Delta Packaging Pty Ltd v Good & Good [2000] QDC 335

DISTRICT COURT OF QUEENSLAND CITATION: Delta Packaging P/L v Good & Anor [2000] QDC 335 PARTIES: DELTA PACKAGING PTY LTD ACN 010 677 282 Plaintiff v ALISTAIR GOOD AND MALCOLM GOOD Defendant FILE NO/S: D303 of 2000 DIVISION: Civil jurisdiction PROCEEDING: ORIGINATING COURT: Brisbane DELIVERED ON: 6 November 2000 DELIVERED AT: Brisbane HEARING DATES: 25-26 September 2000 JUDGE: Senior Judge Skoien ORDER: Injunctive relief; judgment for plaintiff for money owing and for damages. Counterclaim dismissed. CATCHWORDS: Breach of oral agreement to work under terms of written agreement; restraint of trade clause; injunction; damages. COUNSEL: Hackett for plaintiff Defendants in person SOLICITORS: Cleary Hoare Solicitors for the plaintiff [1] In this action the plaintiff claims money due and owing under an agency agreement, damages for breach of the agreement, damages for the loss of an opportunity to sell the agency and an injunction. There is a counterclaim for commission and compensation owing under an agreement. -- 1 of 15 -- 2 Facts [2] The plaintiff (Delta) operates the business of distributing packaging products to retail shops. It does this via licensees who operate in different areas under a written agreement called a Territory Licence Agreement. Pursuant to that agreement a licensee is allowed to use the Delta system and Delta property for the sale of Delta products within a specified territory on the terms and conditions contained in the agreement. [3] Delta itself also operated its Delta system and sold Delta products for the purpose of developing new territories. Once a territory had been adequately developed it would go about selling the license to operate that territory, as described in para. [2]. One such territory was the Pine Rivers territory which Delta began to operate in its own name from about May 1996 on. By mid 1999 Delta had worked up the Pine Rivers Territory sufficiently to be interested in selling the license to operate the Delta system there. [4] The defendant Alistair Good had for some years worked as a sales representative for Dalton Packaging which carried on a similar business to that of Delta, selling its packaging products in an area which included the Pine Rivers territory. On 14th July 1999 he and all similarly engaged employees of Dalton were made redundant as Dalton had decided to abandon serving retailers with its products in favour of serving wholesalers only. He was told by Dalton that he was free to serve in his personal capacity the customers he had till then been supplying for Dalton. He began to do that by arranging supplies for them through a Mr Hatzifotis, a licensee of Delta (for another area). -- 2 of 15 -- 3 [5] On 15 July 1999 Alistair Good spoke to Mr Tsouranakis, Delta’s sales manager about, among other things, Good buying the Delta licence for the Pine Rivers area. It was suggested that by working for Hatzifotis Alistair Good would increase his knowledge of the Delta system and be able to form an opinion of the value of the Pine Rivers territory. Further conversations took place between Tsouranakis and Alistair Good during which Good said that he was interested in buying the Delta licence for the Pine Rivers area for $40,000. It was envisaged that the sale could be finalised on 1 October 1999. As a result of that Tsouranakis set up a training schedule for Good which included familiarising Good with the Delta system and making available to him Delta property, such as computer software, price lists and the like. [6] In the discussions referred to in para [5], Tsouranakis gave Alistair Good a copy of Delta’s written Territory Licence Agreement and a copy of the trading figures for the Pine Rivers area. One such meeting occurred on 30 August 1999 in which some detail was gone into on the steps to be undertaken to familiarise Alistair Good with the Delta business. Delta’s then sales representative, Mr Mahoney was instructed to introduce Good to Delta’s customers. At that meeting Good said that his uncle Malcolm Good would be arriving soon to go into business with him so the services of Mahoney would not then be required. On the strength of that Tsouranakis terminated Mahoney’s employment on 15 September 1999. [7] On 20 September 1999 Alistair Good told Tsouranakis that on the advice of his accountant he would not purchase the Delta license. As Mahoney had been dismissed it was necessary for Delta to ensure that Delta customers could otherwise be served. So he and Alistair Good agreed that Alistair Good, assisted by Malcolm -- 3 of 15 -- 4 Good, would serve those customers starting on 1 October 1999 until the end of the year, that employment to be carried out in accordance with the terms and conditions of Delta’s standard Territory Licence Agreement. On 10 January 2000 Delta and the Goods were to review the situation at which time the prospects of the sale of the licence for the Pine Rivers area to some other person would be assessed. If it was sold the Goods were to receive a share of the sale price calculated according to the proportion of turnover contributed by Alister Good’s former Dalton customers. Delta agreed to lend a computer and a van to the Goods for use in the business. Another meeting was held on 23 September 1999 at which Tsouranakis and Mr Mangelakis (Delta’s director) were present with Alistair Good and Malcolm Good. The terms of the agreement of 20 September were confirmed. Malcolm Good was to begin his involvement on 1 November 1999. [8] Alistair Good began to operate under that agreement on 1 October 1999, Malcolm Good joining him on 1 November 1999. They followed the terms of the written Territory Licence Agreement. But in late December 1999 and early January 2000 they approached a number of Delta customers and invited them to abandon Delta in favour of another supplier of packaging products for whom they proposed to work. On 5 January 2000 the Goods handed to Delta a letter saying that they would cease selling and delivering Delta products from 7 January. On that day they returned Delta’s van. On 10 January 2000 pursuant to an agreement reached on about 28 December 1999 they took up work for “Trade Shop” which began to trade in the Pine Rivers area. [9] The above findings are generally based on the evidence of Tsouranakis and Mangelakis, which I have accepted. I do not accept the evidence of the defendants. -- 4 of 15 -- 5 Their evidence was that Delta simply agreed to pay Alistair Good a commission depending on the customers who were served, Good to serve both Delta’s customers and his former Dalton customers, Delta lending him a van for that purpose. Alistair Good also said that in return for surrendering to Delta former Dalton customers in other Delta areas (that is, outside the Pine Rivers area) he was to receive compensation. The defendants said that Malcolm Good simply worked for Alistair Good as a driver, after 1 November 1999, for a wage. [10] I consider that the evidence of Tsouranakis and Mangelakis of the agreement reached on 20 September (and confirmed on 23 September) is more likely to be correct for two main reasons. They are: (a) the uncontradicted evidence of Delta’s witnesses was that Delta operates on two bases only, either directly by its employees or by licensees under the written Territory License Agreement. I see no reason why Delta would have departed from that and employed Alistair Good as a commission agent. In cross-examination he conceded that he had never heard of any other commission agent in that type of business. (b) the evidence is that the defendants carried on the business, from 1 October (1 November for Malcolm Good) in all material respects as if they were licensees under the standard Territory Licence Agreement. In particular they completed and forwarded the monthly licensee remittance advices, part of Delta’s standard records, which are completed by licensees and which provide the details of customer service during the month. The quite complicated contents of them are consistent only with the terms of the standard Territory -- 5 of 15 -- 6 Licence Agreement. It is highly unlikely that a commission agent would operate on such terms. [11] I accept also the submission of Mr Hackett, counsel for Delta, that the agreement alleged by the defendants is too vague and uncertain to be accepted as creating a contract. No commission rate was agreed nor was there any agreement on the compensation to be paid (see para [9] above). Indeed the customers concerned were former Dalton customers, not Good’s new customers and one wonders why Good would have any right to compensation. I also consider that the statement by Alistair Good in his affidavit that the Delta van was to be lent to them “for free” seems to be inconsistent with the letter (ex 7) dated 7 January 2000 in which the defendants acknowledge liability for petrol expenses for the van. [12] On the evidence I am satisfied that it was not just Alistair Good, but also Malcolm Good (from 1 November 1999) who undertook the operation of the Delta licence for the Pine Rivers district. He appeared to play an equal role in the business and I note that in cross-examination he said “we tendered to Delta Packaging the balance due after we deducted our commissions” (my emphasis). That does not sound to me like an employed driver speaking. It sounds like a principal of the business. Money Due and Owing [13] I am also satisfied that the final accounts between Delta and the Goods are accurately summarised in exhibit 1B,except for the fact that there has been no evidence to satisfy me that the defendants should be liable for the cost of eight deliveries made before Alistair Good began to operate the licence, a total of -- 6 of 15 -- 7 $1,209.93. That must be subtracted from the figure arrived at in exhibit 1B, leaving a net sum due to Delta, but unpaid, of $7,409.67. Delta is thus entitled to $7,409.67 as money due and owing under the agreement and I allow interest on that at 10% from 7 January 2000, that is, $617.47, a total of $8,027.14. Injunctive Relief [14] The evidence which I accept establishes that Delta made the Delta System available to Alistair Good and through him to Malcolm Good. That included giving them Delta’s customer list and pricing information. That was confidential information (cl. 1.1.6 of the Territory Licence Agreement; Robb v. Green (1895) 2 QB 315; Faccenda Chicken Ltd. v. Fowler (1987) 1 Ch. 117), and there was an implied term that the Goods would not make use of the information to the detriment of Delta (ibid). Clause 8.27 of the Territory Licence Agreement contains a covenant by the licensee (the defendants) to keep secret the information contained in the Delta system and cl.5.2 contains an acknowledgment by the licensee that, as a fundamental condition of the license, it will not use or attempt to use the Delta property in any way not authorised by the agreement. Then in cl. 8.28 the Goods covenanted that they would not during a period of one year following the termination of their engagement by Delta promote the sale of any products in competition with Delta. [15] I find that the defendants breached the agreement under which they operated as licensees and that they thus breached their duty of confidentiality. In December 1999 and early January 2000 Alistair Good approached Mr Esperon, Mr Owen, Mr Cuthbertson, Mr Stevens and Mr Nga, all customers of Delta and attempted to have -- 7 of 15 -- 8 them abandon Delta in favour of a new business to be carried out by the Goods under the auspices of Trade Shop. In December Alistair Good approached another customer of Delta, Mr Rotili, and undertook to supply him at prices that matched or bettered Delta’s prices. Most of these approaches were made while the defendants were still the licensees. Mr Rotili did, in fact, then purchase his stock from the Trade Shop for almost three months. I am satisfied that it was for the purpose of enticing former Delta customers, or competing for business with new customers who might be interested in dealing with Delta, that the defendants produced a list of products with comparisons between Delta’s prices and Trade Shop’s prices. The copy which is in evidence bears the date 12-11-00 which I think most likely is a misprint for 12-1-00. [16] An authority in which the facts were similar to the facts in this case is the decision of Cowdroy AJ in Ecrosteel Pty Ltd (trading as Packs Business Form Brokers v Perfor Printing Pty Ltd & Ors (1996) 27 IPR 22. In that case Packs was in the business of preparing, marketing and selling business forms used regularly by businesses in their day to day commercial operations. Packs had appointed a number of sales agents to visit potential and existing customers to solicit business. Each agent was allocated a specific territory and was granted the sole right to deal with customers in those areas. The success of the business was heavily dependent on those agents obtaining orders from customers. Each customer order was placed by Packs with a printer, and the finished product was supplied to the customer. Packs then issued an invoice to the customer and on payment, the money received was banked into Packs’ bank account. All the administration of Packs’ business was conducted within Packs’ offices. After payment of printing expenses, the sales agent was paid one half of the net amount remaining. Packs recorded the details of -- 8 of 15 -- 9 each order on a “customer history card”. Packs also kept the printers’ artwork from each order to facilitate future orders and these records were critical to the continuing success of the business. Each sales agent was provided with the relevant customer history cards for their sales territory. Four agents in July 1996 established a separate printing company. It emerged that these agents had removed Packs’ records of the customers previously served by them. [17] Cowdroy AJ held:- (a) that the Packs records contained confidential information, and merited protection: Faccenda Chicken Pty Ltd v Fowler (supra); (b) that the duty of confidentiality applied to the defendants, who were in a fiduciary relationship with Packs. Any information gained by the agents was a result of the agreements, and for Packs benefit; (c) that the use made by the defendants of Packs’ records was in beach of their duty of confidentiality and of their implied contractual obligations to Packs and ordered that the Packs records be delivered up to Packs, that the defendants be restrained from using any knowledge acquired from Packs records, or from the course of their employment, and that the defendants pay damages as assessed by the master. [18] Clause 1.1.6 of the Territory Licence Agreement defines “confidential information” to mean any or all computer software and information provided to the licensee by Delta including, without limiting the generality of the foregoing, customer lists, lists of suppliers, pricing lists, manuals, order forms and stationery. The defendants were given these articles, and on the evidence used them to their advantage and -- 9 of 15 -- 10 Delta’s detriment, at least from late December 1999 on. Obviously they still possess the information contained in the articles even if the physical articles are no longer in their possession and there are reasonable grounds for believing, based on past misuse, that they are likely to misuse them again. [19] The Territory Licence Agreement prescribes a restraint in terms of area, business and period. Clause 1.1.39 defines “restraint area” (in this case) as the Pine Rivers territory. The “restraint business” is: “a business or operation similar to, or otherwise competitive with, the businesses conducted by Delta or the Licensor and, without limitation, include the conducting of a business of distributing:- 1.1.40.1 Packaging and/or related products: 1.1.40.2 Packaging products” and “restraint period” is: “each of the following periods calculated from the date of termination or rescission of this Agreement: 1.1.41.1 Five years 1.1.41.2 Two years; 1.1.41.3 One year; 1.1.41.4 Six months.” [20] Delta is clearly entitled to an injunction to protect its business from improper competition from the defendants who, as I have found, have breached their covenant of confidentiality and used the Delta system to compete with Delta. -- 10 of 15 -- 11 [21] Immediately on commencing these proceedings Delta applied for an interim injunction. On 16 February 2000, His Honour Judge Robin adjourned the application to a date to be fixed (and it was never brought on again), the parties having given certain undertakings. Delta undertook not to contact or solicit business from customers of the defendants named in two lists. One list contained customers who had once been customers of Dalton but who were introduced to Delta by Alistair Good. The others were Delta customers who had elected to transfer their business to the defendants. In response the defendants undertook not to contact or solicit business from any other of Delta’s listed customers. [22] In giving those undertakings the parties obviously agreed to preserve the status quo pending a final decision in the merits. I have now made that decision, the decision being that all of the customers “retained” by the defendants were customers of Delta for the period during which the defendants acted as licensees according to the terms of the Territory Licence Agreement. So all of them were served by the defendants in breach of that agreement and any injunction should be expressed to cover all of the Delta customers, including the “retained” ones. [23] The restraint contained in the injunction must be no wider than is reasonably necessary to protect the interest of Delta, Butt v. Long (1953) 88 CLR 476 at 486 (per Dixon J). What length of time is the appropriate one for that? It seems to me that as the parties agreed on those periods which are set out in paragraph [19] from which to choose, I should also do so. But the question is, which one should I select. The onus is on Delta to establish the reasonableness of the period, the law applying the tenets of reasonability more strictly in cases like this where the restraint is on employment. See Cheshire & Fifoot’s Law of Contract, 7th Aust. ed., para [18.31]. -- 11 of 15 -- 12 [24] The only real evidence on the point was the evidence of Mangelakis that subsequent to the defendant’s conduct from 7 January 2000 onward, the Pine Rivers territory is no longer an economic business and will, on his estimation take at least a further two years to be built up to economic health. I take that, two years, as a reasonable estimate of the duration of the protection which Delta needs. [25] It should be noted that a restraint of trade clause of the type in this agreement is not avoided by the Trade Practices Act 1974 (Commonwealth). See ibid., s.51(2). Damages for Breach [26] Delta’s claim for damages for breach of the agreement is limited to the period from the end of the defendants’ employment (7 January 2000) to the date of the interlocutory order made on 16 February 2000, a period of just over 6 weeks. The average weekly turnover for the Pine Rivers district in the calendar year to 1 July 1999 was $6,788.83. For the months of January and February 2000 it was only $3,727.65, a reduction of $3,061.18. [27] Mr. Hackett for Delta submitted that I should assess damages by taking that reduced sum of $3061.18 for the period in question (6 weeks), that is $18,367. I am prepared to do that, noting that it is less than the net loss which Alistair Good concedes in his affidavit ($3900 per week). I therefore assess Delta’s damages for breach of contract at $18,367 and I allow interest on that from 16 February 2000 at 10%, that is $1,377.52, a total of $19,744.52. Lost Opportunity -- 12 of 15 -- 13 [28] Finally, Delta claims further damage associated with the lost opportunity to sell the Pine Rivers licensed territory. The basis of the claim is the argument that the territory was economic before the defendants’ involvement and was saleable at a price at or about $40,000, that subsequent to the defendants’ conduct the territory is no longer economic and will take at least two years to build it up to a position where it may again be successful enough to be saleable. Mr Hackett submitted that I should value the territory as at August/September 1999 in the sum of $40,000 and allow that sum. [29] In Amann Aviation Pty Ltd v. The Commonwealth (1990) 92 ALR 601, Davies J said:- “As the circumstances of commercial life are complex and varied, issues of chance and contingency may play a part. Some damages are speculative. The value of a chance or a possibility, when relevant, must be taken into account, if it can be calculated. The value must be estimated though certainty is lacking. The greater the contingency, the less will be the value.” [30] In Sellars v. Adelaide Petroleum ML (1994) 179 CLR 332 the majority of the High Court said at p. 355:- “damages for deprivation of a commercial opportunity, whether the deprivation occurred by reason of breach of contract, tort or contravention of Section 52(1) [of the Trade Practices Act 1974] should be ascertained by reference to the Court’s assessment of the prospects of success of that opportunity had it been pursued...... The approach results in fair compensation whereas the all or nothing outcome produced by the civil standard of proof would result in the vast majority of cases in over- compensation or under-compensation to an applicant who has been deprived of a commercial opportunity. Furthermore, it is an approach which conforms to the long-standing practice of taking into account contingencies in the assessment of damages.” -- 13 of 15 -- 14 [31] There is a paucity of evidence on the value of the Pine Rivers Territory licence at the material time. In an affidavit Mangelakis states, without elaboration or explanation, that it was worth $40,000 before the defendants’ involvement. There is evidence that $40,000 was the figure at which Alistair Good was interested in purchasing it. There was not, however, any concluded agreement to do so. [32] Nevertheless, there is some evidence that $40,000 was the value of the licence and no evidence to the contrary, so I accept that figure. I assume that $40,000 was still its value in January 2000. The evidence of Mangelakis was that after the defendants’ withdrawal in January 2000 the licence was not an economic proposition, was not saleable, and it would take at least two years to build it up to the state at which it would be saleable, I assume at $40,000 or thereabouts. [33] It was suggested by Mr. Hackett that one approach would be to allow interest on the lost sale price of $40,000, over the two years estimated by Mangelakis. But to do that would be to assume that the licence was of no value at all to Delta during that period. There is no evidence that it is actually making a loss, just Mangelakis’ statement “it is not viable. We can’t place a value. I wouldn’t be prepared to place a value on it.” I am not prepared to assume that the Pine Rivers Territory is making a loss. The best I can do is to assume that it is more or less cutting even. Then, on the evidence, in about two years it will be back to the value it was, $40,000. During that time, of course, the territory will be gradually increasing its profitability, and thus becoming an income-earning asset to Delta. Taking all that into account, the best I can do is to allow interest at 10% since 7 January 2000 until about two years from the date of trial (a total period of 2 years 8 months) but average it to reflect its -- 14 of 15 -- 15 increasing value to Delta. So I assess damages by calculating the loss of the chance at 5% on $40,000 for 2.66 years, that is $5,320. Counterclaim [34] The defendants’ counterclaim was for commission and compensation, which I have found was never the subject of any agreement [see para [11] above]. No other basis for judgment in their favour was put forward. Conclusion [35] An appropriate injunction might be in the following terms:- “I order that until 7 January 2002 the defendants and each of them be restrained from operating or being involved directly or indirectly within the Pine Rivers area (in which the plaintiff conducted its business between 1 October 1999 and 7 January 2000) in any business or operation similar to, or otherwise in competition with, the business which is or may be conducted by the plaintiff in that Pine Rivers area and without limiting the foregoing, including the business of distributing packaging and packaging products.” [36] I invite the parties to consider the matter and make any submissions they deem appropriate. On resumption of the hearing I will give judgment for the plaintiff against the defendants for $33,091.66, dismiss the counterclaim, and make orders for costs. -- 15 of 15 --