Sprout Network Pty Ltd v Roth

[2017] NSWSC 1717

Supreme Court

New South Wales

Medium Neutral Citation:

Sprout Network Pty Ltd v Roth [2017] NSWSC 1717

Hearing dates:

7 December 2017

Date of orders:

07 December 2017

Decision date:

07 December 2017

Jurisdiction:

Equity - Duty List

Before:

Kunc J

Decision:

Interlocutory injunction refused

Catchwords:

Intellectual Property — confidential information — information protected — former employee establishes competing business — no contractual restraint of trade — publicly available email contact details for former employer’s clients not confidential

Cases Cited:

Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317

Category:

Principal judgment

Parties:

Sprout Network Pty Ltd ACN 162 928 118 (Plaintiff)

  Julian Roth (Defendant)

Representation:

Counsel:

 

D.M. Flaherty (Plaintiff)
D. Steirn (Defendant)

  Solicitors:
The Property Practice (Plaintiff)
The Workplace – Employment Lawyers (Defendant)

File Number(s):

2017/363933

Publication restriction:

No

EX TEmpore Judgment

Summary

1. The defendant (“Mr Roth”) was employed by the plaintiff ("Sprout") as its sales manager. Mr Roth's contract of employment had a clause protecting Sprout's confidential information but did not contain a restraint of trade clause.

2. Mr Roth has left Sprout and set up his own business in competition with Sprout. At the time he left Sprout, Mr Roth emailed a number of Sprout's clients from his work computer telling them that he was leaving Sprout. He copied those emails to his private email address thereby leaving himself with the email addresses of those clients.

3. Sprout submits that by copying those emails to himself, Mr Roth breached Sprout's entitlement to keep that information confidential either in equity or pursuant to the terms of Mr Roth's contract of employment. Sprout seeks this interlocutory relief:

“1.   Order that pending the determination of these proceedings the Defendant (and/or his servants or agents) be restrained from communicating with, approaching or soliciting orders from customers of the Plaintiff whose names and addresses are or were obtained by or became known to the Defendant from records of or information obtained from the records of the Plaintiff (“the Plaintiff’s confidential information) or who were clients of the Plaintiff at any time during the Defendant’s employment by the Plaintiff.

2.   Order pending the determination of these proceedings or until further order that the Defendant by himself, his servants or agents be restrained from copying or showing to any person any customer lists, schedules of prices or any other confidential information of the Plaintiff.

3.   An order that the Defendant within 7 days of today deliver up to the Plaintiff the original and all copies of any list of customers or any document or any other form of recording information containing or referring to the names and/or contact details of customers of the Plaintiff together with the original and all copies of any schedule of prices of the Plaintiff.”

4. On any view, that relief is far too wide. There is no evidence that Mr Roth has or might have taken customer lists, price lists, or similar confidential information. All the evidence discloses that he has done is to copy to himself emails containing the names and email addresses of those clients. The evidence at the moment is that about 25 to 30 such clients were contacted.

5. Even in relation to the names and email addresses of those clients, for the reasons which follow, I am not satisfied that either in contract or equity there is a sufficiently serious question to be tried that Sprout is entitled to the relief which it seeks on a final basis. In my view, Sprout's case for such relief is weak. Nor does the balance of convenience favour the making of such orders.

6. Mr D M Flaherty of Counsel appeared for the plaintiff. Mr D Steirn of Counsel appeared for Mr Roth.

The facts

7. Sprout operates as what is known as a venue aggregator. For present purposes, that is most easily understood by reference to the well-known phenomenon of pop-up shops. Sprout has both vendor clients and purchaser clients. The vendor clients are entities such as Westfield, QIC/GRE, GPT and AMP who offer space for pop-up shops in their shopping centres. Sprout also has purchaser clients, being agencies which represent those persons who wish to erect pop-up shops or such persons directly.

8. In April 2013, Mr Roth commenced employment with Sprout as its sales manager. His contract of employment is a letter from Sprout dated 19 April 2013 which included:

“11.   Confidentiality –

a.   The employee shall not at any time or for any reason, whether during the term of this agreement or after its termination, use or disclose to any person, any confidential information relating to the employer’s business except where release of such information may be reasonably necessary to enable the employee to fulfil their duties and obligations under the agreement.

b.   The employee shall not remove or copy any information including client/customer/patient information, from the employer’s premises without the consent of the employer.

c.   The employee shall not use any confidential information relating to the employer’s business or information gained through their employment for their own benefit.

d.   The employee shall not attempt to use any confidential information in any manner, which may injure or cause loss, whether directly or indirectly, to the employer.

e.   After termination of employment with the employer, employees shall not directly or indirectly make a record of, or divulge or communicate to any other person, any information regarding the employer’s business.”

9. Significantly for present purposes, Mr Roth's contract of employment did not include a restraint of trade.

10. Mr Roth remained in Sprout's employ for a period of in excess of three years.

11. On or about 8 September 2017, Mr Roth gave his notice to a director of Sprout saying that he (Mr Roth) was "going to start up an e-learning business".

12. On or about 6 November 2017, Sprout became aware that, in fact, Mr Roth had set up a business in direct competition with Sprout. This resulted in an investigation of Sprout's computers that had been used by Mr Roth. The investigation disclosed that between 4 and 6 October 2017, Mr Roth had sent emails to both vendor and customer clients of Sprout. An example of such an email is:

“Hi Guys,

Hope all are well.

I wanted to let you know this is my last week with Sprout.

Its been a please working with you over the years and we’ve done some great work together. I’m moving into a new industry with an exciting opportunity ahead.

Moving forward Peter will revert to the main contact for experiential and Steffi for any ongoing campaigns.

If anyone wanted to stay in touch I’m contactable through linked in.

wish you all the best!

Cheers,

Julian.”

13. It is apparent from the “cc:” line of the email that has just been set out that Mr Roth copied that email to himself at a private email address.

14. There are also other emails in evidence before me, which it is not necessary for me to reproduce, which show that Mr Roth was contacting clients of Sprout and making it clear that he was hoping those clients would keep his future business plans "quiet from Sprout" until he had got his own business up and running.

Consideration

15. Mr Flaherty properly accepted that Mr Roth was entitled to go into competition with Sprout. Furthermore, he also properly accepted that Mr Roth was entitled to use information about the identity of personnel at Sprout's clients and their contact details insofar as that information was in Mr Roth's memory, being information that Mr Roth had acquired in the course of his employment. However, Mr Flaherty submitted that the copying of the emails containing the names and email addresses of those clients to himself demonstrated a serious question that Mr Roth did not in fact have that information in his head and that the information was confidential to Sprout.

16. There are a number of difficulties in Mr Flaherty's argument which have led me to the conclusion that there is either no serious question to be tried or, if there is a question at all, it is a very weak one. The balance of convenience is also against an order being made.

17. First and foremost, it is necessary in cases such as this to identify with precision the confidential information that is sought to be protected. In this case, it is clearly said to be the names and email addresses of the executives of Sprout’s clients. In my view, Sprout's case falls into serious difficulties at this liminal stage. Mr Roth's evidence makes it clear that for many, and it would appear to be most, of both the vendor and purchaser clients, the names and email contacts of those persons are freely available on the relevant websites. That is to say, the information is not really confidential at all.

18. For example, there was evidence before me of a screenshot of the relevant page of Westfield’s website where the contact details including names, photographs, and email addresses and other information about the several executives who are apparently involved in the process of making parts of Westfield's premises available to pop-up shops were freely available to anyone who cared to search the internet. On the state of the evidence before me, I am not satisfied that there is any evidence supporting the proposition that the information comprising the names and contact details of those executives is confidential in any relevant sense.

19. Second, I do not accept that it is strongly arguable from the fact that Mr Roth copied the emails to himself that he did not in fact have those names and email addresses in his memory. Mr Roth's evidence was that he had sent "countless" emails over three and a half years to those persons at their email addresses. Furthermore, his evidence was, and accords with the Court's understanding of how these things work nowadays, that he had become very familiar with the email naming protocols of the different organisations with whom he had dealt. In other words, even if he was in doubt as to the precise email address of one of these contacts, he had learnt the email protocols that those organisations used and from this could deduce a particular person’s direct email address. There was also evidence that most, if not all, of those contacts were on his LinkedIn contact database.

20. In those circumstances, I am not satisfied that the fact that he copied those emails to himself makes it strongly arguable that he did not have that information in his memory. An equally, if not more plausible, explanation was that he “cc’d” them to himself so that if any of those people chose to reply, they would have replied to his personal email address or to the LinkedIn address which he gave in the emails.

21. Third, I have not overlooked that Mr Flaherty also submitted that there was another alleged piece of confidential information involved in this case, namely the fact that those particular people were clients of Sprout. It may be that would be a piece of confidential information. However, it is not the piece of confidential information which Mr Roth was using or disclosing. It is not, for example, as though he was telling anybody else who Sprout's clients were. I do not accept that the characterisation of the confidential information in that way gives rise to any different result from that to which I have come.

22. Fourth, the authorities make it clear, at least in relation to the equitable jurisdiction, that a plaintiff must establish that the particular information was provided in circumstances of confidence, that is to say that the employee understood or ought to have understood that the information was to be kept confidential. The evidence, in my view, does not support any such inference being drawn in relation to the names of the executives and their email addresses.

23. Fifth, in the exercise of the Court's discretion, I would not be prepared to lay injunctions in the terms sought by Sprout (or in any other varied form) seeking to restrain Mr Roth's use of those contact details, in circumstances where the utility of such an order is, in my view, seriously in doubt. This may just be another consequence of the fact that the information is not truly confidential. Even if the Court were to lay an injunction of the kind sought by Sprout, there would be nothing to prevent Mr Roth going on the internet the next day and finding exactly the same information and proceeding to conduct his business based on that information rather than on the same information that was said to have been confidential.

24. Sixth, I am not satisfied that it would be appropriate to make an order of the breadth of order 1 sought by Sprout or any order of such kind. I accept Mr Steirn's submission that any such order would, in effect, be a backdoor way of achieving a restraint of trade to prevent Mr Roth from competing with Sprout in circumstances where it did not have a contractual restraint upon which it could rely.

25. In relation to the contractual cause of action based upon clause 11 of Mr Roth's contract of employment, the observations I have made about the lack of confidentiality in the relevant information apply with equal force. Each of the sub-clauses of clause 11 (see paragraph [8] above) refer to "confidential information", with the exception of sub-clause 11(b) and (e). The latter is not engaged. Sub-clause 11(b) states:

“b.   The employee shall not remove or copy any information including client/customer/patient information, from the employer’s premises without the consent of the employer.”

26. Insofar as clause 11(b) is concerned, there are two reasons why I do not think it gives strong grounds for relief. First, in the context in which it appears, it seems to me that the better view is that, as a matter of construction, clause 11(b) would still be limited to information that was confidential. Even if that be wrong and clause 11(b) were to operate in accordance with its terms, while it might be said that Mr Roth had copied client information, given that information was in no sense confidential it would be difficult to see how anything other than nominal damages would flow from a breach of that clause. The fact that the information was not confidential would also militate against an injunction being laid, on either view of the proper construction of that clause.

27. In relation to the equitable principles, Mr Flaherty drew attention to the well-known cases. In particular, he relied on Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317. In that case, Samuels JA said:

“As Hodgson J observed, it is not clear that Australian courts have adopted the tripartite classification of confidential information which an employee may obtain in the course of his employment which Goulding J advanced in Faccenda Chicken Ltd v Fowler [1984] ICR 589 at 598–599. However, it seems to me that it represents a useful taxonomy which organises relevant information into three categories. First, that which, because of its triviality or public availability, cannot reasonably be regarded as confidential at all. Secondly, information which the employee must treat as confidential (either because he is expressly told that it is confidential, or because from its character it obviously is so), but which he is free to use after his employment has terminated. Thirdly, specific trade secrets “so confidential that, even though they may necessarily have been learned by heart and even though the servant may have left the service, they cannot lawfully be used for anyone's benefit but the master's” (at 600). With this might be read what was said by G Sir Robert Megarry V-C in Thomas Marshall (Exports) Ltd v Guinle [1979] Ch 227 at 248.”

28. Having regard to the taxonomy to which his Honour refers, it seems to me that the information which is said to be confidential in this case most likely falls within the first category, namely that it is trivial or publicly available and cannot reasonably be regarded as confidential. Alternatively, it does not even, in my view, fall within the second class which he would be entitled to use because it is not information which Mr Roth was expressly told was confidential or because from its character it was obviously so. Even on the strongest view of Mr Flaherty's submissions, it could not seriously be suggested that the information the subject of the present application was a trade secret within the third category identified by Samuels JA.

29. Turning to the balance of convenience, the question of balance of convenience can assume particular importance in cases where the serious question to be tried or prima facie case is identified as weak. It does so in this case. Mr Roth's evidence was that his new business was his only source of income and that he had taken out finance to assist him in establishing it. I accept that making orders of the kind sought by Sprout today would have the effect of shutting down Mr Roth's new business barely as it had started in circumstances where Sprout does not have a contractual right to restrain Mr Roth from competing with it. Especially in circumstances where I am satisfied that Sprout's case is not a strong one, the balance of convenience points firmly against any order being made against Mr Roth.

30. Finally, this is also a case where I am not satisfied that an undertaking as to damages would provide sufficient protection, in circumstances where the quantification of such damages in connection with a new business would, in my view, prove particularly difficult and speculative.

Conclusion

31. The application for interlocutory relief will be dismissed and I will hear the parties as to costs.

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Decision last updated: 08 December 2017