AIM Maintenance Ltd v Brunt
[2004] WASC 49
AIM MAINTENANCE LTD -v- BRUNT & ANOR [2004] WASC 49
| (2004) 28 WAR 357 | |||
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2004] WASC 49 | |
| Case No: | CIV:1102/2004 | 17 MARCH 2004 | |
| Coram: | ROBERTS-SMITH J | 26/03/04 | |
| 38 | Judgment Part: | 1 of 1 | |
| Result: | Application granted | ||
| A | |||
| PDF Version |
| Parties: | AIM MAINTENANCE LTD IAN PETER BRUNT MARK JOHN JENKINS |
Catchwords: | Employment Contract Intellectual property and confidentiality agreements Employees resigning without notice Trade secrets and confidential information Whether protected Whether interim injunction should go Interlocutory injunction Contract of employment Intellectual property and confidentiality agreements Fiduciary duty Employees resigning without notice Trade secrets Confidential information relating to particular customers Setting up business on own account Whether "headstart" Practice and procedure Pleadings Facts asserted in defence Plaintiff not filing reply Whether facts pleaded by defendants taken to be admitted |
Legislation: | Nil |
Case References: | Concut Pty Ltd v Worrell (2001) 75 ALJR 312 Faccenda Chicken Ltd v Fowler [1984] ICR 589 Faccenda Chicken Ltd v Fowler [1986] 1 All ER 617 Hubbard v Vosper [1972] 2 QB 84 Independent Corporate Services Ltd v Stevens [2002] WASC 280 United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 American Cyanamid Co v Ethicon Ltd [1975] AC 396 Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 Coordinated Industries Pty Ltd v Elliott (1998) 43 NSWLR 282 Evans Marshall & Co Ltd v Bertola SA [1973] 1 All ER 992 London & Blackwall Railway Co v Cross (1885) 31 Ch D 354 Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1 Siskina, Owners of the Cargo on board the v Distos Compania Naviera S A (The Siskina) |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
IAN PETER BRUNT
MARK JOHN JENKINS
Defendants
Catchwords:
Employment - Contract - Intellectual property and confidentiality agreements - Employees resigning without notice - Trade secrets and confidential information - Whether protected - Whether interim injunction should go
Interlocutory injunction - Contract of employment - Intellectual property and confidentiality agreements - Fiduciary duty - Employees resigning without notice - Trade secrets - Confidential information relating to particular customers - Setting up business on own account - Whether "headstart"
Practice and procedure - Pleadings - Facts asserted in defence - Plaintiff not filing reply - Whether facts pleaded by defendants taken to be admitted
(Page 2)
Legislation:
Nil
Result:
Application granted
Category: A
Representation:
Counsel:
Plaintiff : Mr R H B Pringle QC
Defendants : Mr M W Fatharly
Solicitors:
Plaintiff : Vincent Partners
Defendants : Kott Gunning
Case(s) referred to in judgment(s):
Concut Pty Ltd v Worrell (2001) 75 ALJR 312
Faccenda Chicken Ltd v Fowler [1984] ICR 589
Faccenda Chicken Ltd v Fowler [1986] 1 All ER 617
Hubbard v Vosper [1972] 2 QB 84
Independent Corporate Services Ltd v Stevens [2002] WASC 280
United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157
Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317
Case(s) also cited:
American Cyanamid Co v Ethicon Ltd [1975] AC 396
Cardile v LED Builders Pty Ltd (1999) 198 CLR 380
Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148
Coordinated Industries Pty Ltd v Elliott (1998) 43 NSWLR 282
(Page 3)
Evans Marshall & Co Ltd v Bertola SA [1973] 1 All ER 992
London & Blackwall Railway Co v Cross (1885) 31 Ch D 354
Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1
Siskina, Owners of the Cargo on board the v Distos Compania Naviera S A (The Siskina)
(Page 4)
1 ROBERTS-SMITH J: This is an application for an interlocutory injunction.
2 The application is made by chamber summons filed 30 January 2004 in which the plaintiff ("AIM") seeks the following orders:
"2. That an injunction be granted to the Plaintiff restraining the defendants, and each of them, by themselves or himself or their servants or agents or otherwise howsoever, until further order, from entering into a contract with Lightnin Mixers Pty Limited or with National-Oilwell Ltd for the supply of gearboxes or pumps for mining equipment and, if any such contract has been made, from performing any such contract.
3. That an injunction be granted to the plaintiff restraining the defendants, and each of them, by themselves or himself or their or his servants or agents or otherwise howsoever from using the plaintiff's trade secrets or confidential information described in paragraph 11 of the Statement of Claim for their or his benefit or to the detriment of the plaintiff.
4. That the defendants and each of them do forthwith deliver up to the plaintiff any copies of its internal documentation, copies of any emails between each of the defendants and a customer of the plaintiff and the originals and copies of any documents described in paragraph 11 of the statement of claim."
3 The plaintiffs action was commenced by a writ of summons filed 30 January 2004 with a statement of claim annexed.
4 AIM is a corporation which carries on business in mining, engineering and maintenance. Until October 2002, the name of the corporation was Kiam Corporation Ltd, but since that date it has been called AIM Maintenance Ltd.
5 The statement of claim pleads that the first defendant ("Brunt") was employed by AIM from January 2000, initially as a fitter and from about November 2000 as an engineering supervisor. The second defendant ("Jenkins") was employed by the plaintiff from about January 2001 as foreman and supervisor of AIM's workshop personnel.
(Page 5)
6 The statement of claim pleads that the defendants entered into a contract of employment, the plaintiff's confidentiality agreement and the plaintiff's intellectual property assignment agreement. It is then pleaded that:
"11. The division of the plaintiff in which each of Brunt and Jenkins worked -
(a) designed and manufactured gearboxes and pumps for incorporation into mining machinery for its most important customers Lightnin Mixers Pty Limited ('Lightnin') and National-Oilwell Pty Ltd ('National') and other customers the designs, technical knowledge and manufacturing processes being trade secrets of the plaintiff;
(b) had technical knowledge concerning the designing and manufacturing of pumps and gearboxes for the petrochemical industry which constituted trade secrets and/or confidential information of the plaintiff;
(c) had pricing structures for and pricing arrangements with its customers, including Lightnin and National in respect of those gearboxes and pumps the information in relation to which also constituted trade secrets and/or confidential information of the plaintiff;
(d) had confidential information as to the needs, work projects and existing contracts with the plaintiff of Lightnin, National and other customers of the plaintiff;
(e) had confidential written and oral communications with Lightnin, National and other customers of the plaintiff concerning their needs existing work and proposed future work.
12. Each of Brunt and Jenkins during the course of his employment-
(a) gained knowledge of the plaintiff's trade secrets and confidential information referred to above;
(Page 6)
- (b) communicated orally and in writing with Lightnin, National and other customers concerning current and proposed work relating to gearboxes and pumps referred to above including quoting for proposed work.
- 13. On or about 13 January, 2004, each of Brunt and Jenkins purported to resign his employment with the plaintiff, and in breach of their contracts of employment ceased providing their services to the plaintiff on that day.
14. Before and since 13 January, 2004, each of Brunt and Jenkins has negotiated with Lightnin and National to obtain contracts so as to secure for themselves or a related entity the business until 13 January, 2004 done between the plaintiff and Lightnin and National and use of equipment, moulds and machinery owned by Lightnin and National and used by the plaintiff in performing its contracts with them.
15. In breach of the confidentiality agreement of each of Brunt and Jenkins, each of them used their knowledge of the trade secrets and confidential information pleaded in paragraph 11 above in the said negotiations with Lightnin and National.
16. Further or alternatively, each of Brunt and Jenkins intends, in breach of the confidentiality agreements, to use the plaintiff's trade secrets and/or confidential information pleaded in paragraph 11 above to quote for the supply of, to design, to manufacture and to supply, to Lightnin and National, gearboxes and pumps such as those referred to in paragraph 11 above."
7 The plaintiff further pleads breach of fiduciary duty by the defendants as senior employees of the plaintiff and claims an injunction restraining the defendants from entering into any contract with Lightnin and/or National in relation to the supply or gearboxes and pumps for mining machinery, or from performing any such contract as may have been entered into and from using for their own benefit or to the detriment of the plaintiff the trade secrets and confidential information relating to Lightnin and National and other customers of the plaintiff. There are also orders sought for the defendants to deliver up to the plaintiff all
(Page 7)
- documents or copies which embody confidential information of the plaintiff, for damages or an account of profits and equitable compensation.
8 Affidavits by the following deponents have been filed:
1. Andrew Blair Ellison, sworn 28 January 2004 ("Ellison's first affidavit");
2. Darren William Killeen, sworn 29 January 2004 ("Killeen's first affidavit");
3. Ian Peter Brunt, sworn 12 February 2004 ("Brunt's first affidavit");
4. Mark John Jenkins, sworn 12 February 2004 ("Jenkins' first affidavit");
5. Andrew Blair Ellison in reply, sworn 4 March 2004 ("Ellison's second affidavit");
6. Darren William Killeen in reply, sworn 4 March 2004 ("Killeen's second affidavit");
7. Darren William Killeen in reply, sworn 12 March 2004 ("Killeen's third affidavit").
9 To meet certain claims of the defendants of a lack of specificity in the pleadings and orders sought, Mr Pringle QC handed up at the outset of the hearing a "minute of orders" more particularly setting out the orders sought by the plaintiff:
"1. An injunction be granted to the plaintiff restraining the defendants, and each of them by themselves or himself or their or his servants or agents or otherwise howsoever, until further order from entering into a contract or contracts with Lightnin Mixers Pty Limited or with National-Oilwell Pty Ltd for the supply of gearboxes or pumps for mining equipment and, if any such contract has been made, from performing any such contract; provided that such restrain shall not be taken to prevent the defendants or either of them from purchasing parts from Lightnin Mixers Pty Limited.
2. An injunction be granted to the plaintiff restraining the defendants and each of them by themselves or himself or their or his servants or agents or otherwise howsoever from using the following trade secrets or confidential
(Page 8)
- information of the plaintiff for their or his benefit or to the detriment of the plaintiff -
- (a) pricing structure and pricing arrangements for the manufacture of gearboxes and pumps for mining machinery, for Lightnin Mixers Pty Limited and for National-Oilwell Pty Ltd;
(b) technical knowledge concerning the manufacturing of pumps and of gearboxes for mining equipment for Lightnin Mixers Pty Limited and for National-Oilwell Pty Ltd;
(c) details as to the plaintiff's existing contracts with, needs of and projected work for Lightnin Mixers Pty Limited and National-Oilwell Pty Ltd.
- 3. The defendants and each of them do deliver up to the plaintiff forthwith any of the following documents in their or his possession -
(a) copies of the plaintiff's pricing schedules, manuals and written instructions and reporting procedures, used in the division of the plaintiff in which the defendants worked;
(b) the plaintiff's contracts or correspondence with its customers, whether sent or received by a defendant or not;
(c) business card files."
11 The employment contract relevantly provides in cl 11.0:
"11.0 Leave Entitlements
(Page 9)
- Annual leave allowance is twenty (20) days with leave being taken at mutually agreed times. …"
- and in cl 14, cl 15 and cl 16:
"14.0 Notice of Termination
Termination of employment may be initiated by either party subject to the giving of four weeks notice of resignation/termination.
15.0 Assignment of Intellectual Property Rights
Along with other employees and subcontractors, you are required to execute the Company's Intellectual Property Assignment Agreement.
16.0 Confidentiality Undertakings
Along with other employees and subcontractors, you are required to execute the Company's Confidentiality Agreement."
"Supervise workshop to achieve the best productivity and quality possible with the focus on bringing jobs in on schedule and within hours."
13 Ellison deposes that in addition to the duties set out in the employment contract, Brunt was required to carry out various other duties in the course of his employment with AIM including:
"(a) quoting for the supply and delivery by the plaintiff to its customers of spare parts;
(b) supervising workmanship in the fabrication of the machining and refurbishment work for the plaintiff's customers;
( c) ensuring that quality control standards were adhered to by the work performed by plaintiff for the plaintiff's customers;
(Page 10)
- (d) managing quantity levels of the plaintiff's work load so as to service the contractual obligations of the plaintiff;
(e) liasing (sic) with the customers of the plaintiff and to ensure that they're (sic) (the plaintiff's customers) needs were being met by the plaintiff;
(f) to do all things necessary to promote the reputation of the plaintiff with its existing customers by professionally carrying out the duties referred to above."
14 According to Ellison's first affidavit, Jenkins commenced employment with AIM about 5 February 2001 as an engineering foreman. He also signed a contract of employment. That was in the same terms as Brunt's employment contract. It bears Jenkins' signature with the date 3 January 2001. The commencement date is given as 5 February 2001.
15 Jenkins was required to carry out various duties in the course of his employment including assisting Brunt as well as being the foreman and supervisor of AIM workshop personnel and having control over the internal administration of the division in which he and Brunt were employed.
16 Both Brunt and Jenkins signed the plaintiff's "Intellectual Property Assignment Agreement" and its "Confidentiality Agreement".
17 The Intellectual Property Assignment Agreement was in the following terms:
"As part of my contract of employment I, the undersigned, acknowledge and agree to the following:
1. All intellectual property of the Company shall remain with Kiam Corporation Limited or other companies within the AI Corporation Limited Group of Companies (Kiam Kalgoorlie, Kiam Port Hedland, Kiam Newman, Timcast Pty Ltd, TVT Engineers Pty Ltd, Weldtronics Ltd, Rankin Industries), whether developed by myself or others in the course of my employment.
2. Do all things reasonably requested by Kiam Corporation Limited to enable Kiam Corporation to assure further the Intellectual Property Rights assigned under this Clause.
(Page 11)
- For the purpose of this agreement Intellectual Property includes inventions, patents, copyright, designs, trade marks, trade secrets, computer programs, commercial processes and company pricing schedules, company literature, employee records, commercial agreements."
18 The terms of the Confidentiality Agreement in each instance were:
"I, the undersigned, acknowledge and agree, as a requirement of my employment with the following:-
1. An absolute requirement to keep confidential all information, whether it be in material form or otherwise as listed below:-
a) All information of a confidential nature (including but not limited to, trade secrets and confidential know-how) with which I become aware both before and after the date of execution of this agreement or generated pursuant to my contract of employment. This information relates to any information from Kiam Corporation Limited or other companies within the group.
b) Any notes or records (or part thereof) prepared by me based on or incorporating Confidential Information referred to in paragraph 1(a).
c) All copies of information, notes or records as outlined in 1(a) and 1(b).
2. The requirement to:-
a) Use the confidential Information solely for the purpose of my employment.
b) Establish and maintain effective measures to safeguard Confidential Information from access or use not authorised by this Agreement.
c) Return the Confidential Information to Kiam Corporation Limited on the termination of this Agreement (aligned with Termination of Employment) or receipt of a valid request from Kiam Corporation Limited.
(Page 12)
- 3. Only to disclose such Confidential Information to other employees or subcontractors (and only to the extent of the need to know) who:-
a) Are aware and agree that the Confidential Information must be kept confidential.
b) Have been directed to keep it confidential.
4. Understand that the above points 1 to 3 do not extend to information that:-
a) Is rightfully known to me or in my possession and not subject to an obligation of confidentiality.
b) Is public knowledge (other than as a result of a breach of this Agreement).
c) Is required by Kiam to be disclosed."
20 According to Ellison, both Brunt and Jenkins held positions of importance within AIM's organisation and were exposed to, and gained knowledge about, its internal and private information which he considers to be confidential. These included:
(a) pricing structure and pricing arrangements of the plaintiff with its customers;
(b) technical knowledge concerning the manufacturing of pumps and gearboxes in the mining and petrochemical industry; and
(c) details of AIM's customers, particularly National and Lightnin, including their needs, work projects and existing contracts with the plaintiff.
(Page 13)
21 Mr Darren Killeen is a senior employee of the plaintiff. He is the Kwinana workshop manager. Brunt reported directly to Killeen. Jenkins reported directly to Brunt.
22 Ellison deposes that Brunt and Jenkins resigned from the plaintiff's employment on 13 January 2004 by written notice that day. He states that he is informed by Mr Killeen that about 6.45 am both the defendants attended Killeen's office and handed him their resignation letters. He then recounts what Killeen told him about that, but as Killeen deposes to that conversation himself, I will relate his account of it in due course.
23 However, Ellison deposes that it is his belief that prior to or about the time the defendants resigned from the plaintiff's employ and some three hours after leaving AIM's premises, they entered into negotiations with National and Lightnin to take over the plaintiff's trade and business with those companies and to transfer to the defendants, or an entity associated with them, equipment, moulds and other items of machinery owned by National and Lightnin, and held by AIM for the purpose of servicing the requirements of National and Lightnin.
24 Ellison then refers to efforts made to retrieve emails from the defendants' work computers, but again, as Killeen deposes to that matter more directly, I shall deal with it later.
25 To continue with Ellison's affidavit for the time being, he states that upon further enquiries being conducted, it was discovered that all business cards of the defendants were missing. He also states that he believes the defendants had copies of all AIM internal documentation including "Strip and Assess" forms, client business cards, telephone directories and documented quality procedures. He says he has that belief because some of the copies of such documents that belong with the positions are missing from their offices. In addition, he states, there are also some photographs of work performed by AIM that are missing. He says these are the intellectual property of the plaintiff. He does not say what they were.
26 Apart from deposing to other matters reported to him by Killeen, Ellison states that the plaintiff's investigation also revealed the defendants performed a significant amount of invoicing on the night prior to their resignation. He says each of them usually did their work very well and the plaintiff entrusted them with their duties. Investigations revealed that much of the invoicing work performed by them just prior to their resignation was wrong and "as they had all the details about pricing
(Page 14)
- schedules, agreed rates and contracts with the plaintiff's customers, it appeared odd that they would issue erroneous invoices".
27 He says Killeen and he have had discussions with Lightnin, which has expressed a level of dissatisfaction with what has happened with the invoicing issues, in the way spares were being handled and with time limits of deliveries being met in the very recent past. He does not say to whom he spoke at Lightnin, nor what was said. He states that the defendants had full control of these areas and that "our" investigations revealed a situation consistent with work being wound down in the stock handling.
28 Pertinently, Ellison deposes the plaintiff's reputation is being questioned, it faces financial loss and on-going work with existing clients is in jeopardy. The value of on-going work with Lightnin and National alone, is at least $500,000 per annum. The commercial relationships AIM has built with its customers and Lightnin and National in particular, have taken years to develop and have cost the plaintiff significant time, effort and money.
29 Ellison says he has been discussing these issues with National and Lightnin over the past two weeks and both have told him they have been approached by the defendants to take over the work the plaintiff was carrying out for them.
30 I turn to Killeen's first affidavit. He gives the following account.
31 About 6.45 am on Tuesday 13 January 2004, Brunt and Jenkins attended Killeen's office and handed him their resignation letters. He asked them what it was all about, but they gave him no explanation other than to say an opportunity had been presented to them and that if they did not take it, it would be gone. They said they had to act quickly and did not take the decision lightly and had to leave immediately.
32 Killeen told both of them that this was not right and was in his view, inappropriate behaviour and in any event they had to give four weeks' notice of their intended resignation as per their employment contracts. Brunt acknowledged that and suggested that the four weeks' notice be his annual leave owing to him. Killeen said that if they left immediately, Brunt would forfeit his annual leave as that was "not the way things worked". Killeen deposes that Brunt did not seem to care about that and that Jenkins said he would forfeit his annual leave owed and it did not bother him. Killeen states that he repeated that the notice was not good enough. He also raised the issue of the status of all current or pending
(Page 15)
- work. Brunt assured him all was in order. Killeen urged both of them to stay with AIM for a longer period of time, if not the four weeks, at least enough time to have an effective handover. He states that Brunt replied "No, we have legal advice that we have to leave now". He states he asked the defendants where they were going and they told him that the plaintiff would probably hear by the end of the day. Both defendants then handed over their mobile phones and keys, shook hands with Killeen and left. He did not hear any further from them.
33 Killeen then arranged for the defendants' duties to be taken over by himself and other staff. For that purpose he required information concerning communications between AIM and its customers concerning their needs, orders, pricing, feedback, time delivery requirements and quantities. About 95 per cent of that work is done electronically by email. In order to obtain this information, Killeen had to access the defendants' work computers. He called the plaintiff's IT manager, Mr Benson, to provide him with passwords and other assistance. They were able to access the computers but were able to retrieve only a small amount of information. Significant amounts of work and information were missing. Benson spent a considerable amount of time trying to retrieve it but it appeared it had all been deleted.
34 Later that day and in the few days shortly following 13 January 2004, Killeen began receiving complaints from AIM customers. These had to do with invoices issued by the defendants on behalf of the plaintiff and which were wrong. He gives a specific example.
35 Killeen states that on 14 January 2004 in a conversation, Mr Jamie Armstrong of National told him that he had been contacted by Brunt on the morning the defendants left the plaintiff's premises. Brunt advised him the defendants were setting up their own operation similar to that of the plaintiff and solicited their business. In that conversation, specific reference was made to some of National's equipment held by the plaintiff and used for the repair of a particular pump which was National's property. Killeen was told by Armstrong that his understanding was that the defendants would be happy to take care of that work for them and to do that future work instead of the plaintiff.
36 Finally, Killeen refers to the fact that part of his role as workshop manager is to review all overhead costs in the department. Approximately one week after the defendants left, he was reviewing the monthly mobile phone bills. That revealed that the defendants made about 25 telephone calls between them to a real estate agent, dating back to 22 November
(Page 16)
- 2003. He telephoned the number and ascertained that the defendants had been seeking a lease for industrial premises.
37 In his first affidavit, Brunt says that he is a qualified mechanical fitter and has worked in that capacity for 25 years. That included a period of several years working as a supervisor for Abonnel Precision Engineering ("Abonnel") at a time when Abonnel was the preferred repairer for National and he gained extensive knowledge of their products. Abonnel also refurbished the complete range of Lightnin products and he gained extensive knowledge of that company's product range and the means of refurbishing them. He has also worked for National in Singapore as a supervisor for several years, further increasing his knowledge of their products and for Lightnin in Perth for 14 months prior to that company closing its Perth Service Centre.
38 He commenced working for AIM on 17 August 2000 as a casual fitter. He says that he commenced working as workshop foreman on 27 November 2000, but as far as he can recall, he did not ever sign any employment agreement with AIM.
39 He disagrees with Killeen's recollection of the discussion with him and Jenkins on 13 January 2004. He maintains they did not say words to the effect that they had had legal advice and "had to leave right now". Rather, he says, that upon tendering their resignation, Killeen asked where they were going and they told him they had legal advice not to divulge that information.
40 He disagrees with Killeen's assessment that approximately 95 per cent of the information passing between AIM and its customers was via email; he estimates the total correspondence to him received in that way was 15-20 per cent.
41 He denies deleting anything of importance from his work computer and says the only files or emails he deleted were those which no longer related to current work being undertaken and any personal emails or files. He states there were never large volumes of documents on his work computer during the time he worked for AIM. Most of the documents with which he dealt with were facsimiles. He states that he did not copy to disk any document relating to the plaintiff as the system would not allow it and he did not have a personal email address to which copied data could be sent.
42 Brunt deposes that without knowing precisely what invoices have been questioned, he is willing to assist the plaintiff to explain them. He
(Page 17)
- denies making any deliberate pricing errors, deliberately under-quoting jobs or deliberately mismanaging them.
43 Brunt acknowledges that he phoned Jamie Armstrong on 13 January 2004 as a matter of courtesy to advise him that Brunt and Jenkins would no longer be working for AIM, but says there was no request for business, although Armstrong was aware that the defendants were intending to set up business together. That was because he had approached Brunt in December 2003 on behalf of Monopumps, a subsidiary of National, offering Brunt a position of employment with them. Brunt declined the offer but told Armstrong in confidence that he was planning to start his own business.
44 Brunt states that having read Killeen's first affidavit, he contacted Lightnin to ask whether they had expressed concern or dissatisfaction to Ellison or Killeen regarding invoices, the handling of spares or the timeliness of deliveries. He spoke to Mr Mark Grieves, who did not express dissatisfaction about those matters.
45 Brunt deposes that Lightnin controlled the stock handling via fax delivery dockets to AIM. When delivery dockets were received from Lightnin, the plaintiff would act on them by picking the goods from the store, packaging them and delivering them to Lightnin's customer. Brunt states he had no control over that situation and it would not have been possible to wind work down.
46 He says the only documents he took were business card files and his own personal address book. They were not business records as such and were not used by other staff. He denies taking any "Strip and Assess" forms or quality procedures documents.
47 He admits using his work mobile phone occasionally to make personal calls, including some to a real estate agent regarding the lease of premises.
48 He deposes that he was still working for Lightnin until 31 May 2000 and so could not have been working for the plaintiff from 14 January 2000 as alleged. A copy of his last group certificate for his employment with Lightnin confirms that.
49 It is apparent from the objective documentation that he commenced working with the plaintiff from about 17 August.
(Page 18)
50 Brunt says he does not recall ever signing the Intellectual Property Assignment Agreement nor the Confidentiality Agreement.
51 Brunt deposes that AIM did not actually design any parts or equipment. In most cases parts were supplied by clients and machined or modified on very rare occasions in accordance with clients' specifications. If any parts were manufactured, that was done according to client instructions and there was no special design work involved.
52 As to his own role, he agrees that he held a position which allowed him to know and understand the internal workings of the company, but it did not extend to having knowledge of company finances or any special corporate knowledge. His role was to quote jobs and supervise the processing of jobs sent to AIM by clients. Apart from knowledge of the costs and work involved in specific jobs, he had no access to confidential information relating to the company. So far as pricing structure and arrangements were concerned, his awareness was only that the pricing structure was based upon the value rates charged for work undertaken by different staff for different work. Although there was some variation to the rates charged to different clients, they were essentially time-based and he knew the amount by which parts were to be marked up for sale. From his previous work experience he knew hourly rates for other companies and the general workshop hourly rates charged by the plaintiff were not secret.
53 He disputes Ellison's assertion that the plaintiff manufactured pumps and gearboxes. He says the plaintiff would overhaul gearboxes or assemble new units from parts supplied by the client and then paint them. They would then be packaged and despatched. Pumps were machined in accordance with specifications of the customer. Only some parts were manufactured by the plaintiff. Brunt was not qualified to do the machine work. His job was to quote for the work, supervise the work being undertaken by other employees and ensure it was completed in accordance with the requirement. He does not believe he has any special technical knowledge in relation to pumps and gearboxes by reason of working for the plaintiff.
54 He accepts that he had a working knowledge of the plaintiff's customers' needs, but that was simply as a result of receiving instructions as to what was required for each job.
55 Brunt expressly deals with other matters raised in Ellison's first affidavit and Killeen's first affidavit, but for present purposes it is not
(Page 19)
- necessary to canvas them here. It is sufficient to note that a number of the factual circumstances alleged by the plaintiff are disputed or denied by the defendants.
56 Jenkins' first affidavit is essentially in similar terms to Brunt's first affidavit, although in his case he confirms the signatures on the Jenkins' employment contract, the Jenkins' Intellectual Property Assignment Agreement and the Jenkins' Confidentiality Agreement are all his signatures.
57 For his part, Jenkins is a qualified mechanical fitter and has worked in that capacity for 13 years. During that time he has been employed by, amongst others, Malcolm Thompson Pumps for four years where he gained extensive knowledge in the overhaul and testing of pumping equipment and Veem Engineering Group as a supervisor for three years, during which period he gained valuable experience in running and supervising mechanical workshops.
58 The plaintiff's case for an interim injunction is based on alleged breaches of the Confidentiality Agreements and additionally (or alternatively) on alleged breaches of fiduciary duties by the defendants.
59 The submission is that as at 13 January 2004, each defendant was in possession of trade secrets and/confidential information as to technical details of work done for Lightnin and National, as to its pricing of such work, the personnel in Lightnin and National with whom the plaintiff dealt and their needs and the confidential communications between them and AIM.
60 It is submitted each defendant was in a position to cause greater detriment to AIM than any competitor who was not in possession of AIM's trade secrets and confidential information.
61 On the plaintiff's case (which Mr Pringle says is the more probable) the defendants set out to obtain for their own benefit the work being done for Lightnin and National by AIM, and indeed that they sabotaged AIM's relationship with those customers.
62 For the defendants it is submitted that the plaintiff has not sufficiently identified the nature of the information which is said to constitute trade secrets or confidential information of the plaintiff and nor has the plaintiff distinguished between that and knowledge and experience gained by the defendants working in the industry.
(Page 20)
63 There was no dispute between the parties as to the law to be applied on an application of this kind. As both parties referred to, and relied upon, my statement of it in Independent Corporate Services Ltd v Stevens [2002] WASC 280, it is convenient to set out here the relevant passages from that judgment:
"60 The principles on an application such as this are well established. They were explained by Owen J in Mott v Mount Edon Gold Mines(1994) 12 ACLC 319 at 321:
1. The applicant must satisfy the court there is a serious question to be tried;
2. If there is a serious question to be tried, an injunction will not be granted if common law damages would be an adequate remedy;
3. If there is a serious question to be tried and damages would not be an adequate remedy, the court must then consider whether the balance of convenience lies in favour of granting or refusing the relief sought;
4. When considering the balance of convenience, the relative strength and weaknesses of the applicant's case may be taken into account, and
5. The court should not attempt to decide factual conflicts arising from the affidavit material and nor should it determine difficult questions of law which require detailed argument.
61 The essential principles were articulated by Lord Diplock in American Cyanamid Co v Ethicon Ltd[1975] AC 396 at 407, and are now well entrenched (see also Castlemaine Tooheys Ltd v State of South Australia (1986) 161 CLR 148).
62 Before turning to the application of the fundamental principles, it is necessary to say something about the nature of the submissions advanced on behalf of the plaintiff on this application.
Duties of employee or former employee
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- 63 It is fair to say, I think, that there was no dispute about the propositions of law which bear on this application or the substantive action. The defendant accepts the plaintiff's submission that it is an implied term of a contract of employment that during the currency of that contract, the employee would act in the employer's best interests and not in furtherance of his own interests (Wessex Dairies Ltd v Smith [1935] 2 KB 80; Faccenda Chicken Ltd v Fowler & Ors [1986] 1 All ER 617 and N P Generations Pty Ltd v Feneley[2000] SASC 240). So too, during the currency of the contract of employment, an employee must not solicit customers for a future time when the employment has ceased and the employee has established his own business. This is a consequence of the employee's duty of good faith and fidelity.
64 In Faccenda the English Court of Appeal extracted the following principles of law from a consideration of the authorities (at 625):
'(1) Where the parties are, or have been, linked by a contract of employment, the obligations of the employee are to be determined by the contract between him and his employer: cf Vokes Ltd v Heather (1945) 62 RPC 135 at 141.
(2) In the absence of any express term, the obligations of the employee in respect of the use and disclosure of information are the subject of implied terms.
(3) While the employee remains in the employment of the employer the obligations are included in the implied term which imposes a duty of good faith or fidelity on the employee. For the purpose of the present appeal it is not necessary to consider the precise limits of this implied term, but it may be noted: (a) that the extent of the duty of good faith will vary according to the nature of the contract (see Vokes Ltd v Heather); (b) that the duty of good faith will be broken if an employee makes or copies a list of the customers of the employer for use after his employment ends or deliberately
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- memorises such a list, even though, except in special circumstances, there is no general restriction on an ex-employee canvassing or doing business with customers of his former employer (see Robb v Green [1895] 2 QB 315, [1895-9], All ER Rep 1053 and Wessex Dairies Ltd v Smith [1935] 2 KB 80, [1935] All ER Rep 75).
(4) The implied term which imposes an obligation on the employee as to his conduct after the determination of the employment is more restricted in its scope than that which imposes a general duty of good faith. It is clear that the obligation not to use or disclose information may cover secret processes of manufacture such as chemical formulae (see Amber Size and Chemical Co Ltd v Menzel [1913] 2 Ch 239), or designs or special methods of construction (see Reid Sigrist Ltd v Moss Mechanism Ltd (1932) 49 RPC 461), and other information which is of a sufficient high degree of confidentiality as to amount to a trade secret.
The obligation does not extend, however, to cover all information which is given to or acquired by the employee while in his employment, and in particular may not cover information which is only 'confidential' in the sense that an unauthorised disclosure of such information to a third party while the employment subsisted would be a clear breach of the duty of good faith.
This distinction is clearly set out in the judgment of Cross J in Printers and Finishers Ltd v Holloway [1964] 3 ALL ER 731, [1965] 1 WLR 1, where he had to consider whether an ex-employee should be restrained by injunction from making use of his recollection of the contents of certain written printing instructions which had been made available to him when he was working in his former employers' flock printing factory. In his judgment, delivered on 29 April 1964 (not reported on this
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- point in the Weekly Law Reports), Cross J said ([1964] 3 All ER 731 at 738n):
'In this connexion one must bear in mind that not all information which is given to a servant in confidence and which it would be a breach of his duty for him to disclose to another person during his employment is a trade secret which he can be prevented from using for his own advantage after the employment is over, even though he has entered into no express covenant with regard to the matter in hand. For example, the printing instructions were handed to [the first defendant] to be used by him during his employment exclusively for the plaintiffs' benefit. It would have been a breach of duty on his part to divulge any of the contents to a stranger while he was employed, but many of these instructions are not really 'trade secrets' at all. [The first defendant] was not, indeed, entitled to take a copy of the instructions away with him; but insofar as the instructions cannot be called 'trade secrets' and he carried them in his head, he is entitled to use them for his own benefit or the benefit of any future employer.'
The same distinction is to be found in E Worsley & Co Ltd v Cooper [1939] 1 All ER 290, where it was held that the defendant was entitled, after he had ceased to be employed, to make use of his knowledge of the source of the paper supplied to his previous employer. In our view it is quite plain that his knowledge was nevertheless 'confidential' in the sense that it would have been a breach of the duty of good faith for the employee, while the employment subsisted, to have used it for his own purposes or to have disclosed it to a competitor of his employer.
(5) In order to determine whether any particular item of information falls within the implied term so as to prevent its use or disclosure by an employee after his
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- employment has ceased, it is necessary to consider all the circumstances of the case. We are satisfied that the following matters are among those to which attention must be paid. (a) The nature of the employment. Thus employment in a capacity where 'confidential' material is habitually handled may impose a high obligation of confidentiality because the employee can be expected to realise its sensitive nature to a greater extent than if he were employed in a capacity where such material reaches him only occasionally or incidentally. (b) The nature of the information itself. In our judgment the information will only be protected if it can properly be classed as a trade secret or as material which, while not properly to be described as a trade secret, is in all the circumstances of such a highly confidential nature as to require the same protection as a trade secret …' (Emphasis added).
- 65 In Wessex Dairies v Smith, Maugham LJ said (at 89):
'First, after the employment terminates, the servant may, in the absence of special stipulation, canvass the customers of the late employer, and further he may send a circular to every customer. On the other hand, it has been held that while the servant is in the employment of the master he is not justified in making a list of the master's customers, and he can be restrained, as he was in Robb v Green [1895] 2 QB 1, from making such a list, or if he has made one, he will be ordered to give it up. But it is to be noted that in Robb v Green the defendant was not restrained from sending out circulars to customers whose names he could remember. Another thing to be borne in mind is that although the servant is not entitled to make use of information which he has obtained in confidence in his master's service he is entitled to make use of the knowledge and skill which he acquired while in that service, including knowledge and skill directly obtained from the master in teaching him his business. It follows, in my opinion, that the servant may, while in the employment of the master, be as agreeable, attentive and skilful as it is in his power to be to others with the ultimate view of obtaining the benefit of the customers'
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- friendly feelings when he calls upon them and when he sets up business for himself. That is, of course, where there is no valid restrictive clause preventing him doing so'."
64 As Mr Pringle pointed out in the course of his submissions, the decision in Faccenda has been subject to judicial and academic criticism. That criticism concerns the extent to which an employer's confidential information which does not amount to a trade secret can be protected by a restrictive covenant. That was not an issue in Independent Corporate Services v Stevens, first because there was no suggestion in that case that there was any express contractual restriction of the use of commercially secret or confidential information and secondly because the application failed because on the evidence there was no serious issue to be tried.
65 However, the issue does arise in the present case and so I now turn to it.
66 In Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 the New South Wales Court of Appeal dismissed an appeal from orders restraining the appellant (a former employee of the respondent) from dealing with certain of the respondent's former suppliers for four years. In that case there was a restraint of trade agreement which prohibited use or disclosure of the employer's information as to the identity and whereabouts of its suppliers or customers. Kirby P and Samuels JA held that information as to the identity of the reliable suppliers of the employer used by it at the time the employee ceased his employment, was confidential and as such liable to be protected by the express agreement between the parties.
67 Gleeson CJ's dissent in the particular case turned on his view that what was really being sought to be restrained was an unfair competitive step, rather than the misuse of information that could properly be described as "secret" or "highly confidential" (329).
68 Certain of the comments made by Kirby P cautioning courts not to be too quick to substitute their business judgment for that of commercial litigants have some application to the present case. At 333 his Honour said:
"It is important that courts, with limited experience in the operation of particular businesses, should refrain from too readily substituting their views of what is confidential for that which the parties have defined and agreed to be such. Necessarily, courts get a limited perception of the operation of a
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- business enterprise. Their view of its activities in a competitive marketplace must depend upon the evidence typically called in a trial. Merely because a person says that something is regarded as confidential or a 'trade secret' does not make it so: cf Drake Personnel ltd v Beddison [1979] VR 13 at 20. Courts should, nevertheless, exercise a modest disinclination to hold that information is not confidential when parties have taken the trouble to say that it is."
69 Kirby P pointed out (at 334) that determining what is confidential involves a decision on a question of fact in each case and that considerations which courts have found to be relevant in particular cases include the fact that:
(a) skill and effort was expended to acquire the information;
(b) the information is jealously guarded by the employer; is not readily made available to employees and could not, without considerable effort and/or risk, be acquired by others;
(c) it was plainly made known to the employee that the material was regarded by the employer as confidential;
(d) the usages and practices of the industry support the assertion of confidentiality; and
(e) the employee has been permitted to share the information only be reason of their seniority or high responsibility within the employer's organisation.
70 His Honour emphasised that these considerations do no more than illustrate the approaches adopted by courts to earlier cases where claims have been made for the protection of trade secrets or confidential information of an employer.
71 Although, like Gleeson CJ, Kirby P agreed that the confidential information in that case did not have sufficient quality to attract protection as a "trade secret", he regarded that conclusion as ultimately irrelevant because the employer's claim for relief was not based only upon general equitable principles but also on the express covenant which it had taken the trouble to secure from the employee (335).
72 It was in that regard that Kirby P expressly agreed with what Samuels JA had written concerning the opinion of the English Court of Appeal to the contrary in Faccenda.
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73 Samuels JA noted that at first instance in Faccenda Chicken Ltd v Fowler [1984] ICR 589 at 599, Goulding J had held that information which is not a trade secret, but which an employee must treat as confidential during their employment, and which they are free to use after their employment is terminated, may nonetheless still be protected by an express restraining agreement. The Court of Appeal rejected that proposition (Faccenda Chicken Ltd v Fowler [1986] 1 All ER 617 at 626), a position which has since been the subject of some controversy. The nature of that controversy was discussed briefly by Samuels JA at 341, supra, following which his Honour opined there is neither principle nor case which supports the Court of Appeal decision (on this point). His Honour (with whom as I have said, Kirby P agreed on this point) preferred the views of Goulding J in Faccenda to the criticism of them expressed by the Court of Appeal.
74 With respect, I agree with Samuels JA and I accordingly take the law to be that confidential information falling short of a "trade secret" may be protected after termination of employment, by an express restrictive covenant. It is unnecessary in the present context to consider the limitations of such a restraint, whether by reasonableness or otherwise.
75 In the present case, the plaintiff relies upon the several agreements which it says were signed by the defendants.
76 Mr Pringle took the position that the Intellectual Property Assignment Agreement and the Confidentiality Agreement operated only during the period of employment of the defendants; that is, they terminated when the employment contract terminated.
77 However, he argued that the purported resignation of the defendants on 13 January 2004 was not an effective, nor lawful, resignation because they failed to give the requisite four weeks notice. Nor were their resignations accepted and the four week notice requirement waived by the plaintiff. That being so, he says, they were contractually bound not to disclose nor use the plaintiff's trade secrets or confidential information, during the following four week period at least.
78 As Gleeson CJ, Gaudron and Gummow JJ pointed out in Concut Pty Ltd v Worrell (2001) 75 ALJR 312 at [17], the issues to be determined in that case (as here), must be understood in the context of the law respecting employment relationships - and it would be unusual for that to be purely contractual. Their Honours observed that:
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- "As Mason J pointed out in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96-97, the relationship between employee and employer is one of the accepted fiduciary relationships; their critical feature is that the fiduciary undertakes or agrees to act for or on behalf of, or in the interests of, another person in the exercise of a power or discretion that will affect the interests of that person in a legal or practical sense."
79 The plaintiff submits that some of the information held by the defendants falls within the category of trade secrets and so it would be protected on any view, but even that which is confidential information is protected by the restraining agreements during the time of employment and by equity to prevent breach of the respondent's fiduciary duty.
80 Mr Pringle submitted that last proposition appears to have been accepted at [89] of my judgment in Stevens. What I said there was:
"If there was a serious question to be tried in respect of the plaintiff's claim that the defendant had breached his duty of fidelity by actively soliciting clients of the plaintiff whilst still in the plaintiff's employ, and/or since then have (sic: had) used or was using confidential information of the plaintiff to commercially damage the plaintiff's business, I would have considered damages not to be an adequate remedy to the plaintiff."
81 That passage does no more than recognise that for an employee to actively solicit for his or her own business, clients of their employer whilst still in the employ of the employer, could constitute a breach of fiduciary duty, as could the employee's use of confidential information to commercially damage their former employer's business. Whether what was done in the particular case amounted to a breach of fiduciary duty so as to attract the protection of equity, would clearly depend upon all the circumstances of the case, including the nature of the information, the circumstances in which it came into the employee's possession and the use subsequently made of it.
82 The plaintiff finally relies upon a submission that the injunction should go because the confidential information gained by the defendants here has been, or is to be, used by them to gain a "headstart" commercially. That concept was explained by the New South Wales Court of Appeal in United States Surgical Corporation v Hospital
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- Products International Pty Ltd [1983] 2 NSWLR 157. (That decision was reversed on appeal to the High Court, but not on this point).
83 At 228-230 the Court said:
"We shall first consider the cases concerning confidential information, including the 'headstart' or 'springboard' cases which were applied by way of analogy by McLelland J. His Honour was correct in not applying these latter cases directly, for they deal with situations which are essentially different from that arising in the present case. They deal with situations in which the defendant has used information which he has received in confidence, and which, had he received it otherwise, he would have been entitled to use as he did. And they are cases in which the headstart was, or was accepted as being or offsetting, the gain which the defendant in fact obtained by his misuse of the information. In the earlier cases the remedy in confidential information cases seems to have been generally injunction, and sometimes damages of a general kind, restitution or other order suited to the circumstances. The point of departure for the headstart concept was the decision of the Court of Appeal in Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203. That case concerned drawings of tools for the manufacture of leather punches which had been delivered to the defendants in confidence but which they later used for their own purposes by constructing tools for the manufacture of punches. In the course of his judgment Lord Greene M R pointed out (at 215):
'What the Defendants did in this case was to dispense in certain material respects with the necessity of going through the process which had been gone through in compiling these drawings, and thereby to save themselves a great deal of labour and calculation and careful draughtsmanship No doubt, if they had taken the finished article, namely, the leather punch, which they might have bought in a shop, and given it to an expert draughtsman, that draughtsman could have produced the necessary drawings for the manufacture of machine tools required for making that particular finished article. In at any rate a very material respect they saved themselves that trouble by obtaining the necessary information either from the original drawings or from the
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- tools made in accordance with them, That, in my opinion, was a breach of confidence.'
- We shall mention his Lordship's statement about copying later, but the court having decided that the plans had been used in breach of confidence, the question of relief was discussed. The report contains the following note about that discussion (at 219):
'In the course of the discussion on the relief to be given to the Plaintiffs, their Lordships expressed reluctance to make any order which would involve the destruction or sterilisation of tools which might serve a useful purpose, since under Lord Cairns' Act the Court could award damages, to cover both past and future acts, in lieu of an injunction.'
The form of order for relief 'as finally agreed' is then set out, and it included an order that the defendants deliver up the drawings and:
'An inquiry as to what damages have been and may be suffered by the first-named Plaintiffs by reason of the Defendants' breaches of confidence in retaining for their own use and using for the construction of leather punches to be sold by the Defendants on their own account the said drawings and any tools in the making whereof any drawings were used or reproduced to any substantial extent, and in selling such leather punches.'
On this unlikely foundation the development of 'headstart' relief in relation to the wrongful use of confidential information was based.
In a footnote to the argument in the Court of Appeal in Terrapin Ltdv Builders' Supply Co (Hayes) Ltd [1960] RPC 128, at 130, it is recorded that Roxburgh J had said this at first instance concerning the decision in Saltman:
'As I understand it, the essence of this branch of the law. whatever the origin of it may be, is that a person who has obtained information in confidence is not allowed to use it as a springboard for activities detrimental to the person who made the confidential communication, and springboard it
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- remains even when all the features have been published or can be ascertained by actual inspection by any member of the public . . . The possessor of the confidential information still has a long start over any member of the public . . . It is, in my view, inherent in the principle upon which the Saltman case rests that the possessor of such information must be placed under a special disability in the field of competition to ensure that he does not get an unfair start.'
- Roxburgh J's statement, which was set out in full by Roskill J in Cranleigh Precision Engineering Ltd v Bryant [1965] 1 WLR 1293, at 1317, 1318; [1964] 3 All ER 289, at 301, was applied in British Franco Electric Pty Ltd v Dowling Plastics Pty Ltd [1981] 1 NSWLR 448, by Wootten J who expressed the view (at 451) that:
'This passage contemplates not that a person who has received information in confidence will be enjoined for ever from using it, notwithstanding that it has become public. It contemplates rather the moulding of remedies to place him under special disability to ensure that he does not get an unfair start, in other words, the imposition of some compensating handicap'."
85 The Court concluded at (at 233):
"This review shows that the headstart approach to damages or other relief is not based on some artificial or arbitrary doctrine, to be applied regardless of the facts of the case. It is a principle applied in conformity with the more general principle that a person misusing confidential information must answer for his default according to his gain. A headstart may often be the gain in these cases. If it is the gain, damages will be assessed accordingly and any other relief, such as injunction, will be moulded. If it is not the gain the method of assessing damages
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- or the appropriateness of some other remedy has to be considered in the light of what that gain is. If, as we have found to be the position in the present case, the gain was not a headstart, damages assessed on a headstart basis, or an equivalent accounting of profits, is not the appropriate form of relief."
86 The plaintiff's submission is that the confidential information held by the defendants gives them a "headstart" against any competitors other than the applicant. But Mr Pringle says it goes further, and says the principle also applies to what he submits is sabotage of the plaintiff's business by the defendants before they left. I do not need to reach a conclusion about that for present purposes.
87 Mr Fatharly, for the defendants, submits that the plaintiff's claim generally is characterised by vagueness and uncertainty and does not lend itself to either identification of information or material for which protection is sought, nor any basis upon which the law would restrain the use of it. He submits there is a lack of particularity about what is said to have been obtained by the defendants as confidential information and of the intellectual property now sought to be protected.
88 He takes issue with Mr Pringle's submission that the defendants' employment continued beyond 13 January 2004 because their purported resignations were ineffective. He points out that is not expressly pleaded by the plaintiff, although in their defence filed on 25 February 2004 the defendants do plead they resigned on 13 January 2004 and their resignations were effective immediately, having been accepted by Killeen's conduct. As the plaintiff did not file a reply, that claim, says Mr Fatharly, is to be taken as admitted.
89 So far as the pleading point is concerned, I agree that if that point is something upon which the plaintiff means to rely, it ought to have been expressly pleaded in the statement of claim. But I do not think the failure to do so is fatal. The point is, in my view, necessarily implicit in what has been pleaded.
90 Paragraph 13 of the statement of claim pleads that on or about 13 January 2004, each of Brunt and Jenkins purported to resign his employment with the plaintiff, and in breach of their contracts of employment ceased providing their services to the plaintiff on that day.
91 At [16] of the statement of claim it is pleaded that:
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- "Further or alternatively, each of Brunt and Jenkins intends, in breach of the confidentiality agreements, to use the plaintiff's trade secrets and/or confidential information pleaded in paragraph 11 above to quote for the supply of, to design, to manufacture and to supply, to Lightnin and National, gearboxes and pumps such as those referred to in paragraph 11 above."
92 Given Mr Pringle's position that the confidential agreements arguably terminate with the termination of the defendants' employment, that plea could only mean their employment is still continuing.
93 The submission that because the plaintiff did not file a reply denying the defendants effectively resigned on 13 January 2004 that fact is to be taken as admitted, cannot be accepted. Indeed, the position is to the contrary. It is unnecessary for a party to deliver a reply if its only purpose is to deny the allegations in the defence. Order 20 r 15 of the Rules of the Supreme Court 1971 provides that if there is no reply to a defence, there is an implied joinder of issue on that defence, which operates as a denial of every material allegation of fact made in it (unless otherwise admitted).
94 Mr Fatharly is correct in his submission that much of the evidentiary material relied upon by the plaintiff (particularly in the Ellison affidavits) lacks proper form, is vague and could not be accepted as a basis for making the orders sought. Mr Pringle acknowledges that, but contends he is relying only on that material to which he expressly referred, that being in proper form and sufficient in content.
95 I am conscious that there are areas of significant factual dispute in the material before me and that I should not attempt to decide factual conflicts on an application of this kind. I refer to what I said about this in Stevens at [67]-[68]:
"67In Cayne & Anor v Global Resources PLC [1984] 1 All ER 225 the English Court of Appeal held that for the purposes of an application for an interlocutory injunction, there will be a triable issue between the parties if there is a serious question to be tried (ie one for which there is supporting material) of which the outcome is uncertain. Accordingly, where the plaintiff's case relies solely on inference and the defendant has sworn a positive affidavit which, if true and accepted, destroys that inference, the court should not necessarily conclude that the plaintiff has failed to establish a triable issue, because on such an
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- application it is not necessary for the parties to establish firmly the outcome of the case, and the mere fact that a party's case is deposed to does not make it incontrovertible.
- 69 In that case, the inferences sought to be relied upon by the plaintiff were plainly raised on the evidence. The position was as expressed by Eveleigh LJ at 230:
'The plaintiff's evidence … clearly pointed to the inference which they asked the court to draw. Global's evidence, if true and accepted, of course clearly destroyed that inference. But the great question that has to be determined is whether the defendant's case is accepted or not. The mere fact it is deposed to does not make it incontrovertible. Therefore, when the evidence is not accepted by the plaintiffs, I am left in doubt as to the outcome of the trial on that issue. If I am in doubt and the issue seems to be one that is not frivolous, in other words is one for which there is supporting material, then I would conclude that there is a triable issue'."
97 There is evidence which, if accepted would establish that the defendants signed the Intellectual Property and Confidentiality Agreements.
98 Those agreements would have operated certainly during continuation of the defendants' employment with the plaintiff. The former defined intellectual property as including inventions, patents, copyright, designs, trademarks, trade secrets, computer programs, commercial processes and company pricing schedules, company literature, employee records and commercial agreements.
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99 The latter describes confidential information as including, but not limited to, trade secrets and confidential know-how. It imposes "an absolute requirement" to keep all such information confidential, to use it solely for the purpose of the defendants' employment, to establish and maintain effective measures to safeguard such information from access or use not authorised by the agreement and to return such information on termination of the agreement.
100 If Killeen's evidence were to be accepted, it could not be found he had agreed to accept the defendants' resignations as being effective forthwith on 13 January 2004.
101 The evidence - including that of the defendants - is that they used mobile phones provided to them by the applicant for work purposes, to make a number of calls to a real estate agent for the purpose of obtaining a lease for industrial premises. They say that was in the course of arranging to set up their own business. That business was intended to operate in the same field and in competition to that of the plaintiff.
102 It is apparent from Brunt's affidavit that he had been actively considering setting up his own business since at least November 2003 and that he had some discussions with representatives of Lightnin, at least, about that. As a result of those discussions the respondents were aware Lightnin had a concern about what would happen to the work AIM was doing for it, if the defendants were to leave.
103 As it stands, the evidence relating to the plaintiff's allegations the defendants deliberately sabotaged its operations by mis-quoting jobs, failing to properly process charges for jobs done, or charging excessively, falls considerably short of demonstrating there is a triable issue in that respect.
104 On the other hand, and bearing in mind the still early stage of the litigation and that more evidence is to be expected at trial, the plaintiff's evidence in respect of the removal or deletion of emails and electronic data relating to customers and jobs, could, if made out, show breach of both contractual and fiduciary duty on the part of the defendants.
105 Those claims, as I have already mentioned, are denied in fact by the defendants, but there is a serious question to be tried in respect of them.
106 A critical issue, it seems to me, is whether the plaintiff has demonstrated there is a serious question to be tried in relation to sufficiently specified trade secrets or confidential information subject to
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- protection - either under the agreements or coming within the scope of the defendants' fiduciary duty to the plaintiff.
107 Ellison described this information as consisting of:
(a) pricing structure and pricing arrangements of the plaintiff with its customers in the division of the plaintiff in which the respondents were employed;
(b) technical knowledge concerning the manufacturing of pumps and gearboxes in the mining and petrochemical industry, and
(c) details of AIM's customers, particularly National and Lightnin, including their needs, work projects and existing contracts with AIM.
108 I accept the authorities establish such information is capable of attracting protection as trade secrets or confidential information. Whether it would do so in fact would depend on the particular circumstances of the case as established by the evidence at trial. It is not presently possible to determine that and nor would it be appropriate to do so at this stage. It is sufficiently arguable on the material before me to satisfy me there is a serious question to be tried in that regard.
109 The evidence about what documentary material the plaintiff claims has been removed by the defendants is unsatisfactory. I am in the end persuaded that there is a live issue about that (that is to say, one that goes beyond mere speculation) by Ellison's evidence that some copies of the documents which belonged with the supervisor and workshop foreman's position are missing. The documents to which he refers include "Strip and Assess" forms, client business cards, telephone directories and documented quality procedures.
110 Prior to the hearing the plaintiff's solicitors lodged with the Court a sealed envelope containing samples of documents of the kinds described. The copy was provided to counsel for the defendants. During the hearing Mr Pringle asked me to look at the contents of the envelope for the purpose of making some assessment of the nature of the material. I have done so. Some of it appears not particularly novel nor likely to be of such a confidential nature as to attract the protection sought. Some of it, however, might well be of that character. I need say no more about it than that. I think there is a serious question to be tried about whether the defendants did remove documentation of the type described and if so whether the use of it should be protected by injunctive relief or whether
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- the plaintiff should be afforded some other remedy for the use of it by the defendants, on the "headstart" principle.
111 I turn to the balance of convenience.
112 I take that exercise as being better expressed as weighing the damage the defendants will suffer if the injunction is granted against that which the plaintiff may suffer if it is refused. As I have already observed, this involves some consideration of the strengths and weaknesses of the plaintiff's case and that assessment is to be made having regard to the totality of the evidence, not just that of the plaintiff (Hubbard v Vosper [1972] 2 QB 84 at 86).
113 If the plaintiff's action is well-founded and were to succeed, that outcome would not be known for some time. It could be a year or more before the action comes to trial. In the meantime, if the injunction is not granted, the defendants would have the benefit of the confidential information and there would be nothing to stop them using it to attract work from Lightnin and National to the immediate and on-going detriment of the plaintiff. Killeen deposes that Lightnin accounted for more than 80 per cent of the total revenue base of AIM's business operations for which Brunt was responsible. Ellison deposes the value of on-going work with just Lightnin and National is at least $500,000 per annum and that the commercial relationship AIM has with them has taken years to develop and has cost it significant time, effort and money. The plaintiff's evidence is that Lightnin and National have already started reducing the work they give to the plaintiff and that this began virtually immediately after the defendants departed. Were the defendants able to take the plaintiff's work from Lightnin and National over the next 12 months or so, that would likely irremediably destroy the plaintiff's commercial relationship with those customers. It is said that without either of these customers, the plaintiff's fitting and machining division would no longer be viable and would be forced to close, with consequent termination of all the division's employees, many of whom have been with the plaintiff for many years.
114 As against that, neither of the defendants has claimed to have sought, or to be doing, work for Lightnin and National. Neither of them says their new business is dependent on getting work from those two companies. Neither of them refers to any prejudice they would suffer were they to be enjoined from contracting with Lightnin or National for the supply of gearboxes or pumps for mining equipment. The orders sought by the plaintiff would not prevent the defendants from conducting their business
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- in the industry with customers other than Lightnin and National, nor would they prevent the defendants from purchasing parts from Lightnin and National for that purpose.
115 I am satisfied the balance of convenience falls entirely in favour of the plaintiff.
116 For these reasons I would grant the relief sought in terms of the plaintiff's amended minute of orders dated 16 March 2004.
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