Bayley & Associates Pty Ltd v DBR Australia Pty Ltd
[2013] FCA 1341
•10 December 2013
FEDERAL COURT OF AUSTRALIA
Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2013] FCA 1341
Citation: Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2013] FCA 1341 Parties: BAYLEY & ASSOCIATES PTY LTD v DBR AUSTRALIA PTY LTD (ACN 133 308 737) and NIGEL HUCKSTEP File number: ACD 20 of 2010 Judge: FOSTER J Date of judgment: 10 December 2013 Catchwords: CONTRACTS – whether a senior executive of the applicant owed fiduciary duties to it and, if so, what were the obligations encompassed by such duties – whether that executive breached the duty of fidelity owed by him to the applicant and fiduciary obligations owed by him to the applicant by taking and using confidential information the property of the applicant, by diverting business opportunities from the applicant and by secretly competing with the applicant through his corporate alter ego – whether this latter corporation breached a separate partnering contract entered into with the applicant
COPYRIGHT – whether a senior executive of the applicant infringed the applicant’s copyright in its training materials and other business documents when he transmitted those materials from the applicant’s electronic database to the email account of his corporate alter ego and subsequently produced from that email storage paper copies of the said materials for use in the business activities of his corporate alter ego
EQUITY – whether a senior executive of the applicant owed fiduciary duties to it and, if so, what were the obligations encompassed by such duties – whether that executive owed an equitable duty of confidence to the applicant in respect of its training materials and other business documents
Legislation: Copyright Act 1968 (Cth), ss 31(1)(a)(i), 31(1)(a)(iv), 115 Cases cited: Canadian Aero Services Ltd v O’Malley [1974) SCR 592 followed
Chan v Zacharia (1984) 154 CLR 178 cited
Furs Ltd v Tomkies (1936) 54 CLR 583 cited
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 applied
Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443 cited
Jones v Dunkel (1959) 101 CLR 298 cited
Mid-City Skin Cancer and Laser Centre v Zahedi-Anarak (2006) 67 NSWLR 569 followed
Northern Rivers Finance Co Pty Ltd (In Liq) (1979) 4 ACLR 545 followed
Omnilab Media Pty Ltd v Digital Cinema Network Pty Ltd (2011) 285 ALR 63 applied
Parker v McKenna (1874) 10 Ch App 96 followed
Peso Silver Mines Ltd v Cropper (1966) 58 DLR 2d 1 followed
Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 followed
Woolworths Ltd v Olson (2004) 184 FLR 121 followedDate of hearing: 12, 13, 14, 15 and 28 June 2012 Date of last submissions: 28 June 2012 Place: Sydney (via video link to Canberra) (heard in Canberra) Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 284 Counsel for the Applicant: Mr IM Neil SC and Mr MJ Heath Solicitor for the Applicant: Goodman Law Counsel for the Respondents: Mr WL Sharwood Solicitor for the Respondents: Bradley Allen Lawyers
IN THE FEDERAL COURT OF AUSTRALIA
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY
GENERAL DIVISION
ACD 20 of 2010
BETWEEN: BAYLEY & ASSOCIATES PTY LTD
ApplicantAND: DBR AUSTRALIA PTY LTD (ACN 133 308 737)
Second RespondentNIGEL HUCKSTEP
Fourth Respondent
JUDGE:
FOSTER J
DATE OF ORDER:
10 DECEMBER 2013
WHERE MADE:
SYDNEY (VIA VIDEO LINK TO CANBERRA)
THE COURT ORDERS THAT:
1.Within twenty-one (21) days of the date of the publication of these Reasons for Judgment, the applicant lodge with the Associate to Foster J draft Declarations and Orders which it contends give effect to these Reasons for Judgment.
2.Within twenty-one (21) days thereafter, the respondents inform the Associate to Foster J whether they agree that the draft Declarations and Orders proposed by the applicant fairly reflect these Reasons for Judgment and, if the respondents do not so agree, within the same timeframe, the respondents lodge with the Associate to Foster J their version of the Declarations and Orders which they consider the Court should make in order to give effect to these Reasons for Judgment.
3.Thereafter, the question of the relief to be granted by the Court at this stage of the proceeding be decided on the papers.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY
GENERAL DIVISION
ACD 20 of 2010
BETWEEN: BAYLEY & ASSOCIATES PTY LTD
ApplicantAND: DBR AUSTRALIA PTY LTD (ACN 133 308 737)
Second RespondentNIGEL HUCKSTEP
Fourth Respondent
JUDGE:
FOSTER J
DATE:
10 DECEMBER 2013
PLACE:
SYDNEY (VIA VIDEO LINK TO CANBERRA) (HEARD IN CANBERRA)
REASONS FOR JUDGMENT
INTRODUCTION
Since 1996, Bayley & Associates Pty Ltd (B&A), which is the applicant in this proceeding, has carried on the business of providing consultancy, training and competency assessments in procurement, project management and financial management to organisations in both the public sector and private sector in Australia. More than 80% of its gross revenue comes from providing such services to the government sector. That sector includes both the Commonwealth Government and governments of the States and Territories. The evidence before me suggested the majority of B&A’s assignments come from Commonwealth Government departments.
Ruth Dale Bayley is, and always has been, the Managing Director of B&A. Ms Bayley controls B&A and conducts the day-to-day management of B&A. The only other director and shareholder of B&A is Ms Bayley’s husband, Kerry Molineux Bayley (Mr Bayley). Mr Bayley is engaged in full-time employment as an engineer with Airservices Australia. He does not participate to any great degree in the day-to-day management of B&A.
The fourth respondent, Nigel Richard George Huckstep (Mr Huckstep), was employed by B&A as its General Manager for most of the calendar year 2008. He commenced in February of that year and departed in early December. The second respondent, DBR Australia Pty Ltd (DBR), was incorporated on 18 September 2008 at the instigation of Mr Huckstep. He and his wife, Stacey Huckstep, are the sole directors and shareholders of DBR.
Mr Huckstep left the employment of B&A on 5 December 2008. According to Ms Bayley, he had informed her in about mid-August 2008 that he intended to leave B&A in the near future. This communication occurred just 6½ months into the period of his employment by B&A.
In the ensuing months, discussions took place between Ms Bayley and Mr Huckstep concerning the date upon which his employment would terminate and the nature of any ongoing relationship that might exist between B&A and Mr Huckstep post-termination. Indeed, from 5 December 2008 until March 2010, B&A, DBR and Mr Huckstep undertook various transactions from time to time in which they shared responsibilities and which provided benefits to both B&A and to the Huckstep interests.
In the third week of March 2010, in the course of investigating the conduct of another employee of B&A, Stuart Jenkins (Mr Jenkins), who was for some time the first respondent in this proceeding, Ms Bayley discovered that Mr Huckstep had sent to an email address conducted by DBR a significant number of confidential documents which were the property of B&A. It also appeared to Ms Bayley at that time that Mr Huckstep and Mr Jenkins had been working together, during the period of their employment, to develop contacts and opportunities which DBR could exploit in the business which DBR intended to pursue after its establishment. It appeared to Ms Bayley at this time that, while employed by B&A, Mr Huckstep had taken a number of steps in the interests of himself and DBR which were not to the benefit of B&A. He had secured for DBR an electronic copy of B&A’s library of courseware, diverted assessment transactions from B&A to DBR, used his position with B&A to enhance his relationships with various important clients of B&A for the benefit of himself and DBR and, in the name of DBR, submitted proposals to clients in competition with proposals from B&A.
As a result of making these discoveries, on 23 March 2010, B&A commenced a proceeding against Mr Jenkins, DBR and Cidara Pty Ltd (Cidara) in the Supreme Court of the Australian Capital Territory. Cidara was a company controlled by Mr Jenkins. On 24 March 2010, Refshauge J granted interlocutory injunctive relief against all defendants. On 25 March 2010, B&A dismissed Mr Jenkins.
On 26 May 2010, B&A commenced this proceeding. The respondents named in this proceeding were Mr Jenkins, DBR, Cidara and Mr Huckstep.
B&A settled their claims against Mr Jenkins and Cidara in mid-August 2010. For this reason, by the time the proceeding was heard, the only active respondents were DBR and Mr Huckstep.
On 13 April 2012, insofar as it relates to the claim against DBR, the Supreme Court proceeding was transferred to this Court. There is an outstanding application originally filed in the Supreme Court by B&A seeking orders punishing DBR for contempt of Court. It is alleged that DBR breached the injunctions granted by Refshauge J. The contempt application was not part of the matters heard by me and remains outstanding.
B&A alleges that Mr Huckstep, and DBR at his instigation, misused its confidential information and stole business opportunities which should have come B&A’s way. It also alleges that Mr Huckstep breached his formal contract of employment which was in the form of an Australian Workplace Agreement (AWA) and that DBR breached a contract called an Auspicing Agreement which it had made with B&A at the time when Mr Huckstep left its employment. B&A also alleges that both Mr Huckstep and DBR have infringed its copyright in a significant number of documents which are the property of B&A. B&A alleges that Mr Huckstep owed fiduciary duties to it and also breached the equitable duty of confidence which he was obliged to respect in the circumstances of the case.
These Reasons for Judgment determine the liability of Mr Huckstep and DBR in respect of the various causes of action relied upon by B&A in this proceeding. An order that liability be determined prior to and separately from quantum was made by Stone J on 25 January 2012. Although it will be necessary for B&A to demonstrate the nature of its claims for pecuniary relief in order to justify the Court ordering an inquiry as to damages or compensation, or, alternatively, an account of profits, the assessment of the amount ultimately to be awarded to B&A, assuming it is otherwise successful, is not to be determined by at this stage of the proceeding.
B&A has tendered a great deal of evidence before the Court. Ms Bayley has sworn three affidavits, the first of which was sworn on 27 March 2012 and filed on 30 March 2012 (Ms Bayley’s first affidavit). The other two affidavits sworn by Ms Bayley were sworn on 1 June 2012 and 14 June 2012.
Ms Bayley’s first affidavit contains 1,130 paragraphs and 183 pages of text. Exhibited to that affidavit are 39 folders of materials.
By way of contrast, Mr Huckstep’s evidence-in-chief was contained in one affidavit, being his affidavit sworn on 15 May 2012 and filed on 18 May 2012. That affidavit comprises 88 paragraphs covering 17 pages of text. Mr Huckstep exhibited four folders of documents to his affidavit. A number of paragraphs in Mr Huckstep’s affidavit were not admitted into evidence.
B&A also relied upon the affidavits of other witnesses whose evidence was much shorter.
Mr Huckstep was cross-examined for a little over two days.
Notwithstanding this vast amount of evidence, it became apparent that, with the exception of the evidence directed to several conversations which are said to have taken place between Ms Bayley and Mr Huckstep during 2008, most of the primary facts relevant to the disposition of the liability part of the case were not in dispute.
I mention these matters, not to be critical of the parties, but to make clear that I will approach my findings of fact upon the basis that only essential findings will be addressed in any detail while other facts will be recounted, as necessary, in summary form. Some of the evidence need not be addressed at all at this stage.
B&A’S PLEADED CASE AND THE RESPONDENTS’ DEFENCE
By its Fourth Further Amended Statement of Claim filed in Court on 13 June 2012 (the ASC), B&A relies upon the following causes of action:
(a)An action for damages for breach of contract against Mr Huckstep. The alleged breaches of contract comprise breaches of cll 3, 21 and 22 of Mr Huckstep’s AWA. Clause 3 embodied the common law duty of fidelity owed by Mr Huckstep to B&A as a result of his being B&A’s employee. Clause 21 provided that Mr Huckstep would not disclose or use B&A’s confidential information unless authorised in writing by B&A and in any event only for the purposes of B&A’s business. Clause 22 required Mr Huckstep to act in the best interests of B&A at all relevant times and to avoid conflicts of interest. All three clauses inured for the benefit of B&A during the subsistence of the employment relationship.
(b)A cause of action for breach of fiduciary duty. The fiduciary obligations pleaded and relied upon by B&A are found in par 7 of the ASC. In that paragraph of the ASC, it is alleged that Mr Huckstep had fiduciary obligations to B&A:
(i)Not to use his position as an employee of B&A to his own or to a third party’s advantage without the consent of B&A; and
(ii)Not to have a personal interest or engagement with a third party in any matter within the scope of his employment without the consent of B&A.
(c)A cause of action for breach of the equitable duty of confidence alleged to have been owed by Mr Huckstep to B&A.
(d)A cause of action pleaded against both Mr Huckstep and DBR for assisting in the breaches of fiduciary duty committed by Mr Jenkins against B&A, including assisting Mr Jenkins to misuse B&A’s confidential information.
(e)A cause of action for statutory damages for infringing B&A’s copyright in its courseware and other confidential business materials.
(f)A cause of action against DBR for breaching a contract styled Auspicing Agreement entered into between B&A and DBR on or about 10 December 2008.
In par 9 of the ASC, B&A pleads the conduct which it alleges constituted wrongful conduct on the part of Mr Huckstep during the course of his employment with B&A in breach of his AWA, the fiduciary obligations alleged to have been owed by him to B&A and the equitable duty of confidence alleged to have been owed to B&A. The matters relied upon are:
(a)The incorporation of DBR on 18 September 2008 with the intention that DBR would carry on a business that was the same or similar to, and competitive with, B&A’s business;
(b)Arranging for, or otherwise causing or procuring, DBR to be paid for work that Mr Huckstep performed on behalf of B&A;
(c)Arranging for, or otherwise causing or procuring, valuable work, or opportunities to perform such work, to be diverted from B&A to DBR;
(d)Arranging for, or otherwise causing or procuring, copies of documents comprising B&A’s confidential courseware and confidential business documents to be downloaded to DBR’s email address with the intention that the copies thereby downloaded would thereafter be used, or be available to be used, for his advantage and/or that of DBR;
(e)Arranging for, or otherwise causing or procuring:
(i)That copies of all documents taken from B&A be retained by himself and DBR for the purpose of being used for his own advantage and for that of DBR; and
(ii)Using some of those copies in preparation of a tender for DBR to perform valuable work within the scope of B&A’s business for the Defence Signals Directorate (DSD); and
(iii)Arranging for, or otherwise causing or procuring, DBR to prepare a tender to the DSD and submitting same to that body.
In the ASC, B&A appears to claim damages or compensation for all of the breaches of contract and duty which it alleges against Mr Huckstep during the course of his employment by B&A. The breaches of fiduciary duty and breaches of the equitable duty of confidence may give rise to alternative remedies. I accept that, notwithstanding the way in which the matter is pleaded, the case was conducted upon the basis that B&A had retained the right to elect the remedy which it would seek in respect of the financial losses which it says it suffered as a result of Mr Huckstep’s breaches of duty. Of course, the only remedy for the breaches of contract relied upon by B&A is common law damages.
No detailed particulars of the breaches alleged by B&A against Mr Huckstep of the duties owed by him to B&A during the course of employment were provided in the ASC itself. At various times, schedules detailing the alleged breaches were provided. Ultimately, on the last day of the hearing (28 June 2012), I granted leave to B&A to amend its Originating Application yet again in the terms of the Further Amended Originating Application filed in Court on that day. Lengthy schedules were attached to that document. In addition, Senior Counsel for B&A provided to me a draft set of Orders which B&A would seek at this stage of the proceeding. Those Orders are complex. Four schedules are attached to the draft Orders. Those schedules are lengthy. I shall return to the form of relief claimed by B&A later in these Reasons.
In answer to the allegations made against him in respect of his conduct during the course of his employment by B&A, Mr Huckstep:
(a)Denied that he owed any fiduciary duties to B&A;
(b)Denied that he breached any obligations which he owed to B&A; but
(c)Otherwise accepted that he owed the contractual duties pleaded and relied upon by B&A and also the equitable duty of confidence pleaded and relied upon by B&A.
In the ASC, B&A also alleged that, after Mr Huckstep’s employment with B&A came to an end, Mr Huckstep wrongfully exploited a business opportunity of which he had become aware during the course of his employment and wrongfully used the Top Secret Positive Vet security clearance (TSPV) which he obtained by dint of his being employed by B&A to gain and to perform work for the DSD. B&A alleges that this conduct on the part of Mr Huckstep constituted a breach of the fiduciary duties owed by him to B&A and also a breach of the contractual and equitable duties of confidence owed to B&A by him.
B&A alleges that DBR participated with knowledge in the wrongful conduct undertaken by Mr Huckstep in the period after the termination of his employment with B&A.
Mr Huckstep denied that the work which was performed by DBR after his employment with B&A ceased could be properly characterised as project management training or procurement management and also claimed that the TSPV was his to use in any way that he saw fit. He also claimed that, in effect, none of the work performed by him and DBR for the DSD was done other than in conjunction with B&A.
At pars 23–30 of the ASC, B&A pleads a case against Mr Huckstep and DBR as participants in the wrongful conduct of Mr Jenkins vis-à-vis B&A. This case received no attention at the hearing before me or in final submissions. It was not seriously pressed.
B&A also pleads a cause of action based on the infringement of its copyright in its courseware and other training materials. It claims that Mr Huckstep reproduced documents in breach of s 31(1)(a)(i) and s 31(1)(a)(iv) of the Copyright Act 1968 (Cth) (the Copyright Act) and that DBR authorised Mr Huckstep to reproduce copyrighted documents in breach of the same section. In addition, it is alleged that Mr Huckstep and DBR authorised Mr Jenkins to reproduce copyrighted documents in breach of the same section. Finally, it is alleged that Mr Huckstep and DBR both published and communicated copyrighted documents in breach of the same section.
The final cause of action is an action against DBR for breaching the Auspicing Agreement. The breaches relied upon are:
(a)Soliciting Mr Jenkins to leave B&A’s employment (cl 3.1(b));
(b)Acting in ways that materially affected B&A (cl 2.1); and
(c)Using B&A’s confidential information for its own purposes (cl 2.1(d) and cl 5.1).
For the alleged breach of cl 3.1(b) and cl 2.1 of the Auspicing Agreement, B&A claims contractual damages for the lost opportunity to obtain valuable work through the services of Mr Jenkins. For the breach of cl 2.1(d) and cl 5.1 constituted by the misuse of B&A’s confidential information, B&A claims lost income, being that income which it would have derived from the exclusive use of the documents made available to DBR under the Auspicing Agreement, including fees or royalties for their use, and income that B&A would have derived from training and assessment work that it lost because DBR had the benefit of the use of the documents passed across to it under the Auspicing Agreement.
THE RELEVANT FACTS
The Business of B&A
B&A was incorporated on 16 January 1996. Since that time, it has carried on the business activities which I have described at [1] above.
Prior to 2001, B&A was not registered to provide training or competency assessments. Because it was not a Registered Training Organisation (RTO), B&A could not confer a nationally recognised qualification on its students and trainees.
On 9 October 2001, B&A was registered as an RTO. At that time, registration was regulated by State and Territory-based authorities.
In 2003, the Australian Government established an accreditation and registration framework for vocational education and training by applying nationally agreed protocols for the standards which had to be met. For some years after the establishment of those protocols, regulation of RTOs continued to be carried out by State and Territory authorities. From 1 July 2011, the RTO registration and auditing process was taken over by the Australian Skills Quality Authority (ASQA) and continues to be administered by that Authority. Part of the regulatory functions of ASQA is to ensure that the national standards for RTOs, known as the Australian Quality Training Framework (AQTF), are maintained.
B&A also provides clients with consultancy services in the areas of procurement, project management and financial management. Sometimes these services include updating clients’ existing procedures and manuals.
As an RTO, B&A is authorised to provide training and competency assessments in procurement, project management and financial management. As an RTO, it can also confer nationally recognised vocational qualifications on students who have successfully completed training and assessments.
B&A’s training programs in procurement are primarily offered to, and undertaken by, procurement and contract managers in the Government sector.
As a result of its status as an RTO, B&A is permitted by ASQA to enter into subcontracts or loose partnership arrangements pursuant to which another training provider actually provides the relevant training to or on behalf of the clients of B&A under the auspices of B&A’s registration. In the industry in which B&A operates, training providers who have this kind of relationship with B&A are called auspicing partners. B&A’s relationships with auspicing partners are generally regulated by a formal contract called an auspicing agreement. Most of B&A’s auspicing partners are not RTOs and are therefore not authorised to confer any relevant qualification upon successful students and trainees or to certify that they have any relevant competency. Under the auspicing arrangements to which I have referred, it is B&A which confers these qualifications and certificates at the behest of the auspicing partner.
Sometimes B&A authorises an auspicing partner to use B&A’s training material, known as courseware. Authorisation of this kind is always limited to the use of B&A’s courseware for the purposes of the particular engagement.
B&A also enters into more conventional subcontracts known as service agreements. Under these arrangements, B&A itself subcontracts work to a third party. Sometimes, that work requires the third party to have access to some of B&A’s courseware and occasionally to adapt that courseware to the requirements of a particular client.
Generally speaking, in B&A’s business, an auspicing arrangement involves a trilateral contractual relationship in which the auspicing partner has a contract with both the client and with B&A. Under a service agreement, the relationship is bilateral: a client contracts with B&A and B&A contracts with a service provider.
In summary, therefore, at all relevant times, the services marketed and provided by B&A have included:
(a)Training and competency assessments in procurement, project management and financial management leading to the award of nationally recognised qualifications in these areas to students who have successfully completed its training or assessments;
(b)Competency assessments, which involve assessing the competency of particular employees against relevant criteria or benchmarks and, if appropriate, certifying that they have attained a particular standard of competence; and
(c)Consultancy services and expert advice in the areas of procurement, project management and financial management.
The above description of B&A’s business is taken from Ms Bayley’s first affidavit. Mr Huckstep and DBR did not dispute the accuracy of this description.
The Development of B&A’s Courseware
Between 1981 and 1994, Ms Bayley served as a logistics officer in the Royal Australian Air Force (RAAF). In 1994, she resigned her commission in the RAAF.
By 1994, Ms Bayley held a Bachelor’s degree in Commerce, a Master of Business Administration and a Graduate Diploma in Education.
After leaving the RAAF, she worked in two public service positions directly related to the provision of training and did some secondary teaching. She then decided to focus on adult vocational training in the government sector. This was the catalyst for her to establish B&A.
In the initial period after establishing B&A, Ms Bayley said that she wrote and compiled all of the material which B&A used in providing training. This material comprised student notes, slide shows, training scenarios, student handouts, training activities and, in relation to some courses, a guide for the use of the person teaching the course. She called this latter guide a facilitator guide.
Ms Bayley said that all of this material was initially written by her. She said it was created using her own professional expertise and knowledge.
The order in which she developed these training materials was: First, the student notes; second, the activities and scenarios; and, third, the slide shows.
Ms Bayley said that the student notes were developed from a content outline. The content outline was derived either from the instructions of the client or from her own judgment as to what should be included in a course of the type and level with which she was concerned.
Ms Bayley accepted that, when developing the student notes, from time to time, she referred to published textbooks to gain a deeper understanding of the theory behind the concepts which she was endeavouring to teach and the models involved. She also referred to government publications such as the Commonwealth Procurement Guidelines, audit reports and relevant legislation. She said that, on occasion, she quoted from these materials directly but always acknowledged her source. However, she said that the great bulk of the material which she created in this early period was written by her.
After the initial period, Ms Bayley modified B&A’s materials from time to time. For the purpose of deciding on these modifications, she consulted professional colleagues and other employees of B&A.
By late 1996 or early 1997, Ms Bayley had spent several hundred hours creating these materials. She had produced the courseware for at least six complete training courses. This courseware comprised over 1,000 pages.
Ms Bayley said that she has maintained B&A’s library of courseware since 1997. This work of maintaining that library has been carried out by her personally and by other employees of B&A from time to time but always under her direct supervision and control.
After gaining registration as an RTO in 2001, the required components of a set of courseware grew as the result of the need for compliance with RTO standards in force from time to time. The following components are required, namely:
(a)Student notes;
(b)Slide shows;
(c)Training scenarios and handouts;
(d)Assessment tasks in a workbook;
(e)Facilitator answers;
(f)Qualification information sheet;
(g)Candidate’s toolkit;
(h)Supporting Statement proforma;
(i)Record of Assessment;
(j)Assessment check table; and
(k)Materials listing.
At pars 62–72 of her first affidavit, Ms Bayley explained in detail the content of each of these components. It is not necessary for me to set out the detail of Ms Bayley’s evidence in this regard in these Reasons.
B&A’s courseware is held electronically by B&A. It is not published by B&A on its website or anywhere else. It is not available for purchase. B&A’s student notes, activities books, Powerpoint presentations and handouts are only made available to students as part of specific contractual arrangements and only after payment of a course fee. These materials are only provided to B&A staff and to subcontractors for the delivery of specific training programs or under auspicing agreements for the delivery of specific training programs by B&A’s auspicing partners. The facilitator’s answers are only distributed to B&A’s staff and contractors for the delivery of training programs or under auspicing agreements for the delivery of training programs by B&A’s auspicing partners. Contracts with B&A’s staff, contractors and auspicing partners all contain provisions which are designed to protect the confidentiality of B&A’s courseware. I am satisfied that all of this material is confidential to B&A and is only made available to others upon strict terms as to its confidentiality.
Ms Bayley Meets Mr Huckstep
Ms Bayley first met Mr Huckstep when he was introduced to her by Deborah Mazlin in December 2002. At that time, Ms Mazlin was an employee of B&A, having previously served with Ms Bayley in the RAAF. Mr Huckstep was, at that time, a serving officer in the RAAF. At their first meeting, Ms Bayley agreed that B&A would provide a four-week resettlement work placement for Mr Huckstep with B&A as part of his process of resigning his commission from the RAAF. Mr Huckstep began that placement in January 2003 and concluded it four weeks later.
At the end of his placement with B&A, Mr Huckstep took up an offer of employment with Apis Consulting Group Pty Ltd (Apis Consulting). In 2003, Apis Consulting was a competitor of B&A, although it was not then a RTO.
On 1 February 2005, B&A entered into an auspicing agreement with Apis Consulting. That agreement was intended to enable those persons who were being trained by Apis Consulting to be awarded appropriate vocational qualifications. These qualifications would be conferred by B&A. Apis Consulting could not confer such qualifications because it was not then a RTO.
From 2005 until Apis Consulting went into administration in September 2007, B&A worked with Apis Consulting in the provision and development of vocational training and competency assessment programs. B&A and Apis Consulting jointly developed a set of courseware which Ms Bayley described as co-badged materials. These co-badged materials were developed at a time when Mr Huckstep was employed by Apis Consulting and concerned project management.
Ms Bayley said that the task of developing co-badged courseware involved the following elements:
(a)Apis Consulting contributed to the exercise certain project management courseware that it had developed for other purposes;
(b)By using a process known as competency mapping, B&A reviewed that courseware against the relevant competency standards for the purpose of identifying areas where the Apis Consulting courseware failed to adequately address the relevant standards;
(c)B&A contributed its own project management courseware, substantially for the purpose of filling the gaps that it had identified in the courseware contributed by Apis Consulting; and
(d)The courseware contributed by each of B&A and Apis Consulting was then combined by employees of B&A and Apis Consulting to create a new set of courseware for the Diploma of Project Management. A key component of that courseware was the “Diploma of Project Management Competency Training Manual” prepared in late 2004. Workshop Version 2.0 of that Manual was exhibited to Mr Huckstep’s affidavit sworn on 15 May 2012 as Exhibit NH50 (Doc NH50).
The exercise described at [63] above took approximately six to eight weeks to complete.
After entering into the auspicing agreement to which I have referred at [61] above, B&A and Apis Consulting produced a final version of the jointly developed co-badged courseware for the Diploma of Project Management. That courseware consisted of a student handbook, an activities book, a Powerpoint slideshow and two negotiation scenarios. This courseware came to be known in both the businesses of B&A and Apis Consulting as co-badged courseware. As I have already mentioned, it was created by combining courseware from both organisations. The co-badged courseware was published bearing the logos of both B&A and Apis Consulting. It was marked “© Bayley & Associates Pty Ltd, Apis Consulting Group” or “© Bayley Training and Consulting, Apis Consulting Group”. Ms Bayley testified that B&A and Apis Consulting agreed that, at the conclusion of the joint project, each would independently own its own set of the co-badged courseware and each would be free to separately and independently badge, use, modify or supplement any part of the co-badged courseware for its own clients and its own purposes without the need for recourse to the other party.
In the result, each of B&A and Apis Consulting had the right to use and exploit the co-badged courseware as against the whole world other than as against each other.
From time to time from 2005, B&A modified the original co-badged courseware, thereby creating new versions of that courseware that were unique to B&A, although ultimately derived from the original co-badged courseware. By 2008, B&A’s modifications to the co-badged courseware were substantial.
When modifying co-badged courseware in the fashion described at [67] above, B&A allocated a new version number to the modified document and badged the new version with its own name without mentioning Apis Consulting.
After Apis Consulting went into administration, a new company called Apis Group Pty Ltd (Apis Group), commenced business. The evidence established that Apis Consulting went into administration in September 2007 but did not establish when Apis Group commenced to trade. Apis Group became a RTO on or around 21 January 2011. The evidence does not show what (if any) transactions took place between Apis Consulting and/or its administrators and Apis Group. There is no evidence as to whether any of the rights of Apis Consulting in the co-badged courseware were ever transferred to Mr Huckstep or anyone else.
The above evidence concerning the co-badged courseware is drawn from the evidence of Ms Bayley. It was not challenged. I accept it.
B&A Employs Mr Huckstep as a Senior Consultant
In late 2007, Ms Bayley offered Mr Huckstep a job with B&A. Mr Huckstep accepted that position.
On 15 November 2007, B&A and Mr Huckstep executed an AWA.
Subsequently, on 11 February 2008, Mr Huckstep commenced employment with B&A as a Senior Consultant.
In about April 2008, B&A created a new senior management position called General Manager. Mr Huckstep was promoted into that position. A job brief for this position was drafted by Mr Huckstep and finalised by Ms Bayley on 5 September 2008. No specific formal contract was entered into in respect of this new position.
The Relevant Terms of Mr Huckstep’s AWA
Schedule 2 to the AWA contains a description of the Job Brief for Mr Huckstep’s initial position with B&A viz his position as Senior Consultant Procurement and Project Management. That Job Brief recorded that he was to report directly to Ms Bayley, as Managing Director. It also included a statement of his responsibility for managing and supervising staff.
Clause 3 of the AWA provided:
This AWA covers all of your terms and conditions of employment.
You must diligently and faithfully perform all the duties and responsibilities which we give you, and you must abide by any policies and procedures formulated by us.
You must use your best endeavours to promote and enhance the interest, business, profitability and reputation of Bayley & Associates Pty Ltd. You must not intentionally do anything which is reasonably likely to be harmful to the company.
Clauses 4 to 19 addressed award-type conditions relevant to Mr Huckstep’s employment. I note that his initial salary was $130,000 per annum.
Clause 21 (Confidential Information) and clause 22 (Business Ethics and Conflict of Interest) were in the following terms:
21 Confidential Information
Confidential information includes all transactions, records and information pertaining to the business, our personnel, suppliers, clients, future products, plans and opportunities and any other information which we advise is confidential.
Any products, processes, methods or templates developed by the company (including any such property developed by you during your employment) shall remain the property of Bayley & Associates Pty Ltd.
You must not disclose any confidential information to any person, firm, company or other body, unless previously and expressly authorised in writing by us.
You will not use or attempt to use any confidential information in any manner and for any purpose other than the purpose of the business.
22 Business Ethics and Conflict of Interest
While an employee of Bayley & Associates you will be a representative of our company. It is vital that your conduct is at all times to the highest standard. This includes a commitment to satisfy the standards of honesty and fair trade at all times. You must adhere to the fundamental ethical practices and principles of this company as outlined in this agreement and other related documentation.
You have the responsibility to work in the best interests of Bayley & Associates and avoid situations and actions that may be, or create the appearance of being, in conflict with our overall objectives and principles. The following are examples of activities that have the potential to cause conflict and must be avoided:
•Holding a substantial financial interest in any company with whom we have business dealings (eg competitors, suppliers and customers).
•The acceptance by you from any party or supplier of services, either directly or indirectly, of cash payments (other than reimbursements for reasonable out-of-pocket expenses), services, loans (except from banks or other financial institutions) or discounts (except those offered to all staff members of our company).
•Accepting gifts from any business party involved with us (except for gifts of a minor value such as flowers, a bottle of wine etc).
If you are in a situation in which you believe that you may have a conflict of interest, it is mandatory to discuss the matter with the Managing Director.
Mr Huckstep’s Job Brief as General Manager
I set out below pages 1 and 2 of this Job Brief:
Job Brief – General Manager
Your Responsibilities
This position reports to the Managing Director. You will be employed on a variety of duties, including those listed below. Other duties may be negotiated from time to time.
Staff Management and Supervision
• Induct new team members
• Supervise team members and manage their performance to achieve Bayley standards
• Offer support, coaching, mentoring and professional development to team members
• Manage the workload of team members, including allocation of work
• Provide team leadership
Business Systems
• Develop and implement appropriate systems for the efficient management and operation of the business in conjunction with the Company Directors and other key staff
• Review business systems and recommend improvements
• Develop business rules for clients as required
RTO Management
• Assist in maintaining and implementing the RTO Quality Framework
• Assist with internal and external RTO audits as required by the RTO Quality Manager
• Assist in the implementation of corrective actions identified at audit and approved by Company Directors
• Assist in the continuous improvement process
• Liaise with ACT ARC and other relevant bodies as required
Business Development
• Arrange for responses to requests for tender, requests for quotation and requests for proposal after consultation with relevant stakeholders including Managing Director and Program Directors
• Attend industry briefings and site visits if required
• Initiate meetings with existing and potential clients
• Review and authorise service orders, work orders, contracts or equivalent
• Arrange for debriefing on unsuccessful tenders, quotations and proposals
• Participate in networking activities
• Seek other business development opportunities
Management of Existing Client Relationships
• Initiate meetings with existing clients as appropriate to maintain effective business relationships
Record Keeping
• Arrange for proper records for all business development activities including but not limited to tender responses, proposals, quotations, client meetings and tender debriefings
• Report general business intelligence to the Business Contact Manager system
Administration and Finance
• Assist in maintaining and implementing Administration and Finance systems
• Assist in management of client invoicing and management of debtors
• Provide, if required, authorisation of company expenditure within limits of authorisation
Other
• Brief members of the management team about any issues that may be helpful to their understanding of client issues
• Develop and maintain familiarity with Training Packages on our scope of registration
• Implement corrective actions from audits as approved by Directors
• Attend job fairs, seminars and similar events
• Liaison with company directors
• Participate in agreed professional development activities
• Any other duties as negotiated or as directed.
You will be expected to use our systems and procedures and to comply with our policies. These can be found on the company intranet site.
At page 3 of the Job Brief, the qualities and attributes of the occupant of the position are specified.
I pause at this point to note that B&A contends that the nature and duties of Mr Huckstep’s position as General Manager of B&A, when read with the terms of the AWA, resulted in his owing fiduciary duties to B&A. The question of whether, in the circumstances of the present case, the duties owed by Mr Huckstep to B&A can be described as fiduciary in character is a matter of contest between the parties.
Mr Huckstep Engineers the Employment of Mr Jenkins as a Senior Consultant with B&A
Mr Jenkins and Mr Huckstep were friends. Mr Jenkins commenced employment at B&A on 26 May 2008. Mr Jenkins’ employment with B&A was governed by a letter agreement dated 8 April 2008. Mr Jenkins reported directly to Mr Huckstep. Mr Jenkins had previously worked at Apis Consulting in the period from about 2005 until Apis Consulting went into administration in September 2007. He was dismissed by Ms Bayley on 25 March 2010. He later took up employment with Apis Group.
The Resources of B&A Available to Mr Huckstep During his Employment
It was common ground that, during the course of Mr Huckstep’s employment with B&A, he was provided with the following resources:
(a)Mobile phone.
(b)Laptop computer (with the capacity to put the laptop in a docking station to enable viewing on a desk monitor).
(c)Email account with personal login and password.
(d)Password controlled access to B&A’s central computer server (the B&A server).
(e)Access to B&A’s printers and document scanning facilities.
(f)Password controlled remote access to the B&A server by means of a virtual private network. This latter access in practical terms meant that Mr Huckstep could access both the B&A server and B&A’s email system from any location outside the office using the Internet.
The B&A Employee Manual which applied to Mr Huckstep’s employment at B&A in 2008 provided that the IT resources of B&A, which included its computers, email access and telephones, were the property of B&A. The Manual stated that the purpose of providing these facilities was to facilitate and support the business of B&A. The B&A Employee Manual also provided that “… no employee may knowingly use any B&A computing equipment or email … to transmit, receive, access or store communication that is … for a purpose against the business interests of B&A”.
B&A stored all of its documents (including all of its courseware) electronically on the B&A server. Overall control of the B&A server was exercised by the System Administrator who is, and always has been, Mr Bayley.
As the General Manager of B&A, Mr Huckstep was provided with password controlled, but otherwise unrestricted, access to the following areas of the B&A server:
(a)His own private network folder which was identified on the B&A server as “Nigel/My Documents”;
(b)The “common” folder;
(c)The B&A intranet; and
(d)His B&A email account.
A purpose of the common folder was for B&A to make documents available to its employees so that they could conduct their business activities for B&A using all relevant information. All employees of B&A were granted access to the common folder for this purpose. All employees were authorised to create, modify, copy, print or delete documents to and from B&A server. This was necessary to allow the efficient day-to-day operation of B&A.
In 2008, the common folder included:
(a)Business records such as tenders, proposals, quotations;
(b)Client information such as contact information and client specific course requirements;
(c)Business planning documents such as the then current strategic plan, risk assessments, operational plans and directors’ reviews and operations;
(d)Master copies of all B&A’s courseware, being the electronic copies of all training materials and assessment tasks (being tasks for candidates to undertake);
(e)Courseware under development (being electronic copies of all training materials in the process of creation and development);
(f)Courseware archived (being all past or superseded training and related materials);
(g)Assessment materials, including assessment check tables, being electronic copies of all documents used for the purpose of competency assessments and the assessment check tables used for recording the results of individual assessments against specific criteria;
(h)Course evaluation summaries, which contained summaries of participant responses on evaluation forms;
(i)Student information sheets and other marketing material;
(j)RTO policies and quality control documents;
(k)Details of the then current auspicing agreements, being agreements entered into between B&A and contractors for contracts to provide courses on behalf of B&A;
(l)Tenders and tender proposals used (or to be used) by B&A for obtaining work from clients and potential clients;
(m)Pricing sheets, being the cost schedules for:
(i)All training and competency assessment programs;
(ii)Development of some client specific training programs or modifications of existing training programs tailored for specific clients; and
(iii)Some rates charged by contractors.
(n)Advertising;
(o)All templates for forms used by B&A, including staff evaluation forms, tender debrief forms (being forms used where a tender was not obtained and B&A was advised as to why it was not a successful tender) and invoice request forms.
In 2008, B&A also used an intranet in its business. An intranet is an internal computer network that allows communication amongst participants in the network. In the case of B&A, it was a self-contained document retention and access system for use by B&A’s employees. It was not available for access for anyone outside B&A.
Each employee of B&A in 2008 had password protected access to B&A’s intranet. This meant that the employee could only log onto the intranet with a personal password. Mr Huckstep had password protected access to B&A’s intranet during his employment with B&A.
Throughout 2008, the intranet relevantly contained:
(a)B&A’s Employee Manual;
(b)B&A’s corporate policies;
(c)B&A’s organisational chart and associated information; and
(d)Form templates and approved training and assessment materials.
The Opportunity for Mr Huckstep to obtain a Top Secret Positive Vet Security Clearance at Defence Signals Directorate
Mr Huckstep’s dealings with the Defence Signals Directorate (DSD) in 2008 is one of the areas where the evidence of Ms Bayley and the evidence of Mr Huckstep is in stark conflict.
Ms Bayley said that the DSD had been an established client of B&A since 2003. She said that, in September 2007, B&A had engaged Mr Stephen Phipps who, for many years, had been employed by the DSD. She said that, in late 2007 or in early 2008, Mr Phipps had alerted her to the possibility that the DSD had a particular need for mentoring of its project managers. Ms Bayley claimed that she passed on this intelligence to Mr Huckstep with a request that he follow up on behalf of B&A.
Mr Phipps gave evidence at the hearing before me. He explained the significance of contractors possessing a Top Secret Negative Vet security clearance (TSNV) and a TSPV. A TSPV allowed greater access to the DSD and its premises than did a TSNV. He said that a significant majority of service contractors to the DSD needed a TSPV. He said that this was because the nature of the DSD’s work was such that the service contractors would or might be exposed to material or information classified to a level to which only someone with a TSPV could access. He testified that, in practice, this meant that only those service contractors who had a TSPV could move about the DSD’s premises without an escort or could have access to any of the DSD’s information technology systems. He said that it could take between six and twelve months for a service contractor who did not have a security clearance to obtain a TSPV. He also observed that there was a considerable risk that any given candidate would not be given a TSPV. He said that, in practice, the DSD awarded most of its service contracts to contractors who already had personnel within their organisation who possessed an existing TSPV. Often, this was done by way of a sole-source arrangement which did not involve competitive tendering or quoting to any degree but rather involved an approach to a single contractor.
In evidence before me, Mr Phipps confirmed that Ms Bayley had asked him to speak to Mr Huckstep about exploring opportunities with the DSD in the areas of procurement and project management. Mr Phipps said that he took up these matters with Mr Huckstep in early 2008. He said that he told Mr Huckstep at that time that there were opportunities for B&A in the areas of procurement and project management and that the DSD had a real problem in stakeholder engagement in those areas. Mr Phipps said that he told Mr Huckstep that the DSD needed help with training and mentoring. He said that he told Mr Huckstep that one of B&A’s employees would need to have a TSPV. He said that if B&A wished to exploit the DSD as an ongoing business opportunity it would not have much hope if none of its employees had a TSPV. He said that he told Mr Huckstep at this time:
Once you get in the place with a TSPV, you can use it to entrench yourself, and go through the place pretty much at will selling yourself from the inside.
By the time Mr Phipps came to give evidence before me, he had become General Manager of B&A. Although this circumstance meant that he was not independent of B&A when he gave his evidence, I did not form a negative impression of Mr Phipps. His evidence was given in a careful and forthright manner.
Mr Huckstep did not deny the conversations with Mr Phipps which I have described at [95] and [96] above. Nor, when Mr Phipps was cross-examined, was it suggested to him that the evidence which he had given in his affidavit was inaccurate.
I accept the evidence of Mr Phipps.
Ms Bayley testified that, in or about April 2008, she had a conversation with Mr Huckstep concerning her interest in pursuing opportunities with the DSD in the procurement and project management areas. At par 134 of her first affidavit, she gave a very detailed account of that conversation. In his evidence-in-chief, Mr Huckstep strenuously denied that he had had any conversation along the lines of the conversation extracted by Ms Bayley at par 134 of her first affidavit.
According to Ms Bayley, in the April 2008 conversation which she said she had had with Mr Huckstep, he reported back to her the substance of his conversations which he had had with Mr Phipps. He told her that Mr Phipps had told him that the DSD needed help with their procurement and project management areas. He said that the DSD was very keen on the mentoring and support set up for project managers that Mr Phipps had suggested. This involved an experienced project manager being available to support less experienced ones with their problems. He said that Mr Phipps had informed him that the DSD was keen to outsource and that the DSD would sponsor one TSPV for B&A so that it could deliver these services. According to Ms Bayley, Mr Huckstep commented to her in this conversation that he had been trying for years at Apis Consulting to get a TSPV but had not had any success in doing so. Ms Bayley said that she told Mr Huckstep in this conversation that she would put herself up for the TSPV. She said that the mentoring work would fit really well with her move to get out of delivering training and it would also be interesting professionally for her after such a long association with the DSD. She said to him that he could keep on with training and with making assessments because the TSNV which he held was good enough for that. Ms Bayley recounted that Mr Huckstep suggested to her that that was not a good idea. She said that he suggested that B&A should put him forward as its nominee for the TSPV. She then recounted a number of reasons which he gave to her in this conversation for making that suggestion.
According to Ms Bayley, the conversation with Mr Huckstep ended along the following lines:
Ruth:Yes, I understand what you are saying, and it’s true that I’m trying to do less client work, but this is a very rare opportunity that opens up so many doors to us. If I get the clearance myself, then I will be sure that it will stay with B&A no matter what. If you get the clearance, what would happen if you left us? Then we would not have anyone with a clearance and we would lose the work. And you’d have a rolled gold meal ticket no matter who you worked for.
Huckstep:You won’t get rid of me that easily. I only just got here and I have absolutely no plans to leave any time soon. You know I keep saying how much I love it here.
Ruth:Well, I’d like to think it over and discuss it with Kerry because I am totally certain that I am never going to leave the company! And who knows when this opportunity will ever come our way again if something unexpected were to happen.
Ms Bayley testified that, shortly after speaking with Mr Huckstep in April 2008, she telephoned Mr Henderson, an executive of the DSD, and enquired as to whether B&A would be able to procure two TSPV. Mr Henderson replied that this would not happen and that she should be satisfied with one.
In light of her conversation with Mr Henderson, Ms Bayley said that she decided to accept Mr Huckstep’s suggestion that he should be put forward as B&A’s nominee for the one DSD-sponsored TSPV that was, as she understood it, all that would be made available to B&A. She said that she advised Mr Huckstep of her decision in late April or early May 2008. She said that, soon thereafter, Mr Huckstep was put forward as B&A’s nominee for the DSD-sponsored TSPV and that the vetting process for that clearance then commenced. That process was completed on 12 November 2008 when Mr Huckstep was given the TSPV.
In his evidence-in-chief, Mr Huckstep gave an account of his dealings with the DSD in the period between 2004 and late 2007, while he was employed by Apis Consulting. He claimed that, by late 2004, he had developed a strong working relationship with key personnel at the DSD. He said that Apis Consulting had a contract with the DSD which involved multiple accredited and non-accredited training courses.
Mr Huckstep also gave evidence that, through partnering arrangements, both Apis Consulting and B&A had provided Australian Institute of Project Management (AIPM) assessments and project management courses to the DSD. He said that while the courseware development had not been accepted by the DSD, the AIPM assessments had been.
He also gave an account of other work done by Apis Consulting for the DSD in the period up to the end of 2007.
For reasons which I shall note and explain later in these Reasons, I think that Mr Huckstep was not a witness whose evidence I should accept where it conflicted in any material respect with that of Ms Bayley and other witnesses called on behalf of B&A. That is a general finding which I make and which I will bear in mind when dealing with specific evidence given by Mr Huckstep.
I have no reason to doubt, however, that the evidence which Mr Huckstep gave as to his dealings with the DSD while employed at Apis Consulting was accurate. That evidence does provide a sensible foundation for me to conclude that, as at April 2008, Mr Huckstep had relationships with executives employed within the DSD which could be developed and exploited in the interests of B&A, his employer. Given that he had such relationships, I do not find it improbable that he may well have suggested to Ms Bayley that he was better placed to exploit the DSD opportunities than anyone else at B&A (including her). Nor do I find it improbable that Mr Huckstep used flattery with Ms Bayley to persuade her to accept his suggestion that B&A should put him forward as B&A’s TSPV nominee, rather than her.
I am not at all convinced, however, that, in the April 2008 conversation, Ms Bayley discussed with Mr Huckstep the risks that B&A would be taking if Mr Huckstep secured the TSPV and then left B&A’s employ. That is, I am not convinced that the conversation ended in the way that Ms Bayley said (as to which see [101] above).
I found Ms Bayley generally to be a truthful and reliable witness. She is an intelligent person and a most meticulous businesswoman. She has a highly developed eye for detail and, in my judgment, a great capacity to recall events and conversations.
The evidence was that Ms Bayley did very little to protect B&A’s interest in any TSPV that Mr Huckstep might obtain. She took no steps in April 2008 to protect that interest and, apart from making a further phone call to Mr Henderson to see if she could replace Mr Huckstep as B&A’s nominee for the TSPV (a request which was declined), took no steps of that kind later on when Mr Huckstep informed her that he proposed to leave the employ of B&A. Indeed, she allowed the TSPV vetting process to continue notwithstanding that Mr Huckstep had given her notice of his intention to leave B&A. I think that, had the question of protecting B&A’s interest in any subsequently awarded TSPV in the event that Mr Huckstep left the employ of B&A occurred to Ms Bayley in April 2008, she would have taken steps at that time to protect B&A’s interest. She did not do so.
For these reasons, I do not accept that this particular part of the conversation as recounted by Ms Bayley actually took place.
In the end, whether Ms Bayley raised a concern about the TSPV travelling with Mr Huckstep wherever he chose to work in the April 2008 conversation with Mr Huckstep may not matter very much. Clearly, on the evidence, the new opportunities to which Ms Bayley was alerted by Mr Phipps in late 2007 and early 2008 were opportunities which came to B&A via Mr Phipps. It was in light of her conversations with Mr Phipps that Ms Bayley discussed those opportunities with Mr Huckstep. The TSPV that was under consideration, although awarded to an individual (Mr Huckstep), would have to be used for the benefit of B&A and not against its interests.
Events in the Period May to September 2008
In May 2008, opportunities to assess Mr Rick Schurmann of the Defence Materiel Organisation and Mr Ken Skelton at Customs came to B&A. Mr Huckstep later diverted these assessments to DBR.
On or about 18 August 2008, upon his return from a business trip to Perth, Mr Huckstep arranged a meeting with Ms Bayley. At this meeting, he told her that, for personal reasons, he intended to move to Esperance in Western Australia at the end of 2008. He asked Ms Bayley whether there would be any opportunity for him to remain employed by B&A in Western Australia and, if not, whether he could contract to B&A from there.
Ms Bayley described this announcement as a “bombshell”. She was very unhappy about it. She quizzed Mr Huckstep as to what it was he intended to do in Esperance given that, in her opinion, there would be very little opportunity for him to do the type of work which he did for B&A in such an isolated place. Ms Bayley said that she needed to talk to her husband and to think about what Mr Huckstep had said.
On 27 August 2008, Ms Bayley again met with Mr Huckstep and suggested to him that it might be possible to use him as a contractor from Esperance. She said that she would need to understand what financial arrangements he had in mind and where he expected the work would come from.
On 5 September 2008, Mr Huckstep sent an email to Ms Bayley. This email came to be known as the “All About Me” email and I shall refer to it accordingly. The All About Me email was in the following terms:
Ruth,
I know Stu has briefly chatted to you already, but I need to chat about my change in circumstances.
The move to Esperance has been put on hold for four years. As you already identified, an immediate move is not sustainable for a number of reasons. The fact, however, that the milestone is four years rather than 15 years puts a different perspective on my financial circumstances. So while my current role and remuneration fits the bill in terms of professional satisfaction (and I do love being part of this team), it does not provide a sufficient financial basis for a move in four years time. As such, from a personal perspective, something needs to change.
I have been shouldering the weight of the world in order to identify a solution which not only maximises my potential financial return, but also provides you with access to me as a resource for training, assessment, BD, courseware development and assistance to you/Stu in business systems development. While initially I thought this was achievable from Esperance, clearly that was not workable. The model I was going to employ from Esperance is the model I want to employ from Canberra. The geographical proximity makes this far more achievable now!
Effectively my desire is to move to a contract model (aka John and Kim). I have no desire (and certainly not the energy) to grow a business which is bigger than just me!! I don’t want to be competing with Bayley, I want to remain a close part of the Bayley team (aka John and Kim). I have no interest or desire in doing a Debbie or becoming a Transformed. To me, the change is purely a means to an end rather than a corporate stepping stone and has been driven by a change in circumstances!
My desire is a good daily rate and as high a utilisation as I can achieve by delivering training under a Bayley umbrella, undertaking assessments, developing courseware for Bayley, providing a layer of redundancy for Sandie, providing mentorship for Stu and undertaking consulting.
My aim around consulting is to try and develop a PM/Procurement stream lead and mentoring/assessment service in DSD, once my PV is through. I see this as a great inside BD link for Bayley in not only DSD but the other Intelligence agencies ... I think I can sell them on up to 10 days/month. From a BD perspective, this is not a role we would have seriously entertained with me as GM. I do see it as a good Bayley revenue generator from the competency assessment perspective. At present, DSD have been doing the PM training and, because of their desire for workplace assessments, have a low completion rate. My view is that they would do the Bayley training, access the ‘mentor/stream lead’ (ie me) and then I would then assess them when they are ready (path of least resistance for them and Bayley sees completion rate and revenue). Every one wins!
Obviously from a personal financial perspective (day rate, business tax etc), I would be better off doing the consultancy under my own banner (as John did with his DMO work) but everything else under a Bayley banner. That however, is only one perspective. I would be keen to explore the concept with you and look at the Bayley sub-contract option for the consultancy as well.
Anyway, while I understand this is not your utopia, I can only reiterate my strong desire to continue to be part of the Bayley team!! As I said once a day for a while ... I am happy to be here’. I just need to change my model because of my personal circumstances and I do believe the Bayley business can benefit rather than suffer in my mind, a far better outcome for all than the one that was looking a certainty for a while!
Thanks
Nige
Nigel Huckstep
General Manager
Bayley and Associates
Ph: (02) 6282 5660
Fax: (02) 6282 5661
Mobile: 0413 677 553
Email: [email protected]Web: com au
In addition, B&A is confronted with electing between equitable compensation or an account of profits in respect of these breaches of duty. Also, it appears that there will be substantial overlap between the financial consequences of these breaches and the financial consequences of the breaches of Mr Huckstep’s AWA and breaches of fiduciary duty which I have already found.
Diversion of the TSPV Opportunity
It is B&A’s case that it is entitled to recover from Mr Huckstep and DBR equitable compensation or, at its election, an account of profits in respect of Mr Huckstep’s and DBR’s activities post 12 November 2008 in exploiting the TSPV.
It was submitted on behalf of B&A that Mr Huckstep could not acquire for himself the opportunities presented by his holding the TSPV which he acquired because those opportunities came to him in the course of the discharge of his duties as a senior employee of B&A. In support of this submission, B&A relied upon expressions used in a number of cases. The touchstone was expressed in the following terms in those cases:
·In the course of a transaction that he was carrying out on behalf of [B&A] (Furs Ltd v Tomkies (1936) 54 CLR 583 at 598; Canadian Aero Services Ltd v O’Malley [1974) SCR 592).
·In the course of the execution of his office (Peso Silver Mines Ltd v Cropper (1966) 58 DLR 2d 1 at 8).
·By use or by reason of his fiduciary position (Chan v Zacharia (1984) 154 CLR 178 at 199).
·In the course of and by utilisation of that position (Northern Rivers Finance Co Pty Ltd (In Liq) (1979) 4 ACLR 545 at 549).
B&A submitted that, whatever expression is used to articulate the relevant rule, the rule was both rigid and inexorable (Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443 at 452; and Parker v McKenna (1874) 10 Ch App 96 at 124). B&A submitted that liability to pay compensation or to give an account of profits arises from the mere fact that a profit is made or a benefit is received (Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 at 144–145).
It was also submitted by B&A that it does not matter that the person to whom the duty was owed suffered no detriment or was unwilling, unlikely or unable to obtain the benefit for themselves. A fiduciary must answer for his default according to his gain rather than his principal’s loss. It was also submitted that a fiduciary cannot avoid liability on this account by resigning his fiduciary position in order to take up and pursue the opportunity for himself. The fiduciary obligation continues notwithstanding the resignation.
In the present case, Counsel for Mr Huckstep and DBR submitted that Ms Bayley, on behalf of B&A, had given an informed consent to Mr Huckstep pursuing and obtaining the relevant TSPV and to his utilising it as he saw fit after the cessation of his employment with B&A. B&A countered this submission by submitting that however one characterises Ms Bayley’s approval given in early 2008 for Mr Huckstep to pursue an application for a TSPV, one could not possibly say that her approval constituted a fully informed consent. Counsel for Mr Huckstep and DBR then submitted that the question of the quality of the relevant consent needs to be assessed at the time when it was given which, in the present case, was early 2008, before Mr Huckstep had notified Ms Bayley that he intended to leave B&A’s employ.
In Omnilab Media Pty Ltd v Digital Cinema Network Pty Ltd (2011) 285 ALR 63 at 90–[216]–[218], Jacobson J, sitting as a member of the Full Court, observed that the business opportunity rule articulated by Laskin J in Canadian Aero Service Ltd v O’Malley at 607 was a well-established principle in Australia.
The opportunity to obtain a TSPV from the DSD came to Mr Huckstep only because he was the General Manager of B&A and only because B&A was interested in pursuing business opportunities with the DSD. The whole idea originated with Mr Phipps who took it to Ms Bayley who then ultimately decided to entrust Mr Huckstep with the task of promoting B&A’s business by securing the TSPV. In the language of the authorities, the TSPV was given to Mr Huckstep in the course of the execution of his office as General Manager of B&A. He was not entitled to exploit the TSPV for the benefit of himself, DBR or any other person while he was employed by B&A nor was he entitled to do so after the cessation of his employment.
B&A complains that Mr Huckstep used the TSPV to divert work to DBR and to Apis Group which ordinarily would have come to B&A. In the findings which I have made at [193]–[205] above, there is evidence to suggest that this was so.
At this stage of the proceeding, I am satisfied that there is a sufficient basis for ordering an inquiry as to equitable compensation or an inquiry as to an account of profits in respect of Mr Huckstep’s wrongful exploitation of the TSPV.
As is the case with other causes of action relied upon by B&A, it will have to elect between equitable compensation or an account of profits.
Breaches by DBR of the Auspicing Agreement
These breaches may be characterised in two broad ways: First, breaches involving the solicitation of Mr Jenkins. Second, breaches involving the misuse of B&A’s confidential information.
As to the former, I find that, by soliciting Mr Jenkins to leave B&A and by otherwise interfering with the due performance of his duties as an employee of B&A, DBR breached cl 2.1 of the Auspicing Agreement.
In due course, it will be entitled to an award of damages for breach of that contractual term.
In addition, DBR also breached its contractual obligations of confidentiality (as to which see cl 2.1(d) and cl 5.1). It is difficult to see, however, how those breaches will provide any additional financial compensation to B&A. True it is that this cause of action is available directly against DBR. But, in order to recover damages for breach of the relevant clauses, B&A will need to establish that it was the copies of the relevant confidential materials that were supplied to DBR pursuant to the Auspicing Agreement which were misused after December 2008 by DBR rather than the copies which Mr Huckstep had electronically transferred in the last few months of the period of his employment with B&A.
B&A made no attempt to approach the question of damages in the way that I have described. In any event, I suspect that it would ultimately prove to be an impossible task for B&A to establish the requisite causal connection between the alleged breach and any loss.
I do not think that the evidence goes so far as to enable me to conclude that the misuse of B&A’s confidential information after December 2008 was a misuse effected by DBR in respect of the confidential materials furnished to it under the Auspicing Agreement. I therefore do not think that this breach should be the subject of any inquiry.
Breach of Copyright
Copyright is claimed by B&A in its confidential courseware and business documents.
At [45]–[58] above, I have recorded the evidence given by Ms Bayley as to the creation of these materials.
I have found that, as at September, October, November and December 2008, those materials were authored by Ms Bayley or employees of B&A under her supervision and control.
It is an infringement of a literary work protected by copyright to reproduce that work in a material form (s 31(1)(a)(i)) or to communicate the work to the public (s 31(1)(a)(iv)).
The duplication of a document in an electronic, digital or machine readable form, whether that duplication is into another such intangible form or otherwise, is a “reproduction” of that document within the meaning of s 31(1)(a)(i) of the Copyright Act (Woolworths Ltd v Olson at 215 [326]).
Here, Mr Huckstep electronically transmitted from his B&A email account to his DBR email account B&A’s entire courseware library and other confidential business documents. It was also established that most of the documents were then reproduced by him in paper form and used by him and DBR in DBR’s business activities.
The electronic transmission of these documents from one email account to another is a reproduction for the purposes of s 31(1)(a)(i) of the Copyright Act as is the creation of paper versions of the downloaded material.
I do not need to consider whether s 31(a)(iv) was also breached in the circumstances of this case.
Counsel for Mr Huckstep and DBR submitted that copyright did not subsist in B&A’s confidential courseware and business documentation.
For reasons which I have already given, I reject that submission.
In the event that the Court found that B&A’s confidential materials were protected by copyright, Mr Huckstep and DBR did not seriously challenge the proposition that the electronic transmission of these documents and subsequent creation of paper copies thereof constituted reproduction of them for the purposes of s 31(1)(a)(i) of the Copyright Act and thus amounted to an infringement of B&A’s copyright for that reason.
Apart from the possibility of obtaining additional damages pursuant to s 115 of the Copyright Act, it is difficult to see that the consequences of these acts of reproduction insofar as B&A were concerned produced any loss for B&A which was different from the losses sought to be recovered by means of the other causes of action relied upon by B&A based upon the misuse of B&A’s confidential information. In light of my findings, however, there will, of course, be a question of whether additional damages are appropriate in the circumstances of this case.
RELIEF
With the exception of the cause of action against DBR based upon the breach of cl 2.1(d) and cl 5.1 of the Auspicing Agreement constituted by the misuse of B&A’s confidential information supplied under that agreement, B&A has succeeded in all of the claims which it made against Mr Huckstep and DBR.
The question of relief poses considerable difficulties.
One difficulty is that, insofar as it still has a right to elect to choose its remedy as between equitable or statutory compensation, on the one hand, and an account of profits, on the other hand, B&A has not yet made that election. I think that I should now require it to do so before making any orders giving effect to these Reasons for Judgment.
Another difficulty is that B&A has presented a number of lengthy schedules in which are listed those documents which are said to have been stolen or, in the case of the copyright claim, reproduced. On the last day of the hearing, it presented a set of draft Orders to which were attached various schedules. Some of those schedules did not sensibly relate to the schedules attached to B&A’s Closing Written Submissions.
I think that it is essential that the orders which I make at this stage of the proceeding make clear, as far as is humanly possible, which documents are said to have been misappropriated in respect of each of the causes of action relied upon. It will then be a matter for the Court’s consideration at the next stage of the proceeding as to whether there is substantial overlap between the claims based on each of the causes of action in respect of which B&A has succeeded and the relief to be granted as a result.
For these reasons, I propose to direct that, within twenty-one (21) days of the date of these Reasons for Judgment, B&A submit a draft set of Orders which give effect to these Reasons for Judgment. I will then allow time for Mr Huckstep and DBR to respond.
I should also indicate now that I would not be prepared to make declarations to the effect that Mr Huckstep’s AWA and the Auspicing Agreement have been breached. I take the view that the remedy for such breaches is an award of damages, not a declaration plus an award of damages. It is clear from these Reasons for Judgment that I have now found that those contracts were breached. However, the question of damages to be awarded for such breaches is yet to be determined.
CONCLUSION
B&A has had substantial success in the proceeding to date. There is no reason why costs should not follow the event. I therefore propose, in due course, to make an order for costs in favour of B&A against both Mr Huckstep and DBR.
I certify that the preceding two-hundred and eighty-four (284) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster. Associate:
Dated: 10 December 2013
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