Federal Court of Australia
Garner v Central Innovation Pty Limited [2022] FCAFC 64
ORDERS
AND: | CENTRAL INNOVATION PTY LIMITED (ACN 123 240 362) First Respondent INTERCAD PTY LTD (ACN 072 666 016) Second Respondent |
DATE OF ORDER: | 21 April 2022 |
THE COURT ORDERS THAT:
1. The appeal is dismissed with costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
THE COURT:
1 These reasons concern an appeal from orders of a judge of this Court made on 16 December 2020, giving effect to reasons published on that date: Central Innovation Pty Ltd v Garner (No 4) [2020] FCA 1796 (J).
2 The proceedings before the primary judge concerned allegations of misuse of confidential information obtained by the appellant, Mr Gary Garner, during an employment relationship with one or other of the respondents, Central Innovation Pty Ltd and Intercad Pty Ltd, and in the course of his subsequent employment with a competitor of the respondents, N C Cadcam Systems Pty Ltd (NCCS), now in liquidation.
3 The grounds of appeal are summarised at [58] – [63] below.
4 For the reasons that follow, all of the grounds are rejected.
5 The appeal should be dismissed with costs.
Factual Findings
6 The following facts found by the primary judge are relevant to a resolution of this appeal. Most of them are not subject to challenge.
The CI Group
7 The respondents are part of a group of companies that operate collectively under a business umbrella called the CI Group. Intercad is, and has been since 12 January 2016, a wholly-owned subsidiary of Central Innovation. One or more of the members of the CI Group advise customers in the design, manufacturing and construction industries about optimising their design processes and systems, and supplying them with three dimensional computer aided design and drafting software (3D CAD software). The CI Group employs just under 150 people, approximately 42 of whom perform work for Intercad.
SolidWorks software
8 The 3D CAD software and related services supplied by one or more of the members of the CI Group came from SolidWorks Corporation (formerly called SolidWorks Inc), a United States-based company and subsidiary of French company Dassault Systèmes. Dassault Systèmes is one of the largest developers of 3D CAD software in the world. SolidWorks has captured approximately 50% of the Australian 3D CAD software market.
9 Customers who purchase SolidWorks’ 3D CAD software from one of SolidWorks’ resellers acquire both a perpetual licence for the software and a 12-month subscription to software updates. During the subscription period, the reseller also provides technical support, and is known as a “Value Added Reseller” (VAR). A customer of a SolidWorks VAR may have more than one software subscription. At the end of each subscription period, which may or may not be synchronised as between different subscriptions, the customer chooses whether or not to renew any given subscription. CI Group/Intercad subscriptions were synchronised. The information held by a SolidWorks VAR about subscribers is important to the process of servicing their needs and securing the renewal of subscriptions.
10 Between about 1996 and 2009, Intercad was an exclusive distributor of SolidWorks software in Australia and New Zealand. Since then, Intercad periodically entered into distribution agreements with SolidWorks by which Intercad had the non-exclusive right to sell its software in Australia and New Zealand. Intercad’s business was largely selling licences to use SolidWorks software. Intercad and SolidWorks entered into the relevant distribution agreement on l April 2014 (Distribution Agreement).
Employment of the appellant
11 The appellant admitted in his defence that he performed work for Intercad, said in his affidavit evidence that he was employed by Intercad, and denied in both his defence and evidence ever having been employed by Central Innovation. The respondents contended that they were each jointly or severally the employer of the appellant, and that he was employed by one, or the other, or both of them.
NCCS
12 The appellant’s subsequent employer, NCCS, also supplied SolidWorks 3D CAD software as a VAR, confined to Victoria and Tasmania. In 2016, NCCS was Intercad’s only substantial competitor in Victoria and Tasmania.
13 NCCS was originally the second respondent to the proceedings before the primary judge. It went into voluntary liquidation on 10 April 2019, just under eight months before the trial in early December 2019, preventing the proceedings continuing against it without the leave of the Court: see s 500(2), Corporations Act 2001 (Cth). No leave was sought nor granted for the proceedings to continue against NCCS.
14 At the core of the dispute before the primary judge was the question of whether, during the time that he performed work for Intercad, the appellant appropriated the respondents’ customer information and misused that information during the course of his employment with NCCS. The principal form of misuse alleged by the respondents was getting a subscriber customer of a VAR member of the CI Group to become an NCCS subscriber customer.
The “VRC” and “SUGAR”
15 During the period between 30 November 2009 and 22 August 2016, SolidWorks operated an electronic database known as the “Value Added Reseller Resource Centre” (VRC). The appellant had access to the VRC. The text of the Distribution Agreement states that Intercad was to ensure that only “authorized employees” could access the VRC.
16 During the period between 30 November 2009 and 22 August 2016, the appellant also had access to SUGAR, an electronic customer relationship management (CRM) system used by the respondents.
Employment contracts and access to the VRC and SUGAR
17 On 30 November 2009, the appellant entered into a contract of employment. The primary judge referred to that contract in his reasons as Contract One.
18 On 2 December 2009, the appellant was given login details that provided him with access to the VRC.
19 On 16 March 2011, the appellant received an email with an attached letter, the pages of which comprised a second contract. The primary judge referred to that contract in his reasons as Contract Two.
20 Between 30 November 2009 and about l March 2013, the appellant’s position was “Business Development Manager”.
21 On or about l March 2013, the appellant was promoted to the position of “Team Leader, Victoria”. He was given access to SUGAR for the purpose of carrying out his duties and responsibilities as a Team Leader.
22 During the period between 30 November 2009 and 22 August 2016, the appellant used a laptop computer for the purposes of carrying out his duties as a Business Development Manager and, later, as Team Leader (Intercad Laptop).
23 In June and July 2016, Mr John Atkinson in his capacity as General Manager of Intercad and Intercad (NZ) Pty Ltd, had discussions with the appellant about a possible restructure of the respondent companies and the sales department.
24 In about early July 2016, the access permissions to SUGAR for all Team Leaders were altered to prevent any of them from directly downloading any information stored in the SUGAR database.
25 The appellant was made redundant on 22 August 2016.
26 On 22 August 2016, the appellant contacted Mr Stalin D’Souza on LinkedIn. Mr D’Souza was the Director of NCCS. He commenced employment with NCCS on 15 November 2016.
27 During the period between 15 November 2016 and around June 2017, NCCS operated a CRM system known as “Hatchbuck”.
SUGAR database
28 The SUGAR database is a Central Innovation product that has been provided to Intercad.
29 SUGAR contains the names, telephone numbers, mailing addresses and email addresses for all former, current and prospective customers of both Central Innovation and Intercad, including the personal contact details of key customer representatives known as “contacts”.
30 There is more customer-specific information stored within SUGAR than in the VRC. It records prices and subscription renewal fees paid by the customers of the respondents, which are not disclosed to the public nor to other VARs of SolidWorks software.
31 One of the primary functions of SUGAR is to create an electronic log of communications with the respondents’ customers. SUGAR enables members of the respondents’ sales and marketing teams to save copies of emails exchanged with contacts and to create summaries of meetings and telephone conversations. Thus, SUGAR enables a user to readily ascertain the focus of the respondents’ marketing efforts, the types of software customers have purchased or are interested in purchasing, and the prices offered or charged for those products.
32 SUGAR can be used to generate customised reports of specific categories of information, such as a report of all sales opportunities pursued by the respondents in Victoria within a particular time period.
33 As noted above, the primary use of SUGAR was to track the relationship between the respondents and their customers, but it could also be used to assess performance. If, for example, an individual salesperson was underperforming or not meeting targets, then SUGAR could be used to look at their activity in terms of the number of meetings or number of calls logged.
34 The respondents are both sales-driven organisations, with the remuneration of sales staff depending partly on the sales they made. As such, they were required to record in SUGAR contact made with customers. As noted above, such information could not be added to the VRC. Rather, the information in that database (apart from orders lodged by a VAR) was entered by SolidWorks, who was solely responsible for maintaining it.
35 At times duplicate information was entered in SUGAR and sometimes the data became out of date. The remedy for any inaccurate information that might exist from time to time in SUGAR was not to be found in the VRC, but rather by updating SUGAR.
36 It was a matter for disciplinary action if sales staff were found to have put false information into SUGAR. Two members of staff had been dismissed in the month before Mr Atkinson gave evidence for putting false information into SUGAR, but there was no evidence of any such disciplinary action being required during the time of the appellant’s employment.
37 Sales team members of the respondents may contact existing and potential customers using email, direct telephone calls or social media campaigns in line with the marketing strategies for particular customers or groups of customers.
38 Each time a sales member team makes or attempts to make contact with a customer or potential customer, he or she creates a record within SUGAR of the date and method of communication and a brief summary of any oral discussion. If a communication takes place by email, a copy of that email, or a version of that email displaying its contents, is saved within SUGAR. The name of the sales team member is also logged in SUGAR.
39 SUGAR makes it possible to view a complete record of all prior communications with any particular customer or potential customer, which increases the efficiency and effectiveness of sales and marketing activities. That information can be sorted and displayed according to different categories of information, such as customers who have purchased a particular product within a particular time period, or the marketing and sales techniques used. Customised reports of information of the kind already described can also be generated. This information would enable a competitor to understand which customers have been the focus of marketing strategies and the status of attempts to win business from such customers.
40 Team members were able to use an application within SUGAR to synchronise selected emails with SUGAR and an icon for that application was displayed in a screenshot of the appellant’s Microsoft Outlook inbox, which Mr Atkinson took from the Intercad Laptop.
41 Mr Atkinson had not received any complaints or feedback from any employee, including the appellant, that they had found SUGAR difficult to use. The appellant’s proficiency in the use of SUGAR is the subject of contested findings discussed elsewhere in these reasons.
42 Eighteen reports containing data obtained from the report module in SUGAR were located on the Intercad Laptop and were admitted into evidence (SUGAR Reports).
43 The primary judge held that the appellant had multiple means available to him by which he could copy or export data from SUGAR without the need to generate a report.
44 The primary judge found that the appellant used SUGAR reasonably extensively in the final three months of his employment with Central Innovation. The Intercad Laptop recorded between 10,634 and 10,638 web visits to SUGAR during that period, an average of over 168 visits per day. In the period immediately leading up the appellant’s retrenchment, a particular kind of usage began to increase, namely accessing the reports module in SUGAR. The reports module in SUGAR enabled users to “build, generate and manage” reports for other modules, such as accounts, contacts and calls.
45 Searches conducted on the hard drive of the Intercad Laptop revealed that the appellant had created 13 Excel spreadsheets at various times. The primary judge found that some of the information contained in the spreadsheets matched data within a backup version of SUGAR as it stood at the relevant time. One of the Excel spreadsheets, named “Gary list.xlsx”, was a customised report entitled “Gary G list”. It contained contact details for representatives of all customers and leads that had been assigned to the appellant. The primary judge found that the “Gary list.xlsx” file located on the Intercad Laptop was not a .csv export from SUGAR, but rather was very likely copied and pasted from the SUGAR website by the appellant. An examination of a backup version of SUGAR recorded the functions that were available to the appellant within SUGAR, including “Run Report”, “Edit”, “Duplicate”, “Schedule”, “Print as PDF”, “Export” and “Delete”.
46 An examination of the Intercad Laptop revealed 38 occasions of .csv file downloads from SUGAR between November 2013 and April 2015, that is, sometime before the appellant was made redundant.
47 One of the spreadsheets on the Intercad Laptop contained, among other things, all opportunities assigned to the appellant and his team that were forecast to close in the month of June 2014.
Entry of customer contacts on Hatchbuck
48 A total of 131 customer contacts were entered into the NCCS Hatchbuck database by the appellant or by persons acting at his direction in the period between 15 November 2016 and 9 June 2017, but the great majority were entered by the end of February 2017. The appellant personally entered 111 of these 131 customers.
49 Due to the overlap between the email address entries and the customer contact entries, virtually all of the 131 entries in the Hatchbuck database contained information that was also contained in SUGAR.
50 The 131 entries in the Hatchbuck database included 40 that were tagged with the notation “Customer with IC”.
51 Some of the email addresses in the Hatchbuck database contained the same errors that were present for those addresses in SUGAR. Those errors had arisen either because of data entry error or the addresses were no longer current.
Output Files
52 The confidential data alleged to have been accessed by the appellant was said to have been contained in two reports, generated by the appellant on 30 June 2016, in the form of spreadsheets. These spreadsheets are referred to as Output 26 and Output 27 (together, the Output Files). The information in the Output Files included customer contact information, the types of software licences and subscriptions sold to customers, expiry dates and pricing information. The information was available to the appellant and was in a form that was capable of being copied or sent to him.
53 The respondents alleged that the appellant accessed the VRC on 30 June 2016 between about 10.19 am and 10.22 am (first period), and again between about 10.29 am and 10.35 am (second period). During the first period, the respondents alleged that the appellant downloaded Output 26 in .csv format, saved it in Excel .xlsx format, and then copied it to an external USB drive. During the second period, the respondents alleged that the appellant downloaded Output 27 in .csv format, saved it in Excel .xlsx format, and then copied it to the same external USB drive.
54 The appellant’s evidence was that he recalled downloading a large file from the VRC in June 2016 and uploading it onto a USB drive due to its size. He alleged that he gave the USB drive to a salesman who reported to him.
Confidentiality of information in Output Files and SUGAR
55 The information in the Output Files and the SUGAR Reports, together with information that could be obtained from SUGAR more generally, was not publicly available and fell within the broad definition of “confidential information” in clause 14.1 of Contract One and Contract Two, and was expressly prohibited from being removed or disclosed in the absence of written consent, as stipulated in clause 16.1 of Contract One and clause 15.1 of Contract Two.
Customer explanations for switching to NCCS
56 For 25 of the 37 customers of Intercad who switched to NCCS, the reason stated on the relevant account change request was “We would like to try NCCS for their service”. For a further 10 of the 37 customers, a similar phrase such as “Want to try NCCS for their support” was used. For the remaining two customers the reason stated was “I wish to change my service provider” and “consolidating licences”. The 37 customers had been customers of Intercad for periods of between four years and five months, and 22 years and five months. None of them expressed any dissatisfaction with the services provided by Intercad as the reason for changing to NCCS.
57 There was no evidence to suggest that Intercad’s customers would have switched to NCCS but for the intervention of the appellant. The primary judge accepted that each would have renewed their existing subscriptions with Intercad at their existing rates.
Grounds of Appeal
58 The Amended Notice of Appeal contains five paragraphs, each described as a ground of appeal. There are multiple subparagraphs alleging an array of appealable errors. The alleged errors are not logically grouped and are repetitive in some respects. It is convenient to consider the allegations of error by re-grouping them as follows.
59 Ground One alleges that the primary judge erred in finding against the appellant on a case that the respondents had neither pleaded nor fairly notified to him (Amended Notice of Appeal, [1.1] – [1.4]).
60 Ground Two alleges that the primary judge erred in finding that Central Innovation (now acknowledged to be the appellant’s employer) had established any loss or damage (Amended Notice of Appeal, [2.1]).
61 Ground Three alleges that the primary judge erred in failing to find that the respondents had:
(1) failed to prove their case and otherwise erred in making factual findings concerning the appellant’s conduct in accessing, printing, downloading, removing and misusing the information contained in the Output Files, the SUGAR Reports and material referred to as “the SUGAR Extracts” (Amended Notice of Appeal [1.5], [1.6], [1.9], [3.1] [3.2], [3.3], [3.4], [4.3], [4.4], [4.5] and [4.6]) and
(2) failed to comply with the rule in Browne v Dunn (1893) 6 R 67 in respect of some of those findings (Amended Notice of Appeal [1.7] and [1.8]).
62 Ground Four alleges that the primary judge erred in making an adverse assessment of the appellant’s credit (Amended Notice of Appeal [4.1] and [4.2]).
63 Ground Five alleges that the primary judge erred in concluding that the respondents’ claim sounded in loss or damage and in assessing the quantum of the remedy (Amended Notice of Appeal [5]).
Ground 1
64 The respondents’ pleaded case was that alleged in their Second Further Amended Statement of Claim dated 28 August 2019 (2FASOC).
65 The primary judge found that the respondents’ case alleging information taken from SUGAR was not confined by the 2FASOC in the manner alleged by the appellant, but if that finding was incorrect then the appellant was on sufficient notice that the case being advanced was not so constrained. The reasoning of the primary judge is principally set forth at J [180]:
I am satisfied that the pleading objection raised by Mr Garner is without substance. It entails reading the relevant parts of the statement of claim not as alternatives, but instead as involving otiose repetition or emphasis. For the reasons that the applicants give, as summarised above, and also by a plain and linguistically sensible reading of the statement of claim, I accept that the confidential information in issue is not as limited as Mr Garner contends, but rather is as broad as the applicants assert. In any event, even if the statement of claim could be read as not extending to the broader source of information within SUGAR that the applicants rely upon, I consider that Mr Garner was on sufficient notice that the case being advanced was not so constrained and conducted the substance of his case upon that basis. It is true that the applicants’ opening submissions focused on information from SUGAR that was derived from replicating the reports module uniform resource locators (URLs) found on the Intercad Laptop. However, the last part of Mr O’Kane’s first report analysed the difference between sessions recorded on the SUGAR server and those recorded on the Intercad Laptop, finding remote access using Mr Garner’s logon but not using the Intercad Laptop, reproducing the data in a table. Mr O’Kane was cross-examined about this evidence in some detail, making it clear that Mr Garner was on notice that part of the applicants’ case did involve an allegation of obtaining data from SUGAR other than via the Intercad Laptop, and therefore was not confined to the 18 SUGAR Reports derived from the report module URLs found on the Intercad Laptop. This is detailed in the evidence considered below.
66 The phrase “SUGAR Extracts” is used by the appellant to describe a body of information contained in SUGAR, other than the files referred to as the SUGAR Reports or the Output Files. The SUGAR Extracts is that information exhibited to an affidavit of Mr D’Emiolio sworn on 19 September 2019 and consists of all of the information maintained by the respondent relating to customers or prospective customers, including telephone numbers, email addresses and individual contact details.
67 On this topic, the Amended Notice of Appeal alleges the following appealable error:
1.1 The learned primary judge erred ([177], [179], [180], [264], [308] and [309] of the Reasons) in finding against the Appellant, and for the Respondents, on a case both beyond and different from the case that had been pleaded by the Respondents (the ‘Respondents Pleaded Case’).
1.2 It was not part of the Respondents Pleaded Case that the Appellant took or removed the SUGAR Extracts and used or misused the SUGAR Extracts during the course of his employment with NCCS, and the learned primary judge erred by so finding, and doing so in a departure from the Respondents Pleaded Case.
1.3 The learned primary judge ought not, departing from the Respondents Pleaded Case, have found that the SUGAR Extracts were part of the Respondents’ alleged confidential information, alleged to have been taken or removed and used or misused during the course of the Appellant’s employment with NCCS, in circumstances where:
1.3.1 the SFASOC did not plead that the Appellant downloaded, copied, had taken or removed the SUGAR Extracts from the Respondents’ custody, possession or control, nor did it plead that the Appellant used or misused the SUGAR Extracts during the course of his employment with NCCS;
1.3.2 in their submissions (written opening submissions, oral opening submission and written closing submissions) the Respondents did not contend (and thus the Appellant was not on notice that) the Respondents’ case was that the Appellant had:
(i) downloaded, copied, printed, had taken or removed the SUGAR Extracts from the Respondents’ custody, possession or control; and
(ii) used or misused the SUGAR Extracts during the course of his employment with NCCS;
1.3.3 the Appellant did not acquiesce to any departure from the Respondents Pleaded Case, by the Respondents or by the learned primary judge making findings of fact beyond and different from those alleged in the Respondents Pleaded Case.
1.4 Given the terms of the Respondents Pleaded Case and the evidence (concessions during trial made by witnesses called by the Respondents), the learned primary judge ought to have found that the allegation regarding confidential information (alleged to have been taken or removed, and used or misused, by the Appellant during the course of his employment with NCCS) that the Appellant was required to meet at the trial was confined to:
(i) Output 26;
(ii) Output 27; and
(iii) the SUGAR Reports,
and did not include the SUGAR Extracts.
Relevant principles
68 The principles in relation to the function and rules of pleading and the purpose of particulars are well settled.
69 In Banque Commerciale SA, en liquidation v Akhil Holdings Limited (1990) 169 CLR 279, the High Court emphasised that the rules of pleadings are directed at ensuring that a party should be given a fair opportunity to meet the case advanced against it. Their Honours explained (at 286 – 287):
The function of pleadings is to state with sufficient clarity the case that must be met: Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (In liq.), per Isaacs and Rich JJ. In this way, pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision. The rule that, in general, relief is confined to that available on the pleadings secures a party’s right to this basic requirement of procedural fairness. Accordingly, the circumstances in which a case may be decided on a basis different from that disclosed by the pleadings are limited to those in which the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities. See, e.g., Browne v Dunn; Mount Oxide Mines.
Ordinarily, the question whether the parties have chosen some issue different from that disclosed in the pleadings as the basis for the determination of their respective rights and liabilities is to be answered by inference from the way in which the trial was conducted. It may be that, in a clear case, mere acquiescence by one party in a course adopted by the other will be sufficient to ground such an inference.
(footnotes omitted)
70 A hearing that departs from the pleadings is not necessarily an unfair hearing. It is necessary to consider what issues were fairly fought between the parties: Sullivan v Trilogy Funds Management Ltd (2017) 255 FCR 503 (at [265(1)]) citing Gould v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490 (at 517); Vale v Sutherland (2009) 237 CLR 638 (at [41]); Banque Commerciale SA (at 296 – 297); Betfair Pty Ltd v Racing New South Wales (2010) 189 FCR 356 (at [51]).
71 The principal focus on procedural fairness, rather than rigidity in the application of formal pleading rules, was illustrated in the decision of the Full Court in NRM Corporation Pty Ltd v Australian Competition and Consumer Commission [2016] FCAFC 98 (Flick, Murphy and Griffiths JJ). Their Honours explained (at [26]):
First, the fact that findings may be made — and even liability established — upon the basis of evidence which goes beyond a pleaded case is not of itself reason to set aside a decision. To so recognise is not to deny the importance of pleadings; it is simply to recognise that a party must be given, by one means or another, adequate notice of the case it has to meet. …
72 Similar principles apply with respect to particulars. Ultimately, the critical issue is that judgment is delivered on the causes of action pleaded rather than precisely within the scope of the particulars alleged in a pleading. As McKerracher, Robertson and Derrington JJ explained in Stefanovski v Digital Central Australia (Assets) Pty Ltd [2018] FCAFC 31; 368 ALR 607 (at [65]):
That is not to say that a judgment needs to be precisely within the scope of the ‘particulars’ alleged in a pleading so long as judgment is given on the causes of action pleaded. A fair amount of tolerance can be justified so long as the circumstances are such that all parties to the action have had fair notice of what will be determined. Experience shows that it is not infrequently the case that the evidence adduced at trial diverges from the pleaded particulars to some degree. That is not unexpected given that pleadings are prepared well in advance of all of the relevant information becoming known. In this respect, in Water Board v Moustakas at CLR 497; ALR 197;, the majority of the High Court (Mason CJ, Wilson, Brennan and Dawson JJ) indicated that particulars are less confining than material facts. Their Honours said:
In deciding whether or not a point was raised at trial no narrow or technical view should be taken. Ordinarily the pleadings will be of assistance for it is one of their functions to define the issues so that each party knows the case which he is to meet. In cases where the breach of a duty of care is alleged, the particulars should mark out the area of dispute. The particulars may not be decisive if the evidence has been allowed to travel beyond them, although where this happens and fresh issues are raised, the particulars should be amended to reflect the actual conduct of the proceedings. Nevertheless, failure to amend will not necessarily preclude a verdict upon the facts as they have emerged: see Dare v Pulham (1982) 148 CLR 658; 44 ALR 117. In Leotta v Public Transport Commission (NSW) (1976) 50 ALJR 666 at 668; 9 ALR 437 at 446, a case having been submitted to the jury which was factually different from that alleged in the pleadings and particulars, Stephen, Mason and Jacobs JJ observed that the pleadings should have been amended in order to make the facts alleged and the particulars of negligence precisely conform to the evidence. The failure to apply for the amendment in that case was held not to be fatal. But in Maloney v Commissioner for Railways (NSW) (1978) 52 ALJR 292; 18 ALR 147 Jacobs J, with whom the other members of the court agreed, pointed out (ALJR at 294; ALR at 151–2) that the conclusion in Leotta v Public Transport Commission (NSW) (1976) 9 ALR 437 was reached only upon the presupposition that the new issue or new way of particularising the existing issue had emerged at the trial and had been litigated.
Appellant’s submissions
73 The appellant submits that, contrary to the principles in Banque Commerciale SA (at 286 – 287), his Honour found that the confidential information included that which was outside, beyond and different from the respondents’ pleaded case by including the SUGAR Extracts. The appellant advances the following contentions.
74 First, the appellant contends that Mr Stephen D’Emilio, the lawyer acting on behalf of the respondents, gave evidence during cross-examination that Annexures A to I to the 2FASOC “effectively contain the case made against the [appellant]”. He contends that Mr D’Emilio also gave specific, confirmatory evidence that the Output Files and the SUGAR Reports comprised the categories of confidential information in respect of which the respondents plead their allegations against the appellant.
75 Second, the appellant contends that the SUGAR Reports are not the same as the SUGAR Extracts exhibited to the affidavit of Mr D’Emilio sworn on 19 September 2019, which are effectively the entirety of the database containing all information maintained by the respondents relating to customers or prospective customers, including telephone numbers, email addresses and individual contact details. He contends that no case was pleaded that the SUGAR Extracts were confidential information taken from the respondents and used by the appellant during his employment with NCCS.
76 Third, the appellant contends that the SUGAR Reports do not contain any email or telephone contact information of the customers referred to in Annexure A, B or C of the 2FASOC.
77 Fourth, the appellant contends that for the Court to depart from the manner in which a case has been advanced for resolution may involve a denial of procedural fairness, referring to Francuziak v Minister for Justice (2015) 238 FCR 332 (at [36]). He submits that the primary judge ought to have found that “the case now sought to be made by [the respondents] … was neither directly nor indirectly pleaded and was not the basis of liability which was pursued in the course of the conduct of the case”, citing Commonwealth Securities Ltd v South Pacific Securities Pty Ltd [2003] NSWCA 199 (at [41]); Stefanovski (at [74] – [81]).
78 Fifth, the appellant contends that the respondents’ written opening submissions, oral opening submissions and written closing submissions also did not contend, and the appellant was not on notice, that the respondents’ claim against him included allegations that the confidential information allegedly taken included the SUGAR Extracts, or that he had allegedly used the SUGAR Extracts whilst employed by NCCS.
79 Sixth, the appellant contends that he did not acquiesce to any departure by the respondents from their pleaded case against him or “deliberately choose to allow the [respondents’] case to be conducted on a different basis”. He contends that the “[respondents] were not entitled to escape the deficiencies in the [pleadings]; and as a result, the confidential information allegedly taken and used by the appellant was “limited to Output 26, Output 27, the SUGAR Reports”.
80 Seventh, the appellant submits that neither the respondents, nor the primary judge, put any questions to the appellant concerning any allegation of remote access to the SUGAR database, nor the copying, printing, extracting or removal of the SUGAR Extracts by way of remote access, nor of use of the SUGAR Extracts whilst the appellant was employed by NCCS. Thus, and in addition to the submissions made above, before any adverse findings can be made against the appellant on those matters, the rule in Browne v Dunn should have been complied with, and it was not. This contention is dealt with separately in our resolution of Grounds 3 and 4.
Consideration
81 For the reasons that follow, we do not accept the appellant’s contention that the case pleaded against him with respect to the information in SUGAR was limited to the SUGAR Reports and the Output Files, and did not extend to what the appellant describes as the SUGAR Extracts. Nor do we accept that there was any denial of procedural fairness.
Pleading of the information from SUGAR
82 It is first necessary to consider how the “information from SUGAR” case was pleaded.
83 It is alleged in [21] of the 2FASOC that the respondents used and maintained SUGAR. The information contained in SUGAR regarding the respondents’ customers, including names of existing and potential customers, their contact details, products sold to them, renewal terms of customer agreements and the content of communications with them is outlined in the 2FASOC at [23]. The case pleaded in relation to the “information from SUGAR” is first advanced in the 2FASOC in the following terms:
Information from SUGAR
82. During the period between 25 May 2016 and 22 August 2016, Garner used the Garner Laptop to access SUGAR and to generate at least 35 separate reports containing information stored on SUGAR.
83. On or about 18 August 2016, approximately four days before he was made redundant, Garner used the Garner Laptop to access SUGAR and to generate 18 reports containing information stored on SUGAR.
84. The information referred to in paragraphs 82 and 83 above:
(a) included:
(i) a list of all of CI’s and Intercad’s existing and prospective customers, grouped or sorted by the type and quantity of software licences purchased by those customers and/or the maintenance expiry dates of the licences;
(ii) information regarding the status of sales negotiations with prospective customers, including the number of telephone calls placed to prospective customers by CI’s and/or Intercad’s sales staff and the dates on which those calls took place;
(iii) information regarding the number of customers who had become customers of CI and Intercad during particular time periods, and the number of software licenses sold to those customers, grouped or sorted by specific marketing methods or opportunities (such as contact through social media platforms);
(iv) the total number of software licences sold by CI and/or Intercad to individual customers and the total dollar value of those licences;
(v) lists of the names and contact details of all CI and Intercad customers who used or subscribed to SolidWorks Products supplied by Intercad, grouped or sorted by the name or type of the relevant software;
(vi) lists of all customers of CI and Intercad who held active subscriptions to SolidWorks Products provided by Intercad, grouped or sorted by particular time periods relating to when the subscriptions or licences were purchased; and
(b) comprised ‘Confidential Information’ within the meaning of cl 14.1 of Contract Two.
Particulars
Particulars to be provided after formal disclosure processes are exhausted and the attainment of expert evidence.
84 In context, and read as a whole, it is apparent that the cross reference in [84] to the “information referred to in paragraphs 82 and 83 above” is not to be construed as limiting the alleged confidential information to the “information stored on SUGAR” that was contained in the reports identified in [82] and [83].
85 The confidential information referred to in [84(b)] is not identified by reference to the content of the reports referred to in [82] and [83] but rather by reference to the information which is pleaded to include all of the material identified in the various sub-paragraphs of [84]. The information pleaded in [84] is stated to include “a list of all of CI’s and Intercad’s existing and prospective customers”, “the total number of software licences sold by CI and/or Intercad to individual customers”, “lists of names and contact details of all CI and Intercad customers who used or subscribed to SolidWorks Products supplied by Intercad” and “lists of all customers of CI and Intercad who held active subscriptions to SolidWorks Products provided by Intercad”.
86 Further support for that construction is provided by the reference in [84] to the provision of particulars after “formal disclosure processes are exhausted and the attainment of expert evidence”. Such a notation or reservation would have been otiose if the confidential information was limited to the information contained in the reports alleged in [82] and [83].
87 The balance of the “information from SUGAR” contentions are pleaded in the 2FASOC as follows:
85. During the period between 25 May 2016 and 22 August 2016, Garner copied, saved, printed and/or exported the reports and/or Confidential Information referred to in paragraphs 82 to 84 above onto the Garner Laptop and/or other electronic devices used by Garner.
Particulars
Particulars to be provided after formal disclosure processes are exhausted and the attainment of expert evidence.
86. During the period 26 April 2016 to 17 August 2016 on at least seven separate occasions, and in addition to the occasions referred to in paragraphs 82 and 83 above, Garner used a mobile telephone (or alternatively an electronic device other than the Garner Laptop) to access SUGAR and to generate reports containing information stored on SUGAR.
87. The information referred to in paragraph 86 above:
(a) included some or all of the information referred to in subparagraph 84(a) above; and
(b) comprised ‘Confidential Information’ within the meaning of cl 14 .1 of Contract Two.
Particulars
Particulars to be provided after formal disclosure processes are exhausted and the attainment of expert evidence.
88. During the period between 26 April 2016 and 17 August 2016, Garner copied, saved, printed and/or exported the reports and/or Confidential Information referred to in paragraphs 86 to 87 above onto a mobile telephone and/or other electronic devices used by Garner.
Particulars
Particulars to be provided after formal disclosure processes are exhausted and the attainment of expert evidence.
88 The distinction between the content of the reports pleaded in [82] and [83] and the confidential information is further reinforced in these paragraphs of the 2FASOC.
89 In [85] the phrase “the reports and/or Confidential Information referred to in paragraphs 82 to 84” demonstrates that the content or the information in the reports is not synonymous with the confidential information.
90 In [86] it is alleged that information in SUGAR was accessed in addition to the occasions referred to in [82] and [83].
91 In [87] it is alleged that the information that is alleged in [86] to have been accessed in SUGAR comprised some or all of the information in [84(a)]. Again, this demonstrates that the confidential information identified in [84] is not limited to the content of the reports referred to in [82] and [83].
92 Further, [85], [87] and [88] refers to the provision of particulars after “formal disclosure processes are exhausted and the attainment of expert evidence”.
Annexure F to the 2FASOC
93 The particulars to the appellant’s use of the confidential information alleged in [93] of the 2FASOC, including with respect to the SUGAR components of the confidential information, as defined in [82], [83], [84], [86] and [87], include the following particular:
The customers in respect of whom Garner created new customer accounts and/or contacts on Hatchbuck included at least the customers who are identified in the schedule which forms Annexure F to this SFASOC.
94 Annexure F is headed “Contacts created on Hatchbuck using information from Sugar”.
95 In his affidavit sworn on 19 September 2019, Mr D’Emilio explains the process by which Annexure F was created. In summary, the companies and contact names listed in Annexure F were identified from an electronic record of accounts within Hatchbuck. Each of the companies and contact names was first entered on Hatchbuck after the appellant commenced working for NCCS. Mr D’Emilio and his staff then obtained hard copies of extracts from SUGAR of the names of the companies and the contacts from which Annexure F was then completed.
96 The information contained in Annexure F was extracted from SUGAR generally and was not limited to the information contained in the Output Files and the SUGAR Reports. It included what is characterised by the appellant as the SUGAR Extracts. The evidentiary basis for Annexure F was established by Mr D’Emilio in his affidavit. Mr D’Emilio was cross-examined on the Annexures to his affidavit, including Annexure F. He gave the following evidence:
MR ROBERTSON: Now, Mr D’Emilio, in your affidavit, you produce annexures A to I, which relate to the annexures to the second further amended statement of claim. That’s ---?---You’re referring to my affidavit of 19 September?
Yes, I am?---Yes.
Now, were those – those annexures were prepared under your supervision, were they not? ---Yes, they were.
And they effectively contain the case which is made against my clients in relation to the way in which he, my client – in relation to the way in which he is said to have misused confidential information? ---That’s correct.
97 Subsequently, Mr D’Emilio was cross-examined more specifically on his evidence concerning the preparation of Annexure F. He gave the following evidence:
Jayco is in the final version. It’s in annexure F? ---Yes. And what’s – what’s that titled?
Annexure F is titled Contract Created on Hatchbuck Using Information from SUGAR? ---Yes.
Alleged concession by Mr D’Emilio
98 The evidence of Mr D’Emilio that the appellant contends is a concession eschewing any reliance on the SUGAR Extracts needs to be assessed in the context of his evidence referred to above and the following exchange immediately leading up to the alleged concession:
Now, I have put to you yesterday that in the SUGAR reports which are the documents which it is alleged were generated on Mr Garner’s laptop, there are no email or contact addresses whatever?
MR HATCHER: Well, my recollection is that isn’t the way the question was couched, your Honour. That’s only a recollection. We don’t have the benefit of transcript.
MR ROBERTSON: Perhaps I should put the qualification which I recall making which is other than public website information?---I think you need to be careful because the amount of material in Mr O’Kane’s report is extensive. I think you might be referring to the 35 reports in his first report - - -
Yes?--- - - - which was reduced to 18.
Yes?---I have not done the analysis to see whether that email address is in that data because the volume is too extreme. Mr O’Kane also refers to what Mr Garner did especially and specifically in relation to SUGAR in his second report. So we need to be careful what you’re referring to.
What I’m putting to you is that in relation to those 35 reduced to 18 reports which Mr O’Kane extracts at length in his annexures or schedules to his report there is no contact information for any of the customers other than in a few cases, or some cases, public website information?---I don’t know.
And that’s what – I understand you don’t know, but that’s what I’m putting to you is in fact the case?---The reports – Mr Robertson, the reports speak for themselves. They’re – they’re copied in their totality. They’re in the court book.
And it’s those reports, the 35 reduced to the 18, which are the reports which are alleged – contain the confidential information which is alleged to have been obtained, isn’t it?---I – I refer to what you Mr O’Kane says. He’s the expert. It’s in his report.
And those are the reports which are referred to in the pleading in this case, aren’t they – those 35 reduced to 18?---Yes. From memory that’s correct.
Those and Output 26 and Output 27?---Yes.
That constitutes the alleged confidential information wrongly used?---In the pleading.
99 The cross-examiner was seeking to elicit a concession from Mr D’Emilio that the SUGAR Reports did not contain email or contact addresses and then sought in the alternative a concession that it was the SUGAR Reports, together with the Output Files, that constituted the alleged confidential information wrongly used by the appellant. In context, the alleged concession is relatively equivocal. Mr D’Emilio is somewhat circumspect in his answers when pressed on whether Mr O’Kane relied exclusively on the SUGAR Reports in his second report, confirms that to his memory the reports that are being referred to are the “35 reduced to 18” reports (that is, the SUGAR Reports) and confirms that the SUGAR Reports and the Output Files constitute the alleged confidential information wrongly used “in the pleading”.
100 The use of the definite article by the cross examiner in the last exchange set forth above before “alleged confidential information” needs to be considered in the context of the earlier evidence given by Mr D’Emilio set out above. It was not expressly put to Mr D’Emilio that the respondents were relying only on the SUGAR Reports and the Output Files as the universe of the confidential information alleged to have been wrongfully used by the appellant. Further, the true construction of a pleading is a matter of law.
Conclusion
101 We are satisfied that the primary judge was plainly correct in finding that a plain and linguistically sensible reading of the 2FASOC did not limit the scope of the confidential information encompassed by the SUGAR information to the reports identified in [82] and [83] of the 2FASOC or the information contained in them. The primary judge did not wrongly depart from the case pleaded against the appellant.
102 We are also satisfied by reason of the content of the 2FASOC, the annexures to the 2FASOC, the expert evidence of Mr O’Kane and the lay evidence of Mr D’Emilio that the appellant was made aware of the case upon which the respondents intended to rely in response to the appellant’s evidence.
Ground 2
103 The Amended Notice of Appeal contained a reformulation of Ground 2 in the Notice of Appeal. As reformulated, Ground 2 is in the following terms:
Having found that the Appellant’s employer was Central Innovation Pty Ltd under Contract 1, and having regard to the three pleaded causes of action, the learned primary judge erred in finding that Central Innovation Pty Ltd had established any loss and damage.
104 As originally framed, the errors alleged in Ground 2 in the Notice of Appeal had included an allegation that the primary judge had erred in finding that the appellant was employed by Central Innovation. This claim was not only abandoned in the Amended Notice of Appeal; the contrary position, namely that he was an employee of Central Innovation, was embraced and relied upon to contend that Central Innovation had not suffered any loss or damage.
Relevant principles – Reflective Loss
105 The English Court of Appeal in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, stated the following principle, in the context of a consideration of the proper plaintiff to pursue a cause of action (at 222 – 223):
… But what [a shareholder] cannot do is to recover damages merely because the company in which he is interested has suffered damage. He cannot recover a sum equal to the diminution in the market value of his shares, or equal to the likely diminution in dividend, because such a ‘loss’ is merely a reflection of the loss suffered by the company. The shareholder does not suffer any personal loss. His only ‘loss’ is through the company, in the diminution in the value of the net assets of the company, in which he has (say) a 3 per cent shareholding. The plaintiff’s shares are merely a right of participation in the company on the terms of the articles of association. The shares themselves, his right of participation, are not directly affected by the wrongdoing. The plaintiff still holds all the shares as his own absolutely unencumbered property. The deceit practised upon the plaintiff does not affect the shares; it merely enables the defendant to rob the company. …
106 The principle, however, applies only where each of the company and the shareholder has a cause of action. As the New South Wales Court of Appeal explained in Central Coast Council v Norcross Pictorial Calendars Pty Ltd [2021] NSWCA 75; 391 ALR 157 (Bathurst CJ, Macfarlan and Gleeson JJA agreeing) at [103]:
What has been described as the reflective loss principle articulated by the English Court of Appeal in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 at 223–4; [1982] 1 All ER 354 (Prudential Assurance) (the principle) is that where loss is suffered by a company as a result of wrongdoing in respect of which each of the company and the shareholder has a cause of action, a shareholder cannot sue to recover the diminution in the value of his or her shares (or loss of benefits associated with his or her shareholding) resulting from the loss suffered by the company. The rationale for the principle has been described as the prevention of double recovery (Prudential Assurance at Ch 222; Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1 at 62–3, 66–7; [2001] 1 All ER 481; [2000] UKHL 65 (Johnson) per Lord Millett, Lord Goff agreeing), or on the basis that the shareholder does not suffer a loss distinct from the company and the shareholder is barred from pursuing the claim by the principle in Foss v Harbottle (1843) 2 Hare 461 (Foss v Harbottle) (Marex at [10] per Lord Reed PSC, Lady Black and Lord Lloyd-Jones JJSC agreeing), or perhaps because the shareholder has no legal or equitable interest in the company’s assets (Marex at [80] per Lord Reed PSC).
107 The extent to which a shareholder can seek to recover losses suffered by a company was considered by Lord Bingham in Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1. Lord Bingham stated the following propositions in response to a contention advanced in the context of a strike out application that a shareholder could not sue to recover a company’s loss (at 35 – 36):
… (1) Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder’s shareholding where that merely reflects the loss suffered by the company. A claim will not lie by a shareholder to make good a loss which would be made good if the company’s assets were replenished through action against the party responsible for the loss, even if the company, acting through its constitutional organs, has declined or failed to make good that loss. So much is clear from Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, particularly at pp 222–223, Heron International, particularly at pp 261–262, George Fischer, particularly at pp 266 and 270–271, Gerber and Stein v Blake, particularly at pp 726–729. (2) Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is a diminution in the value of the shareholding. This is supported by Lee v Sheard [1956] 1 QB 192, 195–196, George Fischer and Gerber. (3) Where a company suffers loss caused by a breach of duty to it, and a shareholder suffers a loss separate and distinct from that suffered by the company caused by breach of a duty independently owed to the shareholder, each may sue to recover the loss caused to it by breach of the duty owed to it but neither may recover loss caused to the other by breach of the duty owed to that other. I take this to be the effect of Lee v Sheard, at pp 195–196, Heron International, particularly at p 262, R P Howard, particularly at p 123, Gerber and Stein v Blake, particularly at p 726. I do not think the observations of Leggatt LJ in Barings at p 435B and of the Court of Appeal of New Zealand in Christensen v Scott at p 280, lines 25–35, can be reconciled with this statement of principle.
(citations omitted)
108 The correctness of Lord Bingham’s second proposition was affirmed in Central Coast by Bathurst CJ at [119]. In response to a submission that it should not be accepted, the Chief Justice stated:
I am unable to agree. There seems to be no reason for the principle to apply to circumstances where the company has no cause of action to recover the loss. This is so regardless of the rationale of the principle. If the purpose is to prevent double recovery, there is no prospect of double recovery where the company has no cause of action. If is as I conceive it, the principle is based on the rule in Foss v Harbottle that only the company can sue for a wrong done to the company, the principle is not outflanked because there is no actionable wrong done to the company, the company having no cause of action. If, as Perram J [in Mercedes Holdings Pty Ltd v Waters (No. 2) [2010] FCA 472; 186 FCR 450] suggests, it is associated with the doctrine of maintenance of capital, there is no reduction of capital if a shareholder recovers funds that the company as a matter of law cannot recover. Finally, there is no policy reason not to impose such an exception.
George Fischer v Multi-Construction
109 The cause of action considered by the English Court of Appeal in George Fischer (Great Britain) Ltd v Multi Construction Ltd [1995] BCC 310; 1 BCLC 260 (Glidewell and McCowan LJJ and Sir Michael Kerr), was for breach of contract. The defendant had been contracted to design and construct a warehouse and distribution centre for the plaintiff in Coventry. By reason of the faulty design of three cranes installed on the site by the defendant, the cranes could not work properly. Liability was admitted. The only issue for determination at the trial was an assessment of the plaintiff’s damages. The damages claimed included increased costs of the operation of the warehouse and loss of sales. A wholly owned subsidiary of the plaintiff (GF Sales) occupied the warehouse. GF Sales suffered an increase in its operating costs and loss of sales. In turn, two other wholly owned subsidiaries of the plaintiff, from whom GF Sales purchased goods, suffered a reduction in their volume of sales. The plaintiff submitted (see George Fischer at 313) that it was entitled to recover damages for the losses incurred by its subsidiaries on the basis that it was a:
… 100 per cent shareholder in each of its subsidiary companies, for loss occasioned to the value of its shareholding in each of those companies, or for the loss of its profits resulting from the diminution in the subsidiaries’ profits.
110 Judge Hicks found that the plaintiff, as a 100% shareholder of each of the subsidiary companies, had suffered a loss equal to the loss suffered by each of them and was entitled to be awarded damages on that basis.
111 Lord Justice Glidewell, who gave the leading judgment in George Fischer, observed (at 316) that Judge Hicks had concluded:
In this case the plaintiff has an undoubted right of action and its subsidiaries do not. I therefore consider that I am bound by Lee v Sheard and that Prudential v Newman is to be distinguished. That also seems to me to accord with principle. Loss which is actually caused to a plaintiff by the defendant’s actionable wrong should be recoverable, if within the general limits set by concepts such as remoteness and mitigation. Restrictions arising from the need to protect a specific rule primarily concerned with entitlement to sue rather than measure of damages, such as the rule in Foss v Harbottle, should not be applied more widely than their reason for existence requires.
112 The appeal to the Court of Appeal in George Fischer was solely on questions of law.
113 The first and major issue that the Court had to address was formulated as follows (Glidewell LJ, at 313):
… As a matter of law, is a shareholder in a company entitled to recover damages for a diminution in the value of its shareholding in the company or in the distribution by way of dividends or otherwise of profits of the company, where such diminution results from loss inflicted on the company by the defendant’s breach of its contract with the plaintiff?
114 The Court of Appeal answered the question in the affirmative (at 318). It rejected the submission by the appellant’s counsel, Mr Purchas, that a shareholder suffers no recoverable loss by any diminution in the value of its shareholding or reductions in distribution to him as a member of a company. Lord Justice Glidewell explained (at 315) that the issue under consideration in Prudential Assurance was whether a shareholder had a right in action at all, in circumstances where a company had and was willing to exercise its right of action if a conspiracy were found to exist. His Lordship concluded (at 316):
As I have explained, in my judgment the principle to be derived from Prudential v Newman does not apply to the issue in the present case. However, except that Lee v Sheard was an action in tort, that decision was based on the principle for which Mr Crowther for the plaintiff contends. Like the judge, I think that that principle applies just as much in relation to damages for breach of contract as it does in tort. Save that, for the reasons I have explained, it is not necessary to distinguish Prudential v Newman, but rather to say that it simply does not apply, I agree with Judge Hicks on this issue. I therefore reject Mr Purchas’s argument on this first and major issue.
115 Both McCowan LJ and Sir Michael Kerr agreed with Glidewell LJ. Sir Michael Kerr made these additional observations (at 318):
… The so-called rule in Foss v Harbottle, and its discussion in Prudential v Newman, were both concerned with situations in which the company in question had a right of action, or would have had such a right if the alleged wrong done to it – whether it be tort or breach of contract or both – were established. The effect of the rule is accordingly that, save in exceptional circumstances, it must be left to the company, i.e. effectively to the majority of its shareholders, to exercise the company’s right of action.
In the present case, however, the position is the opposite. The plaintiff, the 100 per cent shareholder in its three subsidiaries, has an unquestionable – and indeed admitted – right of action for damages (at least nominal) for breach of contract. The companies, on the other hand, have no right of action. The only issues which arise are therefore concerned with the determination of the loss, if any, which the shareholder plaintiff has suffered as the result of the breach of contract, and whether damages may be recovered for it. That determination involves questions of evidence, foreseeability and remoteness which were decided by the judge in favour of the plaintiff on the facts and on which there can be no appeal in this case. It follows that the present case is quite unaffected both by Foss v Harbottle and Prudential v Newman. I would accordingly dismiss this appeal for the same reasons as Glidewell LJ.
Gerber Garment v Lectra
116 In Gerber Garment Technology Inc v Lectra Systems Ltd [1997] RPC 443 the English Court of Appeal (Staughton, Hobhouse and Hutchison LJJ) had to determine whether a patentee could claim, by virtue of its shareholding, for losses suffered by its subsidiaries. The Court concluded that, as a matter of principle, where a shareholder had a cause of action against a wrongdoer but the company did not, the shareholder could recover damages in respect of its loss (whether on account of income or capital) by reason of a misfortune that had fallen on the company. For this purpose, it found that damages could potentially be recovered by reference to a reduction in the value of a shareholding (at 456, 478, 481). Lord Justice Hobhouse said (at 477):
The decision in the George Fischer case is authority binding on the court that provided a plaintiff can prove that he has been caused a financial loss which he can quantify as the result of the actionable fault of the defendant, he can recover those losses as damages. It is not an answer to say that he has suffered those losses as the shareholder of a company either through loss of dividends or a fall in the value of his shares.
117 Lord Justice Hobhouse noted (at 478), however, that unlike the position in George Fischer, in which the official referee had treated as “self-evident” that every dollar lost to the subsidiaries reduced the value of the parent’s shareholding by the same amount, the appellants had a right of appeal on fact as well as on law. His Lordship then observed (at 479):
The position of parent companies and their subsidiaries vary widely. At one extreme there is a simple group of companies all operating within a single country and a single tax system (as was the case in George Fischer). Such a group, so long as it remains fully solvent, probably has only consolidated accounts and all financial consequences are directly felt by the holding company. In such a situation it may be possible to say that a pound lost to the subsidiary is a pound lost to the group and therefore to the holding company. At another extreme one can have a subsidiary which operates in a third world country where strict exchange controls, an inflating local currency and a local tax regime means that a gain or loss to the local company has only very limited significance for the holding company; profits may be heavily taxed; the scope for transfer pricing may be very limited; remittance of profits or capital may be severely circumscribed or even prohibited. In this situation the only thing one can be sure of is that a monetary loss for the local company can certainly not be equated to a directly converted monetary loss for the parent. There is no ‘self-evident’ truth. It all depends on the circumstances. Where, as here, the relevant companies are carrying on business in different countries, the starting point must be that an income loss suffered by one company will normally not translate directly into an equal monetary loss to the other company.
118 His Lordship also considered the position where the plaintiff company was only an intermediate holding company. He stated (at 479):
A further complication is where, as here, the plaintiff company is not the ultimate holding company but is itself just one intermediate company in the hierarchy of a larger group of companies which is run in the overall interest of the group, i.e. of the ultimate holding company. In such a situation, it does not follow (absent insolvency) that the value of the subsidiary or the result of its trading will be passed on in full or at all to the intermediate parent. Profits and losses may just as probably be passed on to other companies in the group, for example, by using the mechanism of transfer pricing. The artificiality of the plaintiffs’ case is that they use the existence of the group to attribute the subsidiaries’ profits to the plaintiffs when they should on their logic be attributed to the group.
119 Lord Justice Staughton agreed with Hobhouse LJ that as a matter of principle, a parent company could recover damages in respect of losses incurred by a subsidiary but considered that a more robust approach could be taken to the means by which such damages could be established. He stated (at 456 – 457):
I do, however, differ from Hobhouse L.J. on the question whether the patentees have proved in the present case that they have suffered loss, and, how much in terms of money is needed to compensate them. I readily acknowledge that this is a question on which two views are possible. But I prefer the conclusion of Jacob J that as a self-evident starting point, a dollar lost to the subsidiary is a dollar lost to the parent.
There are many ways in which the prosperity of a subsidiary will result in a monetary receipt by the parent. The subsidiary may pay a dividend, or repay capital to the parent, provided in either case that company law permits that course to be taken. Or the parent may sell the subsidiary. There was evidence at the trial that those possibilities existed, although a judge of the Chancery Division would scarcely need to be told that by a witness. There was not any evidence that any of the possibilities was likely to be imminent. In the nature of things it would, I suppose, be rare for such evidence to be available, at any rate as to capital repayment or sale of the subsidiary. Furthermore in terms of amount it can rarely be possible to forecast by how much a loss of profits in the sum of £x will reduce some future dividend, or capital repayment, or sale price of the subsidiary. Companies are often bought and sold not by reference to their net assets, but by reference to profits in a number of recent years, or other considerations such as the effect of an amalgamation or the prospect of acquiring talented employees; see for example Buckingham v Francis [1986] 2 All ER 738. The market value of shares in a wholly-owned subsidiary is liable to be entirely a matter of speculation, unless and until a purchaser is found.
120 The reasoning of Hutchison LJ aligned more closely with that of Hobhouse LJ on the question of the assessment of a plaintiff shareholder’s loss, but he otherwise agreed with both Staughton and Hobhouse LJJ that a shareholder could, as a matter of principle, recover damages referrable to losses suffered by a subsidiary. He stated (at 481):
I have had the advantage, on this as on other issues, of reading the judgments of Staughton LJ and Hobhouse LJ in draft. I share their view that, on the facts of this case, it was as a matter of law open to the plaintiff patentees to recover damages reflecting the losses suffered by their subsidiaries by reason of infringements of the patents. The subsidiaries had no cause of action against Lectra, and therefore could not themselves have recovered damages. In those circumstances, for the reasons explained by Hobhouse LJ whose analysis I gratefully adopt, I have no difficulty in accepting that, subject to proof of damage, the patentees can recover the losses they have suffered by reason of the diminution in value of their share holding in or dividends from the subsidiary companies brought about by the infringements. The vital question remains as to whether the judge was entitled to hold that they had proved their loss.
There can be no doubt that the onus which rests on a plaintiff in relation to proof of damages requires, in such cases as the present, that the plaintiff company should establish that it has suffered damage by reason of the losses suffered by its subsidiary company. It is not enough simply to demonstrate that the profits of the subsidiary have been diminished: the plaintiff company can only recover in respect of its own loss. The critical question, it seems to me, is how such an onus can be discharged.
(emphasis in original)
121 Lord Justice Hutchison did not accept that the primary judge’s approach of in substance reversing the onus of proof by relying on a prima facie presumption, in the absence of any evidence, that a self-evident starting point was that any valuation exercise would be theoretical and that “every dollar lost affects the worth of the company by a dollar” was legitimate. His Lordship explained (at 482 – 483):
Was the judge entitled to approach the matter in the way that he did – in effect (as it seems to me) reversing the burden of proof? I should like to be persuaded that he was, because I am conscious of the difficulties that a plaintiff in the position of the plaintiffs in this case faces when required to prove … such damage. However, I am reluctantly forced to conclude that such an approach is not legitimate. Like Hobhouse LJ, with whose analysis and reasoning on this topic I am in agreement, I consider that at least in a case such as the present it is self-evidently most improbable that the parent company’s loss will exactly equate with that of its subsidiaries. I accept that there may be very simple and straightforward cases in which, upon proof that a wholly owned and solvent subsidiary company had suffered a loss in a certain sum, it would be legitimate to infer an equivalent loss by the parent, even in the absence of any other evidence. The present, so far from being such a case, is one in which, for the reasons given by Hobhouse LJ, it is clear that there certainly would not be such a correspondence.
Staughton LJ has concluded that there is in truth a rebuttable presumption of fact that the loss to the subsidiaries equates with that of the parent company. If it could be said that it was self-evident that in the ordinary case the one loss equated with the other, then a basis for such a presumption might exist. However, this is not in my view self evident: rather the opposite. Nor can I accept as a basis for holding that such a presumption exists the argument that it is impracticable to adduce evidence of the actual level of loss. It may not be easy to do so, but it seems to me that, where the owner of all the shares in a company asserts that by reason of a wrong done to him he has suffered loss, it must be possible to adduce evidence from expert accountants as to the level of that loss. Such evidence would not be confined to the admittedly somewhat theoretical exercise of valuing the shares of the subsidiary, but would extend to an assessment of the impact on the parent company in terms of reduced income from dividends.
Reflective loss propositions
122 The following propositions relevant to reflective loss emerge from the authorities considered above.
123 First, if a company suffers loss by reason of the breach of duty owed to it or a breach of a contract to which it is a party, a shareholder has no standing to sue to seek to make good any diminution in the value of its shareholding, even in circumstances in which the company has determined not to pursue any action to seek to recover the loss it has suffered: Gore Wood, Lord Bingham (at 35); Prudential Assurance, Cumming-Bruce, Templeman and Brightman LJJ (at 222 – 223); George Fischer, Sir Michael Kerr (at 318).
124 Second, where a company has suffered loss but has no cause of action that would permit it to recover that loss, a shareholder in the company may sue in respect of such loss, provided it has a cause of action in its own right to do so, even if the loss is a diminution in the value of its shareholding: Gore Wood, Lord Bingham (at 35); George Fischer, Glidewell LJ (at 316), Sir Michael Kerr (at 318).
125 Third, there is no necessary presumption that the diminution in the value of a shareholder’s shareholding in a company can be equated to the loss or damage suffered by the company: Gerber Garment, Hutchison LJ (at 482 483).
126 Fourth, the onus remains on the shareholder to establish that it has suffered loss or damage by reason of the loss or damage suffered by the company in which it holds shares: Gerber Garment, Hutchison LJ (at 482 – 483).
127 Fifth, satisfaction of that onus could be expected to be more easily achieved in circumstances where the company or companies suffering harm or damage were wholly owned subsidiaries of a parent company operating within a single country and a single tax system with consolidated accounts and not subject to any solvency issues: Gerber Garment, Hobhouse LJ (at 479).
128 Sixth, it may be possible upon proof that a wholly owned and solvent subsidiary has suffered a loss in a specific amount to infer an equivalent loss was suffered by the parent, even in the absence of any other evidence: Gerber Garment, Hutchison LJ (at 482).
Relevant Principles – Breach of Fiduciary Duties
129 The accepted categories of fiduciary relationships include relationships described as relationships of trust and confidence, or confidential relationships, owed by an employee to an employer: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, Mason J, as he then was (at 96) citing Boardman v Phipps [1967] 2 AC 46, Upjohn LJ (at 127).
130 Any obligation on a fiduciary not to exercise power or discretion to the detriment of the person to whom the duty is owed, however, remains subordinate to any contractual obligations. As Mason J explained in Hospital Products (at 97):
That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. 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.
Submissions
131 The appellant submits that the respondent did not adduce any evidence of loss or damage suffered by Central Innovation that was distinct from loss or damage alleged to have been suffered by Intercad. He further submits, by reference to the expert evidence given by the respondents’ forensic accountant, Ms Fiona Bateman, that the only means by which Central Innovation could obtain any financial benefit from customers or potential customers was by way of dividend or distribution of profits from Intercad and that such “loss” could not be recovered because it was merely a reflection of loss suffered by Intercad, citing Willoughby v Clayton Utz [2005] WASC 47; 193 FLR 373, Newnes M (at [43]); Prudential Assurance (at 210).
132 The respondents advance the following submissions in response to Ground 2 in the Amended Notice of Appeal.
133 First, the primary judge made an award of damages in favour of both Central Innovation and Intercad.
134 Second, the primary judge found that Central Innovation had causes of action for breaches of contract, contraventions of s 183 of the Corporations Act and fiduciary duty, Intercad had a cause of action for breach of fiduciary duty, and both have suffered loss and damage.
135 Third, in circumstances where both a company and shareholder have causes of action and both have suffered the same loss an orthodox position on reflective loss would be that only the company would have standing to recover that loss or damage.
136 Fourth, the only relief that the appellant seeks is that the award of damages be set aside but as the order was made in favour of both respondents and no challenge is made to the award of damages in favour of Intercad, Ground 2 raises an entirely academic point and could not lead to the damages order being set aside.
137 Fifth, nor is there an basis to vary the primary judge’s order to confine it to an award of damages in favour of Intercad because neither the appellant in the Amended Notice of Appeal nor the respondents by way of any notice of contention are seeking that relief.
Consideration
138 The objective sought to be achieved by the appellant in advancing the reformulated Ground 2 is somewhat elusive. The respondents contend that given the award of damage in favour of both respondents and the absence of any challenge to the award of damages in favour of Intercad it appears not to have any practical utility.
139 The reformulated ground raises the following questions:
(a) Did the respondents plead that the appellant owed any fiduciary duties to Intercad independently of contractual duties that he owed to his employer, whether that be Central Innovation or Intercad?
(b) Did the primary judge find that the appellant owed and breached any fiduciary duties to Intercad?
(c) If the primary judge did not find that the appellant owed and breached any fiduciary duties to Intercad, did Intercad otherwise have any cause of action against the appellant in respect of the loss and damage it has found to have suffered?
(d) If Intercad did not have any cause of action against the appellant, can Central Innovation recover as its loss and damage an amount calculated by reference to the amount of loss and damage suffered by Intercad? and
(e) Irrespective of the answers to the above questions, does the reformulated Ground 2 necessarily fail because no challenge is made to the award of damages in favour of Intercad?
140 We address each of these questions below.
Pleading of breach of fiduciary duties
141 The allegations concerning breaches of fiduciary duty by the appellant to the respondents are pleaded in the 2FASOC in the following terms:
During the Employment Garner owed to CI and/or Intercad Fiduciary duties
57. During the Employment Garner owed an equitable duty of loyalty (the Fiduciary Duty) to CI and/or Intercad such that Garner would:
(a) not act against the interests of CI and/or Intercad;
(b) avoid conflict, or a real or substantial possibility of conflict, between his interests and/or the duties owed by him to CI and/or Intercad on the one hand, and CI’s and/or Intercad’s own interests and/or the interests of or duties owed by him to others;
(c) protect CI’s and/or Intercad’s business;
(d) protect CI’s and/or Intercad’s Confidential Information;
(e) not obtain a personal benefit by use of his position or from an opportunity or knowledge gained by him by reason of his employment or position with CI and/or Intercad ; and
(f) account to CI and/or Intercad for any benefit or gain obtained by him or on his behalf in breach of any of the fiduciary duties set out above, including as to any breach occurring during the Employment that continues or is on-going post the Employment.
Particulars
(i) The Fiduciary Duty is equitable and arises out of the relationship between Garner, as employee, and CI and/or Intercad, as employer/s, during the Employment.
(ii) CI and/or Intercad further rely upon the pleadings and particulars set out in paragraph 59 below.
58. Further to paragraph 57 above, the Fiduciary Duty continued or was on-going post the Employment such that Garner owed a duty to account to Cl and/or lntercad for any benefit or gain obtained by him or on his behalf in breach of the Fiduciary Duty, including as to any breach occurring or arising during the Employment that continued or is on-going post the Employment.
Particulars
(a) The continued or on-going nature of the Fiduciary Duty post the Employment arises by law pursuant to decisions such as: Disctronics Ltd v Edmonds [2002] VSC 454 (at [168]-[172] , especially at [169]) (not relevantly varied in Edmonds v Donovan (2005) 12 VR 513); Spincode Pty Ltd v Look Software Pty Ltd (2002) 4 VR 501 (at [56]); Woodfil1 v Lindsay [2004] 2 BCLC 131; [2004] ICR 131 ; Ex parte James (1803) 8 Ves 338 (at 353) ; Green v Bestobell Industries Pty Ltd (1982) WAR 1; Colour Control Centre Pty Limited and CCC Enterprises Pty Ltd v Ricardo Ty, Deborah Rando and Photo Technica Pty Limited (1996) 39 AILR 5-058; [1995] NSWSC 96 ; BC505089; Coordinated Industries Pty Ltd v Elliott (1998) 43 NSWLR 282 ; Labelmakers Group Pty Ltd v LL Force Pty Ltd [2012] FCA 512 (at [112]).
(b) CI and/or Intercad further rely upon the pleadings and particulars set out in paragraph 59 below.
How Garner’s Fiduciary Duty arises
59. The Fiduciary Duty is equitable and arises out of:
(a) the nature of the relationship between Garner, as employee, and CI and/or Intercad, as employer/s;
Particulars
(i) The employer-employee relationship is a familiar category of fiduciary relationship recognised at law: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; Attorney General v Blake [1998] 2 WLR 805; Neary v Dean of Westminster [1999] IRLR 290.
(b) the trust, confidence and reliance placed in Garner by CI and/or Intercad in respect of his role, duties and responsibilities at CI and/or Intercad;
Particulars
(i) Estate Realities Ltd v Wignall [1991] 3 NZLR 482 (at 492); Tate v Williamson (1866) LR 2 Ch App 55 (at 61); Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41.
(c) the commercial interests of CI and/or Intercad, by reference to the nature of CI’s and/or Intercad’s business;
(d) the position held by Garner with CI and/or Intercad, including his role, responsibilities, duties, discretion levels and day-to-day contact with CI’s and/or Intercad’s clients;
(e) Garner’s autonomy in the performance of his duties for and on behalf of CI and/or Intercad;
(f) the nature and ripeness of any corporate opportunity which arose during the or post the Employment to which Garner has sought to obtain and/or has obtained;
(g) Garner’s relationship to any corporate opportunity which arose during the Employment and by virtue of the Employment;
(h) Garner’s knowledge of CI’s and/or Intercad’s commercial information and/or Confidential Information, obtained during and/or as a result of the Employment; and
(i) Garner’s knowledge of CI’s and/or Intercad’s clients.
142 Contrary to the submission advanced by the appellant, the fiduciary duties that were alleged in the 2FASOC to be owed to the respondents were not limited to duties arising out of the relationship between the appellant as employee and Central Innovation or Intercad as employer. The second particular to [57] makes plain that the respondents relied on the pleadings and particulars set out in the 2FASOC at [59] as matters giving rise to the existence of the alleged fiduciary duty, not only the employment relationship alleged in the first particular to [57].
143 The matters alleged in [59] included matters that existed independently of any employment relationship, in particular, the commercial interests of the respondents (sub-paragraph (c)) and the appellant’s knowledge of the respondents’ clients (sub-paragraph (i)). Moreover, other sub-paragraphs to [59] refer to the employment in the context of a temporal dimension. The fiduciary duty is alleged to have arisen not only “by virtue” or “as a result of” of the employment but also “during” the employment. By way of example, the matters relied upon included the appellant’s knowledge of the respondents’ commercial information and or confidential information, that was obtained both “during and/or as a result of the Employment” (sub-paragraph (h)).
Findings as to breach of fiduciary duties
144 The primary judge made the following findings (at J [350]):
Mr Garner was employed by Central Innovation to perform work for Intercad. The damage has been by way of loss of profits from the loss of contracts due to the poaching of customers by the misuse of confidential information. It is neither productive, nor necessary, to artificially dissect and distribute profit loss and damage in the way that Mr Garner suggests. It is sufficient to award damages to the applicants for the loss caused by Mr Garner’s conduct upon the basis of breach of contract, and breach of the statutory duty in s 183 of the Corporations Act; and in the alternative, for breach of his fiduciary duty owed to both applicants.
145 The award of damages was made in favour of the “applicants”. It was made upon the basis of “breach of contract” and “breach of the statutory duty in s 183 of the Corporations Act”. It included, in the alternative, damages for breach of fiduciary duties owed to “both applicants”. It is necessary, however, to have regard to the specific findings that the primary judge made with respect to the breaches by the appellant of the fiduciary duties he owed to “both applicants” in the context of the findings that his Honour made with respect to the appellant’s contractual obligations of confidentiality.
146 The appellant’s contractual obligations of confidentiality were extensive. They were set out in clauses 14.1, 15.2 and 16 of Contract One and with minor changes, they were reproduced in clauses 14.1, 14.2 and 15 of Contract Two. The relevant clauses as they appeared in Contract One were set out by the primary judge (at J [328]):
14. CONFIDENTIALITY
14.1 General
As a member of the CI Group you will have access to sensitive, technical and commercially confidential information. You must not during your employment or at any time thereafter, without the prior written consent of the CI Group or as otherwise required by law, disclose directly or indirectly to any person for any reason other than the conduct of the CI Group’s business, any Confidential Information nor shall you divulge at any time to any parties information that could damage or harm the CI Group’s business interests.
‘Confidential Information’ means all information, regardless of the manner in which it is recorded or stored, (including but not limited to information in an electronic form), relating to the business interests, methodology or affairs of the CI Group, or any person or entity which the GI [sic] Group deals [sic] or is concerned with, including, but not limited to, the following:
1. trade secrets, information, process, methods [sic] products, customer information, prices or data belonging to the CI Group;
2. all technical or non technical data, devices, formulae, programs, techniques, plans, software and computer records;
3. all mailing lists, supplier lists, price lists or lists of clients or customers of the CI Group;
4. information concerning other employees and service providers to the CI Group; and
5. any information of a commercial, operational, marketing, business, technical or financial nature relating to the affairs or business of the CI Group.
15.2 Uncertainty as to Confidentiality of Information
If you are uncertain whether:
(a) any information is Confidential Information; or
(b) any Confidential Information is lawfully freely available to the public;
you are to assume and act as if the information is Confidential Information and is taken not to be freely available to the public unless the CI Group informs you in writing to the contrary.
16. GROUP COMPANY DOCUMENTS AND OTHER PROPERTY
16.1 You must not, without written consent from your skip level Manager (your Manager’s Manager), remove any material of the CI Group from the premises of the CI Group or from within its computer system and network if the material contains Confidential Information, Intellectual Property Rights of the CI Group or information about the business affairs of the CI Group.
16.2 Return of Company Property on Termination of Employment
On the cessation of employment with the CI Group, you must immediately deliver to the CI Group or its authorized representative without any further demand:
(a) any and all documents in your possession, custody or control relating in any way to any Confidential Information of the CI Group; its Intellectual Property rights [sic] or to its business affairs.
(b) any property of the CI Group or thing which the CI Group is entitled to possess including but not limited to laptops, letters, books, computer discs, memory sticks, swipe cards, reports, databases, customer lists and information, manuals, training material, security codes, security cards and logins and other materials of every description (including copies) which are within your possession or control and which belong to or came from or during the course of your employment with the CI Group.
16.3 Retention of Documents
You are not entitled to retain a copy of anything referred to in clause 16.2 in any form (‘Return of property on Termination’).
147 Clause 14.1 contains a very broad definition of confidential information. As the primary judge found (at J [329(1)]), the clause:
… undoubtedly captures customer information, including but not limited to contact information, in both the VRC and in SUGAR, including information able to be accessed online of the kind reproduced in the SUGAR extracts
148 Further, as the primary judge found (at J [330]), the findings that his Honour made against the appellant for accessing, removing and using the confidential information of the respondents, including that of Intercad, “constituted a breach of express terms of his contract of employment”.
149 The primary judge addressed the fiduciary case advanced by the respondents at J [332] to [336]. At J [334] he stated:
Thus the dominant source of Mr Garner’s obligations are contractual (whether by way of a contract with Central Innovation as I have found, or by way of a contract with Intercad as he contends), with the confidential information obligations imposed by that contract being quite detailed and specific. Even if I have erred in any way in relation to the scope of Mr Garner’s contractual obligations, there is no doubt that his fiduciary obligations to Central Innovation as his employer (or if I be wrong, to Intercad as his employer), including in the performance of work for Intercad, nevertheless extend to a requirement not to take confidential information from Intercad or Central Innovation during or shortly after his employment. Thus if he was not in breach of a contractual obligation, he was in any event in breach of a fiduciary obligation.
150 Notwithstanding the breadth of the matters pleaded by the respondents in the 2FASOC as giving rise to the existence of the fiduciary duties owed by the appellant, the primary judge’s findings are limited to fiduciary duties owed by the appellant as either an employee of Central Innovation or, alternatively, Intercad. The fiduciary duties owed to Intercad were held only to arise if the primary judge’s finding that the appellant was employed by Central Innovation was incorrect. Moreover, the fiduciary duties with respect to the “confidential information obligations” were only found to arise to the extent that the primary judge had erred in relation to his findings as to the scope of the appellant’s contractual obligations.
Causes of action available to Intercad
151 The relevant question for the recovery of reflective loss is ultimately not whether a cause of action is advanced, but rather does a cause of action exist. If a company determines not to proceed with a cause of action that it might have to recover loss or damage, a shareholder does not have standing, assuming that it had a cause of action in its own right against a third party, to seek to recover the same loss that the company had suffered.
152 In this case the shareholder, Intercad, did seek to advance a cause of action against the appellant that included a claim for breach of fiduciary duties that were alleged to arise independently of any contractual relationship between the appellant and either or both of the respondents. As explained above, the primary judge’s breach of duty findings were limited to a finding that, in the alternative to the breaches of the contractual obligations of confidentiality owed to Central Innovation, the appellant breached fiduciary duties owed by him to Central Innovation arising out of or incidental to his contractual relationship with Central Innovation.
153 It would appear therefore to follow, particularly given the findings made as to the limited scope of any possible fiduciary obligations given the breath of the confidential obligations in the appellant’s contract with Central Innovation, that Intercad alleged but was found not to have a cause of action against the appellant with respect to the loss that it has suffered by reason of the misuse of its confidential information.
Determination of loss suffered by Central Innovation
154 Intercad was a wholly owned subsidiary of Central Innovation. The threshold for establishing reflective loss is therefore relatively low and the respondents did lead evidence seeking to make good that loss by reference to the historical practices in relation to the payment of dividends and the losses alleged to have been suffered by Intercad by reason of its loss of customers as a result of the conduct of the appellant.
155 The evidence relied upon by Central Innovation to establish reflective loss was provided by its forensic accounting expert Ms Bateman. In her report dated 20 September 2019, Ms Bateman annexed schedules containing profit and loss statements for both Intercad and Central Innovation for each of the years between 2016 and 2019. In her report she expressed conclusions as to the revenue, costs of sales, gross profit and profit achieved by Central Innovation in each of those years, noted that companies may elect to retain, spend or distribute profits to their shareholders and then identified the quantum of the profits that Intercad had distributed to Central Innovation in 2016, 2017 and 2018.
156 In her report dated 21 November 2019 (prepared in reply to the report of the appellant’s forensic accountant Mr Michael Scarr dated 12 November 2019), Ms Bateman stated:
2. I refer to each of the questions in the instructions provided to Mr Scarr numbered a) to o).
a. Having regard to the foregoing case Law authorities, the report of Ms. Fiona Bateman dated 20 September 2019 and the principle of ‘reflective Loss’, in your opinion, what loss or damage, if any, can Central Innovation Pty Ltd, the First Applicant, be said to have suffered as a result of any loss or damage suffered by Intercad Pty Ltd?
Fiona Bateman Comments:
3. Mr Scarr has provided his opinion that Central Innovation Pty Ltd (Central Innovation) has not suffered as a result of any loss or damage suffered by Intercad Pty Ltd (Intercad).
4. Mr Scarr has not provided his reasonings for his opinion, but has provided a basic structure diagram which shows that Intercad is owned by Central Innovation.
5. As Intercad is owned 100% by Central Innovation, it is my opinion that losses have been made by Central Innovation as any profits made by Intercad are only able to be transferred to Central Innovations. The transfer of profits is evidenced by the following dividends that were paid to Central Innovations from Intercad:
2019 | 2018 | 2017 | 2016 | Total | |
Dividends Paid | - | 5,023,707 | 2,983,707 | 1,677,807 | 9,685,222 |
6. Mr Scarr has not provided his reasoning for his opinion.
157 The appellant’s challenge to Ms Bateman’s evidence of the loss suffered by Central Innovation was directed at limiting the scope of that loss to dividends rather than challenging the fact or the quantum of the dividends that were paid, as is apparent in the following exchange in the course of Ms Bateman’s cross-examination by senior counsel for the appellant:
Yes. Now, in paragraph 26 you say that the sole shareholder at Intercad is Central Innovation following distributions of profit that have been made over a four year period there?---Yes.
Now - - -
HIS HONOUR: It’s the three year period, isn't it?
MR ROBERTSON: It is a three year period, but four years are stated. There seems to be a blank figure for 2019.
HIS HONOUR: Yes.
MR ROBERTSON: That’s the way of it, isn’t it?---Yes. I believe that – yes.
Yes. Now, that observation in relation to dividend – I’m sorry – dividends paid, as the label is, and distribution of profit, as you describe it in paragraph 26. That’s the only way in which, so far as your report is concerned, that Central Innovation Proprietary Limited gains any benefit from the customers or potential customers in relation to which you conduct your profit analysis?---That’s correct.
158 We are satisfied that this evidence is sufficient to draw an inference (consistently with the approach taken by the primary judge of making a single award of damages in favour of the respondents) that the quantum of the loss suffered by Central Innovation was equivalent to the loss of profits suffered by Intercad on the following grounds:
(1) Intercad is a wholly owned subsidiary of Central Innovation;
(2) there is no intermediate holding company between Intercad and Central Innovation;
(3) a common taxation regime would apply to both companies as both are incorporated and operate in Australia;
(4) the co-ordinated and integrated manner in which Central Innovation and Intercad operate as part of the CI Group, as evidenced by the finding that the appellant was employed by Central Innovation to undertake work for Intercad, access to common databases, including SUGAR and the VRC, and the nature of the contractual relationships with SolidWorks; and
(5) the extent of the historical distribution of the profits generated by Intercad to Central Innovation by way of dividends.
Challenge limited to loss suffered by Central Innovation
159 Ultimately, the fundamental problem with this ground of appeal is that it is confined to a challenge to the finding that Central Innovation had suffered loss or damage. The primary judge made an order that judgment be entered in favour of both Central Innovation and Intercad in respect of the customers claimed to have been lost in an amount to be calculated by reference to the evidence of Ms Bateman. The order necessarily proceeds on the basis that Central Innovation and Intercad have jointly suffered the same loss and damage and each is entitled, subject to no double counting, to recover that loss. The appellant contends that Central Innovation has not established that it has suffered loss and damage but advances no contention that Intercad has suffered no loss or damage.
160 If it were to be suggested that such a challenge was unnecessary because the primary judge did not find, contrary to the case pleaded by the respondents in the 2FASOC, that Intercad had a cause of action against the appellant then it would follow that the exception to the reflective loss prohibition would apply. For the reasons outlined above, Central Innovation would then have standing to recover the loss it had suffered to the value of its shareholding in Intercad in an amount equivalent to the loss of profits suffered by Intercad.
Grounds 3 and 4
161 Ground 3 involves an attack on the ultimate conclusion of the primary judge concerning the removal and misuse of the respondents’ confidential information, and a multitude of intermediate factual findings and inferences informing that conclusion. Ground 4 includes both a discrete complaint about the assessment the primary judge made of the appellant’s credibility and reliability as a witness, as well as a generalised attack on findings based in whole or part on that assessment.
162 As explained below, the adverse assessment of the appellant’s credibility was founded in part on the impression given by him in the course of giving oral evidence. The assessment was also informed by findings of fact simpliciter, including findings based on objective incontrovertible evidence either directly contradicting some aspects of the appellant’s account or otherwise rendering it fanciful or implausible.
163 The alleged errors affecting findings of fact are asserted throughout the Amended Notice of Appeal. They are grouped here for convenience:
1.5 The learned primary judge erred ([213], [244]-[246] and [253] of the Reasons) in finding, on nothing more than the evidence of Mr O’Kane that an unknown device had been connected to the Respondents’ SUGAR system using the Appellant’s login on 3, 4, 10 and 13 June 2016, 4 July 2016, and 6 and 10 August 2016, that the Appellant:
(i) was able to remotely access the SUGAR System by some untraceable means for the purpose of removing the Respondents’ confidential information;
(ii) did in fact gain remote access to the SUGAR System on at least 3, 4, 10 and 13 June 2016, 4 July 2016, and 6 and 10 August 2016 by some untraceable remote access; and
(iii) removed the Respondents’ confidential information by way of untraceable remote access.
1.6 On the totality of the evidence at trial, including the evidence of Mr O’Kane that he did not know and could not say:
(i) what device the Appellant would have allegedly used, in allegedly remotely accessing the SUGAR System;
(ii) what information may have been remotely accessed or viewed on the SUGAR System during any remote access sessions;
(iii) what actions may have been taken during any alleged remote access sessions on the SUGAR System;
(iv) whether the Appellant had accessed the Sugar Extracts or any part thereof;
(v) whether the Appellant had downloaded, copied, printed, taken or removed the SUGAR Extracts or any part thereof,
and the evidence, led by the Respondents, that:
(vi) five of the seven alleged remote access sessions would had taken place during business hours and weekdays;
(vii) the Respondents had changed the permissions of the Appellant in respect of the SUGAR System around early July 2016, to prevent downloading of information from SUGAR;
(viii) three of the alleged remote access sessions were alleged to have taken place after the permissions of the Appellant in respect of the SUGAR System had been changed; and
(ix) at no time since around early July 2016 could the SUGAR Extracts be downloaded from the SUGAR System and no evidence was led by the Respondents at trial that the SUGAR Extracts could be downloaded from the SUGAR System at any time whatsoever during the Appellant’s employment;
the learned primary judge ought to have found that the Respondents had failed to prove their case in respect of the SUGAR Extracts.
…
1.9 The learned primary judge ought to have found that the Respondents had failed to prove:
(i) any downloading, copying, printing, taking or removal by the Appellant, by remote access or otherwise, of any of the Respondents’ alleged confidential information;
(ii) any use or misuse by the Appellant during the course of his employment with NCCS of any of the Respondents’ alleged confidential information.
…
3. Erroneous findings of taking or removal of confidential information
3.1 The learned primary judge erred ([212]-[213], [238], [308] of the Reasons) in finding that the Appellant had available to him, during the course of his employment with NCCS:
(i) Output 26;
(ii) Output 27;
(iii) the SUGAR Reports;
(iv) ‘also other information able to be obtained by [the Appellant] from access to SUGAR’, being the SUGAR Extracts.
3.2 The learned primary judge erred ([85], [124] and [238] of the Reasons) in finding:
3.1.1 despite evidence given by both the Respondents’ lay and IT expert witnesses that it had not been possible for the Appellant to download information from the SUGAR system since around early July 2016 (accepted at [143]); and
3.1.2 the evidence given by the Appellant in relation to the SUGAR Reports, consistent with the evidence led by the Respondents, that it was not possible for the Appellant to download information from the SUGAR system,
that the Appellant had downloaded, printed or removed the SUGAR Reports, including the SUGAR Reports alleged to have been generated on 18 August 2016, from the Respondents’ custody, possession or control.
3.2 The learned primary judge erred ([124] of the Reasons) in finding that creation of Excel spreadsheet files by the Appellant, including between 10 September 2012 and 15 August 2016, permitted the inference to be drawn that the Appellant was able to print or download the SUGAR Reports.
3.3 The learned primary judge ought to have found, having regard to the Respondents’ lay and IT expert witness, that evidence of creation of Excel spreadsheet files was not capable of supporting the inference that the Appellant could, since early July 2016, print or download the SUGAR Reports.
3.4 Having regard to the unchallenged and uncontroverted evidence of the Appellant, the contemporaneous documentary evidence, and the evidence of the independent court appointed IT expert, the learned primary judge ought to have found not proven that the Appellant had either:
(i) removed Output 26, Output 27, the SUGAR Reports and/or the SUGAR Extracts from the Respondents’ custody, possession or control;
(ii) used Output 26, Output 27, the SUGAR Reports and/or the SUGAR Extracts after the termination of his employment with Intercad and during the course of the Appellant’s employment with NCCS.
4. Incorrect findings as to the credibility of evidence given by the Appellant
4.1 The learned primary judge erred ([214] of the Reasons) in finding, on the totality of the evidence which was to be evaluated according to Briginshaw v Briginshaw, that the explanation as to the theft of the NCCS Laptop was a fabrication.
…
4.3 The learned primary judge erred ([85], [123] and [124] of the Reasons) in finding that the Appellant’s use of the SUGAR System during the course of his employment with Intercad was proof of the Appellant’s ease of use of the SUGAR System. The learned primary judge ought to have found that the Appellant’s use of the SUGAR System during the course of his employment with Intercad was not evidence capable of establishing the Appellant’s proficiency or ease of use of the SUGAR System.
4.4 Having regard to the totality of evidence at trial, the learned primary judge ought to have found that the Respondents had failed to prove that the Appellant had:
4.4.1 removed the confidential information of the Respondents;
4.4.2 used or misused the confidential information of the Respondents during the course of his employment with NCCS.
4.5 Additionally and/or alternatively to Ground 4.4 above, the learned primary judge erred by reversing the burden of proof ([198], [243], [247], [251], [281], [282], [294], [297], [318], [320] to [324] of the Reasons), requiring the Appellant to satisfy the Court, and/or to disprove the Respondents’ allegations, as opposed to requiring the Respondents to establish their allegations against the Appellant.
4.6 The learned primary judge ought to have found that:
4.6.1 during the course of his employment with Intercad, the Appellant had not been prohibited from accessing or otherwise utilising information in the SolidWorks electronic database VRC (cf at (197]);
4.6.2 Mr Luke Kenny had not returned a USB device containing Output 26 and Output 27 to the Appellant (cf [198]-[200] and [215]);
4.6.3 it had been for the Respondents to call Mr Luke Kenny as a witness, not for the Appellant;
4.6.4 the Appellant had not taken or removed (cf at [238]):
(i) a USB device containing Output 26.xlsx and Output 27.xlsx from Intercad’s premises (cf at [218]);
(ii) the SUGAR Reports from Intercad’s custody, possession or control as found at [238] of the Reasons
4.6.5 the Appellant’s explanation of the theft of the NCCS Laptop was not a fabrication (cf at (214]);
4.6.6 the Appellant’s explanation as to his knowledge and/or contact with customers or prospective customers in relation to whom the Respondents make allegations, had not been disproved by the Respondents (cf at [262], [266], [267], [269], [270], [272]-[280], [288], [289], [305], [315] and [316]).
(footnote omitted)
164 The duplication of numbering is as it appears in the Amended Notice of Appeal.
165 In addition, the appellant contends that the primary judge erred in not finding that there had been material non-compliance with the rule in Browne v Dunn by the respondents. That complaint is advanced in the Amended Notice of Appeal as follows:
1.7 The learned primary judge erred in failing to find that there had been a material noncompliance by the Respondents with the rule in Browne v Dunn, by the Respondents’ failure to put to the Appellant their case that:
(i) the Appellant had been able to remotely access the SUGAR System by some untraceable means for the purpose of downloading, copying, printing, taking or removing the Respondents’ confidential information (cf at [243], [244] and [246]);
(ii) the Appellant did in fact gain remote access to the SUGAR system on at least the 3, 4, 10 and 13 June 2016, 4 July 2016, and 6 and 10 August 2016, via some untraceable remote access (cf at [243], [244] and [246]);
(iii) the Appellant had downloaded, copied, printed, taken or removed the confidential information of the Respondents from the SUGAR system by way of untraceable remote access (cf at [243], [244] and [246]);
(iv) the Appellant had downloaded, copied, printed, taken or removed the SUGAR Extracts on the 3, 4, 10 and 13 June 2016, 4 July 2016, and/or 6 and 10 August 2016 via some untraceable remote access (cf at [213], [243], [244] and [246]);
(v) the Appellant had used Output 26, Output 27, the SUGAR Reports and/or the SUGAR Extracts following the termination of his employment with Intercad Pty Ltd (cf at [213] and [308]);
(vi) the Appellant had used Output 26, Output 27, the SUGAR Reports and/or the SUGAR Extracts during the course of his employment with NCCS (cf at [213] and [308]); and
(vii) the Appellant’s evidence, regarding his knowledge and/or contact with customers or prospective customers referred to in Annexure A to I of the SFASOC, could not be accepted (cf at [85], [124], [175], [207], [271] and [294]).
1.8 The learned primary judge ought to have found that there had been a material noncompliance by the Respondents with the rule in Browne v Dunn, and ought not have made the findings at [85], [213], [124], [175], [207], [243], [244], [246], [271] and [294] of the Reasons.
166 The generalised attack on the adverse assessment of the appellant’s credibility is expressed as follows:
4.2 The learned primary judge especially erred ([85], [124], [175], [207], [271] and [294] of the Reasons) in finding that evidence given by the Appellant, including where uncontroverted and unchallenged, and further including where also supported by contemporaneous written evidence, could not be accepted, unless corroborated by other witnesses or unless the evidence was against the interest of the Appellant.
The role of this Court on appeal
167 This is an appeal in the nature of a rehearing. On such an appeal, the duty of the Court in respect of findings of fact based on inference is that stated by Gibbs ACJ, Jacobs and Murphy JJ in Warren v Coombes (1979) 142 CLR 531 (at 551):
… in general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge. In deciding what is the proper inference to be drawn, the appellate court will give respect and weight to the conclusion of the trial judge, but, once having reached its own conclusion, will not shrink from giving effect to it. …
168 Following Warren v Coombes, there were a series of cases in which the High Court emphasised the degree to which an appellate court should afford respect to the advantages of trial judges in respect of factual findings based wholly or partially on the impression of a witness. Devries v Australian National Railways Commission (1993) 177 CLR 472 is illustrative. The majority (Brennan, Gaudron and McHugh JJ) there observed (at 479):
More than once in recent years, this Court has pointed out that a finding of fact by a trial judge, based on the credibility of a witness, is not to be set aside because an appellate court thinks that the probabilities of the case are against – even strongly against – that finding of fact. If the trial judge’s finding depends to any substantial degree on the credibility of the witness, the finding must stand unless it can be shown that the trial judge ‘has failed to use or has palpably misused his advantage’ or has acted on evidence which was ‘inconsistent with facts incontrovertibly established by the evidence’ or which was ‘glaringly improbable’.
(footnotes omitted)
169 The correctness of that statement was confirmed in Fox v Percy (2003) 214 CLR 118. As Gleeson CJ, Gummow and Kirby JJ there explained:
26 … Three important decisions in this regard were Jones v Hyde, Abalos v Australian Postal Commission and Devries v Australian National Railways Commission. This trilogy of cases did not constitute a departure from established doctrine. The decisions were simply a reminder of the limits under which appellate judges typically operate when compared with trial judges.
27 The continuing application of the corrective expressed in the trilogy of cases was not questioned in this appeal. The cases mentioned remain the instruction of this Court to appellate decision-making throughout Australia. However, that instruction did not, and could not, derogate from the obligation of courts of appeal, in accordance with legislation such as the Supreme Court Act applicable in this case, to perform the appellate function as established by Parliament. Such courts must conduct the appeal by way of rehearing. If, making proper allowance for the advantages of the trial judge, they conclude that an error has been shown, they are authorised, and obliged, to discharge their appellate duties in accordance with the statute.
(emphasis added, footnotes omitted)
170 In Lee v Lee (2019) 266 CLR 129, the High Court again reinforced the duty of a court of appeal to conduct a rehearing and affirmed that the content of the duty may differ in respect of first instance findings founded in whole or in part on impressions formed on the basis of seeing and hearing a witness giving evidence. Their Honours Bell, Gageler, Nettle and Edelman JJ said (at [55]):
A court of appeal is bound to conduct a ‘real review’ of the evidence given at first instance and of the judge’s reasons for judgment to determine whether the trial judge has erred in fact or law. Appellate restraint with respect to interference with a trial judge’s findings unless they are ‘glaringly improbable’ or ‘contrary to compelling inferences’ is as to factual findings which are likely to have been affected by impressions about the credibility and reliability of witnesses formed by the trial judge as a result of seeing and hearing them give their evidence. It includes findings of secondary facts which are based on a combination of these impressions and other inferences from primary facts. Thereafter, ‘in general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge’.
(footnotes omitted)
171 The primary judge made his impressions of the appellant as a witness abundantly clear. In some respects the assessment of credibility was based on his impression of the manner in which the appellant’s evidence was given. In other respects the appellant was found not to be credible or reliable because of the content of his testimony, particularly in areas where his account was considered implausible or fanciful, or contradicted by objective evidence adduced on the respondents’ case. The impressions of the primary judge first find expression in the following passages:
82 There is no dispute that Mr Garner was a highly successful salesman. The live issue affecting his evidence is whether he was a truthful and otherwise reliable witness. I conclude that he was neither.
83 Regrettably, Mr Garner was a very poor witness. He was not a candid witness. I found his evidence evasive and in parts disingenuous, an impression reinforced by reading and carefully re-reading the entire transcript of his evidence. He was clear and lucid when it suited him to be. But he seemed to choose to appear obtuse and even lacking in comprehension when questions challenged his account of events. In places, he appeared not to understand his own affidavit, although that may have been a function of the way in which it was prepared.
84 I perceived Mr Garner to be assessing questions and formulating answers with a view to advancing his own case, rather than doing his best to give a complete and truthful account of the matters to which his attention was directed. His recollection was often good when it favoured him but very poor when it did not. He conveyed to me little interest in whether what he said or did in the past was lawful, or honest. He appeared to me to have no qualms about advancing his interests by any means available to him, including dishonesty, and the giving of evidence that is objectively impossible, or at least very difficult, to accept.
85 Aspects of Mr Garner’s evidence were clearly shown to be false, such as his supposed inability to download or print reports in SUGAR. It is difficult to put that down to error or poor memory. I reluctantly conclude that Mr Garner lied and obfuscated in the witness box when he perceived it to help his case, or prevent harm to his case. He resisted making concessions unless unavoidable or apparently immaterial, including holding a plainly absurd stance at times. I am therefore unable to accept Mr Garner’s affidavit or oral testimony, or indeed any prior representation made by him, in relation to any contested issue of importance unless his evidence or representation was against his own interest or was supported by clear and compelling corroboration of some kind.
172 Those paragraphs are a fair summation of a multitude of observations and findings expressed throughout the remainder of the reasons. On some topics, the findings were based both upon the content of the appellant’s evidence and upon the manner in which it was given. For example, the primary judge said this of the appellant’s evidence on the topic of the customer contact details he had given to NCCS:
269 In cross-examination, Mr Garner took issue with him having provided all of the information necessary to send those emails to customers of the applicants. He did not appear to cavil with these and other questions being premised upon him being the person who sent the email blasts, due no doubt to them being sent in his name, and inviting contact to be made with him: the emails opened with ‘… you can contact me directly on [mobile number]’, and at the conclusion ‘I would like to hear from you if you have any comments or questions’, followed by ‘You can connect with me on LinkedIn’, with a URL to his account name. On Mr Garner’s account of events, he remained in almost complete ignorance as to even how many emails had been sent in his name, and to whom. I reject that version of events as inherently implausible.
270 Mr Garner took issue with the allegation that he provided all of the customer (or prospective customer) contact details. When pressed he deposed to being unable to say whether he provided any contact details, necessarily from any source, for as few as five or as many as 50 customers (or prospective customers), or even as few as two or as many as 200 customers (or prospective customers). That evidence appeared especially evasive to me, and to my perception was given in an evasive manner. I do not accept that he had no idea at all as to which or how many customer contact details he provided. My clear perception was that he feigned having a lack of any memory at all. This was but one of many examples of obfuscation and asserted, convenient to his case, but unbelievable, total memory loss.
271 I formed the view that Mr Garner was not endeavouring to assist the Court, and was not complying with his affirmed obligation as a witness to tell the truth, the whole truth and nothing but the truth. The only reasonable inference I was able to draw, affording him as much latitude as I could muster, was that he did not think that giving a candid answer as to his true involvement in providing customer or prospective customer details to put into the NCCS Hatchbuck system would assist his case. I further infer that this was most likely because it might reveal that he provided such a substantial amount of information as to be consistent with the applicants’ case that it was derived from confidential information that he had taken from them.
173 Those factual findings are plainly based to a significant degree, on the advantages enjoyed by the primary judge in seeing and hearing the appellant give his oral testimony. The principles stated in Fox v Percy clearly apply to them.
174 As has already been observed, the primary judge also drew adverse inferences against the appellant based on his Honour’s assessment of his evidence as fanciful or implausible, having regard to the degree to which it was contradicted by incontrovertible facts or unchallenged evidence adduced in the respondents’ case. The findings challenged by [4.3] of the Amended Notice of Appeal are an example. In respect of that category of finding it might be said that this Court is in as good a position as the primary judge to make findings based on the totality of the evidence and to draw inferences from the primary facts. As explained below, this Court arrives at the same finding as the primary judge in respect of that subject matter, namely that the appellant was not truthful in his broad assertion that he was not very proficient in the use of SUGAR, including his positive assertion that he did not know how to run queries or produce a report from the database. The generalised assertion of error affecting the assessment of the appellant’s credit will otherwise be discussed when addressing the discrete factual topics addressed below.
175 As to alleged errors of fact simpliciter, the appellant’s submissions proceeded from the incorrect premise that the respondents’ case should have been rejected in the absence of direct evidence that he had taken the respondents’ confidential information in an identifiable format and by identifiable means, and that he had transferred it into the possession of NCCS in the same form in which it was said to have been taken. It was submitted that in the absence of direct evidence of that kind, the appellant’s oral evidence was “incontrovertible” and there could therefore be no proper basis to reject it. Counsel for the appellant went so far as to assert that there “just wasn’t any evidence to support [the respondents’] case, even the pleaded case, let alone the broader case”. These submissions fail to grapple with the circumstantial nature of the respondents’ evidentiary case and the complex task of the primary judge in assessing the totality of the evidence that supported it.
176 The primary judge correctly:
(1) referred to the “complex processes in determining inferences that can properly be drawn from the evidence, taken as a whole and with due regard to the overall context”;described the contest at trial as one concerning the “metes and bounds of
(2) inferences that may be drawn from a disparate range of evidence”;
(3) emphasised that proof of the respondents’ case did not require proof of the precise means by which particular information had been removed from the respondents’ systems;
(4) acknowledged that the absence of direct evidence on certain topics made proof of the respondents’ case more difficult;
(5) directed himself as to the burden and standard of proof;
(6) directed himself that rejection of the appellant’s evidence on certain topics did not furnish positive proof of the respondents claims; and
(7) considered a number of contextual matters relevant to the question of the appellant’s motivations and opportunities to remove the respondents’ confidential information and to use it in the course of his employment with NCCS.
177 By way of background and context, the primary judge concluded that the appellant became aware of the risk that he was to be made redundant “well prior” to 22 August 2016 and explained in some detail the evidence supporting that conclusion. The primary judge rejected the appellant’s evidence that he had no idea that he would be made redundant until the redundancy occurred, observing that the weight of the evidence was “against that naïve conclusion”. The primary judge considered that the appellant’s apprehension in that respect increased from the time that the ability to download reports from SUGAR was removed in July 2016. The primary judge said that was an important finding in assessing what the appellant then did. There is no challenge to those contextual findings, nor to the importance the primary judge placed on them.
178 The primary judge held that NCCS was in direct competition with Intercad and indirect competition with Central Innovation and that NCCS had the incentive to obtain and use information about their customers to advance its competitive objectives.
179 It is against that background that the specific allegations of error may now be considered.
SUGAR
180 In his affidavit evidence the appellant said that he was not aware of any way in which a SUGAR user could download or print reports. He said that he was not able to remove customised reports from SUGAR or to download information from SUGAR because he did not know how to do that. He said generating customised reports in SUGAR was difficult to do.
181 On this appeal, the appellant’s written submission was that he did not “disavow use of SUGAR in its entirety”. It was nonetheless submitted that the evidence at trial was not capable of proving “proficiency” by the appellant in the use of SUGAR “in the manner required for misappropriation of the confidential information”.
182 The respondents’ expert and lay evidence on this topic included material obtained by an examination of the Intercad Laptop used by the appellant in the course of his employment, as well as records of the appellant’s activities tracked within SUGAR itself.
183 As mentioned earlier in these reasons, the examination of the Intercad Laptop revealed that the appellant had utilised functions within SUGAR which included “Run Report”, “Edit”, “Duplicate”, “Schedule”, “Print as PDF”, “Export” and “Delete”. It showed that on 38 occasions between November 2013 and April 2015, information had been downloaded from SUGAR and saved to files on the Intercad Laptop. The appellant submits that evidence “took matters nowhere”. That submission cannot be accepted.
184 The evidence of the appellant’s prior use of SUGAR plainly demonstrated his knowledge and proficiency with respect to the system. It put a lie to his claimed lack of proficiency at trial. To the extent that the claim is maintained on this appeal it cannot be sustained in light of the objective evidence of his actual prior use of the system. The primary judge observed that the appellant’s assertions that he was not proficient in the workings of SUGAR adversely affected his credit as a witness. We share that view.
185 Thirteen Excel spreadsheets were located on the laptop. One of the spreadsheets, titled “Gary G List” matched the content of a customised report shown to have been generated by the use of SUGAR. The expert’s unchallenged opinion was that the content of the spreadsheet had not been downloaded, but was most likely copied and pasted from SUGAR into the spreadsheet.
186 As to remote access, on the basis of the evidence given by the respondents’ expert, Mr O’Kane, the primary judge accepted that a device other than the Intercad Laptop had been connected to the SUGAR system using the appellant’s login details on four days in June 2016, on one day in July 2016 and two days in August 2016. The period of access over two of those sessions exceeded six hours: J [245]. The primary judge said those periods of access provided the appellant with “ample proven opportunity to download or otherwise extract confidential information from SUGAR”. There is no basis to disturb that finding.
187 Contrary to [1.5] of the Amended Notice of Appeal, it is not correct to say that the conclusions concerning the ability of the appellant to remotely access SUGAR were founded on “nothing more than the evidence of Mr O’Kane”. The submission fails to grapple with the compelling nature of the objective evidence considered by Mr O’Kane and upon which his opinions were based. Among other things, they were based on material found to exist within the SUGAR system which evidenced activity undertaken by a user accessing the database via the appellant’s login details. Mr O’Kane’s evidence explained how that material was found and expressed an opinion as to what that meant. There was no challenge to Mr O’Kane’s expertise to undertake the examination of the SUGAR system or the Intercad Laptop or to express an opinion about what was found there. The evidence of Mr O’Kane was more than sufficient to support the conclusions concerning remote access and the appellant’s proficiency of use of the SUGAR system more generally.
188 On the basis of the respondents’ expert evidence, the primary judge concluded that the appellant had used SUGAR “reasonably extensively in the closely examined final three months of his employment” (J [123]), that he “had no apparent difficulty in generating SUGAR reports” (J [123]), and that he “had the ability to copy and extract data from SUGAR without the need to generate a SUGAR report” (J [243]). Again, on our review of the evidence we are unable to identify any basis to disturb those findings. They are firmly supported by the forensic examination of the respondents’ information systems.
189 The conclusion as to access was also informed by a comparison of the information contained in SUGAR and the information contained in NCCS’s system. It was not in dispute that the appellant had entered information into NCCS’s system in relation to those customers whose loss sounded in relief. The primary judge drew appropriate inferences on the basis of that comparison, as discussed below.
190 The respondents’ evidence enabled the primary judge to comfortably conclude that the appellant “not only had a much greater ability to use SUGAR than he would have the Court believe, but that he in fact accessed and obtained information using it”. Later, his Honour said (at J [253]):
I am satisfied by a careful process of inference that Mr Garner, in some way not able to be determined with certainty, was able to and did remove a copy of the confidential data in the SUGAR Reports that were generated by him on the afternoon of 18 August 2016. Mr Garner was in a position to give evidence about why he generated those reports and what he did with the information that was in them, but instead elected to falsely deny that he was able to generate any such reports at all. He was able to, and did, extract information from SUGAR apart from the process of generating and downloading SUGAR Reports, yet brazenly denied even having the ability to do this.
191 The evidence relating to the Intercad Laptop and the remote access sessions provided a compelling objective basis to reject the appellant’s version of events as to his “proficiency of use”. To the extent that the submissions of the appellant focussed on an inability to directly download reports from SUGAR at any time, the submissions fail to address the circumstance that the findings of the primary judge did not wholly depend upon proof of direct downloading. The relevant finding was that the appellant was able to remove the information by means other than downloading, most likely by copying and pasting the information. As his Honour observed (at [242]):
… The main point to be taken from this evidence is that Mr Garner’s evidence about not being able to use SUGAR to download reports may possibly be literally correct, but contextually highly misleading if the same result was achieved by copying and pasting, rather than downloading. I infer that this was said by Mr Garner to distance himself from the truth as to what he was able to do within SUGAR, and therefore what he did do in relation to SUGAR data downloading, copying and removing.
192 We respectfully agree.
193 The primary judge considered this aspect of the evidence to add to the more generalised concerns about the appellant’s credibility. His Honour drew an inference that the appellant’s evidence that he did not download or print reports from SUGAR was given to “advance his case in this proceeding, most likely because any indication that he had downloaded or printed SUGAR reports would suggest that, contrary to the tenor of his evidence, those reports contained information that was valuable, and therefore worth taking”. The extent to which that inference was based on an assessment of the appellant’s demeanour is unclear, but that is of little moment. We would draw the same inference from the objective materials, whether or not it is necessary to show deference to the view of the primary judge by reference to the principles discussed earlier in these reasons.
194 In summary, there is no appealable error of the kind alleged at [1.5] or [1.6] of the Amended Notice of Appeal, nor is there appealable error as alleged at [1.9(i)] of the Amended Notice of Appeal insofar as it relates to the removal or taking of information from SUGAR. The allegations at [3.2] (as repeated) and [3.3] are founded on a misstatement of the findings made by the primary judge, not being dependent upon an ability to “download” information from early July 2016. Nor was there appealable error as alleged at [4.3]. None of the grounds of appeal relating to the taking of information from SUGAR are established.
Output Files
195 The appellant’s version of events on this topic was summarised and commented upon by the primary judge in the following terms (at J [194]):
(1) In relation to the alleged downloading from the VRC, while he did not recall the precise date, or that the alleged downloading was done on two occasions, what stood out in his mind is that he downloaded a large file from the VAR portal in June 2016, but cannot confirm that it was the same as the files referred to in the case pleaded against him. Thus Mr Garner at least implicitly admits to downloading a large volume of data from the VRC in June 2016, although he says he only recalls doing this on one occasion.
(2) He recalled downloading the information and uploading the same onto a USB drive due to the file size. The size of the files is addressed below: in short, the two uncompressed .csv format files that were downloaded were much larger than the corresponding compressed Excel .xlsx format files that were created and saved without any change in content and then copied to the USB drive.
(3) He gave the USB drive to a salesman who reported to him, Mr Luke Kenny, to ascertain whether the information could be used for marketing purposes, an enquiry he says that he made due to the sales team’s dissatisfaction with the performance of the marketing department.
(4) Mr Kenny told him that he did not believe that the information could be used.
(5) He does not recall receiving that USB drive back from Mr Kenny. Importantly, this cautious but quite precise evidence falls short of denying receiving the USB drive back from Mr Kenny, and sidesteps someone other than Mr Kenny returning the USB drive to him.
(6) USBs were a common sight at Intercad and were readily available. This is not in issue.
(7) He did not, at the time his affidavit was affirmed on 6 January 2017, have the USB drive that contains either .csv file. This was updated by reiteration in his 28 October 2019 affidavit, in which he said that he did not have a USB drive containing any of the four .csv and .xlsx files referred to at item (2) above.
(8) He did not remove any such USB device from Intercad after his employment was terminated on 22 August 2016. This too is a carefully phrased and precise item of evidence, referring only to the small window of time on 22 August 2016 between when Mr Garner was told that he had been made redundant and when he left the premises for the last time that day – on his account, a very short period of time as his evidence is that he left almost immediately upon being told he had been made redundant. It avoids any reference to (or denial of) removal of a USB from the applicants’ premises at any time prior to being told his Team Leader position was redundant, and makes no reference to the SUGAR data (albeit that he implicitly denies generating the SUGAR Reports in issue, which cannot be accepted). This is despite the fact that Mr Garner’s redundancy was not made known to him until almost two months after he first downloaded and saved the files to a USB drive, and almost 10 months after the first overt indication of any dissatisfaction with the sales Team Leaders’ and managers’ work in the form of Mr Atkinson’s 6 November 2015 email referred to above. It seems that this omission may have been due to this aspect of Mr Garner’s case depending upon acceptance that the redundancy was such a shock or surprise that he had no time to do anything improper as alleged. As will be seen, by reason of the objective evidence, including the chronology of events, I do not accept that Mr Garner had no inkling that his job may have been in jeopardy, even if redundancy at that time may not have been obvious.
196 As can be seen, the appellant did not deny that he downloaded a large volume of data from the VRC to a USB drive in June 2016. The allegation at [1.9] of the Amended Notice of Appeal bears no relation to his evidentiary case at trial so far as the downloading, copying or taking of information from the VRC is concerned. There is no appealable error of the kind there alleged.
197 The primary judge concluded that data downloaded to the USB drive was most likely the Output Files. There is no challenge to that particular finding. As the primary judge said, it was uncontroversial that the information in the VRC was in a form that was capable of being copied, emailed or taken away by the appellant. His Honour correctly observed that the real contest concerned the reasons why the appellant downloaded the information to the USB drive, and what he then did with it.
198 The appellant’s evidence that he provided the USB drive to Mr Kenny was not accompanied by a positive recollection as to whether Mr Kenny had returned the drive to him. No party called Mr Kenny to give evidence. It was in that context that the primary judge considered the application of the principle in Jones v Dunkel (1959) 101 CLR 298. His Honour observed that no question had been put to the respondents’ key witness as to whether Mr Kenny was still employed and available to give evidence, nor had the respondents adduced evidence on those issues. From there, the primary judge reasoned as follows:
198 … The usual, or at least common, clear foundations for drawing, or not drawing, the inference are absent. It was for Mr Garner to satisfy the Court that the inference he sought should be drawn. He has not so done so. In all the circumstances, I am not willing to draw any inference against either side by reason of Mr Kenny not being called. Rather, the appropriate course is to consider the evidence that is before the Court, rather than draw any inference about the absence of Mr Kenny as a witness.
199 For completeness, even if I was to draw an inference against the applicants that Mr Kenny was not called because his evidence would not assist their case, it is difficult to see what real benefit would accrue to Mr Garner from such an inference in this particular situation. It is difficult to give any content to such an inference, given the spectrum of reasons why such evidence might not help, such as Mr Kenny not having any recollection either way.
200 What matters is that the absence of Mr Kenny means he cannot in any way corroborate Mr Garner’s account of events. The most that an inference drawn from the absence of evidence from Mr Kenny could do is provide a possible basis for more readily accepting the evidence of Mr Garner on this topic. It does not avoid the need to decide whether or not to accept Mr Garner’s evidence about his dealings with Mr Kenny. Such an inference cannot rescue the evidence that is available if it is found to be seriously wanting, as I find, given both Mr Garner’s general lack of credit and reliability, and the way in which his written evidence on this topic is so carefully expressed to rob it of much evidentiary worth, as set out above.
199 On appeal it was submitted that the respondents’ failure to call Mr Kenny had the consequence that the primary judge was obliged to accept the appellant’s version of events. That submission must be rejected for two reasons.
200 First, the primary judge was correct to conclude that it was for the appellant to satisfy the Court that the foundations for invoking the principle in Jones v Dunkel were present. His Honour correctly identified that the necessary foundations were absent. That is sufficient to dispose of the grounds alleged in [4.6.2] and [4.6.3] of the Amended Notice of Appeal.
201 Second, the submission ignores the circumstance that the appellant had not given evidence that Mr Kenny had returned the USB drive to him. Any inference that might be drawn in accordance with the principles in Jones v Dunkel could not fill that evidentiary gap in the appellant’s account. Even if the foundation for invoking the principle in Jones v Dunkel were present such that an inference could be drawn, the relevant inference is that the evidence of Mr Kenny would not assist the respondents’ case. The inference would not operate to provide the missing corroboration for the appellant’s version of events, such as it was (the appellant giving no evidence to the effect that Mr Kenny had not returned the USB drive to him). Nor could it operate to compel the primary judge to accept the appellant’s evidence as to the reasons he downloaded information from the VRC to a USB drive. The primary judge was correct to characterise the appellant’s evidence on that topic as uncorroborated.
202 Moreover, the rejection of the appellant’s version of events was not founded solely on the circumstance that it was uncorroborated. The reasons for rejecting the appellant’s account are detailed over 12 paragraphs (J [211] – [222]) that are not the subject of discrete challenge. Having regard to evidence given by Mr Atkinson on the topic, the primary judge considered it to be implausible that the appellant would believe Mr Kenny would benefit from the data on the USB drive. His Honour concluded that there was no apparent reason why the Output Files could not have been emailed to Mr Kenny in any event, given the size of the files in Excel format.
203 The primary judge said that his conclusion that the appellant had removed a copy of the data contained in the Output Files was buttressed by other evidence concerning the data that had been used by the appellant to contact the respondents’ clients by way of an “email blast” (discussed later in these reasons) and the inferences that were able to be drawn as to the likely source of that data: J [218]. The content of the data shown to have been used by the appellant in his later employment with NCCS was plainly relevant in determining whether the data had been taken from VRC or SUGAR. There is no proper basis shown for disturbing these findings. The submissions mischaracterise the appellant’s evidence as uncontradicted or incontrovertible and otherwise proceed from a misapprehension that the respondents’ case could only be proven on the basis of direct evidence of wrongdoing.
204 The allegations of error in [1.9], [3.4], [4.4] and [4.5] of the Amended Notice of Appeal are rejected insofar as they attack the findings concerning the appellant’s removal of confidential information from the VRC in the form of the Output Files, as are the allegations in [4.6] in respect of the same subject matter.
Removal and use of information
205 The conclusions of the primary judge as to the use the appellant made of the confidential information are to be understood in the context of his Honour having rejected the evidence the appellant had given about the downloading, extracting or copying of information from the respondents’ systems. His Honour characterised the appellant’s evidence that he was not proficient in the use of SUGAR as a “false denial”, and he rejected the appellant’s asserted reasons for downloading data from the VRC as “implausible”. We have arrived at the same conclusions on a review of the same material.
206 The primary judge was satisfied on the totality of Mr Atkinson’s evidence that the appellant had no proper reason to be accessing and downloading data in the VRC and, accordingly, any such access that took place was likely to have been for an improper purpose: J [132]. In addition, the appellant’s strategy of outright denial in respect of his uses of SUGAR meant that he did not proffer any explanation for the evidence of actual activity objectively identified on the Intercad Laptop and in the respondents’ systems. The inference that the remote access sessions were undertaken for an improper purposes obviously arises, particularly having regard to their duration and their proximity to the appellant’s redundancy. That is the relevant context in which the evidence of actual use of the information fell to be assessed.
207 The primary judge found that the appellant entered (or directed others to enter) the details of 131 customers into Hatchbuck and that the vast majority of the entries had occurred in the two and a half months following the commencement of his employment with NCCS: J [295], J [17(5)]. Annexure F to the 2FASOC listed 124 customers whose details were contained in SUGAR and whose details were also found to have been entered in Hatchbuck. Of those customers, 38 were identified with a tag identifying them as customers of Intercad.
208 The appellant did not deny that he entered customer information into Hatchbuck at the times identified. His evidence on that topic was that the information he had entered was variously retrieved from his memory, or obtained from public sources including LinkedIn.
209 The primary judge made this preliminary observation of the appellant’s evidence-in-chief as to the source of the information he entered into Hatchbuck (at J [267]):
Mr Garner was unable to give any coherent or credible explanation in the witness box as to how he obtained any such information other than from the applicants, an issue visited again below. The nature of the explanation that he did give was along the lines of it being the product of his ‘know-how’, being information which had become ‘part of’ him as a former employee of Intercad ‘in the form of his skill and experience’. There was no meaningful content provided to these and other similar rather opaque words and phrases. He seemed to be suggesting that this was information that he had retained in his memory, but even that was not clear. He did not elaborate in his oral evidence-in-chief, and the applicants chose not to help him in this regard by seeking clarification in cross-examination. There were far too many entries, with far too much detail in them, created in a relatively short timeframe, for it to have been realistically possible for Mr Garner to have, for example, remembered that degree of detailed information from his prior employment, especially as the clear impression left from his evidence was that he had a poor memory for detail, rather than a good memory. As detailed further below, the volume of data which needed to be remembered with some precision was reasonably substantial. I find that the entries made did not, on the available evidence, have the character of being the product of memory, or somehow arising from some kind of existing know-how, as asserted by Mr Garner in re-examination, considered in more detail below.
210 The rejection of the appellant’s assertions concerning the source of the information used in the email blast was based not only on the vague content of the assertion, but on the demeanour of the appellant in examination-in-chief, cross-examination and re-examination. The observations of the primary judge on this topic included the following:
270 Mr Garner took issue with the allegation that he provided all of the customer (or prospective customer) contact details. When pressed he deposed to being unable to say whether he provided any contact details, necessarily from any source, for as few as five or as many as 50 customers (or prospective customers), or even as few as two or as many as 200 customers (or prospective customers). That evidence appeared especially evasive to me, and to my perception was given in an evasive manner. I do not accept that he had no idea at all as to which or how many customer contact details he provided. My clear perception was that he feigned having a lack of any memory at all. This was but one of many examples of obfuscation and asserted, convenient to his case, but unbelievable, total memory loss.
271 I formed the view that Mr Garner was not endeavouring to assist the Court, and was not complying with his affirmed obligation as a witness to tell the truth, the whole truth and nothing but the truth. The only reasonable inference I was able to draw, affording him as much latitude as I could muster, was that he did not think that giving a candid answer as to his true involvement in providing customer or prospective customer details to put into the NCCS Hatchbuck system would assist his case. I further infer that this was most likely because it might reveal that he provided such a substantial amount of information as to be consistent with the applicants’ case that it was derived from confidential information that he had taken from them.
272 In re-examination, Mr Garner endeavoured to recant any involvement in the sending of the email blasts beyond proofreading the text, evidence which I did not find convincing. I reject that evidence, save that I accept that it is likely that Mr D’Souza organised for the sending of the email blast to take place, in the sense of facilitating this being done for Mr Garner as the new NCCS sales recruit from its major competitor. Mr Garner also endeavoured to attribute the source of the information that he provided to put into Hatchbuck as coming from ‘memory and existing know-how’, from business cards that he says were given to him, and from SolidWorks leads that he said he was given, without identifying who he says provided them. None of this evidence in re-examination was anchored in a single Hatchbuck record in evidence, nor a single contact detail or customer or prospective customer, although his senior counsel did make a valiant attempt to adduce evidence from him as to what he had done in relation to ‘adding people to Hatchbuck’, drawing a blank response after several attempts.
273 Mr Garner was being no more candid in answer to certain questions asked by his own counsel in re-examination than he was in response to questions in cross-examination from counsel for the applicants, noting the limitations in non-leading questions for the former. Mr Garner’s evidence on this topic was vague and unconvincing. This was despite the best endeavours of his counsel. …
211 The primary judge observed that the appellant’s evidence that he sourced the information contained in Hatchbuck from generalised internet searches “had the feel of being invented to convey in the witness box, rather than a recounting of anything that really happened”: J [278].
212 As to the objective quality of the evidence, the primary judge agreed with the respondents’ submissions that the appellant’s assertion that he sourced information from his own memory was fanciful and strained credulity: J [280]. His Honour said that generalised assertions made in a table to an affidavit sworn by the appellant had not been the subject of supporting evidence, let alone evidence that did not turn on accepting the appellant’s testimony: J [287(3)], and that the general references in the affidavit could flow no higher than their source in the appellant’s evidence, which had been found to be “seriously wanting”. The primary judge said that the information contained in the affidavit ultimately depended upon acceptance of the appellant as a reliable witness of truth for its probative weight, and that the appellant possessed neither of those characteristics: J [288].
213 The primary judge went on to give detailed reasons as to why the 124 Hatchbuck records revealed that at least some of the customer contact information was from SUGAR, as proven by the SUGAR Extracts. Among other things, the primary judge observed that the sheer number of items of contact information entered into Hatchbuck reinforced the conclusion that their presence there could not be easily explained “even by a much better witness”, resulting from some extraordinary memory.
214 The significance of that finding was not grappled with by the appellant on this appeal. Instead, Counsel for the appellant took the Court to two emails to explain that they were in a format that might easily be committed to memory. In a case involving only a few data entries, submissions of that kind might have some force. But the relevant finding was that it was implausible that the sheer quantity of data entered into the Hatchbuck system could have been sourced by the various means alleged by the appellant. There is no proper basis to disturb that finding.
215 It was then submitted that the information contained in the SUGAR Extracts did not wholly align with the information contained in Hatchbuck, such that it was not open to find that the information had been copied from one system to another. The primary judge responded to that same submission as follows (J [282]):
The seventh aspect of the evidence relied upon by the applicants is to reject the suggestion in Mr Garner’s case that the absence of entries regarding certain of the applicants’ customers in Hatchbuck suggests that misuse of confidential information did not take place. The applicants point to NCCS migrating to a new customer relationships management system in 2017, to replace Hatchbuck. The applicants did not have access to the corresponding data for this new system. Without evidence that this new system also lacked information about these additional customers, the applicants contend that it is not safe to conclude the negative, namely that such information was neither taken, nor used. I do not have to go that far. The fact that some information may not have been used, or at least has not been shown to have been used, affords little basis for showing that other information able to have been sourced from the applicants’ confidential information was not taken and misused.
216 We respectfully agree with the observations of the primary judge.
217 The error alleged at [4.6.6] of the Amended Notice of Appeal is rejected.
218 So too is the allegation that the primary judge erroneously reversed the onus of proof: Amended Notice of Appeal, [4.5]. That allegation fails to have regard to the strength of the respondents’ case founded on the activities of the appellant prior to his redundancy, the inference of improper purpose accompanying those activities and the commonality of information contained in the respondents’ systems with that contained in Hatchbuck. The primary judge necessarily took some time to explain why the appellant’s explanations as to the course of the information in Hatchbuck could not be accepted. There is nothing in the reasons of the primary judge to suggest any misunderstanding as to the burden and standard of proof on that or any other topic.
The NCCS Laptop
219 The primary judge referred to orders of Katzmann J made on 23 December 2016, served on the appellant that same day. The orders restrained the appellant from:
… destroying, tampering with or parting with possession of any computer (including laptop) or other electronic device, including any electronic storage device, used in or in connection with or which relates in any way whatsoever to his employment with N C Cadcam Systems Pty Ltd (NCCS).
220 It is common ground that the order captured a laptop used by the appellant from the commencement of his employment with NCCS (the NCCS Laptop).
221 The appellant’s evidence was that the NCCS Laptop had been stolen from his car on 23 December 2016, that he had not discovered the theft until the following week and that he had then reported the theft to the police. The primary judge first commented upon that evidence (at J [11]):
… Such an unhappy coincidence calls for close scrutiny as to whether that was merely bad luck, or a departure from the truth. There are grounds for grave suspicion that the supposed theft was not just an unhappy coincidence, but a fabrication by Mr Garner designed to provide an ostensibly legitimate basis for depriving the applicants of access to that laptop. These include the fact that the theft was not detected until long after when it was supposed to have occurred, and not reported to police until the next week.
222 Later in his reasons, the primary judge dealt with the appellant’s submissions about the inferences that should or should not be drawn from investigations undertaken by an independent computer expert, Mr Conn. Mr Conn had been asked to examine the data contained in certain storage drives, disks or cloud services. The material examined included NCCC’s cloud-based computer system, including to ascertain whether information emanating from the missing NCCS Laptop could be detected there. The primary judge noted Mr Conn’s findings that there was no backup of the NCCS Laptop on NCCS’s computer system and nothing to indicate whether the appellant had possession of the NCCS Laptop on or after 23 December 2016.
223 The primary judge rejected the appellant’s submissions to the effect that Mr Conn’s inability to find information on the devices provided to him required an inference to be drawn that the information was not there. The primary judge noted that the devices that were able to be made available to Mr Conn did not include “the most obvious and most important of such devices”, the NCCS Laptop: J [210]. The primary judge did not accept that Mr Conn’s inability to find a copy of the Output Files on the appellant’s desktop computer at NCCS or any other available device (not including the NCCS Laptop) provided any sound basis for an inference that the files were not removed in the first place. His Honour declined to draw the inference urged on him by the appellant, including because the appellant had clearly used the NCCS Laptop to work on, as evidenced by him taking it home for that purpose in the Christmas period. It is in that particular context that the primary judge proceeded to determine whether the NCCS Laptop had been stolen as the appellant had alleged.
224 The impugned finding is that reached at (J [214]):
In the context of the immediately foregoing, and making sense of the totality of the evidence before me, I find on the balance of probabilities that Mr Garner, upon receiving the orders made by Justice Katzmann on 23 December 2016, and knowing what was on the NCCS Laptop, decided to fabricate an account of it being stolen. This finding is supported by the uncanny timing of events and the fact that the supposed theft was not reported to police by Mr Garner until the next week, coupled with Mr Garner’s complete lack of credibility as a witness. However this does not enable me to make any positive finding as to what was in fact on the NCCS Laptop as at 23 December 2016, and I therefore cannot determine what confidential information could or would have been on that laptop and thereby available to be provided to NCCS, including via Mr Garner in the course of his employment.
225 The “immediately foregoing” included:
212 [The appellant’s] argument ignores the most likely place for him to have put any copy of Output 26 or Output 27 in order to make use of it, namely the device that he would most likely have been working on, his NCCS Laptop. A further problem for Mr Garner is that I do not accept that his NCCS Laptop was stolen. The threads of evidence that can now be drawn together for reaching that conclusion are as follows:
(1) Since 30 June 2016, Mr Garner had available to him a copy of Output 26 and Output 27, containing customer and leads information of the applicants, or at least Intercad, on a USB drive.
(2) On 22 August 2016, Mr Garner had been told he had been retrenched by Central Innovation, with that formally taking effect the next day, after he had left, and thereafter he no longer worked for Intercad.
(3) On 22 August 2016, he made contact with, and later on or around 26 August 2016 met with, and spoke to, Mr Stalin D’Souza, the Director of NCCS – this is contextually adverse to Mr Garner’s interest, so may be accepted for this purpose.
(4) As an incoming new salesman for a competitor of the applicants, NCCS, Mr Garner had a strong incentive to obtain new customers for his new employer, and a strong incentive to make contact with customers of the applicants, or at least of Intercad.
(5) In furtherance of that objective, Mr Garner emailed 10 to 12 customers of at least Intercad in November 2016, so made contact with at least that number.
(6) As the evidence relied upon by the applicants analysed below proves, a number of the email address entries in the NCCS Hatchbuck CRM system contained the same errors as were present in SUGAR, due to entry error or becoming non-current or out of date. Especially in the absence of any other explanation being given, that strongly supports an inference that confidential information finding its source in Mr Garner made its way into Hatchbuck, despite the original Excel format file not being copied there. In turn, that strongly supports an inference that Mr Garner obtained that information from either or both of the SUGAR and VRC data that he obtained from his former employer.
(7) The objective of maximising sales was, I infer, materially assisted by confidential information that Mr Garner obtained from the applicants in order to make contact with their customers, or prospective customers. The evidence does not directly establish that this successfully occurred on a great many occasions. Nonetheless, the fact that Mr Garner became the top salesman for SolidWorks in 2017, despite working for a smaller competitor of the applicants and being confined to sales activity in Victoria and Tasmania, lends material support to this inference being drawn. This is especially so given that Mr Garner had, immediately before his time with NCCS, led a sales team that had received feedback to the effect that its sales performance was unsatisfactory less than one year before Mr Garner was formally made redundant in that same role.
213 The relevant information that Mr Garner had available to him was from the Output Files, from at least some of the 18 SUGAR reports, especially those downloaded on 18 August 2016 (shortly before he was made redundant), and probably also other information able to be obtained by him from access to SUGAR, especially during the course of protracted access that took place on 4 July 2016. The most logical place for that information to be stored by Mr Garner, so as to be accessible and able to be used by him, was the NCCS Laptop, which Mr Garner had taken home with him on 23 December 2016. Given the provenance of that information, I readily infer that Mr Garner would not want such information to be found on that laptop.
226 The appellant correctly submits that the finding of fabrication was a serious finding, requiring the evidence to be evaluated according to the principle discussed in Briginshaw v Briginshaw (1938) 60 CLR 336: Amended Notice of Appeal, [4.1]. The standard of proof is that prescribed in s 140 of the Evidence Act 1995 (Cth), which embodies the same principle.
227 We accept that the finding of fabrication is a serious one, not only because it indicates that a false report was made to the police, but also because it is suggestive of knowing non-compliance with the orders of this Court.
228 The appellant submits that the finding of fabrication was based on nothing more than the timing of the loss of the NCCS Laptop relative to the orders of Katzmann J, and the circumstance that the alleged theft had not been reported to the police for some days. The appellant submits those circumstances could not furnish positive proof of the fabrication to the requisite standard.
229 Once again, the appellant’s submissions are premised on an incomplete and inaccurate statement of the materials upon which the impugned finding was based and the manner in which the primary judge reasoned. As the passage at J [212] illustrates, the primary judge did not limit his consideration to questions of timing. Rather, the inference of fabrication was drawn from a multitude of primary facts, none of which has been successfully challenged on this appeal.
230 Like the primary judge, we consider the timing of the alleged theft to go beyond the realms of coincidence. On its face, the appellant’s assertion that the theft of the NCCS Laptop from a car was not discovered for some days is implausible, given the plain terms of the order of Katzmann J requiring that the appellant maintain possession of it.
231 Importantly, the finding of fabrication was expressed to have been based in part on the adverse assessment of the appellant’s credit, which included an assessment of his general demeanour in giving evidence at the trial. Affording appropriate deference to the advantages of the primary judge, we do not consider the inference of fabrication should be disturbed.
232 The respondents submitted that this Court should have regard to a further striking circumstance supporting the inference that the theft allegation had been fabricated. They referred to a further hearing conducted in this Court on 3 January 2017 concerning the orders of Katzmann J and the content of the NCCS Laptop. They submitted that the circumstance that the theft was not revealed to this Court on that day provided a further compelling basis to support the inference that the allegation of theft had been concocted at a later time. In our view, it is not necessary for the proper disposition of this ground of appeal to resort to facts so seriously adverse to the appellant that do not find expression in the reasons of the primary judge. It is sufficient to say that there is no error in the reasoning of the primary judge and no principled basis to interfere with the inference he drew from the facts to which we have referred.
233 Finally on this topic, even if it was not open to the primary judge to find that the NCCS Laptop had been stolen, it has not been shown that the outcome of the trial could conceivably have been any different. As the primary judge made plain, the finding of fabrication was not a matter that positively went to prove the respondents’ case. The critical conclusion was that the respondents’ misappropriated information was most likely stored on the NCCS Laptop. That conclusion is supported by the totality of the evidence irrespective of whether the NCCS Laptop was subsequently lost or stolen.
The rule in Browne v Dunn
234 In Carter v Federal Commissioner of Taxation (2020) 279 FCR 83, Jagot, Davies and Thawley JJ stated (at [26]):
The rule in Browne v Dunn can be seen as a rule of procedural fairness to a party: Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88 at 101 (Tamberlin J). It may be inappropriate, for example, to submit that a witness’s version of events should not be accepted if the witness has not been challenged on his or her version of events in cross-examination and there has been no earlier notice that the version of events is disputed. Where, however, it is clear from the course of proceedings that the version of events is challenged, and recognising that each case turns on its facts, strict compliance with the rule is not always necessary.
235 As explained by Hunt J in Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation [1983] 1 NSWLR 1 (at 22 – 23):
… There are many reasons why it should be made clear, prior to final addresses and by way of cross-examination or otherwise, not only that the evidence of the witness is to be challenged but also how it is to be challenged. Firstly, it gives the witness the opportunity to deny the challenge on oath, to show his mettle under attack (so to speak) although this may often be of little value. Secondly, and far more significantly, it gives the party calling the witness the opportunity to call corroborative evidence which in the absence of such a challenge is unlikely to have been called. Thirdly, it gives the witness the opportunity both to explain or to qualify his own evidence in the light of the contradiction of which warning has been given and also, if he can, to explain or to qualify the other evidence upon which the challenge is to be based. …
(original emphasis)
236 In Flightdeck Geelong Pty Ltd v All Options Pty Ltd (2020) 280 FCR 479, Markovic, Derrington and Anastassiou JJ observed, however, that the consequences of a failure to comply with the rule in Browne v Dunn will vary according to the circumstances of a particular case; as the rule is directed at the fairness of a trial there may be a multitude of remedial steps that might be taken (at [147]).
237 The scope of the application of the rule in Browne v Dunn and the significance of a failure to cross-examine on an issue were considered in Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; 261 ALR 382. As Campbell JA explained (Allsop P (as his Honour then was) and Basten JA agreeing) (at [105]):
While the evidence was not cross-examined on, that does not necessarily mean that the judge was obliged to accept it. A judge can reject evidence that has not been cross-examined on if, for example, it was inconsistent with other evidence that he accepted, or if it was inherently incredible: Sullman v Sullman [2002] DFC 95-248; [2002] NSWSC 169 at [304]–[306]; Caldwell v J A Neilson Investments Pty Ltd (2007) 69 NSWLR 120; [2007] NSWCA 3 at [96]; Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 at 586–8. Nor did the rule in Browne v Dunn (1893) 6 R 67 (Browne) prevent the judge from rejecting the evidence. That is because Ms Maude had given her evidence on affidavit in advance of the trial (including an account of the conversation with Mr Miles that she told Mr Newport about), and Mr Miles had replied to that affidavit in advance of the trial. Mr Miles’ reply included denying that his client was prepared for the appellant to receive the benefit of all the BBX dollars as BBX dollars were of no use to it, and saying that he did not agree to any proposition that removed his client’s ability to choose whether to take BBX dollars or set aside cash. Exchange prior to trial of affidavits that disclose the position of the respective parties concerning a particular evidentiary matter can prevent a Browne point being successfully raised: West v Mead (2003) 13 BPR 24,431; [2003] NSWSC 161 at [95]–[99]. Thus, I do not accept that the absence of cross-examination required the judge to accept Mr Newport’s evidence.
238 In this case, the assertion of non-compliance focussed principally on the absence of direct allegations being put to the appellant in the course of cross-examination in respect of particular topics. With the exception of the submissions concerning the scope of the pleaded case (which have been rejected), it was not explained how it was that the appellant was not on notice of the respondents’ case concerning that subject matter in circumstances where detailed pleadings and affidavits (including expert evidence) had been exchanged in advance of the trial. As explained by the primary judge in connection with the appellant’s reasons for downloading information from the VRC (J [221]):
I find on the balance of probabilities that the data was copied onto a USB drive not so that it could be given to Mr Kenny, but rather to facilitate its untraceable removal from the applicants’ premises. While this was not expressly put to Mr Garner to challenge his contrary account as being untrue, it was so clearly a part of the applicants’ case that I do not consider a rote application of the rule in Browne v Dunn (1894) 6 R 67 at 76, so as to produce a rote denial, was required.
239 In respect of the appellant’s explanation as to the source of the information he entered in Hatchbuck, the primary judge (correctly) observed that the appellant’s assertions were generalised and vague, and that the respondents were under no obligation to help him in that regard by seeking clarification in cross-examination: J [267]. The appellant was plainly on notice of the respondents’ case as to the source of that information, and indeed responded to it in the manner of his choosing by way of a table in an affidavit. Considerations of fairness did not require the respondents to put to the appellant that each and every assertion in the table was false.
240 As to the ability of the appellant to remotely access SUGAR, objective evidence of his remote access was contained in the affidavit of Mr O’Kane (provided before the trial) who expressed opinions in respect of it. The respondents’ case concerning the appellant’s proficiency in the use of SUGAR and the likelihood that information had been copied from SUGAR and pasted into a spreadsheet titled “Gary G List” was specifically foreshadowed in the report of Mr O’Kane provided in advance of the trial.
241 The appellant has not shown that the primary judge erred in failing to find material non-compliance with the rule in Browne v Dunn in respect of any of the subject matters referred to in [1.7] of the Amended Notice of Appeal, giving rise to any substantive unfairness in the conduct of the trial.
Credit generally
242 We reject the contention that the primary judge erred in “finding that evidence given by the Appellant, including where uncontroverted and unchallenged, and further including where also supported by contemporaneous written evidence, could not be accepted, unless corroborated by other witnesses or unless the evidence was against the interest of the Appellant”: Amended Notice of Appeal, [4.2]. As discussed above, it is not correct to characterise the appellant’s evidence as “uncontroverted”. The assessment of credit discussed in the foregoing paragraphs was orthodox and unsurprising. The submissions on this topic did not address the detailed reasons given by the primary judge for making the assessment that he did.
243 Grounds 3 and 4 must fail.
Ground 5
244 This ground is expressed as follows:
5 Erroneous assessment of alleged loss or damage
5.1 The learned primary judge erred ([347] and [350] of the Reasons) in accepting that the thirty-seven (37) customers in relation to whom the Respondents make allegations of loss and damage, sounded in damages calculated on the full price claimed by the Respondents.
5.2 Given the absence of any evidence of use or misuse of the Respondents’ allegedly confidential information by the Appellant during the course of his employment with NCCS, the learned primary judge ought to have found that the Appellant’s contact (if any) with anyone of the customers referred to at Annexure C of the SFASOC, did not occur by use or misuse of the Respondents’ alleged confidential information, and the Respondents claim against the Appellant could not sound in loss or damage.
5.3 Alternatively, in the event that Intercad had established its claim (which is denied) in respect of customer(s) identified at Annexure C of the Respondents’ SFASOC (which is denied), the learned primary judge ought to have found that, in the absence of any evidence to support a finding that customer(s) would have paid the higher price claimed by Intercad, any loss and damage could only be calculated upon the price actually paid by the customer(s), being the price which was paid to NCCS.
245 Argument on this ground was founded in part on submissions concerning reflective loss, discussed and rejected earlier in these reasons.
246 Two further issues arise. The first is whether the respondents established to the requisite standard that the use of their confidential information by the appellant was causative of the loss of 37 clients. The appellant’s submissions in this respect once again involved a misguided focus on the absence of direct evidence of the appellant contacting some of the customers by use of the information taken from the respondents and the absence of direct evidence emanating from the customers themselves as to their reasons for engaging NCCS soon after the appellant commenced employment there. As with the other grounds of appeal, the submissions fail to grapple with the circumstantial nature of the case. The real issue is whether inferences may permissibly be drawn in connection with a body of customers by reference to evidence concerning only some of them. The primary judge was keenly aware of the nature of the evidence upon which the respondents relied and rejected submissions from the appellant about its sufficiency.
247 The primary judge first considered the evidence relating to 15 customers whose information in Hatchbuck was the same as the information contained in SUGAR. Those customers had each advised the respondents of the reason for terminating their services. The reasons were similarly phrased, typically in terms that the customer would like to try NCCS for their support. The primary judge observed that the appellant made no serious attempt to rebut the evidence concerning those customers. His Honour drew an inference that each of the customers were acquired by NCCS as a result of the appellant’s use of the respondents’ confidential information. His Honour described the inference as “strong and compelling”. In light of all that has been said so far, we would draw the same inference.
248 It is necessary to set out what the primary judge said of the remaining 22 customers in full:
321 For those 22 customers the available specific evidence is to be considered in the context of the evidence as to:
(1) the information that Mr Garner both copied and took, in the form of the Output files;
(2) the SUGAR Reports that Mr Garner generated, and I readily infer also took, especially the bulk that were generated on 18 August 2016, only one clear working day before he was made redundant;
(3) Mr Garner’s online access to SUGAR despite his disavowal of the information in SUGAR being of any use when he was working for Intercad via Central Innovation;
(4) the significant amount of data matching information in SUGAR and to a lesser extent Output 26 that he entered into Hatchbuck;
(5) the use of that information by Mr Garner to generate email blasts to entities which included customers of the applicants and to make telephone calls to such customers; and
(6) the overwhelming inference able to be drawn that Mr Garner used confidential information obtained from the applicants to secure the loss of 13 of the 37 customers to NCCS.
322 The available specific evidence in relation to the further 22 customers lost to NCCS includes the following:
(1) All were longstanding customers of the applicants, as noted above, for periods ranging from 4 years and 5 months to 22 years and 5 months.
(2) Each of them were lost to NCCS after Mr Garner had departed his employment with Central Innovation, working for Intercad.
(3) There is no evidence that any of them had any complaint about the service provided by the applicant – to the contrary, all except one of the account change request forms were expressed in terms that referred only to trying out NCCS, itself an indication that they had been approached in the same way.
(4) None of those 22 customers are recorded in SUGAR as having been assigned to Mr Garner, which tends against a knowhow or memory basis for his knowledge about them, especially as no such focused evidence was given by him.
(5) In relation to one of these customers, the evidence demonstrated that Mr Garner had sent an email to the customer contact who was in SUGAR saying ‘Thanks for taking my call earlier’ on 4 April 2017. This means that it cannot be inferred from the absence of documentary evidence that a customer was entered into Hatchbuck or any other CRM that the customer was not contacted by Mr Garner misusing the applicants’ confidential information.
(6) In relation to the 37 customers said by the applicants to be lost to NCCS, Output 26 contained asset entitlement end dates for at least 30 of them, and specific asset serial codes for at least 26 of them. This means that Mr Garner had access to information about what products most, if not all, of the customers lost to NCCS subscribed to through Intercad, and in at least some cases when those subscriptions were due to expire.
249 His Honour continued (J [323]):
The inference readily able to be drawn is that each of these further 22 customers had been approached and persuaded to change to NCCS. There was no evidence that this was carried out by anyone at NCCS other than Mr Garner. Mr Garner was in a position to give specific evidence to resist an inference being drawn that he was the person behind this taking place, including as to the use of confidential material obtained from the applicants to achieve this. He elected not to do so, beyond vanilla statements in the copy of the schedule to the defence annexed to his affidavit. He did not specifically deny having caused any of these 22 customers to change from the applicants to NCCS, not referring to several at all in his evidence. This was presumably due to the late addition to the amended schedule to the statement of claim on 30 September 2019 (albeit well before his affidavit was affirmed on 28 October 2019). He did, however, refer to them in his closing submissions schedule (see the schedules relating to Austratek Designs, Pump Technology Pty Ltd, and Scad Designs) and for others said words to the effect of ‘To the best of my recollection, this account was an inbound enquiry to NCCS’ and/or ‘To the best of my recollection, this account handled by another NCCS employee’, without naming who that person was, and/or for a few made reference to his ‘know-how’. While the specific evidence in relation to these 22 customers, taken on its own, supported only a somewhat weak inference that the loss of these customers to NCCS was caused by Mr Garner using confidential information from the applicants, in context the doubts about the capacity to support that ultimate inference being drawn may more easily and safely be overcome. I have no hesitation in drawing that inference in all the circumstances in respect of all of those 22 additional customers. Mr Garner had an ample opportunity to give evidence that might have rebutted the drawing of that additional evidence, but chose not to do so.
250 The primary judge was plainly alert to the circumstance that there was not an exact correlation between the information contained in Hatchbuck and the information contained in the VCR or SUGAR in respect of these 22 customers.
251 The above analysis is not expressly based on his Honour’s impression of the appellant as a witness, referable to any advantage in seeing and hearing him give evidence. Accordingly, in respect of this topic we consider this Court to be in as good a position as the primary judge to assess the material and to draw inferences from the facts that have not been challenged or successfully challenged on this appeal. On our review of the facts, we would arrive at the same conclusion as the primary judge, and by the same process of reasoning. The challenges to the findings concerning causation of loss are rejected.
252 The final argument concerns the quantification of the respondents’ loss. It is alleged that loss ought to have been assessed by reference to the lower fees paid by the customers to NCCS after their custom was wrongly solicited by the appellant. No oral submissions were made in support of the allegation of error and the appellant’s written submissions appear to assert only that it was open to the primary judge to make a different finding.
253 The finding that the customers would have continued their custom with the respondents were it not for the appellant’s wrongful conduct finds ample support in the evidence. None of the customers who provided explanations to the respondents cited dissatisfaction with the respondents as the reason for terminating their services. Nor was the price of the services put forward as the reason by any of them. As the primary judge correctly found, many of them were long-standing clients of the respondents. The arithmetic employed to assess the respondents’ loss properly involved an assumption that if the clients were not lost to the respondents they would have continued to pay fees at the levels they had previously paid. The evidence adduced by the respondents was capable of supporting that finding. We have no difficulty reaching the same conclusion as the primary judge in respect of the sum awarded.
Conclusion
254 The appeal should be dismissed with costs.
I certify that the preceding two hundred and fifty-four (254) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Charlesworth, Stewart and Halley. |
Associate: