Nexgen Sydney Pty Ltd v Barakat

[2022] NSWSC 312

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

Nexgen Sydney Pty Ltd v Barakat [2022] NSWSC 312

Hearing dates:

7 – 8, 14 September, 19 November, 18 December 2020; Final Submissions September 2021

Date of orders:

24 March 2022

Decision date:

24 March 2022

Jurisdiction:

Equity

Before:

Ward CJ in Eq

Decision:

(1)   Order that the first and third defendants pay the plaintiffs nominal damages in the amount of $1 for breach of her or his respective employment contracts.

(2)   Dismiss the remainder of the plaintiff’s amended statement of claim.

(3)   Discharge the undertaking proffered by Ms Barakat and Mr Youssef on 29 November 2019.

(4)   Direct that any brief written submissions on costs be filed and served within 14 days with a view to being determined on the papers.

Catchwords:

EQUITY — Breach of confidence — Where plaintiffs and defendants provide telecommunications hardware solutions and services — Where plaintiffs and defendants procure new customers by way of telemarketing — Where both plaintiffs and defendants purchase databases of potential “leads” from the same suppliers — Where first, second and third defendants left the employ of the plaintiffs and commenced employment with the fourth and fifth defendants — Where first and third defendants alleged to have taken confidential information of the plaintiffs with them in the form of spreadsheets and emails — Where first, second and third defendants alleged to have used confidential information in the business of the fourth and fifth defendants to solicit, approach, or entice away customers of the plaintiffs — Where plaintiffs suffered no loss — Where concurrent confidentiality obligation in employment contract — Where first, second and third defendants admit to owing fiduciary duties to the plaintiffs — Whether breach of fiduciary duties — Whether breach of duty of confidence

CONTRACTS — Breach of contract — Where confidentiality obligation concurrent with equitable duty of confidence and fiduciary duties — Whether transfer and use of spreadsheets and emails breached obligation of confidence

CONTRACTS — Illegality — Restraint of trade

CORPORATIONS — Employees — Improper use of position — Improper use of information

EQUITY — Equitable remedies — Permanent injunctions

Legislation Cited:

Competition and Consumer Act 2010 (Cth), ss 46, 47

Corporations Act 2001 (Cth), ss 79, 182, 183, 1324

Crimes Act 1900 (NSW), ss 308B, 308C

Uniform Civil Procedure Rules 2005 (NSW), r 29.7

Cases Cited:

Advanced Fuels Technology Pty Ltd v Blythe [2018] VSC 286

AIIB Pty Ltd v Beard [2009] NSWSC 1001

Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288; [1973] HCA 40

Anderson v Canaccord Genuity Financial Ltd [2022] NSWSC 58

Bank of New Zealand v New Zealand Guardian Trust Co Ltd [1999] 1 NZLR 664

Bayley Associates Pty Ltd v DBR Australia Pty Ltd [2013] FCA 1341

Belflora Pty Ltd v Vinflora Pty Ltd [2021] NSWCA 178

Berkeley Administration Inc v McClelland [1990] FSR 505

Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34

Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9; [2006] NSWSC 717

Coco v AN Clark (Engineers) Limited [1969] RPC 41

Colour Control Centre Pty Ltd v Ty (1993) 39 AILR 5-058

Concut Pty Ltd v Worrell (2000) 176 ALR 693; [2000] HCA 64

Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434; [1987] FCA 266

DC Payments Pty Ltd v Next Payments Pty Ltd (2016) 51 VR 151; [2016] VSC 315

Del Casale v Artedomus (Aust) Pty Limited (2007) 165 IR 148; [2007] NSWCA 172

Deta Nominees Pty Limited v Viscount Plastic Products Pty Ltd [1979] VR 167

Digital Cinema Network Pty Ltd v Omnilab Media Pty Limited (No 2) [2011] FCA 509

Faccenda Chicken Ltd v Fowler [1987] Ch 117

Forkserve Pty Ltd v Jack [2000] NSWSC 1064

Geraghty v Minter (1979) 142 CLR 177; [1979] HCA 42

Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6

Halliday and Nicholas Insurance Brokers Pty Limited v Corsiatto [2001] NSWCA 118

Herbert Morris Limited v Saxelby [1916] 1 AC 688

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64

Krishell Pty Ltd v Nilant (2006) 32 WAR 540; [2006] WASCA 223

Metrans Pty Ltd v Courtney-Smith (1983) 8 IR 379

Mid-City Skin Cancer and Laser Centre v Zahedi-Anarak (2006) 67 NSWLR 569; [2006] NSWSC 844

Nordenfelt v The Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535

Norwich Pharmacal Co v Customs and Excise Commissioners [1974] AC 133

Nottingham University v Fishel [2000] ICR 1462

O’Brien v Komesaroff (1982) 150 CLR 310; [1982] HCA 33

Ocular Sciences v Aspect Vision Care Ltd (No 2) [1996] EWHC Patents 1; [1997] RPC 289

Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165; [2001] HCA 31

Robb v Green [1895] 2 QB 1

Rosewood Advertising Pty Ltd v Hannah Marketing Pty Ltd [2000] NSWSC 1034

Russell v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (2007) 69 NSWLR 198; [2007] NSWSC 104

Southern Real Estate v Dellow (2003) 87 SASR 1; [2003] SASC 318

Stenhouse Australia Ltd v Phillips [1974] AC 391

Sullivan v Sclanders (2000) 77 SASR 419; [2000] SASC 273

Taypar Pty Ltd v Santic (1989) 21 FCR 485; [1989] FCA 543

Trendtex Trading Corp v Credit Suisse [1982] AC 679

United States v Grossman 843 F 2d 78 (2nd Cir, 1988)

Victoria International Container Terminal Ltd v Lunt (2021) 95 ALJR 363; [2021] HCA 11

Vokes v Heather (1945) 62 RPC 135

Warman International Limited v Dwyer (1995) 182 CLR 544; [1995] HCA 18

Williams v Spautz (1992) 174 CLR 509; [1992] HCA 34

Woolworths Ltd v Olson (2004) 184 FLR 131; [2004] NSWSC 849

Yorke v Lucas (1985) 158 CLR 661; [1985] HCA 65

Zomojo Pty Ltd v Hurd (No 2) [2012] FCA 1458

Texts Cited:

JD Heydon, MJ Leeming, PG Turner, Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies (5th ed, LexisNexis, 2014)

Category:

Principal judgment

Parties:

LV6 Sydney Pty Ltd (formerly known as Nexgen Sydney Pty Ltd) (First Plaintiff)
Business Telecom Australia Pty Ltd (Second Plaintiff)
Samantha Barakat (First Defendant)
Shane Mitchell (Second Defendant)
Mina Youssef (Third Defendant)
Easytel Australia Pty Ltd (Fourth Defendant)
Easytel Group Pty Ltd (Fifth Defendant)

Representation:

Counsel:
R Marshall SC with C Cassimatis (Plaintiffs)
A Hourigan (First, Third, Fourth and Fifth Defendants)

Solicitors:
Madison Marcus Law Firm (Plaintiffs)
United ACL (First, Third, Fourth and Fifth Defendants)

File Number(s):

2019/370803

Publication restriction:

Nil

Judgment

1. HER HONOUR: In this matter, the plaintiffs, Nexgen Sydney Pty Ltd (Nexgen), which is now known as LV6 Sydney Pty Ltd (LV6) but to which I will continue to refer as Nexgen, and Business Telecom Australia Pty Ltd (Business Telecom), seek permanent injunctions to restrain a range of defendants from using what is alleged to be the plaintiffs’ confidential information; as well as an enquiry into damages or an order for account.

2. After judgment was reserved in December 2020, there was an application by the plaintiffs effectively to reopen the proceeding in order to amend the pleadings to take into account an assignment that had occurred in the context of what I understand to have been a restructuring within the Nexgen/Business Telecom group of certain assets the subject of the injunctive relief that has here been sought. I will explain the circumstances of that application in due course. However, it led to the unfortunate delay in the determination of this proceeding since final submissions were not received on the issues raised by the amendment to the pleadings until September last year.

3. Briefly, by way of introduction, both the plaintiffs, on the one hand, and, on the other hand, what I will collectively refer to as the Easytel entities (namely, Easytel Australia Pty Limited (Easytel Australia), the fourth defendant; and Easytel Group Pty Limited (Easytel Group), the fifth defendant) were at the relevant time in the business of selling telecommunications systems hardware and associated equipment. In particular, the plaintiffs sell telecommunications solutions including phone systems, printers and copiers, security systems and services related to voice, internet and data. The Easytel entities similarly operate a business whereby they sell telecommunications hardware and associated office equipment and telephone, data and internet line rental. There is, however, a significant difference in the size of the competing businesses – the plaintiffs being part of a more established and larger organisation than the more recently established Easytel, which only commenced operation in September 2019 with approximately five or six employees.

4. The plaintiffs allege that the first, second and third defendants (to whom I will refer collectively as the individual defendants), being Ms Samantha Barakat, Mr Shane Mitchell and Mr Mina (Mark) Youssef, each of whom was previously employed with either Nexgen or Business Telecom, have taken or used confidential information of the plaintiffs (which they created or to which they had access during their employment with the plaintiffs), and have used it with their subsequent employer (Easytel Australia and/or Easytel Group).

5. The alleged confidential information comprises data recorded about prospective customers (referred to as “prospects” or “leads”). Both the plaintiffs and Easytel use a particular software program (Leadmaster CRM), that being a Customer Relationship Management tool, to record information about prospective customer leads (though Easytel did not do so until a couple of months after it commenced operation); and both have purchased “leads” (or prospective customer databases) from the same suppliers. Pausing here, the names and contact information of “leads” acquired from third party suppliers cannot logically be confidential information of either side (because it was separately acquired). However, the plaintiffs seem to suggest that the acquisition of such databases by Easytel (a few months after it had set up business) was some sort of device to disguise the use by Easytel of the plaintiffs’ confidential information. I address this in due course. Suffice it here to note that the plaintiffs say that the information as to prospects or leads is confidential to them because of the way that Easytel pursues leads from suppliers (asking them for specific types of business and the like) (see T 46.4-17); and I note that the information in the CRM program extends beyond mere names and contact information to include, for example, information as to the prospects’ current contractual arrangements and their telecommunication hardware requirements.

6. Each of Ms Barakat (a telemarketer) and Mr Youssef (a sales or business development manager) has admitted to taking certain documents (such as prospective client lists in Ms Barakat’s case and emails in Mr Yousef’s case) in electronic form, when each resigned from her or his employment with the relevant plaintiff company; but each denies using that information in her or his subsequent employment with Easytel.

7. Mr Mitchell, who was also a telemarketer at the relevant time but now works in warehousing, did not file a notice of appearance or any defence in the proceeding (and thus has taken no active role, as a defendant, in the case). Mr Mitchell did, however, attest to a number of affidavits (first, at the behest of the plaintiffs and then at the behest of the other (i.e., the active) defendants (the Easytel defendants) in the proceeding) and was ultimately called as a witness by the Easytel defendants. Relevantly, Mr Mitchell denies that he took any of the plaintiffs’ information with him when he left his employment with Business Telecom (and the plaintiffs do not appear to suggest otherwise) but his evidence is that when he was employed in the Easytel group (which he no longer is) he was directed by Ms Barakat and Mr Youssef, and by Easytel, to use the electronic client list that Ms Barakat took with her when she left her employment with Business Telecom. Mr Mitchell later resiled from some of the evidence he gave in his first affidavit, as to which I will say further in due course, but seemed genuine in his belief that he had been using the plaintiffs’ client information while employed with Easytel.

8. The plaintiffs contend that it is no coincidence that Easytel has entered into various contracts for the supply of computer and telephone goods and services with clients or prospective clients of the plaintiffs with whom the individual defendants dealt during the course of their employment with the plaintiffs (identifying some 80 sales in the year ending 30 June 2020 that they say were made to clients or prospects identified by them as on the plaintiffs’ database). Rather, they say that this is the result of the wrongful use of the plaintiffs’ confidential information (in particular, as a result of the taking of the client lists by Ms Barakat, who it is said shared that information with at least Mr Mitchell and Mr Youssef while at Easytel).

9. The plaintiffs have no complaint as to the use by the Easytel defendants of the Leadmaster CRM per se (although the use of the same providers or suppliers or leads was the subject of some complaint by the plaintiffs’ managing director, Mr Elie Ayoub, in the course of cross-examination – see T 50.28-31). Their complaint in essence is that Easytel has obtained an advantage by making use of client or contact information contained in the notes made in the plaintiffs’ CRM database (and which would not appear in the purchased databases).

10. The Easytel defendants challenge the proposition that the information in question was confidential; raise issues as to the manner in which the plaintiffs obtained access to Ms Barakat’s documents (on which the plaintiffs rely to support their contention as to the misuse of what they claim to be their confidential information), accusing the plaintiffs of “hacking” Ms Barakat’s personal information; emphasise that the plaintiffs’ databases (referred to by the plaintiffs as “client lists”) contain a large number of entities that are conceded by Mr Ayoub to be only “prospects” or “leads” and not actual clients of the plaintiffs; and contend that the present application amounts to anti-competitive conduct by the plaintiffs (and an attempt to bully or intimidate them and to force them out of business).

Procedural history of the proceeding

11. Before setting out the chronology of events in more detail, it is convenient at this stage to note the procedural history of the proceeding to which I have briefly adverted above.

Commencement of the proceeding

12. The proceeding was commenced on 25 November 2019, by way of summons supported by an affidavit sworn on 25 November 2019 by Mr Ayoub (managing director of both of the plaintiff companies). In that summons, relief (including interlocutory relief) was sought against each of the first to fourth defendants.

13. By consent, on 29 November 2019 orders were made, recording the proffering to the Court of certain undertakings by Ms Barakat and Mr Youssef. Relevantly, the following orders were made:

10.   The Court notes the first and third defendants’ undertaking to the Court to serve on the plaintiffs by 13 December 2019 an affidavit which:

(a)   identifies whether the first defendant [Ms Barakat] and third defendant [Mr Youssef] or [to] their knowledge, any other person, has photocopied, printed, downloaded or copied to any device able to store or read electronic data, divulge or disclose to any other person other than an employee or director of the plaintiffs, sent by electronic mail from any email account used or accessed by the first defendant and third defendant, or preserved in physical or electronic form any information belonging to the plaintiffs which came to the knowledge or possession of the first defendant and third defendants in relation to its clients in schedule A by reason of their employment with the plaintiffs and in respect of each document or piece of information so identified:

(i)    the details of the date on which that occurred;

(ii)   the name of the recipient; and

(iii)    the present electronic or physical location of all versions or copies of the documents or information to the best of the first, second and third defendants’ knowledge, information or belief,

(b)   attaches copies of all documents in the first defendants’ [sic] and third defendants’ [sic] possession, custody, power or control which evidence such matters; and

(c)   confirms that the information and documents so provided constitute a complete and accurate disclosure of such matters or things.

Restraints

First defendant

11.    The Court notes the first defendant’s undertaking to the Court until 29 February 2020, unless discharged earlier, not to:

(a)    solicit, canvass, approach, accept approaches from, or attempt to entice away or provide services to any entity in the schedule which is annexed and marked “A” with whom the first defendant was involved during the course of her employment with the second plaintiff;

(b)    canvass, solicit, interfere with or entice any employee or subcontractor of the second plaintiff, nor engage any such employee or any subcontractor (either directly or indirectly) or engage any such employee or any subcontractor (either directly or indirectly) from carrying out duties similar to those he, she or it performed when employed by the second plaintiff.

Third defendant

12.    The Court notes the third defendant’s undertaking to the Court until 2 March 2020, unless discharged earlier, not to:

(a)   solicit, canvass, approach, accept approaches from, or attempt to entice away or provide services to any entity in the schedule which is annexed and marked “A” with whom the third defendant was involved during the course of his employment with the second plaintiff;

(b)    canvass, solicit, interfere with or entice any employee or subcontractor of the first plaintiff, nor engage any such employee or any subcontractor (either directly or indirectly) or engage any such employee or any subcontractor (either directly or indirectly) from carrying out duties similar to those he, she or it performed when employed by the first plaintiff.

13.    The undertaking[s] to the Court given by the First Defendant and Third Defendant are made without any admission and do not displace the plaintiffs’ onus should these Defendants withdraw their undertaking, or the plaintiffs seek to vary or extend any injunction.

14. The plaintiffs say that the 29 November 2019 undertakings amounted to an admission that the clients listed in an exhibit to Mr Ayoub’s 29 November 2019 affidavit (Exhibit EA-2, which was admitted at the hearing as Exhibit B and is referred to by the plaintiffs as the Plaintiffs’ Client List, but also in submissions, as the EA-2 Spreadsheet or spreadsheets) were clients to whom Ms Barakat and Mr Youssef had provided services during their employment with the plaintiffs. However, the undertakings were expressly made on a without admission basis (see Order [13] of the orders of 29 November 2019 above); and the undertakings are framed in terms of any entity in the schedule with whom the relevant person “was involved” during his or her employment – which does not necessarily mean that the entity became a client of the plaintiffs (as opposed to, say, a prospective client that someone such as Ms Barakat might have contacted at one stage). Hence, I would not accept that the undertakings necessarily involved an admission that the entities in the relevant annexure were “clients” of the plaintiffs.

15. The Easytel defendants say that Ms Barakat and Mr Youssef have complied with the 29 November 2019 undertakings; and that the EA-2 Spreadsheets have not been used in Easytel’s business. Further, the Easytel defendants point out that the contractual restraints to which Ms Barakat and Mr Youssef were subject (which the Easytel defendants say were, by their nature, unenforceable anyway) expired in March 2020.

Norwich affidavits

16. On 13 December 2019, each of Ms Barakat and Mr Youssef filed and served an affidavit (eponymously referred to, by reference to Norwich Pharmacal Co v Customs and Excise Commissioners [1974] AC 133, as the Norwich Affidavits), deposing to the matters required by Order 10 of the orders made on 29 November 2019.

16. In her affidavit of 13 December 2019, Ms Barakat deposed that the spreadsheets exhibited at pp 3-73 of Exhibit EA-2 to Mr Ayoub’s 29 November 2019 affidavit (i.e., the EA-2 Spreadsheets) “consisted of prospects on which [Ms Barakat] had worked during [her] employment at Business Telecom” (see at [12.1] of Ms Barakat’s affidavit, affirmed 13 December 2019).

17. However, while the Easytel defendants accept that Ms Barakat has acknowledged that the EA-2 Spreadsheets “consisted of prospects which [she] had worked on during [her] employment at Business Telecom”, they emphasise that Ms Barakat does not admit that she created the EA-2 Spreadsheet that has been admitted into evidence. There is a hot dispute as to the provenance of the EA-2 Spreadsheet, it being the Easytel defendants’ contention that this document is a “mashup” (or, less colloquially, an amalgamation) of information contained on the spreadsheet as it was stored on Ms Barakat’s computer at Nexgen together with information added to the version of the spreadsheet on which Ms Barakat worked when she was later at Easytel (as I explain in due course).

18. Further, Ms Barakat’s evidence is that, while the EA-2 Spreadsheet as exhibited to Mr Ayoub’s affidavit only demonstrates information of a professional nature, the entire Excel file (tendered in due course as Exhibit SB-1 to Ms Barakat’s affidavit of 13 December 2019, and marked as Exhibit 1 during the course of the hearing) consisted of about 36 tabs, the majority of which were comprised of spreadsheets created for Ms Barakat’s own personal use. Ms Barakat says that this was personal information compiled over a period of years, including such matters as travel plans and personal “to do” lists; and Ms Barakat says that, because of this, she did not see any issue in transferring this information upon cessation of her employment with the corporate plaintiffs. Indeed, Ms Barakat’s evidence is that the corporate plaintiffs were aware that Ms Barakat was taking her personal information with her (reference here being made to the communication by the plaintiffs to the effect that Ms Barakat should take her personal things with her). In cross-examination, Ms Barakat opined that, in light of the plaintiffs’ knowledge of the existence of the spreadsheet, she had presumed that they would have told her not to retain a copy thereof.

19. The Easytel defendants are adamant that there has been no use of any of the plaintiffs’ alleged confidential information in Easytel’s business (including in the spreadsheet at Exhibit SB-1).

Statement of claim

21. After the initial interlocutory regime was put in place, the matter then proceeded by way of pleadings. On 7 April 2020, the plaintiffs filed their statement of claim in which allegations were made against the first to fourth defendants (the fifth defendant not yet having been joined to the proceeding) of breaches of confidence; and orders were sought for damages or compensation as well as the orders restraining those defendants from, inter alia, dealing with the confidential information of the plaintiffs. As part of the relief there sought, the plaintiffs claimed an order that:

… the First, Second, Third Defendants…be restrained until the conclusion of this matter, or until further order, from using, copying or distributing or in any other way dealing with the confidential information defined in paragraph 17 [of the statement of claim] and as defined in clause 20.6 of the Barakat Employment Agreement [the text of which I reproduce in due course] …

22. Confidential information is defined (at [17] of the statement of claim) as “information from the client Prospects”, including (but not limited to):

a. key decision makers;

b. direct contact information of the key decision makers;

c. the make and model of phone systems and other hardware currently in use;

d. how many handsets are in use;

e. how many cordless units are in use;

f. whether the client Prospect owns or leases the hardware;

g. how many current landlines the client Prospect has;

h. the current internet provider and current spend;

i. the type of internet in use (i.e. ADSL or NBN); and

j. the contract term and months remaining on any of the above services.

23. Annexure A to the statement of claim listed 13 entries which the plaintiffs asserted were clients who the individual defendants had allegedly sought to procure for Easytel using the confidential information of the plaintiffs.

24. The Easytel defendants point out that Mr Ayoub, in his affidavits of 25 November 2019 and 29 November 2019, referred to the entities in Annexure A as “prospects” (not clients). Thus, the Easytel defendants emphasise that none of these companies may actually have been a client of the plaintiffs at the time the proceeding was commenced (but might simply have been a “prospect” – either because it was a data entry purchased from a contact list provider or because it had otherwise been “Google searched” by a telemarketer or the like).

25. The Easytel defendants also say that only one entity of those listed in Annexure A was signed by Easytel, that being Dagazo Pty Ltd trading as Century 21 Springwood (Dagazo), and that this was not a client of the plaintiffs (Dagazo being at the time a client of another telecommunications provider – Telecomm Connect). In this regard, the plaintiffs say that there was a proposal made to Dagazo on 4 July 2019, when Ms Barakat was still with the plaintiffs; and that a further proposal was made on 16 August 2019. The invoice dated 8 October 2019 provided by Easytel to Dagazo referred to the same hardware provider but a different company – GC Leasing (being a leasing company with which both Nexgen and Easytel dealt). Ms Barakat’s evidence was that she did not recall the name Dagazo and that after she went to Easytel she had “Google searched” the Century 21 entities because a colleague had signed up another Century 21 franchise (see T 126.47-50).

26. The Easytel defendants also note that one of the “‘prospects” referred to at [12] of Mr Ayoub’s affidavit sworn 29 November 2019 is alleged to have said (in a conversation said to have been recorded by Mr Ayoub) that “we’re still getting calls from Business Telecom when I’m pretty certain I’ve said we’re not interested at this stage”, thus casting doubt on whether the business in question was a prospect or imminent prospect of the plaintiffs.

27. Ultimately, it does not appear that any claims are pressed in relation to the Annexure A entities (see below).

Filing of defences

28. On 11 May 2020, the first, third and fourth defendants filed defences to the statement of claim.

Mr Mitchell’s first affidavit

29. Also on 11 May 2020, Mr Mitchell signed the first version of an affidavit that was ultimately sworn on 12 May 2020 (to which I refer in more detail in due course) and in which he deposed to matters as to the use of the plaintiffs’ confidential information (on which the plaintiffs relied to obtain further interlocutory relief). At some point around this time one or more of the Easytel staff became aware that Mr Mitchell had signed an affidavit.

Anton Piller order – 15 May 2020

30. At 10.00am on 15 May 2020 (a Friday), the plaintiffs made an ex parte application by telephone to Williams J, sitting as the Equity Duty Judge, for an Anton Piller order to search Easytel’s offices at Parramatta for the purposes of taking into custody and copying, inter alia, various electronic devices, including computers, servers, laptops, mobile devices (telephones and tablets) and removable storage devices, and seeking to gain access to all client storage accounts and cloud email accounts. Due to the COVID-19 pandemic, duty applications in the Equity Division were then being heard only by telephone (via dial-in details provided by the judge’s associate). I note this because, as I explain below, the plaintiffs contend that Easytel was “tipped off” about a “raid” to take place on Friday, 15 May 2020 (see the evidence summarised below) but it is not clear how Easytel’s lawyers (who are reported to have been the source of the “tip”) would have gleaned that information.

31. Due to the exigencies of the duty list on that day, the plaintiffs’ ex parte application was stood down in the list and not heard until after the luncheon adjournment. At about 3pm that day, her Honour made the search and seizure orders sought by the plaintiffs (the Anton Piller Orders).

32. The timing of the making of the Anton Piller Orders became of some relevance because, as adverted to above, there was evidence from two witnesses (Mr Bill Tsioumas and Mr Jad Andraos – both of whom worked for a telecommunications supplier called TelPro at the relevant time) to the effect that Mr Hanna, the director of Easytel) had been told that a raid was imminent; and there was evidence from the independent solicitor appointed under the search orders (Mr Simon Maxwell) to the effect that when the search did take place on Monday 18 May Mr Hanna had asked him whether the search should have taken place on the Friday. I consider that evidence in due course.

33. The significance of the suggestion that there was advance notice of the “raid” is that the plaintiffs formed the view that hard copy documents and electronic storage devices had been removed from Easytel’s offices and that some electronic documents were deleted by the defendants (and presumably if there had been advance notice of the “raid” this might have provided an opportunity for this to occur). The plaintiffs have contended that the inference to be drawn is that the removal or deletion of documents or devices was done in order to avoid relevant information being obtained by the plaintiffs. I return to this contention in due course.

34. Suffice it at this stage to say that the plaintiffs’ suspicions as to the deletion of electronic material seem to have been heightened by (if not indeed largely based upon) the fact that the independent computer expert (Mr Jarrett Le Roux) did not, during his inspection of the computer devices, identify or forensically image the solid state hard drives (SSD hard drives) in two computer devices (Ms Barakat’s and computer Ms Tynieka Attard’s computer), and Mr Le Roux subsequently concluded that Ms Barakat’s computer had been modified (and that the modification had occurred in the morning of 18 May 2020 at 9.09 am – i.e., just before the “raid”). The plaintiffs’ computer expert (Mr Shane Bell) then also identified that there were deleted and modified operating systems.

35. In essence, what appeared to be contended by the plaintiffs was that the entire computer operating system for Ms Barakat’s computer was missing - something that Ms Barakat vehemently denied in cross-examination and which was ultimately proven to be incorrect as confirmed by Mr Bell and for which Mr Le Roux apologised. The acknowledged error was unfortunate not least because it led to further time and expense being incurred by the parties in exploring this issue (as I explain below). Nevertheless, for present purposes it is relevant to note that for some time the plaintiffs contended that the “Plaintiffs’ Client List” (a spreadsheet containing detailed information about the plaintiffs’ clients – and, I might add, the plaintiffs’ prospects or leads) which was uploaded to Ms Barakat’s computer in 2019 had been deleted. (I note that the Easytel defendants maintain that, subject to the issue of costs, the Anton Piller matters, including the notice of motion, the Anton Piller Orders themselves and the search are irrelevant to the determination of the substantive issues at the final hearing.)

Execution of Anton Piller orders

36. Returning then to the chronology of events in relation to the proceeding, the search order was not in fact executed until Monday, 18 May 2020 at about 9.20am. The then solicitors for the plaintiffs (Mr Andrew Stewart and Mr Sam Saadat, of Stewart & Associates) accompanied by the independent solicitor, Mr Maxwell, and the independent computer expert, Mr Le Roux, attended the Easytel office premises and seized numerous documents and data.

Access to forensic images

37. On execution of the Anton Piller Orders, Mr Le Roux downloaded forensic images of the relevant computers and copied those images onto two hard drives. However, there was then considerable delay as claims were made for legal professional privilege (in particular, there was delay in determining what documents were the subject of the privilege claims and the need to separate the privileged material on the computer hard drives). Further, access by the defendants to the hard drives was resisted on the basis that there were commercially sensitive documents of the plaintiffs on those hard drives.

38. Somewhat ironically, both sides have been anxious to protect their commercially sensitive material; and both sides seem to suspect the other of misuse of (or the motivation to misuse) such material in order to compete with the other side. So, for example, much complaint was made by the Easytel defendants as to the fact that the plaintiffs are now in possession (through their legal representatives) of the entirety of their client databases, with the suggestion that the plaintiffs could use that to force the Easytel defendants out of business – an assertion that is difficult to sustain insofar as access was restricted to the legal representatives who would face ethical and professional difficulties (and potentially grave professional consequences) were that information to be provided to the plaintiffs in breach of any ethical or other restrictions on such disclosure

26 June 2020 – notice of motion

39. On 26 June 2020, the plaintiffs filed a notice of motion (which the Easytel defendants say was oppressive) in which they sought, inter alia, the following interlocutory relief:

… the first, second, third, and fourth defendants…and each of the first, second, third and fourth respondents … until the conclusion of this matter, or until further order, from directly or indirectly canvassing, soliciting, or dealing with, counselling, procuring or assisting another person to canvass, solicit or deal with any client listed in the client list marked confidential exhibit EA-7.

40. In support of that application, an affidavit sworn on 26 June 2020 by Mr Ayoub was filed, in which (at [72]) Mr Ayoub deposes that Confidential Exhibit EA-7 (which was admitted into evidence as Confidential Exhibit J) contains a Confidential Client List comprising: current clients of the plaintiffs; or prospects whose details have been added to the CRM from the calls made by employees of the plaintiffs during the course of their employment (including by the three individual defendants). The Easytel defendants point out that the plaintiffs thus here concede that not all the names in Exhibit EA-7 are clients of the plaintiffs.

Application to discharge Anton Piller orders – 4 August 2020

41. On 4 August 2020, Easytel Australia filed a notice of motion seeking to discharge the Anton Piller Orders. That application was dismissed by Williams J on 31 August 2020.

42. Pausing here, the Easytel defendants contend that both the application for, and the making of, the Anton Piller Orders have proven futile in relation to the disposition of the real issues in this matter and (having regard to the concession by the independent computer expert made in the course of the proceeding as to the allegedly missing computer operating system – see below) have unduly complicated and lengthened the proceeding as a whole and the hearing of the matter. This submission can only be relevant to the ultimate issue of costs (and I note that in their written submissions, the Easytel defendants sought the opportunity in due course to make an application for costs in relation to the interlocutory proceedings). I would add, however, in the context of identifying applications that have extended the course of the proceeding, that the stance taken by the Easytel defendants themselves on the application made by the plaintiffs to amend the pleadings after judgment reserved (which related to the apparent restructuring in early 2021 of the plaintiffs’ business – see below) and the consequential delay in the provision of final submissions also had that effect.

Notice of motion to restrain plaintiffs’ then solicitors from acting

43. On 7 August 2020, new solicitors commenced acting for the plaintiffs (following the filing of a notice of motion by the defendants to restrain the existing solicitors from continuing to act on the basis of an allegation that there had been an abuse of process in the taking of an affidavit affirmed on 12 May 2020 by Mr Mitchell – that motion not ultimately being determined because the plaintiffs’ solicitors, without admission, ceased to act for the plaintiffs in the proceeding). I consider below the allegations made as to abuse of process. Suffice it here to note that I do not accept that any such abuse of process on the part of the former solicitors has been established (and, given the seriousness of such a finding, I would at the very least have given the former solicitors an opportunity to be heard on the application before making any such finding).

Application for access to Mr Roux’ forensic images of the hard drives

44. Returning again to the chronology in relation to the proceeding, application was made by the plaintiffs for access to Mr Le Roux’ downloaded images in order to ascertain whether there had been (as the plaintiffs contended) any deletions from the defendant’s computer (something that it was not possible to do from the forensically imaged copy).

45. On 21 August 2020, I made orders for access by the plaintiffs’ computer expert (Mr Bell) to the relevant computer images downloaded by Mr Le Roux (on an undertaking not to disclose certain material without leave) and to prepare a report by 25 August 2020. The matter had at that stage been listed, with expedition, for a two day hearing to commence on 7 September 2020.

Plaintiffs’ computer expert

46. On 3 September 2020, the Thursday before the hearing was listed to commence, there was an application brought by notice of motion before Rein J by the plaintiffs for access to confidential documents. His Honour made orders in accordance with the plaintiffs’ short minutes of order, which provided that the legal representatives for the plaintiffs were to be partially discharged from their written undertakings such that they were permitted to disclose for inspection to the plaintiffs: tax invoices discovered by the defendants addressed to the entities in Annexure B to the notice of motion; and contracts produced by GC Leasing Sydney Pty Limited to which the entities in the list marked Annexure B were parties. The balance of the notice of motion was stood over until the hearing, listed to commence on 7 September 2020.

47. On the following day (4 September 2020), i.e., the Friday before the hearing was to commence, the plaintiffs served an expert report from their computer expert (Mr Bell), in which Mr Bell concluded (as noted above), by reference to the computer images he had been given, that there was no computer operating system in place on two computers that had been seized on the execution of the search orders (Ms Barakat’s computer – AF2001; and Ms Attard’s computer – AF2003).

48. Mr Bell concluded in this report that the computer operating system for AF2003 had been deleted on the morning of 12 May 2009 (before Williams J made the Anton Piller Orders but, the plaintiffs contended, after Mr Mitchell had affirmed his 12 May 2009 affidavit in which Mr Mitchell deposed to the use of the plaintiffs’ documents and to having observed various things in the Easytel offices in that regard). As I understand it, on the timeline to which Mr Bell referred, the deletion was apprehended to have occurred before an email on 13 May 2020 forwarding to Mr Youssef a copy of Mr Mitchell’s 12 May 2020 affidavit – and I note that various of the defendants’ witnesses were cross-examined as to when they became aware that Mr Mitchell had provided an affidavit to the plaintiffs.

46. As noted above, the conclusion that the computer operating systems were missing was subsequently established to be simply wrong – based on Mr Le Roux’s admitted error in failing to discover the SSDs containing the operating system beneath a piece of metal under which it was located (for which “oversight” he apologised to the Court and the parties). Thus, this issue can only be said to have been an expensive (and time-wasting) red herring.

47. Mr Bell’s report included a table of forensic images from which he concluded that some 512 files had been deleted; although he could not say what had been deleted (or when, other than in May 2019). That conclusion precipitated a further exercise in computer examination and forensic expert evidence.

Plaintiffs’ amended statement of claim

51. The hearing commenced on 7 September 2020. Since Mr Mitchell was clearly aware of the matter having been listed for hearing (as he was to be a witness at the hearing and I was informed that he was present in the Court at the time), I proceeded to hear the matter without him having formally appeared or filed a defence in the proceeding (see r 29.7 of the Uniform Civil Procedure Rules 2005 (NSW)). As I understand it, the plaintiffs here seek the entry of judgment against Mr Mitchell as well as the other defendants (which seemed somewhat surprising given Mr Mitchell had apparently co-operated with the plaintiffs by providing an affidavit for use in the plaintiffs’ case, although of course it would be a matter for the plaintiffs whether they chose to enforce any such judgment).

52. At the commencement of the hearing on 7 September 2020, the plaintiffs sought, and (over the initial objection by the defendants which was ultimately not pressed) I granted, leave to file an amended statement of claim, adding Easytel Group as the fifth defendant in the proceeding (on the basis that most of the billing was done by that defendant).

53. The Easytel defendants point out that there is a reference (at [14] of the amended statement of claim) to “Annexure A” in relation to the contention there made that the individual defendants contacted 13 “Prospects” who were clients of the plaintiffs. The Easytel defendants say that the plaintiffs appear at the hearing effectively to have abandoned these propositions (though not on their pleading). There was no demur to this from the plaintiffs in their submissions and I have proceeded accordingly. In any event, there is only evidence that one entity from the list in Annexure A has been contacted, being Dagazo, to which I have already referred.

54. More pertinent (and this was identified as the crucial part of the amendment) was the allegation at [30B] of the amended statement of claim to the effect that the Easytel defendants had engaged in “further conduct” by using the confidential information after the termination of the employment of the first to third defendants.

55. Annexed to the amended statement of claim, as Annexure B, was a document headed “Easytel Client Exposure List”. Annexure B lists the details of additional entities alleged to have been procured by Easytel using the alleged confidential information of the plaintiffs. The Easytel defendants understand the Annexure B list of entities to be those common to invoices issued by Easytel to current customers and Confidential Exhibit EA-7 (the list of alleged prospects and customers of the plaintiffs).

56. It is noted that Mr Ayoub agreed during cross-examination that, of the approximately 40,000 entries in Confidential Exhibit EA-7 (being Confidential Exhibit J in the hearing), there is no specific list of which of those leads are clients of the plaintiffs; that any number of those leads could be in a list that Easytel has purchased; and that, where Mr Ayoub refers to certain parties in his affidavits as prospects, it is because they are not customers of the plaintiffs. Indeed, Mr Ayoub said (at T 54.38-39) that the lists in the exhibits were “muddled up for a reason”. Therefore, it is not possible to determine from the exhibits to his affidavit which of the entities there listed are (or were at the relevant time) current actual clients of the plaintiffs (as opposed to prospects or leads).

57. The Easytel defendants point to Annexure A to the affidavit of Mr Youssef of 8 September 2020 and to the similar annexure to his 12 September 2020 affidavit, which contains a list which identifies the relevant Easytel customer (from Annexure B to the amended statement of claim filed on 7 September 2020); the lead source from which the customer was obtained from; and the previous “carrier” or telecommunications service provider from which the customer was “ported”. The Easytel defendants point out that the list compiled in Annexure A of Mr Youssef’s affidavits, based on Annexure B to the plaintiffs’ amended statement of claim contains approximately 62 entities, most of which are current customers of Easytel (save for the reference to “Yews” from Annexure B and three customer applications (Awaliam Pty Ltd, Mr Mow, and VD Jennick Pty Ltd) which were either cancelled or did not proceed).

58. It is noted by the Easytel defendants that (at [115] of the plaintiffs’ submissions dated 19 November 2020), the plaintiffs contend that “the entities listed in annexure B of the amended statement of claim: are clients of the plaintiffs which are listed in exhibits EA-2 and EA-7; and have entered contracts for the supply of phone related hardware services with Easytel which is said to be demonstrated by the invoices produced under subpoena by GC Leasing Sydney Pty Limited”.

59. The Easytel defendants point out that Annexure B of the amended statement of claim contains approximately 58 separate entities that are customers of Easytel. It is said that only four of these were entities were customers of the plaintiffs when they were signed by Easytel (in, the Easytel defendants say, the usual course of reasonable competition), namely: Austeck Pty Ltd (Austeck) on 18 March 2020 (which was a lead sourced from Illion); Metalair on 31 March 2020 (which was a lead sourced from Illion); Bars N Racks on 9 March 2020 (which was a lead sourced from Australia on Disc); and Blooms the Chemist on 25 June 2020 (which was a lead sourced from Illion).

60. At [30B](c) of the amended statement of claim, the plaintiffs contend that the defendants have engaged in “use of the Confidential Information to achieve sales to the clients listed in Annexure B”. The Easytel defendants cavil with the description of the information in this document being confidential information. They also cavil with the proposition that there has been use of the information and the proposition that the listed entities were “clients” of the plaintiffs (as noted above), to which I will return in due course.

61. The timing of the amendment application was explained on the basis that it had emerged from the discovery ordered shortly before the hearing. Ultimately, as adverted to above, the amendment was not opposed, on the basis that further affidavit evidence would be permitted to address these contentions. However, the Easytel defendants maintained (and this could hardly be disputed) that there was a need to adduce expert computer evidence in reply to Mr Bell’s evidence, which meant that an adjournment of the hearing would be necessary (indeed, almost inevitable).

62. In the interim, however, the hearing nevertheless progressed by the taking of oral lay evidence on 7-8 September 2020 and 14 September 2020 (a third day that had not been anticipated by the parties when the matter was initially set down for an expedited hearing).

Further interlocutory application – 8 September 2020

63. Meanwhile, on 8 September 2020, the plaintiffs sought leave to file a notice of motion seeking interim orders to restrain Easytel from dealing with its business and to restrain use of the plaintiffs’ alleged confidential information (see T 159ff). After some debate, limited interlocutory orders were made (on the usual undertaking as to damages) and without admission on the Easytel defendants’ part. The interlocutory relief was made by me on the basis that, having regard to the allegation as to the deletion of the operating systems from Easytel’s computers (later proven to be incorrect), I considered that there was a serious question to be tried as to the alleged use of the plaintiffs’ confidential information and that the balance of convenience lay in the grant of such relief to preserve the status quo. The Easytel defendants say that, in hindsight, this allegation as to deletion of operating systems was “at least misguided”. That is an understatement – it was simply wrong. However, as explained, the fault for this lies not at the feet of any of the parties; it was an error by the computer expert(s).

Further expert examination of computers

64. The lay evidence concluded on 14 September 2020. The matter was then adjourned to permit further expert evidence to be obtained. Mr Le Roux was directed to answer a number of questions going to the issue of the purportedly missing operating system and deleted files and, towards the end of October 2020, in response to those questions Mr Le Roux conceded that he did not see the SSD which was located under a metal object in the computer (see his report of 20 October 2020 – marked as Exhibit W) and that his conclusion in relation to AF2003 (being Ms Attard’s computer) was wrong.

65. Further, it was said that Ms Barakat’s computer (AF2001) had something on the server that indicated that there was activity on the operating system; and there was a similar conclusion in relation to Ms Attard’s computer (which was confirmed by Mr Le Roux on 13 November 2020).

66. The expert called by the Easytel defendants, Dr Nigel Carson (see Exhibit 11), with whom Mr Bell agreed (see Exhibit V), said that, on inspection of the two computer hard drives (i.e., the ones that Mr Le Roux did not see during the “raid”), the SSDs were in place; and that Ms Barakat’s hard drive contained a zip file with thousands of documents in it (see the joint report of the forensic computer experts, being Exhibit Y). In light of this, the Easytel defendants say, and I agree, that any suggestion of any wholesale deletion of documents is without evidentiary foundation.

Resumption of hearing – 19 November 2020

67. On 19 November 2020, Ms Barakat and Mr Youssef were recalled to give further evidence following forensic examination of documents on the hitherto “missing” SSD Drives.

68. The Easytel defendants complain that the plaintiffs used this opportunity further to attack the defendants’ credit on the basis of a so-called “Brothel Spreadsheet” (being a list of adult services companies from 2012); and the SSD Spreadsheet retrieved from Ms Barakat’s computer following the reconciliation of the hitherto “missing” SSD Drives. I deal with the evidence as to the Brothel Spreadsheet in due course. More relevant (in light of the Easytel defendants’ complaint as to “hacking”) is the SSD Spreadsheet to which I will return shortly.

Closing submissions

69. On 18 December 2020, I heard closing submissions, following which I reserved judgment. One might have hoped the matter would have concluded there (with a judgment during the course of the following few months). Alas, that was not to be.

Yet further amendment to pleadings

70. In June 2021, while judgment was reserved, there was a further application by the plaintiffs for leave to amend the pleadings (in effect to reopen the case to do so), which application was (perhaps unsurprisingly given the history of dispute between the parties) opposed by the Easytel defendants. This application arose out of the sale of the “Nexgen” business pursuant to an Asset Sale Agreement dated 29 March 2021 (Asset Sale Agreement) to which I refer in due course below.

71. After protracted debate, and on the basis of the plaintiffs’ contention that the amendment (and re-opening of the case) involved no further evidence other than as to the fact of the assignment, I gave leave for the filing of a further amended statement of claim on 23 August 2021. The Easytel defendants made complaint as to the redaction of the Asset Sale Agreement but ultimately that issue was not pressed. As at that stage, I had rather thought that the most expeditious way of proceeding would be for judgment to be given on liability in respect of the matters that had been argued (and on which I was then reserved) with anything arising as a result of the Asset Sale Agreement to be dealt with once the outcome of those matters was known. However, the Easytel defendants were not content with that course. I therefore acceded to the Easytel defendants’ request for a regime to permit more written submissions in order to address that amendment. This involved an extended timetable (to meet the parties’ convenience) which meant that the final round of submissions not being completed until 22 September 2021 (an unfortunate state of affairs since it only served to protract the whole litigious saga).

Further amended statement of claim

72. The further amended statement of claim relevantly pleads that, on 31 March 2021, the plaintiffs completed the Asset Sale Agreement, the effect of cl 3 of which (as set out in due course) was to transfer all title to, property in, rights in and risk of a number of assets, intellectual property and liabilities from a seller to a buyer, in this case from the first plaintiff (Nexgen) to the second plaintiff (Business Telecom).

73. The Easytel defendants dispute that the Asset Sale Agreement operates as contended for by the plaintiffs. They maintain that the Asset Sale Agreement shows that Nexgen has no entitlement (and, they say, likely never had any entitlement) to the information the subject of the plaintiffs’ claim in the proceeding; and that it does not disclose any interest of Business Telecom relevant to this proceeding (which the Easytel defendants say is otherwise limited at best to a single customer). I address this issue in due course.

Background Facts

Plaintiffs’ business

74. As adverted to above, at the relevant time the plaintiffs carried on business selling telecommunications systems (as described in Mr Ayoub’s affidavit sworn 25 November 2019 at [8]-[10]); and, for the purposes of that business, the plaintiffs had purchased databases of names and phone numbers from a lead source supplier for about $20,000 to $30,000 per list, those databases typically containing some 30,000 to 40,000 people or businesses (see Mr Ayoub’s 25 November 2019 affidavit at [38]-[39]). The plaintiffs’ telemarketing staff would typically contact the people or businesses listed on the database, seeking information as to their telecommunications systems or needs; and then enter that information into the CRM. Mr Ayoub says that the plaintiffs’ telemarketing staff (of which Ms Barakat and Mr Mitchell formed part when they were employed within the plaintiffs’ business) would typically make around 100 to 150 calls per day (see at [40] of Mr Ayoub’s 25 November 2019 affidavit).

75. The “client” information entered into the CRM (and I interpose to note that the term “client” as here used in fact includes not only existing clients but also prospective future clients – the latter being referred to (as adverted to above) as “prospects” or “leads”) typically included matters such as: the client’s contact details; what type of phone systems were currently used; which carrier was currently used; how many staff members were employed; how long there was remaining on the current contract; when the person contacted would like a call back; and whether the person contacted was interested in speaking with a sales executive. That information was then used to develop the “client relationship” (Mr Ayoub’s 25 November 2019 affidavit at [41] and [44]).

76. Although the Easytel defendants maintain that this kind of information is not confidential and/or could readily be ascertained by a telephone call, that surely cannot be the case in relation to all of the “client” information. In particular, information as to the prospective client’s current contract terms would not necessarily be publicly available and might or might not be readily disclosed on a “cold call” by a telemarketer hitherto unknown to the prospective client. Moreover, there are cases in which the very compilation of information may nevertheless be treated as confidential – as I consider in due course.

77. Mr Ayoub deposes that the client relationships that develop from the telemarketing calls are referred to as “prospects” (see Mr Ayoub’s 25 November 2019 affidavit at [42]). Mr Ayoub’s evidence is that, in his experience, generally from all the calls 1% of the names in the purchased databases become “prospects”; and 20% of the “prospects” result in sales (Mr Ayoub’s 25 November 2019 affidavit at [43]). Mr Ayoub has explained that, before a “prospect” turns into a sale, a number of appointments are typically scheduled, where sales executives or business development managers (such as Mr Youssef) visit the prospective clients in order further to develop the relationship.

78. The plaintiffs say that the process of developing a relationship and collecting the data which is entered onto the plaintiffs’ CRM system costs about $500 per client per appointment; and that a usual sales process takes about six to twelve months from the first call after the acquisition of the purchased database (see Mr Ayoub’s 25 November 2019 affidavit at [44]-[46]). (This, of course, being relevant to any kind of “springboard” advantage that the Easytel defendants might be thought to obtain by access to the plaintiffs’ CRM data.) Mr Ayoub has deposed that, on average, a sale will generate approximately $15,000 in the sale of hardware and associated products (Mr Ayoub’s 25 November 2019 affidavit at [47]; Mr Ayoub’s third affidavit sworn 29 April 2020 at [28]-[30]).

79. Pausing here, there does not appear to have been much dispute as to the process of telemarketing as adopted by both organisations. I note, however, that Ms Barakat’s evidence is that the comments or notes added to the CRM database are made by telemarketers and she says that cannot be changed; and that Mr Youssef, who admits he had access to the CRM database denied that he would add comments to it. Rather, his role, as I understand his evidence, was to attend appointments with prospective clients and to “close” the sales. Thus, it is contended that Mr Youssef could not have added the details the subject of Exhibit EA-7 into the CRM. The plaintiffs, however, appear to suggest that both telemarketers and sales or business development managers would add to the CRM database. Nothing seems to turn on this disparity in the respective accounts of the way in which the CRM database is compiled in the respective organisations.

80. As the alphabetical list of client names comprising over 900 pages of Exhibit EA-7 of Mr Ayoub’s affidavit of 26 June 2020 makes clear, at the relevant time the plaintiffs had over 36,000 clients and prospective clients in their database.

81. The plaintiffs say that, without the initial investment in the client list, and the developed client relationship through which the plaintiffs acquire information as to the bespoke needs of the clients on those lists (which information is then entered into the CRM), there would be no practical way of selling the products that the plaintiffs sell and, for that reason, the restraints on solicitation of clients already contacted by the defendants whilst they were in the employment of the plaintiffs (or even by other staff), is a legitimate relationship to protect. (The plaintiffs further contend that this is matter of common ground, referring to [29] of the affidavit affirmed on 11 May 2020 by Mr Hanna, the fourth defendant and sole director of Easytel.) It appears that this is also the basis on which the plaintiffs contend that the information contained in the CRM database is confidential information. (In this regard, I consider that there is a distinction between information on leads acquired from a database supplier and “bespoke” information obtained by telemarketers calling the projects or leads. The latter might well be confidential to the plaintiffs’ business. I cannot see how the former is.)

Parties

Plaintiffs

82. As at the time of the hearing, the plaintiffs had an established business that has been operating for more than 10 years in both Australia and overseas, employing approximately 159 staff. Mr Ayoub is the managing director of the plaintiff companies. Another director of those companies is Mr James Harb (see T 43.39-40.).

83. Ms Barakat, the first defendant, was employed by Business Telecom as an “Appointment Setter” (that is, a telemarketer) (effective from 7 May 2018), having entered into a written employment agreement with Business Telecom. The role of a telemarketer (as the name suggests) is to telephone clients or potential clients, assemble information in relation to their telecommunications needs in the CRM database, and arrange appointments with those entities willing to meet with a sales or business development manager. The role of a sales or business development manager (of which Mr Youssef was one) was different in that such a person would go out to meet the clients or prospective clients and “close” the sales. Ms Barakat ceased her employment with Business Telecom on 29 August 2019 and commenced her employment with Easytel on 3 September 2019 as an “Internal Sales Consultant”.

84. Mr Mitchell, the second defendant, was also employed as a telemarketer by Business Telecom for various periods. Mr Mitchell entered into a written contract of employment with Business Telecom on 1 December 2016. On 31 August 2019 Mr Mitchell ceased employment with Business Telecom. In his first affidavit sworn 12 May 2020 (at [31]), Mr Mitchell deposed that he received a call from Mr Hanna who offered him a job. Mr Mitchell commenced employment with the Easytel group on 13 September 2019. He worked there until 9 October 2019 and then left for a short time before returning to work there again from 6 February 2020 to 20 March 2020. Mr Mitchell no longer works as a telemarketer (as noted above).

85. Mr Youssef, the third defendant, was employed as a business development manager by Nexgen (commencing in that role on 11 January 2016 – see his 13 December 2019 affidavit at [4]). Mr Youssef commenced his employment with a subsidiary of Nexgen (being Omniview) on or about 8 January 2012 (see Mr Youssef’s affidavit of 11 May 2020 at [60]) (although Mr Ayoub deposes at [11] of his affidavit of 25 November 2019 that Mr Youssef instead commenced his employment with Omniview on 28 March 2013 – nothing turns on this discrepancy). On 15 January 2016, Mr Youssef entered into a written contract of employment with Nexgen. Mr Youssef ceased working with Nexgen on 2 September 2019 and commenced working with Easytel on 3 September 2019).

86. The plaintiffs contend (and it does not appear to be disputed) that, in their respective employment roles, all three defendants had access to the plaintiffs’ common client or prospective client database (for which a passcode was required). There is, however, great dispute as to whether or to what extent that comprised confidential information. Furthermore, there is a difference between the role of appointment setters or telemarketers (such as Ms Barakat and Mr Mitchell) and the position held by Mr Youssef (to which I will refer in due course as relevant).

87. Mr Youssef’s wife, Amanda, was also employed for a time within the Nexgen group. It appears that her role was an administrative role.

Easytel defendants

88. As noted above, the Easytel entities commenced operating in New South Wales in September 2019 (with approximately five or six employees). Easytel Group was incorporated in about April 2019, with Mr Hanna as its sole director and shareholder. Easytel Australia was incorporated in early August 2019, again with Mr Hanna as its sole director and shareholder. Mr Hanna had at an earlier time been employed by Nexgen for about 12 months, resigning in April 2014 (see Mr Hanna’s affidavit affirmed 6 July 2020 at [7]). Mr Hanna is related by marriage to Mr Youssef (Mr Youssef being Mr Hanna’s wife’s first cousin). Mr Hanna’s evidence was that he had obtained advice from Mr Youssef about venturing into the telecommunications industry (before setting up Easytel).

Establishment of the business

89. It is common ground that, at the time that the Easytel business operations commenced, the Easytel entities were not using a CRM program in their business (see Mr Mitchell’s affidavit of 12 May 2020 at [23] and [31], seemingly confirmed by Mr Youssef in his affidavit of 11 August 2020 at [11]-[12]). Mr Mitchell’s evidence (see below) was that he was provided with electronic spreadsheets to use and that it was not until he later rejoined the Easytel group that the company was using a CRM program.

90. As to the acquisition of “leads”, the Easytel entities obtained the following databases and systems: Australia on Disc Database on 29 August 2019; “Naj Database” in about September 2019; Leadmaster CRM on or about 16 October 2020; Illion databases on 25 February 2020, containing some 6,111 records; Illion databases on 2 March 2020, containing some 876 records; and ongoing MVF and Comparison Advantage data.

91. As at the date of Mr Hanna’s 6 July 2020 affidavit, Easytel had spent $42,893.84 on databases, marketing companies and referrals since the commencement of Easytel’s business in September 2019 (compare this with the amount spent by the plaintiffs which was in the order of $250,000 over 8 years). Accordingly, Mr Hanna contends that Easytel has no use for the plaintiffs’ alleged confidential information.

92. As to the relative amounts spent on the purchase of lead source databases, the Easytel defendants say that the amount of Easytel’s expenditure is significant having regard to the relative financial strengths of Easytel compared to the plaintiffs, as well as the relatively short time Easytel has been in business. In light of the expenditure in purchasing databases and leads, the Easytel defendants say that the plaintiffs’ suggestion that Easytel purchased databases to disguise that Easytel was using the plaintiffs’ confidential information makes no sense.

Relevant employment agreements

93. Each of the individual defendants entered into employment agreements which contained a wide-ranging definition of confidential information (see for example cl 20.6 of Ms Barakat’s employment agreement) which the Easytel defendants complain is oppressively wide in the context of the post termination obligation in cl 20.1 of that agreement. Clause 20.6 provides:

for the purposes of this clause and paragraphs preceding this clause Confidential Information is taken to mean all information previously communicated and imparted and all information to be communicated, imparted, and passing from the Employer, or from its directors, shareholders, servants, agents, employees, or consultants, or any one more of them to you or otherwise learned by you in any way related to or connected with the business affairs of the Employer or those of any client of the Employer or those of any business, organisation, company or venture in which the Employer holds an interest and of any client of any such business, organisation, company or venture including without limitation trade secrets, know-how, techniques, accounts, balance sheets, financial statements, financial information, business and marketing plans and projections, arrangements and agreements with third parties, customer information, customer information proprietary to customers, customer lists, concepts not reduced to material form, designs, plans, short, medium and long term development programs, drawings, processes, methods and procedures of operations and whether recorded in some tangible form or intangible form or some electronic form, computer record, or other database.

94. Each employee agreed that, during the term of his or her employment and after it terminated, he or she must not use or disclose or attempt to disclose any confidential information (as defined); and that, in the event of a breach of that clause, the plaintiffs would be entitled to an injunction restraining the employee from committing any breach regardless of proof of actual damage.

Commencement of the proceedings

95. Mr Ayoub’s evidence is that, in September 2019, the plaintiffs became concerned that Easytel was contacting its “prospects”. There was a meeting on 19 September 2019 attended by Mr Youssef and Mr Hanna (and others) (see Mr Ayoub’s affidavit dated 25 November 2019 at [23] and Mr Youssef’s affidavit of 11 May 2020 at [69]) at which Mr Ayoub accused them of “poaching” the plaintiffs’ leads.

96. At [9] of Mr Ayoub’s affidavit sworn 21 August 2020, he recounts a conversation with Mr Mitchell which he said occurred on 7 May 2020, in which he deposes that Mr Mitchell says words to the effect that:

Shane Mitchell:    I have emails which I have kept which I sent to Mina during his time with us and Nexgen and Business Telecom customers. They [Easytel] bought a database and would cross reference the leads against our clients. There was Nexgen hard copy applications in the Easytel office and Business Telecom applications stored in folders.

97. On 22 October 2019, the plaintiffs’ lawyers sent a letter of demand to Easytel. This proceeding was commenced on 25 November 2019 (the procedural history of which is as noted above).

Easytel’s “system” with respect to Nexgen and Business Telecom customers

98. At some point (from about late February to early March 2020 – see email dated 26 February 2020), a system was put in place within Easytel to the effect that, if a prospective client was contacted and it was learnt that this was a Nexgen or Business Telecom customer (or perhaps if the telemarketer wished to call a contact with whom he or she had dealt when at Nexgen or Business Telecom), the staff at Easytel were directed to contact Mr Youssef before proceeding further; and that, if Mr Youssef confirmed that the contact was a “lead” (i.e., from a database that Easytel had purchased), then the telemarketing staff would be told that they could proceed.

99. In cross-examination, Mr Youssef gave evidence that the process entailed thorough searches of the CRM to remove all entries in the CRM without a lead source (those being any details that might have come from Google, or were otherwise searchable). Where the Easytel telemarketers made contact with a Nexgen or Business Telecom customer, Mr Youssef instructed the Easytel representatives to end the call so that he could search the CRM to ensure that the prospect was a “purchase” lead. Upon confirmation of the foregoing, Mr Youssef would permit the Easytel representative to contact that prospect (see T189.8-16).

100. While the plaintiffs appear to regard this system as an attempt by the defendants (after the proceeding had commenced) to disguise that they were using the plaintiffs’ confidential information (see T 10-11), this seems to me rather to indicate that the defendants were conscious of the need not to breach any obligations in this regard (and were relying only on the purchased leads) – about which the plaintiffs could hardly complain.

May 2020 “raid”

101. As it assumed no little significance in the plaintiffs’ case, it is relevant to place in the chronological context the events surrounding the execution of the Anton Piller Orders granted by Williams J in the Duty List on 15 May 2020.

102. In that regard, it is also relevant to bear in mind that Mr Mitchell’s first affidavit (on which the plaintiffs relied when seeking the Anton Piller orders) was made on 11 May 2020 and amended on 12 May 2020. It appears that Easytel and/or persons at Easytel were aware that Mr Mitchell had signed an affidavit of some kind even if they had not seen it at that stage (see T 206ff). (There is evidence that a copy of the file may have been overlooked on Mr Youssef’s device on 13 May 2020 but there is no evidence as to the email itself being sent.) The significance of this, as noted above, appears to be that the plaintiffs suggest there was advance knowledge of the proceeding (and perhaps the opportunity to remove or destroy evidence adverse to the Easytel defendants).

103. Ms Barakat recalled being told of Mr Mitchell’s 12 May 2020 affidavit before 18 May 2020 (i.e., before the “raid” which took place on Monday 18 May 2020) (T 142.6-13).

104. Mr Youssef gave the following evidence in respect of the allegation that the defendants knew about Mr Mitchell’s first (Anton Piller) affidavit before the search (at T 197.14-36):

Q.    This is against the background that you knew that Shane Mitchell had sworn an affidavit for the plaintiffs, isn’t it?

A.     I didn’t know he had done it.  I know that Elie called him and offered him $3,000 to write an affidavit.

Q.     No, no, no, no, and stop making self-serving answers, just answer my question.

A.     That’s the information I know.  I can only tell you what I know.

Q.     What you know is that people at Easytel, like you, understood that Shane Mitchell had gone to the plaintiffs and sworn an affidavit, you knew that on the 15th?

A.     No, on the seventh I knew Shane called me and told me that Elie offered him a bribe of $3,000 to write the affidavit.

Q.     30,000 was it?

A.     3,000.

Q.     You know that Samantha Barakat says that it was knowledge at Easytel that Shane had sworn an affidavit before the raid, that knowledge?

A.     Once Shane told me that conversation, I pulled a meeting and told everyone why it happened and that Shane was offered $3,000 to write an affidavit, I made it aware.

105. The evidence given by Mr Tsioumas and Mr Andraos as to the events on 15 May 2020 is broadly consistent.

106. Mr Tsioumas’ evidence (see T 64-65 and Mr Tsioumas’ affidavit sworn 11 June 2020 at [31]-[37]) is that, on Friday 15 May 2020, he arrived at Easytel’s offices at around midday; that Mr Hanna was there and on the phone. Mr Tsioumas says that, at about 1.15pm, Mr Hanna said words to the effect that “the lawyers have advised that we might be raided … Nexgen is in Court now trying to do it”. Mr Tsioumas says that Mr Hanna said that no one could be in the office until about 2pm; that he (Mr Tsioumas) watched CCTV footage from the office on Mr Youssef’s phone waiting for the raid; and that, at about 2.05pm, he, Mr Andraos, Ms Barakat and others were told by Mr Hanna to go home. Mr Tsioumas’ evidence was that, to his knowledge, only the Youssefs (Mark and his wife, Amanda) and Mr Hanna remained in the office. In cross-examination, Mr Tsioumas confirmed that Ms Barakat went home and said that they all walked out at the same time (T 65.6-24).

107. Mr Andraos similarly deposed (in his affidavit sworn 14 June 2020 at [5]-[13]) that on 15 May 2020 Mr Tsioumas arrived at the office at about 12.30pm; that at 1.15pm Mr Hanna said that the lawyers had told them they were about to be raided; and that he said that they needed to go to the basement (or car park) before 1.30pm (see also his evidence at T 69). Mr Andraos further said that Mr Hanna said that if nothing happened by 2pm then they could not do it (the raid) that day. Mr Andraos said that Mr Youssef was watching on CCTV. Consistently with Mr Tsioumas’ evidence, Mr Andraos says that, at 2.10pm, Mr Hanna told them to leave.

108. Mr Tsioumas says that on the Monday (18 May 2020) he and Mr Marsic were working on a camera installation at other premises and that they watched the raid on a camera from those premises (see Mr Tsioumas’ affidavit of 11 June 2020 at [41]-[46] and T 66.27-49, 67.1-14). Mr Tsioumas said that the desks were quite clean and that Mr Mitchell’s computer was missing (though as I understand it, it was in fact one that was forensically imaged by Mr Le Roux on 18 May 2020 – see Attachment 1 of Mr Le Roux’ affidavit affirmed 20 May 2020).

109. Mr Tsioumas said that, prior to the raid, he had seen Nexgen’s books, files, lead sheets and other hard copy documents in Easytel’s office (see at [45] of Mr Tsioumas’ affidavit of 11 June 2020).

110. According to the independent solicitor (Mr Maxwell), during the course of the search at the Easytel offices, Mr Youssef asked the computer expert “Were you supposed to do this search on Friday?” (see Annexure A to Mr Maxwell’s affidavit sworn 29 May 2022). The Easytel defendants point to the explanation given in cross-examination by Mr Youssef to the effect that he asked this question because the Anton Piller documents indicated that the search was supposed to have been undertaken on 15 May 2020 (i.e., the Friday). I draw little from this query made by Mr Youssef. Whether or not Mr Youssef’s explanation (that he noticed the date on the search orders and seemingly was querying the validity of the raid occurring on a later day) is plausible, the evidence of Mr Tsioumas and Mr Andraos is that there was an expectation on the Friday that a raid was going to occur that day. If there had been some misconduct on the part of the Easytel defendants in removing incriminating material from the office prior to the raid actually occurring on the Monday, it seems unlikely that Mr Youssef would have drawn attention to this by making the query he is reported to have made; and in any event I am not persuaded that the evidence establishes that anything was actually removed or deleted.

111. As noted above, the evidence of Mr Tsioumas and Mr Andraos about the events on the Friday that the Anton Piller Orders were made is broadly consistent. It seems to me in one sense implausible, in that it is surprising that Mr Hanna’s lawyers could have known about an ex parte application in the duty list that was being conducted by telephone; though it is not wholly inconceivable – particularly given that it appears that it had been a busy list that day and no doubt there were a number of matters that were being called through in the duty list; so that it is possible that the lawyers for Easytel might have been in the virtual court room and recognised the matter name). (It also might be more likely that the duty list was being monitored if there was awareness of an affidavit having been prepared only shortly before.) However, ultimately this is no more than speculation.

112. There is no explanation proffered as to why the staff of Easytel would need to be out of the office during the (then apparently expected to be imminent) raid; nor is it obvious why the staff would be sent home after 2pm when the anticipated raid had not eventuated (that being around the time that the witnesses recall they were told the raid had to have happened if it was to occur on that day). The plaintiffs clearly suspect that this was to permit a deletion or removal of documents or other evidence that afternoon. However, the difficulty with this is that there is no evidence of any bulk deletion of electronic data (other than the now wholly discredited independent computer expert’s evidence to that effect and the similarly discredited evidence of the plaintiffs’ expert, Mr Bell); and the suggestion that there were some hard copy folders or files marked “Nexgen” or “Business Telecom” that were not later found in the office is vague (and suffers from the difficulty I have with the reliability of Mr Mitchell’s memory overall – see below). The observation that desks were clean on the Monday morning (which presupposes that the desks would not otherwise have been clean) takes the matter little further.

Discovery

113. By way of discovery in this proceeding, Easytel produced invoices rendered up to the end of 30 June 2020 (some 458 invoices – albeit not to that number of clients because some of Easytel’s clients were invoiced more than once). The plaintiffs say that the co-incidence between those clients of Easytel and the names in the Plaintiffs’ Client List (Confidential Exhibit EA-7; admitted as Exhibit J) is high. It is said that Easytel sold telecommunications goods or services to some 80 or so clients (or prospective clients) in the Plaintiffs’ Client List in the financial year ended 30 June 2020 (see T 221.20-50).

114. The Easytel defendants cavil with the proposition by the plaintiffs that the invoices rendered by Easytel up to the end of 30 June 2020 indicate that there is a high coincidence between Easytel’s clients and the names in the plaintiffs’ list. The Easytel defendants say that there is not the high coincidence as contended by the plaintiffs. It is said that the names in Exhibit EA-7 number in excess of 40,000 entries from sources mutual to the plaintiffs and the Easytel defendants. Relevantly, the Easytel defendants say that the entities named in Annexure B to the plaintiffs’ amended statement of claim constitute approximately 0.1% of the approximately 40,000 plus entries in Exhibit EA-7 (being the exhibit marked Exhibit J in the proceeding).

410. The Easytel defendants note that it must be shown not only that the information is confidential in quality and that it was imparted so as to import an obligation of confidence, but also that there will be an unauthorised use of that information to the detriment of the party communicating it (in order to justify the grant of permanent injunctive relief). The Easytel defendants further point to the judicial caution ordinarily exercised when considering the grant of relief that may deprive people of their ordinary mode of livelihood, or impinge severely upon it; and to the public interest against the unnecessary restraint of competition.

411. The Easytel defendants maintain that they are operating a legitimate business which by its nature competes with the business of the plaintiffs. They complain that, pursuant to the Anton Piller Orders made on 15 May 2020, and the orders for discovery made on 27 July 2020, the plaintiffs are now effectively (by their legal representatives) in possession of the entirety of Easytel’s business. (I do not place weight on this last submission, since the legal representatives will be constrained by their professional and ethical obligations in dissemination of any such information.)

412. The Easytel defendants say that, if the orders sought by the plaintiffs are granted, the permanent injunction sought by the plaintiffs will effectively disable Easytel’s business and prevent Ms Barakat and Mr Youssef from working in the industry. As noted above, complaint is made that the plaintiffs have failed clearly and precisely to identify and explain why the information is confidential, in circumstances where much, if not all, of the information can be obtained from the public domain and third party suppliers. It is said that the plaintiffs’ pleadings identify about 58 companies they say the defendants have procured by using their alleged confidential information, but have not shown: (i) how this information differs from that which the defendants can obtain on their own by: searching the public domain; purchasing databases; and making calls to prospective clients in the usual course of business; (ii) that the alleged confidential information was used by the defendants to procure these customers; or (iii) why, despite the limited number of companies named in the plaintiffs’ amended statement of claim, the defendants should be restrained from contacting some 40,000 additional companies being those “prospects” contained in Confidential Exhibit EA-7.

413. The Easytel defendants maintain that: Easytel’s customers are obtained from bona fide leads from third party sources and referrals, and not from any of the plaintiffs’ alleged confidential information; and they say that they have not used the plaintiffs’ alleged confidential information to obtain customers of the plaintiffs or otherwise.

414. Further, it is said that, by the plaintiffs’ own admission, the extent of the information that the plaintiffs seek to protect, in particular that contained in Confidential Exhibit EA-7, are not clients of the plaintiffs, nor can the information be truly classified as confidential or special information belonging to the plaintiffs. The Easytel defendants say that the plaintiffs’ case in that regard is untenable; and that this litigation is an attempt to bully, harass and intimidate them; and to stifle competition.

Determination

419. I will deal first with the claims for equitable compensation and an account of profits. In Mid-City, Campbell J, as his Honour then was, referred to United States v Grossman 843 F 2^d 78 (2^nd Cir, 1988) at 86 where a law firm was held to have the right, as against an employee of the firm, to the confidentiality of information disclosed to members of the firm by a client, and went on to say (at [140]) that:

… the same factors which have led to the customer lists of any business being regarded as confidential, and persons working in that business being obliged, by an implied term in their contract of employment to recognise the confidentiality of those lists, apply here. …

420. As Campbell J said in Mid-City (at [148]):

An employee [and I see no reason why, in principle, an authorised representative would be in any different position] is entitled, once his employment is over, and in the absence of an express and valid contractual restriction on his doing so, to canvass former customers of his employer, to the extent that he has the names and addresses of those customers in his memory as a result of the ordinary carrying out of his duties as an employee: Ormonoid Roofing and Asphalts Limited v Bitumenoids Limited (1930) 31 SR (NSW) 347 at 354–356; 48 WN (NSW) 66 at 69 (Harvey CJ in Eq); Faccenda Chicken Limited v Fowler [1987] 1 Ch 117 at 136; Riteway Express Pty Limited v Clayton (1987) 10 NSWLR 238 at 240 (McLelland J); Weldon & Co Services Pty Limited v Harbinson [2000] NSWSC 272 at [68]–[72] (Bryson J). …

and (at [158]):

… Both the common law and equity take into account, in formulating the extent of obligations they impose in a situation like the present, the public interest that there is in people who have acquired skills and knowledge while working in one situation, such that those skills and that knowledge is part of the mental equipment they carry around with them, being able to use those skills and that knowledge when they take up a later situation. …

421. In Southern Real Estate v Dellow (2003) 87 SASR 1; [2003] SASC 318 (Dellow), Debelle J, with whom Nyland and Lander JJ agreed, considered a not dissimilar issue in relation to what was held to be the misuse by a director of a rent roll of a real estate business. There, it was said (at [26]) that the director had prepared customer lists with the intention of using them once she had resigned and was thereby placing herself in the most advantageous position to erode the goodwill of the company. It was recognised that, after her resignation (and after the expiry of any fiduciary duties), Ms Dellow was at liberty to make a list of clients from memory and actively to solicit their custom (at [36]). However, Ms Dellow had, in effect, pre-empted that course.

422. Conduct that accelerated the acquisition of leads in advance of the time in which Ms Barakat could lawfully have dealt with those clients and competed with Nexgen would be akin to the situation in Dellow. The acceleration (or advantage) thereby wrongly obtained was compensable by way of an award of damages for the loss of value to the business.

423. In Corsiatto, the court considered a situation where an employee of the appellant insurance brokers resigned to act as sub-broker for the second respondent insurance brokers. He had prepared customer lists containing confidential information in breach of his fiduciary duty to the appellant and he used those lists to canvass his former clients. Many of those former clients nominated the second respondent as their broker and the respondents then obtained details of their current insurance arrangements and substantial brokerage/commission was earned. It was not established that second insurance brokerage firm knew that the lists had been obtained by breach of fiduciary duty. The relief granted at first instance was an account of profits for six months or, in the alternative, equitable compensation. On appeal, Handley JA referred to Warman International Limited v Dwyer (1995) 182 CLR 544; [1995] HCA 18 at 558-559 where the court said:

… What is necessary however is to determine as accurately as possible the true measure of the profit or benefit obtained by the fiduciary in breach of his duty …

It is necessary to keep steadily in mind the cardinal principle of equity that the remedy must be fashioned to fit the nature of the case and the particular facts. …

424. Handley JA noted (at [27]) that an account of profits against a fiduciary is based on the receipts of the defendant, not the loss of the plaintiff and that, as a general rule, a court will not apportion profits in the absence of an antecedent arrangement for profit-sharing but will make allowance for skill, expertise and other expenses. In Mid-City, Campbell J said (at [273]):

The onus is on any plaintiff who seeks an inquiry as to profits to persuade the Court that it is appropriate to make such an order. Whenever an account of profits is ordered in relation to a breach of an equitable obligation, where that breach has resulted in the person in breach receiving money in consequence of both the breach of the obligation, and his or her own expenditure of time effort and skill, an allowance is ordinarily made for the value of that time, effort and skill: Green v Folgham (1824) 1 Sim & St 398 at 406; 57 ER 159 at 162; Boardman v Phipps [1967] 2 AC 46 at 104, 112; Warman International Limited v Dwyer (1995) 182 CLR 544 at 562.

425. Where, as here, only a limited number of leads can be shown to have been acquired as clients of Easytel, the measure of profits obtained by breach of any fiduciary duty or equitable obligations of confidence in this case would be difficult to assess. In Dellow, for example, the loss in question was a substantial reduction in the number of clients remaining on the rent roll but here it is difficult to assess which of the leads were actual clients as opposed to potential clients. No assessment could be made of any loss of net income from those potential clients. I do not consider that the case of an enquiry as to damages or taking of account would be warranted in the present case.

426. As to the grant of permanent injunctive relief, I am of the view (as I was in AIIB Pty Ltd v Beard [2009] NSWSC 1001 at [227]) that a perpetual injunction should not be granted. I am of that view in circumstances where the client contact information and notes as contained in the spreadsheet taken from the plaintiffs when Ms Barakat ceased her employment represent information which could either have been compiled from public sources and/or by enquiry made by the telemarketers at Easytel in any event. I consider that the grant of an injunction of the kind here claimed would in my view go far beyond any reasonable restraint of trade or non-solicitation covenant; and is not warranted because the risk of use of (by now presumably increasingly outdated) information is not established. Further, I consider that any springboard advantage must by now well and truly have dissipated. The suggestion that any further restraint beyond that in effect imposed by the undertakings that the Easytel defendants have proffered and that have been in place now for some time is not tenable in my opinion.

Asset Sale Agreement – submissions as to standing

427. In their further submissions dated 17 September 2021 (following the further amended statement of claim), the Easytel defendants made submissions reiterating the complaints made in their earlier submissions (as summarised above) as to the nature of the plaintiffs’ claim but also contending that the plaintiffs lack standing and cannot establish any loss or damage.

428. The Easytel defendants say that there are significant discrepancies between the Asset Sale Agreement and the position contended for by the plaintiffs.

429. First, reference is made to Mr Ayoub’s evidence (at [10] of his affidavit sworn 3 September 2021) to the effect that “Assets” is defined by cl 1 of the Asset Sale Agreement to mean the assets owned by Nexgen relating to or necessary for the conduct of the “business” on the Completion Date, which was comprised of (among other things) Nexgen’s property (defined in Mr Ayoub’s affidavit as the “Relevant Transferred Property”).

430. The Easytel defendants say that this misconstrues the definition of “Assets” in the Asset Sale Agreement (see as set out earlier in these reasons) in that, contrary to Mr Ayoub’s assertions, the word “Assets” is not defined to mean assets owned by Nexgen; rather, it refers to assets of the “Sellers” (it being noted that there are at least four Sellers specified in the redacted Schedule 1 of the Asset Sale Agreement). (The Easytel defendants suggest that there are likely more “Sellers”, noting that there are nine signatories to the Asset Sale Agreement and only three of these are named as Buyers in the Asset Sale Agreement.)

431. The Easytel defendants point to Mr Ayoub’s evidence (at [11]-[13] of his 3 September 2021 affidavit) that:

11.   Some of the Relevant Transferred Property, contained specific definitions within the ASA, the effect of which, further identified what specific property that was being transferred to Business Telecom.

12.   In addition to the Relevant Transferred Property, clause 1 of the ASA also defines the ‘Business Intellectual Property’ to include all intellectual property rights, both in Australia and thought out [sic] the world, and for the duration of the rights, any right, title and interest in (among other things) any trade secret, ‘know-how’ (as defined in the ASA), computer software and confidential, scientific technical and product information (Relevant Transferred IP)

13.   Clause 1 of the ASA also defines ‘Assumed Contracts’ to include, among other things, contracts between customers and the ‘seller’ (Customer Contracts).

432. The Easytel defendants contend that the evidence does not substantiate the plaintiffs’ claim that all right, title and interest in the various assets has been transferred from Nexgen to Business Telecom. It is noted that, at [11] of Mr Ayoub’s affidavit, he refers to the Asset Sale Agreement containing specific definitions identifying specific property that was being transferred to Business Telecom but he does not elaborate on this. The Easytel defendants say that on their review of the (redacted) Asset Sale Agreement, the only section that deals with the transfer of specific property is Schedule 2; and that Schedule 2 does not include any reference to a transfer of assets from Nexgen to Business Telecom.

433. The Easytel defendants point to the following in relation to Schedule 2 of the Asset Sale Agreement.

434. First, that it provides that customer lists and contracts were sold to Nexgen Investment Group Pty Ltd (Nexgen Investment Group) (i.e., not Business Telecom) by the Seller which is party to the contract or owns the customer list. It is noted that this does not specify if Nexgen was one of the Sellers; nor which, if any, customer lists or contracts were sold by Nexgen.

435. Second, that it does not provide that contracts through which Nexgen purchased databases were sold by Nexgen to Business Telecom (as contended by the plaintiffs’ further amended statement of claim). It is said that the only specific assumed contracts in Schedule 2F of the Asset Sale Agreement are “Aussiepay” and “BT Super” (these being payroll, and superannuation companies, respectively), which were sold by Nexgen Australia Group Pty Ltd (Nexgen Australia Group) to Business Telecom. The Easytel defendants note that the balance of the assumed contracts in Schedule 2F is redacted; and say that, in any event, the majority of these appear to have been sold by Nexgen Australia Group to Nexgen Investment Group and Nexgen Capital Pty Ltd (Nexgen Capital).

436. Third, that the Asset Sale Agreement does not provide that intellectual property was sold by Nexgen to Business Telecom. It is noted that, under the heading “Business Intellectual Property” in Schedule 2, it is said that the businesstelecom.com.au domain was sold by Nexgen Australia Group to Business Telecom (i.e., not by Nexgen); and that all other Business Intellectual Property not listed in the Schedule was sold by each Seller to the extent that the Seller owns any Business Intellectual Property not listed in the Schedule.

437. Fourth, that the Asset Sale Agreement provides for the sale to Business Telecom by each Seller (to whom a Trade Debt is owed) of all receivables of the Business owing to the Sellers by debtors of the Business as at Completion; and by each Seller (to the extent that it owns the same) of Goodwill; Systems; Records; Databases; Inventory; and Work In Progress.

438. Finally, that the Asset Sale Agreement does not provide that all property rights and assets used solely and exclusively in the conduct of Nexgen’s business were sold to Business Telecom. It is noted that the final paragraph of Schedule 2 provides that other Assets not listed in Schedule 2 are sold by Each Seller, to the extent that it owns any other Assets, to Business Telecom.

439. The Easytel defendants note that there are multiple Sellers named in the Asset Sale Agreement, and that the Asset Sale Agreement does not disclose what, if any, Business Intellectual Property, Trade Debts, Goodwill, Systems, Records, Databases, Inventory and Work In Progress or other Assets were sold to Business Telecom by Nexgen.

440. Further, it is noted that Schedule 2 expressly provides that Nexgen Australia Group (not Nexgen), is the Seller in respect of 4,033 customers’ active billing contracts (Active Billing Contracts). It is noted that the Asset Sale Agreement provides that the Active Billing Contracts are sold (see Schedule 2 Part F) by Nexgen Australia Group to Nexgen Investment Group (i.e., not to Business Telecom).

441. The Easytel defendants thus contend that the Asset Sale Agreement is at odds with the plaintiffs’ position as pleaded at [43]-[46] of the further amended statement of claim, and Mr Ayoub’s affidavit of 3 September 2021.

442. The Easytel defendants say that the Asset Sale Agreement does not evidence the transfer of Nexgen’s business or interest in this proceeding to Business Telecom; rather, that it evidences, as a minimum, that 4,033 customers’ active billing contracts owned by Nexgen Australia Group (not Nexgen), were transferred to Nexgen Investment Group. It is said that nowhere in the Asset Sale Agreement is there a similar reference to a transfer of billing contracts from Nexgen to Business Telecom or any other entity.

443. Insofar as Mr Ayoub has deposed (at [18] of his affidavit) to his belief that customers affected by the assignment or transfer of the customer contracts have been given written notice of any relevant assignment or transfer pursuant to the Asset Sale Agreement, the Easytel defendants argue Mr Ayoub’s belief that Nexgen’s customers have been notified of the assignment of their contracts to Business Telecom is at odds with material provided to the Easytel defendants by a “Nexgen” customer, a copy of which is exhibited at page 3 of the bundle of documents being Exhibit PM2-2021 to the affidavit of Peter Mustaca, solicitor for the first, third, fourth and fifth defendants, affirmed 14 September 2021.

444. The notification exhibited to Mr Mustaca’s affidavit (issued on or about 31 March 2021) states that:

… Nexgen has been acquired by Spirit Technology Solutions Limited (Spirit) effective 1st April 2021 … moving forward, NEXGEN INVESTMENT GROUP is entitled to, and assumes responsibility for all NEXGEN AUSTRALIA GROUP rights and obligations under the Service Agreement as if NEXGEN INVESTMENT GROUP had been originally named in the Service Agreement …

All existing direct debit authorities according to your Nexgen Service Agreement with NEXGEN AUSTRALIA will remain in place under the novation to NEXGEN INVESTMENT GROUP …

445. The Easytel defendants contend that the notification to customers specifies an assignment from Nexgen Australia Group to Nexgen Investment Group, not an assignment from Nexgen to Business Telecom.

446. Further, the Easytel defendants note that the Mr Ayoub’s affidavit of 26 June 2020 provides extensive comment on Nexgen’s business and exhibits Confidential Exhibit EA-7; but that Mr Ayoub does not identify which of the plaintiffs owns the purported customer or prospect lists contained in that confidential exhibit. It is noted that Schedule 2, Part F of the Asset Sale Agreement lists various Assumed Contracts and that, while most of these have been redacted, the Schedule does indicate that the majority of these contracts belonged to Nexgen Australia Group, and have been transferred to Nexgen Investment Group or Nexgen Capital.

445. The Easytel defendants thus contend that, at the very least, the Asset Sale Agreement suggests that the transfer of assets contended at [43]-[46] of the plaintiffs’ further amended statement of claim is misguided; and the customers and prospect lists said to belong to Nexgen in the proceeding actually belonged to Nexgen Australia Group.

446. It is noted that (at [9] and [16] of his affidavit of 3 September 2021), Mr Ayoub deposes to the structure of the “Nexgen consortium”. The Easytel defendants contend that the relevance of this evidence is not clear; that it is of no utility; and they suggest that this is an attempt to “gloss over” the fact that, based on the above analysis, there has been no transfer from Nexgen to Business Telecom (arguing that Nexgen apparently did not have standing to bring the proceeding in the first place).

447. The Easytel defendants submit that Nexgen has no interest in the present proceeding and is not (nor was it ever) capable of transferring assets to Business Telecom as contended in [43]-[46] of the further amended statement of claim. Alternatively, they say that Nexgen, having purported to sell its various assets, has no ongoing interest in the proceeding (particularly the interlocutory and permanent restraints sought in the further amended statement of claim).

448. As to the claim by Business Telecom, the Easytel defendants say that, to the extent that Business Telecom has any interest in the proceedings, it does not have any claim against Mr Youssef, whose contract was with Nexgen and is, in any event, expired; and it does not have any interest in the proceeding pursuant to the purported transfer of rights from Nexgen to Business Telecom (as contended in [43]-[46] of the further amended statement of claim).

449. Further, insofar as Business Telecom is listed as a Buyer in the Asset Sale Agreement, the Easytel defendants contend that Business Telecom does not maintain any interest in the proceeding of itself.

450. Insofar as Nexgen (now LV6) was the “lead plaintiff” in the proceeding, the Easytel defendants say that its purported entitlement to customers and prospect lists appears to have never been its entitlement (upon the premise, as the material indicates, that these “assets” actually belonged to Nexgen Australia Group, and other entities not involved in the proceeding).

451. The Easytel defendants (as noted earlier) say that of the approximately 58 separate entries in Annexure B of the amended statement of claim only four of these were entities were customers of the plaintiffs when they were signed by Easytel (see above). It is said that, of those four entities: the contract with Austeck Pty Ltd was not with Nexgen, but with Nexgen Australia Group; the contract with Bars N Racks was not with Nexgen, but with Nexgen Australia; and the contract with Blooms the Chemist was not with Nexgen, but with Nexgen Australia Group. Thus, it is said that, out of these four contracts, the only contract that was specified to be with either of the plaintiffs was the Metalair contract which was with Business Telecom.

452. The Easytel defendants submit that, to the extent that Business Telecom has any claim in the proceeding, it is limited to the Metalair contract. It is noted that Metalair: appears in the Illion database and also the Naj Database and apparently made the decision to leave Business Telecom because it was not satisfied with the service and after its contract with Business Telecom appears to have expired. Further, it is noted that this entity was not procured by Easytel during any restraint period of the first, second or third defendants (even leaving aside the Easytel defendants’ position that such restraints are unenforceable) it being signed on 31 March 2020.

453. The Easytel defendants say that the Asset Sale Agreement indicates that any purported right, title or interest of Nexgen in customers and prospect lists actually belonged to Nexgen Australia Group, and has been transferred to Nexgen Investment Group, neither of which is a party to this proceeding; and that the Asset Sale Agreement does not disclose any express transfer of rights from Nexgen to Business Telecom.

454. The Easytel defendants contend that the Asset Sale Agreement does not disclose any interest of Business Telecom relevant to these proceedings, but that it would, in any event, be limited to the customer, Metalair (which the Easytel defendants maintain is a bona fide Easytel customer rightfully obtained).

455. The Easytel defendants also contend that, even if the plaintiffs were “technically successful”, the extent of any award of damages would be nominal. It is noted that such nominal damages would obviously be dwarfed by the reported sale price of Nexgen’s business (being $50,000,000).

456. The Easytel defendants emphasise that they have consistently asserted that this proceeding was commenced to bully, harass and intimidate Easytel out of business. They contend that, in the absence of detailed disclosure by the plaintiffs, having regard to the value of the Nexgen sale transaction, and the involvement of a publicly listed company, Spirit Technology Solutions Ltd (Spirit Technology), that: the Asset Sale Agreement does not encapsulate the whole transaction, particularly since it does not include any reference to any sale price; and the sale of the Nexgen business has been in motion for some time, and likely well in advance of the conclusion of the proceeding. Insofar as that is the position, the Easytel defendants contend that the plaintiffs have maintained the proceeding in the absence of any, or any material, utility, and in so doing have caused the parties to incur unnecessary costs which far exceed any purported harm claimed by the plaintiffs (which is denied by the Easytel defendants in any event).

457. The Easytel defendants contend that this is particularly relevant noting that the controlling minds of the plaintiffs’ when the proceeding was first commenced (namely, its directors Mr Ayoub and Mr Harb) do not appear to have any further interest or involvement in the “Nexgen” business given the sale of the business and the various changes to directorships, shareholdings and names of the companies which is reflected upon the searches in the affidavit of Mr Mustaca affirmed on 14 September 2021.

458. The Easytel defendants note that the companies which list Mr Ayoub and Mr Harb as directors are generally named “LV6 …” and do not have any apparent interest in the business; and that the companies listed as purchasers of the business in the Asset Sale Agreement, whilst having the same names, are now controlled by an entirely new board. It is noted that the ultimate holding company of Business Telecom and Nexgen Capital (Nexgen Investment Group) is also now wholly owned by Spirit Technology.

459. The Easytel defendants point out that the further amended statement of claim filed on 23 August 2021 contains an affidavit verifying the pleading signed by Mr Ayoub as a director of both the plaintiffs. They say that, after the Easytel defendants raised the issue that Mr Ayoub was not a director of Business Telecom, the plaintiffs on 7 September 2021 served (but, it is said, refused to file), a further version of the further amended statement of claim with new verification affidavits: signed by Mr Ayoub as a director of Nexgen and by Mr Solomon Lukatsky, as director of Business Telecom (noting that Mr Lukatsky has not previously participated in these proceedings). (It is difficult to know what to make of this submission when the document does not appear to have been filed.) The Easytel defendants thus submit that the plaintiffs have failed to establish any evidentiary basis for their claim or the Orders they seek; that the plaintiffs’ proceeding suffers from a lack of standing; and that the plaintiffs cannot establish any loss or damage.

Plaintiffs’ supplementary submissions

462. In commendably brief (two paragraph) supplementary submissions dated 22 September 2021, the plaintiffs maintain that: none of the relevant assets or Business Intellectual Property (as defined in the Asset Sale Agreement) was sold or assigned to anyone other than Business Telecom (though they do not point to any provision of the Asset Sale Agreement to make that submission good); and they note that the Easytel defendants do not contend in their supplementary submissions that the rights of action are not assignable (but that, if such a submission had been made, it would be contended that the causes of action were ancillary to the property rights assigned, citing Trendtex Trading Corp v Credit Suisse [1982] AC 679 at 703 and Meagher, Gummow & Lehane at [6-470]); and that they fall within the ambit of cl 3.1 and 3.2 and (m) (“all other property, rights and assets of the Sellers used solely and exclusively in the conduct of the Business”) within the definition of Assets in cl 1.1 of the Asset Sale Agreement).

Easytel defendants’ further submissions in reply

463. The plaintiffs’ supplementary submissions then provoked complaint by the Easytel defendants (in not so brief further submissions in reply filed on 24 September 2021) as to the failure of the plaintiffs’ solicitors to respond to an email of 17 September 2021 (a copy of which was attached to the further submissions in reply) from the Easytel defendants’ solicitor in which request was made as to whether the plaintiffs’ submissions had been filed “so that we may attend to exchange”. Following a further email of 22 September 2021 from the Easytel defendants’ solicitor (a copy of which was also attached to the further submissions in reply) in which advice was again sought as to when the plaintiffs would be in a position to exchange their submissions (which it was noted were due to be filed on 17 September 2021) the plaintiffs’ solicitors served the two paragraph further submissions referred to above.

464. The Easytel defendants’ complaint is that the plaintiffs failed to file their further submissions in accordance with the timetable and thereby “have assumed a forensic advantage”, to which the Easytel defendants say the plaintiffs were not entitled. (If there was any such forensic advantage, and it is hard to see, that must surely now be abated by the further submissions that were sent by the Easytel defendants.)

465. As to the substance of the plaintiffs’ further submissions, the Easytel defendants’ response was as follows.

466. The Easytel defendants dispute the plaintiffs’ contention that none of the relevant assets or Business Intellectual Property (as defined in the Asset Sale Agreement) was sold or assigned to anyone other than Business Telecom (and say that this position is not supported by the Asset Sale Agreement).

467. The Easytel defendants contend that the plaintiffs’ further submissions are otherwise superfluous for the following reasons. First, they say that the sale or assignment of “assets” from Nexgen to Business Telecom did not occur as contended by the plaintiffs; and that neither of the plaintiffs has any interest in the “assets” required to maintain the present proceeding. Second, they say that, in respect of Mr Youssef, his employment contract with Nexgen was expired and could not be assigned; that no assignment of Mr Youssef’s employment contract could occur without it being novated with his consent; and, on the pleadings or the redacted Agreement, there does not appear to be any purported assignment or novation of Mr Youssef’s employment contract. Third, in respect of Ms Barakat, that her employment contract was with Business Telecom; and thus could not be sold or assigned from Nexgen to Business Telecom.

468. It is said that even if the assignment occurred in the manner contended by the plaintiffs, Business Telecom is not competent to sue the defendants. Reliance for this proposition is placed on Taypar Pty Ltd v Santic (1989) 21 FCR 485; [1989] FCA 543, where there was a question whether the assignee was entitled to sue for infringements committed prior to the assignment and Spender J stated (at 491) that:

… In my view the owner of a copyright or the respective owners of parts of the copyright are the only persons entitled to bring an action for infringement of the copyright or the respective parts of the copyright, and it is not competent for an assignee of a copyright to bring an action in respect of an infringement that occurred prior to his becoming the owner of the copyright, merely by virtue of being the assignee of the copyright.

469. The defendants say that there was nothing retrospective in any assignment effected; and, in particular, that there was no assignment or purported assignment of any right to litigate in respect of earlier breaches of the copyright.

470. It is noted that a bare right of action is not assignable and the Easytel defendants say that no encouragement should be given to litigation by the introduction of parties to enforce those rights which others are not disposed to enforce.

471. Further (and referring to the Easytel defendants’ primary contention that the plaintiffs have no interest for the reasons set out in the defendants’ 17 September 2021 submissions), it is said that the purported assignment of rights from Nexgen to Business Telecom contended by the plaintiffs: does not grant Business Telecom any retrospective right to sue for earlier alleged breaches (which are denied); and would only be effective from completion of the Asset Sale Agreement on 31 March 2021, which occurred after the conclusion of the hearing and subsequent to the conduct alleged by the plaintiffs in their further amended statement of claim.

Determination

472. The competing submissions as to the Asset Sale Agreement do not strictly arise for determination given the findings I have made on the claims themselves. Were they to have arisen I would have concluded that, insofar as any of the “Assumed Contracts” was not a contract entered into by Nexgen (but, rather, was a contract entered into by another Nexgen entity) then the causes of action for damages for breach of covenant or breach of fiduciary duties (even if properly assigned) would not sound in damages or equitable compensation for the loss of clients that were never clients of Nexgen. I accept that the difficulty with the Metalair contract is that it was signed after the restraint period in the relevant employment contracts had ceased; was a “lead” sourced from Illion; and apparently made the decision to leave Business Telecom after the expiry of its contract with Business Telecom due to dissatisfaction with the service provided, and thus the defendants’ acquisition of Metalair’s custom was in no way illegitimate nor unlawful.

473. Were it necessary to decide the issue, I would be inclined to find that (to the extent that any of the “Assured Contracts” was a contract to which Nexgen was a party) the rights of action fell within cl 1.1(m) being “all other property, rights and assets of the Sellers [in this instance, Nexgen] used solely and exclusively in the conduct of the Business”, and that such rights of action are sufficiently annexed to the confidential information the property of the plaintiffs (see Krishell Pty Ltd v Nilant (2006) 32 WAR 540; [2006] WASCA 223 at [77]), and thus were assignable (and likely assigned) to Business Telecom pursuant to cll 3.1and 3.2 of the Asset Sale Agreement (on the assignment of causes of action, see Anderson v Canaccord at [1265]-[1311]). However, I accept that there is difficulty for the plaintiffs insofar as it is not established that Nexgen was in fact a party to each of the Assured Contracts.

Conclusion

474. For the reasons set out above, I find that the plaintiffs have failed to establish an entitlement to the permanent injunctive relief claimed and that any damages for breach of contract referable to Ms Barakat’s conduct in taking the EA-2 Spreadsheet and Mr Youssef’s conduct in transferring his emails to his personal device would be nominal only.

475. Costs should follow the event but are to be the subject of separate submissions.

476. Accordingly, I make the following orders:

1. Order that the first and third defendants pay the plaintiffs nominal damages in the amount of $1 for breach of her or his respective employment contracts.

2. Dismiss the remainder of the plaintiff’s amended statement of claim.

3. Discharge the undertaking proffered by Ms Barakat and Mr Youssef on 29 November 2019.

4. Direct that any brief written submissions on costs be filed and served within 14 days with a view to being determined on the papers.

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Decision last updated: 24 March 2022