Lopez v Gold Titan Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Lopez v Gold Titan Pty Ltd [2022] FCAFC 117  

Appeal from:

Gold Titan Pty Ltd v Lopez [2021] FCA 918

Gold Titan Pty Ltd v Lopez (No 2) [2021] FCA 1523
File number: NSD 34 of 2022
Judgment of: RARES, STEWART AND GOODMAN JJ
Date of judgment: 12 July 2022
Catchwords: HIGH COURT AND FEDERAL COURT – adequacy of reasons for decision – where primary judge criticised much of the evidence and submissions on loss of profit – where limited findings on or reasoning to briefly stated conclusion on quantum of loss – whether reasons adequate
Legislation:

Australian Consumer Law ss 18 and 236

Competition and Consumer Act 2010 (Cth) Sch 2
Cases cited:

AK v Western Australia [2008] HCA 8; 232 CLR 438

Berry v CTL Secure Pty Ltd [2020] HCA 27; 381 ALR 427

Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; 174 CLR 64

DL v The Queen [2018] HCA 26; 266 CLR 1

Fightvision Pty Ltd v Onisorou (1999) 47 NSWLR 473

Fink v Fink (1946) 74 CLR 127

Flogas Britain Ltd v Calor Gas Ltd [2013] EWHC 3060 (Ch)

General Tire and Rubber Company v Firestone Tyre and Rubber Company Ltd (1976) 93 RPC 197

Generic Health Pty Ltd v Bayer Pharma Aktiengessellschaft (2018) 267 FCR 428

Gold Titan Pty Ltd v Lopez (No 2) [2021] FCA 1523

Gold Titan Pty Ltd v Lopez [2021] FCA 918

Jones v Schiffmann [1971] HCA 52; 124 CLR 303

Lamb v Evans [1893] 1 Ch 218

McRae v Commonwealth Disposals Commission (1951) 84 CLR 377

North East Equity Pty Ltd v Proud Nominees Pty Ltd [2010] FCAFC 60; 269 ALR 60

One Step (Support) Ltd v Morris-Garner [2018] UKSC 20; [2019] AC 649

PKT  Technologies (formerly known as Fairlight.AU Pty Ltd) v Peter Vogel Instruments Pty Ltd (2020) 376 ALR 55

Placer(Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257

Ratcliffe v Evans [1892] 2 QB 524

Robb v Green [1895] 2 QB 1

Robb v Green [1895] 2 QB 315

Searle v Commonwealth of Australia (2019) 100 NSWLR 55

Sellars v Adelaide Petroleum NL [1994] HCA 4; 179 CLR 332

Selvanayagam v University of the West Indies [1983] 1 WLR 585; [1983] 1 All ER 824

Wainohu v New South Wales [2011] HCA 24; 243 CLR 181

Wessex Dairies Ltd v Smith [1935] 2 KB 80
Division: General Division
Registry: New South Wales
National Practice Area: Commercial and Corporations
Sub-area: Commercial Contracts, Banking, Finance and Insurance
Number of paragraphs: 110
Date of hearing: 10 May 2022
Counsel for the Appellants: Mr J P Knackstredt and Mr P C Gledson
Solicitor for the Appellants: Somerville Legal Solicitors
Counsel for the Respondent: Mr M R Hall SC
Solicitor for the Respondent: Banki Haddock Fiora

ORDERS

NSD 34 of 2022
BETWEEN:

NICHOLAS LOPEZ

First Appellant

IMPERIAL FLOORING AUSTRALIA PTY LTD ACN 635 477 593

Second Appellant
AND:

GOLD TITAN PTY…

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Details
Case
[2022] FCAFC 117
Decision Date

CaseChat Overview and Summary

Lopez v Gold Titan Pty Ltd involved a dispute between the plaintiff, Gold Titan Pty Ltd, and the defendant, Mr Lopez, regarding damages awarded for breaches of contract, equitable obligation of confidence, and misleading and deceptive conduct. The dispute arose from Mr Lopez's employment with Evagroup, where he gained access to confidential customer information. Upon leaving Evagroup, Mr Lopez used this information to establish and promote his own business, Imperial, leading to the present legal action. The primary judge awarded damages of $150,000, which the appellants contested on the grounds that the reasons provided were inadequate.

The central legal issue before the court was whether the primary judge provided sufficient reasons for the quantum of damages awarded. The appellants argued that the reasons failed to consider a novus actus interveniens, did not confine the assessment to actual losses incurred by Evagroup, and lacked adequate explanation for the awarded amount. The court had to determine if the primary judge's reasons were adequate under the law, considering the need for a clear articulation of the factual findings and legal principles underpinning the damages award.

The court found that while the primary judge acknowledged the complexity of quantifying the loss, the reasons provided were insufficient. The court noted that the primary judge's reasons could have been more clearly structured, separating findings of fact from critiques of the parties' evidence and submissions. The court held that the primary judge's reasons did not sufficiently identify the basis for her reasoning on the quantum of damages, leading to the conclusion that the appeal should be allowed on the ground that the reasons for the quantum of $150,000 were inadequate.

The court ordered that the appeal be allowed, the previous orders regarding the damages be set aside, and the matter be remitted to the primary judge for the provision of further reasons on the quantum of damages. The costs of the appeal were reserved, with the parties required to file and serve evidence and submissions on the costs within specified timeframes. The court also noted that unless a party requested an oral hearing, the costs of the appeal would be decided on the papers.

Orders

Orders of the court

1. The appeal be allowed.

2. Order 1 of the orders made on 17 December 2021 be set aside.

3. The matter be remitted to the primary judge for the provision of further reasons on the quantum of damages.

4. The costs of the appeal be reserved.

5. The respondent file and serve any evidence and submissions of no more than 3 pages on the costs of the appeal within 14 days of these orders.

6. The appellants file and serve any evidence and submissions of no more than 3 pages on the costs of the appeal within 21 days of these orders.

7. The respondent file and serve any submissions in reply of no more than 2 pages on the costs of the appeal within 28 days of these orders.

8. Unless a party requests an oral hearing in its submissions on the costs of the appeal, the costs of the appeal be decided on the papers.

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

Background

Background to the litigation

For the reasons that follow, we have ultimately come to the conclusion that the appeal should be allowed on the ground that the reasons given for arriving at the quantum of $150,000 are inadequate.BACKGROUND The following summary of the relevant background facts is drawn from the factual findings in the liability judgment, none of which is the subject of challenge in the appeal. The dispute concerns “leveller”, a liquid that is used on floor surfaces to even out imperfections before finished flooring is laid. Two such levellers were relevantly imported to Australia by Cemimax Australia Pty Ltd, namely DL55 and DL59. In February 2018, Cemimax’s national sales director, John Titus, and Evagroup’s principal and managing director, Peter Yates, agreed a relationship between their respective companies. In essence, Cemimax would import stock of leveller from China directly to Evagroup’s warehouse where it would be stored. Both Cemimax and Evagroup would sell the product to whatever customers they could attract. In the event of a sale, Evagroup would pick the product to fulfil the order and either ship it to the customer or make it available for collection from the warehouse. Evagroup would raise a charge for warehousing and logistical services once the stock was moved from the warehouse to or by a customer, regardless of whether it was a sale by Cemimax or Evagroup. In the event of it being a sale by Evagroup, Cemimax would invoice Evagroup for the wholesale cost of the product. On the recommendation of Mr Titus, Mr Yates employed Mr Lopez as sales manager for Evagroup. Mr Lopez signed a letter of engagement with Evagroup that contained a confidentiality clause by which Mr Lopez undertook not to use or disclose confidential information of Evagroup. On 1 April 2019, Mr Lopez commenced his employment at Evagroup. On or around 20 May 2019, Mr Lopez was for the first time given access to a spreadsheet, in hard copy and electronic form, containing a list of customer details maintained by Evagroup which Evagroup had developed over a long period of time. The primary judge found that the customer list fell within the protection of the confidentiality clause. There is no appeal from that finding. For reasons not presently relevant, the relationship between Messrs Titus and Yates began to deteriorate. In June 2019, Mr Titus informed Mr Yates that Cemimax had a new warehouse and that the stock being stored with Evagroup would be moved to that warehouse. On 9 August 2019, Mr Lopez resigned from Evagroup, which resignation took effect on 12 August 2019. On that same day, ie, 12 August 2019, Imperial was established by Mr Lopez with him as its sole director and company secretary. The next day, Mr Lopez registered a domain name for Imperial. Mr Lopez thereafter used the Evagroup customer list that he had retained to send unsolicited emails to the clients of Evagroup to tout for business for his newly established company, Imperial. In the emails, Mr Lopez stated, amongst other things, that Imperial’s prices were “the best in the market” and that “a small portion of our projects can be viewed via this link [the Imperial domain name]”. The link took one to Imperial’s website which included photographs of projects serviced not by Imperial, which had only just commenced business, but by Evagroup. It was that misrepresentation, as well as others in Imperial’s unsolicited email communications to Evagroup’s customers, which constituted misleading and deceptive conduct contrary to s 18 of the ACL.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The orders followed the publication of reasons for judgment on liability, published as Gold Titan Pty Ltd v Lopez [2021] FCA 918 (LJ or liability judgment), and, some months later, on relief, published as Gold Titan Pty Ltd v Lopez (No 2) [2021] FCA 1523 (RJ or relief judgment). The liability judgment found that there was the following liability (as was ultimately expressed in the declarations):(1)by Mr Lopez, for breach of his employment contract with Evagroup by using and disclosing confidential information of Evagroup, and by failing to return to Evagroup, or to destroy, confidential information of Evagroup when his employment ended; (2)by Mr Lopez and Imperial, for breach of an equitable obligation of confidence which they owed to Evagroup by using and disclosing confidential information of Evagroup; and(3)by Imperial, for engaging in conduct in contravention of s 18 of the Australian Consumer Law (ACL, being Sch 2 of the Competition and Consumer Act 2010 (Cth)), and Mr Lopez for being involved in the contravention, by representing in trade and commerce that certain projects had been supplied with goods and services by Imperial when in fact they had been supplied with such goods and services by Evagroup. In respect of those breaches, the primary judge entered judgment jointly and severally against Mr Lopez and Imperial in the sum of $150,000 in damages, explaining that $25,000 of that amount was attributed to the ACL claim. The appellants take issue with the primary judge’s assessment of the quantum of damages. In short, they contend that the primary judge erred in that her Honour failed to have regard to a novus actus interveniens, failed to confine her assessment to that which was actually lost by Evagroup, or failed to give adequate reasons for the quantum she arrived at. For the reasons that follow, we have ultimately come to the conclusion that the appeal should be allowed on the ground that the reasons given for arriving at the quantum of $150,000 are inadequate.BACKGROUND The following summary of the relevant background facts is drawn from the factual findings in the liability judgment, none of which is the subject of challenge in the appeal. The dispute concerns “leveller”, a liquid that is used on floor surfaces to even out imperfections before finished flooring is laid. Two such levellers were relevantly imported to Australia by Cemimax Australia Pty Ltd, namely DL55 and DL59. In February 2018, Cemimax’s national sales director, John Titus, and Evagroup’s principal and managing director, Peter Yates, agreed a relationship between their respective companies. In essence, Cemimax would import stock of leveller from China directly to Evagroup’s warehouse where it would be stored. Both Cemimax and Evagroup would sell the product to whatever customers they could attract. In the event of a sale, Evagroup would pick the product to fulfil the order and either ship it to the customer or make it available for collection from the warehouse. Evagroup would raise a charge for warehousing and logistical services once the stock was moved from the warehouse to or by a customer, regardless of whether it was a sale by Cemimax or Evagroup. In the event of it being a sale by Evagroup, Cemimax would invoice Evagroup for the wholesale cost of the product.

Ratio Decidendi

Legal Principle Established

Mr Yates estimated that, had Evagroup been able to continue supplying to the Kiama and Lidcombe projects referred to in [23](4)(a) and (b) above, it would have earned revenue of about $85,000, being 5% to 6% of its annual revenue.Consideration It may be accepted that her Honour’s reasons were not as clearly expressed as they could have been, had she set out separately the findings of fact, on which she based the award of $150,000, differentiating those from her critique of the parties’ evidence and submissions. The primary judge referred to the evidence, and its limitations, that she had considered in the course of arriving at the ultimate award. As noted above, Mr Lopez and Imperial accepted that her Honour had set out the legal principles apposite to the assessment of damages. In DL v The Queen (2018) 266 CLR 1 at 12 [32] Kiefel CJ, Keane and Edelman JJ said:The content and detail of reasons “will vary according to the nature of the jurisdiction which the court is exercising and the particular matter the subject of the decision” (Wainohu v New South Wales (2011) 243 CLR 181 at 215 [56]). In the absence of an express statutory provision, “a judge returning a verdict following a trial without a jury is obliged to give reasons sufficient to identify the principles of law applied by the judge and the main factual findings on which the judge relied” (Douglass v The Queen (2012) 86 ALJR 1086 at 1089 [8]; 290 ALR 699 at 702). One reason for this obligation is the need for adequate reasons in order for an appellate court to discharge its statutory duty on an appeal from the decision (Here, under Criminal Law Consolidation Act 1935 (SA), s 353(1). See Douglass v The Queen (2012) 86 ALJR 1086 at 1090 [14]; 290 ALR 699 at 703; R v Keyte (2000) 78 SASR 68 at 76 [38]) and, correspondingly, for the parties to understand the basis for the decision for purposes including the exercise of any rights to appeal. If a trial judge fails to give adequate reasons and the appellate court cannot decide the appeal or issue by examining the record to determine if the order in question was properly made, one course open is to remit the matter back to the judge for the purpose of formulating his or her reasons for the relevant conclusion or order: North East Equity Pty Ltd v Proud Nominees Pty Ltd (2010) 269 ALR 262 at 270–271 [38]–[41] per Sundberg, Siopis and Greenwood JJ. The primary judge’s findings in [66]–[68] are critical to understanding whether she sufficiently identified a basis for her reasoning on damages. As her Honour acknowledged in [68], it is difficult for a person in Evagroup’s position to prove a quantifiable loss resulting from a former employee’s breaches of his or her obligation of confidence and contract in stealing and then using the former employer’s customer list in a competing business. The primary judge recognised that two facts were important ingredients in the evaluative mix used to arrive at an assessment of such a loss, namely that:(1)Mr Lopez and Imperial had obtained a head start in their new business by the use they made of the customer list and Evagroup “may have lost out on jobs that it otherwise might have obtained” (at [66]); and(2)Mr Lopez’s and Imperial’s conduct and their purpose in engaging in that conduct, were to gain from the springboard effect in launching their business “in particular in the time frame in which [they] did” (at [67]).