LK Law Pty Ltd v Karas

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FEDERAL COURT OF AUSTRALIA

LK Law Pty Ltd v Karas [2022] FCA 762

File number(s): SAD 222 of 2021
Judgment of: O'SULLIVAN J
Date of judgment: 1 July 2022
Date of publication of reasons: 21 July 2022
Catchwords: PRACTICE AND PROCEDURE – interlocutory application seeking orders striking out specific paragraphs of the applicants’ originating application and statement of claim pursuant to r 16.21 of the Federal Court Rules 2011 (Cth) – interlocutory application seeking interlocutory injunctions restraining the applicants/cross-respondents from retaining solicitors, counsel and experts who have seen, or directly or indirectly made use of alleged confidential information, from continuing to act or perform work for the applicants/cross-respondents in the main proceedings – interlocutory application seeking an interlocutory injunction restraining the applicants/cross-respondents whether by themselves, their servants, agents, lawyers, counsel or experts retained in the proceeding on their behalf, or howsoever otherwise, from using the alleged confidential information, or any part of it or any document in which the alleged confidential information or any part of it is contained – whether information was received by the cross-respondents in circumstances importing an obligation of confidence – whether the documents have the necessary quality of confidence – whether the information within the documents in question discloses a breach of fiduciary duty and misleading and deceptive conduct so as to comprise an iniquity – prima facie case and balance of convenience – applications for interlocutory injunctions dismissed – application for strike out dismissed
Legislation: Federal Court Rules 2011 (Cth), rr 8.21, 16.53
Cases cited:

A G Australia Holdings Ltd v Burton [2022] NSWSC 170; (2002) 58 NSWLR 464

Australian Broadcasting Corporation v O’Neill [2006] HCA 46; (2006) 227 CLR 57

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

Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 74 ALR 428

Coulthard v South Australia (1995) 63 SASR 531

Crown Resorts Ltd v Zantran Pty Ltd [2020] FCAFC 1; (2020) 276 FCR 477

Gartside v Outram (1856) 26 LJ Ch 113

Optus Networks Pty Ltd v Telstra Corporation Ltd (2010) 265 ALR 281; [2010] FCAFC 21

Popeye Holdco Pty Ltd (Receivers and Managers Appointed) v Intermediate Capital Asia Pacific 2008 GP Ltd (No 2) [2018] FCA 408; (2018) 125 ACSR 108

Sullivan v Sclanders & Goldwell International Pty Ltd [2000] SASC 273; (2000) 77 SASR 419

Division: General Division
Registry: South Australia
National Practice Area: Commercial and Corporations
Sub-area: Commercial Contracts, Banking, Finance and Insurance
Number of paragraphs: 94
Dates of hearing: 27 – 29 April 2022
Counsel for the Applicants: Mr B Roberts QC with Mr T Besanko & Ms H Doyle
Solicitor for the Applicants: Illes Selley Lawyers
Counsel for the First, Second and Third Respondents: Mr J Sheahan QC with Mr Kozminsky and Ms Brumby
Solicitor for the First, Second and Third Respondents: Arnold Bloch Leibler
Counsel for the Cross-Claimant: Mr J Sheahan QC with Mr Kozminsky and Ms Brumby
Solicitor for the Cross-Claimant: Arnold…
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Details
Case
[2022] FCA 762
Decision Date

CaseChat Overview and Summary

In the Federal Court, Karas sued LK Law Pty Ltd, which was his former employer, for breach of confidence. LK Law sought to have specific paragraphs of Karas's statement of claim struck out and for interlocutory injunctions to restrain Karas from using certain confidential information. The court considered whether the information was received in circumstances importing an obligation of confidence and whether the documents had the necessary quality of confidence. The court also considered whether the information within the documents in question disclosed a breach of fiduciary duty and misleading and deceptive conduct so as to comprise an iniquity. The court found that Karas had established a prima facie case that LK Law had acted in breach of confidence but dismissed the interlocutory application seeking interlocutory injunctions and the application for striking out. The court held that the inconvenience or injury which Karas would be likely to suffer if an injunction were refused did not outweigh the injury which LK Law would suffer if an injunction were granted.
The court further found that the extent of any confidentiality in Karas’ documents/information was not a matter that could be determined on an application such as this. The court accepted that the confidential information may well have been received in circumstances importing an obligation of confidence. The court held that the separation agreement did not alter the confidentiality status of the information, and the information remained confidential. The court also held that the information within the documents in question disclosed a breach of fiduciary duty and misleading and deceptive conduct so as to comprise an iniquity. The court dismissed the interlocutory application seeking interlocutory injunctions and the application for striking out. The court extended the orders for the costs of and incidental to the interlocutory application until the first day of the trial of the claim and cross-claim in this matter. The court also granted dispensation with compliance with r 8.06 of the Federal Court Rules 2011 (Cth) in relation to service of the originating documents in these proceedings on the fourth respondent. The court listed the matter for a case management hearing on 19 July 2022.

Orders

Orders of the court

1. The respondents’ and cross-claimant’s interlocutory application filed 15 March 2022 seeking:

(a) Strike out of paragraph 2 of the applicant’s originating application;

(b) Strike out in redacted form paragraphs 33 – 39, 40, 40.4, 43, 45 – 52, 61, 62, 69, 71, 76, 78, 79, 82, 83 and 84.2 of the statement of claim; and

(c) Strike out of paragraphs 1 – 32, 40, 41, 42, 44, 53 – 60, 63 – 68, 70, 72 – 75, 77, 80, 81 and 84 of the statement of claim,

is dismissed.

2. The respondents’ and cross-claimant’s interlocutory application filed 15 March 2022 seeking interlocutory injunctions is dismissed.

3. Pursuant to s 37AJ of the Federal Court of Australia Act 1976 (Cth), order 2 of the orders made 27 April 2022 is extended until the first day of the trial of the claim and the cross-claim in this matter.

4. Order 12 of the orders of 11 February 2022 is extended until the first day of the trial of the claim and cross-claim in this matter.

5. By on or before 15 July 2022, the applicants and respondents are each to file and serve a written outline of submissions, no exceeding two pages in length, on the question of the costs of and incidental to the respondents’ and cross-claimant’s interlocutory application filed 15 March 2022.

6. The question of costs is to be determined on the papers.

7. The respondents’ and cross-claimant’s oral application for an interim injunction pending any potential application for leave to appeal against this interlocutory decision is refused.

8. Pursuant to r 1.34 of the Federal Court Rules 2011 (Cth) (Rules), the applicants are granted dispensation with compliance with r 8.06 of the Rules in relation to service of the originating documents in these proceedings on the fourth respondent.

9. Liberty to apply.

10. This matter is listed for a case management hearing at 10.30am on Tuesday 19 July 2022.

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

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Nonetheless, in view of any evolution of the legal relationship that existed, at least between LKPL, Mr Lipman and Mr Karas (if indeed that be the case), and/or whether there had been a change in the confidentiality status of documents/information stored on LKPL’s server, consequent upon the separation agreement, notwithstanding the terms of clause 5.10 of that agreement, the extent of any confidentiality in Mr Karas’ documents/information is not a matter that I am able to determine based on the material before me at this stage of the proceedings and on an application such as this. Accordingly, for the purposes of this application, I accept that the confidential information may well have been received in circumstances importing an obligation of confidence.Conclusion on prima facie case In all the circumstances, although the matter is not free from doubt, I consider Mr Karas has established a prima facie case that the cross-respondents have acted in breach of confidence.Balance of convenience In ABC v O’Neill, when referring to the relevant principles on an application for an interlocutory injunction, Gummow and Hayne JJ cited from the judgment of Kitto, Taylor, Menzies and Owen JJ in Beecham Group Limited v Bristol Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618, 622-623 where their Honours said that on such an application the Court addresses itself to two main inquiries. The first concerned the prima facie case and the second, the balance of convenience which their Honours described in these terms: “… The second inquiry is … whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted.” Neither party spent a great deal of time on the balance of convenience. Mr Karas submitted that if the interlocutory relief is not granted, the cross-claim will be rendered nugatory, the confidentiality he claims will be lost without the benefit of a trial and the continued use of the confidential information by the applicants/cross-respondents will be such that Mr Karas will lose the opportunity to have the allegations in the cross-claim determined according to law. Mr Karas presses for the interlocutory injunctive relief which, if granted, will enable him to have his cross-claim finally determined, in particular the question of whether a duty of confidence arose on the part of the applicants. If successful, his claim to preserve his confidential information will be successful, and if unsuccessful, the applicants/cross-respondents will be able to pursue the relief sought in their statement of claim using the confidential information and legal advisors of their choosing: Cross-claimant’s submissions in reply to the cross-respondents’ submissions dated 22 April 2022 at [3]. The applicants/cross-respondents submit that should the relief sought by Mr Karas be granted, the cross-claim will be rendered unnecessary and relief in terms of the final relief sought on the cross-claim would have been procured by the interlocutory application. That is because if granted, the contested documents could not be used in the trial of the main proceedings and the applicant will be deprived of its legal advisors of choice in prosecuting the main proceedings.

Ratio Decidendi

Legal Principle Established

With the assistance of that third party, agreement was reached and on 25 May 2021 Mr Lipman, Mr Karas, Lipman Karas Pty Ltd, J&A Karas Pty Ltd, and Lipman Family Pty Ltd executed a separation agreement (separation agreement). The effective date of the separation agreement was 31 May 2021: First Karas affidavit, annexure JK-1 pp 138-176; Lipman affidavit, annexure SJL-2. In summary, by the separation agreement, Mr Karas kept LKHK and Mr Lipman took over LKPL. The name of the firm Lipman Karas in Hong Kong was changed to Karas LLP and there were mutual releases. Clause 5 of the separation agreement deals with transitional arrangements. Clause 5.2 concerns the ongoing provision of legal services by LKPL to LKHK in relation to various LKHK “Projects” and provides:5.2From the Effective Date until the completion of the LKHK Projects, Jason and LKHK will (a) instruct LKPL and LKPL will provide legal services to LKHK in relation to [various clients] and (b) continue to utilise LKPL lawyers presently engaged on the LKHK Projects, at the LKPL rates that are applicable for each of those LKHK Projects as at the Effective Date, to be invoiced monthly by LKPL to LKHK and paid by LKHK to LKPL when LKHK receives payment from its client, subject to the instructions of the respective clients for whom LKHK is engaged to provide legal services in respect of the LKHK Projects. Those legal services are anticipated (but not guaranteed) to generate [fees] for LKPL.(Square brackets provided) Clauses 5.7, 5.8, 5.10 and 5.11 concern information technology:5.7As soon as practicable after the Effective Date, Skip and LKPL will transfer all IT, accounting, document management, legal database and other business support information and systems in respect of LKHK, LKHK personnel, LKHK matters and LKHK clients to such systems as designated by Jason and LKHK, with all such transfers to be completed by no later than 31 October 2021 or for such longer period as may be mutually agreed in writing.5.8.Skip and LKPL will provide to Jason and LKHK ongoing access to the information referred to in clause 5.7 above until the transfer has been completed as certified by the Chief Technology Officer of LKPL to Jason and LKHK.5.9…5.10Jason and LKHK must continue to maintain IT security in accordance with LKPL security and IT policies, until the transfers set out in clause 5.7 have been completed and the ongoing access set out in clause 5.8 has been terminated.5.11If required, third party access to LKPL IT systems and network must be certified by the Chief Technology Officer of LKPL, with such certification not to be unreasonably withheld. Prior to this time, all the information technology, including emails generated by user accounts at LKPL and LKHK, had gone through a common server operated by LKPL. Mr Karas acknowledges this in the first Karas affidavit at [86], [87] where he says:86LKPL provided IT support to LKHK, including an email server for my email account jkaras@lipmankaras.com (prior to July 2021) and storage of electronic documents on a server (prior to October 2021).87I accessed my email account jkaras@lipmankaras.com from two laptop computers on which I also stored documents.