Artcraft Pty Ltd v Passingham
[2022] VSC 20
•31 January 2022 (delivered ex tempore, revised 2 February 2022)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
EMPLOYMENT AND INDUSTRIAL LIST
S ECI 2021 04819
| ARTCRAFT PTY LTD (ACN 004 399 462) | Plaintiff |
| v | |
| WARREN PASSINGHAM | Defendant |
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JUDGE: | John Dixon J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 31 January 2022 |
DATE OF RULING: | 31 January 2022 (delivered ex tempore, revised 2 February 2022) |
CASE MAY BE CITED AS: | Artcraft Pty Ltd v Passingham |
MEDIUM NEUTRAL CITATION: | [2022] VSC 20 |
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PRACTICE AND PROCEDURE – Injunction – Costs – Ex parte interlocutory application to require defendant to destroy confidential information gained from employment with plaintiff – Application unsuccessful – Whether indemnity costs should be ordered in favour of successful defendant in light of plaintiff’s failure to make full and frank disclosure – Whether costs should be taxed immediately – Unsatisfactory conduct enabling that relief includes conduct that may compromise the due administration of justice – Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 63.20.1.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T Anast (solicitor) | Allied Legal |
| For the Defendant | Mr M Seelig | Destra Law |
HIS HONOUR:
By summons in this proceeding, the plaintiff initially sought an urgent ex parte injunction for the return or destruction of confidential information (found in email communications) that it alleged had been taken by the defendant from his employment with the plaintiff, or alternatively, restraining the defendant from using, disseminating, disclosing or sharing with any third party, that confidential information.
That ex parte application initially came before Riordan J on Wednesday, 22 December 2021, and his Honour declined to grant the application. The application has returned before the court as an application for an interlocutory injunction on notice to the defendant.
The transcript of his Honour's exchange with Mr Talt Anast, of the plaintiff’s solicitors who appeared then and now for the plaintiff, Artcraft Pty Ltd (‘Artcraft’), explained his Honour’s reasons. I note his Honour was concerned that there may well be an explanation for the defendant sending the relevant documents to his personal email address; for example, that this was for the legitimate purpose of discharging his employment duties and did not amount to a breach of the terms of the employment agreement. Critically, Mr Anast told the court that there had not been a response to the plaintiff’s solicitor’s (Allied Legal’s) letter to the defendant on 7 December 2021, setting out its allegations against him. That letter, intemperate in its tone and possibly lacking a proper basis for a number of allegations, was copied to his new employer, De Neefe Signs Pty Ltd (‘De Neefe’).
In the context of questioning the notion that service of the application would put the defendant on notice of it, with adverse consequences for the plaintiff’s case, his Honour noted that Allied Legal had already written to the defendant about this matter. Mr Anast answered:
Yes, we wanted to, you know, give him the benefit of the doubt, and the opportunity to, you know, undertake to not deal with that information and to return it or destroy it as the case may be. And we have not had a response from him
However, this statement to the court was misleading, probably false, as I will explain.
On 15 December 2021, Destra Law responded in detail to Allied Legal’s 7 December 2021 letter. Its response addressed the allegations against the defendant in addition to addressing the plaintiff’s suggestions as to how De Neefe ought to manage its employment relationship with the defendant. Mr Anast confirmed to me that he had received the Destra letter by email prior to the issue of the proceedings and prior to his appearance on the return of that summons before Riordan J.
Destra’s letter explicitly stated, among other things, the defendant’s response in respect of two matters about which Riordan J had sought information from Mr Anast. The solicitors explained that the defendant sent the documents to his personal email address and that of his wife to meet obligations to his employer to complete particular work and that the defendant had deleted the documents referred to in the letter.
When asked about this correspondence in the hearing today, Mr Anast submitted that it was his understanding at the time that Destra was only acting for De Neefe and not on behalf of the defendant himself. Mr Anast referred to an earlier letter from Destra – not before the court – that stated Destra acted for De Neefe.
This response is inadequate. Allied Legal’s initial correspondence to De Neefe included a copy of the letter that had been sent to the defendant. On any objective perusal of Destra’s response, it must have been based upon instructions received from the defendant, because some of the matters that are referred to could only have come from his personal knowledge, and would not have been known to De Neefe. The reference to an earlier letter, not before the court, was unconvincing in the context of the substance of Destra’s response. The suggestion that the letter was written only on behalf of De Neefe was sharp. Any concern entertained by the plaintiff about the standing of information flowing from the defendant could readily be cleared up by further communication rather than by seeking an injunction.
The Destra letter was highly relevant in the context of Riordan J’s specific enquires of Mr Anast in that initial application. On an ex parte application Mr Anast had a clear duty to bring to the attention of the court all matters relevant to the relief the court was being asked to grant, all the more so in the context of the judge’ specific inquiries, yet he made no attempt to bring the letter or its contents to the court’s attention.
Mr Anast’s explanation that he did not consider it appropriate to draw that matter to the court's attention because it was a communication from a third party, not the defendant, is unacceptable given the obligations on the plaintiff in an ex parte application to make full and frank disclosure to the court of all relevant matters and the obvious relationship between the demands being made on the defendant and on his new employer. Mr Anast’s concession that he made an error of judgment was an admission that he fell short in discharging his duties to the administration of justice.
It is pertinent to note the detail found in the Destra letter, which the defendant, Mr Passingham, re-stated on oath in an affidavit once he was served with the application. Destra explained that, in respect of what is described as ‘the first breach’, Mr Passingham had been experiencing difficulties in accessing the plaintiff’s server for an Artcraft job that he was attempting to complete that evening. He said it was not uncommon for the plaintiff's staff to send files and documents to their personal email addresses in order to work on matters while the servers were not functioning. On this occasion the defendant was undertaking work on a project which required him to evaluate Artcraft's customers and to ensure that the correct representative was allocated to each account and to determine whether the customer qualified for free customer delivery. Mr Passingham emailed the relevant file to his personal email address in order to complete the task. The file did not contain any sensitive pricing information. Mr Passingham has since deleted the file. Obviously, De Neefe could only provide these instructions, and other information about dealings between Mr Passingham and Artcraft, to Destra on information from Mr Passingham.
Significantly, the fact that the emailed file did not contain any sensitive information and that it has been deleted by Mr Passingham is not contested. The plaintiff would have a copy of the attachment and would be able to deal with the issue of whether that attachment contained any sensitive pricing information, and has not done so. It is open to me to infer that if it did contain sensitive information, particulars could have been provided and their absence means that the defendant’s evidence is not contested. The plaintiff does not have any direct knowledge of what occurred beyond the evidence of the email having been sent by Mr Passingham to his personal email address. Beyond that, the plaintiff has, rather inappropriately, speculated.
For the purposes of this application I am not satisfied that it did contain any sensitive pricing information and I am satisfied that the file has been deleted.
The second ‘breach’ that is relied upon by the plaintiff was also explained by Mr Passingham, both in the Destra letter and in his affidavit. He was preparing pricing information for a project described as the 'Monash Installation Project'. This was a project that he was required to finalise by 25 August 2021, and in the evening of that date he was again experiencing difficulties with the servers, resulting in loss of data, so he emailed the relevant spreadsheet to his wife's email address in order to allow him to finalise the project using his wife's laptop. He completed the project and submitted the relevant documentation. The plaintiff was awarded the project and carried out the work. Mr Passingham has since deleted the file and he confirms in his affidavit that it has also been deleted off his wife's computer.
I am satisfied that, as stated in the original Destra letter:
On both occasions the documents were sent to Passingham for the purpose of performing his employment duties. Artcraft was not only aware of this practice but also approved of it. Neither can be said to amount to a breach of the first employment agreement or the second employment agreement.
The plaintiff contended that the terms of two employment agreements between the parties were relevant. The defendant was a long term employee of Artcraft. It is not in dispute that he was employed by it for approximately 11 years. The first contract of employment was dated 19 June 2011.
Clause 11 of the first employment agreement provided that the defendant must not use, copy or store confidential information other than for the purposes of performing his duties and the defendant must not disclose confidential information to third parties. It also stated that on termination of the defendant's employment the defendant must return all the plaintiff's property, including documents and records, to the plaintiff.
The second employment agreement, which was not entered into until after the relevant breach events. It was dated 20 September 2021 and contained different provisions and, in particular, contained a provision that the defendant is not authorised to send any work related material, including confidential information, to any non-work related email address, nor that of any third party, without the plaintiff's express permission.
The defendant resigned from his employment with Artcraft in November 2021 and in the same month he commenced to work for De Neefe. It is not in dispute that De Neefe is a direct competitor of the plaintiff. However, there is no evidence that De Neefe has in any way benefited from any breach of contract or of duties alleged against the defendant and no allegation of that sort is made against De Neefe in the proceeding.
The defendant also addressed the plaintiff’s allegations pertaining to an email the defendant sent, after he left its employ, to an industry supplier also used by the plaintiff (Miepol), in respect of a project that the plaintiff is also bidding for (‘Budj Bim’). The Destra letter stated that any pricing information the defendant possessed was not used, as the plaintiff suggested, for the purpose of gaining an advantage for himself or someone else or causing detriment to Artcraft. There is no evidence before the court that the defendant’s communications in this regard might have that effect.
The principles on this application are non-controversial and well established. The first question is whether there is a serious question to be tried on the plaintiff's claim for relief. The second issue is whether the plaintiff has shown that it is likely to suffer injury for which damages are not an adequate remedy. The third issue is whether the balance of convenience favours the granting of the injunction.
There are a couple of ancillary issues to note. The first is that, having considered this material and the explanations that have been proffered in court this morning, I am persuaded that the plaintiff did not discharge its duty to inform the court on an ex parte application of all material circumstances.
The crux of the plaintiff’s rationale for seeking an ex parte injunction was that if the defendant was given notice of the application the utility of the injunction would be lost because information would likely be destroyed or evidence covered up before the order could be made. As Riordan J noted, this rationale lacked merit as notice had already been given to the defendant and to the defendant's current employer, and if the purpose of the injunction was going to be defeated by affording the defendant notice, then this had already occurred. The plaintiff failed to reveal to Riordan J that arguments opposing the merits of the application had already been put to it by solicitors. Had Riordan J granted the relief sought, that non-disclosure would provide grounds to set aside that order.
That such a weak explanation for seeking an ex parte order was offered by the plaintiff’s solicitor in this context suggests a negative inference could be drawn about the plaintiff’s motive in making that interlocutory application. The plaintiff, knowing of this correspondence, would expect that the defendant would put this relevant material into evidence if on notice of the application. That material, which the plaintiff did not contest, now reveals there is no basis for an injunction. The plaintiff does not contest the circumstances in which the information was provided to private email addresses, that is for the legitimate discharge of the requirements of his employment by the plaintiff and without breach of the first employment agreement. Further, the defendant’s copies of the relevant documents have been destroyed preserving the plaintiff’s interests. I am not persuaded by the plaintiff's submission that I should accept that the defendant's wife is appropriately regarded as a third party for the purposes of the contracts and that that of itself demonstrates the breach.
The second ancillary issue is that the plaintiff’s application is based on an affidavit sworn by its solicitor without persuasive evidence from any person with direct knowledge of the events.
I am not persuaded that there is any serious question to be tried in the proceeding, of a kind that warrants the interlocutory injunction that is sought. I am not satisfied that if the plaintiff is able to demonstrate some breach of an operative employment agreement that damages would not be an adequate remedy in the circumstances. I have also come to the view that, having regard to the frank statements by the defendant both before the application through solicitors and since being served with the application on oath by affidavit, that the balance of convenience does not favour the granting of the injunction. The lesser risk on injustice, if my decision turns out to be wrong, favours refusal of the application.
The plaintiff's application is dismissed.
There are two further applications. First, the defendant seeks a direction that the plaintiff file and serve a statement of claim by 25 February 2022. The plaintiff is content to file and serve its statement of claim by that date. Accordingly, I will give that direction.
Secondly, in respect of costs, the defendant seeks an order that the plaintiff pay his costs of and incidental to the application, assessed on an indemnity basis, with leave for that assessment of costs to be made forthwith.
The usual order is that the costs follow the event when a plaintiff is unsuccessful in its application for an injunction. There is no reason why costs should not be dealt with at this stage. It is common where an injunction is granted to reserve the question of costs to the trial. The appropriate exercise of the discretion is that costs follow the event. I will order that the plaintiff pay the defendant's costs of an incidental to the summons.
The defendant sought that those costs be taxed on an indemnity basis and the key consideration is whether there is some aspect of the conduct of the losing party that renders it appropriate for a full indemnity to be given.
On this application I am persuaded that the defendant is entitled to indemnity costs because the plaintiff was in breach of its obligations to the court in failing to place before the court all of the relevant correspondence exchanged between Allied Legal and Destra. The plaintiff’s submission that a relevant distinction can be drawn between correspondence between the new employer, De Neefe (and its solicitor), and correspondence to Mr Passingham himself, is rejected. As I have said, this correspondence was clearly relevant. It is quite clear from the transcript before Riordan J, that his Honour was concerned about matters that are specifically covered in that correspondence and it is probable that had that correspondence been disclosed to the court, his Honour would have dismissed the application at that stage. I consider that Mr Anast understood that the correspondence was relevant and his explanation for failing to inform the court about it is unconvincing and is rejected.
I direct that a copy of that transcript may be provided to the defendant's solicitors. It ought to have been served by the plaintiff along with the other material.
The significance of the plaintiff’s conduct is that the material that was not disclosed to the court makes it clear that the defendant had responded to the plaintiff's key allegations. This has been set out above. Consequently the court was misled in a material respect on the ex parte application.
In terms of conduct that may cause loss to the plaintiff, its key allegations never extend beyond speculation. All that the plaintiff has pointed to is the readily admitted fact that the defendant sent emails to private email addresses, being his home email or that of his wife. The plaintiff has not challenged the defendant’s explanation that that was done for the purpose of discharging legitimate employment functions for the plaintiff.
The plaintiff had all the assurances that it needed for the protection of its rights before it issued this application, which I consider lacked a proper basis. I will not make findings about the plaintiff’s motivations. I accept that there is material in Mr Passingham's affidavit that shows an unsatisfactory relationship with his manager at Artcraft, but assessment of that aspect of the dispute should be on the basis of hearing evidence from those parties. Nevertheless, I am satisfied that pressing for an injunction in the circumstances was done without a proper basis for the application.
In these circumstances costs should be awarded on an indemnity basis.
Finally, there is the question of whether those costs might be assessed immediately.
Rule 63.20.1 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) provides that if an order for costs is made on an interlocutory application or hearing, the party in whose favour the order is made shall not tax those costs until the proceeding in which the order is made is complete, unless the court orders that the costs may be taxed immediately.
The application of this rule has been considered in a number of cases, notably Setka v Abbott (No 2), [1] and three issues are identified as informing the exercise of the relevant discretion, which are:
[1][2013] VSCA 376, [26]-[27].
(a) whether the application caused an undue delay in the conduct of the proceeding;
(b) where the work involved would not be wholly wasted in the ultimate hearing; and
(c) it may be appropriate to order immediate taxation where the party who seeks that order incurs significant costs beyond those that would have been incurred if the other party had acted with diligence or speed.
But there is no prospect of considerable delay in the completion of the proceedings by reason of this application, nor can it be said that the subject matter of the interlocutory order is discrete from what will eventually require determination, which was, for example, the basis for ordering immediate taxation in Dale v Clayton Utz.[2]
[2][2013] VSC 593.
The third issue identified in Setka is whether the party against whom the order is made has been guilty of unsatisfactory conduct, i.e. conduct that was unreasonable, reprehensible or involved a want of competence or diligence. By reference to this issue, immediate taxation will be ordered. The plaintiff's conduct in relation to this application can be so described on two different bases.
First, because the relevant information that indicated that the application could not be successful, which the plaintiff has not contested, was available to it before it issued the application, so that the application itself was clearly unreasonable.
Secondly, there was a want of competence or diligence evident in Mr Anast’s failure, on behalf of the plaintiff, to disclose material correspondence to the court. Having regard to the obligations of legal practitioners to the proper administration of justice, for the plaintiff not to have disclosed all of this correspondence to the court in the circumstances fell short of the practitioner’s duty to the proper administration of justice. It is well established that particular care must be taken when the court is asked to exercise judicial power against a person without notice. This is a clear example of unsatisfactory conduct, although not a category of conduct explicitly mentioned in the examples given in Setka. The Court of Appeal did not give an exhaustive list of examples of unsatisfactory conduct.
Taking all matters into consideration, I will order that those costs may be taxed immediately.
Accordingly, the orders of the court are:
(a) the plaintiff's summons filed 21 December 2021 is dismissed;
(b) the plaintiff pay the defendant's costs of, and incidental to, the summons on an indemnity basis;
(c) the costs may be taxed immediately;
(d) I direct that the plaintiff file and serve a statement of claim by 25 February 2022.
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