Subway franchise, being an entirely separate business, again in Port Macquarie. The Fifth Defendant is a company incorporated in February 2017 which runs a pizza outlet in Port Macquarie called Pizza Obsession. The Third Defendant is the sole director and shareholder of the Fifth Defendant. 3. In broad terms, the Plaintiff's case against the First, Second and/or Fourth Defendant is that in their alleged running of the Pizza Obsession shop in Port Macquarie, they are engaging in conduct in breach of provisions of the Franchise Agreement. Specifically, the Plaintiff points to clause 14 providing that for varying periods and in various geographical locations, the franchisee/guarantor accepted they would not engage in the running of the business similar to that of the franchise. The case, however, against the Third and Fifth Defendant is, as I understand it, one which is based on an allegation that each of them has induced at least the First and Second Defendant to breach the Franchise Agreement, and by operating their current business are inducing a contrary breach of the Franchise Agreement. I will come back to that case in due course. 4. The First, Second and Fourth Defendant have indicated they will give undertakings, without admission, consistent with certain final injunctive relief sought by the Plaintiff. 5. On the other hand the Third and Fifth Defendant have merely indicated they will keep proper accounts of all sales, profits and/or moneys received by the business, Pizza Obsession. The issue in these interlocutory proceedings is therefore whether the Third and Fifth Defendant should be restrained from operating their Pizza Obsession business. 6. The test in determining applications for interlocutory relief is well known. Briefly stated, the plaintiff must show there is a serious question of law or fact to be tried as to the plaintiff's entitlement to the relief sought. The plaintiff must also show it is likely to suffer injury for which damages will not be an adequate remedy and that the balance of convenience favours granting of an injunction. 7. For reasons which I will come to shortly, in my view, on the balance of convenience I propose to refuse the injunctive relief sought. Further, I have very grave doubts about serious questions to be tried in this case, particularly of the kind sought to be elucidated by the Plaintiff. 8. Dealing first with balance of convenience, the Plaintiff has produced no evidence whatsoever as to what prejudice or indeed any damages they have suffered or will continue to suffer. I can infer, perhaps, that the original franchise no longer exists and the Plaintiff is not receiving royalties or any moneys which would normally flow from the Franchise Agreement. However, it was the Plaintiff who purported to bring the Franchise Agreement to an end in March 2017, although there is an argument put by the Defendants that the Franchise Agreement indeed came to an end earlier in late January. In circumstances where the Plaintiff itself purported to terminate the Agreement, I have significant doubts it can point to any ongoing damage and indeed the evidence does not disclose any basis upon which I think I could reasonably infer there is any such damage. 9. The Third and Fifth Defendant, on the other hand, would appear to be likely to suffer damage should the operation of their Pizza Obsession business be restrained for any period. Ms Samantha Gill, in her affidavit of 3 May 2017, indicates there are loan facilities which have been undertaken by the Fifth Defendant for the operation of the current business and it Has drawn down approximately $320,000. Those loan facilities are secured by personal guarantee given by herself and, I was informed today from the bar table, her husband, secured over their family residence at 90 Koala Street, Port Macquarie. 10. The Fifth Defendant also employs a full-time manager and, if the business is forced to stop trading, it will continue to incur employment costs estimated at $1,400 a week. Pursuant to the lease in relation to the property, the Fifth Defendant currently has monthly rental payments of $4,463.43. There is a considerable amount of money also tied up in perishable foods and Ms Gill estimates that the value of the stock which falls into that category approximates $18,000. 11. In the circumstances where an undertaking is given to keep proper accounts and where I am satisfied from other paragraphs of her affidavit that there is available software and other methods by which accurate accounting can be kept, the balance of convenience, in my view, clearly favours a refusal of the interlocutory relief that is sought. In addition I have indicated I would be disposed to give an expedited hearing in the matter and I will entertain this application this Friday 12 May, if needs be, or as soon as the parties are ready to make such an application. 12. On the question of a serious question to be tried, as noted, I have real concerns about the Plaintiff's case. The clause it principally relies upon in order to suggest the relevant Defendants are either in breach of it and/or the Third and Fifth Defendant have induced a breach of it, is what is commonly called a restraint clause. I observe that it is governed in this case by the law of Queensland. The New South Wales legislation will not, therefore, operate and the case will ultimately have to be resolved according to the common law. The onus at common law in maintaining a restraint turns upon the reasonableness of such a clause. Gleeson CJ, as he then was, in Wright v Gasweld Pty Limited (1991) 22 NSWLR 317 at 329 said: "An employer is not entitled to protect himself against mere competition by a former employee, and the corollary of that is that the employee is entitled to use skill, experience and know-how acquired in the service of the former employer in legitimate competition." 1. In this case, it is said, as I understand it, either that a clause which prevents mere competition is enforceable - a proposition I cannot embrace; alternatively, that there is, or has in some way been, a misuse of confidential information and that the Third and/or Fifth Defendant have induced a breach of the provision which has led to a misuse of that confidential information, which misuse is ongoing. 2. The Plaintiff submits there were two pieces of alleged confidential information. First, a manual and perhaps other documents the property of the franchisor, and secondly a menu used by Pizza Capers in its various franchises around the country. 3. Dealing first with the manual and accompanying documents. The Second Defendant acknowledges he had such material in his possession at one point and these were provided to him as part of the Franchise Agreement. The Second Defendant also acknowledges the material is and was the property of the Plaintiff. In his first affidavit the Second Defendant said he had returned all such materials. 4. However, in his second affidavit dated 8 May 2017, he not only provided a good deal of detail about sending the materials back, but included a photograph of a box which is addressed to the Plaintiff at the correct address which has a tracking number on it. The Second Defendant asserts he placed the manual and other materials into the box and posted them back in late March to the Plaintiff. It seems, at least on the face of that material, that he did take steps to return what is alleged to be the confidential material. It seems also, however, on the current information, that the material has gone astray in the post, but at the moment no fault can at least be attributed to the Second Defendant in that regard. Therefore on the evidence he no longer holds any confidential material of that sort. There is no suggestion he, nor his wife, has any copies of it. 5. More to the point, there is simply no suggestion on the evidence as it currently stands that either the Third Defendant or the Second Defendant (to the extent the Second Defendant might be shown to be involved in Pizza Obsession), is currently using any aspect of that manual or other confidential material, if it exists. There is, in my view, a lack of any cogent evidence as to whether there is a serious question to be tried as to the misuse of that confidential information. 6. On the issue of the menu, the Plaintiff relies upon what it says to be in effect the plagiarising of the Pizza Capers menu by Pizza Obsession. Mr Olak, who is the Plaintiff's general manager, annexes to his affidavit of 21 April some screenshots of the menus of Pizza Capers and compares them with menu options currently being offered by Pizza Obsession in Port Macquarie. It is clear a number of the items are close, if not identical, in description and ingredients. 7. However, there is no suggestion there is any breach of copyright or trademark or anything of that sort and, more to the point, Mr Gunning, Counsel for the Plaintiff has had some difficulty in identifying precisely what is confidential about the menu. In my view, the reason for this is because the menu is not confidential. The menu is open to the public via the internet or perhaps printed matter, and it is there for the very good purpose of inviting and indeed enticing the public to purchase a Pizza Capers' pizzas. More to the point, in every single case there is a considerable amount of detail disclosed as to the ingredients, albeit no detail as to the precise amount of each of the ingredients. 8. In my view, therefore, the second basis upon which the Plaintiff suggests there is some misuse of confidential material is not made out on the evidence. Therefore, it does seem to me there is a very real issue as to whether there is any serious question to be tried on the evidence as has currently been outlined, and it does not stop there. 9. A further issue with the Plaintiff's case extends to its claim against the Third and Fifth Defendant for inducing breach of contract. There are elements of an inducing breach of contract claim which I am certainly not satisfied have been exposed, on the serious question to be tried basis. For example, the defendant must have intended to induce or procure the third party to breach the contract. The whole case here is dependent upon a number of matters which it is said arise by way of inference. First, the Second and Third Defendant are husband and wife. I am asked, therefore, to infer the Third Defendant was somehow privy to the arrangements between the Plaintiff and her husband and the First Defendant. I may assume that in favour of the Plaintiff for the moment. 10. A further problem though, is the proof of the intention, critical to a claim of inducement. Although there is some evidence to show the Second Defendant's involvement in Pizza Obsession, I am certainly not persuaded at the moment sufficient material has been exposed to show either the Third or the Fifth Defendant intended, or precisely when they intended, to induce the First and/or Second Defendant to breach the Franchise Agreement. 11. Aside from my concerns about lack of a serious issue to be tried, in any event I am satisfied no interlocutory relief should be granted in favour of the Plaintiff for the reason initially referred to. As I have said on the discretionary issue of balance of convenience, it does not seem to me there is any prejudice to the Plaintiff, given the undertaking to keep proper accounts. It may be that at the end of the case I consider that a reasonable restraint is no more than three months or something to that effect, in which case an injunction would prove to be an unnecessary intrusion into what it seems to me at the moment is the Third and Fifth Defendant's entitlement to run their business. 12. On those various bases, I refuse the application. I also order the Plaintiff pay the costs of the Third and Fifth Defendant of this application. ******** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 May 2017