Link 2 Pty Ltd v Ezystay Systems Pty Ltd

[2016] NSWCA 317

Court of Appeal

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

Link 2 Pty Ltd v Ezystay Systems Pty Ltd [2016] NSWCA 317

Hearing dates:

20 July 2016

Decision date:

22 November 2016

Before:

Bathurst CJ at [1];
Ward JA at [2];
Leeming JA at [240]

Decision:

(1) Refuse leave to the appellants and cross-appellants respectively to appeal/cross-appeal.
(2) Dismiss the notice- of appeal and notice of cross-appeal as incompetent.
(3) Each party to pay its own costs of the proceedings in this Court.

Catchwords:

APPEAL – whether leave required for appeal/cross-appeal – respective complaints by appellants/cross-appellants as to ambit of injunctive relief granted by primary judge – complaint by appellants as to apportionment of costs – leave required for both appeal and cross-appeal – leave refused

 

CONFIDENTIAL INFORMATION – whether respondents’ software, business manuals and other documents were confidential

  DIRECTORS – duties owed to companies – whether use by third appellant of respondents’ documents amounted to breach of statutory and fiduciary duties

Legislation Cited:

Corporations Act 2001 (Cth), ss 182, 183, 1317H
Evidence Act 1995 (NSW), ss 55, 79, 135
Supreme Court Act 1970 (NSW), s 101(2)(r)
Uniform Civil Procedure Rules 2005 (NSW), rr 31.28, 42.1

Cases Cited:

AG Australia Holdings Ltd v Burton [2002] NSWSC 454; (2002) 58 IPR 327
Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164
Bramco Electronics Pty Ltd v ATF Mining Electrics Pty Ltd [2013] NSWCA 392
British Franco Electric Pty Ltd v Dowling Plastics Pty Ltd [1981] 1 NSWLR 448
CEF Holdings Ltd v City Electrical Factors Ltd [2012] EWHC 1524
Coco v AN Clark (Engineers) Ltd [1969] RPC 41
Commercial Plastics v Vincent [1965] 1 QB 623
Dalgety Wine Estates Pty Ltd v Rizzon (1979) 141 CLR 552; [1979] HCA 41
Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172; (2007) 73 IPR 326
Drake Personnel Ltd v Beddison [1979] VR 13
Durham v Durham (2011) 80 NSWLR 335; [2011] NSWCA 62
Ezystay Systems Pty Ltd v Link 2 Pty Ltd [2014] NSWSC 180
Ezystay Systems Pty Ltd v Link 2 Pty Ltd [2015] NSWSC 1105
Ezystay Systems Pty Ltd v Link 2 Pty Ltd (No 2) [2015] NSWSC 1594
Franchi v Franchi [1967] RPC 149
H&R Block Ltd v Sanott [1976] 1 NZLR 213
Hampson v Hampson [2010] NSWCA 359
Harrison v Project and Design Co (Redcar) Ltd [1978] FSR 81
House v The King (1936) 55 CLR 499; [1936] HCA 40
Industrial Furnaces Ltd v Reaves [1970] RPC 605
Jaycar Pty Ltd v Lombardo [2011] NSWCA 284
JC Williamson Ltd v Lukey (1931) 45 CLR 282; [1931] HCA 15
Jensen v Ray [2011] NSWCA 247
Lancashire Fires Ltd v SA Lyons & Co Ltd [1996] FSR 629
Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305
New South Wales v Stevens (2012) 82 NSWLR 106; [2012] NSWCA 415
Ocular Sciences Ltd v Aspect Vision Care Ltd [1997] RPC 289
Polo Enterprises Australia Pty Ltd v Pinctada Hotels and Resorts Pty Ltd [2015] NSWCA 397
Saltman Engineering Co Ltd v Campbell Engineering Co Ltd [1963] 3 All ER 413
Seager v Copydex Ltd [1967] 2 All ER 415
United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157
Zomojo Pty Ltd v Hurd (No 2) [2012] FCA 1458

Texts Cited:

Dal Pont, Law of Confidentiality (2015, LexisNexis)
Dean, The Law of Trade Secrets (1990, LawBook Co)

Category:

Principal judgment

Parties:

Link 2 Pty Ltd (First Appellant/First Cross-Respondent)
Riches Commercial Pty Ltd (Second Appellant/Second Cross-Respondent)
Gregory Moore Riches (Third Appellant/Third Cross-Respondent)
Ezystay Systems Pty Ltd (First Respondent/First Cross-Appellant)
Ezystay Properties Pty Ltd (Second Respondent/Second Cross-Appellant)
Sleeping Operations Pty Ltd (Third Respondent/Third Cross-Appellant)
Sleeping with the Enemy Pty Ltd (Fourth Respondent/Fourth Cross-Appellant)
Sleeping in Australia Pty Ltd (Fifth Respondent/Fifth Cross-Appellant)

Representation:

Counsel:

 

JE Lazarus with S Lipp (Appellants)
JC Kelly SC with E Finnane (Respondents)

 

Solicitors:

  DPR Legal (Appellants)
Uther Webster & Evans (Respondents)

File Number(s):

2015/00336908

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity Division

Citation:

[2015] NSWSC 1105
[2015] NSWSC 1594

Date of Decision:

10 August 2015
29 October 2015

Before:

Bergin CJ in Eq

File Number(s):

2013/219128

HEADNOTE

[This Headnote is not to be read as part of the judgment]

The respective parties are competitors in the provision of student accommodation in Sydney (the appellants through the Link 2 business; the respondents through the Ezystay group business).

The Link 2 business was established in 2012 by the third appellant, Mr Greg Riches, who up until various dates in June-August 2012 had been a director and shareholder of various companies in the Ezystay group. During his association with the Ezystay group, Mr Riches’ duties included the development of software for a bed asset management system and preparation of the group’s operations procedures manual. While Mr Riches was still a director of companies in the Ezystay group he forwarded Ezystay documents to his wife and he instructed a computer software development company to develop a computer programme incorporating features of the Ezystay bed asset management system.

Under the terms of the deed of settlement pursuant to which Mr Riches ultimately finalised his interest in the Ezystay group, he and his company were not restricted from competing with the respondents in the student accommodation market but they were subject to contractual obligations restricting their use of the respondents’ “confidential information” and “intellectual property” as defined. There was also a contractual obligation to return to Ezystay the group’s books, records, materials and documentation, as defined in the deed.

The respondents were successful at first instance in establishing breaches of the confidentiality obligations owed in respect of the use and/or copying of the respondents’ Business and Systems Manuals, as well as the respondents’ Software Manual and Software. They also established that there had been a breach (admitted by the appellants) of the property return covenants contained in the deed. They also established that Mr Riches had breached his fiduciary and/or director’s duties owed to Ezystay.

Permanent injunctive relief was granted to restrain the appellants (who claimed by then already to have returned the documents the subject of the property return covenant pursuant to an undertaking proffered to the Court that they would do so) from using or copying Ezystay’s Business, Systems and Software Manuals and documents derived therefrom (order 1). The appellants were ordered to pay 85% of the respondents’ costs (order 4). The primary judge declined to grant any injunctive relief in respect of the respondents’ Software, applying the “springboard” principle.

The appellants sought to challenge the making of order 1 on the basis that its scope was uncertain. They contended that the primary judge had erred in finding that the relevant documents contained confidential information. The appellants also sought to challenge the costs order. By way of cross-appeal, the respondents sought to challenge the refusal of the primary judge to extend the permanent injunctive relief to their Software. At the outset of the hearing of the appeal/cross-appeal, an issue was raised by the Court as to whether leave was necessary for the appeal/cross-appeal to be brought.

Held, refusing leave to the appellants and cross-appellants respectively to appeal/cross-appeal, dismissing the notice of appeal and notice of cross-appeal as incompetent, and ordering each party to pay its own costs of the proceedings in this Court, by Ward JA (Bathurst CJ and Leeming JA agreeing at [1] and [240], respectively):

(1)   (at [92]; [97]; [99]) as to the appeal, nothing in the terms of order 1 was addressed to the question of what practices or procedures may be adopted by the first appellant in the provision of student accommodation in the future; rather order 1 was addressed to the use or copying or certain documents. The realistic worth of the appeal did not exceed the monetary threshold and leave to appeal was therefore required.

(2)   (at [101]) there being no way to place a value on the ability to restrain the use by the appellants of the visual output of the software, leave was also required for the cross-appeal. It could not be assumed that the value to the respondents of such a restraint was the amount of consideration paid to Mr Riches under the deed of settlement.

(3)   (at [102]-[103]) having regard to the principle that leave to appeal is granted only when the matter involves an issue of principle or question of general public importance, or where it is reasonably clear that there has been an injustice which should be addressed, leave should not be granted for either the appeal or the cross-appeal.

by Ward JA (obiter):

(4)    (at [126]-[127]; [159]) the primary judge did not err in concluding that the compilation of information as to the respondents’ business processes and operational procedures involved a sufficient degree of skill and ingenuity to meet the test required in order to make the respondents’ business manuals confidential. The fact that many providers of accommodation adopt similar practices does not gainsay that the practices, procedures and marketing put in place by the respondents required some consideration. Similarly, there was no error in her Honour’s finding that the respondents’ software was confidential.

(5) (at [139]; [201]) there was no error in her Honour’s findings that Mr Riches, by his conduct in copying the respondents’ documents, was in breach of his duties as director under ss 182 and 183 of the Corporations Act 2001 (Cth), his fiduciary duties, and his duty of confidentiality.

(6)   (at [145]; [185]) order 1 addressed documents that were in existence at the time of the order; it did not preclude the appellants from creating future documents incorporating the same or similar ideas to those contained in the respondents’ documents. The deed of settlement required the return of hybrid documents only in the sense of documents containing material copied from the respondents’ documents.

(7)   (at [175]) in relation to the respondents’ software, her Honour did not err in finding that Link 2 had employed an accommodation booking software and system which was the same or substantially the same as the respondents’.

(8)   (at [205]) in relation to the cross-appeal, no House v R error was demonstrated in relation to her Honour’s refusal to grant any relief in relation to the software.

(9)   (at [237]) the apportionment of costs as between the various issues was a matter that her Honour was in the best position to assess and no House v R error was disclosed in the exercise of the costs discretion.

Judgment

1. BATHURST CJ: I have had the benefit of reading the judgment of Ward JA in draft. I agree with the orders her Honour proposes and with her reasons.

2. WARD JA: Broadly speaking, the parties to these proceedings compete in the provision of accommodation in Sydney to interstate and international students: the appellants (the Link 2 business) through the website the respondents (the Ezystay group business) through a different website –

3. Mr Greg Riches, the third appellant, is the manager of the Link 2 student accommodation business which is owned and operated by the first appellant, Link 2 Pty Ltd (Link 2). Mr Riches is the sole director and secretary of Link 2. The Link 2 business commenced in late 2012 and provides student accommodation in conjunction with Bar Broadway at a hotel on George Street near Central Station. The second appellant, Riches Commercial Pty Ltd (Riches Commercial), is a company associated with Mr Riches.

4. Prior to the establishment of the Link 2 accommodation business, Mr Riches was a director and shareholder of various companies in the Ezystay group of companies, including the first respondent, Ezystay Systems Pty Ltd (Ezystay). Ezystay provides student accommodation services to English Language College Pty Ltd. The remaining respondents are companies in the Ezystay group. Mr David Ritchie is a director of each of the Ezystay group companies.

5. The dispute between the parties relates to the circumstances in which Mr Riches established the Link 2 business and, in particular, to the respondents’ allegation that one or more of the appellants used or copied the respondents’ confidential information and breached obligations owed to the respondents by retaining certain confidential information after Mr Riches had finalised his interest in the Ezystay group.

6. At first instance the respondents succeeded in establishing some, but not all, of their claims (Ezystay Systems Pty Ltd v Link 2 Pty Ltd [2015] NSWSC 1105) and in obtaining final injunctive relief (Ezystay Systems Pty Ltd v Link 2 Pty Ltd (No 2) [2015] NSWSC 1594). Pursuant to the orders made by the primary judge, the appellants: were prohibited from directly or indirectly using or copying certain documents or documents derived therefrom, namely Ezystay’s Business and Systems Manuals, a document referred to as the “Elevator Take”, a software manual and documents (the Retained Documents) that the primary judge found had been retained in breach of a contractual obligation to return those documents to the respondents (order 1); were required to deliver up and destroy the Retained Documents in accordance with a prescribed regime (orders 2 and 3); and were ordered to pay 85% of the respondents’ costs (order 4).

7. The primary judge declined to grant any injunctive relief in respect of the respondents’ “Software” notwithstanding the findings of breach in relation thereto, on the basis that any time advantage the appellants may have obtained from any copying had passed.

8. The appellants challenge the making of orders 1 and 4. They do not challenge the balance of the orders (orders 2 and 3). They accept that there would be no utility in so doing (AT 9.50) on the basis that they say those orders have already been complied with in accordance with an undertaking that they gave to the court at the commencement of the hearing (the Undertaking).

9. The appellants contend that the primary judge erred in granting the permanent injunction the subject of order 1 on various grounds: that none of the relevant manuals (or other documents) contained confidential information (ground 1); that whatever copying or use took place was neither a breach of contract nor a breach of any equitable duty of confidence (ground 2) or Mr Riches’ directors’ duties (grounds 9 and 10); and that the mere retention of documents in breach of a contractual obligation to return them could not support the grant of an injunction prohibiting use or copying of the Retained Documents.

10. As to the costs order, the appellants contend that the primary judge erred in the exercise of her discretion: because findings should not have been made adverse to the appellants with respect to their use of the Software (grounds 4 to 8); and by failing to take proper account of matters such as the respondents’ failure to obtain any relief in respect of the Software and the fact that their primary success related to a claim (the retention claim) which was brought only on the first day of the hearing (in respect of which the appellants maintain that the Undertaking was a complete answer) (ground 11).

11. By notice of cross-appeal, the respondents challenge the findings made in the appellants’ favour in relation to the Software.

12. At the outset of the hearing of the appeal/cross-appeal, an issue was raised by the Court as to whether leave was necessary for the appeal/cross-appeal to be brought. Further written submissions (and an affidavit by Mr Riches) were filed and served on that issue. For the reasons set out below, I am of the view that leave is required both to appeal and to cross-appeal and that such leave should in each case be refused. I would therefore dismiss the notice of appeal and notice of cross-appeal as incompetent and order the parties to pay their own costs of the proceedings in this Court.

Background

13. There are a number of companies in the Ezystay group (which comprises companies in a group formerly known as the “Sleeping Group” as well as Ezystay – see affidavit of Mr Ritchie 17 July 2013 at [8]-[17]). Mr Ritchie, a director of the Ezystay group companies over the relevant period and of a company associated with him (Rujo Pty Ltd), held the controlling interest in the Ezystay group before Mr Riches became involved with that group.

14. Mr Riches was first employed by an entity in the Ezystay group (Sleeping with the Enemy Pty Ltd) in September 2005. He was subsequently employed by, or a contractor to, other companies in the group over the period from May 2006; and was a director and secretary of various of the companies in the group over the period from May 2006 to varying times between June and September 2012. In 2010, Mr Riches’ company, Riches Commercial, acquired units in the unit trust through which the shares in the Ezystay group companies were held (see Ritchie affidavit at [13]). Riches Commercial also acquired at some point a half shareholding in certain of the companies in the Ezystay group (see recital B to the Deed of Settlement dated 13 August 2012).

15. Mr Ritchie deposed that Mr Riches’ duties included promotion of the Ezystay business and the development of software for a bed asset management system in consultation with software developers (Ritchie affidavit at [22]) and that Mr Riches prepared the group’s Operations Procedures Manual (referred to in the proceedings below and in these proceedings as the Business Manual); project managed the creation of the group’s software system; was involved in the promotion of the group’s business (Ritchie affidavit at [23]); and was involved in the development of the group’s student accommodation business system (Ritchie affidavit at [31]). There was a standard design for the Ezystay residence (see Ritchie affidavit at [36]-[37]) referred to as the “Trade Dress”, which incorporated design features, fixtures, fittings, finishes, equipment and layout.

16. Development of the software system for the Ezystay group’s bed asset management system was done in consultation with Mr Jon Davis of iNE Australia Pty Ltd, a software development company. There were a number of stages in the software development, the final not being completed until September to December 2012. However, prior to 28 May 2012, Mr Davis had completed the Software Manual containing descriptions and instructions of how to manipulate the Software; specific features of the Software; and the steps to be taken in viewing a split booking (being a booking held by different people in the morning and the afternoon), deleting a booking and editing a booking.

17. During 2011, discussions were undertaken as to the provision of student accommodation by another hotel (Bar Broadway) using the Ezystay model (see Ritchie affidavit at [42]-[51]). Mr Riches was involved in those discussions, which culminated in Mr Riches conveying to Mr Ritchie that Bar Broadway was not interested in proceeding with the proposal at that time. (Bar Broadway ultimately became associated with Link 2 as already noted.) A consultant engaged by Ezystay (Mr John Garrett) gave evidence of the discussions relating to the proposal for Ezystay to manage accommodation at Bar Broadway (see affidavit of Garrett dated 17 July 2013 at [22] Blue 1/104). He deposed to a conversation in December 2011 with Mr Riches in which the latter said that if the proposal he had prepared was not acceptable to Mr Ritchie and his wife then he (Mr Riches) wanted to leave “and go and do my own thing with no strings attached” ([30]).

18. Mr Davis gave evidence that, at about the same time, and while the Ezystay software was still in the course of development, Mr Riches approached him and asked if he could take the “already established and invested code” and “fork” its development so that a copy of the software could continue to be developed for Ezystay and a copy developed for him. Mr Davis says he refused on the basis that it would be very difficult to develop both sides of the fork without a conflict of interest (see Davis affidavit dated 16 July 2013 at [15]).

13. In January 2012, Mr Riches again indicated to Mr Garrett that he was thinking of having a “clean break” and, according to Mr Garrett, suggested he was thinking of moving his family to Jindabyne where they had a ski lodge (see Garrett affidavit at [31]).

14. By late February 2012, Mr Riches had raised with Mr Ritchie that he wanted to discuss the terms of his exit from the Ezystay group (see Garrett affidavit at [32]). Mr Ritchie’s response was that this was premature until there was a valuation done for the property development then being undertaken by the group (referred to as “617”; namely 617 Harris Street, Ultimo). Mr Garrett deposed that Mr Riches had said that he was “happy to go for the money that [he had] put in plus [his] leave and superannuation whilst … an employee” (see Garrett affidavit at [32]).

15. Mr Riches then took steps independently of the Ezystay group (while still a director of the Ezystay group companies, though according to the submissions made on his behalf in these proceedings he was no longer being treated as connected to the business) to commission the development of software for a booking calendar ultimately to be used for the Link 2 business that he later established. In March 2012, he sent an email to Mr Amanjeet Singh, the managing director of Evomorf, a company in India which provides web design and web development, in which Mr Riches wrote:

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

22. There were various communications between Mr Singh and Mr Riches in May 2012 and on 30 May 2012 Mr Singh sent to Mr Riches a “Booking Calendar Features Document” (the Features Document) and invited him to go through and add or delete features. (The primary judge accepted that the Features Document recorded instructions that Mr Riches had given to Mr Singh – see [206].)

23. On 31 May 2012, an employee of Ezystay, Mr Ian MacLean, forwarded to Mr Riches a confidential email chain between himself, Mr Ritchie, and Mr Garrett (the Software Email) attaching a copy of the Ezystay Software Manual. Mr Riches then forwarded that email to his personal Gmail address, and to his wife. (A copy of the Software Email, along with the Software Manual, was later found on the appellants’ computers. The primary judge rejected the evidence of Mr Riches that he did not read the Software Manual attachment to the Software Email (at [234]).

24. On 1 June 2012, Mr Riches resigned from some (but not all) of the Ezystay companies (see [49] of the primary judgment). On 5 June 2012 Mr Riches sent to Mr Singh the Features Document with some amendments. Link 2 was registered on 6 June 2012.

25. From June to August 2012, Mr Singh and Mr Riches had further communications about the software that Mr Singh was developing on the instructions of Mr Riches. Mr Singh issued invoices for his work in that period. The Link 2 website ultimately became operative around September 2012.

26. Meanwhile, negotiations as to the basis on which Mr Riches’ interest in the Ezystay group was to be finalised culminated in the Deed of Settlement dated 13 August 2012 to which I have earlier referred (at [14] above) (the Deed). The parties to the Deed were Mr Riches and Riches Commercial on the one hand (the Riches Parties as defined in the Deed), and Mr Ritchie, the Ezystay group companies and Rujo Pty Ltd on the other hand.

27. The Deed recited (recital H) the Riches Parties’ wish to exit the Ezystay group and that the parties had executed the Deed to provide the terms governing that exit.

28. In essence, the Deed provided for the redemption of the units and shares held by Riches Commercial for the sum of $425,000 and for the payment of Riches Commercial’s and Mr Riches’ loans and entitlements in the sum of $75,212.33 (cl 4(a)-(b)).

29. As emphasised by the appellants in these proceedings, the Deed contained no restriction on the appellants competing with the respondents in the student accommodation market. However, pursuant to cl 4(c) of the Deed, the appellants were required to return hard copies of the respondents’ documents in their possession and to destroy electronic copies of them; and cl 8 of the Deed prohibited the use, copying or reproduction of the respondents’ confidential information. Clause 9 imposed restrictions on the use of the Ezystay Group’s “Intellectual Property” (as defined in cl 1 extracted below at [31]). Accordingly, the ability of the appellants to compete with the respondents in the provision of student accommodation was subject at the very least to the practical restrictions imposed by the contractual obligations to which they were subject under the Deed in relation to the respondents’ “Confidential Information” (similarly defined in cl 1) and Intellectual Property.

Deed of Settlement dated 13 August 2012

30. At this stage it is convenient to set out relevant provisions of the Deed.

31. In the definitions section (cl 1), the following terms were defined (which definitions were to apply unless the context required otherwise):

(d)   Confidential Information means all information, trade secrets, ideas, knowledge, concepts, and processes whether in writing or otherwise, which is confidential and which:

(i)   Relates in any way to the Group or its affairs, business, Intellectual Property, procedures, methodology, or systems, or its sales, marketing, business or promotional plans or information, or its personnel, products, services, partners, associates, suppliers, service providers, contractors, principals, agents, or Customers; or

(ii)   Includes all information or knowledge acquired by any of the Riches Parties or their Related Entitles as a result of the Group permitting any of the Riches Parties to have access to any of its Confidential Information.

(e)   Customer means any person or entity with whom any of the entities within the Group contracted, or had a business relationship, from which contract or business relationship the Group derived any revenue within the 12 months preceding the Time of Completion.

…

(m)   Intellectual Property means all intellectual property rights throughout the world whether protected by statute or not, including rights in relation to any copyright, marks, trademarks (including service marks), registered and unregistered business names, domain names (including designs, inventions (including patents), systems, programs, discoveries, algorithms or formulae, know-how, trade secrets, trade dress and get-up and domain names, and semiconductor or circuit layout rights, whether registered or not, including any right to apply for a grant or registration of any such rights.

(n)   Books, Records, Materials and Documentation means all books, records, documentation, diagrams, photographs, images, manuals, operations or procedures manuals, plans, and rules.

32. Pursuant to cl 2, immediately upon execution of the Deed, Mr Riches was to resign as a director and secretary of each of the companies in the Ezystay group. (He had already by then resigned from a number of those companies, as indicated above, but not all of them.)

33. Completion was to occur upon settlement of the refinance of the Ezystay group’s banking facilities within four to six weeks of the date of the Deed (see cl 3). (It took place on 12 September 2012 – see Ritchie affidavit at [56]). Simultaneously upon completion, the following was to occur (cl 4):

(a)   All of Riches Commercial’s units in the Trust and shares in the [Ezystay group] Companies shall be redeemed for the sum of $425,000.

(b)   The Trust shall pay Riches Commercial’s and [Mr Riches’] loans and entitlements in the sum of $75,212.33.

(c)   The Riches Parties shall:

(i)   Return all property of the Group, and all hard copies of the Group’s Confidential Information and Books, Records, Materials and Documentation, including all documents relating to 423-427 and 617 [particular properties];

(ii)   Cause all electronic copies of the Group’s Confidential Information and Books, Records, Materials and Documentation, including all documents relating to 423-427 and 617, in the possession of the Riches Parties or their Related Entitles to be deleted after a copy has been provided to David [Ritchie];

(iii)   Disclose to the Rujo Parties the credentials for the Group’s systems, including passwords, administrator access rights, ShareFile access and email administrator rights;

(iv)   Provide written confirmation of the assignment to Ezystay Systems of the domain names for and and

(v)   Provide written confirmation of the assignment to Ezystay Systems of the systems and domain name for start="34">

Clauses 7 to 9 of the Deed provided as follows:

RESTRAINTS, CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY

7.   The Riches Parties shall not, without David's written consent, directly or indirectly, in any capacity:

(a)   Solicit or seek custom from, or enter into any agreement or business relationship with, any Customer;

(b)   Engage any Employee; or

(c)   Attempt to do any of the things in paragraph 7(a) or 7(b),

within 12 months of the date of Completion, or if a Court of competent jurisdiction determines that period to be unreasonable, within the maximum period that the Court determines is reasonable.

8.   The Riches Parties shall treat Confidential Information as subject to a duty of confidence, and must not, and must ensure that their Related Entities do not, directly or indirectly, without the Group’s prior written consent, disclose it to anyone, or use, copy or reproduce it for any purpose (including competing against the Group or acting on behalf of any person competing against the Group), save as required by law.

9.   The Riches Parties warrant and agree that:

(a)   All Intellectual Property created or developed by, in relation to or in connection with the Group, belongs to and vests in the Group exclusively;

(b)   The Riches Parties shall from Completion execute all documents and do all acts and things reasonably required to secure any such Intellectual Property to the Group, including the systems and domain names referred to in clause 4(c)(iv) and 4(c)(v); and

(c)   The Riches Parties shall not do any act or thing which directly or indirectly infringes the rights of the Group with respect to its Intellectual Property.

Proceedings

35. In early March 2013, Mr Davis became aware that Link 2 was operating a student accommodation business (see Davis affidavit [34]). He deposed that the design of the diary booking system (accessed from Link 2’s website) was almost identical to the design developed by iNE for the Ezystay group and deposed to his belief that Mr Riches had used the Ezystay group’s Trade Dress and Confidential Information to make an arrangement between Link 2 and Bar Broadway (the hotel with whom Ezystay had been in negotiation in 2011) to provide student accommodation at the Bar Broadway premises (see Davis affidavit at [36] and [39]).

36. The respondents then commenced proceedings in the Equity Division by summons filed 18 July 2013, seeking, inter alia, a permanent injunction to restrain the appellants directly or indirectly from using and/or copying certain documents and software (defined collectively as the Ezystay Intellectual Property) and an order that the appellants deliver up and return to the respondents all hard copies of the documents recording the Ezystay Intellectual Property (and all the confidential information contained therein) and destroy all electronic copies of documents recording the confidential information contained in the Ezystay Intellectual Property.

37. On the same day as proceedings were commenced, ex parte interlocutory relief was sought, namely search orders in respect of intellectual property, including an operations procedures manual, systems manual, booking management systems and software claimed to be confidential. Pembroke J made those orders on 18 July 2013. (It subsequently emerged that Mr Riches was alerted in advance to the “raid potentially happening”, when a former staff member, Mr MacLean, rang him and told him that there was to be a search order executed on the basis of a court order – see T 210-211 – and that Mr Riches’ wife had then gone through and “cleaned up” and removed documents from the register – see [176]-[177] of the primary judge’s reasons. Nevertheless, there was no dispute that copies of certain of the respondents’ documents were found on the appellants’ computers. Mr and Mrs Riches denied having deleted any documents.)

38. The appellants then challenged the making of those interlocutory orders on the ground that the respondents had failed to bring certain matters to the attention of the Court, including, in summary, that there was no restraint under the Deed on the appellants establishing a business in competition with the respondents and that some of the material claimed to be confidential had been disclosed to third parties. Their application was dismissed by Nicholas AJ; as was their application to set aside or vary orders that had been made as to confidentiality of certain affidavits of Mr Davis and Mr Ritchie that had been read in support of the ex parte application (Ezystay Systems Pty Ltd v Link 2 Pty Ltd [2014] NSWSC 180).

39. The substantive proceedings were heard by Bergin CJ in Eq over 7 days commencing on 30 April 2015. At the commencement of the hearing (at T 21.18), an application was made for leave further to amend the pleadings. That application was granted. Relevantly, the “retention claim” was then pleaded (at [51(c)] and [53(c)]) and there was an amendment to the relief claimed to include the delivery up of the “Discovered Material” (i.e., the material found in the course of execution of the search orders and listed as an annexure to the pleading). The issues in the case were thus framed by the second further amended statement of claim filed on 6 May 2015.

40. Pausing there, the appellants have emphasised, in the context of their complaint as to the costs orders ultimately made by the primary judge, that when the retention claim was pleaded they proffered the Undertaking to the Court in relation to what they said had been “inadvertently retained” documents (see text of the Undertaking at [57] below). The respondents maintained that this Undertaking was insufficient to address their concerns in that it was not clear that it conceded the relief sought in pages 1 and 2 of the claim for relief and it was made without admissions in circumstances where the appellants maintained there was no claim pursuant to the property return covenant.

41. The primary judge did not accept the appellants’ contention that the ultimate “retention” claim was only introduced in the pleading filed on 30 April 2015 and that, before then, the only retention claim that was made was in respect of documents containing confidential information. Her Honour considered that it was clear that the further amended statement of claim included a claim that the relevant documents were “Books, Records, Materials and Documentation” within the meaning of the Deed, to which the property return covenant in cl 4 applied, referring to [31], [42], and [39] of the pleading. The appellants accept this. Her Honour further said that it had been alleged (in the further amended statement of claim) that the appellants had breached that covenant in that they had refused to return the documents in accordance with their obligations under the Deed (referring to [56(e)], [57(c)], [58(e)] and [60(e)] of the pleading) (see [14] of her Honour’s second judgment). The appellants cavil with the latter proposition.

42. In any event, in the final pleading, four categories of confidential information/intellectual property were identified: first, the Operations Procedures Manual (there defined as the Business Manual), the “Elevator Take” (a summary of the Ezystay group’s business – reproduced at [150] of the primary judge’s reasons) and the Systems Manual, as well as the “Confidential Business Manual Information” contained in those three documents (see [25]-[31]); second, the Trade Dress, being the interior design features and specifications for the student accommodation (see [32]-[35]); third, the “Software” (defined as an original software programme developed with a password protected interface to enable persons to book student accommodation and store information) (see [36]-[42]); and; fourth, the Software Manual (see [43]-[49]). The third and fourth categories expressly extended to the confidential information contained within the Software and Software Manual respectively.

43. It was alleged that each of those were or contained “Books, Records, Materials and Documentation” within the meaning of the Deed, to which the property return covenant (in cl 4 of the Deed) applied ([31]; [35]; [42]; [49]). In the case of the Software, it is relevant to note that it was “all visual output” of the Software that was alleged to fall within the property return covenant; not the software code as such.

44. The respondents alleged that each of those four categories of documents was and contained Intellectual Property to which an implied term in Mr Riches’ employment contract and/or a covenant in the Deed applied ([30]; [34]; [41]; [48]), and that each (other than the Trade Dress) contained Confidential Information to which various covenants in the Deed, as well as statutory and fiduciary duties (including a duty under s 183 of the Corporations Act 2001 (Cth) and a fiduciary duty to keep them confidential) and an implied term of Mr Riches’ employment contract, applied ([29]; [40]; [47]). It was also alleged that the Ezystay group owned copyright in the first, third and fourth categories of documents ([25]; [36]; [43]), though no claim for infringement of copyright was made. (If an allegation of copyright infringement had been made, then a question as to this Court’s jurisdiction would have arisen: cf Bramco Electronics Pty Ltd v ATF Mining Electrics Pty Ltd [2013] NSWCA 392.)

45. The complaint by the respondents was that Link 2 had advertised and marketed student accommodation with features the same or substantially the same as the Trade Dress, and as described in the Business Manual, Elevator Take and Systems Manual; and had employed an accommodation booking software and system the same or substantially the same as the Software and that described in the Software Manual ([50]); that Riches Commercial, through its subsidiary Link 2, had indirectly engaged in that conduct and had retained the material listed in Schedule A to the pleading, comprising “Books, Records, Materials and Documentation” of the group as defined in the Deed (the Discovered Material) ([51]); and that Mr Riches had caused Link 2 to engage in that conduct ([52]).

46. The respondents alleged that, from some time after 16 December 2011, Mr Riches had: used and/or copied the Business Manual, the Elevator Take, the Systems Manual and/or the Confidential Business Manual Information; copied the Trade Dress; used, copied and/or reproduced the Software and/or the Confidential Software Information; used and/or copied the Software Manual and/or the Confidential Software Manual Information; and/or retained the Discovered Material ([53]).

47. The respondents alleged that Mr Riches had breached, and continued to be in breach of terms implied in his contract of employment (the confidentiality term and intellectual property term), covenants in the Deed (cll 4(c), 8 and 9), his fiduciary duties and/or director’s duties under ss 182 and 183 of the Corporations Act; and/or a duty of confidentiality owed as an officer or employee of the respondents ([56]). Similar breaches of the Deed covenants were alleged against Riches Commercial ([57]) and it was alleged that it had knowingly induced the breaches by Mr Riches ([58]).

48. As against Link 2, the respondents alleged that it was at all material times aware of, and induced Mr Riches to breach, the various obligations and duties that the respondents alleged he had breached ([59]-[60]).

35. The respondents sought a permanent injunction restraining the appellants directly or indirectly from using and/or copying the Business Manual; the Elevator Take; the Systems Manual; the Trade Dress; the Software; and the Software Manual ([1]); and an order that the appellants deliver up and return all hard copies of, and destroy all electronic copies of, documents recording the Confidential Business Manual Information; the Confidential Software Information; the Confidential Software Manual Information; the Discovered Material and “any copy of or document derived from” the Discovered Material ([2]). (The appellants emphasise that the relief as sought did not include an injunction restraining the use and/or copying of hybrid documents or the Discovered Material – see T.16; though no complaint was made when the terms of the final injunction were debated as to the inclusion of hybrid documents or Discovered Material in order 1 – see T 18.22. Although in the pleading there were claims for damages, equitable compensation, an account of profits and/or compensation under s 1317H of the Corporations Act ([3]-[4]), those claims were not pressed at trial – see T 138.)

36. The appellants denied the allegations of similarity in relation to Link 2’s business, claiming that Link 2’s student accommodation business was in accordance with industry standard practices. The appellants claimed that Link 2 used: a trade dress in accordance with standard industry practice; fixtures and fittings commonly used in accommodation for the target market; and an electronic accommodation booking system incorporating a presentation and appearance common to online booking systems (see their defence to the further amended statement of claim [43]).

37. They denied that Mr Riches had used and/or copied the various documents, information and Trade Dress or had used, copied and/or reproduced the Software ([46]). They denied any breach by Mr Riches of the statutory or fiduciary duties owed by him as a director of the Ezystay companies ([49]) or of any covenants in the Deed; and denied that Link 2 or Riches Commercial induced or gained an advantage from any such breaches ([48]-[52]).

38. Relevantly (in light of certain of the submissions made by the appellants in these proceedings), the appellants admitted that the Business Manual, the Elevator Take, the Systems Manual, all photographs and lists of the features of the Trade Dress, all “visual output” of the Software and the Software Manual were the subject of the property return covenant in cl 4(c) of the Deed ([24]; [35]; [42]; [49]); but they denied that these materials were confidential or that the respondents had any intellectual property in them ([19]-[24]; [27]; [30]-[31]; [33]-[41]). (In this Court the appellants submitted that the software system did not fall within the definition of “Books, Records, Materials and Documentation”, pointing to the fact that, unlike the definition of Intellectual Property (which referred to systems and programs), there was no reference to “systems” in the definition of “Books, Records, etc.”; and hence did not fall within the property return covenant. That submission, insofar as it is inconsistent with the appellants’ pleadings, should not be accepted; but ultimately nothing turns on this as there was no order made for delivery up of the software nor any restraint on the use of copied software.

39. The appellants claimed that the Business Manual, the Elevator Take, the Systems Manual and the Trade Dress incorporated information that was: in the public domain ([19]; [22]; [26]); obvious ([22]; [26]); common to student accommodation operators ([22]; [26]); and not unique to the Ezystay business ([22]; [26]). (In this Court the refrain was that the information in question was “so anodyne, so basic, trivial and banal”, “so ubiquitous and anodyne and basic”, and similar variations on the same theme.)

40. The appellants pointed out in their defence that the respondents had not claimed any breach of copyright, trademark or other intellectual property right in the “source code” of the Software ([30(a)]); denied that the Software was confidential in its “look or design” ([30(b)]); and claimed that it had been made available to various third parties for the purpose of making bookings ([30(b)]).

41. The appellants also asserted, by way of a complete answer to the respondents’ claims, inter alia, that the injunctive relief sought by the appellants would, if granted, have the practical effect of preventing the conduct of any student accommodation business by them and would preclude them competing with the respondents in circumstances where the Deed itself did not restrict competition between the parties ([56(d)]).

42. The appellants admitted that they had “inadvertently” retained the Discovered Documents subsequent to execution of the Deed, including by way of “backups, access to certain ‘Cloud’ storage systems”, but did not admit that each item of the Discovered Documents comprised “Books, Records, Materials and Documentation” of the group ([44]).

Undertaking to the Court

57. As adverted to earlier, the appellants proffered to the Court an undertaking on 30 April 2015 (see Black 18-21) in the following terms:

Without admission, the Defendants in Supreme Court of New South Wales Proceedings No. 2013/219128 (Proceedings) being, Link 2 Pty Limited (ACN 158 841 386), Riches Commercial Pty Limited (ACN 121 355 664) and Gregory Moore Riches (collectively Defendants) hereby undertake to the Court that:

1.   They will delete any and all electronic copies of the documents referred to in Schedule ‘A’ hereto that are in their power, custody or control within twenty-one days of the giving of this undertaking.

2.   Without admission that any such copies exist, they will return any hard copies of any of the documents referred to in Schedule ‘A’ hereto that are in their power, custody or control within twenty-one days of the giving of this undertaking.

3.   Without admission that any such copies exist and further to undertakings one and two above, they will delete any copies of the Group’s Confidential Information and Books, Records, Materials and Documentation (all as defined in the Deed dated 13 August 2012 (Deed)) within twenty-one days of giving this undertaking.

4.   Without admission that any such copies exist and further to undertakings one and two above, they will return any hard copies of the Group’s Confidential Information and Books, Records, Materials and Documentation within twenty-one days of giving this undertaking.

5.   Within twenty-four days of giving this undertaking, they will confirm in writing by their solicitor to the solicitor for the Plaintiffs in the Proceedings that they have complied with undertakings one to four above.

The above is subject to the solicitor and counsel for the Defendants retaining such of the documents referred to in Schedule ‘A’ or are Confidential Information and Books or Records, Materials and Documentation that are in their possession and required to be kept for the proper record of the proceedings.

58. As noted, the respondents did not accept that the provision of such an undertaking adequately addressed their claims. In their final oral submissions, as recorded by the primary judge, they submitted that the Undertaking did not assist because it did not deal with the Software, was conditioned on various non-admissions, did not admit the documents existed and contained no undertaking not to use the documents (see [18] of the second judgment). The primary judge accepted that the Undertaking did not obviate the need to deal with all of the issues raised in the proceedings (as itemised at [105]-[111] of the principal judgment). What subsequently occurred, as described in the second judgment, is that Mr Riches took it upon himself physically to destroy the computers on which the Discovered Documents had been retained, without notice to the respondents or the respective legal advisers.

Primary judgments

Principal judgment – Ezystay Systems Pty Ltd v Link 2 Pty Ltd [2015] NSWSC 1105

59. The primary judge noted (at [106]) that there was no issue between the parties that hard copy documents in the appellants’ possession falling within the definition of “Books, Records, Materials and Documentation” in the Deed must be returned to the respondents and that electronic copies of the documents falling within that definition must be deleted but (at [107]) that the parties were at issue as to documents the respondents had created from copying the Business Manual; the Elevator Take; the Systems Manual; the Trade Dress; the Software and the Software Manual.

60. In particular, her Honour noted (at [108]-[109]) that there was an issue as to whether cll 4(c)(i) and 4(c)(ii) of the Deed required the return or deletion of documents created by copying parts or the whole of the Confidential Information or Books, Records, Materials and Documentation (referred to as the hybrid documents). Given that the appellants contended that they were only prohibited from using or reproducing (copying) parts or the whole of Ezystay’s documents or information if they fell within the definition of “Confidential Information” in the Deed, issues arose as to whether the relevant documents (the Business Manual, the Elevator Take, the Systems Manual, the Trade Dress and the Software and the Software Manual) fell within the definition of “Confidential Information” in the Deed.

61. At [121], the primary judge recorded that the evidence established that the appellants had retained electronic copies of: the Business Manual and hybrid documents thereof; the Elevator Take and the hybrid document thereof; the Systems Manual and hybrid documents thereof; the Software Manual; and images and diagrams and other records comprising the Trade Dress. Her Honour noted the appellants’ concession that all of these documents fell within the definition of “Books, Records, Materials and Documentation” in the Deed; and was satisfied that they were not deleted or returned on completion and therefore that Riches Commercial and Mr Riches were in breach of cl 4 of the Deed in this regard.

62. In relation to the hybrid documents, her Honour concluded that the appellants were required to return hard copies and delete electronic copies of those if the hybrid documents contained the respondents’ Confidential Information as defined in the Deed.

63. Her Honour addressed the respective documents separately.

64. As to the Business Manual, which the primary judge noted contained the processes and steps pursuant to which Ezystay operated its business ([138]) and the reporting structure to enable Ezystay to assess the operational efficiencies of its business ([140]), and on which Ezystay had expended time and cost ([138]), her Honour said (at [139]):

Obviously there are some aspects of the contents of the Business Manual, for instance, the Welcome Letter and the Departure Letter that cannot on their own be confidential information because they are provided to the students on arrival and on departure respectively. Equally obviously when a student arrives at the accommodation and goes through the induction process, such process from the extent of the communications between the House Manager and the student and the provision of any relevant documents including the Study House Handbook cannot be said to be confidential. However that does not mean that the Business Manual cannot be said to be confidential.

65. Her Honour was satisfied that the information that Ezystay had gathered together in its Business Manual was “its business model or formula for success for the operation of its business”. Her Honour noted that the information related to Ezystay’s business and procedures. Her Honour was satisfied that the Business Manual was within the meaning of Confidential Information in the Deed ([141]).

66. As to the Systems Manual, which her Honour accepted included material referring to attributes of Ezystay’s business of which a person could become aware upon staying in Ezystay’s accommodation ([147]), her Honour was satisfied that skill and work had gone into compiling its compilation and said that this appeared to have been in preparation for a tender for the business of a prospective client. Her Honour said (at [147]) that a reasonable person standing in the shoes of the recipient of the information as compiled would have realised that it was provided in confidence (there referring to Coco v AN Clark (Engineers) Ltd [1969] RPC 41 at 47) and, as with the Business Manual, concluded (at [148]) that it contained Confidential Information as defined in the Deed.

67. Her Honour was not persuaded that the Elevator Take contained Confidential Information as defined in the Deed ([154]).

68. Her Honour concluded (at [155]) that each of the Business Manual and Systems Manual contained the respondents’ Confidential Information; that each was the subject of the property return covenant in cl 4(c)(i) and (ii) of the Deed; and that Riches Commercial and Mr Riches were in breach of that covenant in failing to return those documents to the respondents. Her Honour then said (at [156]):

Any hybrid documents that were created by copying or using the material in the Business Manual and the Systems Manual are the subject of Clause 8 of the Deed [the restraint on use/copying]. In any event those documents contain Confidential Information and are also the subject of the covenant in clause 4(c)(i) and (ii) of the Deed. Riches Commercial and Mr Riches are in breach of that covenant.

69. At [157], her Honour held that, although the Elevator Take was not confidential, it and the hybrid copies of it fell within the description of “Books, Records, Materials and Documentation” in the Deed and must be returned.

70. As to the Trade Dress claim, her Honour noted that the definition of Intellectual Property in the Deed expressly included “trade dress and get-up” ([159]). Her Honour considered it obvious that there were similarities between the presentation of the Ezystay accommodation and that provided by Link 2 ([164]) but, although the appellants had used some of the ideas and presentation gleaned from the Ezystay accommodation, was not satisfied that they had copied the Trade Dress as pleaded and hence this claim failed ([165]).

71. Turning then to the Software claim, the primary judge was satisfied that the Software Manual and the Software for the design of the booking calendar that was being developed by Mr Davis was the confidential information of the respondents ([186]).

72. Having summarised the evidence given by the respective experts and that of Mr Riches, and (from [224]-[232]) the surrounding circumstances on which the respondents relied, her Honour considered (at [233]) that:

... the comparison of the items in the Features Document and the elements in the Ezystay system; the evidence of Mr Riches in forwarding to himself and his wife the Software Email; the request for Mr Aitken to remove aspects from the Bar Broadway webpage; the matters identified in the surrounding circumstances; and the copying and plagiarising of the plaintiffs’ documents are all matters relevant in the consideration of whether I am satisfied that the plaintiffs’ Software was copied.

73. The primary judge did not accept Mr Riches’ evidence that, although he forwarded the Software email to himself and to his wife, he did not open the iNE document or read it. Her Honour was satisfied that his conduct in giving Mr Singh explicit instructions that matched identically those parts of the interface contained in the Ezystay booking system and Software amounted to copying the Software ([234]) and that the Ezystay Software and Software Manual contained Confidential Information ([235]). Her Honour concluded (at [235]) that Mr Riches was in breach of cl 8 of the Deed by copying and using the respondents’ Software and that the appellants were in breach of cl 4 of the Deed in failing to return hard copies and/or delete the electronic copies of the Software Manual and Software. At [236], her Honour said:

I am satisfied that from sometime after 16 July 2012 Link 2 employed an accommodation booking software and system which was the same or substantially the same as the Ezystay Software and that described in the Software Manual. Mr Riches as the sole director of Link 2 caused it to engage in such conduct.

74. As to the breach of duties claim, her Honour found (at [240]) that during the period from December 2011 up to the time that the Deed was executed Mr Riches copied and used the respondents’ documents “some of which were confidential” for the benefit of Link 2 (that benefit including a saving of time, cost and effort in putting together its own presentation by cutting and pasting the Ezystay presentation and other documents). Her Honour concluded that Mr Riches had breached the fiduciary duty he owed (while a director) to the Ezystay companies (not to conduct himself whereby he or a third party gained an unauthorised advantage from the respondents’ business documents and confidential information) by: providing documents and materials to Riches Commercial and Mrs Riches for the purpose of preparing presentations to market the new business to agents and schools in competition with the Ezystay companies of which he was then a director ([240]); by copying confidential information in instructing Mr Singh to prepare the software for Link 2 prior to the time that he resigned his two directorships and well prior to the time that he resigned from his other directorships ([241]); and by providing the confidential information to Mrs Riches for the purpose of use in the business of Link 2 ([242]).

75. Her Honour held (at [243]) that Mr Riches had also improperly used his position as a director to gain an advantage for himself and for Link 2 (and Riches Commercial) by reason of the use of the Ezystay documents and information, in breach of ss 182 and 183 of the Corporations Act. At [245], her Honour noted that the respondents had been put to the cost of pursuing a search for documents and hybrid documents that had been improperly withheld by the appellants and of seeking orders for the return of their confidential information which had been retained and used by the appellants in breach of the Deed. Her Honour was satisfied that this expenditure was lost to the business operations of the respondents and was satisfied that Mr Riches had caused Link 2 to use the respondents’ Confidential Information in its business ([245]).

76. Thus the primary judge concluded that the respondents had succeeded in their claims in respect of the Business Manual, the Systems Manual and the Elevator Take, as well as in respect of the Software Manual and the Software, but had failed in respect of the Trade Dress ([246]).

Second judgment – Ezystay System Pty Ltd v Link 2 Pty Ltd (No 2) [2015] NSWSC 1594

77. As to the final relief to be granted, and costs, further written submissions were filed and there was a further hearing in October 2015 on those issues. In reasons published on 29 October 2015 (Ezystay Systems Pty Ltd v Link 2 Pty Ltd (No 2) [2015] NSWSC 1594), the primary judge identified the issues then raised as being: first, as to the definition of Software and whether the use of the Software should be restrained by injunction ([3]); second, whether orders should be made for the delivery up of the respondents’ documents and/or the deletion of the respondents’ electronic files which had been retained by the appellants (and whether that process should be supervised ([4]); and, third, as to costs.

78. The final orders as sought by the respondents included orders of the following kinds: a restraint order to restrain the appellants from using and copying, inter alia, the Software (defined, as noted later (at [87]), to mean “the software programme developed to the plaintiffs’ specifications in connection with the booking of student accommodation and storage of information”); an order for the delivery up and destruction of, inter alia, the Software; and an order for the delivery up of computers and other devices to an independent computer specialist for the purpose of verification of compliance with the delivery up order.

77. As to the first, her Honour noted that the appellants did not oppose an injunction in the form sought by the respondents provided that “Software” was not included in it ([33]). The objection of the appellants to the restraint order was made on a number of bases: that the definition of the term “Software” was imprecise; that any injunction relating to the Software should be limited to the “interface” or “visual output”; and that the making of such an order would be in restraint of trade.

78. Her Honour rejected the submission that the proposed order in relation to the Software would be in restraint of trade ([41]) but ultimately concluded that the injunction should not include the Software ([50]). In so concluding, the primary judge noted (at [45]) that the appellants had been operating their businesses utilising their software since September 2012; that there was no restraint on them setting up the same type of business in competition with the respondents; that they were free to do so constrained only (relevantly) by the terms of the Deed; that they had copied and used the respondents’ Confidential Information in setting up a pivotal part of their business, namely the software containing the booking system; and that this had been in place for three years and had been modified over that time. Her Honour said at [46]:

The extent to which and the timeframe during which the defendants obtained any springboard or advantage has long since passed and the plaintiffs abandoned any claim for damages or compensation.

81. Her Honour referred to the uncertainty in which the appellants would be placed “as to whether they are to stop using their own software altogether or only those parts of it that have not been modified over the years”; and noted that there was also “the question of the consequence and effect of the modifications and the status of the software once modified” and the “important question of proportionality” ([48]).

82. Her Honour said that the advantage that the appellants obtained was the capacity to set up their business more quickly than if they had established their software “from scratch” but considered that the timeframe was probably short because Mr Riches was well-versed in the creation of software for a student accommodation business ([48]). Moreover, her Honour considered that if the proposed injunction would restrain the appellants from using their software altogether this would be out of all proportion to any advantage secured by the breach ([49]).

83. As to the second issue, the primary judge said that Mr Riches’ extraordinary conduct (in taking it upon himself without notice to the respondents or any of the legal representatives to destroy the computers the subject of the search order while that order was in place) meant that the Court could have little confidence in the veracity of his claims ([51]) and that the delivery up orders should be made but that that supervision of that process by the respective parties’ lawyers would be sufficient ([51]). The delivery up order as made did not include the Software.

84. As to costs, her Honour accepted that the failure of the respondents to make out the Trade Dress claim and their abandonment of the claims for damages, compensation and an account of profits should be reflected in the costs award. Her Honour ordered that the respondents have a costs order in their favour for 85% of the costs of the proceedings, that being the just and equitable outcome ([53]). Her Honour rejected the respondents’ claim for indemnity costs ([56]). Though noting that the appellants’ conduct had been unsatisfactory, her Honour considered that there was an arguable case that the material retained, copied and used was not confidential and that there was a respectable argument as to the construction of the Deed ([56]).

Appeal

85. By notice of appeal filed 6 January 2016, as amended in relation to ground 3 when the matter was heard on 20 July 2016, the appellants challenge the decision of the primary judge on the following grounds:

Manuals claim

1.   Her Honour erred in finding that the Business Manual and the Systems Manual (collectively, the Manuals) were confidential, and thus Confidential Information within the meaning of the Deed, having regard to the fact that neither document had the necessary attributes of confidentiality in that their contents:

a.   were in the public domain;

b.   were common knowledge, commonplace and trivial;

c.   could be ascertained or duplicated without expenditure of time, effort or money;

d.   were not preserved as a matter of secrecy by the respondents; and

e.   were not valuable.

2.   Her Honour erred in finding that the appellants breached clause 8 of the Deed, and Mr Riches breached his equitable duty of confidence, in using or copying the Manuals, given that:

a.   the copying that did occur was de minimis;

b.   with the exception of a few paragraphs, none of that material was actually used in the appellants’ business; and

c.   the respondents suffered no loss as a result of the alleged breaches.

3.   Her Honour erred in granting relief in order 1 in respect of any of the documents referred to in that order.

Software claim

4.   Her Honour erred in finding that the features listed in the Features Document were confidential and her Honour consequently erred in finding that the Software was or contained Confidential Information within the meaning of the Deed or at general law, given that each of the features was:

a.   not unique or novel;

b.   necessary for the purpose of the appellants’ software in that no other design could reasonably have been contemplated by someone in Mr Riches’ position and without reference to the Software;

c.   trivial and easily observable on many websites and booking systems; and

not a matter that would engage the confidential information doctrine.

5.   Her Honour erred in finding that the appellants breached clause 8 of the Deed, and that Mr Riches breached his fiduciary duty, by copying or using the Software, in light of the following matters:

a.   neither the Software Manual nor any other Ezystay material was ever provided to Mr Singh;

b.   the respondents’ pleaded case was based only on the end product (the Link2 website, the Facebook page and the Bar Broadway website), not copying involving any intermediate step, for example, at the stage of initial instructions to Mr Singh;

c.   the “look and feel” of the Link 2 website is substantially different from the Software, and the respondents’ pleaded case was based on the “visual output” of the Software rather than any particular functionality;

d.   the respondents failed to prove that many aspects of the Software were found in the Link 2 system;

e.   Mr Riches legitimately used his own know-how in developing the appellants’ software; and

f.   the respondents suffered no loss as a result of the alleged breaches.

6.   Her Honour erred in finding that sometime after 16 July 2012 Link 2 employed an accommodation booking software and system which was the same or substantially the same as the Software.

7.   Her Honour erred in finding that the appellants breached clause 4 of the Deed in failing to return hard copies and/or delete the electronic copies of the respondents’ Software.

8.   Her Honour erred in rejecting the tender of the report of David Baskind dated 13 May 2015.

Breach of fiduciary/statutory duties claim

9. Her Honour erred in finding that Mr Riches breached s 182 and s 183 of the Corporations Act 2001 (Cth) and/or his fiduciary duty by providing documents and materials to Riches Commercial and Mrs Riches for the purpose of preparing presentations to market the new business to agents and schools in competition with the respondent companies, and by reason of the use of the Ezystay documents and information, in circumstances where:

a.   the only pleaded breaches of fiduciary or statutory duties related (relevantly) to copying the Manuals and the Software;

b.   the relevant information was not confidential;

c.   neither the Manuals or the Software was used or copied in any significant way;

d.   there was no improper use of Mr Riches’ position, given that, although he was still technically a director at the relevant time, all concerned (particularly Mr Ritchie and Mr Garrett) were aware that Mr Riches was separating his interests from the Ezystay parties, and possibly entering the student accommodation market;

e.   no relief was sought under the Corporations Act, save for a compensation order under s 1317H, and the respondents abandoned any such claim for damages or compensation; and

f.   the respondents suffered no loss as a result of the alleged breaches.

10.   Her Honour erred in granting relief for breach of such duties, having regard to the matters referred to in ground 9 above.

Costs

11.   Her Honour erred in the exercise of her costs discretion in ordering the appellants to pay 85% of the costs of the respondents in circumstances where:

a.   the respondents were unsuccessful in their Trade Dress Claim;

b.   the respondents were unsuccessful in obtaining any orders at all in respect of the Software, being the most significant aspect of the claims brought by the respondents;

c.   the abandonment of the respondents’ claims for damages and an account of profits; and

d.   the respondents’ success was primarily in respect of the retention of Ezystay documents by the appellants, which claim was first brought by amendment made on the first day of hearing and notified to the appellants shortly prior to the commencement of the hearing.

Cross-appeal

86. By their notice of cross-appeal, the respondents contend that:

1.   Her Honour erred in the exercise of her discretion in refusing to include the Software in the terms of the injunction, in that:

a.   Her Honour failed to take into account, or give sufficient weight to, the finding in the Principal Reasons, paragraph [235], that the third cross respondent was in breach of Clause 8 of the Deed of Settlement of 13 August 2012 (“the Deed”) by copying and using the cross appellants’ Software and that the cross respondents were in breach of clause 4 of the Deed in failing to return hard copies and/or delete the electronic copies of the plaintiffs’ Software.

b.   Her Honour further failed to take into account, or give sufficient weight to, clause 9 of the Deed, pursuant to which the second and third cross respondents covenanted that:

(i)   all Intellectual Property (as defined in the Deed) created or developed by, in relation to or in connection with the cross appellants, belongs to and vests in the cross appellants exclusively; and

(ii)   they would not do any act or thing which directly or indirectly infringes the rights of the cross appellants with respect to its Intellectual Property (as defined in the Deed).

c.   Her Honour exercised her discretion on the erroneous basis that the injunction was sought to punish past conduct or past breaches of contract.

d.   Her Honour should instead have exercised her discretion on the basis that the injunction, if granted, would prevent breaches of, and bring about compliance with, ongoing contractual obligations on the part of the second and third cross respondents.

e.   Her Honour exercised her discretion on the basis of an erroneous assumption, and in the absence of evidence, that the modifications made by the cross respondents to the software copied by them from the cross appellants’ software were available to be used by the cross respondents separately from the copied software.

f.   Her Honour exercised her discretion on the basis of an erroneous construction of the cross appellants’ proposed Orders, in that her Honour construed the definition of “Software” therein as creating uncertainty as to whether the cross respondents were to “stop using their own software altogether or only those parts of it that have not been modified over the years.”

g.   Her Honour should, rather, have construed the proposed Orders as extending unambiguously to software derived from the cross appellants’ software, including software derived by copying and modifying the cross appellants’ software.

h.   In the alternative to f, if the proposed Orders were ambiguous insofar as they related to the Software, her Honour should have sought from the cross appellants a form of the Orders that addressed the ambiguity, or should have otherwise granted leave to the cross appellants to address the ambiguity in the form of Orders rather than decline to grant any injunction relating to the Software.

i.   Her Honour determined, without a reasonable basis, that the injunction as sought would be out of all proportion to any advantage secured by the cross respondents by their breach.

j.   Her Honour failed to take into consideration, or to give sufficient weight to, the undisputed fact that the cross respondents received approximately $500,000 under the Deed, as consideration for, inter alia, the promises which the cross appellants sought to enforce under the Orders as proposed.

k.   Having regard to the breaches of equitable and contractual obligations, and having regard to the said sum of $500,000 that was paid to the second and third cross respondents in consideration for, inter alia, their promises in relation to the Software, her Honour’s refusal to include the Software in the injunction was unreasonable or plainly unjust.

87. By way of relief, if the cross-appeal is allowed, the respondents seek a variation to order 1 as made by the primary judge in the following terms (underlining indicating the proposed amendment):

1.   The defendants are permanently restrained from directly, or indirectly, using and/or copying the Business Manual, the Elevator Take, the Systems Manual, the Software and the Software Manual, and any copy thereof or document derived therefrom, including without limitation the “Books, Records, Materials and Documentation” as defined in the Deed of Settlement and including those items listed in Schedule “A” to the Further Amended Statement of Claim filed on 6 May 2015 (Schedule A).

with similar amendments to include the words “the Software” in order 2(a) (the delivery up for destruction order) and the addition of a definition of “Software” in the following terms:

“Software” means the software programme developed to the plaintiffs’ specifications in connection with the booking of student accommodation and storage of information.

Leave

Is leave necessary?

88. At the outset of the hearing of the appeal, an issue was raised by the Court as to whether leave was necessary for the appeal and/or cross-appeal. The appellants’ challenge to the primary judge’s decision, in essence, is as to the terms of the permanent injunction that was ultimately granted (insofar as it incorporates reference to “hybrid documents”) on the basis that, as framed, it may give rise to uncertainty. They concede that this concern was not raised before the primary judge (see AT 6.1-12). There is also a challenge to the costs order made against the appellants. The cross-appeal, similarly, is in substance a challenge to the scope of the order made for permanent injunctive relief. It was not immediately apparent to the Court that the interests at stake exceeded the monetary threshold for an appeal as of right from the grant of injunctive relief (see s 101(2)(r) of the Supreme Court Act 1970 (NSW)).

89. From the appellants’ perspective, they do not challenge the orders for delivery up of documents for destruction (orders 2 and 3) and they contend they have complied with those orders. They agree that there has been no issue raised as to any non-compliance with order 1. Counsel for the appellants appeared to accept that, from a practical perspective, if the cross-appeal were to fail, then the dispute in this Court is in substance about the costs order made by the primary judge (AT 5.36); and that there may be no commercial effect on the appellants’ business if order 1 remains as is (AT 5.17).

90. Both sides indicated that, if leave were necessary, it was sought. Directions were made for the filing of written submissions as to the necessity for leave to appeal and, if leave is required, why it should in fact be given. It is appropriate to address that issue first before turning to the grounds of appeal/cross-appeal.

91. As to the appeal, the appellants maintain that leave is not required but submit that, if that be wrong, leave ought be granted. The respondents maintain to the contrary that leave is required for the appellants to prosecute the appeal and submit that such leave should not be granted.

92. The relevant question is whether there is a realistic prospect that the appeal would change the wealth of the appellants by more than the monetary threshold ($100,000) (see Jensen v Ray [2011] NSWCA 247 at [12]). In other words, the question is as to the realistic worth to the appellants of them not being subject to the uncertainty to which they claim they are presently put by the imposition of a permanent injunction on the use or copying of documents “derived” from the documents identified in order 1 (or “hybrid” documents as they were referred to in the course of argument before the primary judge). The respondents put the question somewhat differently as being what is the value to the appellants of them being at liberty to use and copy materials that they claim to have destroyed or deleted. The respondents say that the ongoing freedom to use or copy documents already deleted can be of no value to the appellants.

93. The appellants base their submissions on this issue by reference to what they say was the case that was run by the respondents at first instance - namely that they are precluded from using any of the practices or procedures described in the Manuals. They point to Mr Ritchie’s affidavit of 17 July 2013 (at [52]) in which he listed various features of the Ezystay Systems Manual, Elevator Take and Business Manual that appeared on the Link 2 website.

94. Mr Riches has deposed (in his affidavit of 27 July 2016 filed pursuant to the directions made as to the further submissions on the question of leave) that, with the exception of use of the words “Live as a Local” or “Live like a Local”, the Link 2 business currently offers the same or very similar functions to those set out at [52] of Mr Ritchie’s affidavit (such as unlimited wi-fi coverage to students who are residents; a welcome meeting with “welcome pack” on arrival; the proximity of accommodation to shops, transport, universities and colleges; and regular weekly cleaning) (see [3]). Mr Riches has deposed to his belief that if the effect of order 1 is that Link 2 is precluded from operating its business in a way where these features are not able to be provided to its clients then there is a “real and substantial risk” that Link 2 would not be able to operate its student accommodation business at all ([6]).

95. Mr Riches has also opined (at [12]) that in the event that Link 2 is not able to conduct its business (presumably there referring to its student accommodation business) it will be insolvent; none of the loans it has obtained from relatives of his or the bank (totalling around $900,000) will be able to be repaid in full; and he will be personally liable (under a guarantee given by him to the bank secured by the home owned by his wife) for the shortfall (which he expects to be in the order of $500,000).

96. The appellants submit that the realistic worth of the question raised by grounds 1-3 of the grounds of appeal is the value of the Link 2 business. The appellants submit, by reference to the Link 2 accounts for the year ending 30 June 2015 and management accounts for the year ending 30 June 2016, that should Link 2 lose its business it would be losing a business that generated revenue of around $1 million and made a profit of around $90,000 in the past financial year and on that basis it can be concluded that the “effect” of order 1 may be assessed at in excess of $100,000.

97. Accepting for present purposes that Link 2 stands to lose a business generating revenue in the order of the above if it cannot operate its student accommodation business, the difficulty I have with the appellants’ submission as to the realistic worth or value of the issue raised in their challenge to the terms of order 1 is that nothing in that order is addressed to the question of what practices or procedures may be adopted in the provision of student accommodation by Link 2 in the future. Rather, it is addressed to the use or copying of certain business documents or documents denied from them.

186. The appellants’ complaint is that the primary judge did not permit them to rely on a further expert’s report (that of Mr David Baskind) that they had sought to tender on the seventh day of the hearing. They point to the following conclusions in that report: first, that it would only take ten days to conceptualise all of the features in the Features Document; second, that any reasonably competent designer would have arrived at the same solution, with the same functionality, as that specified in the Features Document (save for the way in which male/female differentiation is presented and the particular implementation of “split booking”); and third, that each of the features would have been necessary or desirable in any automated calendar booking system in 2012. The appellants argue that those conclusions are relevant to the issue whether the Software (or Confidential Software Information) was confidential in the requisite sense.

187. The primary judge rejected the tender of the report but indicated that, having regard to the appellants’ apparent misapprehension of the claims made in the proceedings, she would revisit the admissibility of the report should it be necessary. In her reasons, the primary judge confirmed her view that the report was inadmissible. Her Honour noted (at [102]) the questions on which Mr Baskind had been asked to report and said (at [103]) that none of the material that Mr Baskind addressed had been put to either of the experts, Professor Braun or Dr Schatz (except the question of desirability or necessity (referring to the transcript at T 355)) and nor was Mr Davis cross-examined about many of them. Her Honour noted that Mr Singh was not asked any questions about how long it might take to conceptualise a system “starting from scratch” and that both Mr Davis and Mr Singh had given evidence of how long it took them to create the respective systems. Her Honour went on to say that at [103]:

… It was not in issue in the proceedings that features within the Features Document could be found in other accommodation web pages. Whether something is “desirable” in a booking system is not a matter that would assist with the determination of the issues in dispute in this litigation. How long it might take people other than Mr Singh or Mr Davis to create a system is also not a matter that would assist the determination of the issues presently in dispute in these proceedings. In many respects Mr Baskind had not exposed the reasoning upon which his conclusions were based: Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705. Mr Baskind’s report remains inadmissible.

189. The appellants submit that the statutory basis of her Honour’s ruling was unclear but posit that it must have been that her Honour found that the report was irrelevant and excluded by s 55 of the Evidence Act 1995 (NSW); that the discretion to exclude the report pursuant to s 135 should be exercised because the tender of the report was unfairly prejudicial to the respondents; and that the report contravened the basis rule in s 79.

190. As to those matters, it is submitted that her Honour misapprehended the main issue to which Mr Baskind’s report was addressed: namely, that the uniqueness of, or skill required in creating, the features was highly relevant to determining whether the features are confidential. The appellants submit that the desirability or necessity of a feature goes to the issue of confidentiality, in that it is less likely that a feature is unique or novel if it is necessary or desirable to have that feature incorporated into an accommodation booking system, and that the length of time required independently to reproduce the features is relevant not only to the determination of whether the features can be regarded as having the necessary quality of confidentiality (by reference to the expenditure of time, effort, money or experimentation to reproduce the information) but also to the issue of the length of time that should be the subject of any injunction (i.e., any “springboard”).

191. Given the time at which the report was tendered it is obvious that it was not served in accordance with the relevant practice note (Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 31.28(1) and (3)) and therefore that leave was required for its admission (since the respondents did not consent thereto). For leave to be given it was necessary for the primary judge to be satisfied that there were exceptional circumstances that warranted it (UCPR r 31.28(4)).

192. The appellants note that the primary judge did not purport to apply UCPR r 31.28. They refer to the exchange as to the time for preparation and service of Mr Baskind’s report (at T 383-389), where the primary judge declined to fix a date for the report to be served on the understanding that it would be done as soon as could be done. They further submit that if exceptional circumstances were required, they are established by the fact that there had been a significant and recent change in the respondents’ case.

193. Whether to grant leave to admit the belated (albeit belated for reasons explained as being due to the late awareness of the respondents’ claim in relation to the features) tender of expert evidence was a discretionary matter. Her Honour gave cogent reasons as to why the report would not be admitted. Those included that the matters the subject of the report had largely not been put to the respective experts or Mr Davis. There would clearly have been inefficiencies and additional cost in recalling the parties to enable those matters to be put to them and her Honour was not persuaded that the evidence would be of assistance (even aside from her view that its weight would be affected by reference to the principles espoused in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305). No House v R error has in my opinion been identified. In the circumstances there is no merit to this ground of appeal.

Grounds 9 and 10 of the grounds of appeal – breach of directors’ duties

194. As noted earlier, the primary judge found that Mr Riches had breached ss 182 and 183 of the Corporations Act and/or his fiduciary duty by providing documents and materials to Riches Commercial and Mrs Riches for the purpose of preparing presentations to market the new business to agents and schools in competition with Ezystay, and also by instructing Mr Singh to commence preparing the software for Link 2 while he was still an Ezystay director ([240]-[243]).

195. The appellants again raise a pleading point, arguing that to the extent that her Honour found (at [240]) that material other than the Manuals or Software was copied or used, the only pleaded breaches of fiduciary or statutory duties related (relevantly) to copying the Manuals and the Software; and that it was no part of the respondents’ pleaded case that other material (such as the material passed on to Mrs Riches) had been copied or used.

196. The respondents assert that the conduct of Mr and Mrs Riches in copying and using the respondents’ materials was a central factual issue in the case and note that the retention of the “Discovered Material” (defined by reference to the list of material in Schedule A to the pleading) was pleaded as part of Mr Riches’ infringing conduct (at [53(e)]). They argue that the appellants had the opportunity to address the issues on which the primary judge made findings. (The appellants take issue with this. They point to what was said at the time and to their closing submissions at [103]-[106] and Schedule A. They note that the “Discovered Material” amounted to some 6,500 pages and was provided on the eve of the hearing. They submit that they suffered the prejudice of being denied the opportunity properly to review those documents and to address the issue in evidence in chief.)

197. The respondents further argue that this ground of appeal goes nowhere because the appellants are unable to identify any aspect of the relief that was granted that depended solely on the findings relating to use and copying of materials other than the Software and the Manuals. The appellants cavil with this on the basis that a finding of breach of director’s duties is a serious matter.

198. The appellants’ argument, in essence, is that, once the claim for a compensation order under s 1317H was abandoned, the pleaded breaches of the Corporations Act went nowhere and should have been disregarded. (They also argue that breaches of ss 182 and 183 of the Corporations Act are unlikely to be established if breach of the equitable duty of confidence cannot be established, as they say it should not have been found to have been established, because of the necessity to establish a lack of propriety. I need not address this in light of the comments made earlier as to the equitable confidence claim.) I agree that breach of directors’ duties is a serious matter. What I do not accept is that there was any error by the primary judge in ruling on the pleaded claim as to breach of directors’ duties and the like in circumstances where that was a matter that could be relied upon as relevant to the injunctive relief sought by the respondents.

199. The appellants’ real complaint is that there could not have been any improper use of Mr Riches’ position in circumstances where all concerned (particularly Mr Ritchie and Mr Garrett) knew from late 2011 that Mr Riches was separating his interests from the Ezystay group, and it was permissible in accordance with the terms of the Deed for Mr Riches later to compete with the respondents.

200. The respondents do not cavil with the proposition that all concerned knew Mr Riches was looking to move on from the Ezystay group from late 2011. However, they point out that Mr Riches was still a director of the Ezystay companies until various dates between June and August 2012. They argue that the proposition that Mr Riches owed no duties, or lesser duties, because it was known that he would cease to be a director at some undefined point in the future should be rejected and that whether it was consistent with the Deed for Mr Riches to compete with the respondents is irrelevant to the question whether Mr Riches made improper use of his position. I agree.

201. The appellants argue that Mr Riches was not acting as a director of the respondent companies from May 2012 and that he was treated as not being connected with the respondents from that time. However, whether or not, as they submit, “for all intents and purposes Mr Riches’ involvement in the respondents’ business decreased from January 2012 and ceased altogether in May 2012”, he remained a director of a number of the companies at the time that he took the steps identified by the primary judge. There is no discernible error in her Honour’s findings on this issue.

Cross-appeal

202. It is convenient here to summarise the issues raised on the cross-appeal (in respect of which, as already explained, I consider leave should not be granted). The cross-appellants (who for ease of reference I will continue to refer to as the respondents) complain that, notwithstanding the findings made in their favour on the Software claim (at [235] and [236]), her Honour declined to grant any relief in relation to the Software. The nub of their complaint is, in effect, that the appellants are being permitted to benefit from their own wrongdoing. In essence, what the respondents want is an order for the delivery up to them (for destruction) of the Link 2 software programme or source code derived from the use of copying of their Software.

203. They respondents put their argument on a number of bases. In summary, those are: first, that the primary judge erred in failing to consider their interests in having the obligations under the Deed (cll 4, 8 and 9) enforced in light of the ongoing breaches of contract, equitable and statutory duties by the continued use of software that was copied from their own (grounds 1(a) and (b)); second, that the primary judge wrongly assumed (when applying the springboard principle) that the claims for injunctive relief were simply concerned with past breaches or directed at punishment rather than relating to ongoing breaches (grounds 1(c) and (d)); third, that her Honour erred in referring to the question of uncertainty and the consequence of modifications to the software (grounds 1(e)-(h)); fourth, that her Honour erred insofar as the proportionality issue was not relevant in connection with the delivery up order that they had sought in respect of the software and that it was relevant to consider that any disadvantage caused to the appellants would be a consequence of their own wrongdoing (grounds (i)-(k)).

204. As the appellants point out, and the respondents accept, the cross-appeal involves a challenge to the primary judge’s exercise of discretion in declining to grant any relief in respect of the Software and, as such, it is necessary for the respondents to demonstrate error of the kind referred to in House v R. The appellants argue that the complaints made by the respondents are no more than complaints concerning the merits of the balancing exercise conducted by her Honour and that the weight to be accorded to particular considerations is irrelevant to the question whether the primary judge's discretion miscarried (referring to Hampson v Hampson [2010] NSWCA 359 at [83] and Durham v Durham (2011) 80 NSWLR 335; [2011] NSWCA 62 at [53]). I agree.

205. Had I been of the view that leave for the cross-appeal should be granted, I would have dismissed the appeal on the basis that no error of the House v R kind has been demonstrated.

206. It is relevant to note that the copying of the respondents’ software was largely if not wholly the conveying of instructions to Mr Singh as to the features the appellants wanted in their software programme. This was not a case where there was an electronic copy taken of the software code itself. What was “reproduced” in the appellants’ software were a number of features of the respondents’ booking calendar. Significantly, what was alleged to have been the subject of the property return covenant was “all visual output of the [respondents’] Software” ([42]).

207. The appellants complain that the precise nature and practical effect of the claim for relief in relation to the Software was not identified with any precision. There is force in that complaint. In circumstances where there was no copying of the actual code – rather, Mr Singh was instructed to develop a software programme containing certain functionality or features of the respondents’ system – and where what was alleged to be the subject of the property return covenant was “all visual output”, I would accept the submission of the appellants to the effect that, while the use of the ideas and concepts behind the features might properly have been the subject of restraint, her Honour did not err in refusing to make an order for the delivery up of computer code.

208. Insofar as the respondents point to cl 9 of the Deed, which obliged the Riches parties to refrain from doing any act or thing which directly or indirectly infringed the rights of the Ezystay Group with respect to its intellectual property, and argue that it follows from the findings at [235] and [236] that cl 9 was also breached, the appellants say that it is not open to the respondents to argue that the primary judge’s discretion miscarried on this point because a claim based on breach of cl 9 was not pressed in final submissions. They further say that “visual output” is not intellectual property. They maintain that the “visual output” does not exist as a document; rather it is the product of a computer executing the ‘code’ comprising the appellants’ booking system (as written by Mr Singh).

209. The respondents cavil with the proposition that the case as to breach of cl 9 of the Deed was not pressed, pointing to the issue having been raised in their written outline of opening submissions, their written outline of closing submissions, and orally. They note that the definition of the term “Intellectual Property” in the Deed includes trade secrets, which they say is a concept which extends to the copied software information in the present case.

210. The respondents argue that the prima facie position is that, if a clear legal duty is imposed by a contract to refrain from some act, an injunction should be granted to restrain the doing of the act (referring to JC Williamson Ltd v Lukey (1931) 45 CLR 282; [1931] HCA 15 at 299; Dalgety Wine Estates Pty Ltd v Rizzon (1979) 141 CLR 552; [1979] HCA 41 at 560, 573-4); and that there was no good reason in the present case for the Riches parties not to be held to their contractual bargain. Her Honour concluded otherwise and I am not persuaded that there was error in the weight accorded by the primary judge to the findings of breach (which the primary judge clearly recognised was ongoing insofar as she restrained the use of various of the materials found to be confidential) or in the primary judge departing from the prima facie position.

211. As to the respondents’ submission that the statement by the primary judge at [47] of the second judgment (to the effect that it was important to avoid a result that would simply punish the defendants for their conduct or past breaches of contract) indicates an erroneous assumption that the cross-appellants’ claims for injunctive relief were concerned simply with past breaches or were directed at punishment, I do not read [47] as demonstrating any such assumption. Rather, what her Honour was there doing was summarising statements made in other cases as to the grant of permanent injunctions, starting with the proposition that an injunction is not unreasonable merely because it is permanent. There is no error there disclosed.

212. The respondents argue that in circumstances where no relief was granted in relation to the copied software, the object of “springboard relief” (as identified in United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 at 233; and by Professor Dal Pont, Law of Confidentiality (2015, LexisNexis) at 102), namely to deprive the defendant of the fruits of his or her unlawful acts, and restore the parties to the competitive position they would have occupied but for the misconduct, was not fulfilled. They argue that application of the springboard concept would not justify refusal of the delivery up order, because that order was concerned specifically with depriving the appellants of the fruits of their unlawful acts, which is the purpose of springboard relief.

213. The appellants again emphasise the distinction between making use of information (i.e., the features) and the return of property. They argue that the “fruits” of their unlawful acts, for the purpose of the springboard doctrine, are the time and cost saving in the establishment of their system, not the booking system itself. They submit that her Honour’s conclusion on the springboard doctrine is consistent with the authorities (referring to Seager v Copydex Ltd [1967] 2 All ER 415 at 417; Franchi v Franchi [1967] RPC 149 at 153; Harrison v Project and Design Co (Redcar) Ltd [1978] FSR 81 at 87; British Franco Electric Pty Ltd v Dowling Plastics Pty Ltd [1981] 1 NSWLR 448 at 453; Del Casale at [53]; and Zomojo Pty Ltd v Hurd (No 2) [2012] FCA 1458 at [394]). They argue that an advantage of an “ephemeral” or short-term nature is usually not sufficient to warrant injunctive relief (referring to CEF Holdings Ltd v City Electrical Factors Ltd [2012] EWHC 1524 at [130]-[134]).

214. I see no error in the application by her Honour of the “springboard” principle. The advantage that the appellants gained in obtaining a headstart in the development of their software programme, by reproducing (in freshly created software code) the functions or features of the respondents’ booking system, was a temporal one. Whether or not as a matter of principle the springboard doctrine has any role to play in relation to a contractual covenant to return property does not need to be determined because the software code, as such, does not fall within the property return covenant. I see no error of discretion in her Honour refusing an injunction that would require the return of “all visual output” since there is real doubt in my opinion as to what that would comprise for practical purposes.

202. As to the complaint made in relation to the observations made by the primary judge at [48], namely that the definition of “Software” in the proposed injunction would leave the appellants in uncertainty as to whether they would be obliged to stop using their software altogether (or only those parts of it that had not been modified over the years), and her Honour’s recognition that there was a “question of the consequence and effect of the modifications and the status of the software once modified”, the respondents argue that there could be no such uncertainty in the absence of any suggestion in the evidence that any original contributions made by Mr Riches and Mr Singh constituted separate, standalone items that could practically or usefully be severed from the infringing material. In other words, the argument seems to be that unless there were standalone items (presumably of software code) that could be severed the result should have been that the whole of the software code (including modifications) should be deleted. (That, it seems to me, is the import of the cross-appeal – namely, the respondents wish to force the appellants into the position where they are required to recreate the booking software from scratch in order to remove the temporal advantage gained by their misconduct back in 2012.)

203. In this regard, the appellants argue that the relevant uncertainty was not only as to whether they would be able to continue to use those parts of its system that were unrelated to the booking system alleged to have been copied but as to whether the proposed orders would preclude them from ever using a software system having the features in the Features Document. They point to the statement by Senior Counsel for the respondents at first instance to the effect that his clients sought the deletion of the entirety of the software. The appellants note that Mr Riches’ evidence was that the effect of such orders would have been that the appellants would have to shut down their business (see Riches’ 12 October 2015 affidavit at [18]).

204. The respondents invoke the statement of principles relating to orders for delivery up in breach of confidence cases set out in Dean, The Law of Trade Secrets (1990, LawBook Co) at 333-334, and adopted by Campbell J in AGAustralia Holdings Ltd v Burton [2002] NSWSC 454 at [17]; (2002) 58 IPR 327, including that where a defendant is barred from using information it is necessary to remove all physical forms of that information from the defendant’s possession and the defendant is not entitled to retain the fruits of the information for its advantage.

205. They refer to Industrial Furnaces Ltd v Reaves [1970] RPC 605 at 627, where Graham J said that, prima facie, a successful plaintiff in a breach of confidence case is entitled to an order for delivery up and, at 628, that:

if a wrongdoer includes material of his own and adds it to material which he has taken from the plaintiffs in my judgment he cannot complain if equity demands that when he has been found out he should deliver up the documents, even though they may now contain information of his own

219. They argue that in the present case the primary judge took into account the appellants’ modifications to the copied software as a reason to grant no relief, and to allow them to retain and continue to use the copied software, and that this approach was contrary to the above principles.

220. I do not read [48] of her Honour’s reasons in that regard as doing more than pointing to an issue (as to the status of modifications) that might or would need to be taken into account if there were to be an order for delivery up or deletion of the software in question. It was an observation that followed from the proposition that the order as proposed by the respondents would leave the respondents in a position of uncertainty. As to the complaint in relation to retention of the “fruits” of their wrongdoing, I have already indicated my view on that.

221. Finally, the respondents argue that the issue of proportionality raised by the primary judge at [49] was only considered in connection with the restraint order, not in connection with the delivery up order. They appear to base this reading of the reasons on the language used by the primary judge:

Even if it be assumed that the proposed injunction would restrain the defendants from using their software altogether and require them to create new software for the operation of their booking system, … (my emphasis)

222. Of course, as the respondents themselves realise, having regard to their earlier submissions in relation to grounds 1(e)-(h) as well as grounds 1(i)-(k), the effect of a delivery up order in relation to the appellants’ software would be, as a practical matter, to restrain continued use of the software. Therefore, it cannot be assumed that the question of proportionality was considered only by the primary judge in relation to order 1 and not the delivery up orders. In any event, I see no error in the House v R sense in the primary judge taking into account, when determining what relief should be granted, that an order which had the effect of requiring the appellants to create new software for their booking system would be out of all proportion to the advantage secured by them by their wrongful conduct.

223. Insofar as the respondents point to the recognition by the primary judge (in the context of rejecting the appellants’ restraint of trade argument) that the appellants “would be free to establish an online booking system for their student accommodation business independently of any use of the [respondents’] Software” as indicating that there would be little impact on the appellants of a delivery up order, this seems to conflate the temporal advantage that the appellants obtained in giving instructions to Mr Singh to reproduce certain features in the new software system and the time required for a new software programme to be developed. If, in the meantime, there could be no use of the existing system, then it is difficult to see how that could not have an impact on the operation of the appellants’ business during that period.

224. The appellants point to Mr Riches’ evidence (affidavit of 12 October 2015 at [16]; [18]) to the effect that each of the features he was found to have copied was so fundamental to any online student accommodation business that, if he were unable to use them, he would be forced to shut down the business. The appellants submit that the proposed orders would have involved significant expense, time and effort in re-creating a software system from scratch, without reference to the respondents’ system, which “at the end of the day, would probably have been almost identical, thus achieving nothing”. They note that there is a distinction between the investment of time and money in developing their booking system, which Mr Singh deposed took many months (in his affidavit dated 31 October 2014 at [24]) and the time to develop the ideas or concepts behind the features (which is what the primary judge found would probably not be long).

225. The appellants further submit that the primary judge’s conclusion on proportionality must be read in conjunction with the statement by her Honour of the principles governing injunctions, namely that an injunction is prospective in nature and must relate directly to the unfair advantage obtained.

226. I am not persuaded that there was any error of the House v R kind in the consideration her Honour gave to the question of proportionality.

227. Had leave to cross-appeal been granted, I would have concluded that the cross-appeal should be dismissed.

Ground 11 of the grounds of appeal – costs

228. Ground 11 involves a challenge to the costs order made by the primary judge in her second judgment.

229. The primary judge ordered the appellants to pay 85% of the respondents’ costs of and incidental to the proceedings below. The appellants submit that her Honour erred in the exercise of her discretion as to costs, first in that her Honour failed to take into account the failure of the respondents to obtain any relief in respect of their claim insofar as it related to the respondents’ Software, and second in that her Honour failed properly to take into account the circumstances of the late inclusion of the “retention claim”. They point out that the respondents were also unsuccessful in respect of the Trade Dress claim.

230. The appellants submit that the “event” for the purposes of r 42.1 of the UCPR may be understood as referring to the practical result of a particular claim and that the failure to obtain any relief whatsoever in respect of the Software is the relevant “event”. They complain that her Honour did not address their submission that the appellants, having obtained no relief on the most significant aspect of the case, should not be regarded as the successful party in the litigation. They submit that in the circumstance of a finding of liability but no relief, the principles summarised in New South Wales v Stevens (2012) 82 NSWLR 106; [2012] NSWCA 415 at [14]-[22] are relevant.

231. The appellants point to evidence from the appellants’ solicitor (Mr Rydon’s affidavit dated 13 October 2015 at [17]) that the Software claim occupied 40% of the total time and the Trade Dress claim occupied 30%. It is submitted that on that basis, her Honour’s discretion as to costs manifestly miscarried.

232. In respect of the retention claim (as pleaded at [51(c)] and [53(e)] of the second further amended statement of claim), the appellants argue that, prior to the first day of the trial, there was no claim that the appellants had breached cl 4(c) of the Deed by the mere retention of any document; rather, the pre-existing claim for breach of cl 4(c) was confined to an allegation that the appellants used or copied particular documents and things (namely the Business Manual, the Elevator Take, the Systems Manual, the Trade Dress, the Software and the Software Manual). They submit that that the primary judge’s rejection of this contention (at [14] of her second judgment) involves a misconstruction of the pleading and a failure to recognise that the breaches alleged of cl 4(c) of the Deed were each tied to the fundamental pleading at [53].

233. It is submitted that the late amendment to the pleadings, in combination with the undertaking provided to the Court by the respondents, ought to have disentitled the appellants from any costs in respect of the retention claim prior to the first day of hearing, and should have had the consequence that the respondents ought to have been liable for the appellants’ costs of that claim from the first day of hearing. It is submitted that, upon the giving of the undertaking, there was no point to that aspect of the respondents’ claim.

234. The respondents argue that, pursuant to UCPR r 42.1, as successful plaintiffs they were presumptively entitled to their costs and that the reduction by her Honour of their recoverable costs by 15% reflected their failure on the Trade Dress claim as well as their abandonment of their claim to pecuniary remedies (which they say was in the face of the appellants’ accounts which revealed nil profit) and was within her Honour’s discretion.

235. As to the fact that no relief was granted on the Software Claim, they point out that the Software Claim was a factual issue at the hearing which the appellants unsuccessfully contested and that the award of injunctive relief was on the basis of the findings made as to the wrongdoing on the part of the appellants, which included the copying of the Software.

236. As to the complaint in relation to the late amendment of the pleadings (to abandon the claims for pecuniary relief and to include claims for retention), the respondents note that this did not lead to the hearing date being vacated, nor did it lead to the appellants consenting to the injunctive relief that was sought; rather, the hearing proceeded and the appellants maintained their denial of wrongdoing and contested the appropriateness of any relief being granted.

237. Had I been of the opinion that leave should be granted on this aspect of the appeal, I would have dismissed the appeal. The apportionment of costs as between the various issues was a matter that her Honour was in the best position to assess. Her Honour took into account the failure of the respondents to succeed on the Trade Dress claim and I would not interfere with the assessment of the reduction to be made on that account. Her Honour was clearly conscious of the fact that there had been no injunctive relief granted in relation to the Software – that was a matter that was considered at [32]-[50] of the reasons in her second judgment. Her Honour also addressed the conduct (which she considered extraordinary and most inappropriate) of Mr Riches in destroying items the subject of the search order without notice at a time when the issue of the Undertaking was live for consideration (see [15]-[31]). In all the circumstances I am not persuaded that error of the House v R kind was demonstrated in the apportionment of the costs by her Honour.

Other matter – Elevator Take

238. Though not subject of an express ground of appeal, I note that the restraint order (order 1) included reference to the “Elevator Take”. Her Honour concluded that it was not confidential but that it and hybrid copies of it fell within the description of “Books, Records, Materials and Documentation” in the Deed and must be returned. There was no application by the appellants to her Honour to vary order 1 to delete reference to the Elevator Take. Moreover, the appellants contend that they have complied with the delivery up orders, in which case they must have returned the Elevator Take and hybrid copies of it – and there could therefore be no copy available to them for future use. In those circumstances nothing need be done in relation to order 1 in this regard, as any deletion of the reference to the Elevator Take in that order would now serve no practical purpose.

Conclusion

239. For the reasons above I propose the following orders:

1. Refuse leave to the appellants and cross-appellants respectively to appeal/cross-appeal.

2. Dismiss the notice of appeal and notice of cross-appeal as incompetent.

3. Each party to pay its own costs of the proceedings in this Court.

240. LEEMING JA: Ward JA has dealt comprehensively with all of the submissions advanced by the parties in support of leave to appeal and to cross-appeal. I agree with her Honour, for the reasons she gives, that both parties require leave. I also agree with Ward JA, for the reasons she gives, that leave to appeal and leave to cross-appeal should both be refused.

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Decision last updated: 22 November 2016