Federal Court of Australia

Lopez v Gold Titan Pty Ltd [2022] FCAFC 117

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be allowed.

2.    Order 1 of the orders made on 17 December 2021 be set aside.

3.    The matter be remitted to the primary judge for the provision of further reasons on the quantum of damages.

4.    The costs of the appeal be reserved.

5.    The respondent file and serve any evidence and submissions of no more than 3 pages on the costs of the appeal within 14 days of these orders.

6.    The appellants file and serve any evidence and submissions of no more than 3 pages on the costs of the appeal within 21 days of these orders.

7.    The respondent file and serve any submissions in reply of no more than 2 pages on the costs of the appeal within 28 days of these orders.

8.    Unless a party requests an oral hearing in its submissions on the costs of the appeal, the costs of the appeal be decided on the papers.

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

REASONS FOR JUDGMENT

RARES J:

1    The central issue in this appeal is whether the primary judge gave sufficient reasons for her award of $150,000 damages to the respondent, Gold Titan Pty Ltd, trading as Evagroup. Evagroup employed the first appellant, Nicholas Lopez between 1 April 2019 and his resignation which took effect on 12 August 2019. When Mr Lopez resigned he immediately established his own business, the second appellant, Imperial Flooring Australia Pty Ltd and began competing with Evagroup using its confidential customer list that her Honour found Mr Lopez had taken in breach of his fiduciary duty as employee and his contract of employment.

The primary judge’s liability reasons

2    In her liability reasons published on 5 August 2021, her Honour found that when Mr Lopez began his employment with Evagroup, part of its business was the resale of various floor levelling products that it acquired from Cemimax Australia Pty Ltd. Up to then, Evagroup had been the sole reseller in Australia of those products. Cemimax stored its products, that it imported from its Chinese parent company, at Evagroup’s warehouse. Both Cemimax and Evagroup sold the Cemimax products directly to their customers.

3    At around the time that Mr Lopez was first employed, the relationship had been deteriorating between Evagroup, its principal, Peter Yates, and Cemimax and John Titus, Cemimax’s national sales director. By mid-June 2019, Cemimax had obtained its own warehouse. Mr Titus informed Mr Yates that henceforth Cemimax would no longer store new imports in Evagroup’s warehouse. Cemimax also began distributing its products to another reseller, Top Level Supply Pty Ltd, after it had commenced business on 4 July 2019.

4    The primary judge found that from about 20 May 2019, Mr Lopez had access to Evagroup’s electronic customer list. She found that he retained a copy of the customer list after he ceased employment and then used it on behalf of Imperial to communicate with, and solicit business from, persons on that list.

5    Her Honour found that before he had resigned his employment with Evagroup, as an indication of his plan to set up his own business, on 8 August 2019 Mr Lopez had created a document entitled “Imperial Flooring Mobile List”. She found that the timing of his resignation was so well-organised that by 15 August 2019 Mr Lopez had established an operating website for Imperial describing itself as a wholesaler, commercial flooring supplier, “a partner of Cemimax Australia” and its “number 1 distributor”. Mr Lopez had arranged with Cemimax that Imperial could acquire and market at prices that undercut Evagroup’s cost of goods from Cemimax.

6    Immediately after his resignation Mr Lopez began communicating with Evagroup’s existing customers. By 15 August 2019, Mr Yates became aware that Imperial was offering Cemimax products to Evagroup’s clientele. He had received a number of calls from Evagroup’s customers who asked him whether Mr Lopez still worked with Evagroup.

7    The primary judge explained that Mr Lopez had used the customer list to communicate with Evagroup’s customers after his resignation on numerous occasions through unsolicited emails. Those included an email he sent on 9 September 2019 to tout for business to a number of Evagroup’s customers at their addresses on the customer list (the 9 September email). Most of the 9 September email is set out below but it also included Imperial’s prices for the two most popular Cemimax products:

Dear Customers,

Imperial would love to talk to you about our floor preparation products and how we can help support you in future projects.

Imperial Flooring Australia are priced the best in the market with locations in Sydney and Soon to open Wollongong warehouse in 3 weeks; storing minimum 50,000 bags at one time.

Gaining fast traction over the years in the Australian market, a small portion of our projects can viewed via this link www.imperialflooringaustralia.com.au/projects

Data sheets can be downloaded via: https://www.imperialflooringaustralia.com.au/floor-preparation

(emphasis added)

8    Imperial’s website, to which the 9 September email gave a link, used photographs of “Projects supplied” to depict the application of “our products” to projects. In fact, the photographs were of work done on projects that Evagroup, not Imperial, had supplied.

9    Mr Yates engaged in an attempt at damage control on 24 September 2019 by issuing a press release to Evagroup’s customers. The press release noted Mr Lopez had been employed as a sales manager for a four month period in 2019, and that, after his resignation, he immediately set up Imperial in competition. He adverted to the forthcoming litigation in this Court, the warm relationship that Cemimax had formed with Mr Lopez and the fact that Evagroup currently held enough Cemimax stock to ensure supply until the end of 2019. The press release informed readers that Evagroup had decided to discontinue further supply of Cemimax products and would replace it “with a better formula product due for release to the market in November”. Mr Yates thanked customers for their loyalty and promised that the new product “is guaranteed to be an excellent and exciting product for the Commercial Flooring Market”. Her Honour found Mr Yates’ conduct in issuing the press release to be unreasonable.

10    In the meantime Cemimax, Imperial and Top Level had been undercutting Evagroup’s prices for Cemimax products, forcing it to respond competitively. This conduct affected the market price for Cemimax products and Evagroup’s competitive position in the market.

11    There is no appeal from her Honour’s conclusions that Mr Lopez breached, first, cl 8 of his contract of employment with Evagroup by taking and using the customer list in establishing and progressing Imperial’s new business and, secondly, his equitable duty of confidence owed to his former employer. Her Honour found that Mr Lopez had identified an advantage to himself by taking and using the customer list rather than reassembling a list. Her Honour found (as reflected in declarations that she made on 17 December 2021) that Imperial engaged in conduct that was misleading, within the meaning of s 18 of the Australian Consumer Law in Sch 2 of the Competition and Consumer Act 2010 (Cth). Her Honour found that the 9 September email falsely represented that, first, Imperial had been gaining fast traction over the years in the Australian market and, secondly, a small portion of its projects could be viewed online using the hyperlink to its website.

12    Her Honour found that the evidence did not support Mr Yates’ belief that the conduct of Cemimax and Mr Titus had adversely affected Evagroup’s business. The primary judge dismissed Evagroup’s claim in defamation. She also found Evagroup liable on Cemimax’s, claim against it for the sum outstanding on an unpaid invoice.

13    At the conclusion of her liability reasons, the primary judge said that she proposed to provide the parties with an opportunity to address on the issue of relief as between Evagroup, on the one hand, and Mr Lopez and Imperial, on the other, based on her findings of Mr Lopez’s breaches of contract and their breach of the Australian Consumer Law. Her Honour noted that Evagroup’s evidence, principally given by Mr Yates, had not segregated what damage flowed from Mr Lopez’s and Imperial’s conduct for which she found them liable from any damage attributable to Evagroup’s other claims in defamation and the conduct of Cemimax and Mr Titus.

14    Her Honour adverted to difficulties with parts of the evidence. She found that Mr Yates’ announcement in the press release of the decision to cease supply of Cemimax products and his disparagement of Mr Lopez was not reasonable conduct and had not advanced Evagroup’s case. She found that the impact of issuing the press release was a relevant factor that affected Evagroup’s claim for damages adversely. However, her Honour rejected Mr Lopez’s and Imperial’s submission that their liability for any damage caused by their conduct must have ceased as and from the issue of the press release. She found that:

[a]lthough the press release notified customers of the existence of Imperial, that does not detract from the fact that Mr Lopez and Imperial still had, and could use, the confidential information to contact individual customers (J340)

The primary judge’s damages reasons

15    On 3 December 2021, the primary judge delivered reasons for her findings on damages (the damages reasons). She noted that she had permitted the remaining parties (Evagroup, Imperial and Mr Lopez) leave to adduce further evidence on the damages issue, but no relevant new evidence was led. Her Honour set out legal principles as to damages to which no party took exception on appeal. The primary judge then devoted about 50 paragraphs of her reasons discussing and criticising submissions of each of the parties on the evidence concerning damages. She explained how each side inadequately addressed the question of what damage Evagroup had sustained as a result of Mr Lopez’s and Imperial’s conduct for which she had found them liable. The primary judge repeated what she had said in the liability judgment, namely that Mr Yates’ evidence had not addressed the issue of separately identifying what damage each of the four original respondents, including Cemimax and Mr Titus, had caused discreetly from each other.

16    Her Honour also rejected Evagroup’s submission that its loss could be calculated directly from, or by reference to, confidential exhibit S, which was a month by month comparison of only the next profit figure line in the financial years ended 30 June 2019 and 2020, taken from Evagroup’s MYOB accounting system. Exhibit S showed that Evagroup’s net profit in August 2019 was about 40% of that in August 2018; in September 2019 it was about 50% of that in September 2018; in October 2019 it was about 66% less than in October 2019; in each of November and December 2019 it was about 70% less than in November and December 2018. As the primary judge noted, Evagroup did not tender the underlying data to explain how those figures were arrived at in its MYOB system. The lack of the raw data for those net profit figures meant that her Honour could not use that data to assist in determining an award of damages.

17    Her Honour recognised that the evidence relating to Evagroup’s resulting damages was “very limited”. She concluded that it was too simplistic to assess Evagroup’s loss caused by Mr Lopez and Imperial’s conduct by comparing the diminutions in monthly net profits in exhibit S. She said that that approach would ignore her various findings in the liability judgment, including that some losses were attributable to the conduct of Cemimax, Mr Titus, and Mr Yates’ reaction, contributing to the situation in which Evagroup found itself issuing the press release. Her Honour found that “the scant figures provided cannot support some of the submissions” but that “it may be accepted that business from some customers was affected, however, on the evidence it is difficult to assess”. She found:

[66] Having said that, it may be accepted that some loss was also incurred by the applicant due to Mr Yates having to take the time to investigate and respond to (including by dealing with his customers) what the respondents were doing with their business which may have had an impact his own business. On the evidence this involved attempts to retain some customers (although the extent to which is attributed to the contraventions or other reasons, for example Cemimax pricing the applicant out of the market is unclear). It may also be accepted that the respondents obtained a head start in its business by the use it made of the confidential information. The applicant may have lost out on jobs it might otherwise have obtained.

[67] On the other hand, the respondents’ approach is also simplistic. The approach does not take account of the gravamen of the respondents’ conduct, and the purpose behind it. It fails to recognise the breaches of confidence and the consequences that flow from them. Moreover, the submission does not address the springboard effect the use of the applicant’s confidential information had on the respondents’ ability to launch its business, in particular in the time frame in which it did.

[68] There is a great divide between the parties as to the figures said to represent the loss incurred. On any scenario, there is only a very limited number of customers identified from the Evagroup Customer List doing business with the respondents. It must be accepted that it is difficult to prove such matters, but the difference between the number of customers lost and the figure claimed as lost profit is stark. I note also that during this period there were other suppliers, being Cemimax and Top Level Supply.

[69] The applicant’s claim under the ACL arises out of aspects of Imperial Flooring’s website as it appeared before 4 October 2019 and the unsolicited communications sent by Mr Lopez on behalf of Imperial Flooring from at least 9 September 2019. The applicant does not submit that any additional amount of damage can be quantified, but the actions are all encompassed with the breaches of confidence. It submitted rather that a portion of the appropriate award simply be attributed to that claim.

[70] All that said, I am mindful that given the nature of established contraventions by the respondents, the Court should assess the quantum of compensation on a liberal basis, and do the best it can on the evidence available.

[71] Having considered the submissions, the evidence and applying the relevant legal principles, (bearing in mind, inter alia, that the applicant chose to sell a new product from November 2019, and other discounting factors unrelated to the claim), the damages awarded for the breaches of confidence and the ACL contraventions should be $150,000. Given the nature of the breaches of confidence, it comprises the substantial portion of the claim, with the ACL claim (being the limited time over which it occurred and customers had been contacted) being limited to $25,000.

(emphasis added)

The parties’ submissions

18    Mr Lopez and Imperial argued that her Honour erred in selecting the figure of $150,000 as the quantum of damages when the evidence did not support such a high figure. They contended that her Honour failed to give any adequate reasons for arriving at the damages award. They submitted that the primary judge erred in putting any weight on exhibit S, having found it to be “too simplistic” and having “no proper underlying documentation”. They asserted that it followed that this finding entailed that the primary judge erred in placing any weight on exhibit S.

19    They argued that her Honour’s reasons failed to reveal how she arrived at her finding of quantum given the paucity and her criticisms of Evagroup’s evidence of damage. They contended that Evagroup was in a position to adduce evidence on loss but that it had failed to do so, which should have led the primary judge to infer that there was no basis to require or entitle the Court to “do the best it can” in assessing damages.

20    Mr Lopez and Imperial submitted that her Honour erred in not treating Mr Yates’s issue of the press release on 24 September 2019 as a cut-off date because it was a break in the chain of causation of any damage. They asserted that her Honour should also have treated Evagroup’s decision to stop selling Cemimax products from November 2019 as a basis for concluding that it could not have suffered any loss thereafter.

21    Mr Lopez and Imperial relied on their production of invoices under a notice to produce. That revealed that, in the period to September 2020, Imperial had sold Cemimax products to seven of Evagroup’s customers for a total gross profit of $56,667.05 (the seven Imperial invoices). Mr Lopez and Imperial asserted that Imperial’s total net profit on those sales was $16,984.11. They argued that the primary judge erred by not limiting the damages to the loss of those seven Evagroup customers. They contended to her Honour, and on appeal that this indicated the ambit of any damage suffered by Evagroup.

22    Mr Lopez and Imperial contended that the $150,000 award was “an omnibus figure which includes $25,000 in respect of the ACL claim” so that damages for them breaching contract and confidence must have been $125,000. They submitted that there was no principle of law, or case that her Honour cited, to warrant the finding at [70] of the damages reasons that the Court should assess “the quantum of compensation on a liberal basis”. They asserted that this was “unusual” in assessing damages. They argued that this approach, taken with their criticism of the primary judge’s resort to the Court “doing the best it can”, revealed an error of law in the process by which her Honour arrived at the figure of $150,000, which they contended was manifestly excessive.

23    Evagroup argued that in arriving at the $150,000 award, her Honour had a considerable body of evidence before her that supported that finding. It took the Full Court to examples in the evidence which included that:

(1)    Mr Yates estimated Evagroup’s losses between August 2019 and April 2020 due to having to reduce or discount its prices for the two principal Cemimax products it sold totalling $47,466.84.

(2)    Mr Yates’ evidence was that Evagroup’s biggest customer by revenue before June 2019 was a carpentry and joinery business called Top Knot. He said that Top Knot had ceased purchasing Cemimax products from Evagroup in June and July 2019 because the prices that Cemimax permitted it to charge were higher than a competitor, Bostik, offered Top Knot for another product. He said that Evagroup made lower value sales of Cemimax products to Top Knot between August 2019 and January 2020 (C6922). The evidence about Top Knot did not enable her Honour to make any conclusion that Evagroup had suffered a loss caused by Mr Lopez or Imperial. Rather, the evidence suggested that this loss was because Cemimax’s conduct had prevented any sales in June and July 2019. Mr Yates gave evidence that Evagroup’s sales to Top Knot after August 2019 had resulted in a loss of $725.00, which formed part of the total in (1) above.

(3)    Mr Yates said that after 9 September 2019 he became aware of at least 30 businesses on the customer list which had received a communication from Mr Lopez and or Imperial. He attached copies of the 9 September email that nine of those businesses had forwarded to him. One customer, who retailed the Cemimax products that it sourced from Evagroup, remonstrated with Mr Yates, in the belief that Mr Lopez still worked for Evagroup, about the disclosure of the product prices in the 9 September email. The retailer complained that this had affected his ability to sell the products.

(4)    Mr Yates said that Evagroup had lost customers and projects including, at least, the following customers for which Mr Lopez had been Evagroup’s contact while he was employed by it:

(a)    Illawarra Water Proofing in respect of a Kiama retirement village project due to be completed at the end of 2019. Mr Yates knew this loss of custom had occurred based on what Mr Lopez revealed to him. No invoice to Illawarra Water Proofing was among the seven Imperial invoices.

(b)    Nazero Constructions in respect of a project in Lidcombe that Evagroup had been supplying from 20 June 20 June 2019 until 13 August 2019.

(c)    Style Timber, which was then Evagroup’s largest customer. Mr Yates said that Evagroup had to drop its prices for Cemimax products, due to lower prices that Imperial had offered, causing the loss of all gross profit margin on the sales.

(d)    RK Gridding and Rylex, which Mr Yates said had ceased after 15 August 2019 making periodic purchases of the kind that each had made since 1 April 2019.

24    Mr Yates estimated that, had Evagroup been able to continue supplying to the Kiama and Lidcombe projects referred to in [23](4)(a) and (b) above, it would have earned revenue of about $85,000, being 5% to 6% of its annual revenue.

Consideration

25    It may be accepted that her Honour’s reasons were not as clearly expressed as they could have been, had she set out separately the findings of fact, on which she based the award of $150,000, differentiating those from her critique of the parties’ evidence and submissions. The primary judge referred to the evidence, and its limitations, that she had considered in the course of arriving at the ultimate award. As noted above, Mr Lopez and Imperial accepted that her Honour had set out the legal principles apposite to the assessment of damages.

26    In DL v The Queen (2018) 266 CLR 1 at 12 [32] Kiefel CJ, Keane and Edelman JJ said:

The content and detail of reasons “will vary according to the nature of the jurisdiction which the court is exercising and the particular matter the subject of the decision” (Wainohu v New South Wales (2011) 243 CLR 181 at 215 [56]). In the absence of an express statutory provision, “a judge returning a verdict following a trial without a jury is obliged to give reasons sufficient to identify the principles of law applied by the judge and the main factual findings on which the judge relied” (Douglass v The Queen (2012) 86 ALJR 1086 at 1089 [8]; 290 ALR 699 at 702). One reason for this obligation is the need for adequate reasons in order for an appellate court to discharge its statutory duty on an appeal from the decision (Here, under Criminal Law Consolidation Act 1935 (SA), s 353(1). See Douglass v The Queen (2012) 86 ALJR 1086 at 1090 [14]; 290 ALR 699 at 703; R v Keyte (2000) 78 SASR 68 at 76 [38]) and, correspondingly, for the parties to understand the basis for the decision for purposes including the exercise of any rights to appeal.

27    If a trial judge fails to give adequate reasons and the appellate court cannot decide the appeal or issue by examining the record to determine if the order in question was properly made, one course open is to remit the matter back to the judge for the purpose of formulating his or her reasons for the relevant conclusion or order: North East Equity Pty Ltd v Proud Nominees Pty Ltd (2010) 269 ALR 262 at 270–271 [38]–[41] per Sundberg, Siopis and Greenwood JJ.

28    The primary judge’s findings in [66]–[68] are critical to understanding whether she sufficiently identified a basis for her reasoning on damages. As her Honour acknowledged in [68], it is difficult for a person in Evagroup’s position to prove a quantifiable loss resulting from a former employee’s breaches of his or her obligation of confidence and contract in stealing and then using the former employer’s customer list in a competing business. The primary judge recognised that two facts were important ingredients in the evaluative mix used to arrive at an assessment of such a loss, namely that:

(1)    Mr Lopez and Imperial had obtained a head start in their new business by the use they made of the customer list and Evagroup “may have lost out on jobs that it otherwise might have obtained” (at [66]); and

(2)    Mr Lopez’s and Imperial’s conduct and their purpose in engaging in that conduct, were to gain from the springboard effect in launching their business “in particular in the time frame in which [they] did” (at [67]).

29    The circumstances with which Mr Yates and Evagroup had to grapple, made precise calculation of Evagroup’s loss or damage problematic, as her Honour’s criticism of both sides’ submissions elucidated. However, the scenario in which Evagroup was placed by Mr Lopez’s dishonesty was commercially fraught. First, Mr Lopez and Mr Yates both knew that Cemimax, through Mr Titus, was increasing the cost to Evagroup of the Cemimax products it was selling. Secondly, although Mr Yates did not receive this information from Mr Titus or Cemimax, Cemimax was undercutting the costs that it charged Evagroup for its products when it sold to Imperial (and possibly to Top Level) or directly to customers on its own behalf. Thirdly, both Mr Lopez and Mr Titus knew what Evagroup had paid Cemimax. Hence, Mr Yates found that, in the new market conditions, he had to drop Evagroup’s prices to cost or lower in order to sell the remaining stock and keep its customers, while Mr Lopez and Imperial could offer to sell the same products that it had acquired below the cost to Evagroup, to all of Evagroup’s customers on the customer list at lower prices.

30    Thus, while Mr Lopez and Imperial emphasised that the only evidence in their records was that Evagroup lost the sales in the seven Imperial invoices, Evagroup had been fixed with a significant competitive disadvantage because of their conduct. That had occurred because, through the efforts of Mr Lopez and Imperial, such as sending the 9 September email, all of the businesses on the customer list knew, or would be likely to know, that Imperial was offering the same Cemimax products at substantially lower prices than Evagroup was currently offering. This is reflected in her Honour’s finding at [64] that “business from some customers was affected, however, on the evidence, this was difficult to assess.”

31    The impact of the conduct was also evidenced in the clear trend for Evagroup’s last five months trading of 2019. This revealed a significant downturn in the net profit figures produced in its MYOB management accounts in exhibit S. That downturn occurred in connection with Evagroup having to drop its prices on sales of Cemimax stock, well before any impact of the COVID-19 pandemic in or after March 2020.

32    The decision of Hawkins J and the Court of Appeal of England and Wales in Robb v Green [1895] 2 QB 1 and Robb v Green [1895] 2 QB 315 provide the foundation for awarding damages against an employee who, in breach of his or her contract of service, uses the employer’s confidential information, such as a customer list. There, Lord Esher MR (at 316–317), Kay LJ (at 319–320) and AL Smith LJ (at 320) upheld Hawkins J’s award (at 20) of £150 damages and an injunction against the dishonest employee who surreptitiously copied the employer’s customer list and used it to start a competing business. As Hawkins J held ([1895] 2 QB at 20), ordinarily the delinquent former employee cannot be saddled with every loss of custom. Even where the employer was only able to prove a few lost sales. Hawkins J said that “their loss does not form the limit of the injury to the plaintiff, for the wholesale canvass of his customers was likely to influence many and to diminish permanently his receipts and profits” (emphasis added). He said that consequence had to be balanced against the usual incidents of fluctuation of trade, and the Court had to guard against giving the employer a complete indemnity for any diminishment in trade.

33    Of course, an employee, ordinarily, is entitled to use information about the identity of his employer’s customers that he or she remembers after leaving the employment without breaching any contractual obligation of his employment: Wessex Dairies Ltd v Smith [1935] 2 KB 80 at 89 per Maugham LJ. But, such use of one’s memory is a very different thing from the employee copying the entire list of customers that the employer has built up over the years of his, her or its trade, which, usually, is a breach of the contract of employment sounding in damages: Wessex Dairies [1935] 2 KB at 85 per Greer LJ, 90 per Maugham LJ and Talbot J.

34    One factor relevant to an award of damages in a case like this is the value to the delinquent employee of the work of his or her employer in compiling over several years the pilfered customer list. The illicit possession of this information relieves the employee of doing any work or research to find a viable list of potential customers for the class of goods or services in respect of which he or she sets out to compete with his or her former master. The identification of such potential customers, comprised in the customer list, therefore, has a value in itself that can sound in general damages, quite apart from any actual loss of sales or profits. Nothing demonstrates this value more cogently than the employee’s dishonesty in taking the customer list, as Mr Lopez did here, surreptitiously to use for his own benefit. That value is unsusceptible of precise proof: see Robb [1895] 2 QB at 317 per Lord Esher MR, at 320 per Kay LJ and AL Smith LJ approving Lamb v Evans [1893] 1 Ch 218 at 229 per Bowen LJ. Their Lordships upheld Hawkins J’s conclusion to the above effect when he said of the copied customer list (at 19):

The collection together of these names and addresses in his order-book was the property of the plaintiff. It is the compilation which made the book and the list so valuable to the defendants, and facilitated has endeavours to entice his master’s customers to the detriment of the latter.

(emphasis added)

35    The evaluation of damages and compensation under s 236 of the Australian Consumer Law in a case like the present may attract an approach similar to that for a claim for a general loss of business or custom in an action in tort, for defamation or injurious falsehood adopted in Ratcliffe v Evans [1892] 2 QB 524 at 532–533. There, Bowen LJ gave the reasons for Lord Esher MR, Fry LJ and himself saying:

In all actions accordingly on the case where the damage actually done is the gist of the action, the character of the acts themselves which produce the damage, and the circumstances under which these acts are done, must regulate the degree of certainty and particularity with which the damage done ought to be stated and proved. As much certainty and particularity must be insisted on, both in pleading and proof of damage, as is reasonable, having regard to the circumstances and to the nature of the acts themselves by which the damage is done. To insist upon less would be to relax old and intelligible principles. To insist upon more would be the vainest pedantry. The rule to be laid down with regard to malicious falsehoods affecting property or trade is only an instance of the doctrines of good sense applicable to all that branch of actions on the case to which the class under discussion belongs. The nature and circumstances of the publication of the falsehood may accordingly require the admission of evidence of general loss of business as the natural and direct result produced, and perhaps intended to be produced.

(emphasis added)

36    Bowen LJ explained (at 533) that conduct that, in its very nature is intended or is reasonably likely to produce damage to a person’s trade or business, and which, in the ordinary course of things, does produce a general loss of business, as distinct from a loss of one or more particular customers, makes evidence of a general decline in business admissible to establish loss flowing from the impugned conduct.

37    Mere difficulty in estimating damages does not relieve a tribunal or court from the responsibility of assessing them as best it can: McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at 411–412 per Dixon and Fullagar JJ, with whom McTiernan J agreed at 419. The innocent party is entitled to recover whatever damages naturally result from the other’s breach of contract: Fink v Fink (1946) 74 CLR 127 at 143 per Dixon and McTiernan JJ.

38    In essence, her Honour was determining a claim for damages for loss of a commercial opportunity of Evagroup to make more sales to, and or enter into additional contracts with, customers caused by the conduct of Mr Lopez and Imperial. Her Honour found, correctly, that Evagroup had sustained some loss or damage. She then had to find a value for that loss or damage by reference to the degree of probabilities or possibilities: Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 354–355 per Mason CJ, Dawson, Toohey and Gaudron JJ. That was the context in which the primary judge had to do the best she could because precision was not possible. As Menzies J said in Jones v Schiffmann (1971) 124 CLR 303 at 308 in an observation that has been applied often, as Bell P, with whom Bathurst CJ at 58 [1] and Basten JA at 106 [246] agreed, noted in Searle v Commonwealth of Australia (2019) 100 NSWLR 55 at 99 [203]–[205]:

The assessment of damages, whether by a judge or a jury, does sometimes, of necessity, involve what is guess work rather than estimation.

39    Bell P held that it is not necessary for a judge, when assessing damages for loss of a chance, to nominate a particular percentage of probability to the potential for realisation of the chance. He said “to insist on this would be prone to artificiality” and that a global approach may be used. That can involve a measure of guesswork when there are too many uncertainties in play, such as working through what contracts may have been made and what profits would have been earned, as Sheller, Stein and Giles JJA held in Fightvision Pty Ltd v Onisorou (1999) 47 NSWLR 473 at 507 [147] (see Searle 100 NSWLR at 99–100 [205]–[208]).

40    Moreover, as Stewart J, with whom Besanko and Banks-Smith JJ agreed on this issue (at 57 [1]), held in PKT Technologies (formerly known as Fairlight.AU Pty Ltd) v Peter Vogel Instruments Pty Ltd (2020) 376 ALR 55 at 82–83 [148]–[155], a judge’s assessment of damages for loss of a commercial opportunity can be set aside for an identifiable error in the approach that he or she took, but mere sparseness of reasoning in arriving at the assessment will not necessarily warrant appellate interference. That is because the judicial evaluation is one arrived at by “informed estimation” as Brennan J said in Sellars 179 CLR at 368: see too Generic Health Pty Ltd v Bayer Pharma Aktiengessellschaft (2018) 267 FCR 428 at 472 [182]–[184] per Allsop CJ, Yates and Beach JJ.

41    In patent cases, the patentee can elect to seek damages or an account of profits, as can a person in Evagroup’s position who is entitled to equitable relief for misuse of confidential information. In General Tire and Rubber Company v Firestone Tyre and Rubber Company Ltd (1976) 93 RPC 197 at 212, Lord Wilberforce (with whom Viscount Dilhorne, Lord Diplock and Lord Kibrandon agreed at 225) said that where the patentee elects for damages, the Court applies the tortious measure. He said that two principles applied to the valuation of such damages, namely, first, the applicant for relief has the burden of proving its loss and, secondly, as against the “wrongdoers, damages should be liberally assessed”, but the object of the award is compensation; not punishment. The Full Court applied this reasoning in Generic Health 267 FCR at 472–473 [187] saying:

To say that damages should be liberally assessed in no way cuts across what we have just said: that, in estimating or valuing a lost opportunity or in assessing a hypothetical counterfactual for any scenario short of certainty, some discount must be made to reflect that less than certain position, even if the discount is very modest indeed.

(emphasis added)

42    In this context, the submission of Mr Lopez and Imperial that Evagroup had the ability, but had failed, to adduce precise, or better evidence, of its claimed loss, does not bear scrutiny, unlike the situation that Hayne J described in Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257 at 266 [38].

43    Nor was the issue of the press release a bright line. By then much of the damage had been done: Mr Lopez had made Imperial and its cheaper products known to those on the customer list and the market had changed.

44    Evagroup had claimed that it suffered loss and damage flowing from Mr Lopez’s breaches of contract and his obligation of confidence, together with his and Imperial’s conduct both in exploiting that breach and in contravention of s 18 of the Australian Consumer Law giving rise to rights to recover damages at common law and statutory compensation under s 236, in respect of:

(a)    the value of the customer list itself (which may have been what the primary judge described as damage to Evagroup’s goodwill);

(b)    the damage caused directly by the loss of customers’ orders the subject of the seven Imperial invoices;

(c)    the springboard or head start that Imperial obtained from its access to and use of the customer list;

(d)    the impact on the market price for Cemimax products caused by Mr Lopez’s and Imperial’s communications to Evagroup’s customers of Imperial’s existence and the availability of those products at prices lower than those previously offered by Evagroup, some of which occurred in combination with Cemimax and Mr Titus’s strategy to supply Imperial and the market at those lower prices. This conduct included, but was not confined to, the 9 September email;

(e)    Evagroup’s actual or potential loss of the chance to make sales to ongoing customers to which Mr Yates referred and as reflected in the general decline in net profit evidenced in exhibit S: Sellars 179 CLR 332; Ratcliffe [1892] 2 QB at 532–533; and

(f)    the misrepresentations on Imperial’s website of its history of supply (which was non-existent) and its use of Evagroup’s customers’ successful works as examples of the use of Cemimax products that Imperial had supplied.

45    Here, the primary judge’s approach to the Court assessing “the question of compensation on a liberal basis and do[ing] the best it can on the evidence available” was capable of being in accordance with principle: General Tire 93 RPC at 212; Generic Health 267 FCR at 472–473 [187]. This was not a case where the loss could be assessed with any precision. First, Mr Lopez and Imperial had access to all of Evagroup’s clients on the customer list, and secondly, they and Cemimax were able to and did undercut the prices that Evagroup had offered its clients previously, simultaneously with Cemimax having increased the cost of the products to Evagroup. Thus, Evagroup had to drop its prices because Mr Lopez and Imperial had told the persons on the customer list of the lower prices for which they were selling the same products. This changed the market in which Evagroup was competing (albeit, as her Honour observed, it was difficult to segregate the impact of the wrongful conduct of Mr Lopez and Imperial from that of the “innocent” conduct of Cemimax and Top Level).

46    However, not without some hesitation, I have concluded, like Stewart and Goodman JJ, that her Honour did not give sufficient reasons to explain why she awarded $150,000 in damages. As I have discussed above, there was a substantial body of material before her Honour that may well have supported her decision. But, she failed to identify in her reasons the facts that she found based on that material or to link those findings to a sufficient reasoning process. Accordingly, the appropriate course is to remit the matter to the primary judge so that she can make findings and give reasons as to how she arrived at the award she made: North East Equity 269 ALR at 270–271 [38]–[41].

Conclusion

47    For these reasons the appeal should be allowed and the orders proposed by Stewart and Goodman JJ should be made.

Associate:

Dated:    12 July 2022

REASONS FOR JUDGMENT

STEWART AND GOODMAN JJ:

Introduction

48    This is an appeal from an order of a judge of the Court that there be judgment entered for the respondent (Gold Titan Pty Ltd, trading as Evagroup) against the first and second appellants (Nicholas Lopez and his company, Imperial Flooring Pty Ltd, respectively), jointly and severally, in the sum of $150,000 plus interest. There were also declarations, injunctions and other orders, but there is no appeal from them.

49    The orders followed the publication of reasons for judgment on liability, published as Gold Titan Pty Ltd v Lopez [2021] FCA 918 (LJ or liability judgment), and, some months later, on relief, published as Gold Titan Pty Ltd v Lopez (No 2) [2021] FCA 1523 (RJ or relief judgment).

50    The liability judgment found that there was the following liability (as was ultimately expressed in the declarations):

(1)    by Mr Lopez, for breach of his employment contract with Evagroup by using and disclosing confidential information of Evagroup, and by failing to return to Evagroup, or to destroy, confidential information of Evagroup when his employment ended;

(2)    by Mr Lopez and Imperial, for breach of an equitable obligation of confidence which they owed to Evagroup by using and disclosing confidential information of Evagroup; and

(3)    by Imperial, for engaging in conduct in contravention of s 18 of the Australian Consumer Law (ACL, being Sch 2 of the Competition and Consumer Act 2010 (Cth)), and Mr Lopez for being involved in the contravention, by representing in trade and commerce that certain projects had been supplied with goods and services by Imperial when in fact they had been supplied with such goods and services by Evagroup.

51    In respect of those breaches, the primary judge entered judgment jointly and severally against Mr Lopez and Imperial in the sum of $150,000 in damages, explaining that $25,000 of that amount was attributed to the ACL claim.

52    The appellants take issue with the primary judge’s assessment of the quantum of damages. In short, they contend that the primary judge erred in that her Honour failed to have regard to a novus actus interveniens, failed to confine her assessment to that which was actually lost by Evagroup, or failed to give adequate reasons for the quantum she arrived at.

53    For the reasons that follow, we have ultimately come to the conclusion that the appeal should be allowed on the ground that the reasons given for arriving at the quantum of $150,000 are inadequate.

Background

54    The following summary of the relevant background facts is drawn from the factual findings in the liability judgment, none of which is the subject of challenge in the appeal.

55    The dispute concerns “leveller”, a liquid that is used on floor surfaces to even out imperfections before finished flooring is laid. Two such levellers were relevantly imported to Australia by Cemimax Australia Pty Ltd, namely DL55 and DL59.

56    In February 2018, Cemimax’s national sales director, John Titus, and Evagroup’s principal and managing director, Peter Yates, agreed a relationship between their respective companies. In essence, Cemimax would import stock of leveller from China directly to Evagroup’s warehouse where it would be stored. Both Cemimax and Evagroup would sell the product to whatever customers they could attract. In the event of a sale, Evagroup would pick the product to fulfil the order and either ship it to the customer or make it available for collection from the warehouse. Evagroup would raise a charge for warehousing and logistical services once the stock was moved from the warehouse to or by a customer, regardless of whether it was a sale by Cemimax or Evagroup. In the event of it being a sale by Evagroup, Cemimax would invoice Evagroup for the wholesale cost of the product.

57    On the recommendation of Mr Titus, Mr Yates employed Mr Lopez as sales manager for Evagroup. Mr Lopez signed a letter of engagement with Evagroup that contained a confidentiality clause by which Mr Lopez undertook not to use or disclose confidential information of Evagroup. On 1 April 2019, Mr Lopez commenced his employment at Evagroup.

58    On or around 20 May 2019, Mr Lopez was for the first time given access to a spreadsheet, in hard copy and electronic form, containing a list of customer details maintained by Evagroup which Evagroup had developed over a long period of time. The primary judge found that the customer list fell within the protection of the confidentiality clause. There is no appeal from that finding.

59    For reasons not presently relevant, the relationship between Messrs Titus and Yates began to deteriorate. In June 2019, Mr Titus informed Mr Yates that Cemimax had a new warehouse and that the stock being stored with Evagroup would be moved to that warehouse.

60    On 9 August 2019, Mr Lopez resigned from Evagroup, which resignation took effect on 12 August 2019. On that same day, ie, 12 August 2019, Imperial was established by Mr Lopez with him as its sole director and company secretary. The next day, Mr Lopez registered a domain name for Imperial.

61    Mr Lopez thereafter used the Evagroup customer list that he had retained to send unsolicited emails to the clients of Evagroup to tout for business for his newly established company, Imperial. In the emails, Mr Lopez stated, amongst other things, that Imperial’s prices were “the best in the market” and that “a small portion of our projects can be viewed via this link [the Imperial domain name]”. The link took one to Imperial’s website which included photographs of projects serviced not by Imperial, which had only just commenced business, but by Evagroup. It was that misrepresentation, as well as others in Imperial’s unsolicited email communications to Evagroup’s customers, which constituted misleading and deceptive conduct contrary to s 18 of the ACL.

62    Mr Yates became aware of the existence of Imperial from one of Evagroup’s customers on 15 August 2019. Further enquiries by him led him to discover that Mr Lopez had been sending the emails to Evagroup’s customers and that Imperial described itself as “a partner of Cemimax Australia”.

63    Mr Titus had involvement with Imperial from at least 16 August 2019, when Mr Lopez included him in communications and meetings with Imperial’s customers.

64    On 19 August 2019, Imperial issued its first invoice for the sale of Cemimax products, with the address of the new Cemimax warehouse given as Imperial’s distribution address.

65    On 24 September 2019, Mr Yates issued a “press release” which he sent to all of Evagroup’s contacts on its customer list. The press release relevantly included statements to the following effect:

    Mr Lopez who had been employed as Evagroup’s sales manager had resigned and had immediately set up Imperial as a Cemimax reseller.

    Mr Titus from Cemimax openly praises Mr Lopez for how quickly he has managed to grow his customer base “which you would all agree approx. 300 or so customers in 2 days is quite an achievement for anyone even Mr Lopez”.

    Evagroup has enough Cemimax product to last until the end of the year whereafter it would be discontinued and replaced “with a better formula product due for release to the market early November”.

    Evagroup had plenty of stock to serve all its customer requirements until the new product was launched, “which is guaranteed to be an excellent and exciting new product for the Commercial Flooring Market”.

66    As mentioned, the primary judge found that Mr Lopez’s use of Evagroup’s customer list constituted a breach by him of the confidentiality clause in his employment contract, and a breach by both him and Imperial of equitable obligations of confidence that they owed to Evagroup.

67    Evagroup also asserted defamation claims against Cemimax and Mr Titus which were said to have arisen out of two conversations between Mr Titus and persons in the flooring industry. Those claims were dismissed by the primary judge. Cemimax also brought a claim against Evagroup on an invoice that it had raised for Cemimax products supplied to Evagroup in the closing days of the trading relationship between those companies. That claim was upheld and Evagroup’s defence of set-off failed.

The primary judge’s reasoning on quantum

68    The primary judge’s reasoning on quantum is contained primarily in the relief judgment, but there are also some aspects of the liability judgment that may be considered to form part of that reasoning.

In the liability judgment

69    In the liability judgment, the primary judge made the following findings that are relevant to the question of quantum.

70    In relation to Mr Yates’s press release of 24 September 2019, the primary judge found that although Mr Yates may have perceived the press release to have been damage controlling, “it is difficult to see how it might not have adversely affected his sales”. Her Honour explained that, for example, if a customer wanted to continue to use Cemimax products, following the press release they would know that they would need to go elsewhere after Evagroup’s current stock of Cemimax was depleted. Also, Mr Yates’s sarcastic comments about Mr Lopez, which may have been designed to hinder Mr Lopez’s business, may instead have affected a customer’s willingness to deal with Mr Yates’s own business. Her Honour found that to announce the decision to change product in the press release in the terms on which it was issued “could not be described as a reasonable response”. (LJ [249].)

71    The primary judge also referred to evidence that Mr Yates reduced the prices for his Cemimax product from about August/September 2019 because of the conduct of the respondents (including Mr Titus) in order to continue to compete. (LJ [250].)

72    Having dealt with the liability issues, the primary judge explained that the parties would be given an opportunity to provide any further evidence and submissions on the issue of damages in the context of the liability findings (LJ [326]-[327]). Her Honour then made “a number of observations” for the parties to consider for the purposes of making their submissions on damages. Relevantly, those observations included the following.

73    First, although Evagroup had claimed that its business was adversely affected by the conduct of Mr Titus and Cemimax, “the evidence led did not support the proposition” (LJ [330]).

74    Secondly, Evagroup had elected to claim damages on the basis of the loss that it suffered as a consequence of Mr Lopez’s conduct, rather than on the basis of the profits or gain that Mr Lopez and Imperial had enjoyed as a consequence of that conduct (LJ [332]).

75    Thirdly, Mr Yates’s press release “potentially complicates the matter”. Mr Yates’s evidence was that his business had dropped off after the press release. The press release “is a relevant factor which impacts on damages”. Her Honour reasoned that the press release may well have deterred customers from doing business with Evagroup, and indeed Imperial, but that but for the conduct of Mr Lopez in using Evagroup’s confidential information the press release would not have been necessary. Further, although the press release may arguably have had an effect on the issue of damages, her Honour did not accept that damages are limited to the events that occurred only up until the date of the press release. (LJ [333]-[340].)

76    Fourthly, in July 2019, at about the same time that Mr Lopez left Evagroup and set up Imperial, another supplier of Cemimax, Top Level Supply, also entered the market. Thus, Evagroup had further competition in the market in addition to that of Imperial. (LJ [341].)

In the relief judgment

77    The hearing on relief was for one day. Neither party adduced any further evidence. In the following paragraphs, we identify the primary judge’s findings that are possibly relevant to, and reasoning possibly in support of, her Honour’s ultimate assessment of quantum of $150,000.

78    The primary judge identified that Evagroup sought damages for loss of profits, loss due to discounting prices, loss of goodwill and damage to reputation and hurt feelings. It submitted that its damages for loss of profits arising from customers moving to Imperial, its reducing prices to retain customers and Imperial obtaining a head start were recoverable. (RJ [11]-[12].)

79    Evagroup submitted to the primary judge that a “net loss of profit attributable to the 10 months following the breach of confidence should be assessed at about $370,000-375,000”. It relied on Confidential Exhibit S, which is a month by month comparison of Evagroup’s net profit for the 2019 and 2020 financial years. It submitted that by using the 12 month timeframe of the 2020 financial year which includes July 2019 (which was prior to the breach) and June 2020 (when Evagroup introduced its replacement product to the market), no further allowances for any market vicissitudes were required as those months are favourable to Mr Lopez and Imperial. On that basis the appropriate net figure of loss would be $371,213.78. (RJ [13]-[14].)

80    Evagroup made an alternative submission on the basis that the months of July 2019 and June 2020 be excluded from the comparison calculation, and instead a discount of 35% be applied to account for factors such as Mr Lopez’s departure from the business, the transition from Cemimax products and market vicissitudes. That would result at a total loss of $372,489.38. (RJ [15].)

81    Mr Lopez and Imperial criticised Evagroup’s approach to quantification as “hopelessly unreliable” and instead adopted an approach that focused on the sales by Imperial to seven customers on Evagroup’s customer list which were said to have been the only customers from that list to which Imperial made sales. That amounted to a figure of $56,667.05. Further discounts were then sought to be applied to that figure, amounting to a final total of $16,984.11. The figures were reflected in a document referred to as Annexure A. (RJ [18]-[20].)

82    The primary judge made two principal criticisms of Evagroup’s approach to damages.

83    First, her Honour reasoned that Evagroup did not properly grapple with the reasoning of the liability judgment, the manner in which it presented its case, or the evidence on which it relied (RJ [22]). In that regard, her Honour made several points:

    there was a paucity and inadequacy of evidence underlying the amounts claimed by Evagroup, and there was an issue as to the reliability of Mr Yates’s evidence on the financial consequences of the relevant events (RJ [27]);

    although Evagroup submitted that its loss caused by breach of confidence extended to price discounting that it says was forced on it by Imperial communicating its price advantage to Evagroup’s customers, which advantage it was able to emphasise because of Mr Lopez’s confidential access to Evagroup’s own pricing, Evagroup provided no assistance as to how, if that is correct, it is to be assessed (RJ [29]);

    the submission that no loss of profits can be said to be caused by matters unrelated to the appellants’ breach of confidence (ie, the conduct of Cemimax and Mr Titus) such that all lost profits are attributable to the appellants’ breach could not be accepted because of Mr Yates’ own evidence that Evagroup had discounted prices due to the conduct of Cemimax and Mr Titus (RJ [31]);

    Mr Yates’s evidence was that damaging statements by Mr Titus, which formed the basis of the defamation claim which failed, led him to reduce his prices, which has consequences for the assessment of damages (RJ [35]);

    Evagroup’s submission that since its claims against Cemimax and Mr Titus failed, all of the losses referred to in Confidential Exhibit S must be attributed to the claims against Mr Lopez and Imperial, cannot be accepted – it does not address why Mr Yates did certain things, for example reducing certain prices as a consequence of what he saw as unfair competition from Imperial supported by Cemimax (RJ [36]);

    although the press release was an attempt to mitigate loss, it could not be described as a reasonable response (RJ [37]-[42]);

    other conduct by Mr Yates which impacted Evagroup’s profits was also in response to the conduct of Cemimax and not as a consequence of the contravening behaviour by Mr Lopez and Imperial (RJ [43]-[48]).

84    Secondly, her Honour reasoned that the financial evidence relied on by Evagroup had a number of shortcomings: (RJ [49].)

    even though Evagroup’s accountant was referred to during the hearing, Evagroup did not adduce any expert evidence of its losses, which makes the assessment of damages difficult (RJ [52]);

    Evagroup’s evidence is very limited, being based on comparing profit figures from the 2019 and 2020 financial years, with the only explanation of Confidential Exhibit S being that it was generated by Mr Yates from MYOB on 7 July 2020 (RJ [54]);

    the profit and loss statement does not contain any information to give the purported net profit figures meaning and it has no proper underlying documentation (RJ [55]-[56]);

    the lack of more fulsome financial information to give the 2019 FY figures more context means that there is merit to the criticism that the Court cannot rely on the evidence of the 2019 FY performance as a yardstick against which to measure what occurred in the following year (RJ [57]);

    as Evagroup also sold other products, the absence of any breakdown between different products within the figures given means that the different results between the two years being compared cannot be ascribed only to the Cemimax product (RJ [58]-[59]);

    although Evagroup’s Confidential Exhibit G was said to quantify the loss of margin suffered by Evagroup in selling Cemimax products to a specific group of named customers in the period from September 2019 to April 2020, Mr Yates explained that those losses were fully subsumed in the losses demonstrated by Confidential Exhibit S (RJ [60]).

85    “Against that background”, her Honour turned to the assessment of damages (RJ [61]). It is thus the following section of her Honour’s judgment that deals most pertinently with that assessment. The following findings and reasoning are identifiable, without repeating here her Honour’s repeated criticisms of Evagroup’s evidence:

    Evagroup’s profit fell after Mr Lopez left, although it is difficult to assess the real impact of the conduct (RJ [64]).

    It may be accepted that business from some customers was affected, however, on the evidence it is difficult to assess (RJ [64]).

    It can be assumed that Evagroup having changed products had an impact, particularly while customers came to accept the new product (RJ [64]).

    The considerable variations between months are not explained, and there is no differentiation between different products (RJ [64]).

    Evagroup’s method of calculation of loss in reliance on Confidential Exhibit S “appears rather arbitrary” – there is no explanation of the different timeframes used and the basis for a discount of 35% for variables (RJ [65]).

    It may be accepted that some loss was incurred by Evagroup due to Mr Yates having to take the time to investigate and respond to what Mr Lopez was doing with his business, including by Mr Yates dealing with his customers, which may have had an impact on Mr Yates’s business (RJ [66]).

    It may also be accepted that Mr Lopez obtained a head start in his business by the use he made of the confidential information, and Evagroup may have lost out on jobs it might otherwise have obtained (RJ [66]).

    The approach of Mr Lopez and Imperial is also simplistic. It does not take account of “the gravamen of [their] conduct, and the purpose behind it”. It “fails to recognise the breaches of confidence and the consequences that flow from them”. It “does not address the springboard effect the use of [Evagroup’s] confidential information had on [their] ability to launch [their] business”. (RJ [67].)

    It must be accepted that it is difficult to prove the loss of customers, but the difference between Mr Lopez and Imperial’s identification of a very limited number of customers lost and the figure claimed as lost profit is stark (RJ [68]).

86    Ultimately, her Honour’s reasoning is contained in the following two paragraphs in the relief judgment:

70     All that said, I am mindful that given the nature of established contraventions by the respondents, the Court should assess the quantum of compensation on a liberal basis, and do the best it can on the evidence available.

71     Having considered the submissions, the evidence and applying the relevant legal principles (bearing in mind, inter alia, that the applicant chose to sell a new product from November 2019, and other discounting factors unrelated to the claim), the damages awarded for the breaches of confidence and the ACL contraventions should be $150,000. Given the nature of the breaches of confidence, it comprises the substantial portion of the claim, with the ACL claim (being the limited time over which it occurred and customers had been contacted) being limited to $25,000.

The grounds of appeal

87    The notice of appeal sets out the following grounds of appeal:

1.     Her Honour erred in selecting a figure of $150,000 as the quantum of damages when there was no evidence before the Court supporting that figure.

2.     Her Honour erred in placing any weight on confidential exhibit S in the assessment of quantum of damages.

3.     Her Honour erred in finding that the respondent was entitled to damages after the Press Release or in the alternative after November 2019 when the respondent stopped selling Cemimax products.

4.     Her Honour erred in assessing quantum on a loss of profit basis when there was no expert evidence or independently prepared financial statements in evidence.

5.     Her Honour erred in not confining the assessment of damages to the customers lost by the respondent to the second applicant.

6.     Her Honour erred in not providing any reasoning as to how the quantum of $150,000 was calculated.

7.     Her Honour erred in selecting an arbitrary figure of $25,000 as the quantum of damages for the ACL claim.

8.     Her Honour erred in not providing any reasoning as to how the quantum of $25,000 for the ACL claim was calculated.

9.     The evidence before the court did not support a finding of $150,000 as the quantum of damages.

10.     The quantum of damages awarded against the appellants was manifestly excessive.

88    Conveniently, and appropriately given the many and overlapping grounds, in their submissions the appellants grouped the grounds of appeal as follows:

(1)    Grounds 6 and 8: failing to provide adequate reasons as to how the quantum of damages was calculated.

(2)    Grounds 2 and 4: relying on unreliable or inadequate evidence in assessing damages.

(3)    Ground 3: failing to recognise a novus actus interveniens.

(4)    Ground 5: failing to confine losses to the customers lost by the respondent to the appellants.

(5)    Grounds 1, 7, 9 and 10: arbitrary and excessive calculation of damages.

Adequacy of Reasons

Principles

89    In Wainohu v New South Wales [2011] HCA 24; 243 CLR 181 at [54]-[55] it was explained by French CJ and Kiefel J that the public explanation of a judge’s reasons is central to the judicial function, both because it is necessary to enable any rights of appeal to be exercised and, even where there are no such rights, because of the nature of the judicial process. Their Honours then said the following (at [56]):

Gummow J in Grollo [v Palmer [1995] HCA 26; 184 CLR 348 at 394] described the essential attributes of the judicial power of the Commonwealth in familiar terms by reference to the resolution of justiciable controversies by ascertainment of the facts, application of the law and the exercise where appropriate of judicial discretion, adding “which are delivered in public after a public hearing, and, where a judge is the tribunal of fact as well as law, are preceded by grounds for decision which are animated by reasoning.” Heydon J in AK v Western Australia [[2008] HCA 8; 232 CLR 438] described the duty of judges to give reasons for their decisions after trials and in important interlocutory proceedings as “well-established”. His Honour adopted as a summary of the objectives underlying that duty an extra-curial statement by Gleeson CJ [at [89], citing Gleeson, “Judicial Accountability” (1995) 2 The Judicial Review 117 at 122]:

First, the existence of an obligation to give reasons promotes good decision making. As a general rule, people who know that their decisions are open to scrutiny, and who are obliged to explain them, are more likely to make reasonable decisions. Secondly, the general acceptability of judicial decisions is promoted by the obligation to explain them. Thirdly, it is consistent with the idea of democratic institutional responsibility to the public that those who are entrusted with the power to make decisions, affecting the lives and property of their fellow citizens, should be required to give, in public, an account of the reasoning by which they came to those decisions.

The duty does not apply to every interlocutory decision, however minor. Its content – that is, the content and detail of the reasons to be provided – will vary according to the nature of the jurisdiction which the court is exercising and the particular matter the subject of the decision.

90    That paragraph was adopted with approval in DL v The Queen [2018] HCA 26; 266 CLR 1 at [32] per the majority consisting of Kiefel CJ, Keane and Edelman JJ (other references omitted):

The content and detail of reasons “will vary according to the nature of the jurisdiction which the court is exercising and the particular matter the subject of the decision” [Wainohu at [56]]. In the absence of an express statutory provision, “a judge returning a verdict following a trial without a jury is obliged to give reasons sufficient to identify the principles of law applied by the judge and the main factual findings on which the judge relied”. One reason for this obligation is the need for adequate reasons in order for an appellate court to discharge its statutory duty on an appeal from the decision and, correspondingly, for the parties to understand the basis for the decision for purposes including the exercise of any rights to appeal.

91    The majority in DL v The Queen (at [33]) quoted with approval the following passage from AK v Western Australia [2008] HCA 8; 232 CLR 438 at [85] per Heydon J (reference omitted):

Ordinarily it would be necessary for a trial judge to summarise the crucial arguments of the parties, to formulate the issues for decision, to resolve any issues of law and fact which needed to be determined before the verdict could be arrived at, in the course of that resolution to explain how competing arguments of the parties were to be dealt with and why the resolution arrived at was arrived at, to apply the law found to the facts found, and to explain how the verdict followed.

92    There is no suggestion in those, or other, authorities that the standard of adequacy of reasons in a civil case is any less stringent: see Wainohu at [55] (footnotes) and DL v The Queen at [130]. Nevertheless, the authorities recognise that the content and detail of reasons will vary according to the nature of the jurisdiction which the court is exercising and the particular matter the subject of the decision. In this case, that subject matter is the quantification of compensation for equitable breaches of confidence and damages for breaches of contractual obligations of confidence (a distinction which for present purposes is of no moment).

93    In Jones v Schiffmann [1971] HCA 52; 124 CLR 303 at 308, Menzies J famously opened his judgment with the statement that “[t]he assessment of damages, whether by a judge or a jury, does sometimes, of necessity, involve what is guess work rather than estimation.” That was in the context of assessing the plaintiff’s prospects of remarrying. With reference to that statement and other High Court authority, in Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; 174 CLR 64 at 83 it was said that mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them as best it can. Where precise evidence is not available, the court must do the best it can.

94    In Berry v CTL Secure Pty Ltd [2020] HCA 27; 381 ALR 427 at [32], with reference to Sellars v Adelaide Petroleum NL [1994] HCA 4; 179 CLR 332 at 355 and 368, the majority of the Court said that where a claimant established on the balance of probabilities that misleading or deceptive conduct contrary to the statutory prohibition caused the claimant the loss of a commercial opportunity of some value (not being a negligible value), the value of that lost opportunity was to be ascertained by reference to hypotheses and possibilities which, though they were speculative and therefore not capable of proof on the balance of probabilities, could be evaluated as a matter of informed estimation.

95    The difficulties in assessing damages for breach of confidentiality in circumstances analogous to the present were considered in Flogas Britain Ltd v Calor Gas Ltd [2013] EWHC 3060 (Ch) at [29]-[41] and One Step (Support) Ltd v Morris-Garner [2018] UKSC 20; [2019] AC 649. In One Step, the UK Supreme Court allowed an appeal from a judgment in which the Court of Appeal had considered that one of the factors justifying assessing damages on the basis of “negotiating damages” – ie, by reference to “a hypothetical negotiation between the parties, for such amount that might reasonably have been demanded by the claimant for releasing the defendants from their obligations” (at [23]) – was the difficulty in quantifying financial loss. Although endorsing (at [91]-[95]) awarding negotiating damages for a breach of confidentiality, Lord Reed JSC (Baroness Hale PSC, Lord Wilson and Lord Carnwath JJSC agreeing) observed the case before the Court involved further, more significant, breaches:

98    … The substance of the claimant’s case is that it suffered financial loss as a result of the defendants’ breach of contract. The effect of the breach of contract was to expose the claimant’s business to competition which would otherwise have been avoided. The natural result of that competition was a loss of profits and possibly of goodwill. The loss is difficult to quantify, and some elements of it may be inherently incapable of precise measurement. Nevertheless, it is a familiar type of loss, for which damages are frequently awarded. It is possible to quantify it in a conventional manner …

99    The case is not one where the breach of contract has resulted in the loss of a valuable asset created or protected by the right which was infringed. Considered in isolation, the first defendant’s breach of the confidentiality covenant might have been considered to be of that character, but in reality the claimant’s loss is the cumulative result of breaches of a number of obligations, of which the non-compete and non-solicitation covenants have been treated as the most significant …

(Emphasis added.)

96    It is thus the position in a case such as the present, that the standard of reasoning in support of a conclusion as to the amount of damages to be awarded might not, depending on the head of damage under consideration, be particularly high; the reasoning can involve estimation and some elements may even involve guesswork, and the court must do the best that it can even when the evidence is sparse or poor.

97    Nevertheless, the reasoning must be such as to enable a party aggrieved with the ultimate conclusion to exercise their right of appeal; the reasoning must identify what facts are found or not found, what legal principles are applied to the facts, and what is the subject of estimation and guesswork. If those minimum requirements are not fulfilled, the right of appeal is illusory. It is no substitute to the requirement on the trial court to give reasons for the court on appeal to give its own reasons in support of the conclusion reached by the trial judge, or to give the reasons that might have been given by the trial court. At least one reason for that is that there is no further right of appeal from the reasons of the court on appeal.

Consideration

98    The principal factual findings relevant to her Honour’s assessment of damages are that:

(1)    Evagroup’s damages are not limited to the events that occurred only up until the date of Mr Yates’s press release (LJ [340]);

(2)    Evagroup’s profits fell after Mr Lopez left (RJ [64]);

(3)    the business from some of Evagroup’s customers was affected (RJ [64]);

(4)    Evagroup’s changing from Cemimax products had an impact on Evagroup’s business (RJ [64]);

(5)    Evagroup’s figures dropped significantly in March and April 2020, which was many months after the conduct of Mr Lopez and Imperial (RJ [64]);

(6)    some loss was incurred by Evagroup due to Mr Yates having to take the time to investigate and respond to what Mr Lopez was doing with his business (RJ [66]); and

(7)    Mr Lopez and Imperial gained a head start in their business by the use they made of the confidential information, including that Evagroup may have lost out on orders it might otherwise have obtained (RJ [66]).

99    Those findings constitute an important commencement to an assessment of damages because they can be understood as amounting to a finding that there was proof of loss of some value, not being a negligible value. They also identify some types of loss that were suffered (loss of business from some customers, time taken to respond and the effect of Imperial’s head start), as well as some limitations on the loss suffered being attributable to Mr Lopez’s impugned conduct (some loss was due to changing products and some occurred many months after the impugned conduct).

100    However, there is in truth no further finding or reasoning by her Honour in support of the ultimate quantum. For example, there is no finding as to any of the following matters:

(1)    whether Confidential Exhibit S is accepted as proof of Evagroup’s profits in each of the months in the two years that it apparently compares;

(8)    whether Confidential Exhibit G is accepted as proof of the loss of margin suffered by Evagroup in selling Cemimax products to a specific group of named customers in the period from September 2019 to April 2020;

(9)    whether Mr Lopez and Imperial’s Annexure A, which is said to identify all of Imperial’s customers who had been customers of Evagroup, is accepted as being correct in that respect, or in respect of the gross sales and net profit reflected in it;

(10)    the scale of Evagroup’s business as a whole, or the scale of Evagroup’s Cemimax business;

(11)    the value of any goodwill in Evagroup’s business, and the extent to which it may have been lost;

(12)    which customers left Evagroup for Imperial, or how many customers left Evagroup for Imperial, or what the business of such customers was worth; and

(13)    what loss Evagroup suffered by reason of the breach of the ACL that entitled it, independently, to succeed in a claim for damages under s 236 of the ACL.

101    In relation to item (1) in the preceding paragraph, the issue is highlighted by Evagroup’s submissions on appeal which, on the question of adequacy of reasons, identify that her Honour found that Evagroup suffered a loss of profits, but in response to the grounds of appeal contending that her Honour relied on unreliable evidence, argue that her Honour did not accept or rely on Confidential Exhibit S. Because Confidential Exhibits S and G were the only two pieces of financial evidence adduced by Evagroup expressly identified by her Honour, and because her Honour found that what is reflected in Confidential Exhibit G was fully subsumed in Confidential Exhibit S, those two positions are, on their face, inconsistent. That illustrates the difficulty faced by Mr Lopez and Imperial in not being told in the reasons for judgment whether Confidential Exhibit S was relied on or not and, if so, to what extent.

102    In relation to item (3), her Honour did not explain why, if Annexure A was to be accepted as identifying all of Imperial’s customers that had been Evagroup’s customers, the identified sales made by Imperial could not serve as an appropriate starting point for the assessment of damages, with an appropriate multiplier or separate figure added in relation to the concerns expressed at RJ [67]. Although damages are being awarded only for Evagroup’s loss, there is much to be said for the view that those specific sales identified by the appellants roughly correspond to Evagroup’s lost sales (as opposed to profit) to those customers.

103    In short, the appellants are left without crucial identifiable findings of fact or reasoning process such as to enable them to understand what estimation or guesswork the primary judge engaged in and why her Honour arrived at the figure that she did.

104    Senior Counsel for Evagroup submits that the primary judge’s assessment of $150,000 “is anchored in the evidence of the scale and nature of the business that was done in the Cemimax products, squarely in the range appropriate to the impacts that have been proven” (T24:34). It may be that there was evidence of the nature referred to by Senior Counsel, but the primary judge criticised that evidence in various respects and then made no findings as to whether it was accepted, or to what extent it was accepted, and what factual findings it supported. Senior Counsel took the court at some length to evidence adduced at trial in support of his submission that there was ample evidence on which the primary judge could rely in reaching the ultimate assessment. However, there is no indication in her Honour’s reasons whether or to what extent she relied on that evidence, which in turn means that the ultimate assessment is impervious to appellate scrutiny. That is a critical shortcoming in the reasoning.

105    Senior Counsel for Evagroup submits that the primary judge was making an assessment of general damages on the basis of a proven breach of confidence which permitted her Honour to make a robust assessment of the impact on goodwill, the benefit of Imperial’s springboard and the impact of untraced lost sales (T24:23). The principal problem with that submission is that the primary judge’s reasons do not reveal what assessment was made with regard to impact on goodwill, the extent of the springboard effect (so far as it relates to any loss to Evagroup) or the impact of lost sales.

106    Senior Counsel for Evagroup also referred to Robb v Green [1895] 2 QB 1 at 20 as authority for the proposition that recoverable loss for breach of confidence is not limited to “specific instances [of loss of custom] traced to the defendant’s action … for the wholesale canvass of [the plaintiff’s] customers was likely to influence many and to diminish permanently his receipts and profits” (T41:45). That reasoning by Hawkins J in the Queen’s Bench Division is not in contest. However, the point on appeal from that decision was not the assessment of loss, but whether there was a breach of confidence: Robb v Green [1895] 2 QB 315. The fact that the appeal was dismissed says nothing about the adequacy of the reasons for the assessment of £150 at first instance, in particular noting that in the intervening century and a quarter the requisite minimum standard for judicial reasons has changed substantially, particularly in Australia as compared to England: DL v The Queen at [130] with critical reference to Selvanayagam v University of the West Indies [1983] 1 WLR 585 at 587-588; [1983] 1 All ER 824 at 826.

107    In the circumstances, in our view the appeal should succeed on the ground that the primary judge’s reasons for judgment failed to adequately explain the basis for her Honour’s assessment of $150,000 for pecuniary loss to Evagroup caused by the breaches of contract, confidence and the ACL by Mr Lopez and Imperial. As there was evidence before her Honour on which an assessment might properly be able to be made, the proper course is for the appeal to be allowed and for the matter to be remitted to her Honour for the provision of further reasons for her assessment. Such a remittal is not for the purpose of reopening the principal case for further evidence or submissions. See North East Equity Pty Ltd v Proud Nominees Pty Ltd [2010] FCAFC 60; 269 ALR 60 at [38]-[41].

The other grounds of appeal

108    The appellants presented the inadequacy of reasons as their primary ground of appeal. In view of the conclusion that we have reached on that ground, it is not necessary to consider the other grounds – they may no longer apply depending on the reasons that the primary judge gives on the remittal.

Disposition

109    The appeal should accordingly be upheld, order 1 of the orders by the primary judge on 17 December 2021 should be set aside, and the matter should be remitted to the primary judge for the provision of adequate reasons.

110    The parties indicated that the costs of the appeal should be reserved as there may be matters relevant to costs to be brought to the Court’s attention.

Associate:

Dated:    12 July 2022