Separator Technology Solutions v Yin Han
[2018] VCC 1922
•23 November 2018
In
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
EXPEDITED CASES Case No.CI-18-03675
| BETWEEN Separator Technology Solutions Pty Ltd | Plaintiff | ||||||
| v | |||||||
| Yin Han | Defendant | ||||||
| Plaintiff by Counterclaim Defendants by Counterclaim |
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JUDGE: | His Honour Judge Woodward | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 23 November 2018 | |
DATE OF RULING: | 23 November 2018 | |
DATE OF REASONS | 21 March 2019 | |
CASE MAY BE CITED AS: | Separator Technology Solutions v Yin Han | |
MEDIUM NEUTRAL CITATION: | [2018] VCC 1922 | |
REASONS FOR RULING
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Campbell | Nevett Ford Lawyers |
| For the Defendant | Ms R Preston | Maddens Lawyers |
HIS HONOUR:
Summary
1 The plaintiff (“STS”) alleges that the defendant (“Ms Han”) has breached obligations under contract and in equity, to keep confidential certain information that she obtained during her engagement by STS between February 2009 and November 2017. STS asserts that Ms Han’s engagement was as an independent contractor. Ms Han says she was in truth an employee and counterclaims for various employee entitlements that she alleges STS failed to pay.
2 The proceeding came before me on an application by STS for an interlocutory injunction, restraining Ms Han pending the trial and determination of the proceeding, from disclosing or making use of STS’s confidential information. By order made immediately following the hearing of argument on 23 November 2018, I dismissed STS’s application with costs. I provided brief reasons at that time, but indicated that I considered it appropriate that the parties have the benefit of more complete written reasons in due course. These are those reasons.
Application
3 STS’s application was filed on 27 August 2018, supported by an affidavit of Ashley Whittington dated 15 August 2018 (“first Whittington affidavit”). Mr Whittington is a director and shareholder of STS. It was first adjourned by consent on 7 September 2017, when orders were made for affidavits from Ms Han, any affidavits in reply from STS and outlines of submissions, all to be completed by 20 September, with the hearing fixed for 26 September 2018. Ms Han filed two affidavits in opposition. One by her dated 14 September (“Han affidavit”) and a second by Neville Wilson, on behalf of Ms Han’s current employer FDPI, dated 17 September 2018 (“Wilson affidavit”).
4 There were two further adjournments of the application, primarily for the purpose of allowing STS additional time to file and serve an amended statement of claim and its affidavits in reply. On the second occasion, STS was ordered to pay the costs of the adjournment hearing. STS filed a further affidavit of Mr Whittington dated 16 November 2018 (“second Whittington affidavit”) and its amended statement of claim (“ASOC”) is dated 19 November 2018. At the time of the first adjournment, the parties consented to terms of an undertaking as to damages by STS and a limited “holding” injunction against Ms Han, which were both renewed on the occasions of each later adjournment. Counsel for the parties each filed written submissions dated 22 November 2018. No application was made by either party to cross-examine the deponents to any of the affidavits.
Factual background
5 Unusually for a proceeding of this kind, STS does not allege against Ms Han that she has taken STS’s customer lists or other customer information, and is seeking to poach STS customers. Rather, the allegation is in substance that that Ms Han on behalf of FDPI has been contacting manufacturers and suppliers of centrifuge parts and using allegedly confidential STS “buy/sell codes” to source parts for use in FDPI’s centrifuge maintenance and service business.
6 STS makes and sells high-speed centrifuges, for use in the food and beverage industries. In particular, they are used by food and beverage manufacturers when the production process requires separation of the constituent elements of ingredients used in making food and drinks, including dairy products, wines, beers, ciders, fruit juices, coffee and tea. According to Mr Whittington: “A critical, and highly profitable part, of STS's business is the ongoing supply of spare parts for centrifuges during the working life of the equipment, which can typically be twenty years or more”.
7 Mr Whittington also explained in the first Whittington affidavit that STS has undertaken research and development in refining both the STS equipment design and also the client’s manufacturing process, to meet the specific requirements of its customers. This relates both to supplying a centrifuge and providing the customers with after sales service of spare parts and maintenance. Mr Whittington asserts that STS allocates part-specific “sell codes” to suppliers and corresponding “buy codes” to its customers, and only STS can link the two codes. He says that this prevents customers approaching suppliers directly, thereby cutting STS out of the process.
8 Ms Han is an engineer, holding a PhD in chemical engineering from Monash University. She originally studied for her bachelor degree in mineral processing and engineering at Wuhan Institute of Technology in China. She then moved to the Asian Institute of Technology in Bangkok to study for her master's degree and work as a research assistant. She came to Melbourne in 2005, on a scholarship to Monash University. She was awarded her PhD in 2009. She started working for STS in February 2009 in a role designated as Engineering Manager. Her work in this role included engineering project management and spare parts sourcing and delivery. Mr Whittington asserts that, in her role with STS, Ms Han had access to (relevantly) spare parts designs, drawings, tolerances, "Buy Codes", "Sell Codes" and the linkage between "BuySell" codes.
9 It is common ground that, despite commencing work with STS in February 2009, Ms Han did not enter into any formal terms of engagement until 5 May 2009, when she signed a form of contract comprising a letter headed “Independent Contractor Agreement” and attached “Mutual Confidentiality Agreement”. Although the contract refers to Ms Han being engaged as an independent contractor, she contends that she was in fact engaged as an employee and that STS deprived her of her full entitlements. This is the subject of Ms Han’s counterclaim in the proceeding and is not relevant to the present application.
10 After leaving STS in around November 2017, Ms Han worked in real estate for a time before accepting an offer of employment from FDPI and starting work there on about 26 March 2018. Her role at FDPI is International Procurement Manager, which involves global sourcing for spare parts for all manner of machines used in manufacturing, not just centrifuges. Ms Han deposed that STS focuses primarily on the wine industry, whereas most of FDPI’s customers are in the dairy industry. Importantly, both Ms Han and Mr Wilson deposed (and I accept) that FDPI do not stock, sell or service STS centrifuges.
11 STS alleges that, in breach of both the express provisions of clause 7 of Ms Han’s engagement contract and her equitable obligation of confidence, Ms Han has:
· disclosed or made use of STS’s confidential information;
· interfered with or endeavoured to entice away suppliers from STS, or attempted to persuade them not to deal with STS;
· competed with STS for the business of STS’s clients or prospective clients within three years of termination; and
· failed or refused to return to STS its property upon request,
and, unless restrained by the Court, threatens to continue to make use of STS’s confidential information.
The evidence
12 The springboard for STS’s claims against Ms Han (including its application for interlocutory and permanent injunctive relief) is set out in the first Whittington affidavit at paragraphs 31 to 33. These allegations also underpin STS’s claim for damages. For reasons that will shortly become apparent, it is appropriate to set these out in full (emphasis added):
“Early in 2018 I discovered that Susan was working with or on behalf of FDPI Pty Ltd, a Warrnambool based dairy products supplier.
FDPI had been a long-term customer of STS placing orders valued at $250,000 per annum.
In the most recent six months of 2018 STS's sales of spare parts to FDPI have dropped to $0 and not a single line item purchased, despite this being historically the peak period for purchase orders, both by dollar value and for the high quantity of unique spare parts numbers, ahead of the Victorian dairy processors planned seasonal maintenance period. FDPI currently owes STS approximately $19,000 for prior spare parts purchases, which it does not dispute. I believe this material change is due to FDPI now seeking to deal directly with those spare parts suppliers to STS, by benefitting from such "buy/sell" code information of STS as furnished to FPDI by or via Susan. STS is presently also left holding approximately $150,000 in unsold stock which is typically sold to FDPI during these most recent four months of the year. Many spare parts now in STS stock, as defined by their "sell codes", were primarily or only sold to FDPI.”
13 Mr Whittington goes on to describe how in April 2018, he received an email from an STS supplier forwarding an email that the supplier had received from Ms Han. Mr Whittington deposes that the email from Ms Han forwarded an earlier email that Ms Han had sent to the supplier while at STS, which demonstrated that Ms Han had not returned all STS documents and data at the end of her engagement with STS. He asserted that the email also showed that Ms Han was “clearly using an earlier STS communication and prior purchase order…to now procure the same goods for prospective parties other than STS…that were highly likely to be STS clients or competitors”.
14 In the Han affidavit, Ms Han confirmed that she did email this supplier:
“[T]o enquire whether they had an exclusive agreement to supply rubber metal cushions (not belts) to the Plaintiff or whether my new employer could order from them. I was also intending to source gaskets, flat belts, mechanical seals, bearing housings and rubber metal cushions which are publically available and not exclusive to the Plaintiff. I did include an email I had sent to the same supplier when I was employed by the Plaintiff which asked to order ‘10 x belts’. There was no reference to any STS codes or confidential information. The purpose of me forwarding that email was to remind [the supplier] of my relationship with them. I was not relying on the information in the email, although I deny there was any confidential information. No attachment was sent with the email.”
15 Mr Whittington next describes how he then emailed four of STS’s China based manufacturers to ascertain whether they too had been contacted by Ms Han. He details the outcome of those communications at some length. Among other things, he asserts that:
· a reference in the correspondence to “mechanical top and bottom seals” is to “STS buy codes ‘Top Seal #1’ and ‘Bottom Seal #2’ that STS had created” with one supplier contacted (Tianfeng), “that are supplied to FDPI under the STS sell codes 1260-2145-010 and 1260-2145-020”;
· FDPI was only able to order directly from Tiangfeng and not from STS because Ms Han “has retained and then utilised STS confidential information relating to these products' buy codes, sell codes, the linkage between the buy and sell codes and the primary client who orders these items from STS, namely FDPI”;
· he had been told by a representative of another supplier (HCME) that it had been contacted by Ms Han and that “HCME has no website or other public market presence and but for Susan's retention of STS property it would be impossible for FDPI to locate and purchase spare parts specifically for centrifuges using STS buy codes and specifications”; and
· Ms Han had dealings with a further supplier (ZQJ) about purchasing an “STS 200 Bearing Housing” and associated drawings in circumstances where STS had an exclusive supply agreement with ZQJ.
16 In reply, Ms Han deposes (among other things) that:
· “top seal” and “bottom seal” are generic and commonly used terms in the industry and are not buy/sell codes of STS;
· the numerical codes 1260-2145-010 and 1260-2145-020 are not unique to STS, but are codes specified by the original equipment manufacturer, GEA (Ms Han exhibits a GEA parts catalogue that appeared to confirm this);
· she contacted the owner of HCME to check whether HCME had an exclusive supply agreement with STS and whether FDPI could purchase from them;
· Ms Han became aware of HCME during her employ with STS, she visited their factory in China approximately three times and had developed a close business relationship with the business owner;
· she never used "buy codes" of STS to place orders with HCME, nor had she ordered any parts based on STS designs, drawings or specifications—on the contrary, FDPI has sent samples for the range of items they required HCME to produce, along with specifications of material thickness, sizes and rubber density measurements;
· she emailed ZQJ to confirm that it did not have an exclusive supply agreement with STS and on being told that it did not, she enquired about purchasing a bearing house;
· the bearing house she enquired about was a GEA bearing house that fits three different machines, not just the STS machine—as STS copied the GEA machine, the bearing houses are the same and the drawings Mr Whittington referred to were copied patented GEA drawings from a GEA machine, not STS drawings.
17 Mr Wilson is a director and shareholder of one of two partner entities that operates the FDPI business. He deposes that FDPI is an independent supplier of preventative maintenance programs, spare parts and installation and maintenance services to the dairy, food, beverage, pharmaceutical and chemical processing industries, and specifically for their processing equipment. Most of FDPI’s services relate to the repair, maintenance and sourcing of spare parts for centrifugal separators, homogenizers, pasteurisers, valves, pumps, butter makers, Tetra Pak filling machines and heat exchangers. It services multiple brands, including GEA. Mr Wilson confirms that GEA is a world leader in centrifugal separators and its technology is prevalent in most industries using centrifuge technology. He notes that: “Like most of our competitors, GEA tries to secure long term service and maintenance contracts with its customers for the ongoing maintenance of these machines as the Original Equipment Manufacturer (‘OEM’)”.
18 Mr Wilson explains that, to achieve higher profit margin, most of the OEM companies have moved manufacturing of their machines and spares to Asia and that competing factories have set up in Asia to copy the machines and parts made by the OEM companies. According to Mr Wilson, FDPI uses suppliers of both OEM and non-OEM copies on the range of parts it supplies. FDPI chooses a supplier based on customer feedback, market feedback, worldwide trade fairs and direct contact from suppliers both in Australia and off shore, including USA and Asia.
19 In the case of specialised centrifuge parts, Mr Wilson deposes that FDPI would often provide a sample and computer aided drawings (“CAD”) to a new supplier. The CAD are usually purchased from an OEM sub-supplier at high cost to FDPI. In the case of a rubber seal or gasket, the sample is then sent to the manufacturer to create a mould. FDPI then pays for this mould to be created and the manufacturer would use the mould to manufacture the part for FDPI only.
20 Mr Wilson confirms in the Wilson affidavit that FDPI “do not sell or maintain, nor have we ever purchased parts nor tried to purchase parts for STS centrifuges. We have no listing of specific STS manufactured machine part number codes and have no need for such STS parts”. He later confirms that FDPI had been a client of STS for the purpose of ordering GEA genuine and GEA non-genuine products/parts, but that it had never purchased STS brand parts from STS, as it did not have STS machines. He also deposes that all parts purchased by FDPI from STS carry the part number of the manufacturing company, GEA.
21 In relation to the circumstances of FDPI ceasing its relationship with STS, Mr Wilson deposes that FDPI’s relationship with STS became strained “due to a difference of opinion based on historic issues relating to parts quality, pricing, account payment and difference of personal opinion. Product quality issues that we had were not being resolved by STS”. He exhibits an email chain clearly evidencing the developing dispute between FDPI and STS, concluding with an email from Mr Whittington dated 1 March 2018 which stated (in part) as follows:
“I am not interested in one-upmanship, am an A-to-B sort of guy & that's how I run the company
…
But it's precisely for this reason that we're done.
...
But the decision is now taken on the basis of how bad this mornings [sic] discussion went, as we established from the outset was the purpose, either to being things back on track including with constructively [sic] co-operation, or better to conclude the working relationship.
It's for the best.
We tried it together, worked for some years, then [sic] no longer was working, so we've parted ways. Not a reflection of either company really, just didn't work out.”
22 This email and Mr Wilson’s evidence that “FDPl's commercial relationship with STS pretty much ended at that point in time”, is very difficult to reconcile with Mr Whittington’s asserted belief about FDPI ceasing orders from STS referred in paragraphs 31 to 33 of the first Whittington affidavit, extracted above. Further, Mr Whittington must have been aware of these communications (and notably his own email of 1 March 2018 effectively terminating STS’s commercial relationship with FDPI) when he swore the first Whittington affidavit less than six months later. However, the second Whittington affidavit sworn in response to the Han and Wilson affidavits makes no attempt to justify or explain this clear inconsistency.
23 Mr Wilson also deposes at length to matters relating to FDPI’s ordering systems and practices and the relationship with its suppliers. In particular, he deposes that:
“All parts which FDPI has purchased from suppliers have been procured on the basis of industry known OEM part numbers that FDPI has provided to the supplier about FDPl's operating systems. All of FDPl's suppliers use specifications for parts that have been either supplied by FDPI as measurements or as detailed CAD drawings, all completed or obtained by FDPI.”
24 It is unnecessary to say more about Mr Wilson’s affidavit, except to note that it is consistent with Ms Han’s evidence, is supported by contemporaneous emails and raises doubts about Mr Whittington’s assertions concerning aspects the STS buy/sell codes and the alleged use of these codes to advantage FDPI. To take one example, at paragraph 58, Mr Wilson deposes that:
“The document annexed at NW-14 shows the part number used by the machine manufacturer, GEA. They are the same GEA part numbers copied by STS, that STS knowingly used to supply GEA OEM and GEA non-genuine parts to FDPI. STS also used a copy of the GEA number when invoicing other customers that they supplied parts and services to. In fact, by STS using these GEA codes shows that STS are utilising non-specific STS part numbers for buy/sell codes. Now shown to me and marked NW-15 is a copy of an email from the Plaintiff to FDPI dated 15 September 2014 with an attachment showing that STS used the GEA part numbers for selling parts and clearly shows that STS are suggesting that FDPI start servicing machines in the wine industry. They have no link to STS specific Buy/ Sell codes. They are GEA OEM created part numbers...”
25 In my view, the second Whittington affidavit does little to advance STS’s application or its case generally. It commences with further allegations concerning the circumstances of Ms Han’s departure from STS, which appear largely irrelevant to STS’s application for injunctive relief. It follows with a number of assertions that are little more than speculation and argument, such as:
· knowledge of GEA part numbers “can only have come from [Ms Han] providing FDPI and HCME with” STS buy codes;
· “FDPI could not have been confident in ordering centrifuge parts”;
· Ms Han “can only have identified the design moulds” by referring to STS purchase orders;
· it is unlikely that FDPI would arrange the manufacture of a mould based only on a sample of a centrifuge gasket;
· FDPI could not have offered a quote to service a customer’s GEA brand GSC 150 without relying on STS information as “FDPI could not even come close to being price competitive with the services and supplies STS provides”; and
· “having been rebuffed by ZQJ FDPI claims to have since built its own bearing housing. The only credible explanation is have done so on the basis of STS design drawings and related information that [Ms Han] has provided to FDPI”.
26 Fundamentally, Mr Whittington fails to:
· adduce any relevant evidence that Ms Han has retained or used any confidential information of STS; and
· explain how, even if I were to accept Ms Han had access to confidential information comprising the alleged buy/sell code linkages, this information was useful to a company (namely FDPI) that did not sell, service or repair STS machines.
27 I raised this latter issue with counsel for STS during oral submissions and, despite his efforts, the explanation remained elusive. It is also notable that (perhaps cognisant of this difficulty with STS’s case), Mr Whittington belatedly appears to hint that FDPI was in fact seeking to market parts and services to STS machine owners (see, for example, paragraphs 44 and 66 of the second Whittington affidavit). This suggestion is directly at odds with Mr Wilson’s unequivocal evidence to the contrary and Mr Whittington offers no admissible evidence in support of the suggestion.
28 But what is more troubling is a further allegation also made for the first time in the second Whittington affidavit, at paragraph 43. Again, it is appropriate that I set this out in full:
“From matters deposed to in my affidavit sworn 15 August 2018 and this affidavit, I believe that Susan has retained electronic copies of documents even if she has returned her laptop computer. Since I swore my affidavit dated 15 August 2018 I have been informed by my father, Mr Neil Whittington, the other director of STS, and believe that the entire STS spare parts computer file of several hundred specifications has been emptied. He tells me and I believe that he conducted an intensive search of STS computer files in case the spare parts file had been moved but he could not locate it. Only Susan, my father and I had access to the spare parts computer file. Any other person who needed to check information had to use the hard copies of the file kept in STS’s Laverton office”.
29 Thus Mr Whittington appears to be asserting that his father Neil Whittington had told him (I assume for the first time) sometime after 15 August 2018, that STS’s entire spare parts computer file “has been emptied” and that I should infer that Ms Han was responsible. This is self-evidently a very serious allegation. However, there is a significant difficulty with it. Ms Han left STS in November 2017. So Mr Whittington is either suggesting that Ms Han “emptied the file” before her departure and this had gone undetected (at least by Mr Ashely Wittington) until August 2018, or that Ms Han has somehow gained access to the STS computer system in more recent times.
30 I raised this concern with counsel for STS shortly before the lunch adjournment on the hearing of the application, noting that he had expressly relied on this paragraph in his written submissions as, “some evidence to infer that [Ms] Han may have obtained improper access to STS’s computer file”. Thus the suggestion appears to be that Ms Han has recently either hacked into STS’s computer system or broken into its Laverton premises. I also indicated to STS’s counsel that it was not clear why such a serious allegation was being made on information and belief, in circumstances where I understood Mr Neil Whittington was based in Melbourne, whereas the deponent (his son Ashley Whittington) was then based in the US. Counsel indicted that he would seek further instructions about the matter over the break. When the hearing recommenced at 2.15pm, counsel explained that his instructor has sent an urgent email to Mr Whittington in the US, but that they were 17 hours behind and the instructions were not yet forthcoming. He said that he would not be pressing the allegation pending those instructions.
Submissions and analysis
31 STS submits that, during her engagement with STS, Ms Han had access to STS’s confidential information “of the kind set out in paragraph 3 of its further amended statement of claim”. It further submits that, since she left STS, Ms Han has “breached or threatens to breach the on-going contractual confidentiality provisions in clauses 7(iii) and (iv) of the agreement and the equitable obligation of confidence owed to STS by disclosing and making use of STS’s confidential information”. In its written submissions, STS sets out the principles for the grant of an interlocutory injunction and discusses the application of those principles to the facts of this case, including the nature of STS’s confidential information and the factors that courts take into account in determining whether information attracts relevant protections.
32 Counsel for STS expanded on each of these matters in the course of oral submissions. I have referred above to a number of issues that I raised with counsel in the course of those submissions. At the conclusion of submissions on behalf of STS, I indicated that I did not need to hear counsel for Ms Han in response. There were two reasons for this. First, Ms Han’s counsel had provided comprehensive written submissions which I had read in advance of the hearing of the application. Second, STS’s written and oral submissions had failed to persuade me that STS had a sustainable case for the relief sought.
33 Ms Han’s submissions identify many of the shortcomings in the evidence on behalf of STS discussed above. She further submits (among other things) as follows (references omitted):
· STS provides no evidence of either the disclosure or use by Ms Han (or FDPI) of any STS confidential information. All that the evidence for STS discloses (which Ms Han admits), is that Ms Han contacted a small number of STS suppliers some months after the termination of her relationship with STS. She did so to see whether they had exclusive supply agreements with STS and were free to enter into other supply relationships.
· At no relevant time did Ms Han ever use any confidential information of STS, whether in the form of plans, drawings, designs, the allegedly confidential buy and sell codes claimed by STS or any other STS information. Nor does the evidence for STS disclose any such use: “STS is asking the court to draw inferences from evidence of contact with suppliers which are quite simply not available to be drawn on the evidence before the court”.
· Ms Han did include an old STS email in her approach to one supplier, but there was no confidential information included in that email. The email was one of a number that she had access to in her personal email account, as a result of the work that she performed for STS using that account. When STS raised her possession of those emails as an issue, Ms Han immediately and permanently deleted all STS emails from her personal email account.
· There is no evidence to show that the identity of any STS suppliers was confidential information (citing relevant factors in the judgment of Kirby P in Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 334) – including that their identity was disclosed in circumstances which imparted the necessary degree of confidence.
· Further, the claims are all contingent on STS having suffered loss and damage as a result of Ms Han’s alleged breaches. As currently pleaded, that damage is said to result from the loss of the FDPI supply arrangements. The uncontested evidence is that FDPI’s departure had no connection with the defendant. Rather, it was the result of a breakdown in relations between the two companies.
· In the second Whittington affidavit, Mr Whittington “is making allegations, without any cogent basis for doing so, that the defendant has retained STS documents, despite her sworn evidence to the contrary”. Ms Han maintains her position as set out in her affidavit, including that she holds no STS documents.
· Having regard to Mr Whittington’s reply evidence, the crux of the STS’s case now appears to be that “knowledge of STS suppliers is confidential information because, to that knowledge, attaches the knowledge that the suppliers are able to supply parts using the information previously imparted to them by STS. That does not convert knowledge of the identity of suppliers into confidential information in the nature of a trade secret. If the suppliers are somehow divulging confidential information (of which there is no real evidence), that is an issue between STS and the suppliers”.
34 In my view, there is considerable force in these submissions. As a general observation, for the reasons outlined in Ms Han’s submissions and my summary above, the evidence on which STS relies is inconsistent, unconvincing and, in parts, disingenuous. However, in the absence of cross-examination and proper testing of Mr Whittington’s assertions, it is not possible to reach a concluded view about the veracity of the evidence. It is sufficient for present purposes to find that it fails to rise to the level of establishing “a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial”: Australian Broadcasting Corp v O’Neill (2006) 227 CLR 57 at [65]. I so find.
35 More particularly, as Ms Han has submitted (citations omitted):
“For an interlocutory injunction to restrain an alleged breach of confidence, the plaintiff must establish three things to a prima facie standard:
(a)that the alleged confidential information has the necessary quality of confidence (and is not, for example, common or public knowledge);
(b)that the information was received in circumstances imparting an obligation of confidence;
(c)that an unauthorised use of the information is threatened or has taken place.
In proceedings for breach of confidence, the alleged confidential information must be identified with precision. Following their engagement, workers are entitled to use confidential information which has become part of their stock of knowledge. Such information can only be protected by an enforceable contractual restraint.”
36 I agree. I also agree with Ms Han’s submissions concerning the limitations on the operation of a restraint of trade and a covenant not to use confidential information. In particular, the presumption that a restraint of trade is void as contrary to public policy, can be rebutted by STS establishing that the restriction is no wider than is necessary to protect a legitimate interest. Restraints cannot be used to protect against mere competition (Stenhouse Australia v Phillips [1974] AC 391).
37 In relation to any obligations under the Mutual Confidentiality Agreement dated 5 May 2009, this expired in May 2012 so it is unnecessary to say any more about it. As Ms Han submits, this leaves the “‘Independent Contractor’ Agreement” – specifically, clause 7(iii) to (vi) (the other paragraphs of clause 7 apply only during the term of the engagement). I agree, for the reasons Ms Han submits, that it is unlikely that any of these provisions are engaged. In particular:
· the better view is that information about the identity of suppliers to STS is not confidential information;
· there is no evidence that Ms Han has or proposes to compete with STS such as to engage the operation of clause 7(v); and
· there is no evidence (or even an allegation) of Ms Han interfering with or endeavouring to entice away any supplier, or persuading any supplier not to deal with STS, as contemplated under clause 7(iv) – the nature of Ms Han’s approach to suppliers to STS had none of these elements.
38 As Warren J (as Her Honour then was) said in Creative Brands Pty Ltd v Franklin [2001] VSC 338 at [16]-[18] and [22]:
“…[A]s a general proposition the courts are reluctant to permit a previous employer to use a generally worded claim to stifle the right of an employee to use the skill and experience of that employee sometimes called “know-how” as distinct from an ex-employer’s “secrets”. Second, confidential information and competition cases call for specificity in the pleading of material facts to overcome the bringing of actions that are speculative in character….
In Ixora Trading Mummery J cited the remarks of Whitford J in Reinforced Plastics. The remarks of Whitford J are instructive:
‘It is, I think, a matter of great concern in relation to confidential information cases that actions should not be brought which are no more than speculative in character. It is altogether too easy when employees leave and are employed by a rival firm to harass that rival firm upon the basis that the employees who have left the plaintiffs and joined them have taken away trade secrets of great value, and to bring an action which may involve the expenditure of an enormous amount of time and money and include disclosure of information which is going to be alleged to be confidential on either side with consequent troubles and worries. It is not really to be contemplated that proceedings of this kind should be allowed to go forward on nothing more than a speculative basis; and, unless the plaintiff can show that he has some basis for a reasonable believe (sic) in his assertion that the defendants are making use of his confidential information, then the action can only be characterised as speculative and fishing, and ought not, in my judgment, to be allowed to proceed. There must be something more than a mere assertion.’”
39 On the other hand, as I noted in my brief oral reasons, there are a number of technical aspects to the allegations concerning the relationship between the buy and sell codes and the STS’s design and manufacture of STS centrifuges and generic spare parts. It is this relationship which lies at the heart of the plaintiff’s allegations concerning the confidential information. Based on the material filed in the proceeding so far and in the absence of cross-examination, I cannot entirely rule out the possibility that those buy and sell codes can in some way provide springboard into STS’s design and manufacturing know-how. However, a clear understanding from the evidence of how it is alleged Ms Han has used or might in the future use that information presently eludes me. Indeed, the evidence that she even has any such information is at best based on supposition. In my view, this case stands a significant risk of falling squarely into the kind of case discussed by Warren J in the extract above.
40 Thus while it is difficult to say affirmatively that STS has entirely failed to satisfy me that there is a serious question to be tried, nor am I prepared to say on the material currently before me that it has so satisfied me. However, I can say from my review of the evidence adduced to date that the prospects of STS succeeding at trial and securing a perpetual injunction are poor and that, of course, informs my assessment of the balance of convenience as Ms Han has submitted.
41 In my view, against that background, the balance of convenience overwhelmingly favours Ms Han. The orders sought by STS are wide-ranging and inexact and would create significant difficulty for Ms Han in carrying out her day to day work on behalf of her current employer. She no doubt has a significant amount of know-how and contacts (particularly with suppliers) from her previous engagement by STS and it would be a burdensome task for her to try to work out what she can and cannot use, based on the proposed orders as currently sought.
42 For its part, STS has failed to establish that it has or will suffer any loss or commercial disadvantage from the alleged conduct of Ms Han. Its assertions of damage based on previous custom with the Ms Han’s current employer FDPI have, in my view, been shown to be disingenuous at best. And this is not the only aspect of the evidence adduced on behalf of the plaintiff that is troubling for reasons discussed above. It is for these reasons that I dismissed STS’s application for interlocutory relief and, after hearing further brief oral submissions, ordered that STS should pay Ms Han’s costs of and incidental to this application on the standard basis, to be taxed in default of agreement.
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Certificate
I certify that these 19 pages are a true copy of the reasons for decision of His Honour Judge Woodward delivered on 21 March 2019.
Dated: 21 March 2019
Simone Karmis
Associate to His Honour Judge Woodward
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