PFG Global Pty Ltd v Littley
[2020] VCC 1896
•1 December 2020
| IN THE COUNTY COURT OF VICTORIA AT MELBOUNE COMMERCIAL LIST | Revised Not Restricted Suitable for Publication |
Case No. CI-20-03813
| PFG GLOBAL PTY LTD | Plaintiff |
| v | |
| ALAN WAYNE LITTLEY | First Defendant |
| and | |
| CARPENTER BARLOW PTY LTD | Second Defendant |
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JUDGE: | HIS HONOUR JUDGE MACNAMARA | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 11 November 2020 | |
DATE OF JUDGMENT: | 1 December 2020 | |
CASE MAY BE CITED AS: | PFG Global Pty Ltd v Littley & Anor | |
MEDIUM NEUTRAL CITATION: | [2020] VCC 1896 | |
REASONS FOR JUDGMENT
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Subject: Application for summary dismissal or strike out
Catchwords: Employment Law; alleged breach of contract and fiduciary obligations by former employee; list of customers abstracted days before end of employment; plaintiff’s claim clearly arguable; summons dismissed.
Legislation Cited: Civil Procedure Act 2010 (Vic) ss62 and 63; County Court Civil Procedure Rules 2018 rr 22.16, 23.01, 23.02
Cases Cited:Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42 VR 27; Faccend Chickens v Fowler [1987] 1 Ch 117; Wessex Dairies Ltd v Smith [1935] 2 KB 80; NP Generations Pty Ltd v Feneley (2000) 50 IPR 63
Judgment: 1. Summons dismissed 2. Costs reserved
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J. Castelan | MNG Lawyers |
| For the Defendant | Mr S. Rosewarne | Frenkel Partners |
HIS HONOUR:
Background
1 The defendant, Mr Littley, took up a position as senior financial planner with the plaintiff, PFG Global Pty Ltd (“PFG”) with effect from 15 March 2018 (Exhibit JDE‑1 to the affidavit of James Daniel Edgar dated 21 October 2020, page 16) His position entailed reporting to PFG’s general manager. His employment was for a term of two years and was undertaken in connection with an agreement for the sale of the business of Littley Financial Services Pty Ltd to PFG entered into contemporaneously. (ibid, page 17) The relevant employment agreement was made 30 March 2016 and was entirely in writing. (ibid, Clause 26, page 34).
2 According to Clause 6.3 of that agreement, Mr Littley agreed not to “use information or resources provided by PFG or the PFG Group for [his] personal gain or for the benefit of any other person or business.” (ibid, page 20) Clause 21.2 of the agreement prohibited Mr Littley “during [his] employment or after the termination of [his] employment, directly or indirectly [using or disclosing] any Confidential Information for any purpose, including to obtain any benefit for [himself] or any other Person.” (ibid, page 27) Clause 25.5 of the agreement included a lengthy definition of “confidential information” as follows:
“’Confidential Information’ means all information obtained in the course of your employment with PFG, that is by its nature confidential and includes (but is not limited to) the following, PFGFS’s, PFG’s and their Related Entities’: trade secretes’ Intellectual Property; confidential know-how; policies, systems and protocols’ information about the business and its affairs such as pricing and fee information, marketing or strategic plans, commercial and business plans, financial information and data, and operational information and methods; methodologies and supporting documentation; software products, manuals and associated tools; commercial information in relation to current and prospective operations; information about suppliers, dealers, clients or customers such as their specific requirements, arrangements and past dealings; client lists, customer lists, supplier lists, dealer lists; customer, client and supplier lists; business cards and diaries, calendars or schedulers; reports; working papers; training manuals; equipment; computer information and programs; personal and financial information of which you become aware.”
3 Clause 24 of the agreement included detailed restrictions on Mr Littley’s activities after termination of his employment. Clause 24.6 nominated a variety of periods during which these restrictions would be operative, the longest of which was 24 months. (ibid, page 31)
4 The sale of assets by Littley Financial Services Pty Ltd, of which Mr Littley was at the relevant time a director, was for a price of $6 million (Statement of Claim Clause 2(a)(ii)).
5 PFG and Mr Littley agreed to terminate Mr Littley’s agreement by PFG with effect 24 November 2017. (Exhibit JDE-1 page 38)
6 On 24 July 2019, Mr Littley, as director and secretary and sole shareholder, had Carpenter Barlow Pty Ltd registered as an Australian proprietary company. (ibid, page 59)
This proceeding
7 On 25 August 2020, solicitors acting for PFG commenced the present proceeding against Mr Littley and Carpenter Barlow Pty Ltd (“Carpenter Barlow”) as defendants. According to the Statement of Claim, the plaintiff, PFG, was:
“the owner of the content of a specialised database that was electronically stored on computer (Confidential Information), which included records of the following:
(i) personal details of approximately 1,000 clients (the Clients); and
(ii) the profiles and details of the Clients, including the statements of advice provided, advice documentation, file notes, contact records, the main entity, the client category, the consolidated fees earnt, the referral source, the background insights and fees generated for each of the Clients.”
8 The Statement of Claim referred to Mr Littley’s employment by PFG and the terms contained in Clauses 6.3(a) and 21.2 of the employment agreement which are referred to above. It said that the second defendant, Carpenter Barlow had, “since at least 24 July 2019, engaged in the business of providing financial services in competition with PFG.”
9 According to the Statement of Claim, since 22 November 2017, which is two days prior to Mr Littley’s termination of employment with PFG, he had breached the relevant terms of his employment with PFG by inter alia emailing to himself a list of customers which the Statement of Claim described as the “Client List”. Mr Littley was said to have used that Client List “to solicit clients or attempt to solicit clients on that list for his own interests or for Carpenter Barlow.” The Statement of Claim referred to an approach to a number of clients including, in particular, a Mr David Hayes. As a result of these alleged breaches of Mr Littley’s employment agreement it was said that PFG had suffered loss and damage.
10 As a further or alternative claim, it was said that the Client List was confidential information owned by PFG disclosed to Mr Littley solely to enable him to fulfil his responsibilities as senior financial planner of PFG. It was said that Mr Littley had disclosed the Client List to Carpenter Barlow, the second defendant, which received the list “in the knowledge that it was confidential and was disclosed by Littley in breach of his duty of trust and confidence towards PFG.” It was said that Mr Littley and Carpenter Barlow had “unlawfully used the Client List otherwise than for the purpose for which it was possessed and [had] unlawfully made profits for themselves by using the Client List to market to and provide services to the Clients.” It was said that PFG was entitled to any profits received by Littley or Carpenter Barlow “as a result of their misuse of the Client List.”
11 A further cause of action, “breach of fiduciary duty” was alleged against Mr Littley. It was said that by reason of Mr Littley’s employment agreement with PFG he came under a series of fiduciary duties.
“(a) at all times to act in good faith and in the best interests of PFG;
(b) not to use his position as a senior financial planner to obtain an advantage for himself, or someone else or to cause detriment to PFG;
(c) not to improperly use information obtained by reason of his position as a senior financial planner, to gain an advantage for himself or cause a detriment to PFG;
(d) to refrain from competing with PFG;
(e) to account to PFG for any advantage or profit gained by Littley by reason of, or arising from, their position as a fiduciary of PFG; and
(f) not to engage in conduct which might give rise to a conflict of interests.”
12 Mr Littley, according to the Statement of Claim, breached those duties by inflicting loss and damage on PFG. Carpenter Barlow was said knowingly to have assisted Mr Littley, in breach of the fiduciary duty, to obtain profits where it knew that the moneys in question “were obtained in breach of the Fiduciary Duty by Littley.” Therefore, it was said, Mr Littley and Carpenter Barlow were liable to make equitable compensation and account to PFG for “all sums received by any of them in breach of the Fiduciary Duties.” Carpenter Barlow was said to have induced a breach of Mr Littley’s obligations under his employment agreement, therefore inflicting loss and damage on PFG. The plaintiff claimed a suite of relief including damages, equitable compensation, accounts of profits and injunctions. The Statement of Claim included an annexure giving the names of PFG clients involved in the alleged breaches by Littlley and the damage said to have been suffered.
This application
13 Solicitors acting for Mr Littley and Carpenter Barlow issued a summons dated 21 October 2020 seeking dismissal of the proceeding pursuant to ss62 and 63 of the Civil Procedure Act and/or Rule 22.16 and/or Rule 23.01 of the Court’s Rules or alternatively pursuant to Rule 23.02 of the Rules. The summons sought an order that the Statement of Claim “be struck out in whole or in part on the basis that it does not disclose a cause of action, … may prejudice, embarrass or delay the fair trial of the proceeding, or is otherwise an abuse of process of the Court”, together with consequential relief.
Contentions on behalf of the defendants
14 Mr Rosewarne said in his outline of submissions:
“The claims that have [been] made by the plaintiff have no real chance of success for three primary reasons:
(a) Littley ceased his employment with the plaintiff on or about 24 November 2017 and, taken at its highest, any contractual restraint that was imposed on Littley from competing with the plaintiff had expired by the time of the alleged “Wrongful Activities”.
(b) The Statement of Claim fails to plead any information that can properly be characterised as “confidential information” and, in any event, does not identify any misuse of that information by Littley.
(c) The alleged fiduciary duty is unknown to law.”
15 At the forefront of his contentions Mr Rosewarne quoted a passage from the New South Wales Court of Appeal in Del Casale v Artedomus (Aust) Pty Ltd (2007) 73 IPR 326 [77] where Campbell JA (with whom McColl JA agreed) said:
“… unless restrained by an express term of a contract, an employee who leaves his employment may lawfully set up a business of the same nature as that carried on by his or her former employer, in the same locality, and canvass the same customers whose names and addresses he or she has learned, bona fide accidentally, during the period of his service:”
16 According to Mr Rosewarne:
“In this area of the law, there is a distinction between trade secrets and an employee’s general know-how. Equity does not restrict the use of information which represents a person’s accumulated knowledge, skill and experience in a particular field.” (Outline of Submissions, paragraph 17)
17 He quoted a lengthy passage from the judgment of Harper J in Glaxosmithkline Australia Pty Ltd v Ritchie (2008) 77 IPR 306 [46]. He also referred to Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37, 40 per Gowans J and Stenhouse Australia v Phillips [1974] AC 391, 400 per Lord Wilberforce. Therefore, said Mr Rosewarne, it was incumbent on a plaintiff to:
“(a) First, identify with specificity, not merely in global terms, what information that is said to be 'confidential';
(b) Second, outline how that information is of a quality to be confidential;
(c) Third, show that the defendant received the information in circumstances that imposed on it an obligation of confidence;
(d) Fourth, show actual or threatened misuse of the confidential information.”
18 The confidential information, he said, was not described in the Statement of Claim “ with the degree of specificity required by the authorities” and therefore could not be determined whether it was confidential. (Outline of Submissions, paragraph 20) He referred to Hill & Smith Holdings PLC v Safe Barriers Pty Ltd (No 2) [2020] FCA 8 [50] per Robertson J.
19 He said the Statement of Claim did not identify the circumstances in which the confidential information came into existence or how it had the necessary quality of confidentiality, nor did it articulate what the alleged misuse of the information was. (Outline of Submissions, paragraph 22) He said the “Client List” was not clearly identified as being confidential information in the pleading and, in any event, a consideration of it showed that it was not capable of attracting an “obligation of confidence” because “the identities of those persons listed in the Client List” were not shown to be difficult to establish by inquiry and contained no contact details. (Outline of Submissions, paragraph 23) He said there were no sufficient allegations made to establish the existence of a fiduciary duty. (Outline of Submissions, paragraph 24) Once the claims against Mr Littley were dismissed, the allegation against the second defendant, Carpenter Barlow, must necessarily fail because no breaches could be proven to have occurred.
20 Mr Rosewarne took me to the 7th Edition of Macken’s Law of Employment where at paragraph [5.900] the learned editors dealt with the incidence of fiduciary obligations in the law of employment. In that paragraph (p.217) the learned editors stated that fiduciary obligations could co-exist “side by side obligations derived from other legal sources.” Later in the paragraph they stated: “The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.” And, perhaps most significantly, the editors stated: “In the ordinary situation an employee will not be subject to fiduciary duties.” He said the effect of the statement precluding superimposition of fiduciary obligations upon an employment contract so as to alter its operation was that the inclusion in an employment contract of an express obligation of the type that equity would impose upon a fiduciary had the effect, not of rendering the relevant employee a fiduciary and subject to the usual equitable duties, but rather of leading equity to turn aside regarding the contract as having dealt with any fiduciary issues exhaustively and refraining from having its doctrines engaged in the circumstances at all. This flowed, he said, from a footnoted reference at footnote 531 on p.217 of Macken’s to a decision of the High Court of Australia in the following terms:
“Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 97 per Mason J. A contract for employment could, eg, allow the employee manager to continue to operate an independent business in competition with the employer.”
Contentions on behalf the plaintiff, PFG
21 The plaintiff, PFG was represented by Mr Castelan of counsel who signed the Statement of Claim. Mr Castelan urged dismissal of the defendants’ summons. He said:
“It is clear from the face of the SOC that PFG Global’s claims are easily understood and are not fanciful. The claim has real prospects of success. The SOC contains, at the very least, a summary form statement of all material facts upon which PFG Global relies, but not the evidence by which the facts are to be proved.” (Outline of Submissions, paragraph 9)
22 The Statement of Claim, he said, was adequate according to the test for adequacy enunciated by Martin CJ in Barclay Construction Ltd v Dampier Port Authority (2006) 33 WAR 82 [7] – [9]. The same principle he said was adopted by Reeves J in ASIC v Cassimatis (No 2) [2013] FCA 1008 [100]. The confidential information, said Mr Castelan, was constituted by the Client List outlined in [14]. The authorities established, he said, that client lists including the following classes of information could be regarded as confidential:
“(a) the names and addresses of customers and agents;
(b) the records of individual dealings with clients; and
(c) the names and addresses of suppliers and the prices at which suppliers sell.”
23 He referred to NP Generations Pty Ltd v Feneley (2000) 50 IPR 63, 68; Robb v Green [1895] 2 QB 1; Westminster Chemical New Zealand Ltd v McKinley and Tasman Machinery & Service Ltd [1973] 1 NZLR 659; William Summers & Co Ltd v Boyce & Kimmond & Co (1907) 97 LT 505; Riteway Express Pty Ltd v Clayton (1987) 10 NSWLR 238; AIM Maintenance Ltd v Brunt [2004] WASC 49 at [107]. (Outline paragraph 15) He said, therefore, the Client List was confidential information falling within one or more of the classes referred to. Mr Castelan said it was unnecessary for PFG to “plead precisely what the defendants did with respect to the solicitation of every individual client.” (ibid, paragraph 18) He said, “The defendants know the case they have to meet.” (ibid, paragraph 19) He said that Mr Littley, “acted in breach of [his] fiduciary duty when among other matters, he emailed himself the Client List at a time when he was still employed by PFG Global.” (ibid, paragraph 21)
Test for summary judgment
24 This application on behalf of the defendant for summary judgment relies on s62 and s63 of the Civil Procedure Act 2010. Those Sections provide:
“62 Defendant may apply for summary judgment in proceeding
A defendant in a civil proceeding may apply to the court for summary judgment in the proceeding on the ground that a plaintiff's claim or part of that claim has no real prospect of success.
63 Summary judgment if no real prospect of success
(1)Subject to section 64, a court may give summary judgment in any civil proceeding if satisfied that a claim, a defence or a counterclaim or part of the claim, defence or counterclaim, as the case requires, has no real prospect of success.
(2)A court may give summary judgment in any civil proceeding under subsection (1)—
(a)on the application of a plaintiff in a civil proceeding;
(b)on the application of a defendant in a civil proceeding;
(c)on the court's own motion, if satisfied that it is desirable to summarily dispose of the civil proceeding.”
25 The single most authoritative exposition of the test for the grant to a defendant of summary judgment under these provisions is to be found in the decision of the Court of Appeal in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42 VR 27, [35] where in a joint judgment Warren CJ and Nettle JA (as he then was) said:
“[35] Upon the present state of authority:
a) the test for summary judgment under s 63 of the Civil Procedure Act 2010 is whether the respondent to the application for summary judgment has a ‘real’ as opposed to a ‘fanciful’ chance of success;
b) the test is to be applied by reference to its own language and without paraphrase or comparison with the ‘hopeless’ or ‘bound to fail test’ essayed in General Steel;
c) it should be understood, however, that the test is to some degree a more liberal test than the ‘hopeless’ or ‘bound to fail’ test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent’s case is not hopeless or bound to fail, it does not have a real prospect of success;
d) at the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgment is made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process or where the application is supported by evidence.”
Conclusions
26 The texts and authorities to which I was referred by counsel upon the hearing of this application indicate that the following propositions are either correct or arguably correct:
(a)A list of customers may constitute “confidential information”. This point was established by the English Court of Appeal in Faccend Chickens v Fowler [1987] 1 Ch 117, 135-6. In Wessex Dairies Ltd v Smith [1935] 2 KB 80, 89 Maugham LJ (as he then was) said:
“…It has been held that while the servant is in the employment of the master he is not justified in making a list of the master’s customers, and he can be restrained … from making such a list, or if he has made one, he will be ordered to give it up. But it is to be noted that in Rov v Green [1895] 2 QB 1, 315, 320] the defendant was not restrained from sending out circulars to customers whose names he could remember. Another thing to be borne in mind is that although the servant is not entitled to make use of information which he has obtained in confidence in his master’s service he is entitled to make use of the knowledge and skill which he acquired while in that service, including knowledge and skill directly obtained from the master in teaching him his business.”
Mullaghan J of the Supreme Court of South Australia drew a similar distinction between a former employee canvassing his former employer’s customers based on a list which he had abstracted from the employer on the one hand and merely relying on his memory on the other hand, in the latter case there being no breach of any duty of confidentiality. (NP Generations Pty Ltd v Feneley (2000) 50 IPR 63 [23]) Mr Rosewarne said this line of authority would no longer be regarded as binding because it emerged from the pre-digital age. Now, persons are easily traced via on-line resources such as Google. The distinction drawn between the digital and pre-digital era is to some extent a false comparison. In the pre-digital era, individuals could be traced by reference to documents such as telephone directories, registers kept by the predecessor State regulators of companies, being the registered offices of companies, and the residential addresses of their directors.
(b)The passages quoted from Macken indicate that, whilst the default position is that employment, in itself, does not render an employee a fiduciary of his employer, fiduciary duties may be superimposed as long as the superimposition is not inconsistent with the terms of the employment contract. No terms inconsistent with a fiduciary relationship were identified in this employment contract. Contrarywise, clauses 6.3 and 21.2 of the relevant employment contract imposed obligations consistent with a fiduciary relationship between employer and employee. The position to which Mr Littley was appointed, namely, “senior financial planner”, is indicative of the sort of role to which fiduciary duties might appropriately be attached.
(c)Acknowledging, as Mr Rosewarne submitted in reply, that an employment contract cannot, by adopting a particular definition of “confidential information”, control the equitable doctrines relating to confidentiality, it is difficult to see that what the parties have seen fit by contract to agree between themselves does constitute such information does not bear upon the nature and incidence of the equitable rules as to confidential information.
27 In the present case, the Statement of Claim asserts, and there is no denial in the defendants’ affidavit material, that Mr Littley emailed himself a list of his former employer’s clients as he was metaphorically “walking out the door”. This is the sort of information that has been recognised as confidential information. The definition in the employment contract reinforces this. Mr Rosewarne observed that the list which Mr Littley emailed to himself did not include contact details. It may well be that Mr Littley had other lists which included such contact details. If there was no evidence of his having taken a list with him, this would be a matter of mere speculation, but where it is plausibly alleged and not contradicted that he left his employment with the plaintiff in possession of one list, it is not unreasonable to think that he might have had possession of other lists and that this would be elucidated by discovery.
28 Mr Rosewarne was at pains to emphasise the fact that Mr Littley had, upon the evidence, already sat out as time “on the bench” under the restrictive covenant arrangements in his employment contract. It must also be acknowledged that the law has a policy favouring competition and recognising the public interest in individuals being at liberty to exercise their expertise. The authorities show that general knowhow acquired by an employee in serving an employer is not to be taken as confidential information or intellectual property which the former employer is entitled to embargo. Here, however, the information is not “knowhow” but “know who” and not dependent solely on memory.
29 In summary, the plaintiff’s case is plainly arguable and more than merely fanciful. It is not appropriate for summary dismissal.
30 As a fallback position, Mr Rosewarne sought an order striking out the plaintiff’s Statement of Claim. Whilst Mr Castelan was prepared to concede possible infelicities or blemishes in the Statement of Claim, he declined any suggestion that he might like to deliver an amended pleading. Whether this derived from a fundamental conviction on his part as to the adequacy of the present Statement of Claim or a concern as to the possible costs implications may be open to doubt. The present attitude to pleadings is to turn away from counsels of perfection in the art and allow to go forward Statements of Claim so long as it is clear to the defendant or defendants what case is being urged against it or them. In my view, the present Statement of Claim certainly meets that requirement.
31 The summons should be dismissed. I have heard no submissions on the question of costs and so I will reserve them.
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