First Mortgage Finance Corporation Ltd v Kace Management P/L & Ors [2009] QSC 319

SUPREME COURT OF QUEENSLAND First Mortgage Finance Corporation Ltd v Kace Management P/L & Ors [2009] QSC 319 PARTIES: FIRST INTERSTATE FINANCE CORPORATION LIMITED (applicant) v KACE MANAGEMENT PTY LTD ACN 098 736 755 (first respondent) KAREN ANNE EADIE (second respondent) COLIN ANDREW EADIE (third respondent) THE KACE GROUP PTY LTD ACN 109 828 677 (fourth respondent) FILE NO/S: BS 6269 of 2004 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 5 October 2009 DELIVERED AT: Brisbane HEARING DATE: 23 July 2009 JUDGE: McMurdo J ORDER: 1. The applicant pay to the fourth respondent the sum of $130,000. 2. The sum of $100,000 paid into court as security for the undertakings as to damages, together with accretions, be paid out to the fourth respondent save for any amount in court in excess of $130,000. CATCHWORDS: EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – INTERLOCUTORY INJUNCTIONS – UNDERTAKING AS TO DAMAGES – where the applicant had been granted an interlocutory injunction – where the applicant gave the usual undertaking as to damages – where the substantive proceedings were dismissed – whether certain losses flow from the injunction or whether they flow from the litigation -- 1 of 7 -- 2 Uniform Civil Procedure Rules 1999 (Qld), r 293 Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249, applied COUNSEL: The applicant with leave by its director N Schober The second respondent appeared in person with leave on behalf of each respondent SOLICITORS: The applicant with leave by its director N Schober The second respondent appeared in person with leave on behalf of each respondent [1] On 21 July and 10 September 2004, the applicant in these proceedings was granted interlocutory injunctions to enforce a restraint of trade provision of a contract. The first of those orders was against the first, second and third respondents and the second order effectively extended the operation of those orders to the fourth respondent. The applicant gave the usual undertaking as to damages. So too did a company called Wealth Accelerator Pty Limited, whose undertaking was to be secured by a bank guarantee to an amount of $100,000. By a consent order of 29 July 2004, the registrar ordered as follows: “1. That the usual undertaking as to damages given by Wealth Accelerator Pty Ltd ACN 007 104 869 on 21 July 2004 be secured by payment into Court, to the credit of this proceeding, of the amount of $100,000.00, such sum to be paid by 31 July 2004, in lieu of the bank guarantee to which reference is made in the undertaking. 2. Nothing in paragraph 1 is to be taken to in any way affect the undertaking as to damages given by the Applicant, First Interstate Finance Corporation Limited, on 21 July 2004.” [2] The injunctions granted on 10 September 2004 recited that they were given: “UPON the usual undertaking as to damages by the Applicant, First Interstate Finance Corporation Limited, secured, as it already is, by the sum of $100,000 paid into this Honourable Court. The result is that the applicant was at least from that order secured by the monies in court. [3] The applicant’s proceedings have now been dismissed and the first to fourth respondents seek an order for the payment of damages by the applicant under that undertaking, and for the payment out of the monies in court to them in partial satisfaction of their damages. [4] The matter for determination is the amount of the respondents’ losses. Their entitlement to recover under the undertakings as to damages has been determined by a judgment of Dutney J on 16 April 2009. The proceedings came before his Honour in these circumstances. The applicant had not prosecuted the proceedings from 2007, although prior to then the case had been the subject of several interlocutory applications on its behalf. By 2008 each side was without legal representation, as it still is. The respondents filed an application in July 2008 seeking an order pursuant to UCPR r 293 that they have judgment against the applicant in the sum of $625,000 -- 2 of 7 -- 3 as detailed in an affidavit from the second respondent, Mrs Eadie. Mrs Eadie said that the respondents had suffered losses of various kinds totalling that sum, some of which was repeated by her subsequent affidavit used in the present hearing. However, that application was adjourned to a date to be fixed by an order made on 11 July 2008. [5] The respondents filed a further application on 31 March 2009, which is the application which came before Dutney J. It sought an order pursuant to UCPR r 293 that the respondents have judgment against the applicant “in the sum of $100,000 as detailed in” the orders of 21 July 2004. This application was supported by evidence to the effect that the purported signature on behalf of the applicant of the contract upon which its case was based was a forgery, so that the contract was void. As in the present hearing, Mrs Eadie spoke for the respondents and Mr Schober was allowed to represent the applicant. The outcome was that the proceedings were ordered to be dismissed and the injunction granted on 31 July 2004 was ordered to be discharged. No order was made in relation to the injunction granted on 10 September 2004. But under each of those orders, the relevant restraints were to operate no later than 5 July 2005, so that no order for the discharge of either injunction may have been necessary. His Honour made directions for the parties to file affidavits as to damages suffered by reason of the first of the injunctions. [6] In his reasons, Dutney J referred to the fact that Mr Schober had indicated that he did not wish to continue with the action and his Honour said that accordingly the appropriate course was to dismiss it for want of prosecution. But his Honour added that the action would ultimately have been likely to fail because of the forgery point, because the person whose signature was said to appear on the contract was present in court and said that he had not signed it. His Honour concluded that: “Therefore, that in the event that the respondents can establish that they’ve suffered damage by reason of the injunction having been granted they would be entitled to those damages.” [7] The consequence of that judgment is that the remaining question is one of assessment. Each of Mrs Eadie and Mr Schober agreed that I should assess the damages from the orders of 10 September 2004 as well as from the orders of 21 July 2004. [8] Wealth Accelerator Pty Ltd does not appear to have been represented in the hearing before Dutney J. From the orders which his Honour made, it appears that the assessment of damages was to proceed only against the applicant. There was a further interlocutory order made for this hearing by Wilson J on 15 May 2009 which is to the same effect. But as noted, the effect of the order of 10 September 2004 was to secure the undertaking of the applicant by the monies in court. [9] It is necessary to say something of the dispute as it was when these proceedings were commenced. Under the relevant agreement purportedly made between the applicant and the first defendant, the applicant had granted a licence to distribute within a region at the Gold Coast a publication called “Clever Coupons”. The publication was delivered free of charge to households. It contained advertisements placed by local businesses and tradesmen and it was in a form which gave the reader coupons which apparently offered a discount on the advertiser’s usual prices. The licensee’s revenue was from payments from the advertisers. The applicant as the -- 3 of 7 -- 4 licensor was paid a licence fee of the order of $1,000 per edition and payments for the printing of the publication. [10] Mr and Mrs Eadie controlled the first respondent. They were dissatisfied with the extent of the charges being made by the applicant for printing and associated services. Each side alleged that the other had breached the agreement. The applicant purported to terminate that agreement on about 5 July 2004. The proceedings were commenced by an originating application on 19 July 2004 and the applicant sought an interlocutory injunction to restrain the licensee and Mr and Mrs Eadie from engaging in conduct which would involve a breach of a restraint of trade provision within the licence agreement. The first respondent and Mr and Mrs Eadie had there agreed that for a year from any termination of the agreement, and within an area defined as effectively the Gold Coast, they would not seek the custom of any person who was listed on a relevant database as a customer of the Clever Coupons publication. So they were free to start a rival publication but only with new customers. [11] The interlocutory injunction I granted on 21 July 2004 was to enforce that provision. The injunction was expressed to operate until judgment or earlier order, but in any case no later than 5 July 2005 (12 months from the applicant’s termination of the agreement). The relevant customers were identified in the order by reference to a list in an affidavit of Mr Schober. [12] The respondents had proposed to publish a similar paper called “The Coupon Paper”. They did just that on 24 July, 14 August and 4 September 2004. Each of those publications contained advertisements for customers who were within the list the subject of the injunction. The purported justification for this may have been that it was another company of Mr and Mrs Eadie, the fourth respondent, which was the actual publisher. Subsequently, that company was joined in the proceedings. On 10 September 2004, Fryberg J granted the second of these injunctions. The orders he made were to the effect that the first injunction be extended to the fourth respondent. [13] That was the last of the respondents’ publications. There is evidence that they sold, or purported to sell, their new business for a price of $1,800.00. Mr Schober challenged the fact of that sale, saying that it was done to disguise proposed conduct of the respondents which would have breached the injunction. At the time there were threats by the applicant of proceedings for contempt of these orders, but it is unnecessary to resolve the merits of those claims. For present purposes, the respondents did not carry on their new business after 4 September 2004. [14] The first of the categories of loss of which they complain is that they were prevented from continuing to publish The Coupon Paper until after 5 July 2005. Mrs Eadie has sworn an affidavit in which she has set out what would have been the likely revenues and costs of that publication, calculated by reference to a further 14 issues of the paper commencing on 25 September 2004 and ending on 2 July 2005. I accept that the effect of the injunctions was that the fourth respondent did not continue with the publication of that paper and that more probably than not, a further 14 issues would have been published within the period of the restraint. [15] Mrs Eadie’s calculations are upon the hypothesis that all but three of those 14 editions would have been a publication of eight pages and the others would have -- 4 of 7 -- 5 been of 12 pages in each case. When the Eadies were publishing as the licensees of the applicant, they had produced some papers of 12 pages but they had reduced the paper to eight pages by the time the agreement was terminated. Mrs Eadie said that this was because of the excessive costs charged by the applicant. Mr Schober suggested to her that it was because the extra revenue from the additional pages was not worth the cost. I accept that the respondents would have tried to produce issues of 12 pages but the assessment should reflect the chance that there would not have been as many of the larger issues as Mrs Eadie says. The difference is significant because according to her figures for revenue and costs, which I am prepared to accept (the figures as to costs being unchallenged), the profit per issue would have been $4,367 for eight pages but $10,604 for 12 pages. On the basis that 11 of the 14 would have been 12 page issues, the respondents claim loss of profits in this category of $129,745. But as I have said, that needs to be discounted at least for the prospect that the number of 12 page issues would not have been as many as 11. If, say, half of them had been of 12 pages, the amount of the loss under this category would be $104,797. There also needs to be some discount for the contingency that for many reasons the new paper would not have been as profitable as represented by these figures. Overall I would allow $100,000 under this heading. [16] Except in one respect, the other components of the respondents’ claim are not compensable under the undertakings as to damages, because they are not shown to be damages flowing from the injunction. Rather, in some cases they are damages flowing from the litigation itself, and that distinction is critical in this context: Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd.1 And in other cases the alleged loss is not shown to be caused even by the litigation and is otherwise not proved. [17] The first of these categories is a claim for loss of income over a period of four years “until the matter was dismissed”. That period could not be thought to have begun prior to July 2005, because the lost income prior to then will be compensated as I have discussed. But as to this component, Mrs Eadie swears in her affidavit that: “The applicant continued legal action until this matter was dismissed. The effects of losing both family incomes overnight coupled with the five years spent fighting this matter has had severe long term effects and crippled us financially. We have not been able to restart this business as a result.” The amount claimed for this component is $571,427.60, on the basis of a loss of a further 68 issues (four years at 17 issues per year). None of the respondents was the subject of any restraint after 5 July 2005. It is not demonstrated that the effect of the injunctions themselves was to deprive the respondents of any financial capacity to resume the business which they had conducted until September 2004. Rather, as Mrs Eadie’s affidavit indicates, it is the effect of the litigation which has been more damaging. And it is not demonstrated what the cost of resuming the business would have been, such that the respondents were incapable of doing so. I am left with the impression that they did not resume business because they were concerned that it would bring more litigation. And it is not argued, let alone proved, that it was impossible to attract former customers back to the business because the respondents had not conducted it for 10 months during the restraint. However, I would accept 1 (1981) 146 CLR 249 at 268 (Aickin J), 309-310 (Barwick CJ), 312 (Gibbs J), 315 (Stephen J) and 324 (Mason J). -- 5 of 7 -- 6 that there was some relevant loss after 5 July 2005 because of the time which would have been required to restart the respondents’ business once they were freed of the operation of the injunctions. I would allow lost income from the expiry of the injunctions for a further three months, assessed at $30,000, on this basis. [18] The next component is a claim for the loss of the capital value of the respondents’ business, or that as it would have been but for the injunctions. The amount claimed is $150,000. The only evidence of this is Mrs Eadie’s assertion that their paper would have been “conservatively” valued at no less than that figure. She is not qualified to give that opinion and nor is the value otherwise proved. Further, the effect of the injunctions was not to put paid to their newspaper entirely, but to temporarily affect its publication by preventing the respondents from using their existing customer base. [19] The next component is the income said to have been lost by not publishing another paper which was to be entitled “Resort Services”. Mrs Eadie says that this was a publication “aimed at the Resort and Complex Managers” and it was a business which they had purchased for a “nominal fee”. They had begun to obtain business from advertisers for the first issue and had hired an additional salesperson whose employment had to be terminated when the solicitors then acting for the applicant threatened potential suppliers and clients of this business with contempt proceedings if they dealt with the respondents. In that respect Mrs Eadie refers to correspondence exhibited to her affidavit.2 However, that correspondence does not seem to be referable to a proposal for this publication, as distinct from the respondents’ The Coupon Paper. In any case it is far from demonstrated that the restraint upon approaching advertisers on the database put paid to this publication, which was for a different market. It is not insignificant that this component, like the claims for the capital loss and the loss of income for four years until this year, were not apparently contemplated by the respondents’ application that they be given judgment “in the sum of $100,000”. [20] The next component claimed is for legal costs and the amount claimed is $70,000. That is said to be evidenced by an account from the respondents’ solicitors dated 9 May 2005, although the full $70,000 is not proved by that particular account. Be that as it may, the point is that these are costs caused by the litigation and not by the injunctions. [21] Next there is a claim for the costs of incorporating what I infer was the fourth respondent and the cost of registration of the name “The Coupon Paper” ($2,307). But these were not costs thrown away, firstly because there were some issues which were published and secondly, because the fourth respondent will be compensated as if it had published others. A claim for the cost of registering the name “Kace Resort Services” ($107) is disallowed for reasons which appear above. [22] A claim for “stationery” is made in the sum of $1,234. It is not proved that this was a loss from the injunctions, and in particular, that at least some of it was not for the “Resort Services” publication. [23] Mr and Mrs Eadie claim that they were “required to relocate three times as a direct result of this injunction”. First they moved to an address at Ormeau, which they said was necessary to “place the respondents outside the Territory”, i.e. outside the 2 Filed 29 April 2009. -- 6 of 7 -- 7 area the subject of the restraint. They said they did this on legal advice. However, this would not have provided a way of avoiding the impact of the injunctions, as they appear to have recognised by ceasing their publication. There were other moves from Ormeau which were said to be consequential upon their move to Ormeau. These relocation expenses, totalling $4,914, were not caused by the injunctions. [24] The respondents then claim $15,000 for “loss of income, court attendance/ preparations”, which is said to represent the “amount of time [spent] as a result of this injunction”. This, if anything, is a claim for the cost of the litigation not a cost flowing from the injunctions. [25] The result is that I am satisfied that the damages resulting from the injunctions should be assessed at $130,000. That represents the demonstrated losses from not being able to publish The Coupon Paper within the period of the injunctions and for a short time afterwards. It should be noted that when the application for the first injunction was argued before me in July 2004, the potential loss to the respondents was argued by their counsel as being losses of that kind. According to the respondents’ evidence then, the likely loss of income was in excess of $170,000, which did not take into account all of the expenses. It can be seen then that the amount of the loss as assessed is not much different from that which the respondents had apprehended. Apparently it was not apprehended that the injunctions would cause the other losses which are now claimed. [26] As discussed at the hearing, those losses have been suffered by the fourth respondent. Mr and Mrs Eadie have suffered loss only through that company. The first respondent is not said to have suffered any loss. Accordingly, the applicant will be ordered to pay to the fourth respondent the sum of $130,000. It will be further ordered that the sum of $100,000 paid into court as security for the undertakings as to damages, together with accretions, be paid out to the fourth respondent save for any amount in court in excess of $130,000. There is already an order for costs of the proceedings in favour of the respondents against the applicant. -- 7 of 7 --