SAI Global Property Division Pty Ltd v Johnstone

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FEDERAL COURT OF AUSTRALIA

SAI Global Property Division Pty Ltd v Johnstone [2016] FCA 1333

File number: VID 897 of 2015
Judge: MOSHINSKY J
Date of judgment: 14 November 2016
Catchwords:

INTELLECTUAL PROPERTY – confidential information – employee copied computer files with confidential information about customers onto USB device before resigning – employee made copies of files and accessed them after commencing work for a competitor – where employee admitted breaching confidentiality obligations in employment contract and statutory duties – form of declaratory and injunctive relief

COPYRIGHT – computer files with data relating to customers – employee copied the computer files onto USB device before resigning – employee made copies of files and accessed them after commencing work for a competitor – employee admitted infringing the former employer’s copyright in the computer files – whether to make order for additional damages under s 115(4) of the Copyright Act 1968 (Cth)

CONTRACT – employment contract – employee resigned – period of employment ended two weeks later – employee commenced work for a competitor during the two week period – employer claimed damages in the amount of the salary paid to the employee for the two week period – whether employer suffered loss or damage

COSTS – proportionality of costs to importance and complexity of the matters in dispute – where employer obtained ex parte orders for delivery up and affidavit against former employee suspected of copying confidential computer files – where former employee delivered up USB device and computer and essentially admitted all material facts early in the proceeding – whether the costs incurred by the employer were proportionate
Legislation:

Copyright Act 1968 (Cth), s 115(4)

Corporations Act 2001 (Cth), ss 182, 183, 1317H

Federal Court of Australia Act1976 (Cth), ss 37M, 37N
Cases cited:

Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (2007) 157 FCR 564

Autodesk Inc v Yee (1996) 68 FCR 391

Coles Supermarkets Australia Pty Ltd v FKP Ltd [2008] FCA 1915

Del Casale v Artedomus (Aust) Pty Ltd (2007) 73 IPR 326

Dynamic Supplies Pty Ltd v Tonnex International Pty Ltd (No 3) (2014) 312 ALR 705

Gold and Copper Resources Pty Ltd v Newcrest Operations Ltd [2013] NSWSC 281

IceTV Pty Ltd v Nine Network Australia Pty Ltd (2009) 239 CLR 458

McRae v Commonwealth Disposals Commission (1951) 84 CLR 377

Moorgate Tobacco Company Ltd v Philip Morris (Ltd) (No 2) (1984) 156 CLR 414

Multisteps Pty Ltd v Source and Sell Pty Ltd (2013) 214 FCR 323

Optus Networks Pty Ltd v Telstra Corporation Ltd (2010) 265 ALR 281

Specsavers Pty Ltd v The Optical Superstore Pty Ltd (2012) 208 FCR 78

Specsavers Pty Ltd v The Optical Superstore Pty Ltd (No 4) [2012] ATPR 42-403; [2012] FCA 652

Streetscape Projects (Australia) Pty Ltd v City of Sydney (2013) 85 NSWLR 196

Telstra Corporation Limited v Phone Directories Company Pty Ltd (2010) 194 FCR 142
Date of hearing: 29 June 2016
Date of last submissions: 15 July 2016
Registry: Victoria
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Details
Case
[2016] FCA 1333
Decision Date

CaseChat Overview and Summary

In SAI Global Property Division Pty Ltd v Johnstone, the Federal Court of Australia dealt with an employee's misuse of confidential information and copyright infringement. The plaintiff, SAI Global Property Division Pty Ltd, sought relief against the defendant, Mr Johnstone, who had copied confidential files onto a USB device before resigning and then accessed those files while working for a competitor. Mr Johnstone admitted to breaching his employment contract, statutory duties, and copyright law. The court was tasked with determining the appropriate form of declaratory and injunctive relief, additional damages under the Copyright Act, and the proportionality of costs in light of the swift resolution of the case.

The court found that Mr Johnstone had indeed breached his confidentiality obligations and copyright law by copying and accessing the confidential files. The court granted declarations that Mr Johnstone had infringed SAI’s copyright, breached his employment contract, breached fiduciary duties, and breached statutory duties under the Corporations Act. The court also granted injunctive relief, restraining Mr Johnstone from disclosing or using any SAI confidential information except as permitted by law or with SAI’s consent. Furthermore, Mr Johnstone was ordered to permanently delete any electronic copies of the confidential documents in his possession. The court awarded damages for breach of contract and copyright infringement, along with additional damages under the Copyright Act. Finally, the court addressed the proportionality of costs, noting that although SAI was the successful party, the proceedings should align with the overarching purpose of resolving disputes at a proportionate cost. The court ordered Mr Johnstone to pay certain costs but reduced the amount by half to reflect the straightforward nature of the case.

The court concluded with specific orders: Mr Johnstone was restrained from disclosing or using SAI's confidential information, required to delete any copies in his possession, and ordered to pay damages and additional costs. The costs order was tailored to reflect the proportionate nature of the litigation, considering the swift admissions by Mr Johnstone.

Orders

Orders of the court

3. The respondent be restrained from disclosing to any person, or making any use of, any SAI Confidential Information, except to the extent:

(a) required by law; or

(b) permitted by prior written consent of the applicant,

where “SAI Confidential Information” in these orders means:

(c) the document referred to as the “Daily Revenue Report” in paragraph 39 of the affidavit of Ann Wootton sworn 4 December 2015; and

(d) any other document or electronic file containing any confidential information of the applicant (including technical or business information of the applicant or its related entities), including without limitation any document bearing the name “SAI Global Property” which the respondent received, learned, developed or obtained in relation to his employment with the applicant,

except documents in the public domain other than in breach of a confidentiality obligation.

4. The respondent cause to be permanently deleted any electronic copy or impression of any document in his possession, custody or control which:

(a) is the property of the applicant or its related bodies corporate; or

(b) contains any SAI Confidential Information (as defined in order 3).

5. The respondent pay the applicant:

(a) damages of $4,230 for breach of contract;

(b) damages of $1 for infringement of copyright;

(c) additional damages of $5,000 pursuant to s 115(4) of the Copyright Act 1968 (Cth).

6. In relation to the costs of the proceeding, the respondent pay to the applicant the following costs (on a party-party basis, to be taxed if not agreed):

(a) the applicant’s costs up to 11 December 2015;

(b) the applicant’s costs associated with the second affidavit of Mr McKemmish;

(c) half of the applicant’s costs from 12 December 2015 (other than the costs associated with the second affidavit of Mr McKemmish).

7. There be liberty to apply in relation to any things or documents delivered up to the Court or to a party.

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

Background

Background to the litigation

In light of the conclusion in (d) above, the order that I will make in relation to costs is that Mr Johnstone pay SAI the following costs (on a party-party basis, to be taxed if not agreed):(a)SAI’s costs up to 11 December 2015;(b)SAI’s costs associated with the second affidavit of Mr McKemmish; and(c)half of SAI’s costs from 12 December 2015 (other than the costs associated with the second affidavit of Mr McKemmish).Procedural background The proceeding was commenced on 7 December 2015. On that day, SAI made an ex parte application for orders including for the making of an affidavit by Mr Johnstone; an injunction to restrain Mr Johnstone from deleting certain information stored on any computer or electronic data storage device; and delivery up of external storage devices and computers. In support of the application, SAI relied on affidavits of Ann Wootton (the Director of SAI) dated 4 December 2015, Michael Williams (a solicitor from the firm of solicitors acting for SAI) dated 7 December 2015 and Rodney McKemmish (a forensic technology expert) dated 3 December 2015. On 7 December 2015, the Court made orders including orders that:(a)Mr Johnstone make and serve on SAI an affidavit to the best of his knowledge and belief and upon reasonable inquiry, providing a description of all “SAI Confidential Information” and providing certain information in relation to such information. The expression “SAI Information” was defined in the orders as meaning:(i)the “Daily Revenue Report” which was in turn defined as meaning the document referred to in paragraph 39 of the affidavit of Ann Wootton sworn 4 December 2015; and(ii)any other document or electronic file containing any confidential information of SAI including technical or business information of SAI or its related entities, including without limitation any document bearing the name SAI Global Property which Mr Johnstone received, learned, developed or obtained in relation to his employment with SAI,except documents in the public domain other than in breach of a confidentiality obligation;(b)Mr Johnstone be restrained until 4.00 pm on 11 December 2015 or further order from deleting or causing to be deleted any SAI Confidential Information stored on any personal computer or electronic data storage device, including any External Storage Device, in his possession, custody or control or in the possession, custody or control of his current employer; or from taking any step or causing any step to be taken which is likely to impede the recovery of any such data. “External Storage Device” was defined in the orders as meaning a particular USB Device;(c)Mr Johnstone deliver up to Court by 9.30 am on 11 December 2015, any External Storage Device used by Mr Johnstone in relation to his employment with SAI; any desktop or laptop computer to which the External Storage Device had been connected; any electronic or hard copy of any document in his possession, custody or control which contains SAI Confidential Information, for the purpose of allowing SAI’s independent computer expert to undertake certain tests and activities as set out in the order.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

In these circumstances, I conclude that SAI did not comply with the obligation in s 37N(1) to conduct the proceeding in a way that was consistent with the overarching purpose, in particular the objective of “the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute” (s 37M(2)(e)). I think this requires some adjustment to the costs order that would otherwise be made. Ordinarily, there would be an order than Mr Johnstone pay SAI’s costs of the proceeding (on a party-party basis), on the basis that SAI is the successful party and costs usually follow the event. In relation to the costs up to 11 December 2015, there is now no issue in respect of these costs. Accordingly, I will order Mr Johnstone to pay SAI’s party-party costs in respect of that period. In relation to the work associated with Mr McKemmish’s second report, I do not think reason has been shown to depart from the ordinary approach to these costs. Accordingly, I will also make an order that Mr Johnstone pay SAI’s party-party costs in respect of this work. However, in respect of the other costs of the period since 12 December 2015, I think the matters discussed above justify a significant reduction in the costs that would otherwise be ordered to be paid by Mr Johnstone to SAI. Based on my impression of the importance and complexity of the matters in issue, and the extent and nature of the work carried out, I think it appropriate to reduce SAI’s costs by half. Accordingly, I will make an order that Mr Johnstone pay half of SAI’s party-party costs from 12 December 2015 (other than the costs associated with the second affidavit of Mr McKemmish).Conclusion For the reasons set out above, I will make declarations as set out in [40] above and will make orders in substance that:(a)Mr Johnstone be restrained from disclosing to any person, or making any use of, any SAI Confidential Information, except to the extent:(i)required by law; or(ii)permitted by prior written consent of SAI,where “SAI Confidential Information” in these orders means:(iii)the document referred to as the “Daily Revenue Report” in paragraph 39 of the affidavit of Ann Wootton sworn 4 December 2015; and(iv)any other document or electronic file containing any confidential information of SAI (including technical or business information of SAI or its related entities), including without limitation any document bearing the name “SAI Global Property” which Mr Johnstone received, learned, developed or obtained in relation to his employment with SAI,except documents in the public domain other than in breach of a confidentiality obligation;(b)Mr Johnstone cause to be permanently deleted any electronic copy or impression of any document in his possession, custody or control which:(i)is the property of SAI or its related bodies corporate; or(ii)contains any SAI Confidential Information (as defined in the previous order);(c) Mr Johnstone pay SAI:(i)damages of $4,230 for breach of contract;(ii)damages of $1 for infringement of copyright;(iii)additional damages of $5,000 pursuant to s 115(4) of the Copyright Act;(d)in relation to the costs of the proceeding, Mr Johnstone pay to SAI the following costs (on a party-party basis, to be taxed if not agreed):(i)SAI’s costs up to 11 December 2015;(ii)SAI’s costs associated with the second affidavit of Mr McKemmish;(iii)half of SAI’s costs from 12 December 2015 (other than the costs associated with the second affidavit of Mr McKemmish).

Ratio Decidendi

Legal Principle Established

The submissions at the hearing primarily concerned the relief to be ordered. I will address the issues under the following headings:(a)Declarations;(b)Deletion and delivery up;(c)Injunctive relief;(d)Damages/compensation;(e)Additional damages;(f)Costs.Consideration of issuesDeclarations There was no dispute as to SAI’s entitlement to declaratory relief in respect of the causes of action which were admitted by Mr Johnstone. In light of the facts set out above, and the admissions made by Mr Johnstone, I am satisfied that there is a proper basis to make declarations in substance as follows:(a)by copying and accessing the computer files referred to in the pleadings as the “Daily Revenue Report” and “Gaye Opportunities”, which documents contained information that was confidential to SAI, Mr Johnstone:(i)infringed SAI’s copyright in these works;(ii)breached his employment contract with SAI and breached fiduciary duties owed to SAI; (iii)breached duties arising under ss 182 and 183 of the Corporations Act.(b)by commencing employment with a new employer on 2 November 2015, while still employed by SAI (which employment continued until 12 November 2015), Mr Johnstone breached his employment contract with SAI. SAI contended that Mr Johnstone breached an implied obligation of confidentiality in the Employment Contract and an equitable duty of confidence. Mr Johnstone submitted that these did not arise in circumstances where the Employment Contract contained express terms concerned with confidential information (set out in [25] above); in any event, nothing turned on whether such duties existed and were breached. In relation to breach of an implied obligation of confidentiality in the Employment Contract, this aspect of SAI’s claim was not developed in its outline of submissions. It is difficult to see why it would be necessary to imply a term in circumstances where the contract contained express terms relating to confidentiality. I therefore do not make a finding or declaration in respect of this claim. As for breach of an equitable duty of confidence, a number of cases have discussed whether or not an equitable obligation of confidence can exist alongside a comparable contractual duty of confidence. This issue was considered by a Full Court of this Court (Finn, Sundberg and Jacobson JJ) in Optus Networks Pty Ltd v Telstra Corporation Ltd (2010) 265 ALR 281 at [29], [34]-[38]. The Full Court considered the issue in that case to turn on whether the parties, by the relevant agreement, excluded equitable obligations of confidence (at [29]). After referring to a number of cases which may have taken a different view (Del Casale v Artedomus (Aust) Pty Ltd (2007) 73 IPR 326 at [118] per Campbell JA; Coles Supermarkets Australia Pty Ltd v FKP Ltd [2008] FCA 1915 at [63] per Gordon J), the Full Court said that “[t]he notion that no equitable duty of confidence arises where there is a comparable contractual duty is opposed to much authority” (at [38]). The issue has also been considered by the New South Wales Court of Appeal in Streetscape Projects (Australia) Pty Ltd v City of Sydney (2013) 85 NSWLR 196 at [150]-[151] per Barrett JA (Meagher and Ward JJA agreeing). Barrett JA expressed the view that the approach preferred by Gordon J and Campbell JA accords with the residual nature of the equitable duty as recognised by Deane J in Moorgate Tobacco Company Ltd v Philip Morris (Ltd) (No 2) (1984) 156 CLR 414 at 437-438. See also Gold and Copper Resources Pty Ltd v Newcrest Operations Ltd [2013] NSWSC 281 at [87]-[97] per Stevenson J; JD Heydon, MJ Leeming and PG Turner, Equity: Doctrines and Remedies, (5th edition, LexisNexis, 2015) at [42-050]; S Ricketson & C Creswell, The Law of Intellectual Property: Copyright, Designs & Confidential Information (Thomson Reuters, loose-leaf) at [25.35]; J Glover, Commercial Equity: Fiduciary Relationships (Butterworths, 1995) at [9.6]-[9.7]. In the present case, and proceeding on the basis discussed in Optus, there were no submissions as to whether or not the parties had, by the Employment Agreement, excluded equitable obligations of confidence. Further, it is not apparent how the claim that Mr Johnstone breached an equitable duty of confidence adds anything to the other claims. (As discussed below, SAI does not seek an account of profits.) In the circumstances, I do not make a finding or a declaration in relation to this claim.