Tyco (Australia) Pty Ltd t/as ADT Security v Signature Security Group Pty Ltd [2009] FCA 1029 (3 September 2009)

Last Updated: 16 September 2009

FEDERAL COURT OF AUSTRALIA

Tyco (Australia) Pty Ltd t/as ADT Security v Signature Security Group Pty Ltd [2009] FCA 1029

TYCO (AUSTRALIA) PTY LTD TRADING AS ADT SECURITY v SIGNATURE SECURITY GROUP PTY LIMITED, SIMECORP PTY LTD, MARTIN SALAZAR, AUSTRALIAN SECURITY AND FIRE PTY LTD, GREGORY THOMAS, SECURITY SELECT PTY LTD and MICHAEL CALIFANO
NSD 779 of 2009

PERRAM J
3 SEPTEMBER 2009
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 779 of 2009

BETWEEN:	TYCO (AUSTRALIA) PTY LTD TRADING AS ADT SECURITY Applicant
AND:	SIGNATURE SECURITY GROUP PTY LIMITED First Respondent SIMECORP PTY LTD Second Respondent MARTIN SALAZAR Third Respondent AUSTRALIAN SECURITY AND FIRE PTY LTD Fourth Respondent GREGORY THOMAS Fifth Respondent SECURITY SELECT PTY LTD Sixth Respondent MICHAEL CALIFANO Seventh Respondent

JUDGE:	PERRAM J
DATE OF ORDER:	3 SEPTEMBER 2009
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The respondents are to file and serve their defence by Wednesday 9 September 2009.
2. The parties are to exchange categories of documents for discovery by Friday 11 September 2009.
3. The parties are to file and serve verified lists of documents by Friday 25 September 2009.
4. The applicant is to file and serve any further evidence by Friday 9 October 2009.
5. The respondents to file and serve any further evidence by Friday 6 November 2009.
6. The applicant is to file and serve any evidence in reply by Friday 20 November 2009.
7. The proceedings be listed for further directions on 24 November 2009.
8. Liberty to apply.
   

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 779 of 2009

BETWEEN:	TYCO (AUSTRALIA) PTY LTD TRADING AS ADT SECURITY Applicant
AND:	SIGNATURE SECURITY GROUP PTY LIMITED First Respondent SIMECORP PTY LTD Second Respondent MARTIN SALAZAR Third Respondent AUSTRALIAN SECURITY AND FIRE PTY LTD Fourth Respondent GREGORY THOMAS Fifth Respondent SECURITY SELECT PTY LTD Sixth Respondent MICHAEL CALIFANO Seventh Respondent

JUDGE:	PERRAM J
DATE:	3 SEPTEMBER 2009
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. The applicant is a provider of security services, including residential security alarm monitoring services. The first respondent, Signature Security Group (“Signature”), is in a similar, although not identical, business. Mr Salazar, Mr Califano and Mr Thomas, who are respectively the third, fifth and seventh respondents to the proceedings, are persons who, through various corporate vehicles, were formally dealers for the applicant, who I shall call ADT, up until about the end of 2003. At the time that Messrs Salazar, Califano and Thomas and their related entities were dealers with ADT those dealerships were governed by certain written contractual arrangements, which had the effect of imposing upon them obligations, inter alia, of confidence.
2. The dealerships between the three gentlemen and ADT appear to have come to an end by about October 2003. In 2006 and thereafter Messrs Salazar, Califano and Thomas and other related entities became dealers with Signature. The manner in which their businesses were operated involved the use of telemarketers. For a period of time it would appear the operations of the three gentlemen, their related companies, and their telemarketers, were conducted from the same premises. Amongst the telemarketers used for a period was a Mr Pryde. Mr Pryde, on this application gave evidence for ADT. The evidence he gave was of a surprising kind.
3. For example, Mr Pryde deposed to a conversation he had with Mr Salazar where Mr Pryde commented that a lot of the customers which he appeared to be contacting were apparently customers of ADT, that is, the applicant. And Mr Pryde says that Mr Salazar replied:

At one point all of the customers would have been with ADT. We’re working from an ADT customer database.

4. Mr Pryde also gave evidence that Mr Salazar said words to the effect that the lists that were being used were all lists of ADT customers and that they needed to be so used to be of advantage to Mr Salazar’s company. Upon Mr Pryde asking how that could be so, Mr Salazar replied:

Let’s tell the customers we used to work for ADT and we install their systems. If we tell them that we ought to be able to gain their trust.

5. Mr Pryde then gave evidence that he altered the script which he was using to make a point along those lines and he gave, as an example, the following:

Hello, my name is Scott, I’m calling from Symcorp [one of Mr Salazar’s companies]. We used to be a dealer for ADT and installed your security system. We don’t work for them now. We work with an Australian company who is a little cheaper. Did you know that ADT is an American company? We’re looking to save you some money and keep your money in Australia. We have a sales rep in your area tomorrow. Can I set up an appointment for you for them to come and see you?

6. Mr Pryde also gave evidence that he and other telemarketers from time to time said words to this effect:

We have been disappointed in ADTs services. We can provide you with a better service.

7. So far as the provenance of the list of customers is concerned Mr Pryde says that he was told by Mr Salazar, or otherwise became aware, that Mr Salazar had purchased the customer list from a Mr Starvaggi for about $20,000. In about September 2008 it would appear that ADT became concerned about complaints which were being made by its customers. Those complaints included suggestions by customers that they had been inappropriately contacted, since the information they had provided to ADT was apparently confidential; that they had been told that ADT was an American company and other related kinds of statements which, on their face, suggested that the customer should cease using the services of ADT.
8. ADT communicated these concerns to Signature. Those concerns were not treated with ignore. Indeed, it would appear that Signature took a number of steps to limit or curtail the representations apparently being made on its behalf. These included the imposition of certain educational programs, the appointment of a Mr Senol for the purpose of monitoring customer contentedness with the service being provided, and it also included, on a couple of occasions, the suspension of one of the agents. On about 12 August 2009 Mr Pryde provided the solicitor for ADT with the customer list, which is a substantial document. (This was the list which Mr Pryde understood Mr Salazar, Mr Califano and Mr Thomas’ entities to be operating from.)
9. Ms Tait, who is the solicitor for ADT, subsequently provided that list to a Ms Melinda Bloye. She examined the list and, by reference to her familiarity with the internal computing systems of ADT, gave evidence before me that the list provided by Mr Pryde was clearly drawn from ADT’s confidential information.
10. The application before me this afternoon is an application to restrain each of the respondents from making certain misrepresentations to customers of ADT and also for mandatory injunctions to compel the respondents effectively to return the customer list.
11. Not surprisingly, in light of Mr Pryde and Ms Bloye’s evidence, none of Mr Salazar, Califano or Thomas or any of their entities seek, in substance, to oppose the grant of orders of that kind. The first respondent, that is Signature, does not oppose the making of orders restraining it from making misrepresentations, but does not wish any such injunction to extend in ambit as far as its agents. This is an unsurprising position. The evidence which is on does not suggest that Signature itself has been engaged in the representations - if it has, it will be only because representations have been made on its behalf by Messrs Salazar, Califano, Thomas and their related entities.
12. Signature does, however, resist the making of an order against it which would have the effect of compelling it to produce the list of customers. It takes that position because it says there is no evidence that it has such a list and it says that that position is borne out by the structure of its business. The nature of that business is such, so it submits, that it would have no use for such a list.
13. The issues then are relatively narrow. The first issue is whether the injunction, which it is accepted should generally be issued against the respondents, should in the case of the first respondent extend to cover its agents. It was accepted that there is a triable issue in the requisite sense about whether the dealers - and by dealers I mean the three gentlemen and their companies - were the agents of the first respondent.
14. The contractual documentation, to which I will return shortly, is a little complicated and equivocal on that issue, but I proceed on the basis that there is an issue to be tried as to whether there is, in fact, an agency. The question of whether the injunction should require the first respondent to curtail the actions of its dealers is one which takes the form of the suggestion that either the balance of convenience is against the making of an order that extensive or, alternatively, if the court is otherwise minded to grant an injunction against the first respondent in respect of the dealer’s conduct that it should, as a matter of discretion, decline to do so.
15. The second issue concerns whether the order in relation to the list should be extended to the first respondent. I will deal with those issues in the order I have just suggested.
16. The power conferred by section 80 of the Trade Practices Act 1974 (Cth) (“the Act”) is a power which extends both to orders which have the effect of restraining conduct, and also, by reason of subsection (5), orders directing things to be done. In principle, therefore, there is no want of power insofar as the injunctions are sought against the first respondent in respect of the conduct of the dealers. Effectively, three arguments were made as to why such an injunction should not issue.
17. The first was, as Mr Hyde put it, that there was nothing that his clients could do, in substance, to compel the dealers to stop using the list. In effect, he has submitted that his client was already doing everything it could. Secondly, it was said that since, as events have transpired, the dealers have agreed that they should be restrained by an injunction, what was effectively being sought was in the nature of belt-and-braces. Put another way, it was said that the Court should not proceed upon the assumption that the dealers would breach the injunctions which had already been issued. Accordingly, relief should be declined for that reason. Thirdly, it was said, perhaps related to the second argument, that in light of the injunctions which would issue, damages would be an adequate remedy.
18. As to the first argument must ultimately turn upon the terms of the agreement. As I have said, it is accepted that there is a triable issue as to whether there is an agency. No doubt, that debate will ultimately be informed by a consideration, inter alia, of the terms of section 84(2) of the Act, which broaden the scope of that debate to one which focuses upon whether conduct is “on behalf of” the relevant party. However, turning to the terms of the agreements themselves, it is, I think, reasonably apparent that the first respondent, Signature, has a degree of control over its dealers, whatever the nature of that relationship or however it may be described.
19. So, for example, cl 2.3(a) of the dealer agreement requires all dealers to comply with the reasonable directions of Signature in carrying out their services. Clause 4.4 and schedule 2 require that the dealers must effectively get each of their directors, employees and contractors to execute equivalent documentation in favour of Signature. There was evidence before me that that had in fact been done. More significantly, each of the agreements also provides for the possibility of suspension of an agent and, more importantly, for termination for misconduct.
20. I am satisfied that the present steps which Signature has taken in relation to its dealers have not effectively curtailed their conduct. However, I am not satisfied that more could not be done. One of the interesting things about the current situation is that although Signature is contractually entitled to have the dealers behave themselves, as it were, both it and they are the beneficiaries of the agents’ misconduct. When the dealers - and there is a triable issue about this – conduct themselves in the way in which ADT now suggests that they do, the fact is that Signature obtains the economic benefit of that conduct. In a sense, therefore, Signature is put in a position where, although it wishes to be seen to be dealing with the dealers in the most vigorous way possible, it is not really in its economic interests that the conduct complained of should cease.
21. Because each of the dealer agreements confer upon Signature the ability to terminate the services of its dealers for misconduct and, also, if necessary, by curial order to have them comply with its directions, it seems to me that the limit of its ability to influence the conduct of the dealers has not yet been reached. In a sense, the business model which the first respondent has adopted gives rise to the structural difficulty that there are persons with the same commercial interests as Signature who are – I use this in a non-legal sense – operating on its behalf in the marketplace and, yet, when conduct of the kind under consideration arises there is no person who would appear to have the ability within that business model to curtail that behaviour.
22. In considering, I think, the soundness of the first argument put by Mr Hyde that it is not possible to control the dealers, it is relevant, I think, to consider upon whose shoulders the consequences of Signature’s business model should fall. That is, should the commercial difficulties that might exist in relation to Signature compelling the dealers to comply with its will fall upon it, or should they fall upon ADT? It seems to me that the more likely conclusion is that this business model is Signature’s creation and, to the extent that there are enforcement difficulties by reason of it, those difficulties are to be visited upon it rather than upon ADT.
23. Of course, the question to be determined here is the ability of Signature to compel compliance by its dealers. As I have said, I am not satisfied that the limits of its ability to compel compliance have yet been reached but, even accepting that there are difficulties in its position in seeking to compel that compliance, for the reason I have given, I do not think that that is a consideration which should fall in its favour; rather, that is a consideration which should fall in the favour of ADT. So I reject the first argument.
24. The second argument put by Signature was that there would be no need to issue an injunction against it in respect of the behaviour of its dealers where those dealers had themselves already been restrained. There being a triable issue that the dealers and their companies are relevantly agents of Signature, the first answer to that argument is that what is being restrained is not conduct by others but, in fact, conduct by Signature. No doubt it finds itself in the situation of having erected a contractual schema with the difficulties to which I have already referred but, again, in my opinion, that is Signature’s difficulty and not ADT’s.
25. The second answer is that, the provisions of section 80(4)(c) to require the same conclusion. That provision, of course, makes it clear that the power of this Court to make orders is not dependent upon a risk of imminent harm or of danger. Thus, it is not a condition precedent to the exercise of the power in question that I be satisfied that the dealers will breach the orders. That, in part, is an answer to the rhetorical question Mr Hyde asked, which was what was being sought to be achieved by the proposed injunction.
26. It seems to me that an injunction against the first respondent can achieve something which the orders against the other respondents does not – that is, an injunction against Signature can achieve the economic effect of imposing on it an incentive to bring its dealers to heel. For that reason, I reject the second argument.
27. The third argument was that damages would be an adequate remedy if the injunctions were issued to the dealers. I do not accept that that is so. If the injunctions are breached by the dealers, the economic harm to ADT will continue. I accept that there is no evidence that Signature will not be able to meet any damages verdict or account of profits which is eventually obtained against it, but, in a case where what is being alleged effectively is damage to ADT’s goodwill, I do not think that that is an answer. Ordinarily, in goodwill cases, damage to goodwill is generally regarded as one situation where compensation by damages is not adequate. Accordingly, I reject each of those arguments.
28. It follows that, in principle, the injunction which is sought by ADT against Signature should extend to the first respondent’s agents.
29. I turn, then, to the question of whether the Signature should receive a mandatory injunction requiring it to produce the list of customers. Ms Rees for ADT conceded that there was no evidence that the list was in the possession of Signature. The evidence does not really rise higher than that the dealers have the list of customers and that the dealers are using it. The only telemarketing which Signature carries out is in fact telemarketing in relation to commercial transactions. It does not involve itself at all directly with residential customers. It seems to me, therefore, that not only is there no evidence that it has the list, but a much more likely inference from the nature of its business is that it has no reason to have the list, and would have nothing to do with the list even if it did have it.
30. It is not a sufficient basis for the grant of an injunction that it would be useful or helpful to one party that such an injunction was in place. It would not be appropriate to issue an injunction, particularly of a mandatory kind, without there being some evidence that the injunction was directed to something. In those circumstances, I do not think that it would be appropriate to grant the injunction sought insofar as it relates to the list.
31. On the question of costs, I think the appropriate thing to do is to reserve all questions of costs to another time.
    

I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.

Associate:

Dated: 3 September 2009

Counsel for the Applicant:	K. Rees with D. Healey
Solicitor for the Applicant:	DLA Phillips Fox
Counsel for the First Respondent:	E. Hyde
Solicitor for the First Respondent:	Deacons Lawyers
Counsel for the Second and Third Respondents:	G. Carolan
Solicitor for the Second and Third Respondents:	Obst Legal
Counsel for the Fourth and Fifth Respondents:	A. Bouris
Solicitor for the Fourth and Fifth Respondents:	B2B Lawyers
Counsel for the Sixth and Seventh Respondents:	C. Wilson
Solicitor for the Sixth and Seventh Respondents:	Mirabelli D’Ortenzio Lawyers

Date of Hearing:	3 September 2009
Date of Judgment:	3 September 2009