Safer Storage Systems v Dexion (Australia) [2019] FCA 1784

(1 November 2019)

Application for interlocutory injunction – restraint of trade – trade mark infringement

In this case, Dexion sought interlocutory injunctive relief up to trial that would restrain Safer Storage Systems (SSS) and its directors from contravening restrictive covenants contained in a supply agreement between the two corporate litigants or using the name “Dexion” as a trade mark.

The application for interlocutory relief was dismissed by O’Bryan J.

While O’Bryan J accepted that Dexion had established that there was a serious question to be tried as to whether SSS had breached the restrictive covenants, the strength of that case was affected by SSS’s defence that the covenants are unenforceable as an unlawful restraint on trade.

While Dexion contended that the restrictive covenants were necessary to protect its goodwill, O’Bryan J considered there were significant doubts about that by reason of the relevant clause not being targeted to the protection of trade names, trade secrets or customer relationships but simply preventing SSS from conducting a competing business.  Importantly, SSS was conducting a competing business before entering into the agreement and the covenant would require SSS to cease doing business altogether.

His Honour observed that the strength of SSS’s defence bore upon the assessment of the balance of convenience.  On that front, Dexion failed to establish that the balance of convenience was in favour of granting an injunction to restrain breach of the restrictive covenant.  In broad terms, O’Bryan J considered that any harm which may befall Dexion, as a result of SSS continuing to compete against it, could be adequately compensated by damages.  Though that might involve some complexities in calculation, the potential damage appeared to be a relatively small proportion of Dexion’s total annual revenue.

In contrast, SSS would be restrained from conducting its present business, which would result in the loss of employment of 47 people and cause detriment to the company and its customers.  As such, damages on a claim on the undertaking as to damages would not be adequate protection for SSS.

Finally, O’Bryan J considered that another factor tending against the grant of interlocutory injunctive relief was that Dexion delayed in seeking that relief.  The agreement between the parties terminated in February 2019.  The solicitors for Dexion wrote to SSS seeking payments on 11 April 2019 but did not mention the restrictive covenants.  The notice of cross-claim filed a week later sought declarations that the restrictive covenants were binding and enforceable but did not seek injunctive relief.  It was not until 5 August 2019 that Dexion indicated it would seek injunctive relief.  While Dexion contended that it only learnt of SSS’s conduct in August 2019, the evidence suggested that certain parts of its business were aware of SSS’s competing tenders, and Dexion’s evidence did not address that.  In essence, it appears the onus shifted to Dexion to explain why it did not have notice, and as a result, the delay was not properly explained.

Surprisingly, O’Bryan J raised a concern he had with the legality and enforceability of the restrictive covenant that was not addressed by either of the parties.  In particular, his Honour was concerned (though made no finding on the issue) that the restrictive covenants comprised a cartel provision within the meaning of section 45AD of the Competition and Consumer Act 2010 (Cth).  Happily for SSS, such provisions are unenforceable.  But, unfortunately for both parties, the making of a contract which contains such a provision involves both criminal offences and a civil contravention of the Act.  It will be interesting to see where the litigation goes from here.