Fortrend Securities Pty Ltd v Wollermann

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FEDERAL COURT OF AUSTRALIA

Fortrend Securities Pty Ltd v Wollermann [2023] FCA 70   

File number: VID 38 of 2023
Judgment of: ANDERSON J
Date of judgment: 9 February 2023
Catchwords: CONTRACTS – interlocutory application – where the applicant has made out a prima facie case that the respondents breached the confidentiality obligations imposed by their letters of employment – prima facie restraint – where there is a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial – where the balance of convenience favours granting an injunction – injunctive relief granted
Cases cited:

Australian Broadcasting Corporation v O’Neill [2006] HCA 46; (2006) 227 CLR

Beecham Group Limited v Bristol Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618

Liberty Financial Pty Ltd v Jugovic [2021] FCA 607
Division: General Division
Registry: Victoria
National Practice Area: Other Federal Jurisdiction
Number of paragraphs: 94
Date of hearing: 1 February 2023
Counsel for the Applicant: Mr T J North KC with Mr A R Di Stefano
Solicitor for the Applicant: Corrs Chambers Westgarth
Counsel for the Respondent: Mr R Dalton KC with Mr M Minucci
Solicitor for the Respondent: Seyfarth Shaw

ORDERS

VID 38 of 2023
BETWEEN:

FORTREND SECURITIES PTY LTD ACN 055 702 693

Applicant
AND:

CHRISTOPHER JAMES WOLLERMANN

First Respondent

STEPHEN MATTHEW LYLE

Second Respondent

SHAW AND PARTNERS LIMITED

Third Respondent

LMAW PTY LTD

Fourth Respondent

ORDER MADE BY:

ANDERSON J

DATE OF ORDER:

9 FEBRUARY 2023

THE COURT ORDERS THAT:

LWAM

1.LWAM Pty Ltd (LWAM) be joined as the Fourth Respondent to the proceeding and the title of the proceeding be amended accordingly.

Delivery of property

2.By 4pm on 13 February 2023, pursuant to Rule 14.01 of the Federal Court Rules 2011 (Cth) (Rules), the Third Respondent (Shaw) and LWAM are to deliver up any FSA Property by making it available for the Applicant to inspect and take copies thereof.

3.In this order, “FSA Property” has the same meaning as that given in paragraph 2 of the Applicant's interlocutory application dated 24 January 2023, and includes any devices or cloud storage which contained, but no longer contains, any FSA Property.

Interlocutory injunctions

4.Each of the Respondents be restrained until further order, whether by itself, its officers, employees, agents or howsoever otherwise from using the FSA Property in any way, including but not limited to:

(a)making contact with any person who was a client of the Applicant or Fortrend Securities Inc (FSI) on or before 16 December 2022; and

(b)providing trading services in relation to United States securities (Trading Services) to any person who was a client of the Applicant or FSI on or before 16 December 2022.

5.Until 16 June 2023, or further order, each of First Respondent (Wollermann) and Second Respondent (Lyle) be restrained from canvassing, soliciting, interfering with or enticing, or endeavouring to canvass, solicit, interfere with or entice, from the Applicant or…

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Details
Case
[2023] FCA 70
Decision Date

CaseChat Overview and Summary

Fortrend Securities Pty Ltd sought relief against Wollermann, Lyle and Shaw, alleging breaches of confidentiality and misuse of confidential information. The case was heard in the Federal Court of Australia. The primary legal issues before the court were whether the applicants had made out a prima facie case of breach of confidentiality obligations and whether an interlocutory injunction should be granted to preserve the status quo pending the trial. The court found that Fortrend had made out a prima facie case of breach of confidentiality obligations by Wollermann and Lyle. The court considered the evidence provided by Fortrend, including the forensic analysis of the devices used by Wollermann and Lyle, which indicated that they had accessed and potentially downloaded confidential information onto USB devices. The court also found that there was a sufficient likelihood of success to justify granting the interlocutory injunctions to preserve the status quo pending the trial. The balance of convenience favoured granting the injunctions as the potential harm to Fortrend if the injunctions were not granted outweighed the potential harm to the respondents. The court granted the interlocutory injunctions sought by Fortrend, restraining the respondents from using the confidential information in any way, including making contact with former clients of Fortrend and providing trading services to them. The court also ordered that LWAM be joined as the fourth respondent and that the respondents deliver up any property belonging to Fortrend. Further, the court ordered that the respondents make discovery of certain documents and that the matter be referred to mediation. The court's decision was based on the evidence provided by Fortrend and the likelihood of success in the case, as well as the balance of convenience in favour of granting the interlocutory injunctions. The orders made by the court were intended to preserve the status quo pending the trial and to prevent the respondents from using the confidential information in any way.

Orders

Orders of the court

LWAM

1. LWAM Pty Ltd (LWAM) be joined as the Fourth Respondent to the proceeding and the title of the proceeding be amended accordingly.

Delivery of property

2. By 4pm on 13 February 2023, pursuant to Rule 14.01 of the Federal Court Rules 2011 (Cth) (Rules), the Third Respondent (Shaw) and LWAM are to deliver up any FSA Property by making it available for the Applicant to inspect and take copies thereof.

3. In this order, “FSA Property” has the same meaning as that given in paragraph 2 of the Applicant's interlocutory application dated 24 January 2023, and includes any devices or cloud storage which contained, but no longer contains, any FSA Property.

Interlocutory injunctions

4. Each of the Respondents be restrained until further order, whether by itself, its officers, employees, agents or howsoever otherwise from using the FSA Property in any way, including but not limited to:

(a) making contact with any person who was a client of the Applicant or Fortrend Securities Inc (FSI) on or before 16 December 2022; and

(b) providing trading services in relation to United States securities (Trading Services) to any person who was a client of the Applicant or FSI on or before 16 December 2022.

5. Until 16 June 2023, or further order, each of First Respondent (Wollermann) and Second Respondent (Lyle) be restrained from canvassing, soliciting, interfering with or enticing, or endeavouring to canvass, solicit, interfere with or entice, from the Applicant or FSI to offer Trading Services to any person who was a client of the Applicant or FSI on or prior to 16 December 2022.

Discovery

6. Within seven days from the date of these orders, each of the Respondents are to make discovery and allow inspection of the following categories of documents for the period 1 October 2022 to 9 February 2023:

(a) any FSA Property in their possession or imaged in accordance with order 2 above and the orders of the Honourable Justice Anderson dated 30 January 2023;

(b) any correspondence (whether by email, text, letter, or otherwise) between any of:

(i) Lyle and Wollermann; and/or

(ii) LWAM; and/or

(iii) any employee of Shaw, and

(iv) any of the FSA Clients (as defined in the Concise Statement);

(c) records of any phone calls between any of:

(i) Lyle and Wollermann; and/or

(ii) LWAM; and/or

(iii) any employee of Shaw; and

(iv) any of the FSA Clients;

(d) any emails to or from any email addresses ending in "@lylewollermannassetmanagement.com" or "@lyleandwollermannam.com".

(e) all emails to or from the email address "cwollermann@gmail.com" or "Stephen.Lyle@gmail.com" and any of the following:

(i) any email address ending in "@fortrend.com.au";

(ii) Lyle;

(iii) Wollermann;

(iv) Shaw or its employees, agents or representatives, and

(f) new account statements or "welcome letters" prepared by Shaw for FSA Clients.

7. Within seven days from the date of these orders, the Respondents are to each file an affidavit confirming their compliance with paragraphs 2 and 6 of these orders and paragraph 1 of the orders of the Honourable Justice Anderson made on 30 January 2023.

Further directions

8. The matter be referred to mediation to be conducted by a mediator that is appointed by the parties or, in default of agreement, a Registrar of the Court, which is to be completed within 21 business days from the date of these orders.

9. Within two business days of the completion of the mediation, the mediator is to report to the Court on whether the matter has resolved.

10. On the next available date after the mediator has reported to the Court, the matter be listed for case management.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

I marked the respondents’ affidavits collectively as Exhibit C.BACKGROUND The affidavit evidence filed by the parties deposes to the following relevant background facts. Fortrend is a specialist broker which enables Australian investors to invest in and trade US securities with US domiciled accounts. Fortrend has been providing such services in Australia for over 30 years. Fortrend has maintained relationships with its clients, and stores their Confidential Information on its IT system. Wollermann and Lyle were employed as advisors at Fortrend. As advisors, Wollermann and Lyle had access to the Confidential Information and were introduced to, and interacted with, all of Fortrend’s existing clients (FSA Clients). Wollermann and Lyle gave notice of their resignations from Fortrend on 16 November 2022. Wollermann and Lyle then joined Shaw after their notice period ended on 16 December 2022. Shaw is a financial services company that also provides stockbroking services that compete with Fortrend. After resigning, a series of correspondence ensued between Mr Forster and Wollermann and Lyle from late November 2022. Mr Forster requested that both Wollermann and Lyle prepare documents to facilitate a client handover to Mr Forster, however Wollermann and Lyle did not respond to this request. On 12 December 2022, Mr Forster instructed his solicitors, Corrs Chambers Westgarth (Corrs) to send a letter to both Wollermann and Lyle, requesting they return their mobile phones, laptops and delete all emails and other Confidential Information they had in their possession. Wollermann and Lyle responded to this request, in writing, on 16 and 14 December 2022 respectively. In their response, Wollermann and Lyle stated that they did not have any Confidential Information in their possession as it had been previously deleted. A summary of the key correspondence can be found below. On 16 December 2022, Lyle wrote to Fortrend’s solicitors, Corrs, stating in part:I also confirm that I have deleted all Fortrend material in my possession from any other computer or cloud storage. Other than the items referred to above (the mobile phone, building pass, and key), I've returned all Fortrend property to Fortrend (and have not retained any of it). On 16 December 2022, Wollermann wrote to Fortrend stating in part:I have not deleted any Fortrend client information at all. You may not be aware (but Joe is) that all client work and information is on a shared drive referred to as the F: drive. All Fortrend's information is there.I did reset my phone before returning it. This was to remove my personal applications and data. However, for you and Joe to claim that large amounts of Fortrend data was on my phone or was lost is just untrue. At some point after their notice period ended with Fortrend, Wollermann and Lyle joined Shaw as Senior Portfolio Managers. On 22 December 2022, Seyfarth Shaw, solicitors for Wollermann and Lyle, wrote to Fortrend stating in part:We understand that Messrs Lyle and Wollermann have written to you about [the Confidentiality Obligations], and confirmed that they have abided by all of their obligations in respect of confidential information, and will continue to do so.

Evidence

Evidence Before The Court

The Services Agreement also provided for an asset-based bonus which was payable if Wollermann and Lyle introduced clients to Shaw with a total asset base of [REDACTED]. This asset-based bonus was for an amount of [REDACTED]. Both the signing bonus and the asset-based bonus were to be repaid to Shaw in the event that Lyle, Wollermann or Shaw terminated the Services Agreement prior to its sixth year anniversary.Reid’s evidence Fortrend alleges that the Reid Affidavit provides evidence that from mid-October 2022, Wollermann and Lyle at different times connected a number of USB drives to their desktops. Those devices are referred to as the:(a)SanDisk Cruzer;(b)USB 2;(c)Lexar Firefly; (d)WD Passport; and (e)as well as three other USB devices with the serial numbers: “04009522050121083042”, “20120926571200000”, and “4C530001430603113515”, respectively,(collectively, the USBs). Fortrend alleges that none of the USBs are in its possession, nor were they known about by Mr Forster prior to Mr Reid’s involvement. The Reid Affidavit explains that one or more of the USBs were connected to Wollermann and Lyle’s desktop computers on at least eight occasions between late October 2022 and the date of Lyle and Wollermann’s resignation. On each occasion the USBs were connected (often multiple USBs at once), there were often dozens of interactions that followed which is indicative of the Confidential Information being saved onto the USBs. The Reid Affidavit deposes to Mr Reid’s forensic analysis, to date, of the Devices that he was provided with, including: (a)Apple iPhone 11 Pro model A2215 with serial number C39D25MCN6Y6 (Wollermann Phone); (b)HP Pavilion desktop computer model 570-p059a with serial number CNV74510SG (Wollermann Desktop). ]Apple iPhone 11 Pro model A2215 with serial number C39D2187N6Y6 (Lyle Phone, together with the Wollermann Phone, the Phones);(c)Lenovo ThinkCentre desktop computer model M73 with serial number PB00MX0G (Lyle Desktop, together with the Wollermann Desktop, the Desktops); and(d)Dell lnspiron 3563 laptop with service tag 20D7X23 (Lyle Laptop). Mr Reid’s evidence reveals the following:(a)It is likely that the Phones were wiped and reset to their original settings and activated for a new user (a process which would delete all previous user data, including emails, text messages, call history and the address book). Based on data extracted from the phones this is likely to have occurred on or shortly before:(i)18 November 2022 for the Lyle Phone; and(ii)1 December 2022 for the Wollermann Phone.(b)In relation to the Lyle Laptop, it is likely that on or about 16 November 2022, the Windows operating system was reset to factory defaults, a process which would delete user activity, internet history, event logs, user documents and locally stored emails. Mr Reid to date has not identified any records relevant to the scope of his engagement and there is a paucity of user records or activity, both of which are consistent with limited usage of the Lyle Laptop subsequent to the reset process.(c)In relation to the Desktops, between 20 September 2022 and 18 November 2022, interactions occurred on the Desktops that are consistent with documents being downloaded or saved from the Desktops and/or the FSA network share drives (“F-Drive” and “G-Drive”) to USB thumb drives or portable hard drives. This conclusion is supported by Mr Reid’s findings that:(i)there are records of zip archive files being saved or created on a USB device, and whose titles appear to relate to FSA client accounts;(ii)there is a characteristic and repeated pattern of USB device connection and disconnection activity bracketing interactions with folders on the FSA F-Drive network share, and folders which appear to be located on USB devices;(iii)there are recorded interactions with folders on USB devices with titles which appear to correspond to equivalent folders on the FSA F-Drive network share, and which Mr Reid understands are named for FSA client accounts;(iv)there are recorded Windows event logs indicating the viewing or editing of Excel documents at times proximate to records of USB device connection and disconnection;(v)the number of recovered USB-related events recorded over October and November 2022 in connection with the Wollermann Desktop, account for 92% of all USB-related events for that year, while the corresponding events on the Lyle Desktop, account for 80.85% of all USB-related events for that year; and(vi)the number of recovered folder interactions recorded over October and November 2022 in connection with the Wollermann Desktop, account for 89.8% of such events for that year. This metric is less pronounced for the Lyle Desktop, with these months accounting for around 33% of activity for that year.(d)In relation to the Wollermann Desktop, there are internet history records which suggest that between May and November 2022, there was:(i)access to folders within the FSA G-Drive network share, which Mr Forster has said Mr Wollermann was not authorised to access;(ii)access to the “Box” cloud storage service for Fortrend Securities Inc (a company related to Fortrend), which Mr Forster has said that Mr Wollermann was not authorised to access. Box is a cloud-based file sharing and content management service that allows users to access, store, and share files and folders online.(e)In relation to the Wollermann Desktop there are internet history records which show that in November 2022 there were enquiries made around the merging or consolidation of contact information from the Exchange application on an iPhone with an Apple iCloud account.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

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