Digicel (Fiji) Ltd v Dickson International Trading Company Ltd [2009] FJHC 278; HBC184.2009L (11 December 2009)

IN THE HIGH COURT OF FIJI
AT LAUTOKA
CIVIL JURISDICTION

Civil Action No: HBC 184 of 2009L

BETWEEN:

DIGICEL (FIJI) LIMITED
a company duly incorporated under the laws of Fiji and having its head office
at PMB Nadi Airport, Lot 2 Nadi By-Pass Road, Meigunyeh, Nadi
Plaintiff

AND:

DICKSON INTERNATIONAL TRADING COMPANY LIMITED
having its registered office at H. N. Pande & Co. GPO Box 1283, Suva
Defendant

INTERLOCUTORY JUDGMENT

Of: Inoke J.

Counsel Appearing: Mr. C. B. Young for the Plaintiff
Mr. D. H. Denton S. C with Ms R. S. Singh Devan for the Defendant

Solicitors: C. B. Young & Associates for the Plaintiff
Messrs Neel Shivam Lawyers for the Defendant

Date of Hearing: 3 December 2009
Date of Judgment: 11 December 2009

INTRODUCTION

[1] This is the Plaintiffs application for interim injunctions against the Defendant pending final determination of the matter.

[2] The Writ of Summons and Statement of Claim was filed on 2 October 2009. The main allegation is that the Defendant ("Dickson") was "unlocking" mobile phones of customers who were under contract to the Plaintiff ("Digicel"). They allege that Dickson had been widely advertising this free service since September 2009. The Statement of Claim pleaded 6 causes of action but at the trial Mr Young, Counsel for Digicel, referred to two only: (1) the inducing breach of contract, and (2) misleading and deceptive conduct, ss 54 and 55 of the Fair Trading Decree.

[3] The Defence is yet to be filed.

[4] The Summons for interim injunction was filed on 6 November 2009 together with 4 affidavits. A further affidavit in reply was later filed on 30 November 2009. Digicel also filed an Undertaking as to Damages.

[5] The interim injunctions sought were:

(1) Restraining the Defendant whether by itself or by itself or by its directors or officers or employees or agents or otherwise howsoever from inducing, persuading or procuring the customers of the Plaintiff to break their Contracts with the Plaintiff by "unlocking" their mobile telephone handsets and/or replacing the Plaintiffs GSM SIM Card with Vodafone GSM SIM Card or by any other SIM Card.

(2) Requiring the Defendant whether by itself or by its directors or officers or employees or agents or otherwise howsoever to forthwith cease "unlocking" the mobile telephone handsets of the customers of the Plaintiff and/or replacing the Plaintiffs GSM SIM Card with Vodafone GSM SIM Card or by any other SIM Card.

[6] Dickson opposes the application and has filed an affidavit by its Director (the "Dickson affidavit").

OBJECTIONS TO AFFIDAVITS

[7] Mr Denton, Senior Counsel for Dickson, took objection to Digicel’s affidavits on the grounds that they did not support the causes of action as pleaded and contradicted each other and could not be relied on to establish facts to support its Summons. He further objected and identified several paragraphs of the 5 affidavits as inadmissible.

[8] Counsel sought my directions as to how the hearing was to proceed and I directed that Mr Young present his case as if the affidavits were unobjectionable with the right to respond after Mr Denton had presented his case and his objections.

[9] I repeat what I said in a Judgment delivered on Wednesday 9 December 2009 in Whittaker v Colonial Bank [2009] FJHC; HBC 155 of 2009L (9 December 2009) in respect of objections to affidavits:

[8] Challenges to affidavits in this jurisdiction rarely succeed and I think rightly so. In saying this I am in no way saying that sloppy drafting is acceptable. But objections based on technicalities or on credibility of deponents such as the ones raised by (Counsel) are equally as unacceptable. Due notice must be given to the fact that most deponents and drafters of affidavits in this country do not have English as their first language. Secondly, this is not originating process. It is interlocutory and the rules allow some flexibility. Thirdly, such affidavits are often drawn up in a hurry with limited time for collection of evidence. Fourthly, one must give some credit to the judge or magistrate that he or she has some common sense and fair judgment in assessing the evidence.

[9] Although I was minded to reject all the objections, I did not make any formal orders but gave (Counsel) the benefit of doubt in that I will consider the affidavit material from both sides with his objections in mind.

[10] I take the same approach to the affidavit material in this application. There were no objections which were clearly offensive and required a specific ruling so I made no rulings.

[11] I also take note of what the Court of Appeal said in Air Pacific Ltd v Air Fiji Ltd [2006] FJCA 63; ABU0066U.2006S (10 November 2006):

[23] If there is a contest of evidence, a Court dealing with such an interlocutory application should not attempt to make an assessment, on affidavits, of where the preponderance of evidence might lie, a point Lord Diplock made strongly in American Cyanamid at 406-7.

That point was:

It is no part of the court’s function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations. These are matters to be dealt with at the trial.

DIGICEL AFFIDAVITS

[12] The first affidavit is that of Florence Eyre who is Digicel’s Dealer Channel Manager. Her affidavit is to the effect that Digicel has a substantial investment in Fiji in a mobile telecommunications network, retail and service centres and employs some 120 people. Digicel sells mobile phones at subsidised prices to its Customers through authorised dealers. Two of the dealers are "Gizzmo" in Lautoka and "Cell Phones" of Ba. The Customer connects to the Digicel network and is provided with two payment options, being "post pay" or "pre pay". When the Customer chooses and option and purchases the mobile phone he signs a Contract, which was annexed to her affidavit. In return for the subsidised price, the Customer agrees to remain "locked in" to the Digicel network for a period of 2 years. The relevant Contract provisions are clause 8 for the "pre paid" and clause 12 for the "post paid" phones. To lock a mobile phone means controlling access to the pre-loaded and copyrighted software on the mobile phone. Once it is locked a user of that phone cannot access other networks other than the network to which it is locked. Digicel locks all mobile phones that it sells to Customers using software that is copyrighted to and owned by Digicel. To unlock a phone the "unlocker" needs to know the copyrighted code or have appropriate computer software. She then goes on to say that she has been informed by two persons that Dickson was providing unlocking services of Digicel phones and inserting Vodafone SIM cards. She annexed to her affidavit a copy of photograph of the front window of Dickson’s shop in Lautoka showing an advertisement for "Free Unlock Digicel Fone, Free, Free, Free, Direct Digicel top up here, Get $25 recharge for only $20, Buy Digicel top up". She also annexed a copy of a "flyer" which she says was Dickson’s advertising free unlocking and free SIM card services for Digicel phones.

[13] On 25 November 2008 Digicel’s solicitors wrote to Dickson’s Suva office putting Dickson on notice that it was inducing breach of Digicel Customers’ contracts by unlocking Digicel phones. Dickson’s then solicitors replied on 4 December 2008 denying unlocking Digicel Customers phones but asked for a copy of the Contract and advised that their client had ceased working on any Digicel Customer phones. A copy of the Contract was then sent by Digicel’s solicitors on 18 December 2008 to Dickson’s solicitors. On June 26 2009, Digicel’s new solicitors sent another letter to Dickson’s Suva office saying that Digicel was "extremely concerned" about the unlocking of its phones, referred to Clauses 8 and 12 of the Contract, informed Dickson that "unlocking" amounted to interference with Digicel’s contractual relationships and asked Dickson to "confirm your acceptance and understanding of this letter in writing to us". That letter appears to have not been responded to.

[14] Ms Eyre filed a second affidavit which was in response to the affidavit of the Dickson affidavit. Some of the paragraphs in her affidavit are matters of submissions and argument and even contradictory but, as I have said above, I am mindful of the objections in assessing the affidavit material.

[15] For example, she now says in her second affidavit that Digicel makes a formal request to the manufacturers of its mobile phones to lock them to its network which is not what she had said in her first affidavit. She now agrees with what was said in the Dickson affidavit. She makes no comment on the technicalities of the locking and unlocking process but disagrees that "variant software" did not belong to Digicel and claims that the unlock codes belong to Digicel.

[16] The other Digicel affidavits explain the standard procedure in sales of Digicel phones and gave instances of where Digicel phones with Digicel SIM cards had been swapped with Vodafone SIM cards on phones unlocked by Dickson and the extent of unlocking.

DICKSON’S AFFIDAVIT

[17] The Dickson affidavit on the other hand says that the two major mobile operators in Fiji basically use the same type of GSM technology. This means a person can place a SIM card from either of the operators into a mobile handset and access their services. Switching from one carrier to another with an unlocked phone simply requires switching the SIM card.1 I accept Dickson’s assertion because it is simply denied by Ms Eyre in her second affidavit2 and attempts to show that it is wrong by putting forward an argument which is irrelevant.

[18] The Dickson affidavit further says the network lock is a feature in software built into a mobile handset by mobile manufacturers and activated by the manufacturer at the request of the network owner prior to its sale. It is a normal feature used to restrict the device to accepting certain SIM cards by its IMSI (International Mobile Subscriber Identity). Network locking is achieved by installing in the phone at the factory the software that recognises the networks IMSI using a special algorithm or code. This seems to be the most used method of locking handsets in Fiji. Unlocking the handset is done by either entering the unlocking code or running a publicly available free "reverse" algorithm program to bypass the original locking software. These programs are freely available on the internet and not peculiar to Fiji or Digicel phones so any user can simply access the software on the internet and unlock his or her phone. Unlocking does not remove operator/network customisation such as logos and WAP settings. It simply allows the phone to be used on other networks.

CONSIDERATION OF THE AFFIDAVITS

[19] I accept the evidence from the Dickson affidavit as summarised above.

[20] I also accept the facts as summarised above for the Digicel affidavits.

[21] It is also clear from the affidavit material that Digicel does not own or have copyright to the locking software and that the software is part of the mobile phone. Digicel agrees that once a phone is sold, property in it passes to the Customer. I think that is clear from the wording of clauses 8 and 12 of the Contract which I will refer to later in this Judgment.

[22] Mr Young conceded that there is no legislation in Fiji that prohibits unlocking of mobile phones.

THE LAW

[23] The law on interim injunctions has been put in the form of 3 questions:3

(i) Is there a serious question to be tried?

(ii) Are damages an adequate remedy? and

(iii) If the answer to (ii) is in the negative then where does the balance of convenience lie?

[24] Mr Denton boldly urged me, as a matter of comity to the decisions of Australian Courts, to follow the Australian position as decided by the High Court of Australia in Australian Broadcasting Corporation v O’Neill4. That position was that the Plaintiff must first show a "prima facie" case. With respect, perhaps it is his countrymen that should show comity to the laws of Fiji. This Court and the Court of Appeal, comprised of many eminent Judges from the region, have consistently applied the test formulated by Lord Diplock in Cyanamid, that:5

The Court no doubt must be satisfied that the claim is not frivolous or vexatious; in other words, that there is a serious question to be tried.

So unless the material available to the court at the hearing of the application for an interlocutory injunction fails to disclose that the plaintiff has any real prospect of succeeding in his claim for a permanent injunction at the trial, the court should go on to consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief that is sought.

[25] I, myself, prefer the position as explained in the New Zealand Court of Appeal case referred to me by Mr Young of Klissers v Harvest Bakeries [1985] 2 NZLR 140 (CA) at 142, which has been quoted and adopted by the Court of Appeal here in Fiji in Air Pacific Ltd v Air Fiji Ltd [2006] FJCA 63; ABU0066U.2006S (10 November 2006):

Whether there is a serious question to be tried and the balance of convenience are two broad questions providing an accepted framework for approaching these applications. As the NWL6 speeches bring out, the balance of convenience can have a very wide ambit. In any event the two heads are not exhaustive. Marshalling considerations under them is an aid to determining, as regards the grant or refusal of an interim injunction, where overall justice lies. In every case the Judge has finally to stand back and ask himself that question. At this final stage, if he has found the balance of convenience overwhelmingly or very clearly one way – as the Chief Justice did her – it will usually be right to be guided accordingly. But if the other rival considerations are still fairly evenly poised, regard to the relative strengths of the cases of the parties will usually be appropriate. We use the word "usually" deliberately and do not attempt any more precise formula: an interlocutory decision of this kind is essentially discretionary and its solution cannot be governed and is not much simplified by generalities.

[26] I also take note of the caution given by their Lordships in the paragraph prior to that quoted above from the same judgment:

The argument presented by (Counsel for the Appellants) leads us to add some more general observations. In substance he said that an over-mechanical following in the High Court of New Zealand of the two-stage approach enunciated in American Cyanamid v Ethicon Ltd [1975] UKHL 1; [1975] AC 396 has resulted in plaintiffs in passing off and other actions obtaining too easily injunctions which, although nominally interim, have had the effect of putting an end to the litigation. We accept that this is at least a danger against which it is necessary to guard. The American Cyanamid approach has been qualified in the House of Lords itself in NWL Ltd v Woods [1979] 3 All E R 614. In this Court we have drawn attention from time to time to the importance of not seeking the answer to an interlocutory injunction application in the rigid application of a formula.

SERIOUS ISSUE TO BE TRIED

[27] Mr Young submitted that the essential elements of the tort of inducing breach of contract are as set out in D C Thomson & Co Ltd v Deakin & Ors [1952] Ch 646:

i. The wrongdoer knew or acquired knowledge of the contract in question and its essential, although not necessarily, its precise terms;

ii. He so acted or "interfered" whether by persuasion, inducement or procurement or other means so as to show that he intended to cause a breach of the contract or prevent its performance by one party to the detriment of the other party;

iii. The breach of contract was directly attributable to such act or interference; and

iv. Damage was occasioned or was likely to be occasioned to such other party

[28] That summary appears to have come from the judgment of Morris LJ at p 702:

The tort is committed if a person without justification knowingly and intentionally interferes with a contract between two other persons. There must therefore be knowledge of the existence of contractual relations between others and the intentional commission, without justification, of some act which interferes with those contractual relations so as to bring about or procure or induce a breach resulting in damage.

[29] That there are contracts between Digicel and its Customers cannot be denied. Dickson and its solicitors now know of them and cannot deny that unlocking does allow Digicel Customers to switch network in breach of their contracts. There is no compulsion or lawful excuse for Dickson to unlock or continue to unlock Digicel Customers phones. Although not specifically quantifiable at the moment, there can be no doubt that Digicel will lose call revenue from its Customers being able to switch network.

[30] I therefore think Digicel’s claim based on inducing breach of contract is not frivolous or vexations. It is not for the Court to forensically examine the affidavit evidence and complex questions of law at this stage. I think there are serious issues to be tried. However, in respect of the Fair Trading Decree claims I must admit to having some difficulty in understanding them. I do not need to consider s 125 of the Decree because I think in any event the same common law principles will apply to an application under that provision.

DAMAGES ADEQUATE REMEDY?

[31] Digicel does not have copyright in the factory installed locking program. It does not have any other special property rights. It does not own the mobiles sold to its Customers. Its rights are purely contractual. In such a case I think damages are adequate remedy. So, on this basis alone, it is not entitled to an interim injunction.

[32] However, just in case I am wrong, I will go on to consider the balance of convenience. In any event, I said only a few days ago in Whittaker v Colonial Bank [2009] FJHC; HBC 155 of 2009L, that Courts have gone on to decide the balance of convenience or "justice" despite the finding that damages are probably an adequate remedy if an award of damages is not sufficient to compensate for the loss that may be occasioned whilst the claim awaits final determination.7

BALANCE OF CONVENIENCE

[33] Lord Diplock sets out the approach to be taken in Cyanamid8 as follows:

It is where there is doubt as to the adequacy of the respective remedies in damages available to either party or to both, that the question of balance of convenience arises. It would be unwise to attempt even to list all the various matters which may need to be taken into consideration in deciding where the balance lies, let alone to suggest the relative weight to be attached to them. These will vary from case to case.

Where other factors appear to be evenly balanced it is a counsel of prudence to take such measures as are calculated to preserve the status quo. If the defendant is enjoined temporarily from doing something that he has not done before, the only effect of the interlocutory injunction in the event of his succeeding at the trial is to postpone the date at which he is able to embark upon a course of action which he has not previously found it necessary to undertake; where to interrupt him in the conduct of an established enterprise would cause much greater inconvenience to him since he would have to start again to establish it in the event of his succeeding at the trial.

CONSEQUENCES OF GRANTING INJUNCTIONS

[34] If Dickson is stopped from unlocking phones, there is no certainty that others and even Digicel Customers themselves will not have their phones unlocked. Dickson says that these unlocking programs are readily available for free on the internet and even individuals can unlock their phones themselves without having to come to him.

[35] Dickson will be prejudiced because he will lose business flowing on from the free unlocking service as well as some good will. And if Dickson wins at the trial, it will be difficult to calculate that loss and hence compensation for the loss he would have suffered between now and the hearing of the matter.

CONSEQUENCES OF REFUSING INJUNCTIONS

[36] On the other hand, if the injunction is not granted, Digicel’s loss of call revenue between now and the date of final judgment could be calculated, though I accept not precisely, with reasonable certainty.

OTHER MATTERS FOR CONSIDERATION

[37] There are three other matters which I take into account. The first is the fact that there is no statute law prohibiting unlocking of phones in Fiji. As Mr Denton put it: "Just because they don’t like what we are doing doesn’t mean they are entitled to an injunction".

[38] The other two matters were not raised by Counsel in argument but I think I can and should raise them as they are matters of law. The first of these is the effect of locking phones. It seems to me that such a practice may fall foul of the restrictive trade practices provisions of the Fair Trading Decree and hence unlawful. If both network operators in this country adopt that practice then any consumer who wishes to take advantage of whatever promotions that are available to him or her from either network must have two contracts, one with each operator, and two phones. If what Dickson says is correct that unlocking allows the user to just swap SIM cards then the consumer is clearly unfairly disadvantaged but the operators are not. The phone is bought and owned by the consumer, but simply because it is locked to one network, the consumer will have to buy a second phone to access the other network.

[39] The second is the Digicel Contract itself. It says in clauses 8 and 12: "if you purchased a Handset from us...you will only connect it to the Network and not use it to connect to any other..." I emphasise the word "it" as referring to the handset. It is an absolute prohibition of the Customer to use his own phone on any other network other than Digicel’s. These clauses might be in breach of the restrictive trade provisions of the Decree and if so they are unenforceable. These are the very clauses which Digicel grounds its claim. Mr Denton leveled some criticism at the drafting of these clauses but that was because he was referring to Mr Young’s submissions which contained typing errors of the clauses. The clauses as they appear in the Contract make perfectly good sense.

[40] In light of these two matters perhaps the Consumer Council on behalf of consumers and the Director for Fair Trading and Consumer Affairs as the person responsible for the enforcement of the Decree should be joined as interested parties. Hopefully this judgment will come to their notice for their consideration.

[41] Therefore, taking into account all of these matters I think the balance of convenience lies heavily against granting the interim injunctions sought by Digicel. I do not need to go further and consider the merits of the Plaintiffs case.

COSTS

[42] Digicel lost so it should pay for Dickson’s costs. I do not think that this is a case justifying Senior Counsel from Australia, with respect, so I make no allowance in that regard. I award costs of $800 to Dickson.

DEFAULT JUDGMENT AND LEAVE TO DEFEND

[43] I note that a judgment in default of defence was entered on 2 November 2009. The Defendant should be allowed to defend. That judgment is therefore vacated and the Defendant given leave to defend. As there is the likelihood of interested parties joining in and it is the start of the legal vacation I give the Defendant till 1 March 2010 to file its Defence.

ORDERS

[44] The Orders are therefore as follows:

a. The Plaintiffs application for interim injunctions filed on 6 November 2009 is dismissed.

b. The judgment in default of defence of 2 December 2009 is revoked.

c. The Defendant shall file and serve its Defence by 1 March 2010 and the matter shall take its normal course thereafter.

d. The Plaintiff shall pay the Defendant’s costs of $800 within 14 days.

Sosefo Inoke
Judge

________________________
End Note

1. Para 14(ii).
2. Para 5(b).
3. Natural Waters of Viti Ltd v Crystal Clear Mineral Water (Fiji) Ltd [2004] FJCA 59; ABU0011.2004S & ABU0011A.2004S (26 November 2004)
4. [2006] HCA 46; (2006) 227 CLR 57.
5. [1975] UKHL 1; [1975] AC 396,406-7
6. [1979] 3 All E R 614.
7. Cyanamid [1975] UKHL 1; [1975] AC 396, 408F
8. Op cit, 408F