New Aim Pty ltd v Leung

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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

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Details
Case
[2022] FCA 722
Decision Date

CaseChat Overview and Summary

New Aim Pty Ltd sought relief against Leung, Li, Xiao, Sun Yee and Broers, alleging breaches of equitable obligations, statutory obligations, and employment contracts concerning the use of confidential information. The court had to decide whether the information was confidential and subject to an equitable obligation of confidence, whether the information was required to be a trade secret, whether there was a breach of contract, and whether the information was accumulated knowledge of the employee that could be used post-termination of employment. Additionally, the court had to assess the independence of expert evidence, including the duties and responsibilities of experts and solicitors, and the impact of undisclosed authorship of expert reports on the admissibility of the evidence.

The court concluded that the confidential information did not include the WeChat list of contacts maintained on an employee's personal mobile phone, and therefore, there was no breach of the equitable obligation of confidence. The court found that the information was not required to be a trade secret and was not accumulated knowledge of the employee that could be used post-termination of employment. The court rejected the entirety of the expert evidence due to undisclosed authorship of the report, which impacted the independence of the expert. The statutory claim under s 183 of the Corporations Act failed because the broader view of the duty not to misuse information was not applicable in this case.

The court dismissed the proceeding against the first, third, fourth and fifth respondents, listed the proceeding for further hearing, and granted liberty to apply for the discharge of interlocutory injunction orders. The court adjourned further submissions on consequential issues, including costs, variation or discharge of confidentiality orders, and determination of loss pursuant to the undertaking as to damages given by the applicant as the condition of interlocutory relief. The court granted liberty to apply generally.

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

Orders

Orders of the court

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.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

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.

Decision

Reasons for decision

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.

Ratio Decidendi

Legal Principle Established

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.