One Stop Warehouse Pty Ltd v Zhang

[2022] QSC 207

SUPREME COURT OF QUEENSLAND

CITATION:

One Stop Warehouse Pty Ltd v Zhang [2022] QSC 207

PARTIES:

ONE STOP WAREHOUSE PTY LTD

(applicant)

v
ZIXYU ZHANG

(respondent)

FILE NO/S:

BS 10395 of 2022

DIVISION:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

28 September 2022

DELIVERED AT:

Brisbane

HEARING DATE:

5 September 2022

JUDGE:

Martin SJA

ORDER:

1.   The originating application is dismissed.

2.   I will hear the parties on costs.

CATCHWORDS:

INTELLECTUAL PROPERTY – CONFIDENTIAL INFORMATION – INFORMATION PROTECTED – where the applicant (One Stop) employed the respondent (Mr Zhang) – where One Stop received an email from Prosun Solar – where many of the recipients of Prosun Solar’s email were also customers of One Stop – where Mr Zhang forwarded the email from Prosun Solar to his private email address – where Mr Zhang subsequently ceased employment with One Stop, and commenced employment with Solar Agent – whether Mr Zhang, in forwarding himself the email, breached any duties at common law, under his contract, or under the Corporations Act – whether the Prosun Solar email is confidential information – whether a document which has been created by Prosun Solar can be confidential information in the hands of One Stop

Corporations Act 2001, s 182, s 183, s 1324

Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317
International Entertainment (Aust) Pty Ltd & Anor v Churchill & Ors [2002] QSC 317

COUNSEL:

SA Mackie for the applicant

CD Coulsen for the respondent

SOLICITORS:

MJT Law for the applicant

Romans & Romans for the respondent

1. The applicant (One Stop) conducts a business as a wholesale distributor of solar energy equipment.  The respondent (Mr Zhang) was formerly employed by One Stop as its Lead Account Manager of the Queensland sales team. 

2. Mr Zhang left the employ of One Stop in February 2022 and commenced employment with Solar Agent Pty Ltd as its Chief Executive Officer.  One Stop says that Solar Agent is a competitor start-up company. 

3. One Stop seeks final relief by way of orders requiring Mr Zhang to provide it with a written list of confidential information in his possession and, among other things, to irretrievably destroy all the confidential information owned by One Stop including but not limited to “the email trail titled ‘Fwd: Covid-19 Announcement!’”.

4. For the reasons that follow, the application is dismissed.

   These proceedings

5. These proceedings were commenced by Originating Application. There were no pleadings. The only evidence came in the form of an affidavit by Mr Chen (the Sales Director of One Stop) and another by Mr De Santana (a solicitor employed by One Stop’s solicitors). No objection was taken to any of that evidence and the deponents were not cross-examined.

   The contract of employment between One Stop and Mr Zhang

6. One Stop and Mr Zhang entered into a contract of employment in July 2017.  He was appointed as Lead Account Manager in charge of the sales team for Queensland.  One Stop relies upon two parts of the contract for its claim.  Part 19 of the contract refers to “confidential information”.  It provides that confidential information is, and remains at all times, the property of One Stop. 

7. Clause 19.8 provides that the “Employee must not at any time copy Confidential Information and remove it from the Employer’s premises, except in the ordinary course of fulfilling the Employee’s duties under this Agreement or as approved by the Employer in writing.”

8. Clause 19.9 provides that the “Employee’s duties under this clause continue after separation of employment.”

9. Clause 19.11 defines “Confidential Information” to mean

   “all confidential information including but not limited to:

   “…

   (b)suppliers/customers/clients of the Employer;

   …

   (l)information (technical, business, corporate structure, or otherwise) of the business;

   …

   (s)lists, contact details and personal information of customers/clients and suppliers of the Employer … of which the Employee becomes aware or generates (both before and after the day this Agreement is signed) in the course of, or in connection with, the Employee’s employment with the Employer, but does not include information which is public knowledge (except where it becomes public knowledge as a result of a breach of this Agreement by the Employee).”

10. Clause 19.11 does not, by itself, bestow confidentiality on the matters set out in it. It is an inclusive list of items which can be confidential information. For example: clause 19.11(d) refers to “price lists”. Price lists are not made confidential by the clause. If a price list is published to the world at large it will not be confidential information and cl 19.11 cannot make it so. Similarly, where cl 19.11(o) refers to “information regarding employees or contractors” it does not make confidential any publicly known information about employees.

11. Clause 26 of the contract is a restraint of trade clause.  It works to restrain Mr Zhang during the “restraint period” from, among other things, soliciting any client with a view to obtaining the custom of that client for a business that competes with One Stop.  The restraint period in Clause 26 is defined to mean 18 months from the date of termination but it also contains a “cascading clause” which can result in a reduction of that period to six months if a court finds the initial period excessive. 

12. Another clause requires that the employee return and not record any confidential information after termination of employment. 

    The circumstances of the “confidential” list

13. On 4 August 2020, One Stop received an email from Prosun Solar (the Prosun Solar email).  Prosun Solar was a competitor of One Stop.  The evidence relating to the email was limited.  It consists of an email trail which commences with the following:

    “From: Prosun Solar <[email protected]>

    Subject: Covid-19 Announcement!

    Date: 4 August 2020 at 4:47:19pm AEST”

14. It does not show to whom it was originally sent because that part of the email is redacted.  In the affidavit of Mr Chen all that is said is that One Stop “received an email from Prosun Solar”.  

15. The redacted list of recipients is said by Mr Chen to consist of 949 email addresses.  The body of the email is little more than a stock message sent to Prosun Solar’s customers.  It says:

    “Dear Loyal Prosun Solar Customers

    Our Warehouses around Australia will be operating as Normal, however due to the Victorian Corona Virus restrictions we will still be open with limited Staff.  All our Phone Lines are operating as Normal and we will have contactless Pick up of Stock from our Victorian Warehouse.  All deliveries will operate as Normal.  For a smooth process of Pick up from our Victorian Warehouse please make sure you contact us for a Pick Up Time.”

16. That email was forwarded by Andy Cheng (an employee of One Stop) shortly after its receipt to an internal general email address – “Lead Account Manager <[email protected]>”. 

17. On 30 November 2021 (some 16 months after its receipt by One Stop), Mr Zhang forwarded that message to himself at his private email address.  He resigned from One Stop two months later.

18. Mr Chen says that the “vast majority” of recipients of the Prosun Solar email are customers of One Stop.  Mr Chen asserts that the Prosun Solar email was valuable to One Stop “because every e-mail address contained within it was either a customer or potential customer of” One Stop.  That statement is inconsistent with what he says later in his affidavit, that is, that the list contained email addresses of “many of its customers both key and non-key” (emphasis added). Mr Chen does not say how many of the 949 addressees were customers of One Stop and no attempt was made to identify those who were and those who were not clients of One Stop. 

    What is the basis of One Stop’s claim?

19. One Stop argues that it is entitled to the relief sought on three bases:

    (a)a contractual obligation of confidentiality;

    (b)a fiduciary obligation of confidentiality; and

    (c)obligations owed by Mr Zheng to One Stop under ss 182 and 183 of the Corporations Act 2001.

    What are the issues?

20. The claim made by One Stop is premised upon the Prosun Solar email being “confidential information”.  It would be better described as a list of the clients of one of One Stop’s competitors.  A list which consisted of persons asserted to be those who were customers of One Stop as well as those who weren’t. 

21. The issues which arise are:

    (a)Was the Prosun Solar email confidential information?

    (b)Has Mr Zhang breached any duties at common law, under his contract, or under the Corporations Act 2001?

    Is the Prosun Solar email confidential information?

22. The non-statutory obligation relied upon, whether it be contractual or fiduciary, depends upon the Prosun Solar email being confidential information.

23. In order to determine whether a document comes within the description of “confidential information” it is necessary to examine its provenance and its contents.

24. In this case:

    (a)The document was created by another party. It was not the work of anyone at One Stop.

    (b)It has been assumed that the list of addressees of the Prosun Solar email is also a list of that company’s clients – based on the substance of the email being a message to “Loyal Prosun Solar Customers”.

    (c)The way in which One Stop came into possession of it is vague. Mr Chen says no more than that One Stop “received an email from Prosun Solar”. That is, on its face, unusual. It was not explained why Prosun Solar would send such a message to a competitor like One Stop.

    (d)The connection with One Stop is that, according to Mr Chen, of the 949 addressees of the email, “the vast majority … are [One Stop’s] customers.” Later in his affidavit, he says that “every e-mail address contained within it was either a customer or potential customer” of One Stop. Neither of these assertions were challenged.

25. The broad question raised by these circumstances is:

    Can a document:

    (a)which has been created by Supplier No. 1,

    (b)which contains a list of the clients of Supplier No. 1,

    (c)which contains, within that list, the names of entities which are also clients of Supplier No. 2, and

    (d)which comes into the possession of Supplier No. 2

    be confidential information in the hands of Supplier No. 2?

26. This question can be answered by applying the tests set out by Kirby P in Wright v Gasweld Pty Ltd.[1] His Honour said:

    “Determining what is confidential involves a decision on a question of fact in each case where that quality is asserted. Considerations which courts have found to be relevant, in particular cases, in determining this question include:

    (a) The fact that skill and effort was expended to acquire the information: see Interfirm Comparison (Australia) Pty Ltd v Law Society of New South Wales [1975] 2 NSWLR 104 at 117; Wheatley v Bell [1982] 2 NSWLR 544 at 546; cf International Scientific Communications Inc v Pattison [1979] FSR 429 at 434;

    (b) The fact that the information is jealously guarded by the employer, is not readily made available to employees and could not, without considerable effort and/or risk, be acquired by others: see Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37 at 50; E Worsley & Co Ltd v Cooper [1939] 1 All ER 290 at 307; cf Stephenson Jordan & Harrison Ld v McDonald & Evans (1952) 69 RPC 10 at 16;

    (c) The fact that it was plainly made known to the employee that the material was regarded by the employer as confidential: see Printers and Finishers, Ltd v Holloway (Confidential Information) [1965] RPC 239 at 256 and Faccenda (at 137);

    (d) The fact that the usages and practices of the industry support the assertion of confidentiality: see, eg, Thomas Marshall (Exports) v Guinle [1979] Ch 227 at 248; and

    (e) The fact that the employee in question has been permitted to share the information only by reason of his or her seniority or high responsibility within the employer's organisation: see Faccenda (loc cit).”[2]

    [1](1991) 22 NSWLR 317 at 334.

    [2]This set of tests was adopted by Holmes J in International Entertainment (Aust) Pty Ltd & Anor v Churchill& Ors [2002] QSC 317 at [45].

27. If those tests are applied to the facts of this case, the following are the answers:

    (a)Was skill and effort expended? No. This list was created by another entity and came into the applicant’s hands.

    (b)Was the information jealously guarded? No. There is no evidence to support a conclusion that One Stop jealously guarded the information. One Stop received the email and, almost immediately, forwarded it to a shared email address to which Mr Zhang, amongst others, had access. There was no note or warning attached to the forwarded email.

    (c)Was it plainly made known that One Stop regarded the information as confidential? No.

    (d)Do the usages and practices of the industry support the assertion of confidentiality? There is no evidence as to the usages and practices of the industry.

    (e)Was Mr Zhang permitted to share the information only by reason of his seniority? There is no evidence which directly addresses this point. But, the email was sent to a shared email address and there is no evidence that there was any restriction placed upon its use.

28. One Stop has not demonstrated that the list of addressees on the Prosun Solar email is confidential information. It follows, then, that One Stop cannot obtain relief based upon either contractual or equitable grounds.

    The Corporations Act grounds

29. One Stop also relies upon s 182(1) and s 183(1) of the Corporations Act 2001. Those sections provide:

    182   Use of position – civil obligations

    Use of position – directors, other officers and employees

    (1)A director, secretary, other officer or employee of a corporation must not improperly use their position to:

    (a)     gain an advantage for themselves or someone else; or

    (b)     cause detriment to the corporation.

    Note:        This subsection is a civil penalty provision (see section 1317E).

    (2)A person who is involved in a contravention of subsection (1) contravenes this subsection.

    Note 1:       Section 79 defines involved.

    Note 2:       This subsection is a civil penalty provision (see section 1317E).

    183 Use of information – civil obligations

    Use of information—directors, other officers and employees

    (1)A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to:

    (a)     gain an advantage for themselves or someone else; or

    (b)     cause detriment to the corporation.

    Note 1:This duty continues after the person stops being an officer or employee of the corporation.

    Note 2:       This subsection is a civil penalty provision (see section 1317E).

    (2)A person who is involved in a contravention of subsection (1) contravenes this subsection.

    Note 1:       Section 79 defines involved.

    Note 2:       This subsection is a civil penalty provision (see section 1317E).

30. One Stop relies upon the power available under s 1324 of the Corporations Act for an injunction to restrain conduct which constitutes a contravention of the Act.

31. The evidence relied upon to show that these civil penalty provisions have been breached is barely tissue thin. It consists of the following paragraphs in Mr Chen’s affidavit:

    “24. Also on or around 21 July 2022, I had a conversation with the current Lead Account Manager for Queensland. He told me that he had attended a meeting with one of [One Stop’s] key customers. The name of the key client has been excluded to ensure confidentiality.

    25. The current Lead Account Manager for Queensland told me that during the course of his meeting with our client, the client disclosed that Mr Zhang had contacted them and let them know that he now worked for Solar Agent.”

32. Mr Chen deliberately does not identify the client. He does not say when that entity became a client. He does not say whether that entity was a client when the Prosun Solar email was received. He does not say whether that entity’s name appears in the list of addressees on the Prosun Solar email.

33. It may be that Mr Zhang’s alleged conduct breached the restraint of trade clause in the contract of employment, but reliance is not placed on that. In any event, without greater detail of the circumstances in which Mr Zhang made the alleged disclosure, it cannot be said that Mr Zhang relied upon information contained in the Prosun Solar email.

34. One Stop has failed to demonstrate that Mr Zhang, when speaking to an unnamed client, improperly used information of the type referred to in the sections set out above.

    Conclusion and Orders

35. One Stop has failed to prove that the information contained in the Prosun Solar email is confidential. It has also failed to demonstrate that there has been any improper use of the information contained in that email.

36. The Originating Application is dismissed. I will hear the parties on costs.