FEDERAL COURT OF AUSTRALIA

Stefanovski v Digital Central Australia (Assets) Pty Ltd [2017] FCA 1121

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to r 36.08(2) of the Federal Court Rules 2011, orders numbered 9, 10 and 15 of the Orders of Logan J made in this matter on 25 August 2017 be stayed pending the determination of the appeal to the Full Court or earlier other order.

2.    The costs of and incidental to the application be each parties’ costs in the appeal.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    Digital Central Australia (Assets) Pty Ltd (DCA) successfully prosecuted an action in this Court against a number of parties in relation to certain conduct surrounding the operation of a franchise granted by DCA to TK Sign Installations Pty Ltd (TK Sign Installations). DCA obtained a series of orders including injunctions restraining its erstwhile franchisee, TK Sign Installations, from utilising certain confidential information and, by reason of a restraint of trade clause in the franchise agreement, from competing with it for a period of two years. It also obtained injunctions against certain third parties who were associated with TK Sign Installations which restrained them from using that same confidential information which, the trial judge found, had been passed on to them. Importantly, for the purposes of this application, DCA also obtained injunctions restraining those third parties from engaging in a competitive business even though they were not bound by any non-competition clause.

2    DCA wishes to enforce the judgment which it has secured and, as a general rule, it is entitled to do so. The respondents in the action (or most of them) have lodged a Notice of Appeal against the whole of the first instance judgment. Those appellants have sought a stay of those orders restraining some of them from carrying on a business in competition with DCA pending the hearing of the appeal. Specifically, they seek a stay of orders 9, 10 and 15 which are directed to the second and third appellants. Those appellants are the entities who were not party to the franchise agreement and who were not contractually restrained from competing with DCA.

3    The stay application is made pursuant to r 36.08(2) of the Federal Court Rules 2011. That provision grants power to a single judge of this Court to stay the enforcement of a judgment of another judge of this Court pending the hearing and determination of an appeal.

Relevant legal principles

4    The principles which apply in determining whether a stay of the enforcement of a judgment pending appeal ought to be granted were not the subject of dispute between the parties. Generally speaking, they are now well established and are as follows:

(a)    A court should not be easily disposed to delaying the enforcement of a judgment obtained after a trial. Prima facie, the successful party at trial is entitled to the fruits of their judgment. In particular, judgments of the trial division should not be treated merely as provisional and, following a trial the successful party should generally have an unfettered entitlement to enforce their judgment;

(b)    However, the provisions permitting the Court to grant a stay pending the determination of an appeal exist to prevent possible injustice arising from the enforcement of a judgment which might subsequently be overturned;

(c)    It is not necessary for a party seeking a stay to show “special” or “exceptional” circumstances. All that needs to be shown is that the applicant has demonstrated that the case is an appropriate one for the exercise of the discretion in their favour (see Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65 and Re Middle Harbour Investment (in liq) (Unreported, Supreme Court of New South Wales (CA), 15 December 1976));

(d)    The applicant for a stay must necessarily provide sound reasons to justify a suspension of the successful party's right to recover judgment (see McBride v Sandland No.2 (1918) 25 CLR 369, 374; Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65, 66);

(e)    Necessarily, the applicant will need to establish that their appeal has some merit to it. They are not obliged to demonstrate that the appeal will be successful, or that success is more probable than not. The degree of confidence which a court needs to have in the appeal’s prospects will most likely vary with all of the circumstances of the case including the potential prejudice which might be suffered by the parties as the result of the granting or refusal of the stay. That said, where an appellant can demonstrate that they have substantial prospects on appeal, that will be a significant factor in favour of granting a stay.

(f)    Although the applicant for a stay must necessarily establish the grounds of their application by admissible evidence, it must be kept steadily in mind that much of the evidence will relate to events which may occur in the future. Necessarily, the evidence produced must provide an appropriately sound foundation on which a court may assess the risk of those future events occurring. In that respect, for the purposes of establishing that the circumstances warrant the granting of a stay, the applicant must not leave the situation in a state of mere “speculation” or “argument”.

(g)    A significant factor in any discretionary consideration is whether there is a real risk or probability that a successful appellant would be deprived of the fruits of their appeal if a stay is not granted (see Scarborough v Lew’s Junction Stores Pty Ltd (1963) VR 129, 130). That consideration extends to the circumstances where there is a real risk that it will not be possible for the successful appellant to be substantially restored to its former position if judgment is executed against it (see Cellante v G Kallis Industries (1991) 2 VR 653);

(h)    Conversely, there is a strong reason for refusing a stay where it is established that there is a real risk that the granting of a stay may prevent the successful party at trial from obtaining the full benefits of their judgment if the appeal is unsuccessful.

5    In his submissions Mr Sweeney for DCA submitted that the general principles (to which reference has been made above) are reflected in the following passage from Alexander v Cambridge Credit Corp Ltd (1985) 2 NSWLR 685, 694:

Thirdly, recent decisions of this Court, reflecting the language of the rules and the frequency and nature of appeals, have expressed the approach to be taken without reference to the need for special or “exceptional” circumstances to justify a stay. Thus in Waller v Todorovic the court merely pointed to the need for the party seeking a stay to establish a reason therefor. To like effect is the judgment of Mahoney JA (with whom Moffitt P and Glass JA agreed) in Re Middle Harbour Investments Ltd (In Liq) (Court of Appeal, 15 December 1976, unreported). In that case, Mahoney JA said this (at 2):

“Where an application is made for a stay of proceedings, it is necessary that the applicant demonstrate an appropriate case. Prima facie, a successful party is entitled to the benefit of the judgment obtained by him and is entitled to commence with the presumption that the judgment is correct. These are not matters of rigid principle and a court asked to grant a stay will consider each case upon its merits, but where an applicant for a stay has not demonstrated an appropriate case but has left the situation in the state of speculation or of mere argument, weight must be given to the fact that the judgment below has been in favour of the other party.”

Although it is true that, in a number of more recent decisions of the Court, reference has been made to the requirement of exceptional and “special” circumstances, and although the same requirement appears still to be observed in Victoria, the general practice of the Court conforms more closely to that stated by Mahoney JA. In our opinion it is not necessary for the grant of a stay that special or exceptional circumstances should be made out. It is sufficient that the applicant for the stay demonstrates a reason or an appropriate case to warrant the exercise of discretion in his favour.

6    In considering whether there is any merit to the appeal it is important to keep in mind that, in the ordinary course, no definitive conclusion can and should be reached as to the ultimate veracity of the grounds on which the appeal is based. It is usually not possible to conduct a full hearing of the grounds of appeal on an application for a stay. It necessarily follows that any observations made by a court on such an application are of a preliminary nature only.

7    It must also be recognised in this case that the learned trial judge was confronted with pleadings which, as it turned out, were insufficiently directed to the real points in issue. That is a reflection of the way that the matter crystallised at and during the trial. It is also apparent from the submissions made on this application that the evidence which was adduced at trial was somewhat vague in relation to the matters which, by the end of the hearing, had become central to the trial judge’s determination. For that reason, the learned primary judge was required to draw a number of inferences in relation to important issues. Generally, it would appear that, because of the way the matter developed, the evidence adduced at trial was, arguably, lacking in some important respects.

The first instance decision

8    It is appropriate to briefly set out the relevant facts as well as a brief outline of his Honour’s reasons.

9    DCA is the franchisor of a network of franchises throughout Australia. Those franchises are businesses which provide “high graphic quality” signage to real estate agents. The images, logos, designs and wording on the signs are printed onto vinyl sheets which, on the reverse side, have an adhesive substance to enable their affixing to signage boards. The businesses of the franchisees involved receiving orders from real estate agents for the production of signs, the designing of the signs, the printing of the vinyl images, the adhering of the images to a sign board and the installation of the sign board when complete. It seems that DCA provides the franchisees with access to graphic designers, printers and signage boards at very short notice such that a sign might be produced and installed within 24 hours of the proof of the graphic design being approved by the client. The franchisees are entitled to receive from the franchisor a “manual” in relation to the conduct of the business as well as access to an internet based webpage facility operated by the franchisor, graphic designers and printers. The franchisees pay a portion of its revenue to DCA as fees.

10    Although the production of such signs for the real estate industry was said to be a “niche market”, the evidence before the trial judge revealed that there were a number of competitors in that market.

11    As it was ultimately determined, the learned trial judge found that TK Sign Installations became the franchisee to DCA in respect of a franchise covering the south western part of the greater Sydney metropolitan area. It received what was said to be confidential information from DCA as to how to operate the franchise. There did not appear to be a great deal of evidence about the confidential character of that information, however there was evidence that some skill or know-how was involved in placing the vinyl print onto the signage board in a manner which ensured that it was free of wrinkles. The manner in which this might be accomplished was set out in the manual. The learned trial judge held that Mr Stefanovski, who was the director of TK Sign Installations, received a copy of DCA’s Franchise Manual (the Manual).

12    It is not clear from the reasons of the learned trial judge whether Ms Clark, who became Mr Stefanovski’s wife, was also in directorial control of TK Sign Installations, although his Honour did determine that she had access to the Manual and to the non-public parts of the franchisor’s website.

13    An important feature of the franchise agreement between TK Sign Installation and DCA is cl 24.2, which is a restraint of trade clause which prohibits the franchisee from engaging in a business “involving the retail sale of items similar to the approved products” for two years after the termination of the franchise within the franchise area.

14    The franchise business was operated from about January 2014 by TK Sign Installations. It seemed to prosper in its early phase. The trial judge determined that Ms Clark was also involved in the operation of that business. DCA provided Ms Clark with password access to the non-public areas of its website and it treated her as if she were a franchisee. That said, as the judge below indicated, DCA did not seek to bind her to the confidentiality provisions in the franchise agreement nor to the restraint of trade covenant.

15    By August 2015, TK Sign Installations determined that it wished to sell the DCA Sydney south west franchise. Ms Clark was intimately involved in correspondence with DCA about this and other matters concerning the franchise business from, at least, around the end of 2015. The franchise was eventually sold to a company HNH Pty Ltd in August 2016.

16    From about late 2015 or early 2016 Ms Clark commenced operating a new business. That business also involved the printing of vinyl sheet signs for real estate businesses and it was in direct competition with the business of TK Sign Installations as DCA’s franchisee in the south western part of the Sydney metropolitan area. The business was operated through the entity (which became the third appellant) ANT Printing Pty Ltd (ANT Printing) under the name “Australian Real Estate Signs” (ARES). At all relevant times Ms Clark was the sole director, secretary and shareholder of ANT Printing. The learned trial judge found that Mr Stefanovski also became “involved in” the conduct of the ARES business. It should be mentioned that a ground of appeal is that this latter finding was erroneous.

17    Without descending into great detail, it suffices to observe that the learned trial judge effectively found that Ms Clark and ANT Printing were provided with the confidential information which had been given by DCA to TK Sign Installations. That confidential information included the nature and design of DCA’s website, customer lists, the online ordering system, the Manual and know-how associated with the operation of the business. The trial judge also found that Mr Stefanovski was involved in the attempt to divert the business of DCA and the DCA Sydney south west franchise to the ARES business.

18    Ultimately the learned trial judge reached the following conclusions about the conduct of the appellants in relation to the franchise from DCA:

(a)    That TK Sign Installations was in breach of the restraint of trade covenant and had misused the confidential information such that it should be restrained from conducting business in competition with DCA and that it should otherwise be restrained from further using or disclosing any of DCA’s confidential information;

(b)    That DCA suffered certain losses as a result of the operation of ARES’s competing business. Those losses were assessed to the date of judgment in an amount of $24,302. His Honour also determined that losses of an additional $28,920 would be sustained by DCA from the existence of the competing business in the period from the date of trial until the expiration of the restraint of trade period in August 2018. It appears that these amounts were calculated and based upon the assumption that the competing business of ARES would be utilising DCA’s confidential information;

(c)    It was also concluded that Ms Clark and ANT Printing received the confidential information (including the Manual) which Ms Clark must have known was attended with confidentiality obligations. The learned judge found that Ms Clark had access to and made use of DCA’s confidential information in the operation of the ARES business. Consequently, he found that Ms Clark and ANT Printing were in breach of a duty of confidence which was owed to DCA;

(d)    His Honour also found that TK Sign Installations and Mr Stefanovski engaged in misleading or deceptive conduct towards DCA. That conduct concerned the making of misrepresentations about the reasons why TK Sign Installations intended to sell the Sydney south west franchise. His Honour concluded that the misrepresentations were made to conceal the existence of ARES and the real reasons as to why the first respondent wished to sell the franchise.

19    As a consequence of the above conclusions his Honour made a number of orders which included the granting of various injunctions. In particular, he made orders for the payment to DCA of equitable compensation and damages in the sum of $58,476. He ordered that this amount was payable by Mr Stefanovski, Ms Clark, ANT Printing and TK Sign Installation. He made orders restraining the further use of any confidential information which had been provided by DCA to TK Sign Installations. These orders were made against Mr Stefanovski, Ms Clark and ANT Printing Pty Ltd. More importantly for the purposes of the present application, is that his Honour also made orders restraining each of the respondents from engaging in a competing business with DCA. This was so even though only TK Sign Installations was a party to the franchise agreement and bound by the restraint of trade clause.

20    The particular injunctions (both mandatory and prohibitive) which the appellants seek to stay were directed to Ms Clark (the second appellant) and ANT Printing (the third appellant) and are in the following terms:

9.    From the date of this order until 10 August 2018, the second respondent:

(a)    must not, directly or indirectly, own, or have a financial, legal or beneficial interest in, or manage, operate, conduct, be employed by or in connection with, or be involved in the operations of, any business:

(i)    involving the retail sale (in the suburbs listed in the postcodes listed in Schedule 1 to this order) of items similar to the Approved Products;

(ii)    similar to the Franchised Business (if that business operates from, or within, the suburbs listed in the postcodes listed in Schedule 1 to this Order);

(b)    without derogating from Order 9(a), must not be directly or indirectly involved or interested in (whether as shareholder, director, employee, agent or otherwise) the “ARES” business of the third respondent, to the extent that the operation of that business has either or each of the characteristics described in that sub-paragraph.

10.    Forthwith after the date of this Order and until 10 August 2018, the second respondent must cause the third respondent’s websites using the ANT Printing Domain Names to display (in a prominent position on the customer login page and in conjunction with a link to or copy of this Order) a notice that the third respondent has, until 10 August 2018, been restrained, by order of the Federal Court of Australia, from operating any business:

(i)    involving the retail sale (in the suburbs listed in the postcodes listed in Schedule 1 to the Court’s Order) of items similar to the Approved Products, as defined in the Court’s Order;

(ii)    similar to the Franchised Business, as defined in the Court’s order (if that business operates from, or within, the suburbs listed in the postcodes listed the Schedule 1 to that Order);

…

15.    From the date of this Order until 10 August 2018, the third respondent:

(a)    must not, directly or indirectly, own, or have a financial, legal or beneficial interest in, or manage, operate, conduct, be employed by or in connection with, or be involved in the operations of, any business:

(i)    involving the retail sale (in the suburbs listed in the postcodes listed in Schedule 1 to this Order) of items similar to the Approved Products;

(ii)    similar to the Franchised Business (if that business operates from, or within, the suburbs listed in the postcodes listed in Schedule 1 to this Order);

(b)    without derogating from Order 15(a), must not operate or be directly or indirectly involved or interested in the “ARES” business, to the extent that the operation of that business has either or each of the characteristics described in that sub-paragraph.

21    These injunctions effectively restrain Ms Clark and ANT Printing from conducting a business in competition with DCA in the area correlating to that of the DCA Sydney south western franchise. They do not simply restrain the appellants from using confidential information of DCA which was improperly obtained. Their effect is to restrain the second and third respondents in the action from conducting business in competition with DCA as if they were subject to the restraint of trade clause in the franchise agreement.

22    It appears that the learned trial judge imposed the injunctions restraining the conduct of any competing business as a remedy for alleged breaches of good faith or unconscionable conduct arising from the circumstance of TK Sign Installations failing to inform DCA of the activities of third parties who were establishing a competing business. His Honour seems to have concluded that Ms Clark and ANT Printing Pty Ltd were knowingly concerned in those breaches. However, prima facie, it is difficult to see any direct connection between the business restraint injunctions and the alleged conduct of Ms Clark and ANT Printing.

An arguable case on appeal

23    An exceedingly large number of grounds of appeal are included in the Notice of Appeal although it is not likely that they will all ultimately be pursued. For present purposes there is no need to consider them all but a consideration of a few of them will adequately reveal the general nature of the appeal.

24    A central ground of appeal is that the learned trial judge wrongly concluded that the Manual was provided by DCA to Mr Stefanovski and by him to the other appellants. It is submitted by the appellants, and it appears to be correct, that the evidence on this matter was very limited. The only positive evidence (albeit hearsay) appears to have been from a witness for DCA who gave evidence that he had been informed by a third party that the manual had been provided to Mr Stefanovski. Whilst it is alleged that such evidence was obviously hearsay and inadmissible, it does not appear that objection was taken to it at the trial. Nevertheless, Mr Stefanovski gave evidence in the course of the trial that he had not received the Manual and, importantly, he was not cross-examined on that testimony. It is also submitted that there was no evidence that either Ms Clark or ANT Printing had received the Manual or the information in it. There does not appear to be any dispute that there was no direct evidence of the transmission of the information by Mr Stefanovski to Ms Clark or ANT Printing. That said, it may be that the learned trial judge considered that there was sufficient material from which he could infer that the information in the Manual was passed on. There is no need to delve too deeply into this question, it suffices to observe that, by reason of the apparent lack of direct evidence on the topic, the grounds of appeal relating to the insufficiency of evidence surrounding the use to which the Manual and other allegedly confidential information was put are arguable.

25    It is similarly alleged that there was no evidence that the signboards produced by the third appellant were produced using any of the techniques set out in the Manual. Although the trial judge found to the contrary it does not appear that this issue was explored at trial in any great detail. The appellants submitted that, as a result of the manner in which the matter evolved during the course of the trial, there was no direct evidence given on this topic. The absence of direct evidence that DCA’s techniques were used by the ARES business is a point which does not appear to be contentious. Again, the determination by the trial judge may have been founded upon a matter of inference but the lack of direct evidence about this significant point discloses that the ground of appeal is, at least, arguable.

26    At trial the learned primary judge was not assisted by a great deal of evidence concerning the confidential quality of the information in the Manual. In order for the information to be “confidential” it would need to be shown that it was in the nature of a secret and that it could not be obtained from other sources; Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37, 49, 50. DCA had asserted at trial that the information contained in the Manual were “trade secrets” or “confidential information” attracting the protection of equity. This was disputed by the appellants. There appears to be a not unreasonable argument to the effect that there was insufficient evidence before the learned trial judge which would have enabled him to conclude that “all” the information in the Manual was of such a nature that it might be described as trade secrets. Certainly, as information which was contractually protected by the terms of the franchise agreement, all of it was entitled to protection from misuse by the erstwhile franchisee. However, that did not render it “confidential” for the purposes of equity such that third parties who had received that information might be restrained from using it. The appellants submit that the learned trial judge treated all of the information as being confidential when there was insufficient evidence to sustain that finding. That submission is, at least, arguable on the material presently before the Court.

27    One unusual matter in this action was that the company, TK Sign Installations, was joined as the fifth respondent in the proceeding after the evidence had closed. At no time were any allegations against TK Sign Installations pleaded and nor were any related allegations against the first and second appellants. In this respect it is submitted by the appellants that the learned trial judge’s finding that the first and second appellants were engaged in a “joint venture” or other joint enterprise in relation to the establishment and operation of TK Sign Installations was not open. Again, this argument is not unarguable.

28    Perhaps the grounds of appeal which have most solid foundations relate to the nature of the injunctive relief which was granted against Ms Clark and ANT Printing. In this respect it is apt to recall that in the course of its business DCA, as the franchisor, recovered a percentage of the franchisee’s revenue as well as receiving other fees and charges. The case as agitated by DCA was that by reason of the representations by Mr Stefanovski (and perhaps others) it allowed a termination of the franchise agreement with TK Sign Installations. It also alleged that but for the misrepresentations it would have discovered the contraventions of the franchise agreement (and alleged breaches of confidential information) sooner and brought proceedings which would have prevented continuation of the breaches or further breaches. It appears that at trial there was, ultimately, no real dispute as to the quantum of loss caused to DCA by reason of ANT Printing’s use of the alleged confidential information in competition to DCA. The uncontested evidence was that by reason of the breaches of the franchise agreement and the alleged misuse of confidential information, the commissions which were paid to DCA by TK Sign Installations, in the first instance, and the subsequent purchaser of the franchise in the second instance, were lower than what they would have been had the confidential information not been misused in ANT Printing’s competing business. The trial judge accepted the unchallenged evidence of the appellants’ expert as to the quantum of these losses (see paragraphs [103] – [108] of his Honour’s principal reasons for judgment.) The damages awarded by the learned trial judge covered periods which represented the losses to the date of trial and, further, losses from the date of trial until the expiration of the contractually agreed period of restraint. The total quantum of those losses was assessed at $58,476.

29    The precise basis for the assessment of the amount of damages is not entirely clear on the face of the trial judge’s reasons. During the course of submissions I was not taken to the material which disclosed the basis of the expert’s report. However, it did not seem to be contentious that the learned trial judge assessed the loss suffered by DCA as being caused by ANT Printing carrying on business in competition with DCA utilising DCA’s confidential information. Mr Sweeney of Counsel for DCA, in effect, acknowledged this in the course of argument (see pages 50 – 51 of the transcript of the hearing on 11 September 2017).

30    On the basis of the above the appellants advance two major grounds of appeal. They are:

(a)    First, given the learned trial judge was able to assess the economic loss flowing from the alleged contraventions of the franchise agreement and the alleged breaches of confidential information, it was not possible for his Honour to reach the conclusion that damages were an inadequate remedy for those alleged breaches;

(b)    Second, given that the learned trial judge had actually awarded damages to compensate for losses flowing from the breach of confidential information and breach of the franchise agreement, including prospective damages on the assumption that the breaches would continue into the future, there was no warrant for granting an injunction to further restrain the use of any confidential information.

31    In relation to the first matter there is significant force in the submission of the appellants that the conclusion that damages were an inadequate remedy for the alleged breaches of the franchise agreement and misuse of confidential information is inconsistent with the ascertainment and calculation of damages resulting from that conduct. Given that there was uncontested expert evidence as to the financial consequences to DCA from the alleged breaches and that evidence was accepted, the conclusion that damages would not be an adequate remedy would appear to be somewhat fragile. Mr Couper QC for the appellants directed attention to certain paragraphs in the reasons for the second judgment which were to the effect that the learned trial judge was convinced by DCA that the adequacy of an award of damages was to be determined by reference to matters other than the financial or economic consequences of the impugned conduct (see paragraphs 32 and 39 of the second decision of the learned trial judge in Digital Central Australia (Assets) Pty Ltd v Stefanovski (No 2) [2017] FCA 1000). Whilst there is certainly room for debate about how the learned trial judge reached this conclusion, the language used by him, in particular at paragraph 39 of the reasons, seems to suggest that in concluding that damages would not be an adequate remedy, his Honour was not confining his consideration to the economic consequences of the appellant’s conduct. There, his Honour said:

39    As I concluded at [120] of the principal judgment, information has a limited “useful life” – 2 years from March 2016. At the conclusion of this period, any “head start” secured by Mr Stefanovski, Ms Clark and ANT Printing will have passed. The respondents are correct in their submission that such success as DCA has enjoyed in demonstrating a misuse of confidential information and a related springboard does not entitle it, in equity, to an order the effect of which would be to prevent competition: Zomojo Pty Ltd v Hurd (No 2) (2012) 299 ALR 621, at [394] – [395]. The foundation for the latter type of relief, and then only for a limited period and otherwise in a limited way, is, as I have already indicated, in statute. Again because of the behaviours and dispositions of Mr Stefanovski and Ms Clark as described in the principal judgment, I do not consider that damages alone are an adequate remedy.

32    The reference in the last sentence to the “behaviours and dispositions of Mr Stefanovski and Ms Clark” tend to suggest that his Honour’s consideration of the adequacy of damages went beyond considering whether DCA’s losses could be adequately compensated for by an award of damages.

33    The second point arising from the ascertainment of the quantum of damages and the awarding of the same is that a reasonable argument arises that the grant of the injunctions was, in effect, giving DCA double relief. It was submitted by the appellants that, as the learned trial judge ascertained the prospective economic loss suffered by DCA on the hypothesis that the misuse of confidential information would continue to occur and awarded damages on that basis, there was no foundation for granting the injunctions. Those injunctions restrained the appellants from engaging in business which “might” have used the confidential information. (See paragraphs 9 and 15 of the orders of the learned trial judge below). If it is the case that DCA has been compensated by the award of equitable compensation and damages for loss arising from the competition which was consequent upon a breach of the restraint in the franchise agreement and the misuse of the confidential information, it is difficult to see how an injunction which restrains that competition can be justified.

34    A related issue concerns the granting of the injunctions in paragraphs 9, 10 and 15 of the trial judge’s orders against the second and third appellants (Ms Clark and ANT Printing Pty Ltd). The relief granted against them was founded upon a conclusion that they were “knowingly concerned” in the conduct of TK Sign Installations which constituted a breach of the good faith obligations in s 6 of the Franchising Code of Conduct and unconscionable conduct within the meaning of s 21 of the Australian Consumer Law. The difficulty here is that in the first set of reasons the learned trial judge had concluded that there was “a disjunct” between the acts of the first, second and third appellants and any entitlement to injunctive relief. In essence, the conduct allegedly giving rise to the relief claimed was conduct amounting to misleading or deceptive conduct. However, that conduct did not cause the occasioning of loss which the granting of the injunctions would avoid. In in this matter the appellants assert that in the second set of reasons his Honour founded the injunctive relief upon a different footing, being that the conduct was unconscionable and contrary to the Franchising Code of Conduct. However, they assert that the “disjunct” which allegedly previously existed was not bridged with the consequence being that no injunction ought to have been granted. Again, this argument is not without foundation.

35    It might be added that whilst the injunction restraining the second and third appellants from misusing DCA’s confidential information can be understood on the basis that it was determined that they were in possession of such information, the same cannot be said of the wider business restraint injunctions. Whilst there would be an obvious breach of DCA’s rights were Ms Clark and ANT Printing to use DCA’s confidential information in a competing business, there is no breach of any such right for Ms Clark and ANT Printing to engage in a competitive business without using that information. In this respect it is not easy to identify the existing right or interest of DCA which the business restraint injunctions (in orders 9, 10 and 15) have been granted to protect.

36    The appellants also assert that the allegations that the first, second and third appellants were persons who were “knowingly concerned” in alleged contraventions by TK Sign Installations of s 21 of the Australian Consumer Law were not pleaded against them. That does not appear to be disputed. In this respect the appellants submit that the first, second and third appellants ought not to be held liable on a cause of action which was not pleaded against them and in respect of which factual allegations additional to those existing in the pleading would have to have been alleged. Again, this submission is not without foundation.

37    Although there were other grounds of appeal asserted by the appellants, it is not necessary to consider them in detail. It suffices to say that on the basis of the grounds identified above, the proposed appeal is not spurious and the arguments made in support of the grounds in the Notice of Appeal are not without merit. In the absence of further explanation some of the grounds appear to have, at least, a moderate chance of success. Nothing in that conclusion should be taken as suggesting that any of these grounds will succeed.

38    In its written submissions DCA asserts that the grounds of appeal lack merit or sufficient prospects. In particular, reliance is placed upon the proposition that the appellants will be required to overturn findings of fact of the trial judge and, indeed, findings in relation to the credibility of witnesses. However, whilst that is so in some circumstances, on a number of key issues the matters in question are issues of law which do not require a Full Court to overturn any finding of fact.

39    Somewhat surprisingly DCA also asserts that the action before the trial judge was run solely on the pleaded case. That submission cannot be accepted. It is apparent that DCA’s claim at the end of the trial went well beyond that which was pleaded. Where a matter is brought to trial on the basis of pleadings (as opposed to statements or affidavits), it is the issues which crystallise on the allegations and counter-allegations in those documents which are to found the relief sought. Here, even on the face of the reasons for judgment, it is fairly apparent that the relief granted exceeded that which was agitated for in the pleadings.

40    DCA also submits that the complaint about the injunctive relief necessarily encounters the difficulty that it was granted pursuant to the exercise of the trial judge’s discretion. Whilst that may be so, the appellants’ argument that the learned trial judge was led into error in granting the injunctions in circumstances where it was inappropriate to do so is clearly open.

41    In relation to DCA’s submission that there was no form of double punishment by reason of the grant of the injunction on the one hand and the awarding of damages on the other, its arguments are less than pellucid. As identified above, Mr Sweeney for DCA seemingly accepted that the amount of compensation awarded was reflective of an amount of money equal to the royalties which would be lost by reason of ANT Printing engaging in competition with DCA and utilising the alleged confidential information until August 2018. On the basis of that concession, as I understand it, the injunctions in paragraphs 9, 10 and 15 of his Honour’s orders protect DCA from the very loss for which it has been compensated.

Consequences if no stay is ordered

42    On the hearing of this application the appellants principally relied upon two affidavits of the second appellant, Ms Kylie Clark who was not cross-examined. I was invited by Counsel for DCA to place little reliance upon Ms Clark’s affidavits on the basis that her evidence at trial had not been accepted by the learned trial judge who had made adverse findings in respect of her credibility. No authority was cited for the proposition that such a course was appropriate and it is not one which ought to be followed. There is no doubt that the opinion of a trial judge concerning a witness’ credibility carries weight on an appeal where the evidence which was given at trial is re-considered. However, such findings cannot be relied upon in proceedings such as the present in relation to quite different evidence. That is particularly so where the deponent is not cross-examined. The veracity of Ms Clark’s evidence might have been legitimately questioned were it to have been the case that the respondent had produced, on fair notice, contradicting evidence to which she failed to respond. That is not the case in the present matter even though DCA tendered documents which were somewhat inconsistent with the financial information in Ms Clark’s affidavit. Given that DCA has not been able to undermine Ms Clark’s affidavit evidence, the court is entitled to act upon it as it appears on the face of the affidavit. That said, where Ms Clark has deposed that the findings made by the learned trial judge were incorrect, those assertions should only be treated as stating her position.

43    The consequences of the granting of the stay or of the refusal of the stay are significant in applications of this nature. In her affidavits, Ms Clark deposes to the anticipated effect of orders 9, 10 and 15 which would prevent her and ARES from directly or indirectly owning, having any financial, legal or beneficial interest in managing, operating, conducting, being employed by or in connection with or be involved in the operations of any business involving the retail sale of items similar to the approved product or a business similar to the “franchise business” in certain suburbs in Sydney’s south west.

44    The substance of Ms Clark’s evidence is that if such orders were to be made the following consequences would occur:

(a)    If the injunctions are not stayed, ANT Printing would have to close its business. That seems axiomatic and, indeed, would appear to be the purpose of the orders.

(b)    Ms Clark would not be able to engage in the work in which she is skilled because the geographical extent of the prohibition means that travelling time to an alternative location for work would be prohibitive;

(c)    Because she has the care of her children it is impracticable for her to travel for extended periods to places of work;

(d)    Ms Clark has limited income available to devote to her existing expenses and the care of her children. Presently she is able to meet these expenses by reason of the conduct of the business of ARES but, without the business, she will not have sufficient income;

(e)    Given her parental responsibilities she is unable to work full-time and it is unlikely that she will have sufficient part-time work in her area of skill if she is unable to undertake the business of ARES;

(f)    The business of ARES operates from a warehouse owned by TMK Properties Group Pty Ltd. That warehouse property is mortgaged and money paid by ARES to TMK Properties Group Pty Ltd is used to make payments on the mortgage. If ARES is unable to continue to make these payments it is likely that there will be default on the mortgage and, Ms Clark believes, the bank will sell the property. That belief is not commercially unrealistic. Were that to occur, Ms Clark would not be able to continue the conduct of the ARES business after the expiration of the injunction;

(g)    Necessarily, in the operation of its business, ARES has a number of utilities which it receives under various contracts. If the business is shut down those contracts would have to be cancelled;

(h)    It is not practicable for ARES or Ms Clark to conduct a business outside of the south western area of Sydney or to travel outside of that locality to engage in employment;

(i)    The wide scope of orders 9, 10 and 15, will have an immediate and significant impact on the ARES business. That includes an inability to recover around 650 signs which are in the field, stock which would be wasted, orders which could not be completed and invoices which could not be collected. It is noted that DCA has asserted that collecting signs and/or recovering revenue would not be asserted by it to be in contravention of the orders. That, however, seems to be irrelevant. The question is only whether or not the orders as sought by DCA prevent that type of conduct;

(j)    Ms Clark also deposes that ARES will not be able to meet its current liabilities, currently estimated to be over $40,000, including obligations to the Australian Taxation Office. If those obligations cannot be met ARES would have to be placed into administration or liquidation;

(k)    Ms Clark asserts that she would not be able to continue to meet repayments on her motor vehicle if she is unable to continue the ARES business;

(l)    If the orders are not stayed Ms Clark would not be entitled to work for competing printing businesses which deal with real estate agents in Sydney’s south west area;

(m)    Ms Clark also deposes that she believes that it would be impossible for her to restart the business in the future if it is required to close for a period of time.

45    Given the wide nature of orders 9, 10 and 15 made by the learned trial judge, it is not difficult to accept that the consequences asserted by Ms Clark arising from the implementation of those orders is likely to occur.

46    On the other hand, DCA, by its solicitor, has provided evidence of what it says would occur if the orders were stayed. Similarly, the deponent, Mr Trotman, was not cross-examined on his affidavit. However, that is understandable given that the affidavit was on information and belief and cross-examination would not have been likely to advance the matter.

47    Of particular importance in the affidavit of Mr Trotman is the assertion in paragraph 4(e) to the effect that there is a risk that if the stays are obtained the purchaser of the franchised business will cease operating it. If that occurs DCA will be required to maintain its viability by operating it in lieu. That is identified as the only alternative to abandoning the south west franchise area and, if that were to occur, loss would be sustained. There would be additional consequences were the Sydney south west franchise to cease including the closing down of a printing house. That would have threatened the viability of other franchisees.

48    The parties to the application and, particularly, DCA, founded their submissions on the basis that the appeal in this matter would occur in the February sittings of the Full Court at the earliest. On the basis of the matters then known to the parties, that was an appropriate assumption to make. However, the Court is, in fact, able to expedite the hearing of this commercial dispute and the appeal has now been set down for hearing in the Full Court sittings commencing in 6 weeks’ time on 30 October 2017. That is likely to substantially ameliorate the consequences of the refusal or granting of a stay.

49    In both its written and oral submissions, DCA asserted that the evidence of Ms Clark was insufficient to warrant the granting of a stay. That submission must be rejected. Ms Clark was not cross-examined in any way on the assertions in her affidavit and there was no objection to its contents. The evidence of Ms Clark identifies a sufficient factual basis for concluding that her concerns as to the impact on ARES’s business are not unrealistic.

50    Counsel for DCA pointed to what he identified as “curiosities in the evidence” which were matters which, if accepted, might have undermined Ms Clark’s evidence or at least weakened its veracity. However, the matters relied upon were not put to Ms Clark in cross-examination. However, even if they had been they were of such a nature that they would not, in reality, have shaken the foundational parts of her evidence.

51    It is important to mention that Ms Clark and the other appellants do not offer any undertaking as to damages. Apparently they are not in a financial position to offer anything of substance. That is an important matter to weigh in assessing the consequences of the granting of a stay. On the other hand, the respondent, DCA, does offer an undertaking as to damages. However, it adduces no evidence as to the value of that undertaking. Outside of applications for security for costs, an undertaking as to damages is of little worth if there is no evidence of its value. That is the situation in the present case. In this case where the hearing and determination of the appeal will occur in a relatively brief timeframe and where the evidence at trial showed that it is possible to measure the loss sustained by DCA by reason of an existing competing business, the damages which might be sustained by it will be measurable. Additionally, the appellants have established, at least in a prima facie sense, that DCA has already been compensated for the losses which it will sustain through to August 2018 by reason of competition from the ARES business.

52    It was submitted that the granting of the stay has a risk that it will substantially determine the appeal. This submission was based on the fact that the injunctions will expire on 10 August 2018 and upon the assumption that an appeal might not be heard until sometime in March next year with judgment to follow sometime thereafter. However, as the matter can be heard in the forthcoming Full Court sittings this submission loses much of its force. No doubt any Full Court will appreciate the urgency of its decision.

53    Another matter which is relevant to the consideration is that the appellants do not seek to stay every order of the learned trial judge. They are content to allow the following orders to have immediate effect:

(a)    The order prohibiting the first appellant from using any information which he contractually agreed he would not use;

(b)    The order requiring the first appellant to deliver up all relevant documents which contain any contractually protected material;

(c)    The order requiring the first appellant deposing to his compliance with certain orders of the court;

(d)    The orders restraining the first appellant from engaging in any competing business with DCA;

(e)    The order requiring the first appellant to pay the sum of $58,476 to DCA;

(f)    Orders restraining the second appellant from utilising any contractually protected material and delivering any such material in her possession to the solicitors for DCA;

(g)    The order requiring the second appellant to pay the applicant the sum of $58,476 (being an amount for which he is jointly liable to pay with the first respondent);

(h)    Similar orders to those made against the second appellant in relation to the third respondent save for order 15.

54    In other words, DCA retains the benefit of the full force and effect of a number of orders, including orders for the payment of compensation to it in respect of losses which will continue to accrue until August next year. The orders in respect of which a stay is sought relate solely to orders against the second and third appellants which restrain and/or prevent them from engaging in a competing business with DCA.

55    In the circumstances the above matters favour the granting of the stay pending the appeal. The grounds of the appeal are not without merit especially those which go to the foundations for the making of the orders in respect of which a stay is sought. The impact of the injunctions in orders 9, 10 and 15 will most likely have a devastating impact upon the second and third appellants whereas the refusal of the granting of a stay runs a much lower risk of irreparable harm being suffered by DCA. Indeed, even if it is the case the DCA must take over the operation of the south west Sydney franchise of its business, there is no suggestion that it will necessarily suffer financial or economic loss as a result.

Conclusion

56    In the result, it is appropriate to make the orders sought staying the operation of orders 9, 10 and 15 of the learned trial judge until the determination of the appeal of this matter.

Associate:

Dated:    20 September 2017

SCHEDULE OF PARTIES