Garner v Central Innovation Pty Limited

Case [2022] FCAFC 64

FEDERAL COURT OF AUSTRALIA

Garner v Central Innovation Pty Limited [2022] FCAFC 64

Appeal from: Central Innovation Pty Ltd v Garner (No 4) [2020] FCA 1796
File number: NSD 69 of 2021
Judgment of: CHARLESWORTH, STEWART AND HALLEY JJ
Date of judgment: 21 April 2022
Catchwords: INDUSTRIAL LAW – appeal from decision of primary judge that judgment and verdict be entered in favour of respondents in respect of 36 customers lost due to actions of appellant – whether primary judge wrongly departed from the case pleaded by the appellant – whether primary judge erred in finding that respondents established loss or damage – whether primary judge made erroneous findings as to the taking or removal of confidential information by the appellant – whether primary judge made erroneous findings as to the credibility of the evidence given by the appellant – whether primary judge made erroneous findings in assessing the alleged loss or damage – reflective loss principles – principles relevant to breach of fiduciary duties – where no material non-compliance with the rule in Browne v Dunn – appeal dismissed
Legislation:

Corporations Act 2001 (Cth) s 500

Evidence Act 1995 (Cth) s 140

Cases cited:

Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation [1983] 1 NSWLR 1

Banque Commerciale SA, en liquidation v Akhil Holdings Limited (1990) 169 CLR 279

Betfair Pty Ltd v Racing New South Wales (2010) 189 FCR 356

Boardman v Phipps [1967] 2 AC 46

Briginshaw v Briginshaw (1938) 60 CLR 336

Browne v Dunn (1893) 6 R 67

Carter v Federal Commissioner of Taxation (2020) 279 FCR 83

Central Coast Council v Norcross Pictorial Calendars Pty Ltd [2021] NSWCA 75; 391 ALR 157

Central Innovation Pty Ltd v Garner (No 4) [2020] FCA 1796

Commonwealth Securities Ltd v South Pacific Securities Pty Ltd [2003] NSWCA 199

Devries v Australian National Railways Commission (1993) 177 CLR 472

Flightdeck Geelong Pty Ltd v All Options Pty Ltd (2020) 280 FCR 479

Fox v Percy (2003) 214 CLR 118

Francuziak v Minister for Justice (2015) 238 FCR 332

George Fischer (Great Britain) Ltd v Multi Construction Ltd [1995] BCC 310; 1 BCLC 260

Gerber Garment Technology Inc v Lectra Systems Ltd [1997] RPC 443

Gould v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41

Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1

Jones v Dunkel (1959) 101 CLR 298

Lee v Lee (2019) 266 CLR 129

Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; 261 ALR 382

NRM Corporation Pty Ltd v Australian Competition and Consumer Commission [2016] FCAFC 98

Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204

Stefanovski v Digital Central Australia (Assets) Pty Ltd [2018] FCAFC 31; 368 ALR 607

Sullivan v Trilogy Funds Management Ltd (2017) 255 FCR 503

Vale v Sutherland (2009) 237 CLR 638

Warren v Coombes (1979) 142 CLR 531

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Garner v Central Innovation Pty Limited [2022] FCAFC 64
Case
[2022] FCAFC 64
Decision Date

CaseChat Overview and Summary

In the matter of Garner v Central Innovation Pty Limited, the Federal Court of Australia considered an appeal from a decision of the primary judge. The primary judge had ruled in favour of the respondents, who alleged that the appellant had lost them 36 customers due to his actions. The central issues before the court were whether the primary judge correctly interpreted the pleadings, established loss or damage, and assessed the credibility of the evidence given by the appellant. The court also examined whether the primary judge made erroneous findings regarding the removal of confidential information and the principles of reflective loss and breach of fiduciary duties. The court found no material non-compliance with the relevant legal principles and dismissed the appeal.

The court began by examining whether the primary judge had correctly interpreted the pleadings, particularly concerning the scope of the confidential information in question. The primary judge had determined that the scope of confidential information was not limited to the specific reports identified in the pleadings. The court found that the primary judge was correct in this interpretation and that the appellant had been made aware of the respondents' case, thus negating any claim of non-compliance with the pleadings. Furthermore, the court addressed the reflective loss principle, affirming that the respondents had correctly established that the loss suffered was not merely reflective of the company's loss but was a distinct personal loss.

The court also assessed the primary judge's findings on loss or damage and the credibility of the evidence. The court found no errors in the primary judge's assessment of the evidence, including the expert and lay testimony, which supported the respondents' claims. The court concluded that the primary judge had correctly evaluated the credibility of the evidence and the extent of the loss or damage. The appeal was dismissed, and the court ordered that the costs of the appeal be borne by the appellant.

Orders

Orders of the court

1. The appeal is dismissed with costs.

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

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The use of the definite article by the cross examiner in the last exchange set forth above before “alleged confidential information” needs to be considered in the context of the earlier evidence given by Mr D’Emilio set out above. It was not expressly put to Mr D’Emilio that the respondents were relying only on the SUGAR Reports and the Output Files as the universe of the confidential information alleged to have been wrongfully used by the appellant. Further, the true construction of a pleading is a matter of law.Conclusion We are satisfied that the primary judge was plainly correct in finding that a plain and linguistically sensible reading of the 2FASOC did not limit the scope of the confidential information encompassed by the SUGAR information to the reports identified in [82] and [83] of the 2FASOC or the information contained in them. The primary judge did not wrongly depart from the case pleaded against the appellant. We are also satisfied by reason of the content of the 2FASOC, the annexures to the 2FASOC, the expert evidence of Mr O’Kane and the lay evidence of Mr D’Emilio that the appellant was made aware of the case upon which the respondents intended to rely in response to the appellant’s evidence.GROUND 2 The Amended Notice of Appeal contained a reformulation of Ground 2 in the Notice of Appeal. As reformulated, Ground 2 is in the following terms:Having found that the Appellant’s employer was Central Innovation Pty Ltd under Contract 1, and having regard to the three pleaded causes of action, the learned primary judge erred in finding that Central Innovation Pty Ltd had established any loss and damage. As originally framed, the errors alleged in Ground 2 in the Notice of Appeal had included an allegation that the primary judge had erred in finding that the appellant was employed by Central Innovation. This claim was not only abandoned in the Amended Notice of Appeal; the contrary position, namely that he was an employee of Central Innovation, was embraced and relied upon to contend that Central Innovation had not suffered any loss or damage.Relevant principles – Reflective Loss The English Court of Appeal in Prudential AssuranceCo Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, stated the following principle, in the context of a consideration of the proper plaintiff to pursue a cause of action (at 222 – 223):… But what [a shareholder] cannot do is to recover damages merely because the company in which he is interested has suffered damage. He cannot recover a sum equal to the diminution in the market value of his shares, or equal to the likely diminution in dividend, because such a ‘loss’ is merely a reflection of the loss suffered by the company. The shareholder does not suffer any personal loss. His only ‘loss’ is through the company, in the diminution in the value of the net assets of the company, in which he has (say) a 3 per cent shareholding. The plaintiff’s shares are merely a right of participation in the company on the terms of the articles of association. The shares themselves, his right of participation, are not directly affected by the wrongdoing. The plaintiff still holds all the shares as his own absolutely unencumbered property. The deceit practised upon the plaintiff does not affect the shares; it merely enables the defendant to rob the company. …

Ratio Decidendi

Legal Principle Established

NCCS was originally the second respondent to the proceedings before the primary judge. It went into voluntary liquidation on 10 April 2019, just under eight months before the trial in early December 2019, preventing the proceedings continuing against it without the leave of the Court: see s 500(2), Corporations Act 2001 (Cth). No leave was sought nor granted for the proceedings to continue against NCCS. At the core of the dispute before the primary judge was the question of whether, during the time that he performed work for Intercad, the appellant appropriated the respondents’ customer information and misused that information during the course of his employment with NCCS. The principal form of misuse alleged by the respondents was getting a subscriber customer of a VAR member of the CI Group to become an NCCS subscriber customer.The “VRC” and “SUGAR” During the period between 30 November 2009 and 22 August 2016, SolidWorks operated an electronic database known as the “Value Added Reseller Resource Centre” (VRC). The appellant had access to the VRC. The text of the Distribution Agreement states that Intercad was to ensure that only “authorized employees” could access the VRC. During the period between 30 November 2009 and 22 August 2016, the appellant also had access to SUGAR, an electronic customer relationship management (CRM) system used by the respondents.Employment contracts and access to the VRC and SUGAR On 30 November 2009, the appellant entered into a contract of employment. The primary judge referred to that contract in his reasons as Contract One. On 2 December 2009, the appellant was given login details that provided him with access to the VRC. On 16 March 2011, the appellant received an email with an attached letter, the pages of which comprised a second contract. The primary judge referred to that contract in his reasons as Contract Two. Between 30 November 2009 and about l March 2013, the appellant’s position was “Business Development Manager”. On or about l March 2013, the appellant was promoted to the position of “Team Leader, Victoria”. He was given access to SUGAR for the purpose of carrying out his duties and responsibilities as a Team Leader. During the period between 30 November 2009 and 22 August 2016, the appellant used a laptop computer for the purposes of carrying out his duties as a Business Development Manager and, later, as Team Leader (Intercad Laptop). In June and July 2016, Mr John Atkinson in his capacity as General Manager of Intercad and Intercad (NZ) Pty Ltd, had discussions with the appellant about a possible restructure of the respondent companies and the sales department. In about early July 2016, the access permissions to SUGAR for all Team Leaders were altered to prevent any of them from directly downloading any information stored in the SUGAR database. The appellant was made redundant on 22 August 2016. On 22 August 2016, the appellant contacted Mr Stalin D’Souza on LinkedIn. Mr D’Souza was the Director of NCCS. He commenced employment with NCCS on 15 November 2016.