Australian Administration Services Pty Ltd v Korchinski

Case [2007] FCA 12

FEDERAL COURT OF AUSTRALIA

Australian Administration Services Pty Ltd v Korchinski [2007] FCA 12

AUSTRALIAN ADMINISTRATION SERVICES PTY LTD AND AAS SUPERANNUATION SERVICES PTY LTD v STUART KORCHINSKI AND KAZ GROUP PTY LIMITED
NSD 2543 OF 2006

STONE J
15 JANUARY 2007
SYDNEY


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD 2543 OF 2006

BETWEEN:

AUSTRALIAN ADMINISTRATION SERVICES PTY LTD
First Applicant

AAS SUPERANNUATION SERVICES PTY LTD
Second Applicant

AND:

STUART KORCHINSKI
First Respondent

KAZ GROUP PTY LIMITED
Second Respondent

JUDGE:

STONE J

DATE OF ORDER:

15 JANUARY 2007

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The applicants’ amended notice of motion filed on 29 December 2006 be dismissed with costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD2543 OF 2006

BETWEEN:

AUSTRALIAN ADMINISTRATION SERVICES PTY LTD
First Applicant

AAS SUPERANNUATION SERVICES PTY LTD
Second Applicant

AND:

STUART KORCHINSKI
First Respondent

KAZ GROUP PTY LIMITED
Second Respondent

JUDGE:

STONE J

DATE:

15 JANUARY 2007

PLACE:

SYDNEY

REASONS FOR JUDGMENT

Introduction

  1. This proceeding concerns confidential information of the first and second applicants to which the first respondent had access in his capacity as an employee of the second respondent.  Although employed by the second respondent, at all material times, the first respondent, Mr Korchinski was deployed to provide services for the applicants.

  2. In brief the applicants claim that shortly before leaving their service to commence employment with CitiStreet Pty Ltd, a major competitor of the applicants, Mr Korchinski, downloaded confidential information belonging to the applicants onto a portable hard drive (PHD) owned by the first applicant, but of which the senior executives of the applicants were unaware.  They say that, after they became aware of the existence of the PHD and asked Mr Korchinski to return it to them he failed to do so by the date specified.  Eventually he did return it but not before deleting the information, downloading music and video files to the PHD and then reformatting it.  They say that Mr Korchinski has failed to disclose to the applicants why he required the PHD and the work he had undertaken with the device.  This failure and the circumstances surrounding Mr Korchinski’s dealings with the applicants since he has committed to a position with CitiStreet have raised their concern that Mr Korchinski has transferred the information to a computer and still has access to it and that it could be used to their detriment and to the advantage of a competitor.  The applicants claim that Mr Korchinski has acted in breach of his duty of confidentiality, his fiduciary duties and in breach of copyright.  

  3. The second respondent, KAZ Group Pty Limited (‘KAZ’) was joined to the proceedings solely to protect the confidentiality of some of its information held on Mr Korchinski’s laptop.  This need was met by undertakings given by the other parties and KAZ otherwise took no part in the interlocutory proceeding.

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Details
AGLC
Australian Administration Services Pty Ltd v Korchinski [2007] FCA 12
Case
[2007] FCA 12
Decision Date

CaseChat Overview and Summary

In the case of Australian Administration Services Pty Ltd v Korchinski, the court was tasked with deciding an interlocutory motion brought by the applicants, Australian Administration Services Pty Ltd and AAS Superannuation Services Pty Ltd, against the defendant, Mr Korchinski. The applicants sought to restrain Mr Korchinski from disclosing confidential information and sought an order that he return the portable hard drive he had taken containing the applicants' information. Mr Korchinski, who had been an employee of KAZ but involved in the management of the applicants, had resigned and accepted a position with CitiStreet, a competitor. The legal issues before the court included whether Mr Korchinski had breached his fiduciary duties by not disclosing his new employment and whether he had improperly accessed and removed confidential information of the applicants.

The court considered the evidence presented at the interlocutory hearing, which included affidavits from the parties. The applicants argued that Mr Korchinski had breached his fiduciary duties by not disclosing his acceptance of a position with CitiStreet, a competitor, and by downloading a significant amount of information onto a portable hard drive. Mr Korchinski, on the other hand, argued that his actions were not improper and that he had not breached any fiduciary obligations. The court assessed the evidence and found that Mr Korchinski had been less than candid and had not adequately explained the necessity of downloading a large volume of information onto the portable hard drive. The court concluded that Mr Korchinski had breached his fiduciary duties by not disclosing his new employment and by downloading confidential information.

The court dismissed the applicants' amended notice of motion filed on 29 December 2006, with costs. The reasoning behind the dismissal was that Mr Korchinski, despite being employed by KAZ, owed fiduciary obligations to the applicants due to his position and the confidential information he possessed. The court found that his failure to disclose his new employment and his actions in downloading a significant amount of information constituted a breach of these obligations.

Orders

Orders of the court

1. The applicants’ amended notice of motion filed on 29 December 2006 be dismissed with costs.

Background

Background to the litigation

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Evidence

Evidence Before The Court

The appeal in O’Neill concerned the law of defamation where there are special considerations pertaining to freedom of speech and the prior restraint of publication. The issues here are quite different nevertheless the latter of the comments quoted from Beecham (which concerned a patent claim) is also very significant for the present proceeding. It is clear from the High Court’s comments that it is necessary to consider carefully the evidence presented on the interlocutory hearing so as to ascertain whether a prima facie case (in the sense referred to above) has been made out.The evidence At the hearing of the motion I was presented with considerable affidavit evidence although there were some gaps that may have been able to have been filled had relevant persons been available. Being an urgent interlocutory hearing, and given the time of the year, it is not surprising that a number of persons whose evidence may have filled some of those gaps were not available. These issues are of considerable importance because they go to whether the applicants are able to establish a prima facie case for relief. Much of the evidence was not in contention and none of the deponents was cross-examined. I shall therefore outline the facts indicating the source only where there is inconsistency between the accounts given by the parties. Mr Korchinski was born in Canada and came to Australia in 1989. His mother, who is seriously ill, still lives in Canada. At all material times Mr Korchinski was an employee of KAZ, which owned all the shares in the first applicant, Australian Administration Services Pty Limited (‘AAS’) which, in turn, owned all the shares in the second applicant, AAS Superannuation Services Pty Limited (‘AASSS’). In August 2006 a share sale agreement was entered into by which KAZ sold its shares in AAS to Link Administration (‘Link’). Prior to the share sale Mr Korchinski was the chief executive officer of AAS and a director of both applicants. Although Mr Korchinski was employed by KAZ he was actually doing work for the applicants. On 31 August 2006 Mr Korchinski resigned from the boards of AAS and AASSS. He continued to act as managing director of AAS until 25 September 2006. Position with CitiStreet In early September 2006 Mr Korchinski approached Mr Jim Crowe, of Palmer Holt, a recruitment firm, to investigate a vacancy that had arisen at CitiStreet. Later Mr Korchinski discussed the CitiStreet position with Mr Dave Tolve, an executive vice president of CitiStreet. Following negotiations with Mr Tolve, Mr Korchinski approved the proposed remuneration package and sign-on bonus on 14 September 2006 and on the 18 September 2006 he received a written offer of employment from CitiStreet. On the same day Mr Korchinski requested an information technology consultant at KAZ, Mr James Parker, to purchase a portable hard drive (PHD) for him to use. Mr Parker procured the portable hard drive and handed it to Mr Korchinski at a dinner on 21 September 2006 which was attended by senior executives of KAZ and/or AAS.

Decision

Reasons for decision

STONE J
Counsel for the applicants further objected to several paragraphs in Mr Korchniski’s affidavit that purported to give evidence as to what aspects of the transition Mr Korchniski was required to assist with and as to his obligations to return property. The applicants submitted that this evidence was secondary and/or conclusory. Whilst I think that the objection to the secondary nature of this evidence is, in respect of some of the paragraphs, valid, all of the evidence is admissible as evidence of Mr Korchinski’s understanding, at the relevant time. I have dealt with this evidence on this basis. As I indicated at the hearing of this application, I am not minded to exclude evidence at this interlocutory stage on the basis that it is bad in form.Reasoning and conclusion Counsel for Mr Korchinski made much of the fact that, at all relevant times, he was employed by KAZ and not by the applicants. I attach little if any significance to this fact. The obligations of an employee do not arise from the contract of employment but from the fact of employment and the resulting relationship of trust and confidence between the parties. For all practical purposes this was the relationship that existed (or should have existed) not only between Mr Korchinski and KAZ but also, at the very least, between Mr Korchinski and AAS. In addition to being a former director of each of the applicants, the fact that he had confidential information of the applicants imposed its own obligations. On the evidence presented at the interlocutory hearing I am satisfied that Mr Korchinski has been less than candid with the applicants in circumstances where his obligations required him to be open and direct. There can be no criticism of Mr Korchinski in seeking a new position even with a competitor of the applicants, however, while he was continuing in their service (even if formally employed by KAZ) he continued to owe fiduciary obligations to them. In the circumstances where he was expected to assist in the transition of the business from AAS to Link (irrespective of whether he was ever required to do anything) AAS was entitled to know that he had already accepted employment with a major competitor. This information could have been highly relevant to what, if anything, they asked him to do during the transition period. Not only did Mr Korchinski not advise the applicants of his appointment by CitiStreet once it was settled but when asked about the rumours that he was about to accept a role with a competitor, he responded that he didn’t know what rumours ‘you are referring to’. As by then he had actually signed the contract with CitiStreet the response was disingenuous, to say the least. I do not find his explanation of why it was necessary to download such an astonishing volume of material onto the PHD convincing. At that stage he had been working for the applicants for some years; it is not credible that at such a late stage the need for this degree of backup should have asserted itself – especially at a time when one might expect the intensity of his work to diminish. This make the timing of his acquisition and use of the PHD more difficult to explain especially when this occurred immediately after CitiStreet had made a formal offer in the same terms as were accepted on 5 October 2006.

Ratio Decidendi

Legal Principle Established

Established by: STONE J

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