Ezystay Systems Pty Ltd v Link 2 Pty Ltd - [2015] NSWSC 1105

Supreme Court

New South Wales

Medium Neutral Citation: Ezystay Systems Pty Ltd v Link 2 Pty Ltd [2015] NSWSC 1105
Hearing dates: 30 April 2015; 1, 4, 5, 6, 7 and 14 May 2015
Decision date: 10 August 2015
Jurisdiction: Equity Division
Before: Bergin CJ in Eq
Decision:
See [246]-[247]

Catchwords:
DEEDS – construction of clauses in Deed terminating commercial relationship – where obligation to return hard copies and delete electronic copies of documents – whether obligation to return documents created from copying parts of documents.

CONFIDENTIAL INFORMATION – whether plaintiffs’ business manuals and other documents confidential – whether software and software manual confidential – whether confidential information copied and used by defendants in business competing with plaintiffs - whether instructions to computer consultant amounted to copying the plaintiffs’ software.
DIRECTORS – duties owed to companies – where director of plaintiffs used plaintiffs’ documents and information to set up a business in competition with the plaintiffs whilst a director of the plaintiffs – whether breach of statutory and fiduciary duties.
Legislation Cited: Corporations Act 2001 (Cth)
Cases Cited: Aloha Shangri-La Atlas Cruises Pty Ltd v Gaven [1970] Qd R 438
Amway Corporation v Eurway International Limited [1974] RPC 82
Chan v Zacharia (1984) 154 CLR 178
Coco v AN Clark (Engineers) Ltd [1969] RPC 41
Commercial Plastics Ltd v Vincent [1965] 1 QB 623
Del Casale v Artedomus (Aust) Pty Ltd (2007) 73 IPR 326
Drake Personnel Ltd v Beddison [1979] VR 13
Electricity Generation Corp v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
EMI Songs Australia Pty Limited v Larrikin Music Publishing Pty Limited [2011] FCAFC 47; (2011) 191 FCR 444
First Conferences Services Ltd v Bracchi [2009] EWHC 2176 (Ch)
H&R Block Ltd v Sanott [1976] 1 NZLR 213
Lancashire Fires Ltd v SA Lyons & Co Ltd [1996] FSR 629
Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705
Marshall v Prescott [2015] NSWCA 110
O’Brien v Komesaroff (1982) 150 CLR 310
Wright v Gasweld Pty Limited (1991) 22 NSWLR 317
Category: Principal judgment
Parties: Ezystay Systems Pty Ltd (1st Plaintiff)
Ezystay Properties Pty Ltd (2nd Plaintiff)
Sleeping Operations Pty Ltd (3rd Plaintiff)
Sleeping with the Enemy Pty Ltd (4th Plaintiff)
Sleeping in Australia Pty Ltd (5th Plaintiff)
Link 2 Pty Ltd (1st Defendant)
Riches Commercial Pty Limited (2nd Defendant)
Gregory Moore Riches (3rd Defendant)
Representation:
Counsel:
JC Kelly SC (Plaintiffs)
J Lazarus/S Lipp (Defendants)
Solicitors:
Uther Webster & Evans (Plaintiffs)
DPR Legal (Defendants)

File Number(s): 2013/219128
Publication restriction: Nil

Judgment

These proceedings arise out of a dispute between the plaintiffs (the Ezystay Group of companies) that operate a student accommodation business in Ultimo, NSW, and the defendant companies, Link 2 Pty Ltd (Link 2), the first defendant, and Riches Commercial Pty Limited (Riches Commercial), the second defendant, and the director of Link 2, Gregory Moore Riches, the third defendant, who have started a rival student accommodation business also in Ultimo, NSW.
There is no issue between the parties that the defendants are entitled to compete with the plaintiffs. Rather the plaintiffs claim that while Mr Riches was a director of the plaintiffs he improperly used the plaintiffs’ documents and information to set up a business in competition with them. The plaintiffs claim that the defendants have refused to deliver up the plaintiffs’ documents and confidential information and material in breach of a covenant in a Deed dated 13 August 2012 terminating the parties’ relationship. The plaintiffs also claim that the defendants have copied and used the plaintiffs’ confidential information in the defendants’ business.

Background

The plaintiff companies in the Ezystay Group are Ezystay Systems Pty Ltd (Ezystay Systems), the first plaintiff, Ezystay Properties Pty Ltd (Ezystay Properties), the second plaintiff, Sleeping Operations Pty Ltd (Sleeping Operations), the third plaintiff, Sleeping with the Enemy Pty Ltd (Sleeping with the Enemy), the fourth plaintiff, and Sleeping in Australia Pty Ltd (Sleeping in Australia), the fifth plaintiff. Although there are aspects of the Ezystay business that are operated by individual companies in the Ezystay Group I intend to refer the plaintiffs as “Ezystay” except where it is necessary to refer to the individual entities.
David James Ritchie is a director of each of the plaintiffs. Rujo Pty Ltd (Rujo) is a company controlled at the relevant times by Mr Ritchie and his wife, Diana Ritchie. In 2005 Rujo acquired the companies that later became the Ezystay Group. In 2005 the student accommodation business was operated as ‘backpacker’ hostels. It was later developed into a cleaner and more minimalist type of accommodation with polished floorboards and modern fittings and was from about 2006 or 2007 known as “Ezystay” and “Study House” with associated bed, asset and booking management systems. This new business model was exclusively for the provision of accommodation for international language students. From April 2012 Ezystay operated the business through the website
The Ezystay business is conducted at 423, 425, 427 and 617 Harris Street, Ultimo. The first three addresses are conjoined terrace houses. The property at 617 Harris Street, Ultimo is a freestanding house that was being renovated during the relevant period and was completed at some time in 2012. Since 2007 Ezystay Properties has been the registered proprietor of each of these properties.
Mr Riches was employed with Sleeping with the Enemy between 1 September 2005 and 30 June 2007. He was employed with Sleeping Operations from 1 July 2007 to 31 March 2011. It appears that between 1 April 2011 and 12 September 2012 a contract for services was in place (although not signed) between Ezystay Systems and Riches Commercial pursuant to which Riches Commercial provided the services of Mr Riches to Ezystay Systems.
Mr Riches was a director of Ezystay Systems from 27 October 2010 to 1 June 2012 and its secretary from 27 October 2010 to 15 August 2012. He was a director of Ezystay Properties from 23 May 2006 to 1 June 2012 and its secretary from 23 May 2006 to 15 August 2012. He was a director of Sleeping Operations from 24 November 2005 to 1 June 2012 and its secretary from 24 November 2005 to 15 August 2012. Mr Riches was a director and secretary of Sleeping with the Enemy from 13 December 2005 to 15 August 2012. He was a director and secretary of Sleeping in Australia from 24 November 2005 to 15 August 2012.
From about 16 July 2012 Link 2 has operated a business of providing student accommodation through its website
Mr Riches has been the sole director and secretary of Link 2 since 9 October 2012. Mr Riches is married to Kylie Drew, who is also known as Kylie Riches. Since August 2006 Mrs Riches has been the sole director, secretary and owner of 100% of the share capital of Riches Commercial. Riches Commercial owns 100% of the share capital of Link 2.
Mr Riches’ duties with Ezystay involved managing the relationship with English Language Company Pty Ltd (ELC), the language college that houses its students at Ezystay’s premises; managing the state of repair of the properties at 423-427 Harris Street; managing compliance issues with regulatory bodies; financial management, reporting and controls; promoting the Ezystay business; managing student issues, payments and receipts; co-ordinating finance and reporting on the progress of the business including the renovation of 617 Harris Street. Mr Riches also prepared Ezystay’s Operations Procedures Manual and was involved with the development of the business generally.
One aspect of Mr Riches’ duties was developing a software system for the bed asset management system in consultation with software developers and reporting on the progress of that development.
In May 2011, iNE Australia Pty Ltd, a company specialising in areas including custom software development and web development, of which Jon Davis is the sole director, was retained by Ezystay to develop software for its student accommodation business. Mr Riches advised Mr Davis that Ezystay needed to be able to modify bookings if they changed and to split a booking if a student wished to move beds. Mr Riches also advised Mr Davis that it was essential to develop a feature that would display the bookings per bed, in a calendar display, so that the rooms and bed number were highlighted on the left of the display page and the date for the booking was also displayed.
Some of the materials that were available from Ezystay’s previous IT consultant’s work were provided to Mr Davis with the instruction that Ezystay did not want him to develop a reservation system but rather a bed asset management system. In the initial discussions Mr Davis suggested that Ezystay might be able to acquire an “off the shelf” hotel booking system rather than incurring the expense of creating a customised system. However Mr Riches advised Mr Davis that Ezystay had looked and could not find anything and there was “nothing out there that meets our requirements”.
In late May 2011 Mr Davis developed the prototype and completed a proof of concept software to demonstrate an ability to design the database and code that would perform to Ezystay’s requirements. He identified the four (and later five) key stages of the development. Stage One involved the development of the calendar system and incorporation of the property manager login. Stage Two involved the development of a multiple agents booking system that denied dual bookings and provided confidentiality between agents so that student information would be kept confidential between agents. Stage Three included the implementation of the initial reporting structure and user interface design to give the application some form of aesthetic appeal. Stage Four was the implementation of statistics and reporting to track the performance of agents and display the percentage saturations of bookings for the chosen period. Stage Five included functions such as credit card processing and payment tracking for the student bookings.
Mr Davis completed Stage One between May 2011 and the end of August 2011. Stage Two was completed in September 2011. Stage Three was completed in November 2011. Stage Four was completed in December 2011 and January 2012. Stage Five was only completed in September to December 2012.
During 2011 Ezystay held discussions with Justin Aitken, the owner of a property not far from the plaintiffs’ properties in Ultimo known as “Bar Broadway”. Those discussions included a proposal to provide accommodation at Bar Broadway using the Ezystay model. Mr Riches informed Mr Ritchie that he had approached the Sydney College of English who were interested in placing some of their students into 423-427 Harris Street, but that they were booked out. Mr Riches informed Mr Ritchie that he had arranged for the Sydney College of English to inspect Bar Broadway because they were interested in placing their students at those premises if the Ezystay model were to be replicated at that property.
Mr Riches wrote to Mr Aitken at Bar Broadway in March 2011 enclosing a “working draft” of a document and advising him that if he was “prepared to agree in principle to the commercial terms” and confirm by email “especially the obligation of confidentiality” they should start the process of “getting students into your beds asap” [Ex H]. On 3 March 2011 Mr Aitken responded to Mr Riches advising that he was sure that any issues could be worked out “whilst finalising the Agreement”. He also acknowledged that the “need for confidentiality by both parties is paramount”.
On 3 March 2011 Mr Riches wrote to John Garrett, a consultant to Ezystay, forwarding Mr Aitken’s acknowledgement and advising that “Software” must be the next item on the agenda “to bring up to speed” as discussed [Ex H].
Mr Ritchie inspected the premises at Bar Broadway with Mrs Ritchie. After this inspection Mr Ritchie had a conversation with Mr Riches in the following terms:

Ritchie:   Greg, I am very disappointed. We can’t let students in here. The rooms are far from ready and the kitchen/living room facilities are not up to standard. I am not prepared to allow our business model to be associated with Bar Broadway until it comes up to the Ezystay standard. Does Justin really know what is involved? Does he appreciate just how much money he will need to spend to be able to offer an Ezystay model?
Riches:   Yes, I have been through it all with Justin.
Ritchie:   We have to get Justin signed up first. I can’t see it being done in time you had better let the College know.

At this time Bar Broadway had already renovated the first floor of its premises for student accommodation but had less than fifty per cent occupancy. Ezystay developed a proposal to retrofit the model that had been developed for the Ezystay Group into Bar Broadway and manage it for the owner. This proposal included a number of changes to the renovation to adapt to the look and feel of the Ezystay premises (the Ezystay Trade Dress). The estimate for the retrofit was $50,000 minimum and required full adherence to the Ezystay Trade Dress, systems and operational procedures for it to work efficiently.
In the second half of 2011 Mr Riches reported to Mr Garrett and Mr Ritchie on his discussions with Mr Aitken, including the quotations that he had been arranging, the overall cost of the renovations, whether Ezystay would help fund the renovations and the Facilities Management Agreement that Mr Aitken and Mr Riches were revising.
On about 14 December 2011 at a management meeting with Mr Ritchie and Mr Garrett, Mr Riches advised as follows:

Bar Broadway is not interested in proceeding with the proposal at this time, but perhaps later. This is largely because of the costs to adopt the model and also because I don’t think Justin is ready to entertain a fully outsourced accommodation management model. He likes to be in control.

On 6 December 2011 Mr Riches sent an email to Mr Garrett enclosing a discussion paper in respect of the future relationship between Ezystay and Riches Commercial and himself. In that document Mr Riches cautioned against unrealistic expectations and expanding at the expense of product quality. He put forward two options: (1) equal shareholding by his and Mr Ritchie’s interests in the Ezystay business; or (2) a structured exit from the partnership. Mr Riches’ recommendations were: (1) the cessation of any further spending on Study House (ie software or design) product development until a decision was made; (2) continuation of the development of 617 Harris Street (with a view to possibly selling it or covering all associated costs); (3) allowing either party to use any IP or IT that had currently been created; and (4) if the structured exit from the partnership was chosen as the appropriate option, allowing either party to pursue any involvement in the market place.
Mr Garrett advised Mr Riches that the proposal was not acceptable and suggested that he think about it over the Christmas break. Mr Riches advised Mr Garrett that if the proposal was not acceptable, he wanted to leave and to go and do his “own thing with no strings attached”. Mr Garrett advised Mr Riches that some thought should be given to it over the holiday season.
Mr Davis was contacted by Mr Riches in December 2011 at which time a conversation occurred in relation to the Ezystay software. There is no issue that the conversation took place. There is an issue about some of the words that were used. However Mr Riches gave evidence that the following conversation took place:

Riches: Jon, I do not think I will be staying with Ezystay. Can I take a copy of the software as developed with me?
Davis: No that is not possible as it puts me in a conflict of interest.

The following day Mr Garrett telephoned Mr Riches. Mr Riches claimed that the following conversation took place with Mr Garrett:

Garrett : I have just had a call from Jon. He says you were asking about taking a copy of the software.

Riches: That’s correct. I did ask Jon that but it is not important to me. You can have it. I don’t care.

In late January 2012 Mr Garrett and Mr Riches had the following conversation:

Riches:   I have said that I want to go and do my own thing. I want to spend more time with my family, but I am prepared to stay on to see 617 completed and occupied because I want it to be amicable.
Garrett:   If you do leave what will you do?
Riches:   We are thinking that we will have a clean break and move the family down to Jindabyne. The family has a ski lodge and we all like it down there.
Garrett:   We will need to have the business valued to arrive at a fair value. I will speak to Alex Lambros at Strategic Property Finance about getting an independent valuation. We will then need to arrange the funds once we agree on the valuation.
It will take some time to finish 617, there is a lot to do.
Riches:   I am very close to having the construction certificate for 617. All we have to do is arrange where the building costs will come from.

On 24 January 2012 Mr Riches sent an email to Mr Garrett enclosing a document entitled “Framework Issues for Discussion” for their further meeting later that week. That document included the following:

1.   Timing
Proposed timing is for settlement to take place upon completion of 617. This allows Greg to complete the works in progress and provides a reasonable amount of time for knowledge transfer from Greg Riches to Rujo.
Settlement terms to be agreed and signed prior to the commencement of building works on 617 Harris Street.
The settlement price will be based on the completed product and contracts in place.
2.   Price
2.1   Sleeping Property
The settlement on the property is to be based on the completed product, taking account of facilities management agreements in place, and based on the agreed partnership split of the properties at 85% Rujo and 15% Riches Commercial.
Based on agreed forecasts arrived at with John Garrett the current property holdings will be worth between $7,000,000 and $7,500,000 at this time, minus outstanding bank debt.
2.2   Ezystays Pty Ltd (i.e the management company)
…

The settlement price should also take account of the intellectual property contributed by Riches Commercial throughout the 5 years of operations.
The settlement price will also take account full ownership rights of the software product and the Studyhouse brand being transferred to Rujo.
The price will be arrived at based on the partnership shareholding of Ezystays Pty Ltd, which is 50% Rujo and 50% Riches Commercial.
3.   Interim Management
It is proposed that Greg maintain his current role and salary until the completion of 617 Harris Street. This allows Greg to complete the works in progress and provides a reasonable amount of time for knowledge transfer from Greg Riches to Rujo.
4.   Software
Greg will agree to continue software development and debugging, in conjunction with INE, until settlement, at which time, it is agreed that Rujo will have 100% ownership of the software product.
5.   The relationships
Greg Riches will provide all relevant contact details to all suppliers and customers.
At the time of settlement all current customer agreements in place, remain the property of Ezystays Pty Ltd.
6.   Competition
Greg Riches agrees not to approach any current Ezystays customers whilst they have contracts in place with Ezystays Pty Ltd. Greg also agrees that he will not go and develop in residential houses as it is currently being done.
7.   Legal
In the interest of all parties all discussions should be documented whilst this framework is being addressed.

After further discussions and communications Mr Riches sent an email to Mr Garrett on 7 February 2012 that included the following:

As highlighted previously i am happy to pass on all IP for the business, not speak with current clients or have any software re engineered by Jon at INE.

From about February 2012 Mr Riches commenced sending Ezystay documents to his personal email and to his wife’s email, the detail of which is discussed later in these reasons.
On 22 February 2012 Mr Riches wrote to Mr Garrett by email in the following terms:

I think we need to address the main issue, being the direction of this partnership. I have told you on numerous occasions from December last year what my expectations are. I would like to resolve these issues before all the business contacts are involved. A proper handover strategy should be implemented once this is resolved to prevent negative questions or concerns from our suppliers or client. Due to this casual approach to date blurred lines of communication have resulted. I am happy to give you the example if required.

At a management meeting on 29 February 2012 Mr Riches presented a basic share sale agreement and forms for change of directorships to Mr Ritchie and Mr Garrett and the following conversation occurred:

Riches:   I want to complete the exit by the end of March; I should have everything done on my part by then. We need to address the terms of my exit. I am happy to go for the money that I have put in plus my leave and superannuation whilst I am an employee.
Garrett:   This is premature. We will have to have the valuations before we would agree to this. What do you think David?
Ritchie:   I agree.

Mr Garrett and Mr Riches had further email communications during the latter part of February 2012 and on 13 March 2012 Mr Riches wrote to Mr Garrett on the subject identified as “Disappointing situation” in the following terms:

I met with Ian [MacLean] yesterday and he had a few questions which I answered. He seemed excited about the opportunity that you had spoken to him about and I think Ian will continue to excel in this business. Ian said that he would be delivering software to Marcia [De Almeida of ELC] and asked me what I thought the best avenue was to deliver this. I gave him my opinion and left it at that. I did not let onto Ian my extreme disappointment as he really does not know the dealings or timeframes of our environment.
Through this process I have been fair I believe and continued to deliver the requirements that have been addressed in the reports. As we have spoken you stated you would continue on with the development of the software. Never once was it mentioned that Ian would be meeting with our client to deliver this and we had agreed that this needed to be done in a strategic manner, along with the entire handover process, to give ELC peace of mind. This direction is against what we have discussed and the nature of the relationship as it has been continually said this can all be done in a respectful and adult manner.
Moving forward i am still the sole director of Ezystay and a 50% shareholder. I have continued to get 617 ready for construction and maintained the sole directorship in that company in good faith until this was worked out. As per our conversation last week when I asked did you want me to leave earlier you suggested that might be the best option. I presumed that this is the direction you are planning and again in my opinion not the nature of our open communication and amicable situation.
I am happy to comply and make this departure comfortable for both parties and will continue to do my job as required to get CC. I am also happy as suggested that David can meet Wendy and be comfortable with that end of the business and continuing to deliver the weekly report to keep all parties updated.
John I have spoken to you of my expectations for my departure and if you want this expedited i am ok with that but until we reach an agreement I suggest we stop making plans to drive this business forward without all parties being involved.

It is apparent that some tension developed between Mr Riches and Mr Ritchie in relation to meetings that Mr Riches had attended with the principal of ELC and allegedly not reported the content of to Mr Ritchie. As ELC was Ezystay’s only client, Mr Ritchie expressed concern that it was anxious about not having matters followed up promptly.
On 26 March 2012 Mr Riches wrote by email to Mr Garrett in terms that included the following:

I really don’t know the direction you wish to take ezystay but this is where our IP and IT is. I suggest you put a price or value on that. The other 3 items that are outstanding are holiday pay, super and Tax losses which can be used in the future to prevent tax being paid and therefore an asset.
I am uncomfortable being a director of these companies and not having any input into the future of ezystay and suggest that we agree a price, get this process underway at which time i will resign as a director of all related companies and you can drive the company/ companies in the direction you wish them to proceed.
I have addressed my exit in this manner to engage in negotiations rather than stall them. I look forward to a response.

Mr Garrett advised Mr Riches by email on 26 March 2012 that he would review the matters the following day. On 27 March 2012 Mr Riches wrote again to Mr Garrett in terms that included the following:

As you have stated what i have put down is consistent with our discussions. I have left it up to you to put a value on Ezystay and bring forward any other incurred costs that are relevant.
From my conversations with both you and David it seems that you can not justify my wage, do not think my competency level is satisfactory nor do i add value to the business anymore now that Sharefile is built.
We need to come to a resolution as we are now wasting each others (sic) time. I started doing framework for my exit in December 2011 and it is nearly April. You want to move forward with the business as stated on several occasions so i suggest we come to an agreement to allow that to proceed.

It is apparent that in March 2012 Mr Riches spoke with a friend Daniel Sullivan at a company in Sydney known as Konceive about his desire to set up a booking calendar. Amanjeet Singh (also known as Aman Mandaer) worked at Konceive prior to setting up his own business in Punjab, India known as Evomorf that provides, amongst other things, web design and web development. In about 2009 while Mr Singh was working at Konceive he met Mr Riches. On 22 March 2012 Mr Singh wrote by email to Mr Riches in the following terms:

Aman here. I had a chat with Dan that you want to build the booking calendar for your system and he wants me to work on that for you.
Please let me know what you think and you can add me on Skype as [xxx] as it will be easier to communicate on that.

On 23 March 2012 Mr Riches responded in terms that included the following:

I will contact you shortly in regards to a booking calender that I would like you to have a look at and possibly develop. I will put a brief together for your review. This will take a little bit of time but will try and get it to you before april 5th Cheers and look forward to talking to you soon.

On 29 March 2012 Mr Riches sent a document entitled “Ezystay Fitout Requirements” to Mrs Riches by email with the subject heading “stock sheet” and the attachment entitled “Stock check sheet Bar Broadway.xlsx” with the message “For your review. xx”. The attachment listed the quantity of stock in the living room/kitchen and bedroom area and the name of the supplier of that stock [Ex A 5804].
In April 2012 the following conversation took place between Mr Riches and Mr Garrett:

Riches:   We need to get a starting point about my exit and then I will resign as a director of the companies. I am uncomfortable being a director but not having any input to the companies.
Garrett:   You undertook to stay until 617 was completed. If you leave now then that will impact on the price you are paid. We would have to value the business as is and not on a completed basis.
Riches:   I have told you all along all that I want is my money back plus what I am entitled to. You just have to make the decision.
Garrett:   I don’t think anything can happen until the valuations arrive.

On 18 April 2012 Mr Riches wrote to Mr Garrett by email in terms that included the following:

I will send a report today that will focus on 617 and our cash flow position. As i have been removed from all software development and not been involved in the study house process i read David’s email with surprise that i am being offered any involvement in the study house direction. As per our last meeting i was informed that the company can’t afford to pay me and in a previous meeting that we had on the Tuesday after your return from Darwin i was informed by you that now that Sharefile is totally loaded up i don’t offer much to the business anymore. David and i met whilst you were on that trip and i was told by him i was incompetent, accused of recording our conversation on my phone, if i try and screw him he will wipe my f…… arse and i need to grow some balls and make a decision on my departure, yet four months have passed since we first discussed the split of this partnership i have stated my expectations and i have had minimal feedback on your side.
…
It is clear that you want to carry on with the business in the direction that you want to take it. I also understand that you are working on getting valuations completed. If though i am of no value to the business and as incompetent as is being made out i suggest that we focus on my exit. As suggested by yourself and myself this is not an exit of desperation but one that needs to take place so this business can carry on in the manner you wish to develop it. In my opinion many of the actions that are taking place at this time are ones that should be occurring post my exit.

It is clear that by May 2012 Mrs Riches was dealing directly with Mr Aitken at Bar Broadway in preparing for the setting up of the Link 2 accommodation business at those premises. In her email communications with Mr Aitken Mrs Riches referred to the numerous meetings that she had conducted with various language colleges and the fact that Link 2 was formalising partnership agreements with three of those colleges. Mrs Riches also referred to the dialogue with 17 other schools and described the feedback from those with whom she had met as “phenomenal”. Mrs Riches wrote to Mr Aitken on 24 May 2012 as follows:

All our activities is taking place under the legal constraints, that you are well aware of, that we are faced with at present. I’m sure that you will agree now that you can see what’s been happening, that you are in good hands. You are not going to get beds full any quicker, or maintain the high occupancy that we deliver, by any other means.
…
Further to our legal constraints we have a meeting with our lawyers and accountants on Monday to have the necessary company entities set up with out exposing us to risk. As a result, once this process is complete, we will be able to have all the agreements in place within the next month.
I think this covers everything. We will provide you with an activity report on Friday’s to keep you in the loop. Feel free to ask any questions in between

On 20 May 2012 Mr Sullivan wrote to Mr Singh and Mr Riches in the following terms:

Greg needs some of your JQuery magic on his booking calender (sic) page.
Greg please send aman the url of the page your (sic) talking about

On 21 May 2012 Mr Riches informed Mr Singh in a telephone conversation that he was “finalising some stuff” and would get back to him soon to discuss what he wanted.
On 21 May 2012 Mr Singh wrote the following email to Mr Riches:

As we have had a chat earlier, please send me the documentation related to the booking calendar.
Also as Dan sent me an email, send me the page URL so that I can have a look.

On 21 May 2012 Mr Riches replied, “I will send you info tomorrow and maybe we can skype tomorrow as well?”. On 22 May 2012 Mr Riches wrote to Mr Singh as follows:

I am a little behind today but can you give me some times that we can have a skype chat and we can start the process.

Mr Singh provided Mr Riches with his Skype details once again and suggested that they could talk the following day. It is clear that Mr Singh and Mr Riches communicated by Skype between 23 May 2012 and 30 May 2012 in relation to the preparation of the web page and booking calendar.
On 30 May 2012 Mr Singh wrote by email to Mr Riches in the following terms enclosing a document entitled “Booking Calendar Features Document” (Features Document):

Attached is the features document list which you can go through and add/delete features as you like according to your needs.
After you approve/update document then I will need following things from you to start work on this:
1. Control panel details for the hosting provider where the system will be hosted
2. Logo of the brand for which this system is being built
On receiving the above things or after getting your approval on the features I can start working on the design mock for the dashboard and different windows

On 30 May 2012 Mr Riches prepared letters of resignation from his directorships of Sleeping Property Pty Ltd (the name of Ezystay Properties before 6 December 2011) and Sleeping Operations, the resignation being said to take effect on 1 June 2012 [Ex A 6145; tr 181]. Although Mr Riches may have believed that he had resigned from his relevant directorships, he was still a director of Sleeping with the Enemy and Sleeping in Australia and a secretary of each of the plaintiffs until 15 August 2012.
On 31 May 2012 Mr Riches sent an email to his wife enclosing a number of Ezystay board reports and tender submissions. The subject of the email was “upload to share file” and the body of the email read “can you add to DD carefully” [Ex A 6179]. The reference to “DD” was to a due diligence file that Mr and Mrs Riches had created for the plaintiffs.
On 31 May 2012, a friend of Mr Riches, Ian MacLean (employed at that time by Ezystay), forwarded to him an email chain between himself, Mr Ritchie, Mr Garrett and Mr Davis concerning a proposed meeting on 1 June 2012 with the message “Does this make sense to you????” (the Software Email).
The first email in the chain dated 30 May 2012 was from Mr Ritchie to Mr Garrett, Mr MacLean and Mr Davis which confirmed a meeting on 1 June 2012 at Mr Davis’ business premises the agenda for which was confirmed as follows:

Demonstration and test run of Studyhouse booking software.
Run through of basic ‘Start Up’ User Guide to software.
Identification of any issues that may require attention.
Further discussion as required.

The second email in the chain dated 31 May 2012 was from Mr Garrett to Mr MacLean, Mr Davis and Mr Ritchie in the following terms:

Ian would you mind doing a small exercise for me in preparation for tomorrow’s meeting?
What I would like is if you could firstly circulate the current speadsheet (sic) that Marcia is using so that we all have a copy for tomorrow.
Could you then use the software to update the new system save a few selected changes that as far as possible are representative of sample of the type of entries and changes that Marcia would normally make. One of each would be adequate. We can then work through this together and any issues that you have discovered in the earlier process we can then discuss together.
Could you also make an assessment of how much time appears to be used up each week attending to the booking system using the spread sheet method and, if possible, break that time down into:
Time to mage (sic) new bookings;
Time to manage departures;
Time to change student beds to different beds in the same building or a different building;
Any feedback, follow up that is needed each week with Marcia in relation to the bookings and their management; and
Any conclusion that you come to after using the system.
I have attached Jon’s useful Start-Up User guide which has only just been released in which we can also discuss when we meet tomorrow.
I think that being prepared like this will make efficient use of tomorrow’s time with Jon and also give us some idea of the practical time benefits that Marcia will gain by use of the system. This will help us enormously in determining what is an appropriate charge/fee etc for use of the system in the future. In addition, we should also be able to gain an appreciation of the extent of any time saving you will also gain from use of the system.
Give me a call if there are any suggestions you have about my request or perhaps improvements to what I am asking, otherwise, looking forward to seeing you tomorrow.

On 31 May 2012 Mr Riches forwarded the Software Email to Mrs Riches with the message “fyi” [Ex A 6249].
On 2 June 2012 Mr Riches sent an email to Mr Singh apologising for the “slow response” in respect of the Features Document and advised him that he would get back to him “over the weekend”.
On 5 June 2012 Mr Riches advised Mr Singh by email that the Features Document “looks great” and that he only had a couple of changes that he would get to Mr Singh as soon as possible. Later the same day Mr Riches wrote to Mr Singh in the following terms:

I am just going through a web page design i want you to do. Can we do the following
Web page
System
I will send the web page for your review in the next 30 minutes. Then i will send the system spec.
In the mean time can you give me a time and price estimation for the bove (sic) works.

Later on 5 June 2012 Mr Riches sent the Features Document back to Mr Singh with his changes. The Features Document that Mr Singh had prepared based on his conversations with Mr Riches (including Mr Riches responses as underlined) was in the following terms [Ex E]:

Booking Calendar Features Document
Please add/delete features and mark them in different color for better visibility
------------------------------------------------------------------------------------------------------------------------
Dashboard
1.   Top Navigation:
a.   Date Range Selection Dropdowns
b.   Search Student
c.   Dashboard

d.   Drop-down to choose whether to see all the listed properties or only the assigned properties (only if user logged in is not a super admin) I think users could see all properties but only book in the ones they have been given access to
e.   Logout/My account
2.   List of properties:
a.   Property address
b.   Property Images if any and/or ability to upload/delete images

c.   Stats related to the property This is really just an occupancy report as a percentage e.g 90% occupancy
d.   On clicking any property list item it drops down to show the booking calendar for that particular property (So in this case user can click and open the booking calendars for only those properties that he requires)
e.   Upcoming Events for a particular property
3.   General Information:
a.   The date range selected
b.   Number of day in the date range selected

c.   Darker Lines on calendar that split weekend and weekday when you book a room the room below is in a different shade. White and light grey
User Module
1.   One super admin who can:
a.   View/change booking in any property
b.   Add/delete/update the properties
c.   Manage/assign/delete users to the listed properties

d.   Manage new user registrations
2.   Normal users who can:
a.   View bookings related to all the properties.
b.   Add/delete booking in only the properties that are assigned to him/her by the super admin
Booking Calendar Module
1.   Header that contains the Day, Month, date and year
2.   Room and Bed Numbers:
a.   First line on left contains the Room Numbers
b.   Second line on the left contains Bed Numbers

c.   Both these lines are a block that stays on screen even on scrolling left/right
3.   Marking the booked beds:
a.   Beds in a particular room no. booked by a male are marked in color blue
b.   Beds in a particular room no. booked by a female are marked in color pink
c.   If a couple book may be the colour green

d.   Temperary (sic) booking in the colour yellow and if not confirmed in 24 hrs it dropps (sic) off the system automatically
c.e.   Hovering over the booking will show a pop up containing all the information related to that booking
d.f.   Clicking on the booking will open up all the information related to that booking in a greybox (pop up window)
e.g.   Clicking on the empty boxes will open a pop up window where user can fill in the information and make a bed booking
4.   Asset Id is attached to every bed and room number combination which will be used when a new booking is to be made
Booking Window
1.   New booking window contains following fields:
a.   Key number
b.   Student number
c.   First name *
d.   Last name *
e.   Email *
f.   Phone
g.   Nationality
h.   Agency *
i.   Gender *
j.   Booking From/to *
k.   Notes
*mandatory fields
2.   Actions for new booking window is only ‘Insert Booking’ and it generates a unique booking Id on submitting request for booking
3.   Update booking window also contains the fields mentioned above.
4.   Actions for update booking window:
a.   Delete the booking - that deletes the active booking
b.   Move/Split the booking - will be used to change or move the booking to different date/room/bed
Move/Split Window
1.   Holds the following information:
a.   Existing booking Id, booking date range, bed/room combination
b.   Dropdown showing room/bed combinations to move booking to
c.   Date to move booking to
Search Student Window
1.   Shows the list of search results depending on the following search fields
a.   Student first name
b.   Student last name
~~c.   Booking Id~~
d.c.   Agent details ~~Student number~~
Apart from this there will be an admin section (back end) that will be used to manage the front end. We can work on the details of the admin system later after developing the front end. Admin section would not be very complex as compared to the front end as its requirements will depend on the things we want control on the front end.

On 6 June 2012 Link 2 was registered.
On 8 June 2012 Mr Singh sent Mr Riches the first draft of the dashboard for the booking calendar system. That document included reference to the Ezystay property at 423 Harris Street [Ex A 6403.1].
On 11 June 2012 Mr Riches advised Mr Singh by email [Ex A 6404]:

Looks great. The only suggestion i have is to slightly change the grey tone between rooms. eg room 1 bed 1 and 2 light grey and bed 2 beds 1 and 2 the grey tone a little darker. Makes it easier to distinguish between rooms. The other thing is i have no involvement with 423/5/7 anymore so can you remove those from any design you do. Lets make it Link2 house 1 and link2 house 2.

During the course of the negotiation process for Mr Riches’ “exit” from Ezystay a plan was made for Mr Ritchie and Mr Garrett to meet with the principal of ELC, David Scott. On 21 June 2012 Mr Riches wrote to Mr Ritchie and Mr Garrett in relation to the proposed meeting with Mr Scott in terms that included the following:

So you are aware David Scott likes our houses as he believes they give him an edge on the rest of the market. I suggest that until we get this letter of intent i would not go into the Study house product as this product is for the whole market and will take away his feeling of having the niche. He likes to refer to them as the ELC houses. Once we have his signed letter of intent and he has met you on a personal level i would then suggest that you meet with him again in a month or so and bring him up to speed with both Study House and the software. If he feels like Study house is going to the market and scaling out my guess is he will be reluctant to sign the letter of intent.

In response to Mr Riches’ email Mr Ritchie wrote in terms that included the following:

Thank you for your comments and insight into David Scott’s way of thinking. It is always beneficial to have an understanding of how our associates perceive the product we offer. Your feedback leads me to believe we must be heading in the right direction if David feels our product gives him an edge over the market, and he is comfortable associating the ELC name directly with our houses.
It is for this very reason that I believe now is the ideal time to introduce the ‘Studyhouse’ brand name. Nothing has changed with the business other than we have now ‘branded’ the business. Studyhouse is the same business that provides short to medium term accommodation to language students. This presentation will reinforce our intention to continue providing ELC with a professionally presented, quality, student accommodation product that will assist him in maintaining that edge.
…
Tomorrow’s meeting is also the right time and place for me to take the opportunity to inform the ELC team that you and your family have decided to pursue other business interests, and will be leaving the company. I will let them know we have spent a great deal of our time over the past months bringing me up to speed with the business so the management transition is seamless and will not have a negative impact on the service we are providing.

In late June 2012 Mr Garrett provided some valuations to Mr Riches for discussion at a proposed meeting later that week.
On 27 June 2012 Mr Riches wrote to Mr Garrett in terms that included the following:

There are it seems to me 2 options to move forward;
Option 1.
Buy me out for the above price [$643,000] and take possession of all my interest in all companies which comprise the current business.
Option 2.
I remain in the business as a shareholder. Please refer to the ASIC register so this confusion in Ezystay Pty Ltd of share ownership can be eliminated. I have sought legal advice and believe as described below that the clarity and transparency is clear of ownership.
…
To date i have completed all requirements that were asked of me so this partnership could be drawn to a conclusion. John you suggested that this process be handled in a gentlemanly manner to which i have honored. If you wish to keep it in that manner my suggestion would be that you confirm the direction you would like to move forward with either option 1 or option 2. Once this is established then i believe the necessary steps can be taken either to enter into a commercial arrangement as suggested in option 1 or convene a shareholders meetings to move forward. I await your response.

Mr Riches and Mr Garrett pursued further discussions by email in respect of the valuations.
On 29 June 2012 Mr Riches wrote to Mr Garrett in terms that included the following:

While there are no directors running Ezystay Pty Ltd it is risky for the company to conduct any business and very risky for anybody who wants to conduct any business with the company. In addition, under the Corporations Act the company must have a minimum number of directors (at least one) and it is an offence and can lead to prosecution if a company operates without the minimum number of directors. This situation needs to be addressed and my approval of nominating a director needs to be obtained.

Mr Riches went on to suggest that Ezystay should cease dealing with ELC to obtain a letter of intent; marketing Studyhouse; dealing with any software; dealing with builders and contractors; and dealing with any council bodies or certifiers.
On 2 July 2012 Mr Riches wrote by email to Mr Singh asking him whether he could use the calendar “full time now”. He also asked:

Can the pop up screen come up on top of the calendar and be able to be moved around the screen please. I will send you all the web page related info in the next 24 hours.

On 2 July 2012 Mr Singh responded in terms that included the following:

Regarding the movable pop-up window, we can use the same one as used on ezystay system (ezystay pop up is just a new browser window without browser controls).
It’s not possible with the one that we have used currently.

On 3 July 2012 Mr Riches wrote to Mr Ritchie in response to an email in which Mr Ritchie apparently suggested that Mr Riches had not informed him of his resignation as a director. Mr Riches wrote:

Let’s leave to one side for the moment the issue of whether I informed you about my resignation or not because it is going nowhere.
The companies cannot and should not operate without directors and that situation needs to be fixed so we agree on this.
I have had no options to consider that you have raised other than a somewhat vague statement that if a valuation is done then we might be able to agree on a separation process. I have taken the steps I have taken in recent times to try and move this issue to a conclusion as it is in no-one’s interests for it to drag out.

On 6 August 2012 Mr Riches sent an email to Justin Aitken at Bar Broadway in the following terms [Ex A 7188]:

Following on from our conversation this morning re removing images from your website … thanks for doing so. I have just had a look and can you do me a favor and remove the points below room rate. I.e we provide; linen pack, welcome pack, cleaning 3 times a week etc. and also judt (sic) remove reference to the imac in the lounge room. these are what Ezystay promote and would clearly alert ex partners to my involvement should they stumble across it. I may be being over cautious but don’t want to put anything at risk at this stage
Could you please remove for the week until i sign the deal. I appreciate you (sic) help

Deed of Settlement – 13 August 2012

On 13 August 2012 the Ezystay Group, Mr Ritchie and Rujo entered into a Deed of Settlement with Mr Riches and Riches Commercial (the Deed). The terms of the Deed included the following:

RECITALS
…
D.   The Group has developed a student accommodation business and bed, asset and booking management systems, including software which is held by Ezystay Systems.
…
G.   Greg has since at least December 2010 been Engaged by the Group.
H.   The Riches Parties have indicated their wish to exit the Group, and the parties have executed this Deed to provide the terms governing that exit.
Definitions and Interpretation
1.   In this in this (sic) Deed the following rules of interpretation apply unless the context requires otherwise:
…
(d)   Confidential Information means all information, trade secrets, ideas, knowledge, concepts, and processes whether in writing or otherwise, which is confidential and which:
(i)   Relates in any way to the Group or its affairs, business, Intellectual Property, procedures, methodology, or systems, or its sales, marketing, business or promotional plans or information, or its personnel, products, services, partners, associates, suppliers, service providers, contractors, principals, agents, or Customers; or
(ii)   Includes all information or knowledge acquired by any of the Riches Parties or their Related Entitles as a result of the Group permitting any of the Riches Parties to have access to any of its Confidential Information.
(e)   Customer means any person or entity with whom any of the entities within the Group contracted, or had a business relationship, from which contract or business relationship the Group derived any revenue within the 12 months preceding the Time of Completion.
…
(m)   Intellectual Property means all intellectual property rights throughout the world whether protected by statute or not, including rights in relation to any copyright, marks, trademarks (including service marks), registered and unregistered business names, domain names (including designs, inventions (including patents), systems, programs, discoveries, algorithms or formulae, know-how, trade secrets, trade dress and get-up and domain names, and semiconductor or circuit layout rights, whether registered or not, including any right to apply for a grant or registration of any such rights.
(n)   Books, Records, Materials and Documentation means all books, records, documentation, diagrams, photographs, images, manuals, operations or procedures manuals, plans, and rules.
(o)   Related Entity means any relatives or related entities within the meaning of section 9 of the Corporations Act 2001.
(p)   Riches Parties means Greg and Riches Commercial.
…
ACTIONS UPON EXECUTION OF THIS DEED
2.   Immediately upon execution of this Deed:
…
(b)   Greg shall resign as secretary of each of the Companies.
…
COMPLETION
3.   Completion shall occur:
(a)   Upon settlement of the refinance of the Group’s NAB facilities in accordance with this Deed, if that settlement occurs within 4 weeks of the date of this Deed; or
(b)   If settlement of the refinance of the Group’s NAB facilities has not occurred within 4 weeks of the date of this Deed, within a further 2 weeks thereafter, on the basis that Rujo shall advance funds to the Group to allow the payments to the Riches Parties under this Deed to occur.
4.   Simultaneously upon Completion:
(a)   All of Riches Commercial’s units in the Trust and shares in the Companies shall be redeemed for the sum of $425,000.
(b)   The Trust shall pay Riches Commercial’s and Greg’s loans and entitlements in the sum of $75,212.33.
(c)   The Riches parties shall:
(i)   Return all property of the Group, and all hard copies of the Group’s Confidential Information and Books, Records, Materials and Documentation, including all documents relating to 423-427 and 617;
(ii)   Cause all electronic copies of the Group’s Confidential Information and Books, Records, Materials and Documentation, including all documents relating to 423-427 and 617, in the possession of the Riches Parties or their Related Entitles to be deleted after a copy has been provided to David;
(iii)   Disclose to the Rujo Parties the credentials for the Group’s systems, including passwords, administrator access rights, ShareFile access and email administrator rights;
(iv)   Provide written confirmation of the assignment to Ezystay Systems of the domain names for and and
(v)   Provide written confirmation of the assignment to Ezystay Systems of the systems and domain name for CONFIDENTIAL INFORMATION AND
INTELLECTUAL PROPERTY
7.   The Riches Parties shall not, without David’s written consent, directly or indirectly, in any capacity:
(a)   Solicit or seek custom from, or enter into any agreement or business relationship with, any Customer;
(b)   Engage any Employee; or
(c)   Attempt to do any of the things in paragraph 7(a) or 7(b),
within 12 months of the date of Completion, or if a Court of competent jurisdiction determines that period to be unreasonable, within the maximum period that the Court determines is reasonable.
8.   The Riches Parties shall treat Confidential Information as subject to a duty of confidence, and must not, and must ensure that their Related Entities do not, directly or indirectly, without the Group’s prior written consent, disclose it to anyone, or use, copy or reproduce it for any purpose (including competing against the Group or acting on behalf of any person competing against the Group), save as required by law.
9.   The Riches Parties warrant and agree that:
(a)   All Intellectual Property created or developed by, in relation to or in connection with the Group, belongs to and vests in the Group exclusively;
(b)   The Riches Parties shall from Completion execute all documents and do all acts and things reasonably required to secure any such Intellectual Property to the Group, including the systems and domain names referred to in clause 4(c)(iv) and 4(c)(v);
(c)   The Riches Parties shall not do any act or thing which directly or indirectly infringes the rights of the Group with respect to its Intellectual Property.

Link 2 continued its operations at Bar Broadway from August 2012 providing student accommodation and used its booking calendar to allow students and/or agents to book their accommodation.
In March 2013 Mr Davis became aware that Link 2 was offering student accommodation. Mr Davis accessed the Link 2 webpage and observed that the calendar was “remarkably similar” to the system that he had developed for Ezystay in its design and layout and had certain features that he regarded as unique to the system that he had developed for Ezystay.

Proceedings commenced – 18 July 2013

On 18 July 2013 the plaintiffs approached the Court ex parte and obtained a search order directed to the defendants and Mrs Riches. Although the ex parte order was challenged, such challenge was dismissed: Ezystay Systems Pty Ltd v Link 2 Pty Ltd [2014] NSWSC 180. The main claim by the plaintiffs in support of the search order was the alleged breach of the Deed described in the proceedings as the clause 4(c) covenant to return documents and information to the plaintiffs.
An order was made at the time the search order was obtained for the defendants to file an affidavit in respect of the documents the subject of the search order. In an affidavit sworn on 30 July 2013 Mr Riches stated that he was the sole director of Link 2 and an employee of Riches Commercial and was authorised to make the affidavit on behalf of Link 2 and Riches Commercial. The affidavit included the following:

Listed Thing

Location

Ezystay or Studyhouse

Operations Procedure

Manual

If a document called “Operations Procedure Manual” does exist, then there may be a copy of it or something similar to it or portions of it, insofar as it relates to Ezystay, on a static copy (which predates September 2012 by some period of time I do not currently know) of a sharefile folder on the ‘imac’ laptop and a USB memory stick which was in accordance with the order of the Court provided to Mr Thomas Howard.

To the best of my knowledge, on the same basis as I have stated above, a copy or portion of this document may be located in the following ‘Dropbox’ locations:

• Dropbox/Link2 Due Dilligence/b.operations/end to end operational process/ policy and procedures manual.

• Dropbox/Link2 Due Dilligence/k. business plan/b. current business plan

• Dropbox/Link2 Due Dilligence/k. business plan/k. student experience

Ezystay or Studyhouse Systems Manual

I have no knowledge of either of these documents and do not have any copy or copies of them.

Ezystay or Studyhouse Booking Management Systems or Software

I have no copy or copies of these documents.

The search was completed and the independent computer experts have created a list of what has been described as “Discovered Documents” that were found on the defendants’ and Mrs Riches’ computers and other devices.

The pleadings

In the Second Further Amended Statement of Claim (SOC) filed on 6 May 2015 the plaintiffs claim that employees, contractors and officers of Ezystay prepared an Operations Procedures Manual (Business Manual), a summary (Elevator Take) and a Systems Manual, each of which is claimed to be confidential and available only to directors, officers and employees of Ezystay and authorised consultants who are subject to confidentiality obligations [SOC 25-26]. The plaintiffs allege that each of these publications contains information, trade secrets, ideas, knowledge, concepts and processes which are confidential and relate to Ezystay, its affairs, business procedures, methodology or systems, business plans or information, described as “Confidential Business Manual Information” [SOC 27].
The plaintiffs also allege that from about 2007 Ezystay developed interior design features and specifications, comprising a specific composition and standard of fixtures, fittings, finishes and equipment, for its student accommodation business, referred to together as “Trade Dress” [SOC 32]. The features pleaded in respect of the Trade Dress are (a) polished wooden floors without carpets or floor coverings; (b) the layout of the rooms, including bedrooms, bathroom, kitchen, common room and laundry fittings; and (c) beds, linen, desk, wardrobe, lamp, noticeboard, stools, black leather sofa, wide screen TV, DVD player, communal iMac computer, fridge, kitchen utensils, ironing board, each of the same type and arranged in the same configuration [SOC 32]. The plaintiffs allege that Link 2 has from 16 July 2012 advertised and marketed student accommodation with features the same or substantially the same as the plaintiffs’ Trade Dress, and as described in the plaintiffs’ Business Manual, the Elevator Take and the Systems Manual [SOC 50a].

The plaintiffs’ Software is defined in the SOC as “an original software programme” that was “developed to specifications directed by the Ezystay Group, with a password protected interface to enable persons with access credentials to book student accommodation and store information” [SOC 36].
The plaintiffs allege that from about 20 June 2011 they owned copyright in an original manual for the Software, defined in the pleading as the “Software Manual” [SOC 43]. It is alleged that the Software Manual is confidential and contains what is described as “Confidential Software Manual Information” [SOC 44].
The plaintiffs allege that Link 2 has employed an accommodation booking software and system which is the same or substantially the same as the Software and that described in the Software Manual [SOC 50b]. The plaintiffs also allege Riches Commercial through its subsidiary Link 2 is guilty of the same conduct [SOC 51]. The plaintiffs allege that Mr Riches caused Link 2 to engage in this conduct [SOC 52].
The plaintiffs also allege that Mr Riches has from 16 December 2011: (a) used and/or copied the Business Manual, the Elevator Take, the Systems Manual and/or the Confidential Business Manual Information; and/or (b) copied the Trade Dress; and/or (c) used, copied and/or reproduced the Software and/or the Confidential Software Information; and/or (d) used and/or copied the Software Manual and/or the Confidential Software Manual Information [SOC 53].
It is alleged that Mr Riches and Riches Commercial retained the “Discovered Material” the subject of the covenant in clause 4(c) of the Deed [SOC 51c; 53e]. The Discovered Material consists of 121 documents listed in Schedule A to the SOC selected from a larger number of the Discovered Documents.
The plaintiffs also allege that Mr Riches’ conduct was and continues to be in breach of his fiduciary duties and/or director’s duties under s 182 and s 183 of the Corporations Act 2001 (Cth) [SOC 56f-g]; in breach of the Confidentiality Covenant (clause 8), IP Covenant (clause 9) and Property Return Covenant (clause 4(c)) in the Deed [SOC 56c-e]; and in breach of the confidentiality term and intellectual property term implied in his employment agreement or an express term in the engagement agreement with Riches Commercial [SOC 56a-b]. It is also alleged that Mr Riches’ conduct was in breach of his “Confidentiality Duty” as an officer or employee of the plaintiffs [SOC 56h]. It is alleged that Riches Commercial, a party to the Deed, breached the same covenants [SOC 57].
The plaintiffs allege that Link 2 and Riches Commercial gained an advantage from Mr Riches’ breaches [SOC 54-55]; that they were aware of the obligations and duties to which Mr Riches was subject [SOC 58-59]; and knowingly induced him to breach those obligations and duties [SOC 58-60].
The plaintiffs seek a permanent injunction restraining the defendants directly or indirectly from using and/or copying the Business Manual; the Elevator Take; the Systems Manual; the Trade Dress; the Software; and the Software Manual [SOC 1].
The plaintiffs also seek an order that the defendants deliver up and return all hard copies of, and destroy all electronic copies of, documents recording the Confidential Business Manual Information; the Confidential Software Information; the Confidential Software Manual Information; the Discovered Material and “any copy of or document derived from” the Discovered Material [SOC 2 a-b].
The plaintiffs had claimed damages, equitable compensation, an account of profits and/or compensation under s 1317H of the Corporations Act plus interest [SOC 3-4] but these claims were not pressed at trial (tr 138). The plaintiffs also claim their costs of the proceeding [SOC 5].
In the Defence to the Further Amended Statement of Claim (D) filed on 4 May 2015 (but taken to be in response to the SOC subject to the Undertaking referred to below) the defendants deny the allegations of similarity in relation to Link 2 and claim that Link 2’s student accommodation business is in accordance with industry standard practices; uses a trade dress in accordance with standard industry practice, using fixtures and fittings commonly used in accommodation for the target market; and uses an electronic accommodation booking system which incorporates a presentation and appearance common to online booking systems [D 43 a-d].
The defendants deny that Mr Riches used and/or copied the various documents, information and Trade Dress or used, copied and/or reproduced the Software [D 46]. The defendants admit that Mr Riches owed certain fiduciary duties as a director as well as obligations under s 182 and s 183 of the Corporations Act but deny any breach of those duties [D 11; 49]. The defendants also deny that Mr Riches breached any covenants in the Deed and deny that Link 2 or Riches Commercial induced or gained an advantage from any such breaches [D 48-52].
The defendants admit that the Business Manual, the Elevator Take, the Systems Manual, all photographs and lists of the features of the Trade Dress, all “visual output” of the Software and the Software Manual are the subject of the covenant in clause 4(c) of the Deed [D 24; 35; 42; 49]. However the defendants deny that these materials are confidential or that the plaintiffs had any intellectual property in them [D 19-24; 27; 30-31; 33-41].
The defendants claim that the Business Manual, the Elevator Take, the Systems Manual and the Trade Dress incorporate information that is in the public domain [D 19; 22e; 26a]; is obvious [D 22f; 26b]; is common to student accommodation operators [D 22g; 26c]; and is not unique to the Ezystay business [D 22h; 26d].
The defendants claim that the plaintiffs have never claimed any intellectual property in the “source code” of the Software [D 30a]. They deny that the Software is confidential in its look or design and claim that it has been made available to third parties such as customers of the Ezystay Group for the purpose of making bookings [D 30b].
The defendants claim that if there were any breach it was de minimis and there is no evidence of damage [D 56b]. The defendants also claim that damages are an adequate remedy and that the terms of the injunction sought by the plaintiffs would have the practical effect of preventing the defendants from conducting any student accommodation business in circumstances where the Deed does not restrict competition between the parties [D 56a; c].
The defendants admit that they had possession of the Discovered Documents as at 23 July 2013 but otherwise do not admit the allegations. The defendants refer to an undertaking given to the Court on the first day of the trial [Ex B] and contend, inter alia, that Mr Riches “inadvertently” kept possession of the Discovered Documents by way of “backups, access to the ‘Cloud’ storage systems and email records and archives” [D 44b; 46b; 56d]. That undertaking proffered to the Court on 30 April 2015 (the Undertaking) is in the following terms:

Without admission, the Defendants in Supreme Court of New South Wales Proceedings No. 2013/219128 (Proceedings) being, Link 2 Pty limited (ACN 158 841 386), Riches Commercial Pty Limited (ACN 121 355 664) and Gregory Moore Riches (collectively Defendants) hereby undertake to the Court that:
1.   They will delete any and all electronic copies of the documents referred to in Schedule ‘A’ hereto that are in their power, custody or control within twenty-one days of the giving of this undertaking.
2.   Without admission that any such copies exist, they will return any hard copies of any of the documents referred to in Schedule ‘A’ hereto that are in their power, custody or control within twenty-one days of the giving of this undertaking.
3.   Without admission that any such copies exist and further to undertakings one and two above, they will delete any copies of the Group's Confidential Information and Books, Records, Materials and Documentation (all as defined in the Deed dated 13 August 2012 (Deed)) within twenty-one days of giving this undertaking.
4.   Without admission that any such copies exist and further to undertakings one and two above, they will return any hard copies of the Group's Confidential Information and Books, Records, Materials and Documentation within twenty-one days of giving this undertaking.
5.   Within twenty-four days of giving this undertaking, they will confirm in writing by their solicitor to the solicitor for the Plaintiffs in the Proceedings that they have complied with undertakings one to four above.
The above is subject to the solicitor and counsel for the Defendants retaining such of the documents referred to in Schedule ‘A’ or are Confidential Information and Books or Records, Materials and Documentation that are in their possession and required to be kept for the proper record of the proceedings.

The trial

The proceedings were heard on 30 April 2015 and 1, 4, 5, 6, 7 and 14 May 2015. Mr JC Kelly SC appeared for the plaintiffs. Mr J Lazarus, of counsel, leading Mr S Lipp, of counsel, appeared for the defendants.
The plaintiffs read three affidavits of Mr Ritchie, one sworn on 17 July 2013, a confidential affidavit of the same date and an affidavit of 17 November 2014. Mr Ritchie was cross-examined. The plaintiffs also relied upon three affidavits of Mr Garrett sworn on 17 July 2013, 13 September 2013 and 14 November 2014. Mr Garrett was cross-examined. The plaintiffs also relied upon three affidavits of Mr Davis sworn on 16 July 2013, 15 May 2014 and 17 November 2014, the first two of which are confidential affidavits. Mr Davis was cross-examined. The plaintiffs also relied upon the affidavits of Michael Garvin sworn on 16 May 2014 and 21 May 2014 and of Simon Fullerton sworn on 24 April 2015. Neither Mr Garvin nor Mr Fullerton was required for cross-examination.
The defendants relied upon the affidavit of Mr Riches affirmed on 27 August 2014. Mr Riches was cross-examined. The defendants also relied upon the affidavit of Mr Singh made on 31 July 2014. Mr Singh was cross-examined. On the fourth day of the trial, 5 May 2015, the defendants relied upon an affidavit of Mrs Riches affirmed on 5 May 2015. Mrs Riches was cross-examined.
The parties relied upon their respective experts who produced various reports including joint reports to which reference will be made later in these reasons. The plaintiffs relied upon the expert opinion of Dr Bradley Schatz. The defendants relied upon the expert opinion of Professor Robin Braun. The experts’ reports are in evidence [Ex PD 1 to Ex PD 5]. Dr Schatz was cross-examined.
On the sixth day of the trial, 7 May 2015, the defendants sought an adjournment to call further expert evidence having only recently appreciated the plaintiffs’ claim that what was in the Features Document prepared by Mr Singh and approved by Mr Riches was the plaintiffs’ confidential software information (tr 367). That adjournment was allowed. On the last day of the trial, 14 May 2015, the defendants sought to rely upon the report of David Baskind of 13 May 2015. That report was rejected and marked for identification [MFI 5]. I indicated to the parties that having regard to the defendants’ apparent misapprehension of the plaintiffs’ claims, I would revisit the admissibility of the report should it be necessary.
Mr Baskind was asked to report on a number of questions including whether any of the features in the Features Document were or are now capable of being conceptualised (thought up) by a designer starting from scratch and if so how long it would take; whether any of the features in the Features Document were unique or special; whether any of the features in the Features Document were necessary and/or desirable in an automated calendar booking system for student accommodation; how much labour would be required (in hour terms) to implement the features in the Features Document; and how much skill was required to implement each feature in the Features Document.
None of the material that Mr Baskind addressed was put to either of the experts, Professor Braun or Dr Schatz (except the question of desirability or necessity (tr 355)), nor was Mr Davis cross-examined about many of them. Certainly Mr Singh was not asked any questions about how long it might take to conceptualise a system “starting from scratch”. Both Mr Davis and Mr Singh gave evidence of how long it took them to create the respective systems. It was not in issue in the proceedings that features within the Features Document could be found in other accommodation web pages. Whether something is “desirable” in a booking system is not a matter that would assist with the determination of the issues in dispute in this litigation. How long it might take people other than Mr Singh or Mr Davis to create a system is also not a matter that would assist the determination of the issues presently in dispute in these proceedings. In many respects Mr Basking had not exposed the reasoning upon which his conclusions were based: Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705. Mr Baskind’s report remains inadmissible.
On 14 May 2015 final submissions were made and judgment was reserved.

Issues

The defendants’ Undertaking to delete and/or return documents, including those in the Schedule attached to the Undertaking, is without admissions and does not obviate the need to deal with a number of issues in respect of the defendants’ conduct: (a) in obtaining and retaining the plaintiffs’ documents; (b) copying parts or the whole of those documents; and (c) using the documents created from copying the plaintiffs’ documents in the defendants’ new business.
There is no issue that the hard copy documents in the defendants’ possession falling within the definition of “Books, Records, Materials and Documentation” in the Deed must be returned to the plaintiffs. Equally there is no issue that the electronic copies of the documents falling within the definition of “Books, Records, Materials and Documentation” in the Deed must be deleted.
Although many of the plaintiffs’ documents were found in the defendants’ possession when the search was conducted which must be returned to the plaintiffs and/or deleted, the parties were at issue in respect of documents the defendants created from copying: (a) the Business Manual; (b) the Elevator Take; (c) the Systems Manual; (d) the Trade Dress; and (e) the Software and the Software Manual.
There was an issue whether, on their proper construction, the provisions of clauses 4(c)(i) and 4(c)(ii) of the Deed for the return of hard copies and the deletion of electronic copies of the plaintiffs’ “Confidential Information and Books, Records, Materials and Documentation” require the defendants to return or delete documents they have created by copying parts or the whole of the plaintiffs’ Confidential Information or Books, Records, Materials and Documentation (the hybrid documents).
The defendants claimed that they were only prohibited from using or reproducing (copying) parts or the whole of the plaintiffs’ documents or information if they fell within the definition of “Confidential Information” in the Deed. Accordingly there are issues whether: the Business Manual, the Elevator Take, the Systems Manual, the Trade Dress and the Software and the Software Manual fall within the definition of “Confidential Information” in the Deed.
I should refer to the following exchanges during the defendants’ final oral submissions (tr 406; 423):

HER HONOUR:   Just let me understand it. If your clients, and I think this has been admitted, your clients copied, cut and pasted I think the expression was, into a document and there was an extra paragraph that was put into that document, you say that’s not a copy of any of the plaintiffs’ documents that are covered by the covenant?
LAZARUS:   That’s right but it may be, I would accept, a question of degree.
HER HONOUR:   And how big is that degree?
LAZARUS:   Well if only one word was changed to put in a Link 2 where Ezystay otherwise was, then I would accept that is a book, records, material and documentation of the group.
HER HONOUR:   So it is up to me to work it out by comparison for instance between, if I look at the Ezystay systems model and the L2 overview document, that would be a copy I would think.
LAZARUS:   Yes.
HER HONOUR:   When I look at the Ezystay presentation for [ELC] and the Link 2 presentation from those comparisons, the comprehensive welcome pack section, that would be a copy.
LAZARUS:   Yes your Honour. May I say this that save for the issue of the software, this is not an issue in the case because of the undertaking that we have given and --
HER HONOUR:   Just let me understand the undertaking because if I also look at Ezystay Group business in summary and the Link 2 Group business summary that’s also large slabs of it and I probably, unless you convince me otherwise, say that that fell into the category of copies, electronic or hard copy. I think when you say it is not an issue in the case you are willing to give it back I think.
LAZARUS:   Yes and Mr Riches said, he was expressly cross-examined by my friend about the hybrid documents and he said absolutely the undertaking applies to them.
…
HER HONOUR:   Just pause there. I think we have to go back to what you were putting earlier. As I understand it, the acceptance that any documents that belong to the plaintiff, that were taken from the plaintiff, or cut and pasted from the plaintiff’s documents into new documents, should be returned.
LAZARUS:   Yes, your Honour.
HER HONOUR:   What is it about Mr Kelly’s, or the plaintiff’s analysis of clause 4 in this regard that is objectionable?
LAZARUS:   Only as it cuts into the software case, your Honour.
HER HONOUR:   So the software case, if I were to find that your client copied Ezystay’s software to create the booking calendar for Link 2, in breach of clause 8, the relief sought is, you say, a restraint of trade?
LAZARUS:   Yes, your Honour.

Although Mr Lazarus made the abovementioned concessions, the Undertaking contains reservations in respect of whether “any such copies exist”. It would appear that the defendants accept that if they have copied large slabs of the plaintiffs’ documents, confidential or otherwise, the documents as created fall within the definition of “Books, Records, Materials and Documentation”.

Construction of the Deed

Clause 4 requires Riches Commercial and Mr Riches to return to the plaintiffs all hard copies of Ezystay’s “Confidential Information and Books, Records, Materials and Documentation”. The defendants failed to return or delete copies of the plaintiffs’ Books, Records, Materials and Documentation. However the defendants claim that their failure in this regard was inadvertent, not resulting from any deliberate planning but rather by reason of a mistake.
In Electricity Generation Corp v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640, French CJ, Hayne, Crennan and Kiefel JJ said at 656-657 [35] (footnotes omitted):

The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.

The experts’ evidence

The defendants relied upon the expert opinion of Professor Robin Braun who holds a BSc (Hons) in Electronic Engineering and an MSc and PhD in Microwave Engineering [Ex PD 1]. Professor Braun referred to the difficulty of proving that one application is the copy of another by inspecting the Source Code. In a helpful table, Professor Braun compared the two “functionality relationships” of Ezystay and Link 2 with the addition of a widely available accommodation website known as “Wotif”. Professor Braun concluded that the Wotif functionality was very similar to that of Ezystay and Link 2. He also commented upon a “multitude of other systems” that had much the same “Use Case”.
The plaintiffs relied upon the expert opinion of Dr Bradley Schatz, the Managing Director of Schatz Forensic. Dr Schatz holds a PhD in Digital Forensics and a BSc in Computer Science. His report of 10 November 2014 [Ex PD 2] identified his instructions to prepare a report in relation to “whether it was theoretically possible that the defendants, or anyone on their behalf, copied or used any of the Plaintiffs’ software including any of its design or design code”. Dr Schatz defined the term “design” in paragraph 10 of his report as follows:

Design is a broad term encompassing a number of activities in regard to software development, including visual appearance, interaction methods, information structure, and system components.

Dr Schatz reported that in approaching his task it was relevant to consider a number of things: (a) copy of visual design, which he defined as “fonts, layout and colours”; (b) copy of interaction design, which he defined as “user interface”; (c) copy of information design, which he defined as “data model & information presentation”; (d) copy of software design, which he defined as “how the software functions”; and (e) copy of software implementation, which he defined as “the source code implementing” the matters in (a) to (d).
Dr Schatz’ report includes the following:

12.   Based on my analysis of the evidence provided, it is my opinion that the design of a very similar user interface and data model to that of the Calender and Booking portion of the EzyStay web application was in existence on 30 May 2012 in the form of the Booking Calender Features document (the date of creation being recorded as 30 May 2012). This is based on:
a)   A near identical user interface functional specification and data model for the New Booking User Interface (see section Detailed Analysis); or
b)   A substantially similar user interface for the Booking Calendar (see section titled Booking Calendar Main User Interface); or
c)   A near identical user interface functional specification and data model for the Split/Move Booking User Interface (see section Move/Split User Interface); or
d)   The similarity of the relevant portions of the StudyHouse and the current Link2 web applications made available to me;
13.   Based on the above, it is my opinion that it is theoretically possible that the defendants, or anyone on their behalf, copied the design of the Booking Calendar User Interface and the relevant data model of the software.
…
15.   I am unable, based on the evidence I have been provided with, to form a concluded opinion as to the probability associated with the above.

Dr Schatz provided a number of hypotheses as to how such a design similarity could have occurred. They were: (a) that Mr Singh had reference to a depiction of it; (b) that Mr Singh had provided to him in a document form, element by element, a design similar to it; (c) that Mr Singh had described to him the design, element by element, while he transcribed the design; or (d) that Mr Singh had described to him in a more general form the goals and purpose of the web application to be developed but with such terminological precision that explains the “near exact terminology and ordering of terms” as described in the section of his report titled “New User Booking Interface”.
During the course of Dr Schatz’ cross-examination it was established that aspects of the comparison of the screen shot of the Ezystay website and the Link 2 website were different. Those differences include that the date range selection drop-downs were in a different location and had a different look; that in respect of the search student functionality, one was on the left hand side and the other on the right hand side; the logout my account function was in a different location and had a different look; the property address had a different look but a similar location; the property images were in a different location; the upcoming events function was similar in look in a similar grouping area but located differently; the date range selected was in a different location and had a different look; the header containing the day, month, date and year had a different look and a different location; and the various pop-up windows had a different “look and feel” (tr 347-350).
Dr Schatz also gave the following evidence in cross-examination (tr 350):

Q.   … You have agreed to what I suggest to you are a number of respects in which the look and feel and the location of various matters was different as between the two booking systems; correct?
A.   Correct.
Q.   And that must I would suggest to you affect any opinions that you express concerning the likelihood of whether one was copied from the other?
A.   Um, yes, I did consider that.

Dr Schatz was then asked about the section of his report dealing with the “move/split user interface” in which he compared the Ezystay user interface for the edit booking facility with the Features Document. He agreed that he had access to the Link 2 system when he prepared his Report and was cross-examined as follows (tr 351):

Q.   But you made no attempt to draw a direct comparison between the edit booking user interface of the Ezystay system and the Link 2 one; correct?
A.   Um, I expect I may – well, I expect I would have examined that portion of it, but it’s not appearing here because I didn’t find anything to comment on.
Q.   When you say you didn’t find anything to comment on, is that because it looked quite different to the Ezystay one?
A.   That would be one of the reasons, yeah.
Q.   Right. What were the other reasons?
A.   Um, the approach that I was taking was to in essence catalogue the similarities between them. The reason that I answered that would be one of the reasons is that, from memory, I don’t recall specifically in that particular part of the user interface exactly what I saw there, but I think it is safe to say that I didn’t see any equivalences there, so didn’t comment on it.
Q.   Dr Schatz, just so I understand, did you understand your task in preparing the report to be, as you have just said, to catalogue the similarities?
A.   Um, I understood my task to be to give an opinion on the possibility of whether or not there had been copying.
Q.   Did you attempt to catalogue the differences between the two systems?
A.   I paid attention to them.
Q.   I see. So is this the position, you attempted to catalogue the similarities in your report, but you only paid attention to the differences; is that right?
A.   Um, I didn’t catalogue the differences, no.

After further cross-examination in which Dr Schatz agreed that the upcoming events user interface of the two systems had a “look and feel” that was “very different” (tr 353), the real issue in respect of the appropriate comparison was identified. That issue is whether the features in the Features Document were in the Ezystay system. That is a step that needed to be taken to determine whether, as alleged, Mr Riches copied the Ezystay system by setting out the design, element by element, in his instructions to Mr Singh as recorded in the Features Document. The experts were then asked to produce that comparison which is the subject of their joint report [Ex PD 4].
Dr Schatz and Professor Braun prepared the joint report [Ex PD 4] on 6 May 2015 to indicate which of the features or design elements in the Features Document are in the Ezystay system. That Report identified the following limitations:

1.   Ezystay design elements not present in the Document. The analysis does not identify features present in the EzyStay system that are not present in the Document.
2.   Design elements in the Document not present in the Link2 System. Neither does this analysis consider which of the elements present in the Document were actually implemented in the Link2 system.
3.   Link2 design elements not present in the Document. The analysis also does not consider other features that may be present in the Link2 system, but which may fall outside the scope of the Document.
4.   The evolution of design elements in the Document. The analysis also does not consider whether the design elements in the Document may have been the subject of further design and refinement such that the resulting design is no longer similar to the relevant element in the Document.

The experts then listed the features in the Features Document and identified whether they were present in the Ezystay system by the word “Yes” and if not by the word “No”. “Yes” appears 43 times and “No” appears only 8 times.
One feature that was the subject of “No” was the reference to “Dashboard”. Mr Singh gave evidence that this was his terminology but that he was recording Mr Riches’ requirements under that heading (tr 262). The experts also recorded “No” in respect of the category “Dropdown to choose whether to see all the listed properties or only the assigned properties”. Mr Riches had been cross-examined in respect of this category as follows (tr 229):

Q.   You said to him that you wanted the booking calendar to have the feature that I am clicking any property listed item it should drop down so as to show the booking calendar for that particular property, so the user can click and open the booking calendars for only those properties that he requires?
A.   I would suggest that that would have been a long time after May or June, Mr Kelly.
Q.   So is this right, your memory is now … you can recall giving him an instruction along those lines, but you are now saying that was much later than May or the beginning of June 2012, is that your evidence?
A.   There was no property to click down on, Mr Kelly. Multiple properties. So I couldn’t imagine I would have given him such an instruction, but as I have said to you I can’t remember. As common sense would tell me that as more properties came on that may be a functionality but at that point it was not.

The plaintiffs submitted that in this passage of evidence Mr Riches was denying that he gave Mr Singh instructions to include a dropdown which allowed a choice to be made between showing multiple properties or only one. However Mr Singh’s evidence was that Mr Riches gave him that instruction (tr 267). In any event, when Mr Riches amended the Features Document and returned it to Mr Singh on 5 June 2012 he wrote “I think users could see all properties but only book in the ones they have been given access to”. The plaintiffs submitted that this language, in particular the use of the word “could”, is a reference back to what users “could” do with the Ezystay system. I agree with this submission. The context in which it was written, at the time it was written and the language used leads to the irresistible conclusion that Mr Riches was referring to what could be done in the Ezystay system. Mr Singh also made reference to what could be done in the Ezystay system in his email to Mr Riches on 2 July 2012, referred to earlier in these reasons (at [69]).
The third item in which “No” is recorded as well as the fifth item being “On clicking any property list item it drops down to show the booking calendar for that particular property (so in this case user can click and open the booking calendars for only those properties that he requires)” and “View bookings related to all properties” respectively are in the same category.
The fourth “No” in the table relates to the “Number of day in the date range selected”; the seventh relates to “Booking Id” and the eighth to “Student number”. The plaintiffs submitted that when one views the system as a whole these are minor details in the scheme of things. That may be so. However they are aspects of the Features Document that are not in the Ezystay system. The sixth “No” is under the heading “Room and Bed Numbers” and relates to the feature described in the Features Document as “a block that stays on the screen even on scrolling left/right” which is dealt with earlier in respect of some of the evidence that Mr Riches gave during the course of his cross-examination.

Surrounding circumstances

The plaintiffs submitted that the surrounding circumstances also support a finding that the Ezystay Software was copied. The first matter upon which the plaintiffs rely is the fact that Mr Riches asked Mr Davis for a copy of the Ezystay Software in December 2011. It was submitted that he would not have done so if he had not wanted a copy of the Ezystay Software for his own purposes.
Next the plaintiffs pointed to the fact that from as early as 21 February 2012 and continuing up to and beyond 31 May 2012, Mr and Mrs Riches pursued a course of conduct in which they “effectively stole” as many of Ezystay’s documents and materials as possible and adapted them for use in the Link 2 business, notwithstanding that Mr Riches was a director and under a fiduciary and statutory duty not to obtain an unauthorised benefit and not to use his position or the plaintiffs’ information to his advantage or to the plaintiffs’ disadvantage.
Mr Riches signed a resignation letter in respect of his directorships of two of the plaintiff companies. However he did not resign as a director from all the plaintiff companies on 30 May 2012. Link 2 was not registered until 6 June 2012. However prior to that time Mrs Riches, at Mr Riches’ direction, was making telephone calls and using the hybrid presentation that she had created from the Ezystay documents to market the new business of Link 2 with the “many agents” that she said that she contacted.
The fact that Mr Riches received a copy of the confidential Software email from Mr MacLean on 31 May 2012 at the time he was instructing Mr Singh in respect of the features that he required for the Link 2 system is also a matter to be considered in determining whether the defendants copied Ezystay’s Software. The plaintiffs rely upon the fact that when Mr MacLean sent Mr Riches the Software Manual on 31 May 2012 Mr Riches forwarded it to Mrs Riches on the same day and later went to the trouble of emailing it to himself from his Ezystay email address to his personal Gmail address. The excuses or explanations given by Mr and Mrs Riches in respect of why these emails were sent and/or received were strikingly similar. Mr Riches said that he was forwarding the material to his wife as “another example of the plaintiff continuing to develop the business without my knowledge while I was involved” and that he wanted her to have a record “of the business being developed without any of our consent or knowledge” (tr 154). Mrs Riches said that she received the email as her husband was advising her “what was going on in the business without our knowledge” (tr 287; 289).
The plaintiffs claim that there is no reason to suppose that taking a copy of the Ezystay Software would be an exception to the way in which Mr and Mrs Riches were conducting themselves at that time in copying all of the plaintiffs’ other documents, some of which included Confidential Information.
It was submitted that Mr Riches would have the Court believe that he thought so little of the design by Mr Davis that he did not want it. However it is difficult to accept that evidence having regard to Mr Riches’ request of Mr Davis and indeed in itemising the 43 matters that were also in the Ezystay system when he instructed Mr Singh.
The plaintiffs also relied upon the fact that Mr Riches was not candid with Mr Singh. Mr Singh was labouring under the belief that he was dealing with Ezystay until the email from Mr Riches on 11 June 2012 advising him that he was no longer involved with Ezystay and that he should correct the calendar to remove the reference to the Ezystay properties. A further matter relied upon by the plaintiffs in this regard is Mr Riches’ email of 6 August 2012 to Mr Aitken at Bar Broadway asking him to remove aspects of the website so as not to alert his “ex partners” to his involvement. This of course was only days prior to the entry into the Deed pursuant to which Mr Riches was paid approximately half a million dollars.
The plaintiff also submitted that Mr Riches was not a witness of truth. In this regard focus was placed on his affidavit of 30 July 2013. It was submitted that this affidavit was clearly inconsistent with what Mr Riches well knew and indeed Mrs Riches well knew at the time the affidavit was sworn. Only twelve weeks earlier in what must have been rather extraordinary circumstances when they were tipped off about a “raid”, they had a discussion about the very matters that were part of the subject matter of the affidavit. Each of them well knew that their computers had Ezystay documents on the system and that Mr Riches was so incensed that Mrs Riches had left the documents on there that he rang their solicitor. It is difficult to accept that the description Mrs Riches claimed Mr Riches gave to the stored documents (“load of shit”) was made or if made was his true belief, in the light of the fact that they had together been gathering this information and copying it and Mrs Riches, with Mr Riches’ knowledge, had been using the hybrid document to entice agents or schools to work with Link 2.
Mrs Riches asserted in her evidence that she deleted the email of 31 May 2012 to which the Ezystay Software Manual was attached. Unfortunately that email and its attachment were extracted from her Gmail account as a result of the search.

Conclusions on Software

I have taken into account the limitations referred to by the experts in their joint report. Notwithstanding these limitations and indeed the inherent complexities of this aspect of the plaintiffs’ case, the comparison of the items in the Features Document and the elements in the Ezystay system; the evidence of Mr Riches in forwarding to himself and his wife the Software Email; the request for Mr Aitken to remove aspects from the Bar Broadway webpage; the matters identified in the surrounding circumstances; and the copying and plagiarising of the plaintiffs’ documents are all matters relevant in the consideration of whether I am satisfied that the plaintiffs’ Software was copied.
I do not accept Mr Riches’ evidence that although he forwarded the Software email to himself and to his wife he did not open the iNE document or read it. I am satisfied that his conduct in giving Mr Singh explicit instructions that matched identically those parts of the interface contained in the plaintiffs’ booking system and Software amounts to copying the plaintiffs’ Software.
I am satisfied that the plaintiffs’ Software and Software Manual contained Confidential Information. I am satisfied that Mr Riches was in breach of clause 8 of the Deed by copying and using the plaintiffs’ Software. I am also satisfied that the defendants were in breach of clause 4 of the Deed in failing to return hard copies and/or delete the electronic copies of the plaintiffs’ Software Manual and Software.
I am satisfied that from sometime after 16 July 2012 Link 2 employed an accommodation booking software and system which was the same or substantially the same as the Ezystay Software and that described in the Software Manual. Mr Riches as the sole director of Link 2 caused it to engage in such conduct.

Breach of duties claim

The plaintiffs rely upon the same facts and circumstances in support of a claim that Mr Riches, as a director of the plaintiffs, owed a fiduciary duty or alternatively a statutory duty as a director of the plaintiff companies not to obtain an unauthorised benefit from his relationship: Chan v Zacharia (1984) 154 CLR 178 at 198-199.

In First Conferences Services Ltd v Bracchi [2009] EWHC 2176 (Ch) at [25] although Peter Smith J was referring to “employees the following observations are apt to the circumstances of this case:

It is becoming increasingly common with the computerisation of information for employees who wish to set up their own competing business to help themselves to their employers’ confidential information. Some of this material is not necessarily confidential as such and is capable of being found with hard work. However the employees do not wish to go through the hard work and in effect what they do is they seek to take advantage of their employers’ time effort and expense in putting together valuable material which provides a tool to an emerging business. Instead of doing their own work using their own brains they simply hijack the employers’ gathered material. This gives them what is called “a springboard” for their business to be up and running almost immediately at the expense of the former employer.

Mr Riches owed a fiduciary duty to the plaintiffs to protect their confidential information and not to deploy it for the benefit of a third party or for himself. It is clear that Mr Riches was using the plaintiffs’ documents, some of which contained confidential information and in respect of which he owed a duty of confidentiality to the plaintiffs whilst he was a director, in his and Mrs Riches’ dealing with Bar Broadway. This is not a case in which it is claimed that Mr Riches diverted a business opportunity from Ezystay to himself and Link 2. It is limited to a claim that he breached his fiduciary duty (or statutory duty) in using the plaintiffs’ documents and confidential information in a business that was competing with a business operated by companies of which he was a director.
During the period December 2011 up to the time that the Deed was executed Mr Riches copied and used the plaintiffs’ documents, some of which were confidential, for the benefit of Link 2. The benefit included a saving of time cost and effort in putting together its own presentation by cutting and pasting the plaintiffs’ presentation and other documents. The evidence given by Mrs Riches and the detail of the communications between Mrs Riches and Mr Aitken at Bar Broadway demonstrates quite clearly that Mrs Riches, at Mr Riches’ behest, was using the plaintiffs’ documents to obtain clients, the feedback from which she described as “phenomenal”. While Mr Riches was a director of the plaintiff companies he owed them a duty not to conduct himself whereby he or a third party gained an unauthorised advantage from the plaintiffs’ business documents and confidential information. He breached that fiduciary obligation by providing documents and materials to Riches Commercial and Mrs Riches for the purpose of preparing presentations to market the new business to agents and schools in competition with the plaintiff companies of which he was then a director.
Mr Riches also breached that fiduciary duty by copying confidential information in instructing Mr Singh to prepare the software for Link 2 prior to the time that he resigned his two directorships and well prior to the time that he resigned from his other directorships.
Mr Riches provided the confidential information to Mrs Riches for the purpose of use in the business of Link 2. Mr Riches was also in breach of his confidentiality duty in this regard.
Mr Riches improperly used his position as a director to gain an advantage for himself and for Link 2 (and Riches Commercial) by reason of the use of the Ezystay documents and information. Mr Riches’ conduct in this regard was in breach of s 182 and s 183 of the Corporations Act.

Other matters

The defendants submitted that the plaintiffs led no evidence of any damage arising from the copying or use of the Manuals or the Software. It was submitted that the plaintiffs could not have suffered any loss by reason of the trivial nature of the alleged conduct. Indeed the defendants submitted that it would be “absurd” to make a suggestion that they could have suffered loss.
It is true that the plaintiffs have not claimed that they have lost custom to the defendants. The plaintiffs have been put to the cost of pursuing a search for documents and hybrid documents that have been improperly withheld by the defendants. The plaintiffs have been put to the cost of seeking orders for the return of their confidential information which has been retained and used by the defendants in breach of the Deed. Notwithstanding the submission that was made by the defendants that this does not represent any “loss” to the plaintiffs, I am satisfied this expenditure was lost to the business operations of the plaintiffs. I am also satisfied that Mr Riches caused Link 2 to use the plaintiffs’ Confidential Information in its business.

Summary of conclusions

For the reasons stated, the plaintiffs have succeeded in their claims against the defendants in respect of the Business Manual, the Systems Manual and the Elevator Take. The plaintiffs have also succeeded in their claims against the defendants in respect of the Software Manual and the Software. The plaintiffs’ claim against the defendants in respect of the Trade Dress fails.
Having regard to the plaintiffs’ submission that the form of final relief should abide the delivery of these reasons and the defendants’ contention that the injunction as presently sought may be in restraint of trade, it is appropriate to give the parties the opportunity to reach agreement on the form of final orders. Irrespective of whether the parties reach agreement they should make contact with my Associate by no later than 28 August 2015 to relist the matter to finalise the proceedings whether by consent or after further argument.

**********

Decision last updated: 10 August 2015

Medium Neutral Citation:	Ezystay Systems Pty Ltd v Link 2 Pty Ltd [2015] NSWSC 1105
Hearing dates:	30 April 2015; 1, 4, 5, 6, 7 and 14 May 2015
Decision date:	10 August 2015
Jurisdiction:	Equity Division
Before:	Bergin CJ in Eq
Decision:	See [246]-[247]
Catchwords:	DEEDS – construction of clauses in Deed terminating commercial relationship – where obligation to return hard copies and delete electronic copies of documents – whether obligation to return documents created from copying parts of documents. CONFIDENTIAL INFORMATION – whether plaintiffs’ business manuals and other documents confidential – whether software and software manual confidential – whether confidential information copied and used by defendants in business competing with plaintiffs - whether instructions to computer consultant amounted to copying the plaintiffs’ software. DIRECTORS – duties owed to companies – where director of plaintiffs used plaintiffs’ documents and information to set up a business in competition with the plaintiffs whilst a director of the plaintiffs – whether breach of statutory and fiduciary duties.
Legislation Cited:	Corporations Act 2001 (Cth)
Cases Cited:	Aloha Shangri-La Atlas Cruises Pty Ltd v Gaven [1970] Qd R 438 Amway Corporation v Eurway International Limited [1974] RPC 82 Chan v Zacharia (1984) 154 CLR 178 Coco v AN Clark (Engineers) Ltd [1969] RPC 41 Commercial Plastics Ltd v Vincent [1965] 1 QB 623 Del Casale v Artedomus (Aust) Pty Ltd (2007) 73 IPR 326 Drake Personnel Ltd v Beddison [1979] VR 13 Electricity Generation Corp v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 EMI Songs Australia Pty Limited v Larrikin Music Publishing Pty Limited [2011] FCAFC 47; (2011) 191 FCR 444 First Conferences Services Ltd v Bracchi [2009] EWHC 2176 (Ch) H&R Block Ltd v Sanott [1976] 1 NZLR 213 Lancashire Fires Ltd v SA Lyons & Co Ltd [1996] FSR 629 Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705 Marshall v Prescott [2015] NSWCA 110 O’Brien v Komesaroff (1982) 150 CLR 310 Wright v Gasweld Pty Limited (1991) 22 NSWLR 317
Category:	Principal judgment
Parties:	Ezystay Systems Pty Ltd (1st Plaintiff) Ezystay Properties Pty Ltd (2nd Plaintiff) Sleeping Operations Pty Ltd (3rd Plaintiff) Sleeping with the Enemy Pty Ltd (4th Plaintiff) Sleeping in Australia Pty Ltd (5th Plaintiff) Link 2 Pty Ltd (1st Defendant) Riches Commercial Pty Limited (2nd Defendant) Gregory Moore Riches (3rd Defendant)
Representation:	Counsel: JC Kelly SC (Plaintiffs) J Lazarus/S Lipp (Defendants) Solicitors: Uther Webster & Evans (Plaintiffs) DPR Legal (Defendants)
File Number(s):	2013/219128
Publication restriction:	Nil

Listed Thing	Location
Ezystay or Studyhouse Operations Procedure Manual	If a document called “Operations Procedure Manual” does exist, then there may be a copy of it or something similar to it or portions of it, insofar as it relates to Ezystay, on a static copy (which predates September 2012 by some period of time I do not currently know) of a sharefile folder on the ‘imac’ laptop and a USB memory stick which was in accordance with the order of the Court provided to Mr Thomas Howard. To the best of my knowledge, on the same basis as I have stated above, a copy or portion of this document may be located in the following ‘Dropbox’ locations: • Dropbox/Link2 Due Dilligence/b.operations/end to end operational process/ policy and procedures manual. • Dropbox/Link2 Due Dilligence/k. business plan/b. current business plan • Dropbox/Link2 Due Dilligence/k. business plan/k. student experience
Ezystay or Studyhouse Systems Manual	I have no knowledge of either of these documents and do not have any copy or copies of them.
Ezystay or Studyhouse Booking Management Systems or Software	I have no copy or copies of these documents.