Consolidated Paper Industries Pty Ltd v Matthews
[2004] WASC 161
•16 JULY 2004
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: CONSOLIDATED PAPER INDUSTRIES PTY LTD -v- MATTHEWS [2004] WASC 161
CORAM: MASTER NEWNES
HEARD: 28 JUNE 2004
DELIVERED : 16 JULY 2004
FILE NO/S: CIV 1790 of 2004
BETWEEN: CONSOLIDATED PAPER INDUSTRIES PTY LTD (ABN 5800 5190 036)
Plaintiff
AND
PAUL MATTHEWS
Defendant
Catchwords:
Practice and procedure - Interlocutory injunction - Employment contract - Employee preparing to go into business on own account - Whether breach of duty to employer - "Head start" principle - Duty of confidentiality - Turns on own facts
Legislation:
Nil
Result:
Injunction granted in part
Category: B
Representation:
Counsel:
Plaintiff: Mr R P Collinson
Defendant: Dr P R MacMillan
Solicitors:
Plaintiff: Minter Ellison
Defendant: Stephen Kemp
Case(s) referred to in judgment(s):
Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37
Blythe Chemicals Ltd v Bushnell (1933) 49 CLR 66
Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148
Cayne & Anor v Global Resources PLC [1984] 1 All ER 225
Coco v AN Clark (Engineers) Ltd (1969) RPC No 2 41
Faccenda Chicken Ltd v Fowler & Ors [1986] 1 All ER 617
Hartleys Ltd v Yukich & Ors [2002] WASC 184
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Independent Management Resources Pty Ltd v Brown [1987] VR 605
Independent Services Ltd v Stevens [2002] WASC 280
McPherson's Ltd v Tate (1993) 35 AILR 225
NP Generations Pty Ltd v Feneley [2001] SASR 151
Printer & Finishes Ltd v Holloway [1964] 3 All ER 731
Robb v Green [1895] 2 QB 1
United States Surgical Corporation v Hospital Products International [1983] 2 NSWLR 157
WA Fork Truck Distributors Pty Ltd v Jones & Ors [2003] WASC 102
Wessex Dairies Ltd v Smith [1935] 2 KB 80
Worsley & Co Ltd v Cooper [1939] 1 All ER 292
Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317
Case(s) also cited:
AIM Maintenance Ltd v Brunt [2004] WASC 49
Concut Pty Ltd v Worrell (2000) 176 ALR 693
Hartley Limited v Martin [2002] VSC 301
Johnson v Buttress (1936) 56 CLR 113
Rock Refrigeration Ltd v Jones [1997] 1 All ER 1
Southern Real Estate Pty Ltd v Dellow [2003] SASC 318
State Transport Authority v Apex Quarries Ltd [1988] VR 187
Terrapin Ltd v Builders' Supply Company (Hays) Ltd [1960] RPC 128
MASTER NEWNES: This is an application by the plaintiff for an interlocutory injunction restraining the defendant from soliciting, on his own behalf, certain customers and suppliers of the plaintiff and from using certain information which the plaintiff says is confidential to it.
The plaintiff is a wholly owned subsidiary of CPI Group Ltd, which carries on business as a supplier to the graphic arts printing and converting industry. In broad terms, "converting" refers to cutting paper to the size required by the customer. Approximately 85 to 90 per cent of the Group's business consists of supplying paper to the printing and converting industry and it is the third largest supplier of paper, including thermal paper, to the Australian market.
On 12 January 1004, the plaintiff purchased the business of Boomerang Paper (WA) Pty Ltd. Boomerang Paper (WA) Pty Ltd was at the time, and still is, in receivership. Boomerang Paper (WA) Pty Ltd had carried on the business of supplying various types of paper to the Western Australian market and thermal paper to customers throughout Australia. The sale of thermal paper was a substantial part of its business, contributing revenue in the order of $4,000,000 annually. It was regarded by the plaintiff as a substantial factor in the viability of the business.
It appears that thermal paper is used in a variety of ways, including for tickets, such as wagering and gambling tickets, and point of sale printouts. It is described by the plaintiff as a technologically advanced product which has a profitable market in Australia. In the plaintiff's view, however, it is necessary to have a stable and reliable supplier and it considered Boomerang Paper (WA) Pty Ltd had that in Mitsubishi Australia Ltd, with which Boomerang Paper (WA) Pty Ltd had dealt in relation to carbonless paper for approx 13 years and in relation to thermal paper for some three years. According to the plaintiff, a major reason for its purchase of the business of Boomerang Paper (WA) Pty Ltd was to enable the plaintiff to enter the thermal paper market.
The defendant had been an employee of Boomerang Paper (WA) Pty Ltd for approximately 14 years prior to its receivership, some 13 years as its manager.
It was not in issue that the defendant was employed by the plaintiff as manager of the business ("Boomerang Paper") from 12 February 2004, the day upon which the plaintiff acquired the business from Boomerang Paper (WA) Pty Ltd. The circumstances and duration of the defendant's employment by the plaintiff, however, were a matter of controversy.
The defendant says his employment by Boomerang Paper (WA) Pty Ltd was terminated by the receiver with effect from 5 February 2004. At about that time, he was given a letter by the plaintiff saying that it was its intention, following completion of its acquisition of the business, to offer employment to all of the employees of Boomerang Paper (WA) Pty Ltd on similar terms to those on which they had been employed by Boomerang Paper (WA) Pty Ltd. Mr Cassell, the managing director of CPI and the plaintiff, kept in touch with the defendant, promising on a number of occasions that the defendant would be employed in the business after its acquisition by the plaintiff.
According to the defendant, after the termination of his employment by the receiver he became concerned about his position, as he considered that in light of his age and experience it would be difficult, if not impossible, to find comparable employment elsewhere if he did not gain employment with the plaintiff. He was concerned that if the plaintiff did not acquire the business and offer him a position, he would have to commence trading on his own account in the hope of building up a business that would provide him with a comparable income. The defendant says that, accordingly, on 11 February 2004, he registered the business name "Rebel Paper".
The defendant met Mr Cassell in Perth on 20 February 2004 and was handed what he was told was an offer of employment. The letter did not, however, meet his expectations. It described his work as general sales and said that he was to work in the plaintiff's office in Victoria. The salary was much lower than he had previously been earning. Mr Cassell, when this was pointed out to him, said that the letter was wrong and he would have it redrafted and the correct offer sent to the defendant.
Mr Cassell says the letter was a pro forma letter which had been prepared in haste to give comfort to the various former Boomerang employees and in the defendant's case it was simply incorrect.
According to the defendant, he did not receive a further written offer of employment until 7 April 2004, when a letter of offer was handed to him by the chief financial officer of the plaintiff during a visit to Perth. Mr Cassell, on the other hand, says it was sent to the plaintiff on 7 March 2004.
The defendant says that, in the meantime, as he had not heard further from Mr Cassell since 20 February regarding his employment contract, he became concerned about his job security and thought that the plaintiff might be stalling while it considered whether or not it would employ him. He was also concerned that if an offer was made the terms would be unacceptable. The first offer had contained a one‑month notice period and a two‑year restraint of trade clause. The defendant says he was not prepared to sign an agreement containing those or similar provisions. He says there had also been discussions which suggested that the plaintiff wanted to move the business operations into its own offices in Perth and also discussions of possible retrenchment of staff. He was therefore concerned that he would not gain long‑term employment with the plaintiff.
Accordingly, the plaintiff says that when he saw his accountant in March 2004 to discuss his tax return, he told his accountant he was considering commencing business on his own account if things did not work out with the plaintiff. The accountant suggested that he register a company with the name "Rebel Paper" to secure the name in case he wished to go into business.
The defendant says that, around the end of March, he saw an empty factory in O'Connor that was close to his home and had a "To Let" sign displayed on it. He says he decided to put in an offer to lease the factory premises on the basis that, if it were accepted, he would commence trading on his own account, rather than continue employment with the plaintiff. He made an offer to lease the premises as from 20 April 2004 in the name of Rebel Paper Pty Ltd. The offer to lease provided for the defendant to be a guarantor of the lease. In the event, the landlord did not accept the offer and the defendant says that Rebel Paper has never traded and neither he nor it has ever acquired any business premises.
The defendant says that, by the end of April 2004, matters had settled down with the plaintiff and he had decided he would not pursue the idea of going into business on his own account.
The position seems to have changed after about mid‑May 2004. On 14 May 2004, the defendant learned that he and the other employees of the business had been locked out of the premises pending the investigation of what the plaintiff believed to be a large volume of stock discrepancies. The defendant says that in a telephone conversation with Mr Cassell on 17 May 2004, Mr Cassell said that he needed to speak to him to discuss the stock discrepancies and other unspecified matters.
That meeting took place on 20 May 2004. It was attended by Mr Cassell and a Mr Harrison on behalf of the plaintiff. It appears that the issue of the perceived stock deficiencies was satisfactorily resolved. The defendant was then asked a number of questions about Rebel Paper, his dealings with Amcor Fibre Packaging Pty Ltd ("Amcor"), a customer of the plaintiff, and the transfer into his own name of the business mobile telephone number used by the defendant. At the meeting the defendant said he would provide a written response to those matters.
On 21 May 2004, the plaintiff wrote to the defendant referring to the meeting and confirming that it was investigating whether the defendant was in breach of his duties to the plaintiff by making arrangements to set up in competition and by misusing confidential information for that purpose. It requested a written response to the matters raised in the meeting. The plaintiff said the defendant was not required to attend work until notified of the outcome of the plaintiff's investigations, but that he would continue to receive his salary and entitlements.
The defendant responded in detail by letter of 24 May 2004, denying that he was in breach of any duties to the plaintiff or that he had misused any confidential information. In the letter, the defendant said that the business name of Rebel Paper had been registered when his position was uncertain and that he had incorporated the company on accounting advice. He said he had investigated the lease arrangement as he was not in receipt of a definite contract of employment as general manager at the time. The first contract he had received in February was deficient and he did not receive anything further until 7 April, leading him to question the plaintiff's commitment to employ him. He had made the lease inquiry in the meantime. The defendant observed in the letter that, after 15 years with Boomerang Paper (WA) Pty Ltd, 13 years as manager, he was now being offered only probationary employment with the plaintiff. He doubted the plaintiff's intention to offer him long‑term employment. The defendant went on to say that he had not pursued the lease and Rebel Paper had never traded. He said that changing the telephone number of the mobile phone was an overreaction, but he was concerned that calls were being monitored by the plaintiff and he felt that that was an invasion of his privacy. He had sought to transfer the telephone number as it was a number he had used for 15 years. He had used the name Rebel Paper when changing the telephone number because it resulted in savings on the telephone charges.
The plaintiff gave the defendant one month's notice of the termination of his employment by a letter from its solicitors of 3 June 2004. The notice was to be effective as of 5 July 2004. The defendant alleged that that was insufficient notice, as there was no agreement for one month's notice, and that the plaintiff had accordingly repudiated the contract, which the defendant accepted by letter from his solicitors of 11 June 2004.
There is therefore a dispute as to when the defendant's employment ended; the plaintiff said it ends on 5 July 2004 on the expiration of the notice period, the defendant said it ended on 11 June 2004 following the plaintiff's wrongful repudiation of it. The defendant's counsel submitted that because the plaintiff had wrongfully repudiated the contract it could not rely on any contractual remedies. Whether or not the plaintiff wrongfully repudiated the contract is not, however, a matter that is capable of being determined on this application.
In the proceedings, the plaintiff claims that the defendant was in breach of his obligations to the plaintiff in that, while employed by the plaintiff, he set about establishing a business to compete with the plaintiff's business. In that respect, the plaintiff relies on the facts that the defendant on about 19 March 2004 registered a company, Rebel Paper Pty Ltd, that on about 2 April he made an application to lease premises in the name of Rebel Papers Pty Ltd and agreed personally to guarantee the lease and that on 18 May he transferred the mobile telephone account to the name of Rebel Paper Pty Ltd. The plaintiff also alleges that in April or May the defendant had discussions with Amcor with a view to provide converting services to it on his own account, that in about June 2004 he purchased or arranged to purchase a JM slitter rewinder to provide converting services to Amcor, that on about 30 May he failed to disclose to the plaintiff that an existing customer, Fairplay Pty Ltd ("Fairplay"), had been awarded a tender let by Racing and Wagering Western Australia ("RWWA") or that Fairplay had placed an order through the defendant for thermal paper to supply RWWA, that on 1 June he attempted to supply thermal paper to Fairplay for the RWWA tender through another company, and that in about June 2004 he obtained business premises in O'Connor.
The plaintiff also alleges that the defendant has through his employment by the plaintiff come into possession of information confidential to the plaintiff, which the defendant has and, unless restrained, will continue to use to the detriment of the plaintiff.
The plaintiff claims damages, equitable compensation and an inquiry into any profits made by the defendant, and injunctive relief. The injunctive relief sought in the statement of claim is in essentially the same terms as the interlocutory relief sought in this application, albeit without any time limits put on the restraint.
In the present application, the plaintiff relevantly seeks:
(1)Until 5 October 2004, an injunction restraining the defendant directly or indirectly from soliciting, enticing away, interfering with or endeavouring to solicit, entice away or interfere with:
(a)Amcor Fibre Packaging Pty Ltd regarding paper conversion services currently provided by the plaintiff;
(b)Fairplay Print Pty Ltd regarding the supply of thermal paper for Racing and Wagering Western Australia's ticketing requirements; and
(c)Mitsubishi Australia Limited regarding the supply of thermal paper for Racing and Wagering Western Australia's ticketing requirements.
(2)Until 22 April 2005, an injunction restraining the defendant from using in any manner whatsoever and from disclosing without the plaintiff's written consent any of the following information:
(a)the requirements of Racing and Wagering Western Australia ("RWWA") in relation to its thermal paper ticketing requirements, including the specifications, size, type and quality of the thermal paper, being information which was imparted to the defendant while in the employ of the plaintiff ("RWWA's Requirements");
(b)details of the quote submitted by the defendant, while in the employ of the plaintiff, to Fairplay Print Pty Ltd on 23 April 2004 for the supply of thermal paper known as "40FCL thermoscript TP 1635 350mm x 3,800mt 6' (152mm) cores coating in" ("Paper") in relation to RWWA's requirements ("Quote"); and
(c)details of the terms and conditions upon which Mitsubishi Australia Limited was prepared to supply the thermal paper required to meet RWWA's Requirements for the purposes of a Quote, including the price payable by the plaintiff for the Paper in relation to the Quote.
Interim orders have been made restraining the defendant in those substantive terms until the determination of this application. The defendant was also restrained until 5 July 2004, the date upon which it contended his employment formally ceased, from engaging in the supply or conversion of paper in Australia. The latter is no longer relevant.
The allegations in relation to Amcor have come about in the following way. Amcor is a customer of the plaintiff, as it had been of Boomerang Paper (WA) Pty Ltd. The plaintiff had supplied rewinder services to Amcor. It had not supplied ribbon slitting services because Boomerang did not have the required equipment. The plaintiff alleges that the defendant did not make the plaintiff aware after it purchased the business that an opportunity existed to increase the work it did for Amcor by acquiring the necessary equipment and providing those services to Amcor. In essence, the plaintiff alleges that the plaintiff failed to do so because he intended to set up in business to do that, and other, work for Amcor on his own behalf.
According to Mr Cassell, both in view of his suspicions that the defendant was acting in breach of his contract with the plaintiff and in order to pursue further business opportunities for the plaintiff, he made an appointment to see the commercial manager in Western Australia for Amcor, a Mr Tilley. The meeting took place on 18 May 2004 and was attended by Mr Cassell and a Mr Newell on behalf of the plaintiff. Mr Cassell says that, at the outset, Mr Newell told Mr Tilley that the plaintiff wished to explore the possibility of doing more work for Amcor.
According to Mr Cassell, during the discussion Mr Tilley said he had had many discussions with the defendant about the slitting and rewinding of paper and that he was inclined to do business with the defendant for the supply of paper and converting services. Mr Tilley said the defendant was setting up a business in a location in O'Connor that would be convenient to Amcor. It was proposed that the defendant would supply services that were then supplied by Boomerang Paper and other services that Boomerang Paper had sought to provide. Mr Tilley said he expected the defendant would start providing the services in late May or early June 2004. According to Mr Cassell, Mr Tilley said that, although there were opportunities for the plaintiff to expand the volume of work it did for Amcor, he (Mr Tilley) had been given the impression that the plaintiff was not interested in Amcor's business. Mr Cassell says that, as Mr Tilley had dealt exclusively with the defendant on behalf of the plaintiff, he believed the defendant had given Mr Tilley that impression.
An affidavit of Mr Newell sworn 16 June 2004 has been filed on behalf of the plaintiff. Mr Newell's version of the discussion with Mr Tilley is substantially to the same effect, although Mr Newell says that Mr Tilley actually told them that the defendant had given him the impression that Boomerang Paper was not interested in expanding its business with Amcor.
Mr Newell also says he had a telephone conversation with Mr Tilley on 24 May 2004 during which Mr Tilley said the defendant had discussed with him a JM slitter rewinder that the defendant was in the process of purchasing to do Amcor's work. Mr Tilley said he had dealt with the defendant regarding possible business between Rebel Paper and Amcor as recently as the previous month. Mr Tilley subsequently e‑mailed to Mr Newell a pamphlet that the defendant had given him regarding the slitter rewinder.
Mr Newell says he had a further telephone conversation with Mr Tilley on 15 June 2004 to arrange a meeting to discuss the plaintiff doing slitter and rewinding work for Amcor. According to Mr Newell, in the course of that conversation Mr Tilley indicated there was little point in meeting for such discussions because Amcor would be obtaining those services from Australian Paper Equipment, which would be around the corner from Amcor. Although it does not clearly emerge from the affidavit, it appears that Mr Newell understood that the defendant would be acquiring the slitter rewinder from Australian Paper Equipment, which would then provide the services to Amcor in association with the defendant.
An affidavit of Mr Tilley has been filed on behalf of the defendant. Mr Tilley gives a somewhat different account of the conversations. He says he was told at the initial meeting with Messrs Cassell and Newell that it was to discuss business between Boomerang Paper and Amcor and he was not told that it concerned the defendant. According to Mr Tilley, he told Messrs Cassell and Newell that he had had a number of discussions with the defendant about rewinding and ribbon slitting. Mr Tilley says the discussions had occurred mainly prior to February 2004 and concerned rewinding work being undertaken by Boomerang Paper and also the possibility of it performing ribbon slitting. Mr Tilley says he told them that in January 2004 the defendant had discussed setting up his own business to do ribbon slitting for Amcor. The defendant had indicated that if he were to set up business it would not occur before the middle of 2004. Mr Tilley says he told Messrs Cassell and Newell that if the defendant did commence business he would consider engaging the defendant's services for the Amcor ribbon slitting work and would consider any other services the defendant could offer. Mr Tilley says there was never any discussion of Boomerang Paper, or the defendant on his own account, supplying paper to Amcor.
Mr Tilley denies that he said to Messrs Cassell and Newell that he had been given the impression that Boomerang Paper was not interested in Amcor's business. He says he knew Boomerang Paper was interested in the rewinding work, but he also knew it was not a priority for them. It had always been done on the basis that Boomerang Paper would take on the work when it was not busy and the work would not be done as a matter of priority. Mr Tilley says that in 2003 Boomerang Paper (WA) Pty Ltd had looked at undertaking Amcor's ribbon slitting work, but had not taken it on as it did not have the machinery capable of performing the work. It had not pursued the discussions about it.
According to Mr Tilley, on the last occasion he spoke to the defendant, in about April 2004, he had asked him what was happening about Rebel Paper and the defendant had said he had not yet made up his mind whether or not to go into business on his own account. Mr Tilley says that the discussion with the defendant about the JM slitter rewinder had occurred in January 2004 and that was when the defendant had provided him with the pamphlet which he e‑mailed to Mr Newell.
According to Mr Tilley, he had a subsequent telephone conversation with Mr Newell in which he declined an offer to meet Mr Newell to discuss ribbon slitting work but he did so because he knew the plaintiff could not undertake that work.
Mr Tilley says that he has not entered into any contract with the defendant, or given him any undertaking that Amcor would do business with Rebel Paper. All he has done to date is make it clear that to the defendant that he would be prepared to talk to him about ribbon slitting work if he was able to provide those services, but Mr Tilley says he would be equally willing to discuss that prospect with any party offering those services. He says that he did have a discussion with Mr Peacock of Australian Paper Equipment in June 2004. Mr Peacock said that he had had discussions with the defendant concerning the purchase of a JM slitter rewinder. Mr Tilley says he did not suggest to Mr Newell that the business would be run by Australian Paper Equipment, as that was not his understanding.
The defendant's evidence on the subject is substantially to the same effect as that of Mr Tilley.
The defendant says that he is currently investigating the possibility of acquiring a JM slitter rewinder capable of undertaking Amcor's work, but he has made no arrangements with Amcor. The defendant says that the Amcor work in question is not work that was or could have been carried out by Boomerang Paper while he was employed by it, because it did not have appropriate equipment and, given the nature and volume of the work, it would not have been profitable for Boomerang Paper to have obtained the equipment to carry it out.
The relief which is sought in respect of Fairplay Print and Mitsubishi Australia relates to the thermal paper business in which the plaintiff is engaged. In the course of that business the plaintiff supplies thermal paper to paper merchants who in turn provide it in the required specifications to their customers. RWWA is such a customer. RWWA had until recently obtained thermal paper from two suppliers, Fairplay and Moore Paragon, which in turn had obtained most of the thermal paper for that purpose from the plaintiff. The plaintiff obtained the paper from Mitsubishi, which sold one of the types of thermal paper accredited for RWWA's purposes. The plaintiff estimated the value to it of that business at $1.5 million annually.
RWWA recently invited tenders for the supply of thermal paper for the next three years. The successful tenderer was Fairplay. In essence, the plaintiff says that the defendant assisted Fairplay to win the tender at the expense of the plaintiff's other customer, Moore Paragon, and did not inform the plaintiff that Fairplay had won the tender. It also alleges that after Fairplay won the tender the defendant attempted to divert Fairplay's order for Mitsubishi paper for the RWWA tender away from the plaintiff to another company, Quality Papers.
Mr Cassell says he believes the defendant assisted Fairplay in its tender to RWWA to ensure that Fairplay won the tender, with the intention that the defendant would then supply Fairplay with thermal paper in competition with the plaintiff. In support of that belief, Mr Cassell says there are discrepancies between a quote sent by the defendant, on behalf of the plaintiff, to Fairplay for the supply of the paper, in which the defendant quotes a fixed price for 12 months and provides a risk management facility, and a letter directed to Moore Paragon in which it is stated that price stability cannot be guaranteed and in which no risk management assistance is provided. Mr Cassell also says that a subsequent letter from the defendant, on behalf of the plaintiff, to Moore Paragon saying that the price would be fixed for 12 months was apparently not received by Moore Paragon and Mr Cassell says he believes it was not sent by the defendant, with the object of ensuring that Fairplay was the successful tenderer to RWWA.
Mr Cassell says that, on 2 June 2004, a representative of Mitsubishi telephoned him to say that Mitsubishi had received a telephone call from the defendant to the effect that Mitsubishi would be receiving a purchase order relating to the RWWA tender, but it would not come from Boomerang Paper. Shortly afterwards, Mitsubishi received an order from Quality Paper Pty Ltd, with whom it had had no prior dealings. The representative of Mitsubishi also told Mr Cassell that, after that telephone call from the defendant, he received a call from a representative of RWWA who told him that, if RWWA's paper requirements were not supplied through the defendant, RWWA would consider using another grade of paper, which would mean that Mitsubishi would not be the supplier of thermal paper for RWWA's ticketing requirements.
According to Mr Cassell, Fairplay subsequently placed an oral order with the plaintiff for an initial two months' supply of thermal paper, but declined to provide written confirmation of the order, ostensibly because it was waiting to hear from RWWA as to whether Mitsubishi paper would be used. Subsequently, RWWA advised Fairplay to use Mitsubishi paper, but only for an initial order. That was the paper ordered through Boomerang Paper.
Mr Newell says that he had a meeting with Mr Richards, who is a part owner and managing director of Fairplay, on 2 June 2004 in which Mr Richards said he had placed a verbal order with the defendant for the supply of paper to meet the RWWA tender. He says Mr Richards acknowledged that it was not Fairplay's usual practice to place orders verbally. According to Mr Newell, he subsequently made inquiries of Boomerang Paper employees and searched its records, but believes that at no stage did the defendant register an order from Fairplay for the thermal paper.
The evidence from the defendant's side paints a rather different picture. The defendant says that when the RWWA tender was called, Mr Richards of Fairplay asked him for a quote for thermal paper for the purpose of tendering and asked for a fixed price for the first 12 months and an undertaking that Boomerang Paper would hold certain stock by way of risk management to ensure continuity of supply to Fairplay. The defendant says he was not asked to give a quote to Moore Paragon, another tenderer, which was a Victorian based company. In a subsequent telephone conversation with a Victorian employee of the plaintiff, he was told that the Victorian branch of the plaintiff had given a quote to Moore Paragon with a fixed price for 12 months. The defendant replied that the plaintiff should not be making such an offer as he had been advised by Mitsubishi that there were two price increases coming. The defendant then entered into negotiations with Mitsubishi, as a result of which Mitsubishi agreed to quote a fixed price for 12 months. Following that agreement, on 23 April 2004, the defendant prepared the letter of quote to Fairplay and, because he had been instructed to give all quotes on behalf of the plaintiff for the supply of thermal paper, he prepared a similar letter to Moore Paragon quoting the same price fixed for 12 months. He did not include reference to a risk management stock holding in the letter to Moore Paragon, because Moore Paragon had not asked for it. He says the letter was sent by facsimile to Moore Paragon and he is surprised that they claim not to have received it.
The defendant says he had no more to do with the matter until 30 May 2004, after he had been suspended. Mr Richards of Fairplay telephoned him at home, having telephoned the Boomerang Paper office and been given his mobile telephone number. Mr Richards told him that RWWA was concerned that he would no longer be with Boomerang Paper, which would then no longer have expertise in thermal paper. Mr Richards said he did not intend to purchase thermal paper from Boomerang Paper in those circumstances. The defendant says he told Mr Richards that he could not supply thermal paper to Fairplay and Mr Richards asked him if he could recommend another supplier who had technical expertise in thermal paper. The defendant says he suggested Quality Paper, which he knew was controlled by a Mr Peacock, who had technical knowledge of thermal paper. He says he then telephoned Mitsubishi to tell them that Quality Paper would probably be placing an order for thermal paper.
The defendant says he does not, and did not have, any interest in Quality Paper, nor did he receive any benefit from the arrangement. Subsequently, however, his solicitor received a letter from the plaintiff's solicitors suggesting that he had diverted the business from Boomerang Paper to Quality Paper. He then telephoned Mr Richards and explained that the placing of the order with Quality Paper had caused a problem for him. Mr Richards said that he would speak to RWWA about the matter and, subsequently, he told the defendant that RWWA had approved of the order being redirected to Boomerang Paper. The order was then sent to the plaintiff.
An affidavit of Mr Richards, the managing director of Fairplay, has been filed on behalf of the defendant. Mr Richards confirms the defendant's account of his discussions with the defendant. He also says that, when he initially spoke to the defendant about a quote, the defendant said he doubted he could offer a fixed price for 12 months, as he had already received notification of two future price increases for Mitsubishi thermal paper. Subsequently, he indicated that he had been able to secure fixed pricing for 12 months.
Mr Richards denies that the defendant, or the plaintiff, influenced the outcome of the tender process and says that it depended on many factors apart from the price of thermal paper. He also says that the risk management stock holding was his idea so he is not surprised that it was not offered to Moore Paragon.
Mr Richards said that, after Fairplay was awarded the tender, he was told by a representative of RWWA that the defendant was rumoured no longer to be with Boomerang Paper and this was of concern, as RWWA would prefer to continue dealing with the defendant. It was then that he contacted the defendant and, when told the defendant could not supply thermal paper, asked and obtained a recommendation of Quality Paper as an alternative source.
Mr Richards confirms that he was subsequently requested by the defendant to revoke the order with Quality Paper and place it with Boomerang Paper, as the matter had become an issue between the defendant and the plaintiff, and he did so.
Mr Richards also says he did not place a verbal order with Boomerang Paper on 2 June, as suggested by the plaintiff, and denies telling Mr Newell that he did. Mr Richards also says he did not say it was not Fairplay's usual practice to place orders verbally, as it quite frequently placed verbal orders. In this case a written order was placed on 4 June. That order was not a confirmation of an earlier verbal order, it was a new order. Mr Richards says that it is not an order for two months' supply, as it is impossible to determine how long stocks will last. He goes on to say that, if it had not been for the defendant's subsequent intervention, he would not have placed the order with Boomerang Paper at all.
Turning now to the issue of confidentiality, the plaintiff contends that the confidential information in respect of which it is sought to restrain the defendant's use until 22 April 2005 was information imparted in confidence to the defendant while in the employ of the plaintiff. In his affidavit, Mr Cassell says that, through his employment with Boomerang Paper, the defendant had access to information about RWWA's ticketing requirements, Fairplay's specific thermal paper requirements to enable it to fulfil the RWWA tender (including details of size, category and volume), the terms and conditions upon which Mitsubishi did or would supply thermal paper of the type required by Fairplay, and the terms and conditions upon which Boomerang Paper would supply thermal paper to Fairplay to enable it to secure the tender.
Mr Cassell says that that information is not in the public domain, and is considered highly confidential and of great value to Boomerang Paper. He says he believes that, because of the tender process and rules, the information is considered confidential by Fairplay and RWWA.
The defendant denies that the information is confidential. He says thermal paper prices are quoted by the square metre and the size of paper ordered by a printer will depend upon the machinery he is using and the setup of the printing job, and not on the RWWA ticket size. In addition, RWWA's approved thermal paper types were specified in the tender document which was sent to potential tenderers and are freely available to anyone wishing to access the information. The defendant says that the price, terms and conditions offered to Fairplay and Moore Paragon are not confidential and those customers are free to quote the terms and conditions if they wish to obtain thermal paper from other suppliers. He says that it is common to do so in order to see whether another supplier is prepared to offer more competitive terms. As to Mitsubishi, the defendant says that anyone can approach a manufacturer of thermal paper and obtain paper on whatever terms they are able to negotiate. There is no restriction on anyone commencing business as a supplier of thermal paper.
In a responsive affidavit, Mr Cassell says that in his experience paper merchants such as Fairplay and Moore Paragon jealously guard the prices quoted to them because to do otherwise removes their competitive advantage. Equally, it requires skill and effort for a merchant to locate reliable supplies of paper and they keep that information to themselves. Mr Cassell also says that Mitsubishi's terms and conditions of supply to one supplier, such as the plaintiff, is of vital commercial significance to another supplier seeking to compete with it. He says he is aware of this because of his experience in the paper merchant industry.
Mr Richards, the managing director of Fairplay, says that he does not regard Fairplay's thermal paper requirements as confidential and he would readily provide that information to any paper business seeking to sell thermal paper to Fairplay, and in fact has already done so. He also says he does not regard the terms and conditions on which Boomerang Paper supplies thermal paper to Fairplay as confidential and he would readily disclose those terms and conditions to any other supplier in the hope that they would better them.
I did not understand there to be any substantial deal of dispute between the parties on the applicable law.
An employee during the period of his employment must act in the employer's best interest and not in pursuit of his own interests: Wessex Dairies Ltd v Smith [1935] 2 KB 80, Faccenda Chicken Ltd v Fowler & Ors [1986] 1 All ER 617. Except in special circumstances, however, there is no general restriction on an ex‑employee canvassing or doing business with customers of his former employer: Faccenda at 625, Wessex Dairies at 89. But during the term of his employment an employee must not solicit customers for a future time when the employment has ceased and the employee has established his own business: Wessex Dairies Ltd v Smith (supra), Independent Corporate Services Ltd v Stevens [2002] WASC 280. An employee is not, however, prohibited during his employment from making preparations for setting up a business when the employment ends. What steps by the employee will be permissible will depend upon the circumstances, but such activities may extend to the issue of circulars, finding business premises and hiring employees: Robb v Green [1895] 2 QB 1; Independent Management Resources Pty Ltd v Brown [1987] VR 605. But the duty of loyalty of an employee will be breached if the employee engages in unfair or wrongful acts detrimental to the employer's business, such as deferring fulfilment of orders in anticipation of filling them himself, or developing the capacity to copy his employers products with a view to appropriating for himself his employer's market, or recruiting the employer's staff for the new business, or taking copies of or memorising customer lists or other confidential information of the employer, or engaging in significant work to set up the business in his employer's time: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, McPherson's Ltd v Tate (1993) 35 AILR 225, Blythe Chemicals Ltd v Bushnell (1933) 49 CLR 66, WA Fork Truck Distributors Pty Ltd v Jones & Ors [2003] WASC 102.
Turning to the injunction sought in par (1) above, restraining the defendant from soliciting or attempting to solicit Amcor, Fairplay and Mitsubishi, it was not in issue that the defendant's contract of employment did not contain a restraint of trade clause. The plaintiff, however, sought the restraint in par (1) on the basis of what was described as the "head start" or "spring board" principle. Counsel for the plaintiff relied heavily on the decision in WA Fork Truck Distributors Pty Ltd v Jones & Ors where Pullin J, after referring to the discussion of the principle in United States Surgical Corporation v Hospital Products International [1983] 2 NSWLR 157, applied it by analogy to circumstances where a senior employee of the plaintiff had done a substantial amount of work in his employer's time setting up his own business, so that when he resigned from his employment he was able to commence in competition with the plaintiff immediately instead of having to spend three months, as his Honour found would have been required, doing that preparatory work after he ceased employment with the plaintiff.
His Honour expressed the approach as follows at [94]:
"In my view, the 'headstart' cases are no more than a collection of cases dealing with circumstances where a person has gained an advantage which is measured by reference to the advantage which has followed the misuse of the information. By analogy, that approach can be applied here. The plaintiff, instead of waiting until he terminated his employment, by giving proper notice, and then taking the considerable time which was necessary to set up his competing business - which he was entitled to do - took the time of his employer and established the business so that he was in a position to start in competition almost immediately after he left his employment. If he had not breached his duties and contract, he would not have been able to start in business straight away. He therefore gained a 'headstart' as a result of his breach of contract and breach of fiduciary duty.
The facts of that case, however, were quite different to the present case. His Honour observed that a minor attendance to his own affairs would not have been a breach by the employee but the scale of the employee's activities in creating his own business was a material breach of his obligations to the plaintiff. While employed by the plaintiff, the employee had, as his Honour put it, "established the whole infrastructure for the new business … ".
His Honour went on [at 40]:
"In summary, this involved arranging for the incorporation of the second defendant, the securing of rental premises, the acquisition of … equipment … the arranging of finance, the opening of a bank account, arranging for telephones, computers, business cards, motor vehicles, and the registration of a business name, registering his business with the ATO, and securing an ABN and a TFN, providing instructions to accountants for the preparation of cash flows or business plans and attending meetings [with a supplier and others]."
I was also referred to Hartleys Ltd v Yukich & Ors [2002] WASC 184 where the "springboard " analogy was again applied.
The focus in those cases was on the advantage that the former employee derived from his breach of duty in using his former employer's time to undertake the activities necessary to establish his own competing business. It was held that the former employee should be restrained from setting up in competition with his former employer for the period of time he gained by setting up the business in his former employer's time, rather than after his employment has ceased. In this case, the date of 5 October 2004 was said to reflect the plaintiff's reasonable estimate of the advantage gained by the defendant.
The evidence in this case does not indicate that the defendant has in fact spent a substantial amount of time on such activities. The business name "Rebel Paper" was registered before the defendant was employed by the plaintiff. Since his employment commenced, the defendant has made an unsuccessful application to rent premises and has, through his accountants, caused a company to be incorporated. He appears to have made some enquiries about purchasing a slitter rewinder, at least to the point of acquiring a brochure about it, and may have had some discussions with those associated with Amcor and Quality Paper, although the evidence on that is far from clear both as to the content of the discussions and whether they occurred before or after the defendant was employed by the plaintiff. Such evidence as there is suggests that the discussions have, in any event, not proceeded beyond a very early stage. There is no satisfactory evidence that suggests the defendant has obtained premises for the new business.
I am conscious, of course, that the full extent of the defendant's activities in respect of those matters may not be readily discoverable by the plaintiff at this stage but at present there is nothing to suggest the defendant's activities have gone substantially further than has so far been revealed.
In Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 at 153, Mason ACJ summarised the principles governing the grant or refusal of interlocutory injunctions as follows:
"In order to secure such an injunction the plaintiff must show (1) that there is a serious question to be tried … in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief; (2) that he will suffer irreparable injury for which damages will not be an adequate compensation unless an injunction is granted; and (3) that the balance of convenience favours the granting of an injunction."
The first question then is whether the plaintiff has established that there is a serious question to be tried. That is to say, a serious question to be tried as to whether the plaintiff will obtain final relief of a kind that the interlocutory relief is calculated to enable to be effective.
In Cayne & Anor v Global Resources PLC [1984] 1 All ER 225 the English Court of Appeal held that for the purposes of an application for an interlocutory injunction, there will be a triable issue between the parties if there is a serious question to be tried (ie, one for which there is supporting material) of which the outcome is uncertain. Accordingly, where the plaintiff's case relies solely on inference and the defendant has sworn a positive affidavit which, if true and accepted, destroys that inference, the court should not necessarily conclude that the plaintiff has failed to establish a triable issue, because on such an application it is not necessary for the parties to establish firmly the outcome of the case, and the mere fact that a party's case is deposed to does not make it incontrovertible.
On balance, I am not satisfied that the plaintiff has made out a prima facie case which would justify the relief sought. In my view, making all due allowances for the evidentiary difficulties that may face an employer at an early stage of a case of this nature, the state of the evidence is simply insufficient to make out such a case.
It not possible on this application to make any final estimate of the extent of any advantage gained by the defendant by the activities which the plaintiff alleges gives him a spring board into his new business. But as the evidence stands it would not appear to have been at all substantial. Assuming that the activities alleged are established at trial to be a breach by the defendant of his duty to the plaintiff, the advantage they would appear to have given the defendant is likely to be measured in terms of days rather than months. I do not consider that the plaintiff would be entitled to restrain the defendant until 5 October 2004 or anything like that period of time. The establishment of the business does not appear to have proceeded very far at all and the evidence suggests that the defendant's discussions to date with Amcor have been sporadic and inconclusive. To the extent that the plaintiff wishes to pursue further rewinding and ribbon slitting work from Amcor it is, and has been since at least 18 May 2004, in a position to do so without any involvement of the defendant.
The injunction has already been extended to the determination of this application. I do not consider that it should be further extended.
The second basis upon which an injunction was sought was in respect of the information described in par (2) of the relief sought, as set out above, which the plaintiff contended was information confidential to the plaintiff, obtained by the defendant in the course of his employment by the plaintiff.
The duties of an employee extend to an obligation not to disclose confidential information other than for the purpose for which it was intended to be used: Coco v AN Clark (Engineers) Ltd (1969) RPC No 2 41 at 46, NP Generations Pty Ltd v Feneley [2001] SASR 151 at 157. The information concerned must be able to be identified with specificity and not merely in global terms and it must be demonstrated that the information has the necessary quality of confidentiality and was received by the defendant in circumstances such as to import an obligation of confidence. Whether the information has that necessary quality depends on all the circumstances and is a question of fact in each case. In Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 334, Kirby P said that considerations which the Court had found relevant in that respect are:
(a)The fact that skill and effort was expended to acquire the information;
(b)The fact that the information is jealously guarded by the employer, it is not readily made available to employees and could not, without considerable effort and/or risk, be acquired by others;
(c)The fact that it was plainly made known to the employee that the material was regarded by the employer as confidential;
(d)The fact that it was plainly made known to the employee that the material was regarded by the employer as confidential
(d)The fact that the usages and practices of the industry support the assertion of confidentiality;
(e)The fact that the employee in question has been permitted to share the information only by reason of his or her seniority or high responsibility within the employer's organisation.
A distinction exists between information which forms part of the employee's stock of general knowledge, skill and experience and that which can be fairly regarded as a separate part of the employee's stock of knowledge which a person of ordinary intelligence and honesty would regard as the property of the former employer: Printer & Finishes Ltd v Holloway [1964] 3 All ER 731 at 735, Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37 at 40 and Faccenda Chicken v Fowler & Ors (supra). In Faccenda Chicken, at 623 ‑ 624, the Court of Appeal quoted with approval the following formulation by Goulding J:
" … second, there is information which the servant must treat as confidential (either because he is expressly told it is confidential, or because from its character it obviously is so) but which once learned necessarily remains in the servant's head and becomes part of his own skill and knowledge applied in the course of his master's business. So long as the employment continues, he cannot otherwise use or disclose such information without infidelity and therefore breach of contract. But when he is no longer in the same service, the law allows him to use his full skill and knowledge for his own benefit in competition with his former master …
Thirdly, however, there are, to my mind, specific trade secrets so confidential that, even though they may necessarily have been learned by heart and even though the servant may have left the service, they cannot lawfully be used for anyone's benefit but the master's. An example is a trade secret … and other information which is of a sufficiently high degree of confidentiality as to amount to a trade secret."
The Court of Appeal went on to say (at 625):
"The obligation does not extend, however, to cover all information which is given to or acquired by the employee while in his employment, and in particular may not cover information which is only 'confidential' in the sense that an unauthorised disclosure of such information to a third party while the employment subsisted would be a clear breach of the duty of good faith.
This distinction is clearly set out in the judgment of Cross J in Printer & Finishers Ltd v Holloway [1964] 3 All ER 731 … :
'In this connexion one must bear in mind that not all information which is given to a servant in confidence and which it would be a breach of his duty for him to disclose to another person during his employment is a trade secret which he can be prevented from using for his own advantage after the employment is over, even though he has entered into no express covenant with regard to the matter in hand. For example, the printing instructions were handed to [the first defendant] to be used by him during his employment exclusively for the plaintiffs' benefit. It would have been a breach of duty on his part of divulge any of the contents to a stranger while he was employed, but many of these instructions are not really 'trade secrets' at all. [The first defendant] was not, indeed, entitled to take a copy of the instructions away with him; but insofar as the instructions cannot be called 'trade secrets' and he carried them in his head, he is entitled to use them for his own benefit or the benefit of any future employer.'
The same distinction is to be found in Worsley & Co Ltd v Cooper [1939] 1 All ER 290, where it was held that the defendant was entitled, after he had ceased to be employed, to make use of the source of the paper supplied to his previous employer. In our view it is quite plain that his knowledge was nevertheless confidential in the sense it would have been a breach of the duty of good faith for the employee, while the employment subsisted, to have used it for his own purposes or to have disclosed it to a competitor of his employer"
Thus, in Printer & Finishers Ltd v Holloway (supra), printing instructions available during the employment and not memorised could be used by the employee after the employment terminated. In Worsley & Co Ltd v Cooper [1939] 1 All ER 292, the employee was entitled to use his recollection of the source of paper supplied to his previous employer. In Faccenda Chicken (supra), sales and price information not copied or deliberately memorised was able to be used by the former employee.
In the present case, the plaintiff contends that all of the information in par (2) of the relief sought is confidential to the plaintiff. It says it is clear that the defendant is intending to go into business on his own account in competition with the plaintiff and, in light of the events that have occurred, that he intends to do business with Fairplay in the supply of thermal paper for the RWWA tender. It was submitted that the information in respect of which restraint is sought is directly relevant to such business and in light of the breaches of his employment contract to date it is reasonably to be inferred that the defendant would, unless restrained, use that information for his own benefit.
I should mention that it is not contended by the plaintiff that the defendant has taken copies of any documents containing the information in question, nor that he has deliberately memorised it. It is simply said that the information is known to him to by reason of his employment as manager of the plaintiff.
Mr Cassell, on behalf of the plaintiff, says that all of the information in respect of which restraint is sought is highly confidential and of great value to the plaintiff. He says that the information is not in the public domain and he believes "that because of the tender process and the rules associated with it the information is considered confidential by Fairplay, Moore Paragon and RWWA. I believe the confidential information was imparted to the defendant in circumstances of confidentiality … ". The basis of these beliefs, however, is not otherwise elaborated upon or explained. Mr Cassell goes on to say that the plaintiff's "confidential information about the precise type grade and size of thermal paper required by RWWA and Fairplay is therefore highly confidential information of great value to [the plaintiff]".
The defendant, on the other hand, says in respect of RWWA that its requirements in relation to thermal paper were included in its tender document and are freely available to anyone wishing to access that information and, in respect of Fairplay, that the terms and conditions on which the plaintiff has agreed to supply Fairplay can readily be obtained from Fairplay. The latter contention is supported by Mr Richards, the managing director of Fairplay, who says he would readily supply those terms and conditions to any potential competitor of the plaintiff.
The plaintiff did not deny that the information as to RWWA's requirements was contained in the tender document provided by RWWA to tenderers. It was not information created by the plaintiff or over which it held any rights. Although Mr Cassell asserted that RWWA regarded the information as confidential in the hands of the plaintiff, no proper basis was provided for that belief. The terms of the tender and rules associated with it upon which Mr Cassell apparently relied for that conclusion were not provided. As the plaintiff was not a tenderer it is also not clear whether or to what extent it is affected by the terms or rules of the tender. It is also the case that the plaintiff is not a supplier to RWWA; rather the plaintiff supplies merchants who in turn supply RWWA. As is apparent from the quote to Fairplay, what is therefore important for the plaintiff's purposes are the specifications dictated by those merchants in order that they may meet RWWA's requirements.
Whatever may have been his obligation of confidence while the defendant was employed by the plaintiff, on the material before me I do not consider that the requirements of RWWA referred to are capable of constituting confidential information of a type that imposes a continuing obligation of confidence to the plaintiff on the part of the defendant after his employment ceases.
In respect of the quote provided to Fairplay, the evidence of Mr Richards, the managing director of that company, is that he does not regard that information as confidential and that will disclose it to anyone who might be able to offer his company better terms. Indeed, he says he has already disclosed it to a potential supplier.
It is, not surprisingly, not suggested by the plaintiff that Fairplay is under an obligation to keep the information confidential. Mr Cassell says, rather, that it is the practice of merchants not to reveal the terms on which they are supplied. If, however, there is such a practice, the unambiguous evidence of Mr Richards is that he does not intend to adhere to it in this instance. He says he would readily disclose the information to competitors of the plaintiff, presumably including the defendant if the latter were in business on his own account.
In the circumstances, I would not be prepared to grant the interlocutory relief sought in pars (2)(a) or (2)(b) above.
That leaves the question of the terms on which Mitsubishi has supplied thermal paper to the plaintiff for RWWA's ultimate use. I am satisfied that the information referred to is capable of constituting, and arguably does constitute, confidential information in respect of which the obligation of confidence of the defendant continues after his employment ends.
The question then is where the balance of convenience lies. To determine that it is necessary to weigh the damage the plaintiff may suffer if an injunction is refused against that which the defendant may suffer if it is granted. In this case the plaintiff says the information it seeks to protect is highly confidential and very valuable to it, and if it is misused, the damage to the plaintiff will be substantial and irreparable. On the other hand, the defendant would be free to obtain thermal paper from Mitsubishi or any other supplier in the normal way in the ordinary course of business.
In my view, the balance of convenience favours the plaintiff. An injunction restraining the defendant from using the information referred to so far as it was imparted to him in the course of his employment would protect the legitimate interests of the plaintiff if it were successful at trial. On the other hand, the defendant says that the terms and conditions upon which Mitsubishi is prepared to supply thermal paper to the plaintiff is of no use to anyone except the plaintiff. A supplier looking to enter the market would only be concerned with the price that Mitsubishi is prepared to quote to it. It follows that such a restraint will not cause the defendant any real difficulty.
On balance, I would grant the interlocutory injunction sought in par (2)(c), limited in that way. I will hear the parties on the form of orders and on costs.
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