New Aim Pty ltd v Leung
[2022] FCA 722
•23 June 2022
FEDERAL COURT OF AUSTRALIA
New Aim Pty ltd v Leung [2022] FCA 722
File number(s): VID 547 of 2021 Judgment of: MCELWAINE J Date of judgment: 23 June 2022 Catchwords: EQUITY – confidential information – use of confidential information subject to claimed equitable obligation- requirement to specify the information- whether information is required to be a trade secret- WeChat list of contacts maintained on employee personal mobile phone – whether use of confidential information in breach of contract – whether information is accumulated knowledge of the employee that may be used post termination of employment
EVIDENCE – independent expert’s report - duties and responsibilities of expert – duties and responsibilities of instructing solicitors – communications between expert and those engaging them where report was drafted by the solicitor– failure to disclose authorship of the report-disclosure of material information relevant to the independence of the expert whether opinions expressed are independent- rejection of entirety of the expert evidence
CORPORATIONS – application under s 183 of the Corporations Act 2001 (Cth) – former employee – duty not to misuse information and whether duty is broader than equitable obligation of confidence
Legislation: Corporations Act 2001 (Cth), s 183 Cases cited: Australian Medic-Care Co Ltd v Hamilton Pharmaceutical Pty Ltd (2009) 261 ALR 501; [2009] FCA 1220
Banque Commerciale SA (in liquidation) v Akhil Holdings Limited (1990) 169 CLR 279
Boland v Yates Property Corporation Pty Ltd (1999) 74 ALJR 209
Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434
Del Casale v Artedomus (Aust) Pty Ltd (2007) 73 IPR 326
Faccenda Chicken Pty Ltd v Fowler [1987] 1 Ch 117
Foggo v O’Sullivan Partners (2011) 206 IR 87; [2011] NSWSC 501
Forkserve Pty Ltd v Pacchiarotta (2000) 50 IPR 74
Futuretronics.com.au Pty Ltd v Graphix labels Pty Ltd (2009) 81 IPR 1; [2009] FCAFC 2
GlaxoSmithKline Australia Pty Ltd v Ritchie (2008) 77 IPR 306; [2008] VSC 164
Harrington-Smith on Behalf of the Wongatha People v Western Australia (No 7) (2003) 13 FCR 424; [2003] FCA 893
MacDonald v Shinko Australia Pty Ltd [1999] 2 Qd R 152
Manildra Laboratories Pty Ltd v Campbell [2009] NSWSC 987
Moorgate Tobacco Co. Ltd v Philip Morris Ltd (1984) 156 CLR 414,
New Aim Pty Ltd v Leung [2021] FCA 1329
NP Generations Pty Ltd v Feneley (2001) 80 SASR 151; [2001] SASC 185
O’Brien v Komesaroff (1982) 150 CLR 310
Optus Networks Pty Ltd v Telstra Corporation Ltd (2010) 265 ALR 281; [2020] FCAFC 21
Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434
Pell v The Queen [ 2019] VSCA 186
Plus One International Pty Ltd v Ching (No3) [2020] NSWSC 1598
Printers & Finishers Ltd v Holloway [1965] 1 WLR 1
R v Byrnes (1995) 183 CLR 501
RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd (2011) 280 ALR 125; [2011] FCA 423
Romero v Farstad Shipping (Indian Pacific) Pty Ltd (2015) 231 FCR 403;’s [2014] FCA 177
Rosetex Co Pty Ltd v Licata (1994) 12 ACSR 779
Smith Kline & French Laboratories (Aust) Ltd v Sec, Department of Community Services and Health [1990] 22 FCR 73
Streetscape Projects (Australia) Pty Ltd v City of Sydney (2013) 295 ALR 760; [2013] NSWCA 2
Vanguard Financial Planners Pty Ltd v Ale (2018) 354 ALR 711; [2018] NSWSC 314
Weldon & Co Services Pty Ltd v Harbinson
Whitehouse v Jordan [1981] 1 WLR 246
Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317
Cross on Evidence (Electronic Version, LexisNexis, current to March 2022)
Dal Pont, Law of Confidentiality, 2nd LexisNexis (2020)
Dean’s Law of Trade Secrets and Privacy, 3rd ed, Thomson Reuters (2018)
Freckelton and Selby, Expert Evidence Law, Practice and Procedure (6th ed, Thomson Reuters)
Gurry On Breach Of Confidence (Oxford University Press 2nd ed (2012)
Heydon on Contract Lawbook Co (2019)
Heydon, The Restraint of Trade Doctrine (LexisNexis, 4th ed (2018)
Ipp J, Lawyers Duties To The Court (1998) 114 LQR 63 at 92
Stowe, Preparing expert witnesses - a (continuing) search for ethical boundaries [2018] Bar News 72 at 77-78
Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 252 Date of hearing: 19-21, 26 and 29 April 2022 Counsel for the Applicant: Mr L Merrick
Ms M EvettsSolicitor for the Applicant: Corrs Chambers Westgarth Counsel for the Respondents: Mr T Mitchell
Mr P AnnabellSolicitor for the Respondents: Jem Lawyers ORDERS
VID 547 of 2021 BETWEEN: NEW AIM PTY LTD
Applicant
AND: MR MAN HUNG (JACK) LEUNG
First Respondent
MS (JENNY) LI YINGXUE
Second Respondent
MR LEI (RAY) XIAO (and others named in the Schedule)
Third Respondent
ORDER MADE BY:
MCELWAINE J
DATE OF ORDER:
23 JUNE 2022
THE COURT ORDERS THAT:
1.The proceeding against the first, third, fourth and fifth respondents is dismissed;
2.The proceeding be listed for further hearing at 10.15am on 27 June 2022.
3.The applicant file and serve any application to the effect that the interlocutory injunction ordered on 26 October 2021 should not be discharged, together with any affidavits in support, by no later than 4.00pm on 24 June 2022.
4.I adjourn for further submissions on a date to be fixed all consequential issues, including costs, the variation or discharge of the confidentiality orders made on 29 April 2022 and whether there is to be an inquiry or determination of loss pursuant to the usual undertaking as to damages given by the applicant as the condition of interlocutory relief;
5.I grant liberty to apply generally.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
McELWAINE J:
INTRODUCTION
New Aim Pty Ltd (in these reasons New Aim or the applicant) conducts a large-scale e-commerce business in Australia and sources its products from a range of suppliers in China. It is a competitive market and includes such well-known online retailers as eBay, Kogan, Catch, MyDeal, Amazon, Myer and Harvey Norman. The first respondent, Man Hung (Jack) Leung, commenced employment with the applicant as a junior Office Assistant in 2009. Over time, Mr Leung was promoted to more senior positions. In July 2020 he was appointed as the Chief Commercial Officer, which position he held until 18 January 2021, at which time he resigned his employment.
Ms Yingxue (Jenny) Li, the second respondent, was employed by the applicant between March 2012 and July 2021, initially as a graphic designer and later as Design Manager. She also resigned her employment. The third respondent, Mr Lei (Ray) Xiao, was employed by the applicant commencing in June 2010, working as a packer. In 2014, Mr Xiao was promoted to Warehouse Manager, a position he remained in until he resigned his employment in March 2021. The fourth respondent is Sun Yee International Pty Ltd (Sun Yee), a company incorporated in Australia and is the operator of an online retailing business. The fifth respondent, Broers Group Pty Ltd (Broers), is also a company incorporated in Australia and it too is the operator of an online retailing business. The applicant, Sun Yee and Broers are competitors.
By an amended originating application and statement of claim filed on 6 October 2021, the applicant claimed that Mr Leung, Ms Li and Mr Xiao breached their equitable obligations not to reveal or use confidential information acquired during the course of their employment, breached their statutory obligations under s 183 of the Corporations Act 2001 (Cth) (Corporations Act) not to improperly use information and breached their individual employment contracts by failing to maintain the confidentiality of the information of their employer. As against Sun Yee and Broers, the applicant asserted that each received confidential information from Mr Leung, Ms Li and/or Mr Xiao in circumstances that bound those corporations to a parasitic equitable obligation not to use the applicant’s confidential information in order to source products from suppliers of the applicant, and that by promoting various images on their respective websites, each company reproduced, without licence from the applicant, its copyright works contrary to the Copyright Act 1968 (Cth). Finally, the applicant contended that each of Sun Yee and Broers had engaged in misleading and deceptive conduct contrary to the Australian Consumer Law by offering for sale certain electrical products without being registered as responsible suppliers of such products in Australia.
In consequence, the applicant claimed relief in the form of declarations, injunctions, damages, delivery up and an account of profits.
On 26 October 2021, the applicant obtained urgent interlocutory relief, the effect of which was to restrain each of the respondents from reproducing or disclosing the confidential information of the applicant, defined in the orders as meaning the identity and/or contact details of persons who were suppliers of products to the applicant as at January or March 2021: New Aim Pty Ltd v Leung [2021] FCA 1329, Moshinsky J. The injunction also prevented the respondents from using in any manner the confidential information, including by procuring from suppliers to New Aim products that are the same or substantially the same as products sold by the applicant as at January or March 2021 and from promoting or selling such products. Further, the respondents were required by 4pm on 5 November 2021 to give discovery of all documents in their control which contain the confidential information of the applicant and to make affidavits identifying any person to whom the confidential information of the applicant had been disclosed and, in the case of Broers and Sun Yee, identifying the details of all products sold in consequence of the use of the applicant’s confidential information.
On 11 February 2022, the applicant abandoned its claims pursuant to the Australian Consumer Law and on that day, I made an order that all questions of liability (including the grant of declaratory and injunctive relief and any entitlement to, but not the quantum of, additional damages under the Copyright Act 1968 (Cth)) be determined prior to, and separately from, questions of quantum.
On 19 April 2022, I made various orders by consent to the effect that Mr Leung, Sun Yee and Broers were each permanently restrained from reproducing in material form, or causing to be reproduced in material form, various works the subject of the copyright claim of the applicant and that the corresponding claims for copyright infringement be dismissed. The proceeding against Ms Li was dismissed.
Accordingly, when the proceeding was heard before me it was confined to the equitable breach of confidence, Corporations Act and the breach of contract claims. During closing submissions, the applicant abandoned its claims against Mr Xiao and accepted that the proceeding against him should be dismissed.
On 29 April 2022, I made orders, pursuant to ss 37AF and 37AI of the Federal Court of Australia Act 1976 (Cth) and on the grounds set out at s 37AG(1)(a) that until 14 days after the publication of reasons for judgment, the publication or other disclosure of information in the documents identified in annexures A and B to the orders be prohibited, other than to the Court and persons who have given specified confidentiality undertakings. The orders operate upon significant portions of the witness evidence and the tendered documents as contained in the court book as comprising commercially sensitive business information. In these reasons where I make findings based on that evidence, I do so at a relatively high level of generality, so as to maintain that commercial confidentiality.
Counsel for the applicant correctly submitted in his closing submission that “as the trial unfolded, a critical question for the Court [to determine] is how it should characterise the information which the applicant says has been misused.” Counsel for the respondents in his closing submissions redefined that issue as turning on two questions: (a) what specific information has been used by Mr Leung; and (b) is the confidentiality of that information protected by the law? In combination, each of those submissions crisply identified the central issues for my determination.
For the detailed reasons that follow, I have concluded that the applicant’s claims fail in each respect and the proceeding should be dismissed against the remaining respondents.
THE ISSUES ON THE PLEADINGS
The applicant frames its claims in accordance with the Further Amended Statement of Claim (FASOC) dated 21 April 2022 for which leave to amend was granted on the first day of the trial. Those amendments were not of such substance so as to justify an amended version of the defence and the respondents were content to rely upon their defence dated 11 November 2021. It is a credit to the legal representatives for each of the parties that the pleadings succinctly identify the real issues in dispute and in consequence, the scope of the factual dispute is relatively narrow. I summarise the material facts from the pleadings and in doing so identify the central matters in issue.
Mr Leung commenced employment with the applicant as an Office Assistant in 2009, which position he held until 2010 when he was promoted to the position of Buyer, which he held until 2013 when he became a Category Manager. He occupied that position until 2015 when he was appointed Head of Buying and later in 2020 was promoted to Chief Commercial Officer, which position he held until his resignation in January 2021.
Mr Xiao was employed by New Aim between June 2010 and March 2021, when he ultimately resigned, as Warehouse Manager.
Sun Yee and Broers are the proprietors of online retailing businesses in Australia, pursuant to which each offers for retail sale to the public various categories of goods produced by other manufacturers and suppliers, predominantly in China. Mr Fei (Eddy) Dai is a director, shareholder and founder of Sun Yee and is responsible for certain marketing activities of Broers. Mr Huailiang (Mac) Chen is a director and co-founder of Broers.
During the course of his employment, Mr Leung had access to certain business information maintained by the applicant comprising its copyright works (images of the various products that it offered for sale, as maintained on its website from time to time), the identity and contact details of suppliers to the applicant of various categories of products as at January and March 2021, wholesale product information, including wholesale prices for New Aim products, retail sales data for New Aim products and market research from sources including third-party marketplace data, internal New Aim sales data and sales data from suppliers to New Aim. As the case progressed before me, the applicant confined its claims to that which it described as “confidential and commercially sensitive business information” being the identity and contact details of suppliers to it of products as at January and March 2021.
As originally framed, the applicant identified its confidential and commercially sensitive information as the identity and contact details of its suppliers of various products as at January and March 2021, wholesale product information, including wholesale prices for each of its products, retail sales data for each of its products, market research and sales data from its suppliers.
The respondents contend that the particularisation of the confidential information by the applicant is insufficient and, in any event, deny that the identified categories comprised confidential or commercially sensitive business information of the applicant.
Separately, Mr Xiao denied that he had access to any part of the confidential information of the applicant and in any event denied that he, if he did have such access, did in fact access that information.
Sun Yee and Broers admitted that until restrained by the interlocutory orders they procured, promoted and sold a range of products identical, or nearly identical, to the products sold by the applicant as particularised at annexure B to the FASOC. The respondents admitted that Mr Leung worked for Broers, but did not specifically admit the date upon which he commenced work, either as an employee or a consultant, and nor did they admit that he did so in order to assist Broers to procure, promote or sell various products. The respondents admitted that Mr Xiao worked for Broers following his resignation as an employee of the applicant.
Importantly in this case, the applicant pleaded that:
[19] In the course of their work for Sun Yee and/or Broers, each of Mr Leung, Ms Li and Mr Xiao have used the New Aim confidential information (or part of it) including to assist Sun Yee and/or Broers to procure, promote and sell the copied products.
To this allegation the respondents pleaded:
They deny each allegation in paragraph 19 and say further that the information described in subparagraph 11(b)(i) and (i) of the amended statement of claim suppliers of products:
(a)is publicly available information; and/or
(b)was imparted by suppliers to Mr Leung in circumstances where Mr Leung would reasonably expect that the suppliers would not wish him to keep the information confidential; and/or
(c)formed part of Mr Leung’s stock of knowledge that he was free to use after ceasing his employment with New Aim.
The respondents denied that Sun Yee and/or Broers had received and used the New Aim confidential information to procure, promote and sell the copied products. They also did not admit (and no point mistaken about the form of this pleading) that in the course of their work for Sun Yee and/or Broers, Mr Leung and Ms Li have permitted or assisted Sun Yee and/or Broers to use images which include the New Aim copyright works, or a substantial part thereof, to promote and sell the copied products.
Each of Mr Leung, Ms Li and Mr Xiao admitted that by reason of their employment, they were subject to their respective obligations pursuant to s 183 of the Corporations Act, though each denied they had improperly used information obtained as employees to gain an advantage for themselves, or someone else, or to cause detriment to the applicant.
The written employment agreements of Mr Leung, Ms Li and Mr Xiao were each admitted. What was put in issue on each of the contract claims was whether, upon a proper construction of the agreements, the information claimed by the applicant to be confidential was identified as such and subject to the provisions of each contract.
Finally, each respondent denied that the applicant had suffered and will continue to suffer loss and damage by reason of the pleaded conduct.
THE EVIDENCE AND THE WITNESSES
The trial was efficiently conducted in that the evidence in chief of each witness was set out either in an affidavit or a witness statement that, subject to evidentiary objections, was adopted by each witness. Some witnesses were not required for cross-examination. Evidence about the content of two disputed conversations was given viva voce. Additionally, the parties prepared and agreed upon a court book of documents, the admissibility of which was not contested.
Save for one witness, I conclude that each person who gave evidence before me did so conscious of the need to assist me in making findings of fact on contested issues between the parties. I formed the view after carefully listening to and observing the witnesses, that each was truthful. Evidence was given in a forthright and non-argumentative way. Individuals gave their evidence when cross-examined by answering questions directly, in a straightforward manner and without prevarication. I have no hesitation in accepting each individual as a witness of the truth. To the extent that individuals gave conflicting evidence I conclude that the differences are explicable by the usual frailties of human memory in the recollection of historical events. The impression that I formed of each of the witnesses reflects the submissions made by counsel for the parties in closing. Generally speaking, each counsel accepted that each witness called for the opposing party was truthful, subject to matters that I specifically mention below. The exception is Ms Fangyun (Lindy) Chen, an expert witness for the applicant. I address my concerns about her evidence in more detail below.
I next summarise the evidence of each witness which is not in dispute, or which was clarified in the course of cross-examination and I make findings of fact in accordance with that evidence. Where evidence was contradicted or challenged, I separately state my findings of fact.
Applicant’s Witnesses
Mr David Huang is presently employed as the Chief Operating Officer of the applicant. He commenced his employment in 2014, first as the IT Manager which position he held until 2020. As the IT Manager he was primarily responsible for the development and maintenance of the IT systems of the applicant, as well as for system security. In July 2020, he was promoted to the position of Chief Information Officer. He continued to be responsible for IT security and system development, though at a higher level of responsibility as a member of the senior management team. He was further promoted in April 2021, to his current position of Chief Operating Officer. As might be expected, the Chief Operating Officer is responsible for the day-to-day management of the business of the applicant.
Mr Huang’s evidence described the business of the applicant in some detail, the history of its growth, the number of employees engaged at material points in time, the development by it of various brands for the sale of categories of products and the division of responsibilities within the applicant by compartmentalisation into separate teams. There is the Category Team, responsible for identifying trends and products in the marketplace and the analysis of data in order to determine which products should be recommended to the Buyer Team for acquisition. The Buyer Team is responsible for investigating new potential suppliers and products including the sourcing of products from individual suppliers, reviewing and sampling products and the maintenance of relationships with existing suppliers. The Product Compliance Team identifies relevant regulatory or legal standards applicable to each product. The Quality Control (QC) team is responsible for quality, safety and product testing in order to ensure that products offered for sale comply with the quality standards as determined by the applicant and applicable external standards. The Data Team is responsible for analysing data and acts as project manager to assist other stakeholders within the business of the applicant. The IT team, as one might understand, is responsible for the development, maintenance and management of the information technology systems that the applicant requires to conduct its business. The Shipping Team acts as account managers in order to manage relationships with various online marketplaces and is responsible for product promotion. The Customer Service Team deals with questions, concerns and feedback from purchasers of products. Finally, the Warehouse Team is responsible for delivery, storage and general warehouse operations.
That the business of the applicant is substantial is revealed by three facts. Currently the applicant occupies approximately 96,700 m² of warehouse space in Melbourne, has 400 employees (of which 110 are employed in China) and its annual turnover exceeds $300 million.
The products offered for sale by the applicant are sourced from overseas manufacturers, predominantly in China. The business is vertically integrated into seven main category groups comprising bedding, home office and appliances, fitness, entertainment, building materials, home living and indoor furniture, kids and outdoor furniture, garden, outdoor living and tents, tools and outdoor activities and research and development.
The applicant is competitive with a large number of other online retailers. At the time of the proceeding, the applicant offered for sale approximately 6000 individual product lines which it obtained from approximately 400 active suppliers in China. In contrast, when Mr Huang joined the business in 2014 there were approximately 192 active suppliers, of which approximately 47 remained active as at April 2022
Mr Huang described in detail the process undertaken by the applicant to determine whether it will procure products from a supplier. In cross-examination, he accepted that he has not been personally involved in the supplier identification and selection process. Rather, these tasks are performed by other employees of the business for whom he is ultimately responsible in his role as Chief Operating Officer. But it does not follow that he is unable to give evidence as to the steps taken within the business of the applicant and as to its usual or standard procedures. In broad outline those steps are:
(a)the Buyer Team reviews and analyses market data from a number of sources in order to identify potential new products that may be offered for sale;
(b)the Buyer Team will identify potential suppliers by first making contact with existing suppliers. If an existing supplier is not able to supply a particular product, the Buyer Team will take steps to identify a new supplier in China. Normally, that involves contacting suppliers by using an online business-to-business database that has been identified at trade fairs;
(c)in China, there are many, perhaps thousands, of potential suppliers for any one product. The quality, sophistication and cost of products varies widely;
(d)sometimes individual members of the Buyer Team will attend the Canton Trade Fair in order to personally inspect products and speak to the representatives of suppliers. The Canton Trade Fair is a large biannual manufacturing exhibition which hosts in excess of 20,000 exhibitors and is attended by hundreds of thousands of overseas buyers.
(e)the Buyer Team will formulate a short list of possible suppliers and then formulate a proposal for submission to the head of the Buyer Team;
(f)the head of the Buyer Team is responsible for making a decision as to whether a particular product will be procured;
(g)once a potential supplier has been sufficiently identified, samples of the products will be obtained and examined;
(h)New Aim undertakes a form of internal sampling and product testing, but often engages a third party to undertake the sampling and testing procedures;
(i)sometimes members of the Buyer Team will visit the factories of potential suppliers in China to inspect the manufacturing facilities and processes;
(j)the Buyer Team is responsible for negotiating the purchase order terms; and
(k)once a supplier has been identified for a particular product, the supplier details will be added to the internal procurement system maintained by the applicant and which is currently known as the New Aim Purchasing System.
The applicant monitors the sales data for its products. Market trends are identified. Popular products are promoted for sale. Less popular products are, over time, withdrawn from sale. Products with identified defects are reviewed and, depending upon the number or type of defects, the supplier may be requested to change the manufacturing or packaging system.
The identification of a reliable supplier for a product is important in the business of the applicant. Having identified a reliable supplier, the applicant will often increase the number of purchase orders from that supplier for various products, with some suppliers having been engaged for over five years.
When Mr Huang commenced employment, the product and supplier details of prospective products and suppliers were entered into an Excel spreadsheet and then provided to the Head of the Buyer Team for approval. These spreadsheets were saved in the applicant’s internal share drive and were only accessible by members of the Category Team. The applicant later used an online buying and procurement software system known as Vtiger which contained all supplier details and wholesale pricing information.
Throughout 2017 and 2018, the applicant migrated Vtiger to a new program developed in-house known as the New Aim Purchasing System, the creation and distribution of which Mr Huang was involved in. This system acts as the centralised location that contains the entire list of suppliers and other information including the name, telephone number and bank details of the contact, as well as wholesale product information and purchase history.
The steps taken by the applicant to protect supplier information were listed by Mr Huang as follows (which evidence was not challenged or directly contradicted by the respondents):
(a)New Aim restricts access to supplier information in the New Aim Purchasing System to only those employees who require access in performing their role;
(b)Product packaging, labels and instruction manuals do not include supplier details, save for certain electrical products where disclosure is required by law;
(c)The applicant controls and limits the manner in which the Buyer Team communicates with suppliers, by strongly encouraging communications with suppliers to occur via the instant messaging application Enterprise QQ, as employee accounts are controlled by New Aim and deleted once an employee leaves the business. Enterprise QQ is an instant messaging application that is primarily used by members of the buying team in China. If unable to use Enterprise QQ, employees are advised to communicate via work email or DingTalk (an internal messaging service), as each platform is controlled by the applicant. Only if a supplier is not able or willing to use these platforms are New Aim employees allowed to use personal modes of communication such as WeChat;
(d)In approximately June 2020, the applicant implemented a Confidentiality/Intellectual Property Policy that is provided to all new employees forming a part of all employment contracts. Whether that Policy was provided to the respondents, in particular Mr Leung, is a disputed fact that I address later in these reasons.
Wholesale prices are agreed through extensive negotiation between the Buyer Team and suppliers, and when confirmed, are stored on the New Aim Purchasing System. Wholesale prices are commercially sensitive for the obvious reason that if a competitor were to become aware of a product’s wholesale price, it could be utilised as a starting point for negotiations with a supplier, potentially affording competitors with a lower price of procurement and a lower retail price.
Mr Kang (Colin) Li is currently employed as the Category Manager within the Buyer Team at New Aim. He commenced employment with the applicant in September 2020, initially as a Category Co-ordinator within the bedding, home office and appliance subgroup of the Buyer Team. In this role, he was responsible for appraising existing product lines and locating new suppliers in China. Mr Li was then promoted to his current role of Category Manager of the Research and Development (R&D) sub-group of New Aim’s Buyer Team, during which he managed the R&D team which included the development and sourcing of new products. Mr Li’s job title was changed to Category Manager – Business Development in March 2022, though his responsibilities were essentially unchanged.
In his witness statement he set out in some detail the applicant’s internal processes in order to procure new products and to identify new suppliers. In cross-examination he accepted that he had no direct knowledge of those matters prior to September 2020 and that his knowledge is limited to the product category bedding, office furniture and home appliances within the Buyer Team. However, I infer that the same or similar steps have been taken by the applicant since September 2020 for each product category within the various subgroups of the Buyer Team. On that basis, I accept his evidence which in summary was:
(a)The Buyer Team evaluates and analyses industry data to find gaps in the market for products expected to be attractive to Australian consumers. This analysis usually involves the review of competitors’ websites, eBay data and New Aim’s internal sales data, as well as independent online research and consideration of supplier recommendations;
(b)Employees in the Buyer Team are briefed on ‘products of interest’ and then proceed to identify potential suppliers;
(c)The Buyer Team creates a shortlist of at least 10 potential suppliers, narrowed on a range of factors including price, supplier background and factory location;
(d)Members of the Buyer Team then submit an initial request to each supplier on the shortlist to obtain a quotation and inquire about other details or information considered useful in deciding between prospective suppliers;
(e)The Buyer Team prepares a Value Chain Analysis report outlining financial data for each prospective supplier, including pricing and projected sales data, together with a detailed product proposal report with reasons for choosing the product line, an analysis of which product types would best appeal to the applicant’s intended customers and a comparison of products from each supplier;
(f)When the sampling is undertaken, the Buyer Team sends the above reports and a proposed first purchase order to the Manager of the subgroup;
(g)The Buyer Team then negotiates payment terms with suppliers including a payment timeline. Once terms are agreed, the suppliers are added to the New Aim Purchasing System;
(h)Once having committed to an order, New Aim engages quality control from a third party to inspect the supplier’s factory;
(i)Following the placement of the first order but prior to shipment to Australia, New Aim’s QC team in China will review the supplier’s factory and products; and
(j)Once the products arrive at New Aim’s Melbourne warehouse, the products are advertised for sale across various online marketplaces.
Mr David Fixler is a partner of the firm Corrs, Chambers Westgarth (Corrs), the lawyers for the applicant. He gave uncontroversial evidence as to the purchase of various products from Broers and/or Sun Yee. It is not in dispute in this proceeding that Broers and/or Sun Yee offered for sale various products that were identical, or very similar, to these offered for sale by the applicant.
Ms Fangyun (Lindy) Chen is the Founder and Managing Director of ChinaDirect Sourcing, an Australian firm established by her in 2005 that assists clients in procuring products from suppliers in China. Ms Chen has also authored a book which examines the process of sourcing products from suppliers in China titled: Import from China: How to Make a Million and Not Get Burnt!, which was published in 2011. On account of her relevant industry experience and knowledge, Ms Chen was engaged as an expert witness for the applicant. Her evidence was objected to. I admitted her expert report dated 8 March 2022, after ruling on the objections to it. I have now concluded that I should reject each of the statements of fact and the expression of opinions as contained therein for the following reasons.
Her signed witness statement is dated 8 March 2022 and it attaches her report. In it she recites the purpose of her engagement is to act as an independent expert witness engaged by Corrs for the applicant in this proceeding. She stated that:
When I was retained, Corrs provided me with a copy of the Federal Court of Australia Expert Evidence Practice Note (GPN-EXPT), which includes the Harmonised Expert Witness Code of Conduct (Code). I confirm that I have read, understood and complied with the Code in providing expert assistance in the proceeding (including in making this witness statement), and agree to be bound by it. A copy of the Code is annexed to the retainer letter I received from Corrs on 21 February 2022, referred to below.
She attached a number of documents to her witness statement including a retainer letter from Corrs dated 21 February 2022, an instruction letter from the firm dated 7 March 2022 and her expert report dated 8 March 2022. What is remarkable about that timeline is that the letter of instruction directed Ms Chen to provide an overview of her business, with a focus upon the service that her business provides to clients and then to explain the practices “(if any) in the industry (including in particular, in the e-commerce sector) concerning the use and treatment of information pertaining to the identities and details of suppliers in China”, all of which was able to be answered by Ms Chen in the form of her expert report the following day, comprising 16 pages and 60 paragraphs, not including attachments.
As might be expected, the apparent ability of Ms Chen to produce an expert opinion report so quickly was the subject of detailed cross-examination by counsel for the respondents. Initially, it was put directly to her that she did not draft “this entire report” herself within a space of 24 hours. Ms Chen answered, “I prepared within 24 hours” [sic]. She then disclosed that she had “a couple of conversations” with unidentified lawyers from Corrs between 21 February and 7 March 2022. She was pressed as to whether she had prepared and submitted earlier drafts of her report. She answered, “I think it was about two or three”. She accepted that she sent drafts of her report to Corrs for comment. She accepted that she received comments from Corrs during a video conference. She denied receiving comments in writing, by email or otherwise. She was pressed as to whether the solicitors suggested to her that she should make changes to her draft report. To this simple question, she prevaricated and gave unsatisfactory and at times unresponsive answers. To this point her evidence was inconsistent, at times confusing and I began to doubt her independence. Eventually, she was asked the direct question: “who drafted the version of” her report as attached to her witness statement. She answered, “I started first” [sic]. Her evidence continued:
Yes? – And then we had a video conference, and then we went through some of the things, and the videoconference had, like, more information revealed. So, the second version – there are some other actual information in there.
Who put together the second version? – I think it’s Sarah.
Who’s Sarah? – Sarah is Corrs – the lawyer from the Corrs.
Counsel then pressed the witness with detailed questions in order to elicit information as to who was responsible for the drafting of which portions of the expert report. She specifically denied the proposition that “the drafting has generally been done by New Aim’s solicitors rather than by you, hasn’t it?” Her attention was drawn to certain paragraphs in her report which bear a remarkable similarity to paragraphs in the witness statement of Mr Huang. Once again it was directly put to her that she was not the author of all of her expert report. She failed to give satisfactory answers to those questions but eventually conceded that “but if you say every words of the sentence is exactly 100 per cent written by me, no” [sic]. Her demeanour was distinctly uncomfortable in giving that answer.
Eventually, Ms Chen conceded that she had received emails from Corrs, the effect of which was to suggest that she make changes to her draft report. Prudently, counsel for the respondents called for the production of all documents sent by Corrs to the witness, to the effect that alterations be made to, or commentary upon, her draft report. The evidence of Ms Chen was then adjourned so that she could attend at her office, obtain her computer and locate any other documents within the ambit of the call for production. Documents were produced, without objection as to legal professional privilege, and the cross-examination of Ms Chen resumed.
What then emerged from the evidence of Ms Chen is that on 22 February 2022, she sent her personal biography and some general information about her company to various lawyers at Corrs. On 25 February 2022, Sarah Catania, a lawyer in the employ of Corrs, advised Ms Chen by email that “we are progressing your witness statement and would like to arrange a call with you next week to discuss it further.” Suitable dates were requested for a conference. On 6 March 2022, Ms Catania sent an email to Ms Chen. She copied it to various individuals within Corrs, including Mr Fixler. In part it reads:
We are in the process of finalising your statement and hope to have it to you soon. As discussed, we would appreciate it if you would send us examples of the following completed documents: supplier summary report, quote comparison report and landed cost analysis. We will redact the client and supplier names and any financial figures. If there is anything further you would like redacted, please let us know. As promised, we will not file anything without your clear approval.
Further emails were exchanged between Ms Catania and Ms Chen, which contained requests by the firm for further information and inquiry as to conference availability. Information was provided. There were more virtual meetings. On 7 March 2022 at 5:27 pm, Ms Catania emailed Ms Chen, which she copied to other lawyers within Corrs including Mr Fixler, in which she said:
Dear Lindy
Thank you for your time on the phone today.
We attach our letter of instructions to you in this matter.
We will send to you your draft statement shortly.
The attachment was the letter of instruction on 7 March 2022, signed by Mr Fixler. That letter, after briefly stating the background to the proceeding and under the heading “instructions” reads:
For the purposes of your expert evidence in this proceeding, you are instructed to:
•provide an overview of your business, ChinaDirect Sourcing and the services that your company provides; and explain, based on your experience and expertise, the process involved to identify reliable suppliers in China suitable for the Australian market, with a particular focus on the e-commerce sector;
•explain the practices (if any) in the industry (including, in particular, in the e-commerce sector) concerning the use and treatment of information pertaining to the identities and details of suppliers in China.
Please let us know if you require any further information from us to provide this opinion. If you have any queries, please let us know.
On 8 March 2022 at 11:40 am, Ms Catania emailed Ms Chen, which she again copied to other lawyers within the firm, including Mr Fixler, and stated that:
Dear Lindy
Further to our call this morning, we attach the draft witness statement and expert report for your review. The annexures and attachments may be located at this link. Please let us know if you have any queries.
Kind regards
Sarah
The attached witness statement and expert report are not materially different from the versions that were finalised, signed and dated, filed in this proceeding and delivered as the independent expert opinion of Ms Chen, though the date of delivery is unclear.
On 11 April 2022, the solicitor for the respondents emailed correspondence to Ms Catania at Corrs, referenced the expert report of Ms Chen and stated:
Please provide, by no later than 4 pm on Wednesday, 13 April 2022, copies of the following documents:
(a)All documents recording any communications between your firm and Ms Chen;
(b)All documents recording any communications between your client, including their employees and Ms Chen; and
All drafts of the expert report.
Mr Fixler responded to that request by email on 12 April 2022. Inter alia he said:
There is no legitimate basis for such a request. Insofar as your clients seek production of correspondence with Ms Chen, our client maintains its privilege over that correspondence, except to the extent that it discloses the instructions given to Ms Chen (and those documents have already been produced at Annexure FC-1 of Ms Chen’s witness statement dated 8 March 2022). The filing of Ms Chen’s witness statement does not itself lead to a waiver…
The solicitor for the respondents did not accept that. A detailed and reasoned request for the production of the documents was sent by email on 13 April 2022, although the attached letter is wrongly dated 11 April 2022. The requested documents were not produced. On 16 April 2022, Mr Fixler sent correspondence by email to the solicitor for the respondents. Amongst other things he said:
As we previously communicated, all of the instructions given to Ms Chen have already been provided (as Annexure FC-1 to Ms Chen’s witness statement). For completeness, we also advise that there are no communications between New Aim and Ms Chen. To the extent that your client presses for drafts of Ms Chen’s report and any other communications between Corrs and Ms Chen record instructions given to Ms Chen, our client maintains that this is neither necessary nor appropriate. In particular, as discussed further below, these communications and documents are privileged, and there has been no waiver of that privilege.
The respondent’s solicitor did not respond to that email.
I return to the cross-examination of Ms Chen about this chronology of events. She was questioned as to which portions of her expert report were drafted by her and which portions were drafted by Corrs. She answered, “I don’t know how to define that part”. She agreed that her report was “a collaboration” between her and the lawyers from Corrs. She was questioned further about other aspects of the drafting of her report, which I do not find it necessary to address in these reasons, save for her evidence about the drafting of paragraphs [58] – [60]. These paragraphs appear at the end of her report and state various opinions to the effect that, in the experience of Ms Chen, a list of suppliers in China who are reliable and produce a range of high-quality goods suitable for the Australian market “is almost always considered to be and is treated… as confidential and a very valuable asset of the business”, that her clients “typically request that the identity and details of the supplier are not disclosed” and that “it would be extremely difficult to identify the supplier of a product manufactured in China if the details were not disclosed on the product.” Ms Chen accepted that paragraph [58] was drafted by Corrs but reflected her opinion. However, it is also the fact that the second sentence of that paragraph, as counsel for the respondents correctly observed, bears a “striking similarity” to paragraph [41] of the witness statement of Mr Huang dated 16 March 2022. I infer that those sentences were drafted by the same person, in this case, one or more lawyers from Corrs. She further accepted that the drafting selectively reproduced portions of her book, favourable to the applicant’s case.
In some circumstances, the fact that an expert witness may agree with a form of words for the expression of the expert’s opinion which are put to the expert in an admissible form, may not detract from the independence of the expert and the reliability of the opinion expressed. That observation is consistent with the reasoning of Lindgren J in Harrington-Smith on Behalf of the Wongatha People v Western Australia (No 7) (2003) 13 FCR 424; [2003] FCA 893 at [18]- [19] where he said:
Unfortunately, in the case of many of the experts' reports, little or no attempt seems to have been made to address in a systematic way the requirements for the admissibility of evidence of expert opinion. Counsel protested that, in order to ensure that the requirements of admissibility are met, lawyers would have to become involved in the writing of the reports of expert witnesses. In the same vein, counsel said, in supporting the admission of certain parts of a report, that they were written in the way in which those qualified in the particular discipline are accustomed to write.
Lawyers should be involved in the writing of reports by experts: not, of course, in relation to the substance of the reports (in particular, in arriving at the opinions to be expressed); but in relation to their form, in order to ensure that the legal tests of admissibility are addressed. In the same vein, it is not the law that admissibility is attracted by nothing more than the writing of a report in accordance with the conventions of an expert's particular field of scholarship. So long as the Court, in hearing and determining applications such as the present one, is bound by the rules of evidence, as the Parliament has stipulated in subs 82(1) of theNT Act, the requirements of s 79 (and of s 56 as to relevance) of the Evidence Act are determinative in relation to the admissibility of expert opinion evidence.
(Original emphasis.)
That must be read with an understanding that his Honour was dealing with, at case management level, a large number of objections as to the content of various expert reports to be relied upon as opinion evidence upon the trial of the proceeding. It is, necessarily, a general observation. Much depends upon the particular circumstances. And one should not overlook the further reasoning of his Honour at [27]:
Unfortunately, however, in the case of many of the present reports, it is difficult to avoid the impression that no attempt at all has been made to address the criteria of admissibility of expert opinion evidence. The difficulty of my task is increased as a result. My impression is that in some cases, beyond the writing of an initial letter of instructions to the expert, lawyers have left the task of writing the reports entirely to the expert, even though he or she cannot reasonably be expected to understand the applicable evidentiary requirements. Such a course may have been followed because of a commendable desire to avoid any possibility of suggestion of improper influence on the author. But I suggest that the distinction between permissible guidance as to form and as to the requirements of s 56 and 79 of the Evidence Act, on the one hand, and impermissible influence as to the content of a report on the other hand, is not too difficult to observe. It does not serve the interests of anyone, including those of the expert witness, to deny him or her the benefit of guidance of the kind mentioned.
What occurred in this case went well beyond permissible guidance of that character. Counsel for the respondents invites me to reject the entirety of the expert report of Ms Chen, or alternatively to place no weight upon it, as falling within that category of case identified by Lord Wilberforce in Whitehouse v Jordan [1981] 1 WLR 246 at 256 (Whitehouse) where in his speech he said:
One final word. I have to say I feel some concern as to the manner in which part of the expert evidence called for the plaintiff came to be organised. This matter was discussed in the Court of Appeal and commented upon by Lord Denning MR [1980] 1 All ER 650, 655. While some degree of consultation between experts and legal advisers is entirely proper, it is necessary that expert evidence presented to the court should be, and should be seen to be, the independent product of the expert, uninfluenced as to form or content by the exigencies of litigation. To the extent that it is not, the evidence is likely to be not only incorrect but self -defeating.
In the Court of Appeal, Lord Denning MR was strident in his criticism of the apparent practice of counsel, when settling the document, to suggest that portions of it be deleted or that additions be inserted [1980] 1 All ER at 655.
That approach may not be consistent with authority in Australia. Conversely, it may be that there is no direct inconsistency between the English and the Australian approach once it is understood that “everything depends on the circumstances”: Phosphate Co-operative Co of Aust Pty Ltd [1989] VR 665 at 683, Brooking J who continued:
The guiding principle must be that care should be taken to avoid any communication which may undermine, or appear to undermine, the independence of the expert. What happened here was quite unsatisfactory.
In that case, an ostensibly independent expert report was provided to shareholders for their consideration and approval of a proposed scheme of arrangement which opined that the scheme was fair and reasonable. The accountants retained by the company to express the opinion on that question submitted a number of draft reports which were discussed with representatives of the company and its lawyers. That process led to a substantial rewriting of the opinion. Unsurprisingly, his Honour refused to grant approval for the proposed scheme of arrangement, for the reason that the report was not a genuine and independent expression of opinion.
Callinan J in Boland v Yates Property Corporation Pty Ltd (1999) 74 ALJR 209 considered this issue at [276] - [279] and stated that Lord Wilberforce had gone “too far” in Whitehouse. It is useful to reproduce some of his Honour’s reasoning at [279]:
For the legal advisors to make suggestions is a quite different matter from seeking to have an expert witness give an opinion which is influenced by the exigencies of litigation or is not an honest opinion that he or she holds or is prepared to adopt. I do not doubt that counsel and solicitors have a proper role to perform in advising or suggesting, not only which legal principles apply, but also that a different form of expression might appropriately or more accurately state the propositions that the expert would advance, and which particular method of valuation might be more likely to appeal to a tribunal or court, so long as no attempt is made to invite the expert to distort or misstate facts or give other than honest opinions. However it is the valuer who has to give the evidence and who must make the final decision as to the form that his or her valuation will take. It will be the valuer and not the legal advisors who is under oath in the witness box and bound to state his or her opinions honestly and the facts accurately. The lawyers are not a valuer's or indeed any experts' keepers.
The learned author of Cross on Evidence (Electronic Version, LexisNexis, current to March 2022) at [29080] states that:
What is the role of the legal practitioner in preparing the expert’s report? At least from the point of view of ethics and weight, since an independent expert is expected to be non-partisan, the consultation with the party’s legal advisers which may be proffered to ensure that the report is directed to the issues before the court, must not be permitted to distort the substance of the witness's opinion so that it loses its essential character as an independent report unaffected as to form or content by the exigencies of litigation… It is legitimate for legal practitioners to identify the real issues for the expert, to indicate when the report fails to direct itself to the real issues, to point out the obscurities and gaps in the reasoning, to indicate that the report fails to distinguish between the assumed facts and the opinion which is supposed to be based on them, and to indicate that the report does not explain how the opinion is substantially based on the expert’s specialised knowledge.
To similar effect, see Freckelton and Selby, Expert Evidence Law, Practice and Procedure (6th ed, Thomson Reuters) at [5.0.150]. Mr Hugh Stowe, in an article published in 2018 observes that “the better view is that there is no ethical impropriety under the present rules in the barrister preparing the first draft (in conference or alone), based on instructions received from the expert. However, the considerations of strategic prudence referred to above strongly dictates that the expert should typically prepare the first draft”: Preparing expert witnesses - a (continuing) search for ethical boundaries [2018] Bar News 72 at 77-78. For the contrary view see Ipp J, Lawyers Duties To The Court (1998) 114 LQR 63 at 92. Whilst there may not be an ethical difficulty if the lawyer drafts the report based on instructions from the expert, as this case demonstrates proceeding in that way poses the serious risk of compromising the independence of the expert and of undermining the value of the opinion. Further, this is clearly a case which in my opinion substantially departs from the proper role of lawyers who engage independent experts in legal proceedings.
There are many difficulties with the expert report of Ms Chen, which individually and cumulatively lead me to the conclusion that I should reject it in its entirety. I am left in a state of uncertainty as to who was responsible for the drafting of which portions of her report. It would appear that most of the report was, at least initially, the product of drafting by the lawyers for the applicant, albeit in reliance upon some material of a non-specific nature that Ms Chen provided to the lawyers. The fact that Ms Chen adopted the drafting of others as her opinion does not address the more fundamental issue that her engagement obliged her to act as an independent expert witness conformably with the requirements of the Expert Evidence Practice Note and the Harmonised Expert Witness Code of Conduct. Clause 3.2 of the Practice Note advises that:
A party or legal representative should be cautious not to have inappropriate communications when retaining or instructing an independent expert, or assisting an independent expert in the preparation of his or her evidence.
That statement of good practice was not complied with in this case. It may be perfectly appropriate, such as in cases where an expert is unfamiliar with the form and content requirements for an expert opinion report, for that document to be settled in an admissible form by someone else, but then in my opinion, only if that fact is disclosed in the report. In this case, that fact was not only withheld but was only ascertained during the course of cross-examination of Ms Chen, which in my opinion, was grossly unsatisfactory.
The Code of Conduct at clause 2 states the obvious proposition that an expert witness “is not an advocate for a party and has a paramount duty, overriding any duty to the party to the proceedings or other person retaining the expert witness, to assist the Court impartially on matters relevant to the area of expertise of the witness.” In this case, that requirement of impartiality was substantially undermined by the failure to disclose the methodology of preparation of the expert report.
In the last paragraph of the signed witness statement, Ms Chen declared that she had “made all the enquiries which I believe are desirable and appropriate and no matters of significance which I regard as relevant here, to my knowledge, have been withheld from the Court.” I cannot accept that Ms Chen failed to appreciate that the fact that her report was drafted, not by her but by the lawyers for the applicant, was not a matter of significance. It plainly was.
Regrettably, I also find that the conduct engaged in preparing and delivering the report of Ms Chen was misleading. The letter of instruction of 7 March 2022 conveys the representation that Ms Chen was engaged to prospectively consider each of the two questions the subject of her instruction. Contrary to that representation, a draft of her expert report had been prepared by Corrs no later than 25 February 2022. It was wrong in my opinion to state in the letter of 7 March 2022 that Ms Chen was instructed to prepare a report in response to the two questions posed in that letter, when the author was plainly aware not only of what the answers would be, but also, as to the form of the opinion and the fact that its expression was the product of drafting by Corrs. The letter of 7 March 2022 conveys the false representation that Ms Chen, as the independent expert, would upon receipt of the instruction set about the task of preparing her report. The failure to disclose those facts to the solicitor for the respondents and ultimately to the Court is most concerning, as it strikes at the very heart of the paramount and overriding duty that an independent expert has to assist the court impartially on matters relevant to the area of expertise of the witness, as stated at clause 2 of the Code of Conduct.
The solicitor for the respondents made two requests for the provision of “all documents regarding any communications between your firm and Ms Chen”. Each request was denied, with the express representation that all documents evidencing or disclosing instructions given by Corrs to Ms Chen “have already been produced” as attachments to her witness statement of 8 March 2022. That was false in that the email correspondence that was exchanged between Corrs and Ms Chen commencing on 22 February 2022 was concerned with instructions as to who would draft the report and what it would be based upon.
What occurred in this case went far beyond the permissible scope of involvement of lawyers who retain an independent expert in order to give evidence in a proceeding. I reject the submission of counsel for the applicant that I should accept Ms Chen as an independent expert witness and that “the process by which her evidence was prepared is unremarkable.” For the reasons I have given, it most certainly was not. Even if in some circumstances it is proper for lawyers to draft an independent expert witness statement for consideration by the putative expert, that fact must be disclosed in the expert report conformably with the obligations that the expert assumes in accordance with the Expert Evidence Practice Note of this Court and the Harmonised Expert Witness Code of Conduct. And then, all correspondence relating to the manner of preparation of the report should be disclosed and, to the extent that oral advice is conveyed to the expert, the substance should be documented and disclosed. What occurred in this case should not be repeated.
In the result, I cannot be satisfied that the opinions expressed in the report by Ms Chen truly represent her honest and independent opinions and that no matters of significance have been withheld. I reject all opinions and other factual material as set out in her report of 8 March 2022.
That leads to another matter. I raised with counsel during closing submissions whether, if I were to reject the opinion evidence as set out in the report, I should also reject the entirety of the evidence given by Ms Chen when cross-examined. I am not persuaded by the submission then put to me, that I should not and that it is open to me to make findings of fact based on her oral evidence. I have no confidence in the ability of Ms Chen to give credible, untainted and independent evidence and it would be quite wrong for me, having rejected the entirety of her written opinion evidence, to then proceed on the basis that I may, selectively, make findings of fact in accordance with her oral evidence. I cannot have confidence that her oral evidence was untainted by the factual material and the opinions expressed in her written report and the manner of its preparation I will not make any finding of fact based on any of her evidence.
Respondent’s Witnesses
Mr Leung commenced employment with the applicant in April 2009 as an Office Assistant which position he held until 2010 when he commenced work as a Buyer to assist Mr Werner Liu in supplier identification and placement of new orders. From September 2010, Mr Leung visited China at least twice per year to attend the Canton Trade Fair in order to source suppliers. Mr Leung assisted Mr Liu with the formation of Honglang Commodity Information Consulting Co Ltd (Honglang), a China-based company which provided services exclusively to New Aim. I infer that Honglang is a related corporation to the applicant, although this matter did not receive attention in the evidence. He also assisted Mr Liu with the sourcing of products by use of the e-commerce website, Alibaba. When Mr Leung left the employ of the applicant in April 2021, there were approximately 150 China-based employees in the Category Team and 40 in the Buying Team.
Between 2013 and 2015, Mr Leung worked as a Home Category Manager, responsible for indoor and outdoor furniture, appliances, pet products and other furniture. This role included responsibility for the buying and selling strategy, the shipment teams and attending the Canton Trade Fair to identify new suppliers for products. When visiting the Canton Trade Fair, he would sometimes attend to inspect the factories of suppliers, or putative suppliers, in order to establish and maintain relationships with those suppliers, negotiate prices and payment terms.
As a Category Manager, he was provided with a company laptop which he used for work, as well as a New Aim credit card and office keys. He was not provided with a landline or mobile phone and used his personal mobile phone for calls and DingTalk and WeChat for messaging with the applicant’s directors and employees, as well as to communicate with representatives of suppliers to the applicant. While he mostly liaised with suppliers via his work email address, he sometimes used WeChat to communicate with persons with whom he had become acquainted. Messaging through WeChat requires sending a friend invitation using either a WeChat ID or a personal phone number. Mr Leung would usually add a ‘remark’ when first adding WeChat contacts as a memory aid of how they had met or with which product they were associated. Company details were not saved as reminders and contacts were not updated when the individual representatives changed or the suppliers were no longer engaged by the applicant. Some contacts were tagged as ‘supplier,’ though these did not necessarily denote that person as a supplier to the applicant. For instance, the tag ‘supplier’ was also used to designate contacts of freight companies and freight forwarders.
In 2015, the duties of Mr Leung altered. He assumed the responsibility of Head of Buying, the duties of which did not materially differ from his role as Category Manager, save that he assumed responsibility for each product category of New Aim. He continued to visit the Canton Trade Fair at least twice in each year for the purpose of sourcing new products and to visit suppliers.
In approximately June 2020, Mr Leung was promoted to the office of Chief Commercial Officer. He retained similar responsibilities to those which he had as the Head of Buying but in addition became responsible for overseeing the buying and selling strategies of the applicant and its shipment teams. He resigned from that position with effect from 18 January 2021.
Mr Leung did not have a written employment agreement until 13 October 2011. The position description in the document is: importing purchaser (permanent full-time), which is not materially different from Mr Leung’s title description, and the stated employee duties and responsibilities is that of a buyer of imported products. That agreement at clause 20 is concerned with confidential information of the employer and clause 21 deals with the intellectual property of the employer.
On 16 June 2020, the applicant made an offer in writing to Mr Leung to be employed in the position of Category Manager, which does not accord with acceptance of the fact that Mr Leung was appointed as the Chief Commercial Officer, but no party made any point about the difference. That offer contained a space for acceptance by Mr Leung, evidenced by his signature and dating. The document in evidence before me is unsigned and undated by Mr Leung. However, Mr Leung admits on the pleadings that he was employed by the applicant as the Chief Commercial Officer pursuant to the terms of the offer contained in that document. I infer that the offer was accepted by conduct. That offer also contains terms about intellectual property (clause 32) and confidentiality (clause 33), which I also address in detail in the balance of these reasons.
Despite the changing nature of his employee duties and position descriptions, Mr Leung continued to use his personal mobile phone for work purposes. That included using it, primarily through the WeChat application, to communicate with representatives of suppliers, and potential suppliers, to New Aim. However, as Mr Leung explained:
For the most part, I communicated with suppliers through my work email. However, I sometimes used WeChat to communicate with people that I had met, including people who I met at the Canton Trade Fair. For example, some suppliers that I met at the Canton Trade Fair or that I was introduced to invited me to exchange WeChat details, or later added me as a friend on WeChat. This involves sending a friend invitation, which can be sent using a WeChat ID or phone number. My usual practice (both during and after my time at New Aim) was to add a “remark” when I first met the person to remind me of how I met the person and the product (or products) they were associated with. I usually did not save the person’s company details on my WeChat, and did not usually update the person’s information if the person left their employer. I also added a tag “supplier”. I used the “supplier” tag to remind me of how I met the person. The tag did not mean that they necessarily supplied products to New Aim. I also used the “supplier” tag to save the details of freight companies (for example Toll) and freight forwarders.”
That evidence was not challenged in cross-examination and I find according to it.
In obedience to the interlocutory orders made on 26 October 2021, Mr Leung made an affidavit on 5 November 2021, and attached to it ML-8 being a print-out of his WeChat contacts marked as “supplier”. That document was reproduced as attachment ML-1 to his witness statement of 11 April 2022. The accuracy of this list was not challenged. In summary, it discloses that of 412 contacts, Mr Leung tagged 111 as “supplier”. For each a name, or an alias, is given with a generic description of the type of product. Of this list Mr Leung said:
The WeChat contacts listed at in this annexure were a small number of the owners and employees of suppliers that I interacted with during my 12 years at New Aim, and after I left the company. Because I generally did not list the name of the company where the person worked, I cannot determine whether these people work for companies who are suppliers of New Aim.
Because people added me to WeChat over a number of years, I do not recall all of the people saved in the list… or the circumstances in which I met them. People also often used nicknames on WeChat rather than their full name, so I do not know the full names of a number of contacts on the list.
Mr Leung also gave unchallenged evidence that over time he developed personal relationships and friendships with many of the representatives of suppliers of products to New Aim. He stated the following:
(a)I have pre-existing relationships with some suppliers. For example, my cousin (Feng Fung) worked at a home appliances store, which supplied range hoods to New Aim;
(b)when I visited China, I often went out socially with suppliers. I regularly went to dinners, had drinks and karaoke with contacts and suppliers;
(c)I communicated with a number of suppliers on WeChat; and
(d)in around 2013, there were concerns about the safety of Chinese milk powder, three suppliers asked me to send milk powder to China. I sent them milk powder at my own cost.
When Mr Leung travelled with Mr Liu to the Canton Trade Fair, he used his mobile phone and the WeChat app in the presence of Mr Liu in order to record contact information for suppliers. Mr Liu raised no objection to the recording of information in that way by Mr Leung. When Mr Leung ceased employment with the applicant, he was not required to delete any relevant WeChat contacts from his mobile phone.
In contrast to the evidence of Mr Huang, Mr Leung was able to give evidence about the practices of New Aim in identifying new products and new suppliers from the commencement of his employment in 2009. There were some differences in the evidence given by Mr Leung, but they are not material such as to require me to choose between the evidence of Mr Leung and Mr Huang. Indeed, the evidence is largely consistent, acknowledging the longer period of employment of Mr Leung and his exposure to a broader range of the aspects of the business of the applicant. His evidence about the identification of products and suppliers was as follows. Commencing in 2009, the applicant only sold products on eBay. From 2010, it commenced selling products on other online platforms such as “Deal direct”, “Only Online” and “Catch of the Day”.
The applicant did not purchase products from Chinese suppliers by entering into exclusive supply arrangements. In some cases, New Aim created brand names for the purpose of retailing products that it sourced from its various suppliers. The same products were sold by competitors of New Aim. It was relatively common for the applicant to conduct searches of various types of products by using such platforms as eBay in order to make judgments about the types of products that were being offered for sale by competitors. This was a form of market research undertaken by the applicant in order to determine whether it would source a particular product from a supplier in order to offer it for sale.
Once a new product had been identified, the buying team would prepare a research report containing information as to why the product was selected, details of the competitor product, details of competitor sales online and potential suppliers of the product. During the period 2009 until January 2021, the majority of new products offered for sale by the applicant were procured in this way. In some cases that involved copying a product offered for sale by a competitor through an online platform. It was also a common practice for competitors of the applicant to copy its products and offer them for sale.
The applicant ordinarily would identify potential suppliers of products at the Canton Trade Fair or by using Alibaba. The Canton Trade Fair enables at least 1000 Chinese manufacturers to exhibit their goods in one place. A supplier directory is prepared and is available for purchase through the platform Taobao, which is equivalent to eBay. Alibaba is a Chinese e-commerce website whereby users may search for products and manufacturers by keywords, categories and/or images. The information that is able to be obtained is a picture of the product, its description, the name of the supplier, the length of time that the supplier has been on Alibaba, a description of the supplier, pictures of the factory and in some cases the number of employees, prices and minimum ordering quantities.
In the experience of Mr Leung, “most of New Aim suppliers, and all of the suppliers that I met at the Canton Trade Fair, advertise their products on Alibaba.” He also gave evidence which was partly challenged (but which I accept), that during his visits to the Canton Trade Fair, he and Mr Liu would usually ask prospective suppliers whether they supplied to competitors of New Aim. He could not recall any case when a supplier declined the request.
It was also common for suppliers to volunteer this information, for which he gave one example being a television that was popular on the Kogan website. He was not challenged on that evidence, although he was upon later evidence to the effect that, based on his experience, he understood that suppliers to New Aim would disclose that fact to competitors if asked to. He accepted in cross-examination that he could not give one example of that having occurred and for that reason I do not make that finding of specific fact, though I do find in accordance with his earlier evidence that he or Mr Liu would ask suppliers at the Canton Trade Fair which competitors they supplied to, and the question would be answered.
I need to say something about Mr Liu. He is one of the founders of the applicant with Mr Fung Lam in 2005 and was a director of it until approximately December 2020, at which time he resigned in consequence of the purchase of his shareholding by Mr Fung Lam, who then became the sole shareholder. During the entire period of employment of Mr Leung, he had a close working relationship with Mr Liu. It is Mr Liu who first employed Mr Leung, was responsible for each of his promotions within New Aim, and between 2021 and 2015, Mr Leung worked closely with Mr Liu to assist him. Each regularly travelled together to visit the Canton Trade Fair. At the Trade Fair each would jointly inspect the products on display by various suppliers and would engage with the representatives. Mr Liu was certainly aware that Mr Leung used his personal mobile telephone for work related purposes and that such use included recording the WeChat contact details of individual representatives of suppliers. Mr Liu was included as a WeChat contact of Mr Leung. I find that Mr Leung and Mr Liu had a close working relationship. Despite all of this, Mr Liu was not called as witness at the trial.
In 2010, when Mr Leung was appointed as a Buyer, the applicant maintained supplier details on an Excel spreadsheet, stored on its internal server and in respect of which there were no access restrictions. By 2013, that system had become slow to operate as the number of suppliers and products increased. A decision was made to move to a new system known as Vtiger, a more sophisticated database that permitted the storage of a greater quantity of data. It is Mr Leung who developed the purchaser model for that system within which was recorded the supplier details, the order amount, the deposit date and the supplier contact details. As developed, that system did not have a field to store the WeChat details for suppliers. The system was accessed within multiple departments of the applicant. To access the system all that was required by an employee was a Vtiger account.
The Vtiger system was replaced in 2018 when Mr Xie and Mr Leung requested Mr Huang to develop a new purchasing system. He did. That system stored and generated the following categories of information:
(a)the data for supplier details including quotations;
(b)the contact details of suppliers, although there was no field to store the WeChat details;
(c)approval process for placing orders;
(d)a process for new approvals by the quality control department;
(e)the notification of payment terms;
(f)the generation of shipping notices; and
(g)the sending of orders to the warehouse management system.
No request was made of Mr Leung and he did not take any step to record his WeChat contact details in any of these internal systems. There was no transfer of any of the data comprising the WeChat contacts of Mr Leung to the database of any of these systems.
Following his resignation, Mr Leung returned his laptop, credit card and keys to the applicant, and did not take with him any documents he used throughout his employment, including lists of suppliers, wholesale product information, retail sales data, market research, or images used to market products. It is important to understand that the applicant does not contend that Mr Leung copied or memorised any component of the detailed supplier information stored within the New Aim Purchasing System that was current in January 2021, nor in either of the two earlier databases that I have referred to.
Mr Leung was first introduced to Mr Mac Chen in December 2020. Thereafter, socially, Mr Chen informed him of his intention to establish an e-commerce business. He sought his opinion. Between early 2021 and April of that year, Mr Leung gave advice to Mr Chen regarding this endeavour, including how to source products from suppliers in China and advised on the types of products to sell, recommending home office and fitness products due to the impact of the pandemic creating an increased demand for these forms of equipment. Mr Leung introduced Mr Chen to Mr Dai, a director of Sun Yee. On occasion, when asked by Mr Chen if he knew someone who supplied certain products, Mr Leung would provide details of persons who he believed could be of assistance. He did not mention to Mr Chen whether or not they were a supplier to the applicant, nor if those contact details were confidential. In late April 2021, Mr Leung commenced employment with Broers as a part-time category manager.
Mr Leung does not dispute that he gave details of the contact persons for some suppliers stored in his WeChat application either to Mr Chen or to Ms Alice Lau who worked for an unrelated business in China. In cross-examination he was taken to paragraph [111] of his witness statement to the effect that on a few, perhaps three or four, occasions Mr Chen would ask him whether he knew of someone who could supply certain types of products. If he did, then he would convey the supplier details. He did not advise that the details were for a contact person of a supplier to New Aim. He then gave the following evidence:
If you knew someone who you thought could assist, you gave him their details?… Yes.
So you accept that what you’re doing there is giving Mr Chen details of suppliers. There is no doubt about that, is there? – I just give him my… contact but it’s not – I didn’t let him know, like, whether it’s a supplier or not. I knew that – yes, what – just want my friend doing this product or supplying this product – my – in China. And then I just transferred the contact to him or the one he told me to transfer it to.
So, when Mr Chen asked you about a particular product you responded to that by giving him the details of an individual who you thought could help with that? – Yes.
Mr Leung, that’s giving someone a contact at a supplier, isn’t it? –… Anyone doing, like, discount product.
You were assisting Mr Chen to identify a potential supplier? – Yes.
Do you recall how you gave those supplier details to Mr Chen? – I used WeChat.
And just explain to me at least how you share such a detail through WeChat? – You send WeChat contact.
So, it’s a function which permits you to share a contact from your contact list with another WeChat user? – Yes.
Is that right? – Yes.
Now, when you gave Mr Chen those supplier details did he ask you where they came from? – No.
I am satisfied that, in the usual course of events, it is likely that if asked a supplier of a product to New Aim is likely to disclose that fact to third party inquirer. Accordingly, I am satisfied that the applicant did not attempt to take an obvious step to safeguard the confidentiality of the database information.
What is the value of the information to the applicant and its competitors?
I accept the applicant’s broad submission that the database information is of commercial value to it. It was accepted by Mr Dai, when cross-examined, that a number of matters are important to an e-commerce retailer of products sourced from China being product fail rates, product packaging, the reliability of the supply, the quality of the product and its safety and the suitability of the product for the Australian market and I find according to that evidence. It must follow from those facts that information of that character has commercial value. There is no evidence as to what that value is in this case in monetary terms, although I accept that it is not insignificant which is borne out by acceptance of the evidence, which is largely not in dispute, that it takes between six and nine months to identify the market trend for a particular product, search and locate a supplier for it, negotiate with the supplier for the terms of sale, undertake quality testing and analysis and import the product to Australia ready for sale. Somewhat obviously, those steps require expenditure. Once completed, the expenditure produces a result that is of value.
What is obvious from the evidence in this case is that a far more valuable component of the database information is the price at which the applicant acquires goods from suppliers and the trading terms. No attempt was made in the evidence to separate the value of that component of the database information from the WeChat information and I am not able to make any finding of fact on that issue.
The applicant further submits that I should find that the New Aim Information has “particular commercial value to the respondents”. I do not make that finding. The applicant has made out its case to the extent that 17 contacts in the WeChat information became suppliers to Broers. The applicant is unable to rely upon the evidence of Ms Chen on this question by reason of my rejection of all of her evidence. What is left is the applicant’s evidence as to the steps that it undertakes in order to identify market trends for products, to investigate the potential sources of supply and to ultimately settle upon a particular supplier for a product. The evidence is to the effect that similar steps were undertaken by Broers, despite the contact information given to it by Mr Leung for the 17 suppliers of New Aim category products. Mr Chen gave evidence, which I have summarised and accepted, as to the process undertaken by Broers to identify product lines and suppliers. Mr Li, when cross-examined, accepted that the applicant would not simply rely upon the fact that a product was sold by a competitor as a sufficient basis to acquire that product from the supplier to the competitor. It may be a starting point, but it is not the end point.
Further, in my view, the value of the information to the applicant and to its competitors is very much influenced by two facts that I have found. One, that there are steps that a competitor may undertake in order to ascertain the supplier of a particular product by conducting searches on Alibaba, attending the Canton Trade Fair (or subscribing to the Trade Fair catalogue) or by simply telephoning various suppliers and asking the right questions. The other is that the applicant adduced no evidence to the effect that it requires its suppliers to enter into confidentiality agreements or to give confidentiality undertakings. Each of those facts, in my view, materiality and adversely affect the value of the WeChat information.
What amount of effort or money has been expended by the applicant in developing the database information or the WeChat information?
I accept that the applicant has established on the evidence that it invests a not insignificant amount of skill, effort and money in order to acquire the database information. Each of Mr Huang and Mr Li gave evidence to that effect and Mr Leung admitted that when cross-examined. On his evidence, the minimum time period to investigate a new product and to source its supply is 6 months. He admitted that the information listed in the Policy of the applicant is “commercially valuable” which I find is acceptance of the proposition that value is linked to the time and effort expended in order to compile information of that character.
The applicant did not adduce evidence as to the actual cost to it of acquiring and maintaining the database information but that does not detract from my finding, by reference to the entirety of the evidence. However, my findings of fact concerning how Mr Leung identified potential suppliers and uploaded contact information to his WeChat account do not support the same conclusion in relation to the WeChat information. The primary distinguishing feature is that the WeChat information was recorded in the list of contacts when Mr Leung first had contact with putative suppliers. At that point in time, the effort or money expended was limited: the undertaking of a search online of competitor products, attendance at the Canton Trade Fair and a search of the Alibaba website.
With what ease or difficulty could the information be properly acquired or duplicated by competitors of New Aim?
I have addressed this consideration in analysing the first and second issues and it is unnecessary that I make any further findings.
Was it plainly made known to Mr Leung that the information was regarded by the applicant as confidential?
There is considerable contest in the evidence on this issue, apart from whether the Policy was drawn to the attention of Mr Leung, which I have determined in accordance with his evidence.
As a progressively senior employee, commencing with his appointment as Home Category Manager in 2013 and concluding with his appointment as Chief Commercial Officer in 2020, it is clear that he ought to have been aware that there were certain categories of information which must be treated by him as commercially sensitive and confidential, such as the wholesale price paid by the applicant to acquire particular products from suppliers, the terms of trade with suppliers, the gross and net profit margins of the business and the business strategies. A significant portion of information of that character is contained in the database information. No information of that character is alleged to have been misused by Mr Leung in this proceeding.
The issue is whether it was plainly made known to Mr Leung that the applicant considered the WeChat information as confidential. Evidence was given by Mr Huang of a discussion that he had with Mr Leung “in or around 2017” and which concerned the New Aim Purchasing System. This evidence was given viva voce. Mr Huang stated that he had a discussion with Mr Leung in his then capacity as the Head of Buying, which focused upon controlling access to supplier information in the Vtiger database. According to Mr Huang:
He (meaning Mr Leung) raised a concern is – because in Vtiger, the previous purchasing system, all the buyer, they have – even though they have access control, they still can access order information. The order information about supplier, product and pricing. So that raised a concern if someone leave the company… Or company, they may have a chance to get the full supplier list, and also the pricing information to create a new business, or send this information to a competitor. So this will be quite – it will create quite significant damage to New Aim’s business. So he raised a concern and raise the requirement if they can – if IT can develop a system to segregate that information and only allow development staff – the buying team can access the information for the job purpose.
Mr Leung did not give contrary evidence: he simply could not recall that discussion with Mr Huang.
I find that there was a discussion as stated by Mr Huang to that effect sometime in 2017 with Mr Leung. Plainly, that discussion concerned the detailed supplier data information which was maintained on the Vtiger database and which was to be transferred to the New Aim Purchasing System. It did not concern the WeChat information. The concern expressed by Mr Leung to Mr Huang was that if an employee could access the entire purchasing system information, that is the full supplier list and the pricing information, then detriment would most likely be caused to the applicant’s business. The expression of that concern at that time by Mr Leung is radically different from the extent to which a competitor could damage the business of the applicant if the competitor became aware of the name of a supplier of a particular product and was given the contact details of a representative of the supplier. That more limited subset of information, in accordance with the findings that I have made, could have been ascertained by a competitor without access to the WeChat information, although the time factor in ascertaining that information is a relevant consideration.
Turning specifically to the WeChat information, I have found that the applicant did not ever make it known to Mr Leung that it regarded the WeChat information as confidential. The applicant did not attempt to restrict the use of the WeChat information by Mr Leung. The applicant was aware that Mr Leung maintained the WeChat information on his personal mobile telephone. The applicant permitted Mr Leung to use his personal mobile telephone for work related purposes. The applicant did not ever request Mr Leung to transfer his personal WeChat contact details to any of the more formal supplier databases that it developed and maintained over time.
For these reasons, I find that the applicant did not plainly make known to Mr Leung that the WeChat information by itself was regarded by New Aim as confidential.
What were the usages and practices of the industry?
The applicant intended to, but now cannot, place substantial reliance upon the evidence of Ms Chen on this question. What is left is very general evidence. Mr Li gave evidence in chief that, based on his experience, e-commerce companies “typically consider supplier information to be confidential” and that it is common practice in the industry for the name of a supplier not to be disclosed on products, packaging or accompanying information. That generalised evidence is in contrast with the findings that I have made as to whether suppliers, if asked, will disclose the corporations to whom they supply, and the fact that between August and September 2021, Mr Liang made enquiries of various suppliers and was given quite specific information that they had supplied particular products to Broers. Thus, whilst the acquiring corporation might in a general sense treat the identity of the supplier as confidential, the same cannot be said of the supplier.
Those findings are supported by other evidence to the effect that at the Canton Trade Fair suppliers will openly display the names of major corporations to whom goods are supplied; which evidence was supported by photographs produced by Mr Leung.
I do infer that in the e-commerce industry, just like other industries, competitors will regard as confidential the more detailed type of information that is contained in the database information, but that is not what is in issue in this case. The more confined analysis that is required in this case is whether there is evidence that the usages and practices of the industry permit me to find that the fact that supplier A sells chairs to retailer B is regarded as confidential information. The evidence does not satisfy me as to that fact.
Was the information imparted to Mr Leung only by reason of his seniority or high responsibility?
It was not. It will be recalled that Mr Leung commenced compiling his WeChat list of contacts in 2010 when he began to work as a Buyer and assisted Mr Liu with the identification of suppliers and the placing of new orders, which included visits to the Canton Trade Fair. The position of Buyer was not one of high seniority or responsibility. The fact that his seniority increased over time is not to the point as it does not follow that he progressively became entitled to receive the information contained in the WeChat list of contacts.
Did New Aim genuinely believe the information to be confidential?
I am satisfied that the applicant genuinely considers that the database information, and more particularly the form in which it is now held in the New Aim Purchasing System, is confidential. In my view, that is established by the manner in which the New Aim Purchasing System database has been assembled, is maintained and is used by the applicant. I am also satisfied that it is only employees with a need to know who have access to the entirety of the data in that system, and this is so despite my finding that the range of employees with access is relatively large: somewhere between 40 and 80 persons.
The respondents submit that I should not be so satisfied because the applicant, from time to time, has inquired of various suppliers whether they supply to a competitor of it. I reject that submission as it is evidence only that the applicant operates in a competitive environment and the fact that it is prepared to seek information from suppliers which its competitors may regard as confidential is not evidence that the applicant does not regard its detailed supplier data as contained in the database information as confidential. Further, the fact that the applicant has not adduced evidence that it requires its suppliers to enter into confidentiality agreements, or to provide confidentiality undertakings, is evidence only of a failure to take steps to protect the confidentiality of the database information.
The respondents further submit that I should find that this proceeding “is also part of the broader pattern of conduct” by the applicant designed to cause economic harm to the respondents. The respondents point to evidence that Mr Lam caused to be lodged a number of trademark applications by the applicant in respect of trademarks owned by Broers and that he made some form of threat to Mr Leung to the effect that he would launch a legal proceeding to cause stress to Mr Leung. I do not make findings of fact as to either of these matters as I do not consider that, either contention if made out, would be of any real assistance to me as they are not materially relevant to the belief held by the applicant that the database information is confidential.
However, I am not so satisfied in relation to the WeChat information. For the detailed reasons that I have given, the manner of compilation of that information by Mr Leung, that the contacts were not transferred to the more detailed databases developed and maintained by the applicant over time, that the WeChat list of identifiable suppliers to New Aim is limited to 17 contacts out of 111 suppliers and 412 contacts overall, that no step was taken by the applicant to control access by Mr Leung to his personal list of contacts either during or upon termination of his employment and that it is the database information which in detail records considerably more sensitive information than the WeChat information to which the applicant restricts access, cause me to find that the applicant did not genuinely regard the WeChat information as confidential.
To what extent was the information habitually handled by Mr Leung?
The respondents accept as applicable to this case the statement in Faccenda Chicken at 137 that:
The nature of the employment. Thus employment in a capacity where confidential material is habitually handled may impose a high obligation of confidentiality because the employee can be expected to realise its sensitive nature to a greater extent than if he were employed in a capacity with such material reaches him only occasionally or incidentally.
There is no doubt that Mr Leung, commencing in 2010, was an employee in habitual receipt of a large amount of confidential information that was not simply limited to the name of a contact of a supplier or a potential supplier of a product. As I have explained, once a product and potential supplier are identified, a process is then engaged in by the applicant which will only result in a supply relationship if the process is satisfactorily completed and a supply agreement on terms acceptable to the applicant is entered into. At that point the applicant commences the compilation of the database information, which is maintained and updated over time, by adding considerable detail. Thus, I have no hesitation in concluding that for the database information Mr Leung ought to have realised its sensitive nature.
But it does not follow in my view that he ought to have appreciated the sensitive nature of the WeChat information. The manner in which he compiled that list over many years and the fact that when he added a person as a contact, or was added by a contact, the supplier was not at that point in time an approved supplier to the applicant stands against an acceptance that Mr Leung habitually handled this information in circumstances where he ought to have realised its sensitive nature. Further, what is clear on the facts that I have found is that making an initial contact and recording the contact details is the first step in a process which may ultimately result in the placement of an order but only if the subsequent assessment of the supplier and its products, and the negotiation of the supplier terms, is satisfactory to the applicant. And the fact that the WeChat information recorded details of individuals with whom Mr Leung had or developed personal friendships and was recorded with other personal information on his personal mobile telephone leads me to find that this information was personal and not highly sensitive to New Aim.
Can the information be readily identified?
I have found that it can, limited to the 17 suppliers identified by Mr Leung. I reject the respondent’s submissions that because the status of suppliers as “active” as at January and March 2021 can only be discerned from the New Aim Purchasing System and because the applicant failed to provide evidence of its current suppliers, that the applicant’s identification of the information is “unworkable”. That submission overlooks the evidence of Mr Leung in his witness statement of 11 April 2022, whereby he identified 17 suppliers of various categories of products at least to the date that he resigned his employment.
Other Factors in this Case
A matter of considerable significance in this case, which Hodgson JA described as “extremely important” in Del Casale at [41], is the extent to which the WeChat information is able to be identified and “readily isolated from the employee’s general know-how which the employee is entitled to use after the end of employment”. Counsel for the applicant submits:
The fact that Mr Leung needed to access the details from the list he maintained in his WeChat account indicates that the information is not in the nature of know-how. It was not information about his trade that he was able to recall and deploy at will. Rather, it was information that he needed to call up by reference to a record. Had he not retained the record you would not have been able to provide the information to Broers.
To the extent that this submission distinguishes between memory recall and the WeChat information as an aid to memory, I accept that it can be a factor but I do not find it useful in this case. The editors of Gurry on the separability question accept that if information is identifiable in a document, then it is more likely to be regarded as separate from the general know-how of an employee: [12.186]-[12.191]. But they also caution that approach observing at [12.189]:
But the importance of whether a secret is or is not in documentary form should not be taken too far. On the one hand, the mere fact that an employee remembers information does not mean it cannot be regarded as a trade secret. Even putting situations of deliberate memorisation to one side, it is conceivable that there might be specific and discrete items of information, such as a recipe, which an ex-employee may be able to recall which are of such value and significance to the employer’s business that they are nevertheless to be regarded as trade secrets.
The authority for that proposition is Printers and Finishers Ltd v Holloway [1965] 1 WLR 1 at 5, Cross J. See also Dal Pont at [5.62] - [5.63]. What is in issue in this case is a list of WeChat contacts, 412 in number, compiled by Mr Leung during his entire period of employment between 2009 and January 2021, of which 111 of the contact entries are marked “supplier” but of which only 17 are identifiable as current suppliers to the applicant as at January and March 2021. Of those 17, 5 are individuals with whom Mr Leung developed and maintained personal friendships over many years, or in one case, knew well before that person’s company was selected as a supplier to New Aim. I find that for those contacts, the name or the alias was part of the accumulated knowledge of Mr Leung and which is “qualitatively distinct from confidential information or trade secrets”: Dal Pont at [5.30]. As for the balance of 12 contacts, I find the accumulated knowledge that Mr Leung acquired over approximately 12 years of employment inevitably extended to the name or alias of the contacts, each of whom he initially met in person. In my view, the fact that the 17 contacts were representatives of current suppliers of products to the applicant as at January and March 2021 cannot be practicably separated from the accumulated knowledge of Mr Leung as to when, and in what circumstances, he first made contact with representative and added their details to his WeChat account. In this regard, in my view the following statement of the principle by the editors of Gurry at [12.187] is applicable to the facts that I have found:
The concept of “separability” here then goes beyond mere “identifiability” (which, as we have seen, is a procedural requirement in all breach of confidence cases). Rather, we are concerned with ensuring that, as a practical matter, this information is distinct and easily distinguishable from the information that the employee is entitled to use.
Analysed in this way, I am satisfied by application of the approach of Harper J in GlaxoSmithKline that a person of ordinary honesty and intelligence would not conclude that the WeChat information is the property of the applicant. The WeChat information lacks the inherent quality that is necessary, in my view, to elevate it above the accumulated general knowledge and know-how, of Mr Leung. Nor can it, in my view, be practicably separated from the balance of the 111 suppliers and the 330 contacts that have nothing to do with this case.
There are further difficulties which lay in the path of the applicant on the separability question. The WeChat information is ephemeral. Whether a supplier has the status of a current supplier as at January or March 2021 to the applicant is distinctly fluid. On the applicant’s evidence of the 192 suppliers who were current as at 2014 only 46 were left in January 2021. The application of the tag “supplier” by Mr Leung to define 111 of the WeChat contacts, establishes that 94 were at some point in time prospective or actual suppliers to New Aim, but had ceased to have that status as at early 2021. And as the respondent’s counsel correctly submits, determination of whether a contact is a representative of a current supplier to the applicant requires knowledge of which are the 400 current suppliers, across a range of approximately 6000 individual product lines, in order to carve out from the entire list of WeChat contacts those which Mr Leung is prohibited from using. It is simply not practicable to do so.
Mr Leung did not engage in any surreptitious conduct, for example by copying the database information, before he resigned which is often a relevant factor or to consider: Dal Pont, at [8.22]. Nor did he covertly record the WeChat contacts in his mobile telephone from time to time: Weldon & Co Services Pty Ltd v Harbinson [2000] NSWSC 272 at [67] - [72], Bryson J.
Counsel for the applicant drew to my attention and placed considerable reliance upon the decision of Hallen J in Plus One International Pty Ltd v Ching (No3) [2020] NSWSC 1598 (Plus One), a breach of confidence case made out against former employees of a vocational training college who, prior to ceasing employment, copied and then used various business information of the plaintiff in order to assist with the establishment of a competing business. In that case, what was copied by the employees was very extensive in the form of electronic business records which recorded, inter alia, the name and contact details of clients, the WeChat identification number of clients, academic transcripts, referrals, visa information, contact details for family members and financial statements. It was held, amongst other things, that the WeChat contacts were confidential information that the former employees were not free to use. The fact that this conclusion was reached in that case does not afford real assistance to me in determining the status of the WeChat information on the facts that I have found in this case. Rather, it illustrates the somewhat self-evident proposition that in this area of the law, each case is fact specific and fact intensive.
Conclusion on the Breach of Confidence Claim
For all of these reasons, my conclusion is that the applicant has failed to make out its breach of confidence claim against Mr Leung. By reference to the guiding principle, that equity focuses upon the conscience of Mr Leung, I am not satisfied that the WeChat information has the necessary quality of confidence. And as the applicant abandoned its separate claim against Mr Xiao, it follows that the entire breach of confidence claim must be dismissed and I need not address the consequential claims as pleaded against Sun Yee or Broers.
Breach of Contract Claims
Logically, the applicant’s breach of contract claim against Mr Leung should next be considered as it is relevant to the claim that Mr Leung improperly used his position as an employee to gain advantage for himself, or someone else or to cause detriment to the applicant contrary to s 183 of the Corporations Act.
It is not in dispute that Mr Leung entered into two written contracts of employment with the applicant: one is dated 13 October 2011, and the other 16 June 2020. The applicant pleads its breach of contract claim upon the 2020 contract. In closing submissions, counsel for the applicant acknowledged that pleading but contended that reliance is also placed upon the 2011 contract “for context and for the purposes of construing the 2020 contract”. I reject that attempt to expand the pleaded claim. The FASOC is not framed in that way and the 2020 contract contains an entire agreement clause at 37.1 which expressly “sets out all the terms of your employment” and “supersedes and replaces all prior representations and agreements (whether oral or in writing) concerning your employment”. That clause prevents the applicant from relying upon the earlier contract as an aid to construing the 2020 contract: MacDonald v Shinko Australia Pty Ltd [1999] 2 Qd R 152 at 156, Davies JA.
Three breaches of the 2020 contract are pleaded in the FASOC. The first is clause 20.1 which provides:
Upon termination of the Agreement, the employee must deliver to New Aim all property of New Aim that is in the possession or control of the employee including, but not limited to, client lists, correspondence, documentation, diaries, papers, records, computer equipment, keys, mobile phone, laptop, uniforms and credit cards.
The applicant submits that Mr Leung breached this term by failing to deliver to it upon termination of his employment “the WeChat contacts” that were in his possession. That submission does not reflect the pleading at paragraph [31] of the FASOC, and counsel for the respondent is correct to point out that the applicant should not, as a matter of fairness, be permitted to rely upon a case that was not pleaded. In any event, the submission is of no merit. Information in the form of knowledge per se is not property: Smith Kline & French Laboratories (Aust) Ltd v Sec, Department of Community Services and Health [1990] 22 FCR 73 at 121-122 per Gummow J. And I have found that the WeChat information is not separable from the general knowledge and know-how of Mr Leung that he was entitled to use following the termination of his employment.
In closing submissions and for the first time, the applicant contends that Mr Leung also breached clause 20.1 by failing to deliver to it upon termination of his employment, not only the WeChat contacts but also “WeChat correspondence that was in Mr Leung’s possession”. In support of this contention, the applicant relies upon the list of documents filed by Mr Leung pursuant to the interlocutory orders made on 26 October 2021, to the effect that he retained “correspondence” following the termination of his employment, being the WeChat conversations with various persons, which he had until at least June or July 2021. Those dates reference the loss by Mr Leung of his mobile telephone whilst snowboarding.
It is not open to the applicant to assert that breach by Mr Leung for the simple reason that it did not plead a breach of that character in the FASOC and that contention raises a large issue, which was not at all explored in the evidence before me, as to whether the history of those conversations is or was the property of the applicant. To permit the applicant to now raise this matter is distinctly prejudicial: Banque Commerciale SA (in liquidation) v Akhil Holdings Limited (1990) 169 CLR 279. For these reasons the first contract claim fails.
The second pleaded claim is for breach of clauses 33.1 and 33.2 which provide:
33.1 During the course of your employment with New Aim, you may become acquainted with or obtain access to confidential information relating to the business and affairs of New Aim, its subsidiaries and their clients.
33.2Confidential information may or may not be expressly designated as such. You will be obligated during, and also after termination of your employment to maintain the confidentiality of such information and to disclose it only when you receive prior written authorisation from the directors of New Aim. You acknowledge that any such disclosure could cause considerable loss and damage to New Aim. If you have any concerns as to whether disclosure in any circumstance would be authorised, you should ask a director of New Aim beforehand.
The contract contains no definition of confidential information. In submissions, counsel for the applicant contended that this obligation must be read with clause 23.1 which provides:
You are required to comply with all New Aim policies, procedures and manuals implemented by New Aim. Copies of any policies, procedures and manuals will be made available to you. The policies, procedures and manuals do not vest enforceable rights in you and are for the sole benefit of New Aim only. You acknowledge and accept that it is the prerogative of New Aim to vary, change or terminate existing policies, procedures and manuals as well as devise and introduce new policies, procedures and manuals.
The applicant did not distinctly plead in the FASOC that Mr Leung breached clauses 33.1 and 33.2 by failing to comply with the obligation at clause 23.1. But counsel for the respondents did not take that point in his closing submissions. He submits that, as the first step, the applicant must establish that the Policy, which was first formulated in June 2020, was incorporated with the employment contract of Mr Leung which is dated 16 June 2020. As framed, that submission is not correct. The effect of clause 23.1 is to incorporate the policies of the employer into the contract by imposing a contractual obligation of obedience. Difficult issues often arise as to the effectiveness of incorporating aspirational policies so that they become enforceable terms of an agreement, especially in the employment law context: Romero v Farstad Shipping (Indian Pacific) Pty Ltd (2015) 231 FCR 403;’s [2014] FCA 177 at [14] and [34] – [63] (Farstad). There is also a logical difficulty which arises in accepting that an incorporated Policy may only be binding upon the employee: Farstad at [116]; Foggo v O’Sullivan Partners (2011) 206 IR 87; [2011] NSWSC 501 at [116], Schmidt J. I need not traverse that territory to decide these issues as it is plain that the incorporation mechanism at clause 23.1 depends upon copies of policies, procedures and manuals being “made available to you.” In my view, the objective meaning of that requirement is that before a Policy is incorporated as a contractual obligation of the employee, it must be drawn to his or her attention and I have found that it was not drawn to the attention of Mr Leung.
Even if I am wrong in that conclusion, the definition of confidential information in the Policy, which is inclusive, does not as I have found, expressly extend to the WeChat information which is limited to the name or alias of a representative of a supplier to the applicant together with his/her WeChat contact details. Relatedly, I do not construe the inclusive nature of the definition as extending that far: broadly defined contractual confidentiality restraints are ordinarily construed as not extending beyond the equitable obligations of an employee, unless there is specificity in the information sought to be protected (and the clause is not an impermissible restraint of trade). As explained in Dal Pont at [5.35]
The task derives no assistance from a contractual confidentiality covenant that does no more than prohibit a (former) employee from disclosing (confidential information), unless that phrase is defined with sufficient precision is to aid the process of identifying the specific information that may have been misused.
Thus, the second contract claim fails. The final contract claim pleads a breach of clause 33.3 which provides:
You shall not, during or after your employment with New Aim, use any of the confidential information of New Aim and its subsidiaries for personal gain, in order to disadvantage the company or for any purpose other than for the benefit of New Aim.
It follows from my conclusion that the second contract claim fails, in part, because the reference to confidential information does not extend to the WeChat information, that this contract claim also fails.
Corporations Act, s 183
Section 183 of the Corporations Act relevantly provides:
A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to:
(a) gain an advantage for themselves or someone else; or
(b) cause detriment to the corporation.
Counsel for the applicant submits that this provision is not confined to the employee’s equitable obligation of confidentiality. There are diverging views as to whether information within the meaning of this provision corresponds with, or is broader than, the equitable obligation which conveniently may be described as the narrow and broad views. Counsel for the respondents submits that the narrow view is the correct approach primarily by reference to Del Casale at [59]- [60], Vanguard Financial Planners Pty Ltd v Ale (2018) 354 ALR 711; [2018] NSWSC 314 at [217], Black J: and Forkserve Pty Ltd v Pacchiarotta (2000) 50 IPR 74 (Forkserve) at [28]- [29], Young J. To that list one should add the influential decision of Young J in Rosetex Co Pty Ltd v Licata (1994) 12 ACSR 779 (Rosetex) at 784 where his Honour said:
The proper interpretation is to take the word “information” … as referring to that type of information which equity would restrict the director from using to his personal profit.
Counsel for the applicant, in arguing for the broad view, relies on Plus One at [541] - [557] and the collection of cases there referenced which focus upon the meaning of impropriety particularly by reference to R v Byrnes (1995) 183 CLR 501 at 514-515] being:
[A] breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case.
A Full Court of this Court in Futuretronics.com.au Pty Ltd v Graphix labels Pty Ltd (2009) 81 IPR 1; [2009] FCAFC 2, Tamberlin, Finn and Sundberg JJ, cited the reasoning of Young J in Rosetex and Forkserve at [44]-[45] and then observed at [46]:
No error has been shown in the course his Honour took. No breach of fiduciary duty by Mr Atta in relation to the Cygnett email has been established because his duty came to an end on the cessation of his employment save as to confidential information, and as indicated at [43], Futuretronics has not established that the supplier’s name was confidential. Further, equity would not regard disclosing the supplier’s name as misuse of confidential information. It would be a part of Mr Atta’s knowledge, skill and experience which, as a result of his previous employment, had become his own. See Printers & Finishers Ltd v Holloway[1965] 1 WLR 1 and Forkserve [2000] NSWSC 979; 50 IPR 74.
I consider myself bound to apply that reasoning and in accordance with my findings on the equitable breach of confidence case, the statutory claim fails. However, even if the broader view is the correct approach there must still be, objectively, an improper use of the information. On the facts that I have found, it was not improper for Mr Leung to have access to and to use the WeChat information as part of his accumulated knowledge.
Conclusion
The remaining claims of the applicant fail. The interlocutory injunction orders made on 26 October 2021, were expressed to apply until further order or the hearing and determination of the proceeding. Whether those orders should be discharged shall be the subject of further submissions. The orders that I make are:
1.The proceeding against the first, third, fourth and fifth respondents is dismissed;
2.The proceeding be listed for further hearing at 10.15am on 27 June 2022.
3.The applicant file and serve any application to the effect that the interlocutory injunction ordered on 26 October 2021 should not be discharged, together with any affidavits in support, by no later than 4.00pm on 24 June 2022.
4.I adjourn for further submissions on a date to be fixed all consequential issues, including costs, the variation or discharge of the confidentiality orders made on 29 April 2022 and whether there is to be an inquiry or determination of loss pursuant to the usual undertaking as to damages given by the applicant as the condition of interlocutory relief;
5.I grant liberty to apply generally.
I certify that the preceding two hundred and fifty-two (252) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McElwaine. Associate:
Dated: 23 June 2022
SCHEDULE OF PARTIES
VID 547 of 2021 Respondents Fourth Respondent: SUN YEE INTERNATIONAL PTY LTD (ACN 159 318 244) Fifth Respondent: BROERS GROUP PTY LTD (ACN 647 179 271)
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