Gold Titan Pty Ltd v Lopez
[2021] FCA 918
•5 August 2021
FEDERAL COURT OF AUSTRALIA
Gold Titan Pty Ltd v Lopez [2021] FCA 918
File numbers: NSD 1924 of 2019
NSD 482 of 2020Judgment of: ABRAHAM J Date of judgment: 5 August 2021 Catchwords: CONTRACTS – whether employee breached confidentiality clause contained in employment contract – whether list containing compilation of client data “confidential” – whether the presence of details of some persons and organisations related to the business who are not clients prevents list from being a “client list”
EQUITY – whether employee breached equitable obligation of confidence – whether list containing compilation of client data has necessary degree of confidence
CONSUMER LAW – whether representations contained on website were misleading or deceptive – whether conduct complained of was in “trade or commerce” – whether representations contained in an email touting for business misleading or deceptive – whether mere puffery – whether representations have a tendency to lead members of class of prospective purchasers into error
DEFAMATION – whether company has standing to bring defamation proceedings – whether defamatory meanings or imputations were conveyed – whether imputations carry a defamatory meaning – whether imputations published
CONTRACTS – where invoice for products requested – where products received and sold – where invoice not paid – whether implied term in contract – whether supplier engaged in “disentitling conduct” limiting the purchaser’s ability to sell the product – whether compensation for alleged additional work incurred by purchaser outside scope of any agreement between the parties reduces supplier’s entitlements under the invoice
Legislation: 1 Competition and Consumer Act 2010 (Cth) Sch 2 (Australian Consumer Law) ss 2, 18, 236
2 Defamation Act 2005 (NSW) ss 9, 25, 26
3 Sale of Goods Act 1923 (NSW)
Cases cited: Advanced Fuels Technology Pty Ltd v Blythe & Ors [2018] VSC 286
Agricultural & Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570
AonRisk Services Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175
Australian Broadcasting Corporation v Wing [2019] FCAFC 125; (2019) 271 FCR 632
Australian Competition and Consumer Commission v Coles Supermarkets (Australia) Pty Ltd [2014] FCA 634; (2014) 317 ALR 73
Australian Competition and Consumer Commission v Telstra Corporation Limited [2007] FCA 1904; (2007) 244 ALR 470
Australian Competition and Consumer Commissioner v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640
BH Australia Constructions Pty Ltd v Kapeller [2019] NSWSC 1086; (2019) 100 NSWLR 367
Byers & Ors v Dorotea Pty Ltd [1986] FCA 593; (1986) 69 ALR 715
Campomar Sociedad Limitada v Nike International [2000] HCA 12; (2000) 202 CLR 45
Coco v AN Clark (Engineers) Ltd (1968) 1A IPR 587; [1969] RPC 41
Commonwealth of Australia v John Fairfax & Sons Ltd [1980] HCA 44; (1980) 147 CLR 39
Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594
Corrs Pavey Whiting & Byrne v Collector of Customers (Vic) (1987) 14 FCR 434
Crown Resorts Ltd v Zantran Pty Ltd [2020] FCAFC 1; (2020) 374 ALR 739
Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172; (2007) 165 IR 148
Derbyshire County Council v Times Newspapers Ltd [1993] AC 534; [1993] 1 All ER 1011
Dye v Commonwealth Securities Limited (No 2) [2010] FCAFC 118
Feo v Pioneer Concrete (Vic) Pty Ltd [1999] VSCA 180; [1999] 3 VR 417
Greek Herald Pty Ltd v Nikolopoulos [2002] NSWCA 41; (2002) 54 NSWLR 165
Google Inc v Australian Competition and Consumer Commission [2013] HCA 1; (2013) 249 CLR 435
Interfirm Comparison (Australia) Pty Ltd v Law Society of New South Wales [1975] 2 NSWLR 104
IPC Global Pty Ltd v Pavetest Pty Ltd (No 3) [2017] FCA 82; (2017) 122 IPR 445
Lord Ashburton v Pape [1913] 2 Ch 469
Lym International Pty Ltd v Marcolongo [2011] NSWCA 303
Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) [1984] HCA 73; (1984) 156 CLR 414
Nationwide News Pty Ltd v Rush [2020] FCAFC 115; (2000) 380 ALR 432
Optus Networks Pty Ltd v Telstra Corp Ltd [2010] FCAFC 21; (2010) 265 ALR 281
Overlook Management BV v Foxtel Management Pty Ltd [2002] NSWSC 17
Radio 2UE Sydney Pty Ltd v Chesterton [2008] NSWCA 66
Robb v Green [1895] 2 QB 315
Rush v Nationwide News Pty Ltd (No 7) [2019] FCA 496
Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203
Schindler Lifts Australia Pty Ltd v Debelak & Ors [1989] FCA 439; (1989) 89 ALR 275
Service Station Association v Berg Bennett [1993] FCA 638; (1993) 117 ALR 393
Shepherd v Felt & Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359
Smith Kline & French Laboratories (Aust) Ltd v Secretary, Department of Community Services and Health (1990) 22 FCR 73; (1990) 95 ALR 87
Talbot v General Television Corporation Pty Ltd [1980] VR 224
University of Sydney v ObjectiVision Pty Ltd [2016] FCA 1199
Weldon & Co Services v Harbinson [2000] NSWSC 272
Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317
Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661
Zomojo Pty Ltd v Hurd (No 2) [2012] FCA 1458; (2012) 299 ALR 621
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Number of paragraphs: 342 Date of last submissions: 12 November 2020 Date of hearing: 8-11 September 2020 Counsel for the Applicant: Mr M Hall SC Solicitor for the Applicant: Banki Haddock Fiora Counsel for the Respondents: Mr J Knackstredt Solicitor for the Respondents: Somerville Legal ORDERS
NSD 1924 of 2019 BETWEEN: GOLD TITAN PTY LTD (TRADING AS EVAGROUP ABN 47 124 061 169)
Applicant
AND: NICHOLAS LOPEZ
First Respondent
IMPERIAL FLOORING AUSTRALIA PTY LTD (ACN 635 477 593)
Second Respondent
CEMIMAX AUSTRALIA PTY LTD (ABN 71 623 150 014) (and another named in the Schedule)
Third Respondent
ORDER MADE BY:
ABRAHAM J
DATE OF ORDER:
5 AUGUST 2021
THE COURT ORDERS THAT:
1.By 4 pm on Thursday 12 August 2021, after conferral, the parties provide a timetable for the provision of draft orders to give effect to the reasons provided and further written submissions on the relief that should be granted.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ORDERS
NSD 482 of 2020 BETWEEN: CEMIMAX AUSTRALIA PTY LTD (ABN 71 623 150 014)
Applicant
AND: GOLD TITAN PTY LTD (TRADING AS EVAGROUP ABN 47 124 061 169)
Respondent
ORDER MADE BY:
ABRAHAM J
DATE OF ORDER:
5 AUGUST 2021
THE COURT ORDERS THAT:
1.In accordance with the timetable agreed in proceeding NSD 1924 of 2019, the parties provide draft orders giving effect to the reasons provided.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011
REASONS FOR JUDGMENT
ABRAHAM J
These two proceedings, which were heard at the same time, arise from the formation and dissolution of a trading relationship between Gold Titan Pty Ltd, trading as Evagroup (Evagroup), and Cemimax Australia Pty Ltd (Cemimax or Cemimax Australia) during 2018 and 2019. Evagroup is a floor product wholesaler, which in 2018 and 2019 was a reseller of Cemimax products. Nicholas Lopez was employed by Evagroup from 1 April 2019 until his resignation, which took effect on 12 August 2019. Mr Lopez immediately established the business Imperial Flooring Australia Pty Ltd (Imperial Flooring), which sold Cemimax products. John Titus was at the relevant time, the national sales director for Cemimax.
In NSD 1924 of 2019, Evagroup brings an action with respect to what it contends was “a concerted campaign” by the four respondents, Nicholas Lopez (first respondent), Imperial Flooring (second respondent), Cemimax (third respondent), and John Titus (fourth respondent) “to destroy its business as a reseller of Cemimax products, and transfer that business to Imperial Flooring” in the period when the relationship was coming to an end.
Evagroup advances three claims against the respondents, being:
(1)an alleged misuse of confidential information (being an Evagroup customer list) by Mr Lopez and Imperial Flooring;
(2)breaches of the Australian Consumer Law in relation to Imperial Flooring’s website and certain emails sent by Mr Lopez in his capacity as director of Imperial Flooring, with Mr Lopez aiding, abetting, counselling or procuring the contraventions by Imperial Flooring; and
(3)defamation claims against Cemimax and Mr Titus alleged to have arisen out of two conversations between Mr Titus and persons in the flooring industry.
In NSD 482 of 2020, Cemimax brings an action against Evagroup in relation to an invoice (the Invoice) it raised for Cemimax products which were supplied to Evagroup in the closing days of the trading relationship.
For the reasons below, I find that:
(1)Mr Lopez breached his contractual obligation of confidentiality, and that he and Imperial Flooring have breached their equitable obligation of confidence by using the Evagroup Customer List;
(2)Imperial Flooring and Mr Lopez breached s 18 of the Australian Consumer Law, by the making of certain statements on its website, and in unsolicited emails to potential customers;
(3)Evagroup has not established any claim for defamation; and
(4)there is no proper basis for Evagroup to offset the Invoice to Evagroup for Cemimax products it purchased from Cemimax on 31 July 2019.
Before addressing the claims it is appropriate, given the common factual substratum, to consider the factual background to both claims.
Factual overview
The product relevant to these proceedings is “leveller”. Leveller is a preparation liquid or semi-liquid spread across floors to even out floor surface imperfections before the finished flooring, such as timber boards, are laid.
In 2007, Evagroup was established as a floor product wholesaler by Mr Peter Yates who has held the position of principal and managing director since its inception. Over time, Evagroup expanded its business to become a stockist and supplier of all the products required to undertake flooring works, including flooring leveller, primer and adhesives.
In February 2018, Mr Titus was the national sales director of Cemimax Australia, and was setting about importing Cemimax flooring products to Australia from China for the first time. Mr Yates and Mr Titus had known each other professionally prior to 2018. In 2018, they had discussions which led to the two companies establishing a trading relationship.
Although there is an issue as to details of the relationship, uncontroversially, the agreement reached included the following:
(1)Evagroup would act as both a logistic supporter for the importation of Cemimax products, and as a reseller;
(2)the products would be ordered by Cemimax but shipped directly to Evagroup’s premises at Yennora, where Evagroup would unpack containers of product and store the material in its warehouse;
(3)when a sale of that product was made, Evagroup would pick the products necessary to fulfil the order and either ship them to the customer, or make them available for the customer to collect from Yennora;
(4)Evagroup would only raise a charge for its logistical services when the product was moved from its warehouse to the customer, at which time Evagroup would invoice Cemimax $1.70 per unit; and
(5)in acting as a reseller of Cemimax products, Evagroup obtained orders for the products, and when it made a sale it notified Cemimax, who raised an invoice for the wholesale cost of the goods. The logistics charge on those goods was then set off against that wholesale price.
Relevantly, Cemimax product sold by Evagroup included DL55, an internal floor leveller, and DL59, the premier floor leveller, the latter being a more expensive product.
As explained below, the relationship between Mr Titus and Mr Yates deteriorated in 2019.
In February 2019, Mr Yates looked to employ a sales manager for the first time. At the suggestion of Mr Titus, he interviewed Mr Lopez. Mr Yates understood that Mr Lopez had no prior involvement in the flooring industry, having come from a company that supplied diesel. Nonetheless, Mr Yates employed Mr Lopez. The terms of Mr Lopez’s employment were set out in his Letter of Engagement dated 8 March 2019, which at cl 8 relevantly included a confidentiality clause that he was not to “use or disclose confidential information relating to the business of the employer, including but not limited to client lists, trade secrets, client details and pricing structures”.
Approximately seven weeks into Mr Lopez’s employment, on or around 20 May 2019, Mr Yates gave Mr Lopez access to an electronic Excel spreadsheet containing a list or database of what he described as customer details maintained by Evagroup (the Evagroup Customer List). An issue in dispute in these proceedings is whether this constituted a customer list. Accordingly, the reference to the Evagroup Customer List at this stage is for convenience. It is Mr Lopez’s conduct in respect to that Evagroup Customer List which is the subject of the confidential information claim.
On 9 August 2019, Mr Lopez resigned from Evagroup giving just one week’s notice, and although that meant he remained employed until 16 August 2019, it appeared to be common ground that Mr Lopez and Mr Yates orally agreed on Monday, 12 August 2019, that that would be his last day of work (although this appears to have occurred at Mr Lopez’s suggestion).
Mr Lopez immediately established the second respondent, Imperial Flooring. Australian Securities and Investments Commission (ASIC) records reflect that Imperial Flooring Pty Ltd was established on 12 August 2019, and that Mr Lopez was the sole director, company secretary and minority shareholder, with the majority shareholder being 3 Smith Pty Ltd. On or about 21 November 2019, 3 Smith Pty Ltd sold its shares in Imperial Flooring to Mr Lopez, and from that date he has been the director and sole shareholder of that company.
Although the exact sequence and timing of the creation of Imperial Flooring and the events leading to it was in issue, it began operations, a website was created, and the business reached out to potential customers. This included Mr Lopez, on behalf of Imperial Flooring, sending a large number of unsolicited emails to potential customers touting for business. This included emails sent on 9 September 2019 to a number of Evagroup’s customers whose details are on the Evagroup Customer List. The terms of the emails include the following:
Dear Customers,
Imperial would love to talk to you about our floor preparation products and how we can help support you in future projects.
Imperial Flooring Australia are priced the best in the market with locations in Sydney and Soon to open Wollongong warehouse in 3 weeks; storing minimum 50,000 bags at one time.
Gaining fast traction over the years in the Australian market, a small portion of our projects can viewed via this link align="left">Data sheets can be downloaded via:
It is alleged that Mr Lopez used the information in the Evagroup Customer List to send these emails. Together, statements on the Imperial Flooring website and in such emails are the foundation of the alleged breaches of the Australian Consumer Law.
Mr Yates became aware of the existence of Imperial Flooring on 15 August 2019. At 6.07 pm he received an SMS from David, the state manager of Bostik stating:
Hi Peter. I hope you are well. Are you sharing the supply of Cemimax in NSW? I've seen another supplier offering the same brand ..."
Mr Yates responded at 6:11 pm: "Only us and cemimax". At 6.14 pm David sent Mr Yates a link to Imperial Flooring’s website.
After receiving the SMS from David, Mr Yates received telephone calls from two other clients/suppliers, asking if there was another reseller of Cemimax products.
The Imperial Flooring website was operating from at least 15 August 2019. Screenshots of the Imperial Flooring website at that time, exhibited to Mr Yates’ affidavit, show that it described itself as a “Wholesaler & Commercial Flooring Supplier”, “a partner of Cemimax Australia”, and its “number 1 distributer”. On the website, the address given for Imperial Flooring was that of Cemimax’s warehouse. Although, in cross-examination, Mr Lopez challenged that the screenshot was of Imperial Flooring’s website at that time (on the basis that it must have been a later time), I note that no challenge was made to Mr Yates’ evidence on that topic in Mr Lopez’s affidavit, and nor was Mr Yates challenged in cross-examination about the accuracy of his assertion as to the date he recorded that screenshot, or the provenance of the exhibit.
From about 15 August 2019, Mr Yates received telephone calls from Evagroup’s customers asking him whether Mr Lopez still worked there. A number of customers forwarded to Mr Yates emails they had been sent by Imperial Flooring, the email recited at [17] above, being one such email. It is apparent from the dates on the original emails sent by Imperial Flooring, which were forwarded to Evagroup, that they were sent on 9 September 2019, with one exception being an email sent on 29 August 2019. The emails contained the same content.
I am satisfied that at least by 15 August 2019, Imperial Flooring was running its business with a live website and had reached out to potential customers. As explained below at [61], on 16 August 2019, Mr Lopez sent an email to a potential customer, with Mr Titus carbon copied, arranging a meeting. From 19 August 2019, Imperial Flooring sent free samples of Cemimax products to potential customers and issued them invoices. On 19 August 2019, Imperial Flooring issued its first invoice for the sale of Cemimax products, with the address of the Cemimax warehouse given as Imperial Flooring’s distribution address. At least by 9 September 2019, Mr Lopez, on behalf of Imperial Flooring, had sent large numbers of unsolicited emails to potential customers touting for business (with evidence of earlier unsolicited contact, for example, the email of 29 August 2019).
As explained below at [97]-[99], I am satisfied that Mr Lopez was in possession of the Evagroup Customer List during his employment with Evagroup, that he retained it after his resignation and used it, including, to send the unsolicited emails on 9 September 2019 to tout for business.
I note that, according to ASIC records, in addition to Imperial Flooring, another Cemimax supplier, Top Level Supply Pty Ltd, commenced business on 4 July 2019. Mr Yates became aware of this company in August 2019.
Prior to Imperial Flooring and Top Level Supply commencing business, Evagroup was the only reseller of Cemimax products in Australia, and the only other company selling Cemimax products in Australia, was Cemimax itself.
On 24 September 2019, Mr Yates issued a press release (the Press Release) which he sent to all of Evagroup’s contacts on the Evagroup Customer List, which was in the following terms:
PRESS RELEASE FROM EVAGROUP AUSTRALIA
Nick Lopez was employed at Evagroup as our Sales Manager from 1st April 2019 until 12th August 2019.
After his resignation, Nick Lopez immediately set up Imperial Flooring as a Cemimax Reseller.
Most of our Customers would be aware of this already as Nick continues to harass them, continually calling or emailing ALL of them, and for this reason Nick will have an upcoming date with a Federal Judge in Federal Court.
Feel free to email back to [email protected] the email sent by Mr Lopez from Imperial Flooring at 1:45 on Monday 9 September regarding Cemimax Leveller.
John Titus from Cemimax Australia openly praises Mr Lopez for how quickly he has managed to grow his Customer base which you would all agree approx 300 or so Customers in 2 days is quite an achievement for anyone even Mr Lopez.
In regards to Cemimax products, we currently hold enough stock to last us until the end of the year but have made the decision to discontinue the product which will be replaced with a better formula product due for release to the market early November.
Rest assured we have plenty of stock to serve all our Customers requirements until the new product is launched which is guaranteed to be an excellent and exciting new product for the Commercial Flooring Market.
For nearly 20 years we have looked after our Customers and I would like to take this opportunity to say “Thank you” for the loyalty being shown of late.
We will continue to supply the best products, best price and best service, that is our Promise.
Please feel free to contact me for anything you need as we always endeavour and will always continue to endeavour to look after all of our Customers.
Warmest regards,
Peter Yates Director – Evagroup Australia
Mr Yates accepted that he made up the reference in that press release to 300 customers as, by that stage, he had only contacted about a tenth of his customers on the Evagroup Customer List. The basis for some of the other statements is not clear and there was no cross-examination about that. There is no basis in the evidence for them.
As noted above, the relationship between Mr Titus and Mr Yates deteriorated in 2019.
In or about mid-June 2019, Mr Titus informed Mr Yates that Cemimax had a new warehouse and that the Cemimax stock which was being stored with Evagroup (as a result of the logistics agreement referred to above at [10]), would now be moved to that warehouse. At that time, Mr Titus provided Mr Yates with a new Cemimax distributor pricelist. A soft copy was then emailed to him on 12 June 2019. Mr Yates was unhappy with the new prices, alleging they were higher than had earlier been agreed. As explained further below at [71], although Mr Titus claimed that the prices were reduced, in practical terms, that was not so.
As a result of the disagreement about pricing, on 24 June 2019, Mr Yates visited Cemimax in China to ask if Evagroup could deal directly with them. Cemimax China agreed to deal directly with Evagroup at the 2018 prices. Mr Yates appeared to make these arrangements with a Ms Chen (who is now deceased). Evagroup purchased stock through Cemimax China for about six weeks from July 2019 until about mid-August 2019, when the supply stopped. At this time, Evagroup was storing stock of Cemimax’s DL59 product, and Evagroup agreed with Cemimax Australia that it would purchase this stock at a reduced rate (being the price applicable to the DL55 product). This forms part of the stock in Cemimax’s invoice number 0256, which is the subject of Cemimax’s claim against Evagroup.
The third and fourth respondents, Cemimax and Mr Titus, seek payment of invoice 0256 (the Invoice), issued on 30 July 2019 in the amount of $358,443.25 together with interest and costs of this action. The Invoice relates to flooring products and identifies six types of product: DL55, DL59, DP60 (in 5kg and 20kg quantities) and DP80 (again in 5kg and 20kg quantities).
Cemimax’s national sales director, Mr Titus, had involvement with Imperial Flooring from at least 16 August 2019, when he was copied into an email exchange sent by Mr Lopez to Mr Wang confirming a meeting between Mr Lopez, Mr Wang and Mr Titus. In 2019 (as explained below at [204]-[205] the date and circumstances are unclear), Mr Titus spoke with Mr Wang of Style Timber and Mr El-Saj of Richard Crookes Constructions concerning Cemimax products and warranties, and in doing so referred to Evagroup. What he said to them, whether it was defamatory, and if so, whether the statements were on behalf of Cemimax, is the foundation of the defamation claim.
Against that background I turn to the evidence.
Evidence
The Court Book contained a large number of documents, the majority of which were admitted into evidence subject to my rulings on the objections.
The following affidavits, subject to the rulings on the objections, were read by the applicant, with the exhibits tendered:
(1)the affidavit of Peter James Yates dated 27 January 2020;
(2)the affidavit of Peter James Yates dated 30 April 2020;
(3)the affidavit of Peter James Yates dated 8 July 2020;
(4)the affidavit of Magdalena Rousseau dated 23 January 2020;
(5)the affidavit of Magdalena Rousseau dated 28 April 2020;
(6)the affidavit of Magdalena Rousseau dated 3 July 2020; and
(7)a second affidavit of Magdalena Rousseau dated 3 July 2020.
In addition to the affidavit evidence, Evagroup tendered two documents which had been produced by the respondents as a result of a notice to produce. The first was a document entitled “Imperial Flooring Mobile List” (Exhibit A11) and a document entitled “Info” “Imperial Flooring Mobile List” (Exhibit A12). I also provisionally admitted the Supplementary Court Book on the basis that the parties would direct me to relevant material in that book in their closing submissions.
Finally, it is apparent that the applicant had intended to call two further witnesses, Mr Cardelli and Mr Wang. The Court was informed at the outset of the proceedings that Mr Wang was no longer to be a witness, as he was not willingly available. Mr Cardelli did not appear at Court as he had been expected to. As their affidavits were not read, no reliance can be placed on that material. In respect to Mr Wang the respondents contended that a Jones v Dunkel inference ought to be drawn, which I address when dealing with the defamation claim.
I note that shortly before the hearing, and after the evidence was filed, the applicant changed solicitors and counsel.
The following affidavits, subject to the rulings on the objections, were read by the respondents with the exhibits tendered:
(1)the affidavit of Nicholas Sebastian Lopez dated 10 March 2020;
(2)the affidavit of Nicholas Sebastian Lopez dated 30 April 2020;
(3)the affidavit of Nicholas Sebastian Lopez dated 22 May 2020;
(4)the affidavit of Courtney Tran dated 29 April 2020;
(5)the affidavit of Courtney Tran dated 5 May 2020;
(6)the affidavit of Courtney Tran dated 13 May 2020;
(7)the affidavit of Dory Bejjani dated 28 April 2020;
(8)the affidavit of Steven Underwood dated 29 April 2020;
(9)the affidavit of Mitchell Smith dated 29 April 2020;
(10)the affidavit of Nigel Romaniszym dated 28 July 2020;
(11)the affidavit of David Milsted dated 9 March 2020;
(12)the affidavit of David Milsted dated 28 April 2020;
(13)the affidavit of John Jabro dated 9 March 2020;
(14)the affidavit of John Jabro dated 28 April 2020;
(15)the affidavit of John Titus dated 10 March 2020; and
(16)the affidavit of John Titus dated 28 April 2020.
As is apparent, a large number of documents were admitted into evidence. The parties helpfully prepared a table recording my rulings on objections and a bundle of marked up affidavits reflecting those rulings. I have had regard to both of those documents.
Witnesses
At this stage I will address the three principal witnesses who gave evidence.
Peter Yates
Mr Yates was generally an honest witness. Nevertheless, there are features of his evidence which detracted from his reliability on certain topics. It was apparent from the manner in which Mr Yates gave evidence that he is angry at what he perceives to be egregious conduct against him, and became frustrated at times during cross-examination when his evidence was challenged or when a proposition was put to him inconsistent with what he believes to be the facts. This resulted in him, on occasion, being argumentative and failing to answer the question being asked. Rather, he repeated what he wanted to say on the topic. On occasions his answers were self-serving, in that they were an attempt to justify aspects of his evidence. Aspects of his evidence presuppose that certain events occurred. Mr Yates’ belief as to what occurred, who is to blame and his entitlement to compensation permeates his evidence. Although Mr Yates may genuinely believe certain events occurred, that does not necessarily render his account reliable. These features affect my ability to rely on some aspects of his evidence, where it is not supported by other evidence. The issue is not whether Mr Yates believed events occurred, but importantly, whether the applicant had established by admissible and reliable evidence, that certain events occurred.
Nicholas Lopez
Evagroup submitted in relation to the evidence of Mr Lopez, inter alia, that:
There were several notable issues with the evidence given by Mr Lopez. His affidavit and oral evidence are contradicted by documentary evidence. He refused to make concessions – at first combatively, then by retreat to his almost universal response of I don’t recall – where there was unambiguous evidence contrary to his position. When he was given the opportunity to explain the contradictions Mr Lopez did little more than shrug.
That description is apt.
It is only necessary to refer to two specific examples which clearly reflect this approach. These examples, given the topics, also demonstrate that the issue with Mr Lopez was not just one of reliability but also credibility. These topics relate to setting up Imperial Flooring (the timing of and related events), and whether he had and used the Evagroup Customer List after leaving its employ. These topics are at the heart of the proceedings and ones which Mr Lopez would have been acutely aware were significant, as these proceedings were instituted only shortly after he commenced Imperial Flooring (and which were preceded by correspondence from Evagroup’s lawyers to Imperial Flooring raising the topics in these proceedings).
In relation to Evagroup’s Customer List, Mr Lopez denied using any list from Evagroup to source the email addresses for emails sent by him on behalf of Imperial Flooring on 9 September 2019. In cross-examination the following exchange occurred:
Q: What I’m asking you, to be absolutely clear, please, is do you say to her Honour that you got the email addresses that you used on 9 September by some or all of the methods that you’ve described here in 28?
A: Correct. We used multiple methods, correct. Many methods since the beginning of Imperial Flooring Australia.
Q: Do you say to her Honour that you didn’t get the email addresses that you used on 9 September simply by copying them holus-bolus ‑ ‑ ‑?
A: That’s correct.
Q: from Mr Yates’ information?
A: That’s correct.
The reference to [28] in the preceding exchange is to Mr Lopez’s affidavit of 10 March 2020, which addressed that aspect of Mr Yates’ affidavit dated 27 January 2020, asserting customers had received unsolicited communications from Imperial Flooring and Mr Lopez. Paragraph [28] was relevantly in the following terms:
[28]I refer to paragraph 144. Upon starting my business, I conducted my own market research and contacted people in the flooring industry with the objective of getting the second respondent's name into the market place so that other businesses could recognise it and become familiar with it in an attempt to generate business. I utilised the following methods to assemble this list:
28.1 Firstly, I carried out google searches using search terms such as "flooring Sydney" to find other businesses that I did not remember exactly (such as Peter Kelly's Flooring, Fab Floors, Embelton's Floors - I remembered these businesses because I made frequent attempts to secure sales from them) or may have never had contact with before and collected email addresses from those websites. Appearing at pages 40-41 and marked annexure "NL-7" is a copy of a screenshot of an example search I conducted.
28.2 Occasionally, I would call the phone number listed on these websites to get the email for the specific contact person within that business or I would call if there was no email address listed on the website.
28.3 In the course of speaking to people who I contacted using the methods above, I also said words to the effect of "do you know anyone else who might be interested in my products that I can reach out to?" and would collect additional email addresses and telephone numbers from my network that way;
28.4 Further, Mitchell Smith, the director of 3 Smith (Imperial Flooring's major shareholder at the time), provided me with contact details for a number of potential customers who I could contact such as Precision Flooring and Flash Flooring. Similarly, John provided me with the contact details for a number of potential customers who I could contact such as Floor Cover, Mr Carpets and Harvey Norman Commercial, A1 Commercial Flooring, Tony Di Milia Flooring. While Imperial Flooring and Cemimax both sell Cemimax products, Cemimax usually supplies directly to large contractors, whereas Imperial sells the products to flooring contractors, builders, flooring stores, renovators, retailers and online.
28.5 I also took down the contact details of people who contacted me with enquiries. Some people indicated that they were referred to me by word-of-mouth or that they found my contact details online.
The obvious similarities between the email addresses to which his cold email of 9 September 2019 was sent and the contents of the Evagroup Customer List, established that statement was plainly incorrect. It was a bulk email sendout, with it going to multiple addresses. The 9 September 2019 emails were sent to email addresses in the same order and with the same quirks as they appear in the Evagroup Customer List.
There was not only patent correlation between email addresses and with the order in which they appeared, but it went as far as what letters in the email addresses were capitalised. That is, the combination of upper and lower case in the email addresses accorded entirely with that in the addresses as recorded in the Evagroup Customer List. Moreover, emails on 9 September 2020 were sent to addresses in the Evagroup Customer List which could not possibly be directed at Imperial Flooring obtaining customers. It is only necessary to refer to three of the examples put to Mr Lopez in cross-examination, to illustrate this point. First, an email was sent to [email protected], which was an email address sandwiched between the same email addresses in the 9 September 2019 email as it was in the Evagroup Customer List. This is obviously an email address for Evagroup’s accounts, and plainly not a potential customer. When Mr Lopez was cross-examined as to why he had sent an email to Evagroup, he said “I don’t recall why, it must be a mistake”. Second, the email of 9 September 2019 was also sent to [email protected], although Cemimax would plainly not have been considered a potential customer by Imperial Flooring, if it had been, Ms Zoe Ebert, the accounts executive at Cemimax Australia, would not have been the target Cemimax employee for sales. Third, the inclusion of an email address of a wife of a roofing contractor, even though Imperial Flooring was not selling roofing products.
During his cross-examination Mr Lopez was also asked:
Q:I’m going to suggest to you that if we had continued this comparison infinitely, we would have found that, with one single exception, and I’ll come it in a moment, every one of the addresses on the copy of exhibit E, that’s the yellow and grey document, is also found in the list on pages 2090 of the court book, in the same sequence and with the same capitalisation – that’s the same choice of capital letters and lower case letters. Are you in agreement with that or do you wish to continue any further searches yourself?
A: I wish to disagree, sir.
Q: You don’t agree that that is – that we would find that if we continue this process?
A: You would not find every email address, no. I do not agree.
Q: Is that because you know that there is one exception, which is that Mr Yates’ own email address appears in the list of exhibit E, and you deliberately removed that when you copied across into your email of 9 September so that he wouldn’t know what you were doing?
A: No, I disagree. I do not recall.
Q: And do you say to her Honour that there will be other differences between the exhibit E list of email addresses and the list on 9 September?
A: Again, I don’t – I have not looked into it. So no, I don’t agree.
Q: Well, I have to be fair to you; that’s my obligation. And I’m going to give you the opportunity now. Tell us if you would like to take some time now, in the witness box, to look further through that list, either on your own or with my assistance, and whether you believe you would be able to identify differences if you did that?
A: Again, what do you want me to say?
When cross-examined about those examples, Mr Lopez did not have any explanation for the emails, and repeatedly answered that he did not remember where he got the address or why an email was sent to that address. Even in the face of the evidence, Mr Lopez did not concede the obvious. Indeed he was asked:
Q: Is there ever going to be a degree of coincidence between the two lists, Mr Lopez, that will persuade you that that’s what you’ve done?
A: No. I don’t know.
Evagroup submitted that the responses given in cross-examination in relation to this topic are some of “the clearest examples of disingenuous and untruthful answers”. That can be accepted.
Before leaving this topic, I note that Mr Lopez also distanced himself from knowledge of the Evagroup Customer List during his cross-examination on the topic of the coincidence of the addresses:
Q: When did you last cease to have a copy?
A: Again, I don’t remember having – remember having access to it, so, it was not something that we handled like every day, or anything like that, it was – so I can’t recall, no.
This is to be contrasted to his earlier evidence. For example, as Evagroup correctly submitted that, at the outset of his cross-examination, when asked about the Evagroup Customer List, Mr Lopez “boasted that during his employment at Evagroup he added the contact details of 150-200 customers”.
Given the coincidence between the Evagroup Customer List and emails sent by Mr Lopez, the respondents’ counsel in closing submission did not advance a submission against a finding that the Evagroup Customer List was used.
As to setting up Imperial Flooring, Mr Lopez gave evidence that he did not take any steps toward setting up the business while he was still employed at Evagroup. He said that he set up Imperial Flooring on the weekend immediately prior to Monday 12 August 2019. Nor, according to his evidence, had he planned to set up Imperial Flooring before resigning from Evagroup on Friday 9 August 2019. Mr Lopez’s evidence was that he and Mr Mitchell Smith conceived the idea of Imperial Flooring, agreed on a corporate structure and organised Mr Smith’s business, Prep Solutions’ investment, as well as researched potential clients, over the course of the preceding weekend without any prior planning. For example, the following evidence was given:
Q: When did you first think that you would call your business Imperial Flooring?
A: It happened pretty fast, I will be honest with you. It happened very, very fast. So I had an investor, which was Prep Solutions, that supported us. And he was – it was his backing and, you know, we made a decision, you know, pretty quickly after it.
…..
Q: With no idea of setting up Imperial Flooring?
A: No. it was probably over the weekend, it was – obviously the name was done within an hour.
Mr Lopez gave notice of his resignation to Evagroup on 9 August 2019, expecting to work his seven days’ notice period. However, on 12 August 2019 he and Mr Yates agreed that it would be his last day. The weekend immediately prior to Monday 12 August 2019, when Mr Lopez said he was conceiving and setting up the business, he was still an employee of Evagroup. Moreover, the evidence established that a document entitled “Imperial Flooring Mobile List” was created by the author “Nick Lopez” on 8 August 2019 at 10:34 am, before he had resigned.
In this context, Mr Lopez’s evidence that he did not start making contact with, or sending free samples to, and invoicing potential customers of Imperial Flooring until the end of August is inconsistent with the documentary evidence. Mr Lopez sent an email to Mr Jinxi (Jack) Wang, a potential customer of Imperial Flooring, on Friday 16 August 2019. Additionally, from 19 August 2019 Imperial Flooring was sending out free product samples to potential customers and issued invoices reflecting this. As noted above, the first invoice was issued on 19 August 2019.
Also in that vein, Mr Lopez’s evidence was that he did not discuss the possibility of Imperial Flooring operating as a reseller of Cemimax products with Mr Titus until “[p]robably around the early 20th [of August 2019]”. Yet there is an email exchange between Mr Lopez and Mr Wang, copying in Mr Titus on 16 August 2019 at 10.11am confirming a meeting between Mr Lopez, Mr Wang and Mr Titus. Imperial Flooring’s first invoice, which was issued on 19 August 2019, has its Sydney Distribution Centre listed at the same address as Cemimax’s warehouse. The address given for Imperial Flooring on its website, is Cemimax’s warehouse. Mr Lopez’s evidence in cross-examination as to the state of the Imperial Flooring website at its inception, must be considered in that light.
The applicant’s evidence as to the timing and manner in which Imperial Flooring was set up is not only inconsistent with other evidence before the Court, including documentary evidence created contemporaneously with the events, it is also implausible.
These further examples in relation to the evidence of Mr Lopez reflect that his evidence cannot be accepted unless it is against his interest or corroborated by other evidence. I do not accept his evidence on topics at the very heart of these proceedings. His continued denials in the face of documentary evidence reflects that he was prepared to deliberately give false, misleading and self-serving evidence, rather than the truth. I find that his repeated resort to claiming he could not remember, when being cross-examined on topics adverse to him, was disingenuous. This reflected the general tenor of Mr Lopez’s evidence. Contrary to the respondents’ contention, this assessment cannot be confined so as to reflect only on the assessment of Mr Lopez’s credit in relation to his use of the Evagroup Customer List, but applies more generally to his evidence. I do not accept the respondents’ submission that I should find that Mr Lopez was mistaken in his evidence, as opposed to lying.
John Titus
Although a more polished witness, features of Mr Titus’ evidence were also problematic for him.
The applicant submitted Mr Titus’ evidence about contentious matters should be treated with great caution, except where it is corroborated or against his interest. The applicant relied on examples in respect to three topics, which was said to illustrate this.
The respondents submitted that the criticisms of Mr Titus are wholly unjustified and that he “gave his evidence calmly, directly, and responsively”. It was submitted that Mr Titus’ oral evidence was consistent with the documentary evidence and there is no reason not to accept him as a reliable witness.
While I accept the respondents’ description that Mr Titus gave his evidence calmly, I do not accept that his evidence was given directly and responsively. Rather, at times he was evasive and defensive. His answers reflected an approach whereby he appeared to always be on alert as to the direction of the line of questioning, and what use may be made of any answer before formulating his response.
At times Mr Titus attempted to distance himself from events. As the applicant submitted, his evidence in relation to his involvement in the establishment of Imperial Flooring is contradicted by the documentary evidence. For example, Mr Titus’ evidence was that he did not collaborate with Mr Lopez to get Imperial Flooring up and running until “later on”. This was referenced by him to a meeting he first had with Mr Lopez and Mr Smith about the possibility of Imperial Flooring being a reseller of Cemimax products. However, as previously explained, an email exchange sent by Mr Lopez to Mr Wang on 16 August 2019 (as a potential customer) confirmed a meeting between Mr Lopez, Mr Wang and Mr Titus. Mr Titus also gave evidence that he did not discuss the possibility of Imperial Flooring operating out of Cemimax’s warehouse with Mr Lopez until some months after. This is in a context where, at least by 15 August 2019, Imperial Flooring was up and running with a live website which listed Cemimax’s warehouse as its address. Moreover, as described above, an invoice issued by Imperial Flooring on 19 August 2019 to a customer for the sale of Cemimax products, listed Cemimax’s warehouse as the address of Imperial Flooring’s Sydney Distribution Centre.
On a different topic, Mr Titus’ evidence was that Mr Yates and Evagroup would retain the large volume clients under the agreement between Evagroup and Cemimax Australia, although his affidavit evidence was that Cemimax Australia would sell to the “major guys” and Evagroup to “the minor guys”.
The respondents did not appear to challenge the applicant’s use of the above examples.
At times Mr Titus did not concede, or only reluctantly conceded, what appeared to have been relatively straight forward propositions which he appeared to perceive as against his interests. For example, in relation to whether the new Cemimax Australia pricing structure for Evagroup introduced in July 2019 constituted a price increase to Evagroup, Mr Titus refused to accept that proposition until the exact figures were laid out during cross-examination. Mr Titus then agreed that the effective price of DL55 imposed on Evagroup under the new pricing structure was $15.95 per bag and acknowledged he was aware that Evagroup commonly sold DL55 for $16.00 per bag. As the applicant contended, this is in the context where the new pricing structure was not applied to Top Level Supply’s purchases from Cemimax Australia, as Cemimax invoices to Top Level Supply show that it bought DL55 for $15.00 per bag plus GST. This is capable of giving rise to the inference that the new pricing structure was intended to render Evagroup unable to compete in the market. Despite this, and in that context, Mr Titus avoided answering the question on whether the new pricing structure would affect Evagroup’s ability to compete for larger sales.
I note also that the respondents did not challenge that evidence referred to by the applicant.
Claims
It is appropriate to commence consideration of the claims with the 2019 proceedings filed in this Court.
2019 proceedings
Breach of confidence
This claim is brought against Mr Lopez, on the basis of a breach of his employment contract and of an equitable obligation of confidence, and against Imperial Flooring on the latter basis.
As noted above, Mr Lopez’s employment contract contained in cl 8 a confidentiality clause, in the following terms:
Confidentiality
By accepting this letter of offer, you acknowledge and agree that you will not, during the course of your employment or thereafter, except with the consent of the employer, as required by law or in performance of your duties, use or disclose confidential information relating to the business of the employer, including but not limited to client lists, trade secrets, client details and pricing structures.
Mr Lopez signed his employment contract on 14 March 2019 which acknowledged his acceptance of the terms and conditions.
This claim relates to what has been described as the Evagroup Customer List, with which Mr Lopez was provided a hard copy and an electronic copy. The electronic copy was in the form of an Excel spreadsheet, which was given to Mr Lopez on about 20 May 2019. The document, on its face, plainly lists clients and contains client details, and I do not take the respondents to suggest otherwise. However, the Evagroup Customer List also contains some details of organisations or persons who are not customers, accurately described by the applicant as “email addresses such as those of Mr Yates and one of his Evagroup colleagues, or of suppliers to Evagroup such as Cemimax itself, or of a former landlord of Evagroup”. It also appears to contain the details of some businesses with whom Evagroup had hoped to make a sale but where no sale eventuated.
The real issue in this claim is whether the presence on the list of persons who are not strictly customers of Evagroup, renders it such that the document cannot be characterised as a client list, and therefore disqualifies it from protection as confidential information.
In summary, the applicant contended that the Evagroup Customer List falls within the definition in cl 8 of the employment contract and the presence of those other details does not alter that characterisation. The respondents submitted that a “client list” or “client details” which do not relate to Evagroup’s business do not fall within the contractual definition of confidential information, and likewise, a document which in substance (and not merely in title) cannot properly be described as a “client list”, does not fall within the definition.
Legal principles
The relevant principles applying to confidentially clauses in employment contracts were summarised in Zomojo Pty Ltd v Hurd (No 2) [2012] FCA 1458; (2012) 299 ALR 621 (Zomojo) by Gordon J at [179] as follows:
[179] The relevant principles to be applied in determining the validity of cl 9 of the Service Agreement may be summarised as follows:
1.an obligation can be imposed by contract to keep information confidential and that obligation can extend to cover subject matter which is not protected by an equitable duty of confidence: Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 329, 335 and 340-341; Del Casale v Artedomus (Aust) Pty Ltd (2007) 73 IPR 326 at [34]-[36], [38], [46], [48], [50], [51], [77], [87], [92], [102], [118], [134] and [140] and Reed Business Information Pty Ltd v Seymour [2010] NSWSC 790 at [36];
2.employers are entitled to protect by contractual covenant the use of information that is the result of work, experimentation and expense: Exchange Telegraph Company Limited v Central News Limited [1897] 2 Ch 48 at 53-54; AB Consolidated Ltd v Europe Strength Food Co Pty Ltd [1978] 2 NZLR 515; Interfirm Comparison (Aust) Pty Ltd v Law Society of New South Wales [1975] 2 NSWLR 104 at 117; Industrial Furnaces Ltd v Reaves [1970] RPC 605 at 617 and International Scientific Communications Inc v Pattison [1979] FSR 429 at 434;
3.the know-how, or knowledge of how to solve particular problems or the knowledge of methods not necessarily shared by others, acquired by an employee during his or her employment, while ordinarily not protected by equity, is capable of being protected by a contractual covenant: Printers & Finishers Ltd v Holloway (No 2) [1964] 3 All ER 731 and 735-736; Wright at 329; Commercial Plastics Ltd v Vincent [1965] 1 QB 623 at 642 and Milwell Holdings Ltd v Johnson (1988) 12 IPR 378 at 391-3;
4.a contractual restraint upon the use of confidential information or know-how may be enforceable provided it is reasonable, in the sense of being necessary for the adequate protection of the interests of a party: Brightman v Lamson Paragon Ltd (1914) 18 CLR 331 at 335 and Reed Business Information at [36];
5.whether a restraint is reasonable is a question of law and not of fact: Attorney-General (Cth) v Adelaide Steamship Co Ltd (1913) 18 CLR 30 at 35; Buckley v Tutty (1971) 125 CLR 353 at 377; Amoco AustraliaPty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 317-318; Drake Personnel Ltd v Beddison [1979] VR 13 at 19 and Cream v Bushcolt Pty Ltd (2004) ATPR 42-004 at [23] and [30];
6.in determining whether a restraint is reasonable the court should consider what is necessary to protect the legitimate interests of the person asserting the restraint in the circumstances of the case, assessed from the date of making the contract and making the best possible estimate of probabilities and contingencies then foreseeable: Amoco at 318; Drake Personnel at 25; Woolworths Ltd v Olson [2004] NSWCA 372 at [40] and Reed Business Information at [36]; and
7.where, as here, the restraint concerns confidential information, the circumstances to be considered by the Court include:
7.1the extent to which the information is known outside the business;
7.2 the skill and effort expired to collect the information;
7.3the extent to which the information is treated as confidential by the employer;
7.4 the value of the information to competitors;
7.5the ease or difficulty with which the information can be duplicated by others;
7.6whether it was made known to the employee that the information was confidential; and
7.7whether the usages and practices in the industry support the claim of confidentiality.
The respondents did not contend that the clause is invalid as a restraint of trade, and there is no suggestion that the clause was unreasonable or that it did not give rise to an obligation of confidence. There was also no suggestion that the applicant was not entitled to protect such information in cl 8, rather the submission was directed to the fact that in this case the Evagroup Customer List or the client details recorded were said not to be confidential so as to attract any protection. The issue relates to the characterisation of the Evagroup Customer List.
Before addressing the contractual basis of this claim it is appropriate to refer to the legal principles in relation to the equitable breach of the duty of confidence.
The equitable jurisdiction to grant relief against an actual or threatened abuse of confidential information, not involving any tort or breach of contract or fiduciary duty is based on an obligation of confidence arising in the circumstances of the case: Smith Kline & French Laboratories (Aust) Ltd v Secretary, Department of Community Services and Health (1990) 22 FCR 73; (1990) 95 ALR 87 (Smith Kline & French Laboratories) at 120-121. “[E]quity will grant relief in personam not to disclose or use information other than for the purpose for which it was communicated if the nature of the information and the circumstances in which it was communicated call for that confidence to be respected by reference to notions of conscience”: Crown Resorts Ltd v Zantran Pty Ltd [2020] FCAFC 1; (2020) 374 ALR 739 at [25], citing Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) [1984] HCA 73; (1984) 156 CLR 414 at 437–438; Commonwealth of Australia v John Fairfax & Sons Ltd [1980] HCA 44; (1980) 147 CLR 39 at 50–52; Interfirm Comparison (Australia) Pty Ltd v Law Society of New South Wales [1975] 2 NSWLR 104 at 117–119; Lord Ashburton v Pape [1913] 2 Ch 469 at 475; Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203 at 215; Coco v AN Clark (Engineers) Ltd (1968) 1A IPR 587; [1969] RPC 41 at 47; Talbot v General Television Corporation Pty Ltd [1980] VR 224 at 230.
Before an equitable obligation of confidence with respect to information arises, an applicant must establish the following four elements: Optus Networks Pty Ltd v Telstra Corp Ltd [2010] FCAFC 21; (2010) 265 ALR 281 (Optus) at [39], citing Smith Kline & French Laboratories at 87.
(1)the information must be identified with specificity;
(2)it must have the necessary quality of confidence;
(3)it must have been received in circumstances importing an obligation of confidence; and
(4)there must be an actual or threatened misuse of the information without consent.
First, the information must be identified with specificity and not merely in global terms: Corrs Pavey Whiting & Byrne v Collector of Customers (Vic) (1987) 14 FCR 434 at 443; Smith Kline & French Laboratories at 81.
Second, the information itself must have the necessary quality of confidence. This is a question of fact having regard to a range of various factors: Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 334; Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172; (2007) 165 IR 148; (Del Casale) at [40]. These factors (often arising in an employment context) include:
(1)the extent to which the information is known outside the business;
(2)the skill and effort expired to collect the information;
(3)the extent to which the information is treated as confidential by, for example, the employer;
(4)the value of the information to the applicant and its competitors;
(5)the ease or difficulty with which the information can be duplicated by others;
(6)whether it was made known, for example, to the employee that the information was confidential; and
(7)whether the usages and practices in the industry support the claim of confidentiality.
Third, the information must have been received by the respondents in such circumstances as to import an obligation of confidence: Smith Kline & French Laboratories at 87. In Coco v AN Clark (Engineers) Ltd [1969] RPC 41, Megarry J said at 47-48:
It seems to me that if the circumstances are such that any reasonable man standing in the shoes of the recipient of the information would have realised that upon reasonable grounds the information was being given to him in confidence, then this should suffice to impose upon him the equitable obligation of confidence. In particular, where information of commercial or industrial value is given on a business-like basis and with some avowed common object in mind, such as a joint-venture or the manufacture of articles by one party or the other, I would regard the recipient as carrying a heavy burden if he seeks to repel the contention that he was bound by an obligation of confidence ... I doubt whether equity would intervene unless the circumstances are of sufficient gravity; equity ought not be invoked merely to protect trivial tittle-tattle, however confidential.
This was applied in Del Casale at [104], and the cases cited therein at [105]; cf: IPC Global Pty Ltd v Pavetest Pty Ltd (No 3) [2017] FCA 82; (2017) 122 IPR 445 at [210], do not establish a different test. It is an example of the application of the principles to the particular facts in that case as to how the circumstances imported an obligation of confidence.
Fourth, there must be an actual or threatened misuse of the information without the owner’s consent: Smith Kline & French Laboratories at 87.
Consideration
Breach of employment contract
The issue of whether the Evagroup Customer List is protected by cl 8 directs attention to the construction of the clause and the Evagroup Customer List.
Mr Lopez signed an employment contract on 14 March 2019. By signing that contract he accepted the terms contained therein, including cl 8.
For the reasons given below, properly understood, the Evagroup Customer List, given to Mr Lopez on about 20 May 2019, and added to thereafter, constitutes a “client list” within cl 8. The reference to client in cl 8, given the nature of the business, refers to a customer. Although details on the client list may also fall within the term “client details” within cl 8, there is a difference in the concepts. The Evagroup Customer List itself has a separate status. It is the assemblage or compilation of that client data in a readily usable form.
It is plain that the concept of “client list” in cl 8 is not a term of art.
I accept Mr Yates’ evidence as to the creation, content, purpose and handling of the Evagroup Customer List, and the circumstances in which Mr Lopez had access to it during his employment with Evagroup.
The evidence established, and it was not seriously pressed as an issue, that the Evagroup Customer List was compiled over 12 years by adding details of customers to the database from time to time. Mr Yates’ evidence was that Evagroup had obtained many referrals by word of mouth over the 12 years, with approximately one third of Evagroup’s business coming from referrals from persons in the industry and other customers. He estimated that approximately 75 percent of Evagroup’s customers were repeat customers. Mr Yates described it as “highly confidential” and giving “Evagroup a competitive advantage including because it is a marketing tool and it facilitates streamlined and mass communication with customers”.
The Evagroup Customer List was deliberately compiled for the purposes of the business. The details on the Evagroup Customer List, according to Mr Yates’ evidence were kept confidential. The Evagroup Customer List is not public and access is only given to employees of Evagroup who require it to perform their employment duties. The Evagroup Customer List and details therein are not given to any third party, including Cemimax, even if that third party is supplying product to Evagroup for a project. All employees of Evagroup are instructed to include all customer details for every sale made, including cash sales. Those customers include flooring and non-flooring customers. Some of Evagroup’s suppliers were also included in the Evagroup Customer List. Mr Yates, and Evagroup’s financial accountant were included on the Evagroup Customer List, the evidence establishing this was so as to ensure that they received copies of all correspondence sent to customers and suppliers including all pricing, mailouts and deals including those with Evagroup’s suppliers.
Mr Lopez was provided with a hard copy and an electronic copy of the Evagroup Customer List for the purpose of the performance of his duties as national sales manager of Evagroup. Despite commencing employment on 1 April 2019, Mr Lopez was not provided access to the list until about 20 May 2019. Mr Lopez was emailed an Excel spreadsheet with the information and used that to populate the mail merge program, MailChimp, for the purposes of mailing customers. Mr Lopez transferred the information to a more readily usable form. The electronic version of the Evagroup Customer List is now contained in MailChimp and is updated from time to time. It is password protected and only certain employees are given that password.
During the period of Mr Lopez's employment, access to MailChimp was limited to Mr Lopez and Mr Yates. Mr Lopez gave Mr Yates his password for MailChimp on Monday 12 August 2019, the last day of his employment.
I am satisfied that after Mr Lopez ceased his employment with Evagroup he used the Evagroup Customer List to, inter alia, send unsolicited emails to clients of Evagroup, to tout for business for his newly established company, Imperial Flooring. For the reasons given above at [48]-[57], Mr Lopez’s evidence denying that proposition is rejected.
A consideration of the Evagroup Customer List reflects that, as the applicant submitted, the vast majority of the names appearing in it are persons or entities in the building industry, in particular flooring and roofing companies. That is evident from the details on the list. It is also plain that the information is not generic in that many of the email addresses relate to a particular person, from which it can be inferred that these were the applicant’s contact persons. In my view, that the Evagroup Customer List may also include the details of some non-customers (for example some companies to whom Evagroup had contacted and hoped to make a sale, which had not eventuated), or that it contained Mr Yates and details of other Evagroup colleagues, or Evagroup’s former landlord, does not prevent or detract from the Evagroup Customer List being properly characterised as a client list or as containing client details.
The respondents made a submission that, if the Evagroup Customer List is confidential because it might include a potential client as opposed to a current client, it would have an “improper chilling effect on competition of prohibiting contact with anyone on Evagroup’s misdescribed customer list”, and would effect Mr Lopez’s capacity to carry on his business. That submission cannot be accepted. It mischaracterises the obligation of confidentially. The obligation was not to use the applicant’s confidential information, being Evagroup’s Customer List, and therefore it was not to contact customers via the list or via the details provided in the list. That constituted the obligation that has been breached. Properly understood, there is no chilling effect. There was nothing to prevent the respondent doing his own research, for example, on the internet for flooring businesses, or obtaining the names of contacts from other people. However, as explained above, while Mr Lopez could have done that, he chose to use the convenience of Evagroup’s Customer List.
The diverse type of information which may be considered as confidential in this context is illustrated by the information the subject of argument in Roger Bullivant Ltd v Ellis and others [1987] IRLR 491 (an appeal against the failure to issue an injunction against the use of information by the defendants). There, the confidential commercial information the plaintiffs had was a card index system listing consulting engineers, local authorities and architects who have or can refer business to them, and lists other trade contacts. Injunctions against the defendants, who were former employees were granted. It was accepted that the information was confidential. As the Court concluded, the value of the card index to the defendant was that it contained a ready and finite compilation of the names and addresses of those who have bought or might bring them business and contained the names of particular individuals to be contacted. It was concluded that while some details might have been publically available, the Court was not convinced the defendant would have been able to contact anywhere near all those he did during the particular time period. The information in that case was therefore treated as confidential.
Mr Lopez identified an advantage to himself in using the Evagroup Customer List rather than reassembling it from first principles, which reflects that the information is of value in this business context.
The applicant understood the Evagroup Customer List to be a client list or as containing client details and that it was confidential, with steps put in place to limit access to it. I am satisfied that is also how Mr Lopez understood it, as he added such client details to it as part of his employment with Evagroup. Any suggestion to the contrary cannot be accepted. Mr Lopez would have been aware of the clause as he had only signed the employment contract, including cl 8, relatively shortly before he left that employment.
It is important to recall that this aspect of the claim is looked at through the prism of the employment contract. The confidentiality clause expressly refers to a “client list” and “client details” as confidential, and the employee is not to use or disclose such information without the consent of his employer or in the performance of his duties. The contract imposes upon Mr Lopez the obligation not to disclose that information. The nature of the information on the Evagroup Customer List, taking into account the types of considerations referred to in Zomojo, reflects that the Evagroup Customer List and clients’ details contained therein are confidential. The Evagroup Customer List has the necessary elements of confidence, and importantly for the claim of breach of contractual confidentiality, falls within the description provided in cl 8 of the contract.
Contrary to Mr Lopez’s submission (and that of Imperial Flooring in relation to the equitable breach of confidence), it is not necessary for the applicant to lead evidence in respect to each entry on the Evagroup Customer List to establish that the entry relates to a current client or that the details recorded could not be obtained elsewhere. The respondents submitted that an entry could only relate to the business, and therefore was only confidential if the applicant established in relation to each entry that there was a “direct, real and continuing relationship” with Evagroup. This aspect of the respondents’ submission focussed on the phrase “relating to the business” in cl 8. That phrase must be considered in the context in which it appears, and the nature of the contract. Leaving aside the obvious practical difficulties with the application of that submission, (for example, the meaning of “continuing relationship” in the context of the nature of this business), the submission does not take into account that, as explained, “client list” has a separate status. There is nothing in the contract which would confine the meaning to that contended for. Rather, the business involves supplying products to customers, which includes, inter alia, not only supplying products, but marketing of those products. Information used by Evagroup to advance that would necessarily fall within the concept of “relating to the business” of Evagroup. From the content, purpose, method of compilation and confidentiality with which the Evagroup Customer List was held, and the use to which it was put, it is plain that it “related to the business” of Evagroup.
Moreover, the respondents’ approach is artificial and does not accord with the authorities which focus on the characteristics of the information, and not the characterisation of the information, with relevant considerations including the way in which the business compiled, protected and used the information. The submission also does not address the circumstance where, as here, the allegation is based on the advantage a former employee obtained in being able to contact the volume of potential clients with the speed at which he did, absent the use of the Evagroup Customer List. The applicant’s claim is put on the basis of a springboard advantage being obtained by the respondent.
The evidence of Courtney Tran, the solicitor for the respondents, also does not advance their case in respect to whether the Evagroup Customer List was confidential within the meaning of cl 8. Her evidence was led to address or respond to the evidence of the solicitor for the applicant, Magdalena Rousseau. However, what Ms Rousseau set out to do was to negative the proposition that all of the information on the Evagroup Customer List was publicly available and she did that by entering the email addresses from the Evagroup Customer List into the search box on Google to see whether the information came up on the first page. That, in itself, was an artificial exercise. As the respondents pointed out, that says nothing about whether the information is on some other page of that website. However, Ms Rousseau’s evidence was only directed to the proposition that Mr Lopez could have quickly gathered the information in the Evagroup Customer List from his own searches, as suggested in his affidavit evidence. It does not go to the objective confidentiality of the Evagroup Customer List or to the characterisation of the Evagroup Customer List as being confidential or otherwise, principally because that is not what Mr Lopez in the end says he did. Moreover, as became apparent from the cross-examination of Ms Tran, her search always commenced with information in the Evagroup Customer List, such as the names and the email addresses. The search did not start with a blank canvas. It did not therefore attempt to determine whether the information on the Evagroup Customer List could be generated. It did not involve an attempt to identify all the email addresses that could be gathered in respect to people who might buy flooring products, without the use of the Evagroup Customer List.
Although the applicant accepted that some names and email addresses contained in the Evagroup Customer List were capable of being identified from public sources, there is no suggestion in the evidence that the whole list, in its convenient form of a collection of entities and key contacts likely to be interested in flooring supplies, is available in any public forum. The evidence of Ms Rousseau demonstrates that the details of very many of the entries on the Evagroup Customer List are not available from public sources by any simple search.
Indeed, even though the searches conducted by Ms Rousseau and Ms Tran are not a true replication of a process that a person would need to undertake if they did wish to obtain the same information from public sources, their evidence reflects the complexity and difficulty involved in reconstructing even a partial list, without access to the confidential information.
It may be accepted, as the respondents submitted, that some clients are published on Evagroup’s website. This is in the form of some testimonials by customers as to Evagroup’s services. That is not atypical for such a website. However, it does not follow from that that the Evagroup Customer List is not confidential. The Evagroup Customer List is a separate entity, and has a separate significance and benefit to Evagroup, from an individual client’s name. That a small number of clients have identified themselves through testimonials on the website does not, by itself, result in Evagroup’s Customer List as a whole losing any confidentiality that it has.
The applicant has established that the Evagroup Customer List is confidential, that Mr Lopez retained the Evagroup Customer List after he left Evagroup’s employment and used the list in the manner contended: see for example the discussion at [90]-[105] above.
The respondents contended that the list of emails blind carbon copied (the BCC List) into the 9 September 2019 emails (which was the basis of Mr Lopez’s cross-examination referred to above at [52]-[53]) only relates to part of the Evagroup Customer List, estimating it contains approximately 25 percent. The respondents submitted that I should not be satisfied that any more of the Evagroup Customer List than revealed in the BCC List was used, particularly in circumstances when this evidence was produced by Imperial Flooring in answer to a notice to produce. I do not accept the use of the Evagroup Customer List was so limited. Mr Lopez does not suggest he only used some of the details on the list, rather he denied having and using the Evagroup Customer List (in the face of clear evidence to the contrary). Moreover, the respondents’ submission that the use was so limited is implausible. There is no logical basis why the use would be so limited, particularly given Mr Lopez had used the Evagroup Customer List as he did, and given his obvious purpose of doing so. Moreover, as noted above at [23], a number of persons from the Evagroup Customer List were sent unsolicited communications by Imperial Flooring, some of whom forwarded the emails they received to Mr Yates. All the emails are in the same terms, and all but one were sent on the same date as the email with the BCC List. Nonetheless, not all of those emails forwarded to Mr Yates are to addresses on that BCC List, although all are on the Evagroup Customer List. It can readily be inferred the Evagroup Customer List was used by Mr Lopez to a greater extent than the BCC List.
I am satisfied that the applicant has established that Mr Lopez has breached his contractual obligation of confidentiality in cl 8 of his employment contract.
Implied obligation under the employment contract
Given my findings above, it is unnecessary to consider this aspect.
Equitable breach
This aspect of the applicant’s claim is directed against Mr Lopez and Imperial Flooring.
Customer lists can constitute information that is confidential to an employer and are entitled to protection. Although it may be accepted that not all customer lists are confidential, for example: Advanced Fuels Technology Pty Ltd v Blythe & Ors [2018] VSC 286 at [178]-[179]; Robb v Green [1895] 2 QB 315: Weldon & Co Services v Harbinson [2000] NSWSC 272 at [67]-[72].
That said, properly considered, I am satisfied in the circumstances of this case that the Evagroup Customer List is covered by the equitable duty of confidence. I rely on, without repeating my description of the Evagroup Customer List (its creation, content, purpose and handling, and the circumstances in which Mr Lopez had access to it).
The respondents’ submission focussed on the four elements identified in Optus, referred to above at [84].
In respect to the requirement that the information be identified with specificity, for the reasons given above at [100], it is not necessary for the applicant to identify by name or entry each of which is said to be a current client. The question is whether, as a whole, the Evagroup Customer List has the necessary elements of confidence. It is the amalgamation of the information in the Evagroup Customer List that is significant.
In respect to the requirement that the information have the necessary degree of confidence, the respondents’ submissions were the same as advanced in relation to the claim for breach of contractual confidentiality. For the reasons given above at [97]-[112], in my view, in the circumstances of this case, the Evagroup Customer List does contain the necessary degree of confidence.
In respect to the requirement that the information must be received in circumstances importing an obligation of confidence, I do not accept the respondents’ submission that those circumstances did not exist in this case. The submission that only the MailChimp account was password protected, and not the Excel spreadsheet, does not advance the respondents’ case. The unchallenged evidence was that access to it was limited to employees who required it for their employment. When the Evagroup Customer List was converted to MailChimp, access was limited by a password which was only known to Mr Yates and Mr Lopez, such that the confidential nature of the information would have been understood by Mr Lopez. His password was one of the items that Mr Lopez was to return to Evagroup on leaving its employment. Mr Lopez was the sales manager in a competitive business environment where clients and client relationships are important. It was plain that the Evagroup Customer List had been compiled over some time and reflected business relationships. After all, the respondent had recently signed an employment contract which expressly refers to client lists and client details as confidential information and were subject to an obligation of non-disclosure on that basis.
In respect to the requirement about the use of the information, as previously noted, Mr Lopez’s counsel during closing submissions accepted (although Mr Lopez had not done so during his evidence) that he could not make a submission against the fact that details of some of the customers had been used.
Mr Lopez retained the Evagroup Customer List and used information contained therein to advance the establishment of his new business, Imperial Flooring. That was not only a breach of his employment contract but also a breach of an equitable duty of confidence imposed on him.
As to whether the equitable duty of confidence applied to Imperial Flooring, Imperial Flooring can only have received the information from Mr Lopez who was the sole employee and director of Imperial Flooring. There is no suggestion in the evidence that anyone other than Mr Lopez was involved in the unsolicited communications of 9 September 2019 (or at any other relevant time). In the circumstances, for the reasons already given, Mr Lopez was aware of the confidential nature of the information obtained during his employment with Evagroup and had a duty of confidence. In that context, Imperial Flooring was provided with the information such as to impose an equitable duty of confidence on it. Imperial Flooring used that information to, inter alia, send the unsolicited emails of 9 September 2019.
I am satisfied that Imperial Flooring and Mr Lopez have breached their equitable obligation of confidence.
Misleading and deceptive conduct
The applicant’s claim under the Australian Consumer Law (ACL) arises out of aspects of Imperial Flooring’s website as it appeared before 4 October 2019 and the unsolicited communications sent by Mr Lopez on behalf of Imperial Flooring from at least 9 September 2019.
Legal principles
A person must not, in trade or commerce, engage in conduct that is misleading or deceptive, or is likely to mislead or deceive: s 18 of the ACL. To establish a claim under s 18, a party must establish three matters: first, that the conduct complained of was “in trade or commerce”; second, that the pleaded conduct conveyed the particular representations complained of: Australian Competition and Consumer Commission v Telstra Corporation Limited [2007] FCA 1904; (2007) 244 ALR 470 (ACCC v Telstra) at [14]; and third, the representations conveyed were misleading or deceptive, or were likely to mislead or deceive: ACCC v Telstra at [15].
For conduct to be in trade or commerce, the impugned conduct’s nature must bear a trading or commercial character. Conduct in trade or commerce includes promotional activities in relation to, or for the purposes of, the supply of services to actual or potential customers, being identified persons or merely an unidentifiable section of the public: Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594 at [604].
Conduct is misleading or deceptive if it has a tendency to lead into error: Australian Competition and Consumer Commissioner v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640 (ACCC v TPG) at [39]. There must be a sufficient causal link between the conduct and error on the part of persons exposed to it: ACCC v TPG at [39]. The causing of confusion or questioning is insufficient; it is necessary to establish that the ordinary or reasonable consumer is likely to be led into error: Australian Competition and Consumer Commission v Coles Supermarkets (Australia) Pty Ltd [2014] FCA 634; (2014) 317 ALR 73 (ACCC v Coles) at [39]. It is not necessary to demonstrate that the impugned conduct was actually misleading, it is enough if it is likely to be so: Google Inc v Australian Competition and Consumer Commission [2013] HCA 1; (2013) 249 CLR 435 at [6].
It may be accepted that there were some faulty pallets.
Cemimax contended that in the case of customer photographs of damaged stock relied upon by Evagroup, the product had passed from Cemimax, through Evagroup’s warehouse, to a delivery person and then on to the customer’s site, and therefore there is an inescapable possibility that any damage could have occurred after the product was taken in by Evagroup. It also contended given the handling of product in this process, it is more likely than not that this is when the damage occurred, and therefore Evagroup has not discharged its onus. Although there might be some merit in the first submission, that there may be an issue as to when and where the damage discovered by the customers occurred, it is plain that there was damaged packaging and pallet issues at Evagroup’s warehouse. It is that repackaging and repalleting that forms the basis of this aspect of the claim.
Nonetheless, when the stock the subject of the faulty pallets arrived, it was under the logistics agreement, and ownership remained with Cemimax. There is no provision in the logistics agreement as to additional fees that may be charged. There is no evidence that this relates to any of the stock purchased by Evagroup, the subject of the Invoice. Rather it appears to refer to a time earlier in the relationship.
It may also be accepted that Mr Yates informed Mr Titus of the faulty pallets, or at least some aspects of his complaint about them. Evagroup pointed to a text message and email as an example. There are photographs of the faulty products in a text message with an accompanying message “[let] you know how much grief these pallets are causing”. There is no evidence as to the date of that message and no request for assistance. In the email to Mr Titus, Mr Yates states, inter alia, that “China made [a mistake] by switching pallets, resulting in hundreds of hours of repacking as well as issues in the market and a consistent mess in the warehouse because of this mistake. We received more than 400 rubbish pallets. We had another pallet collapse for a customer on Friday and are now replacing this at our cost. We have now repacked in excess of 100 pallets but more to go”. Mr Yates pointed out in that email that he is not charging for this, with Evagroup bearing the cost. This is consistent with the evidence of Mr Titus that Cemimax Australia had no control over the pallets used by Cemimax China, that Mr Yates had said to Mr Titus that he had it under control, and that he was not charging for this. The email is dated 3 August 2019, with its purported purpose being to clarify issues with Mr Titus. It is plain that Mr Yates is dealing with Cemimax China by this time, Cemimax had its own warehouse and Mr Yates had withdrawn his invoice of 31 May 2019 for $50,000. The relationship had broken down. I note that although the email in August refers to more than 100 pallets being faulty, Mr Yates now claims a figure of 300-400 pallets from October 2018 to January 2019. This also does not sit with Mr Yates’ evidence that “[d]ue to the issues with the pallets, in or about January 2019 to March 2019, Evagroup repacked pallets of the Cemimax products prior to those pallets being transported to the end customer”.
Evagroup acknowledged that at the time of the email Mr Yates was not proposing to charge for the additional time for repackaging. Evagroup submitted however that “was before [Mr Yates] knew what was to happen just a week later with Mr Lopez’s resignation and the storm of unfair competition, unfair competitive pricing, lies and misinformation, into which his business was about to sail”. That appears to be the motivation for the basis of this claim. However, this aspect of the proceeding relates to Cemimax and not Mr Lopez, and as found above, in so far as these proceedings are concerned, Evagroup has not established a campaign of lies and misinformation by Mr Titus. Cemimax are not liable for the acts of Mr Lopez. Moreover, Mr Yates’ approach of now proposing to charge the respondents does not take account of the fact that part of the context in which the 31 May 2019 invoice had been withdrawn by him, is that Ms Chen said in messages that she would not have negotiated the price she did for stock with him if she had known about these charges (including the overstocking charge). That is, Mr Yates would have had to pay more for the product. He had received, or was receiving stock from Cemimax China at a cost lower than he would otherwise have had to pay.
The competitive pricing referred to by Mr Yates is assumed to be a reference to the new pricing list which was issued in July 2019. However, since that time, in the email of August 2019 as described above, Mr Yates had informed Mr Titus he was not charging Cemimax for the faulty pallets. That does not provide an appropriate basis to offset part of the payment required on an Invoice for the purchase of unrelated goods.
Evagroup has not established that any cost incurred in relation to the faulty pallets is a proper basis on which to offset that cost of the stock purchased by him.
Unjust enrichment et al
Evagroup pleaded further defences in the alternative, which it contended are available to support the setoff claimed. The pleading includes unjust enrichment, quantum merit and estopel. The extent of the submission in support is one paragraph under the heading “conclusion” in Evagroup’s written submissions in response to Cemimax in NSD 482 of 2020. It was in the following terms:
If however the Court is not persuaded that either the faulty pallets or the excess stock claims fall within the express or implied terms of that agreement, then they are pressed on the alternative bases, beginning with unjust enrichment. It has already been submitted, with evidence references, that Cemimax Australia knew that time and labour was being expended, for Cemimax Australia’s benefit in repacking and repairing the faulty pallets and in storing and handling the excess stock. Cemimax Australia took advantage of that labour. Each of the bases pleaded at defence [17]-[33] is available to support the claimed setoff.
Evagroup did not respond to Cemimax’s submissions on this topic which included the following. That Evagroup agreed to waive the charge of $50,000 plus GST in invoice 00136548 and, therefore, any enrichment of Cemimax occasioned by that waiver was not unjust. It was submitted that there is no rational basis on which to assert that Cemimax is estopped from denying liability to pay invoice 00136548, where Evagroup’s own evidence is that it waived Cemimax’s obligation to pay the $50,000 plus GST. It submitted the pleading of estoppel is embarrassing in that it fails to properly plead the alleged implied representation that Cemimax would pay Evagroup for the work done in dealing with the allegedly faulty pallets. In relation to the complaint that faulty pallets were delivered, the quality of the pallets was never pleaded as a term of the agreement. Evagroup’s evidence is that Evagroup were to take care of “… unloading of Cemimax stock from China when it arrived in Australia, handling, storage, packing and loading onto trucks…”. If Cemimax Australia was under an obligation to use certain types of pallet, Evagroup has failed to identify any such obligation.
The pleading and limited submission in support is of limited assistance. For example, the pleading on estopel includes an assertion that Cemimax made representations that Evagroup would be paid for the services and materials used, with the assertion that the representations were implied by certain conduct. The conduct in the pleading does not identify any representation or basis for it. There is no evidence that Cemimax said it would pay these expenses. To the contrary, as referred to above, the evidence is that Evagoup said it was not claiming any expenses incurred. After the invoice claiming the $50,000 was issued, it was reissued absent that amount, with Evagroup no longer claiming that aspect. In that context, Cemimax may have been aware of the issue of the amount of stock and repaletting, but Evagoup were not making any claim to Cemimax as a result. Those issues have not been addressed by Evagroup in so far as it relies on these alternative bases of relief. Rather, the brief submission appears to presume the evidential basis is established. The submission is also unclear how much is said to be setoff as result of these claims.
In those circumstances, Evagroup has not established these alternative bases.
Quantification for the offset claim
In any event, the approach to the quantification of the overstocking and faulty pallets is inadequate. It also reflects adversely on the nature of these claims now made by Evagroup.
When Evagroup issued the 31 May 2019 invoice to Cemimax there had been no agreement between the parties that time spent dealing with the overstocking and faulty pallets could be charged for. That invoice is not particularised. Mr Yates gave evidence describing how he estimated the amount. Mr Yates gave evidence that the figures he used in the invoice were well below market prices, and so the total amount was a discounted figure. That $50,000 figure was to cover the costs incurred for both overstocking and the faulty pallets. I note Mr Yates gave evidence that he had reissued the $50,000 invoice sometime after he had withdrawn it, although I was not referred to any documentary evidence in support of that.
However, Mr Yates’ evidence now is that the same overstocking and repalleting incurred $350,000 of costs, which he now claims, a remarkably similar figure to that owed by Evagroup to Cemimax in the Invoice.
Evagroup submitted that in reaching this figure of $353,600 plus GST, Mr Yates made a number of concessions in favour of Cemimax. For example, he has taken an average excess pallet level of 1,360 pallets, when the direct evidence is that the exceedance in April 2019 was 1,600 and the exceedance in May was 1,650. On the other hand, he submitted that he has taken a full 52 week period, when the period complained of for excess stocking, on the documentary evidence, appears to be roughly October 2018 to August 2019. But, it was submitted that taking each of those elements together, the Court should accept that Mr Yates’ estimation of the loss at being about $350,000 is both reasonable and reliable.
There is however, no evidence of any contemporaneous documentation to support any of the calculations, or the method adopted, including as to the volume of damaged stock, the amount of time taken to repallet, and the amount of extra hours said to be because of overstocking and when these were said to have been incurred. No account is taken for the stock which was stored having been sold and a logistics fee having been received for it. Nor is there any particularisation of each or any of those, and other relevant considerations. No basis is put for the estimates, nor explanation given. The extent of the particularisation is that outlined in the summary referred to above at [258]. The flaws and generalities in the process are self-evident. For example, Mr Yates has taken an excess pallet level of 1,360 pallets but dealt with that over 52 weeks. I note also in this context that Mr Yates’ affidavit says that in or about April 2019 Cemimax started to send more than 150 pallets. Despite the fact that Mr Yates’ evidence was that the overstocking was in April 2019 he claims for a 12 month period. There is no basis identified, in that context, as to why a 52 week estimation is appropriate. This is so even though there was no complaint made until the April 2019 email as described above, that the stock figures varied, and it is plain that at some stage, Cemimax stock in the warehouse had run out. As to the repalleting, Mr Yates claims that the faulty pallets were received between October 2018 and January 2019 and involved between 300-400 pallets, a significant range. No basis is identified for that range. Evagroup submitted that the invoice created by Mr Yates prior to this dispute, being the invoice he issued on 31 May 2019, provides some support for the quantification in relation to repalletting. There Mr Yates, using slightly different methodology, calculated the excess handling cost at just over $33,000. However, that submission is a bootstraps one.
On neither account is there sufficient, adequate or reliable evidence to explain or justify the amounts now claimed. Evagroup has not established how costs are now, coincidently, $350,000. Even if a basis for the offset had been established, I do not accept the estimation of the amount claimed.
With respect to Evagroup, the failure to pay this account with the $350,000 setoff claimed appears to be based on Mr Yates’ perception of the conduct of Mr Lopez, and the consequences which he describes as “the storm of unfair competition, unfair competitive pricing, lies and misinformation” by Mr Lopez and Mr Titus.
Evagroup have not established that the issues of overstocking and faulty pallets offsets the Invoice.
Relief
I propose to provide an opportunity for the parties to consider these reasons, and address the issue of relief in that context. The parties should provide further written submissions in relation to the relief they seek in the proceedings, NSD 1924 of 2019.
In particular, I propose to provide the parties with an opportunity to provide any further evidence and submissions on the issue of damages in the context of my findings.
In that context, in relation to some matters already argued, there are a number of observations that can be made and ought to be considered in the further submissions advanced on this topic. It is not suggested that these are the extent of the submissions that ought to be made, rather, the submission should address, in light of my findings, the issue of the relief sought, including the damages to be awarded.
First, it must be recalled, any award of damages is against Mr Lopez and Imperial Flooring only, and in relation to the claims of breach of confidence and breach of the ACL. There are no claims established against Cemimax or Mr Titus (the only ones alleged being for defamation).
As is apparent from Evagroup’s claims in its offset arguments in relation to the Invoice, it submits its business was adversely affected by the conduct of Mr Titus and Cemimax. As explained there, whatever Mr Yates may believe to be the case, the evidence led did not support the proposition. More importantly for present purposes, that conduct cannot form part of this consideration. Yet, it formed a significant part of its case as to why the sales were affected.
Evagroup, as Mr Yates often did in evidence, does not really address the issue of damages that each of the respondents may be liable, bearing in mind the claims made, but, in many respects, lumped the conduct together.
Second, Evagroup’s preferred method for determining damages is by comparing how much Evagroup made in profit in the 12 months before Mr Lopez’s departure, with the profit made after he left. The applicant submitted, the respondents’ approach of simply comparing the customers is attempting to impose on the applicant an account of profits or gain based method for calculating damages, which is an approach it choose not to adopt. As the applicant submitted, they had no confidence that every instance of gain could be identified and in any event, Mr Lopez’s involvement may have had a spoiling effect in that Evagroup may have lost business that did not necessarily go to Imperial Flooring.
Third, the press release issued by Mr Yates to Evagroup’s customers potentially complicates the matter. It was issued on 24 September 2019, and is recited above at [28].
It is worth reciting a portion of the cross-examination relating to the press release:
Q: And you say that Mr Lopez’s achievements are significant?
A: Correct.
Q: Then you say in regards to Cemimax products, you “Hold enough stock to last us until the end of the year but have made the decision to discontinue the product.” Do you see that?
A: Correct.
Q:And then you say that you are going to replace it with a, “better formula product”?
A: Correct.
Q:And then you go on to talk about that new product as being “excellent and exciting”?
A: Correct.
Q: Was this media release your attempt at damage control – was it?
A: It certainly was.
Q: You say here in your media release, on page 6308, that Mr Lopez had managed to grow his customer base “approx. 300 or so customers”. Do you see that?
A: Correct.
Q:Where did that figure come from?
A: I don’t know.
Q: Is it just a number that you made up?
A: I think so.
Q: Is that something that you tend to do – is it? You tend to exaggerate?
A: No. No.
Q:Because at that date, you had been contacted with a tenth of that number of 15 customers?
A: Correct.
Q: I see. You then, as we’ve seen, were informing your clients and others that you were discontinuing the Cemimax product, and what you were telling them was if they wanted to continue to use that product, you would – that they would have to go to Imperial – correct?
A: No, that’s not what I say.
Q: Well, that’s precisely what you were advertising, though?
A: I don’t think so.
Q: You were informing them of the existence of Imperial Flooring as a Cemimax reseller in the second paragraph – see that?
A: Correct.
Q: And you were then saying later on that you were discontinuing Cemimax products?
A: Correct.
Q: You say that Cemimax is inferior to the EcoSet product – do you?
A: No.
Q: Well, EcoSet is the product that you started stocking from November – is it?
A: Correct.
Q: That’s the one that you describe in the press release as being better?
A: Correct.
Q: So it must follow that Cemimax is worse – correct?
A: Correct.
Q: Why would anyone want to buy an inferior product?
A: Doesn’t say inferior.
Q: Why would anyone want to buy a worse product?
A: You wouldn’t imagine they would.
Q: Well, then why is it a big surprise to you, Mr Yates, that in the succeeding months, you found it difficult to shift your Cemimax product?
A: I found it almost immediate. It wasn’t in the months after. It happened straight away.
Q: Why do you think that’s such a big surprise?
A: It wasn’t a surprise. I know exactly why it happened.
Q: So what was happening was that you were exiting at the Cemimax product market and going into the EcoSet product market – correct?
A: No.
A: Well that’s what - - -?
A: I had no choice. I was cut off.
The respondents rely on that cross-examination, in particular the italicised portion, to support a submission that the press release had an immediate effect on Evagroup’s business, and so any damages awarded should take that into account and be limited by that event. The respondents submitted that it is only any effect on Evagroup up until the date of the press release that can be compensated for by an award of damages. I take the last answer by Mr Yates to be referring to the conduct of all the respondents in the proceeding, including those of which no claim has succeeded. Mr Yates later explained that being “cut off” related to Cemimax pricing him out of the market.
Evagroup contended that, contrary to the respondents’ submissions, when read in context Mr Yates is not accepting that there was a causal connection between the press release and business dropping. However, whatever the motive for the press release, including that he perceived he was being cut off, does not address the fact that he accepted that his business dropped off. I note in this context, Cemimax’s pricing structure does not found part of any claim that has been made. It was only relied on as supporting evidence in relation to its offset claim, that Cemimax and Mr Titus breached their obligation not to interfere with Evagroup’s capacity to benefit from the goods purchased. As previously explained, I do not accept that the applicant has established that aspect of its claim.
Mr Yates gave evidence that he issued the press release as damage control. It may be reasonable to change the products he supplies, but that Mr Yates chose to announce that by way of the press release in the terms in which it is drafted, does not advance his case. It is a relevant factor which impacts on damages.
As explained elsewhere, the press release brings with it a number of connotations. The press release, although obviously sarcastic in part, confirms that Imperial Flooring was a reseller of Cemimax products. It, inter alia, informs Evagroup’s clients that it will no longer be supplying Cemimax products, although it has enough to supply its customers until the end of the year, after which a new product would be available from November 2019. It follows that anyone who wished to continue to use Cemimax had to source it elsewhere (which does not necessarily mean to Imperial Flooring). It suggested that the new product it would be supplying was better than Cemimax products, therefore it could be understood that Cemimax was not as good a product as the one it was changing to. As the applicant noted, the press release was published on 24 September 2019, which was after, inter alia, the Unsolicited Communications sent on 9 September 2019. The applicant submitted the damage was done by that time. As explained above I do not accept the respondents’ submission that its conduct is limited to the email addresses in the BCC List.
However, I do not accept the submission that a great deal of the information was already known to the customers by the Unsolicited Communication. The two matters referred to in the preceding paragraph do not fall in that category. Nor does the fact that Mr Yates made sarcastic comments about Mr Lopez and Imperial Flooring. As explained elsewhere, the tone of the email may well have deterred customers from doing business with Evagroup and indeed Imperial Flooring, particularly by this time where there were other suppliers in the market. That said, it can be accepted that but for the respondents’ conduct in using Evagroup’s confidential information, that press release would not have been necessary. Mr Lopez has denied he had and used the Evagroup Customer List (as opposed to the fact is was not confidential), a stance he maintained during the trial despite compelling evidence to the contrary.
Moreover, although the press release may arguably have an effect on the issue of damages, I do not accept the respondents’ submission that damages are limited to the events that occurred only up until the date of the release. Although the release notified customers of the existence of Imperial Flooring, that does not detract from the fact that Mr Lopez and Imperial Flooring still had, and could use, the confidential information to contact individual customers.
Fourth, further and aligned with that last observation, Evagroup had previously been the only supplier or reseller of Cemimax products, with Cemimax also selling direct. However, in July 2019, at about the same time that Mr Lopez left Evagroup and set up his business, another supplier of Cemimax, Top Level Supply also entered the market. That is, as at the time Mr Lopez left its employ, Evagroup had further competition in the market in addition to that of Imperial Flooring. Neither party addressed the relevance, if any, of this issue.
Conclusion
Although submissions have been made as to relief, as explained above, it is appropriate that further submissions be made in light of my findings as to liability. Orders will be made to accommodate that.
I certify that the preceding three hundred and forty-two (342) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Abraham. Associate:
Dated: 5 August 2021
SCHEDULE OF PARTIES
NSD 1924 of 2019 Respondents
Fourth Respondent:
JOHN TITUS
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