Federal Court of Australia

Karas v LK Law Pty Ltd [2023] FCAFC 15

ORDERS

THE COURT ORDERS THAT:

1.    The respondents’ interlocutory application filed on 15 February 2023 is dismissed.

2.    The appeal is dismissed.

3.    The reasons for judgment provided to the parties today (Reasons) be suppressed from publication on the grounds specified in s 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth) and otherwise kept confidential until:

(a)    if an application is filed in accordance with paragraph 4, the date of the resolution of that application; or

(b)    if no application is filed in accordance with paragraph 4, 10.00am (ACDT) on 24 February 2023.

4.    Any application for ongoing suppression or confidentiality orders affecting the Reasons or any part of them is to be filed on or before 4.00pm (ACDT) on 23 February 2023.

5.    Any application filed in accordance with paragraph 4 is to be determined on the papers.

6.    The appellant pay the costs of and incidental to the appeal.

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

REASONS FOR JUDGMENT

CHARLESWORTH J

1    I have had the benefit of considering the reasons of O’Callaghan and Colvin JJ in draft. I agree with their Honours’ reasons with respect to all of the grounds of appeal and the arguments advanced at [1.2] and [1.4] of the notice of contention. I also agree that the appeal should be dismissed on the basis of the argument advanced at [1.3] of the notice of contention, albeit on the wider footing explained below. These reasons also concern a part of the argument advanced at [1.1] of the notice of contention.

2    To successfully defend the cross-claim, it would be sufficient for the Lipman Applicants to establish no more than a prima facie case of the specific iniquity or iniquities pleaded in their defence. The standard of proof attaching to the facts and circumstances giving rise to each iniquity could rise no higher on the injunction application than that applicable at a trial of the cross-claim, namely that of a prima facie case.

3    The primary judge reasoned that in the absence of a substantive conclusion as to the nature of the legal relationship between the parties, no conclusion could be drawn as to whether a prima facie case of an iniquity had been made out.

4    As identified by O’Callaghan and Colvin JJ, the primary judge ought to have found that the legal relationship was at least that pleaded in two unanswered aspects of the defence to the cross-claim, giving rise to fiduciary duties on the part of Mr Karas. It follows that the prima facie case of iniquity was established on the basis of assumptions most favourable to Mr Karas as to the nature of the various legal relationships and the duties arising from them.

5    I would go further. In my view it is neither necessary nor appropriate to approach the question on the basis of assumptions that are most favourable to Mr Karas concerning the alleged legal relationships between him and the Lipman Applicants and the duties alleged to arise from them. In a case such as the present, I consider a prima facie case of iniquity may be established irrespective of whether the legal relationships said to give rise to fiduciary or statutory duties are the subject of a genuine dispute or able to be substantively established to the civil standard of proof.

6    The iniquities pleaded in the defence to the cross-claim comprise the alleged breach by Mr Karas of fiduciary and statutory duties he allegedly owed to LKPL and fiduciary duties he allegedly owed to Mr Lipman personally. The pleaded allegations of duty and breach are essential elements of each of the iniquities relied upon: the existence of the duty is the very thing that would render the dealings with MDR wrongful and so give rise to an iniquity of the kind recognised in the authorities as sufficient to defeat Mr Karas’ claim founded in breach of confidence.

7    In my view, to successfully defend the cross-claim it is sufficient for a party in the Lipman Applicants’ position to establish an arguable case on the evidence as to each of the essential elements of the alleged iniquities. The requirement to establish a prima facie case should not involve demonstration of the existence of a duty to a higher standard of proof than that applicable to demonstration of its breach, whether at a trial of the cross-claim or on an injunction application founded on the same claim.

8    With respect, I consider that the primary judge erred in concluding that a prima facie case of an iniquity could not be shown unless the existence of a legal relationship giving rise to the alleged duty could be substantively established on the evidence to the civil standard of proof. That would not be the standard of proof applicable on the trial of the cross-claim and so could not be the standard to be attained by the Lipman Applicants in answering Mr Karas’ application for interlocutory relief founded upon it.

9    The material before the primary judge was sufficient to demonstrate a prima facie case of an iniquity dependent upon the various legal relationships alleged in the defence to the cross-claim, whether or not the nature and implications of those relationships were disputed on the evidence and submissions advanced by Mr Karas. Mr Karas could not rebut the defence founded in iniquity merely by demonstrating that one or more of its essential elements were the subject of dispute. Accordingly, the disputes he advanced before the trial judge and on this appeal did not deprive the defence of its character of a prima facie case. The situation would be different if the Lipman Applicants had adduced no evidence in support of an essential element of the civil wrongs relied upon.

10    I join in the reasoning of O’Callaghan and Colvin JJ with respect to those relationships undefended by Mr Karas on the evidence, however, I would arrive at the same conclusion even if Mr Karas had advanced some evidence to show that those two sources of duty were also disputed.

11    Whether the duties in fact were owed is of course a matter for trial on the primary claim, but not on the cross-claim.

12    There being a prima facie case that the duties were both owed and breached, Mr Karas has failed to demonstrate that the cross-claim enjoys sufficient prospects of success to justify the grant of an interlocutory injunction. That prima facie case is sufficient to supply a complete answer to the application for interlocutory relief, and indeed the whole of cross-claim.

13    I uphold the argument in [1.1] of the notice of contention to the limited extent that acceptance of the iniquity defence denuded the material of its confidential character, but otherwise join in the reasons of O’Callaghan and Colvin JJ in relation to that issue.

14    It is on that basis that I join in the orders dismissing the appeal.

15    I agree that the interlocutory application filed by the Lipman Applicants on 15 February 2023 should be dismissed for the reasons given by O’Callaghan and Colvin JJ at [121].

Associate:

Dated:    17 February 2023

REASONS FOR JUDGMENT

O’CALLAGHAN AND COLVIN JJ:

16    In 2004, two lawyers, Mr Skip Lipman and Mr Jason Karas, established an incorporated legal practice in Adelaide, South Australia. It was conducted by Lipman Karas Pty Ltd (LKPL) a company of which they were each directors. They each held 50% of the voting shares in LKPL. In 2008, they decided to establish an additional legal practice in Hong Kong. By a series of steps, in 2012 a firm with the name Lipman Karas came to be carrying on legal practice in Hong Kong (LKHK).

17    The precise character of the relationship between LKPL and LKHK is disputed.

18    In 2012, another legal practice entity trading under the name Lipman Karas commenced practice in London (LKLLP). Lipman Karas UK Ltd (LKUKL) owned 50% of the business. The two equal shareholders in LKUKL were Mr Lipman and Mr Karas. There were two other holders of equity in the London practice.

19    By 2019 the relationship between Mr Lipman and Mr Karas had deteriorated. There were discussions over a considerable period about separating their interests. In March 2021 they engaged in formal negotiations which led to the execution of a Separation Agreement in May 2021. Broadly speaking, by the terms of that agreement, Mr Karas was to have control of LKHK and Mr Lipman was to have control of LKPL. There was to be a financial adjustment between them in an amount which appears to have been based upon a measure of the capital value of the two legal practices. There were to be transitional arrangements which included the ongoing provision of legal services by LKPL to LKHK for certain projects (thereby generating fee revenue for LKPL) as well as the provision of information technology services.

20    In March 2021, before the conclusion of the Separation Agreement, Mr Karas and LKHK entered into an agreement with another legal practice, Mishcon de Reya (MDR) for a financial merger between LKHK and MDR. It was styled as a Framework Agreement and included terms for the appointment of Mr Karas as a senior equity partner of MDR. Mr Karas had been in communication with MDR about the possibility of such an arrangement for some time prior to entry into the Framework Agreement.

21    It is common ground that Mr Lipman was not aware of the dealings between Mr Karas, LKHK and MDR until well after the Separation Agreement was concluded.

22    On 31 May 2021, Mr Karas ceased to be a director of LKPL and transferred his shares in LKPL to Mr Lipman. On 1 July 2021, Mr Karas commenced the limited liability practice Karas LLP in Hong Kong. A few months later, Mr Karas became a senior equity partner of MDR with effect from 1 July 2021. LKPL then changed its name to LK Law Pty Ltd. Despite the name change, throughout these reasons, we will refer to the company as LKPL.

23    At some time after Mr Karas established Karas LLP, Mr Lipman became aware of the dealings between Mr Karas and MDR and he directed a search of the email servers of LKPL for emails relating to MDR. In October 2021, a report was given to Mr Lipman of the outcome of those searches. On about 22 October 2021, Mr Lipman was given four folders of emails that had been obtained from the searches of the email servers of LKPL.

24    In the meantime, on 19 October 2021 Mr Karas paid $5,570,469.13 to LKPL pursuant to the terms of the Separation Agreement.

25    In December 2021, Mr Lipman, LKPL and Lipman Family Pty Ltd (Lipman Applicants) commenced proceedings in this Court against Mr Karas, J & A Karas Pty Ltd, Karas LLP and MDR (Lipman Claim). In those proceedings, the Lipman Applicants claimed that, by his dealings with MDR, Mr Karas breached fiduciary and statutory duties that he owed to LKPL, alternatively fiduciary duties he owed to Mr Lipman. They also claimed that Mr Karas engaged in misleading and deceptive conduct in his dealings in relation to the Separation Agreement. Amongst other relief, orders were sought to effect the rescission of the Separation Agreement.

26    MDR is alleged to have knowingly assisted in the alleged breach of fiduciary duties and also to have participated in a dishonest and fraudulent design by its dealings with Mr Karas that resulted in the Framework Agreement. In the alternative, MDR is alleged to be liable as an accessory in respect of the alleged breaches of statutory duties and the alleged misleading and deceptive conduct.

27    The pleading of the Lipman Claim is long and burdened with alternatives and references to evidence. However, at its heart is a complaint that there were clandestine dealings by Mr Karas with MDR concerning the interest that he held in LKHK at a time when he owed duties or obligations to LKPL or Mr Lipman or both. At this point it is sufficient to observe that each of the alternatives is said to provide a basis for a claim that Mr Karas breached those duties and obligations by pursuing the opportunity with MDR for his own benefit. For his part, Mr Karas meets the claims by maintaining that the Framework Agreement involved him dealing with his own legal and equitable interest in LKHK, a practice which was conducted by him as a sole trader. He also alleges that Mr Lipman has affirmed the Separation Agreement by receiving and retaining benefits provided to him in performance of its terms. There are other aspects to the defence that need not be explored for present purposes.

28    In March 2021, Mr Karas filed a cross-claim alleging that the Lipman Claim had been brought using documents obtained in breach of confidence and sought a permanent stay of the Lipman Claim on that basis. Mr Karas also sought an interlocutory injunction restraining the Lipman Applicants in two respects. Firstly, he sought to restrain them from retaining counsel, solicitors or experts who had seen or had made use of the information in the documents that had been obtained by searching the email servers of LKPL (Information). Secondly, he sought to restrain them (whether by themselves or those acting on their behalf) from using the Information. There was a separate application to strike out the statement of claim in the Lipman Claim.

29    The application for an interlocutory injunction was dismissed: LK Law Pty Ltd v Karas [2022] FCA 762. It was dismissed on the basis that although there was a prima facie case that the Lipman Applicants had acted in breach of confidence, the balance of convenience did not favour the grant of an interlocutory injunction. As to the latter, the primary judge reasoned as follows at [88]-[91]:

(1)    the application for an injunction sought final relief because, if granted, the result would be that the Lipman Applicants could not use the lawyers they had retained for the conduct of the Lipman Claim and there would be a multiplicity of proceedings;

(2)    by reason of the multiplicity of proceedings, ‘there would be significant increase in the quantum of costs; delay in the event there is an appeal from the decision on the cross-claim ahead of the main proceedings; the prospect of inconsistent findings; and given credit is likely to be in issue, the need for different judges of this Court to hear the cross-claim and the main proceedings’; and

(3)    because there was a confidentiality regime in place, if Mr Karas was ultimately successful in his defence to the Lipman Claim and his cross-claim, his right to confidentiality would be maintained and, to that extent, the denial of his claim for an interlocutory injunction would not result in irreparable prejudice.

30    Mr Karas seeks leave to appeal against the refusal of the application for an interlocutory injunction. No appeal is brought against the refusal of the application to strike out the statement of claim. In addition to opposing leave and seeking to uphold the reasoning of the primary judge if leave is given, the applicants in the Lipman Claim contend that the decision by the primary judge should be upheld on the basis that a prima facie case of breach of confidence of a kind sufficient to support the grant of the interlocutory injunction has not been demonstrated by Mr Karas.

Outcome

31    For the following reasons, there should be leave to appeal but the appeal should be dismissed on the basis of a point raised by the notice of contention concerning iniquity. It follows that it is not necessary to determine the other points raised. However, had it been necessary to decide them we would not have accepted the other points of contention and, but for the conclusion as to iniquity, we would have upheld the appeal.

The point of contention concerning alleged iniquity

32    It is convenient to deal first with a claim raised by the notice of contention to the effect that, even if the Information otherwise had the necessary quality of confidence to be afforded protection in equity, the injunction should have been refused on the basis of iniquity.

33    Before the primary judge, the application by Mr Karas for an injunction was opposed on the basis that there was no confidence in an iniquity, thereby seeking to invoke a principle of equity that is often traced back to the following statement by Wood V-C in Gartside v Outram (1856) 26 LJ Ch 113 at 114:

The equity upon which the bill is founded is a perfectly plain and simple one, recognized by a number of authorities and most salutary to be enforced, by which any person standing in the confidential relation of a clerk or servant is prohibited, subject to certain exceptions, from disclosing any part of the transactions of which he thus acquires knowledge. But there are exceptions to this confidence, or perhaps, rather only nominally, and not really exceptions. The true doctrine is, that there is no confidence as to the disclosure of iniquity. You cannot make me the confidant of a crime or a fraud, and be entitled to close up my lips upon any secret which you have the audacity to disclose to me relating to any fraudulent intention on your part: such a confidence cannot exist.

34    For the Lipman Applicants, submissions were advanced to the primary judge to the effect that the Information in the contentious documents both manifested and disclosed an iniquity being the negotiation and sale of LKHK to MDR by Mr Karas in breach of his duties and obligations. It was further submitted to the primary judge that there was no confidentiality if there was a prima facie case of iniquity and it was claimed that the Lipman Applicants had demonstrated such a prima facie case.

35    As to the claim of iniquity, the primary judge reasoned at [73]:

Notwithstanding there is a suggestion of an iniquity, in the absence of a conclusion as to the nature of the legal relationship, I cannot conclude at this time whether or not a prima facie case of an iniquity is made out.

36    Therefore, his Honour did not form any view as to the merits of the claim of iniquity and did not bring that matter to bear in reaching the conclusion that Mr Karas had established a prima facie case that the Lipman Respondents had acted in breach of confidence.

37    The contention advanced in the context of the appeal is to the effect that if leave is given to appeal then the appeal should be dismissed on the basis that a prima facie case of iniquity had been established by the Lipman Applicants. Issues arise as to the appropriate standard to be applied in the context of an application for an interlocutory injunction in considering whether the Information discloses an iniquity. However, at this point it is sufficient to observe that iniquity is advanced as a reason why there is no sufficiently arguable case for equity to protect the Information as confidential.

Assumptions concerning the claims made by Mr Karas

38    In order to focus on the contention concerning iniquity, it assists to make certain assumptions to the effect that Mr Karas has established the foundations of his claim that there is a serious question as to whether the Information is confidential, namely:

(1)    LKHK was legally and beneficially owned and controlled by Mr Karas;

(2)    the management of the affairs of LKHK was a matter for Mr Karas;

(3)    the relationship between LKHK and LKPL was contractual and involved arrangements by which fee earners working for LKPL undertook work on files for clients of LKHK and fees were charged by LKPL to LKHK for services provided to LKHK;

(4)    there was a debtor and creditor relationship between LKHK and LKPL which included amounts for fees rendered by LKPL to LKHK pending payment of accounts rendered by LKHK to its clients in respect of that work;

(5)    there was an historical practice between Mr Karas and Mr Lipman whereby they shared the profits obtained from the conduct of LKPL and LKHK according to percentages agreed between them (noting that they also received profits through their interests in LKUKL); and

(6)    LKLLP was conducted under a separate structure in which Mr Karas and Mr Lipman had only a 50% interest through LKUKL and therefore they did not control or direct its activities.

39    These assumptions reflect the way the case was put by Mr Karas on the application for injunctive relief. Nevertheless, it should also be noted that Mr Karas gave evidence by way of affidavit in the following terms:

By reason of the different regulatory regimes under which LKPL, LKHK and LKLLP operate, each had a different ownership structure. It was common for [Mr Lipman] and I (and others) to refer to Lipman Karas or LK as one firm from an operational and business development perspective. But from a legal and ownership basis, LKPL, LKHK (me) and LKLLP were separate legal operations, with separate ownership structures, operating under different regulatory regimes.

40    The reference to ‘one firm from an operational and business development perspective’ may be significant. In evidence were the notes of a meeting held on 4 September 2019 in which matters relevant to the offices in each of Adelaide, Hong Kong and London were discussed. A submission was advanced to the effect that the meeting involved reporting between the offices about matters about which they cooperated and did not involve the making of any decisions as to the management of LKHK. This was said to be consistent with the case that there were only contractual relationships between the three practices and that LKHK was a sole practice owned legally and beneficially by Mr Karas.

41    However, it must be observed that the extent and detail of the matters reported might be thought to be inconsistent with a characterisation of the meeting as not involving a degree of management or at least oversight and accountability across all three practices by those present at the meeting. The meeting record begins with an ‘IT Update’ which concerns the provision of technology across the three offices (which may reflect contractual arrangements). There is then a reference to the recruitment of employees at each office, including a trainee having accepted a contract with LKHK and the commencement date for the contract and arrangements for an intern to join LKLLP one morning a week. There is a description of attendance at a Careers Fair in Hong Kong and trainee recruitment events at the University of Hong Kong. There is reporting of items concerning workplace well-being activities being undertaken at each of the offices in Adelaide, London and Hong Kong. There is considerable detail under the heading ‘Practice, Profile and Brand Development’ as to what is being undertaken at each of the three offices. There is a single report concerning finance.

42    Therefore, there appears to be a degree, at least, to which the meeting notes indicate that the commercial affairs of the three practices were managed together or, at least, cooperatively.

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44    These statements by Mr Karas indicate an inter-dependence between the operation of LKPL and LKHK. Significantly, they also reveal respects in which LKPL had a substantial financial interest in maintaining its connection (to use a neutral term) with LKHK. This interest existed even if, as maintained by Mr Karas, LKHK was conducted independently from LKPL. The evidence indicates that the financial benefit to LKPL of its connection to LKHK was considerable. Ultimately, there were provisions in the Separation Agreement that sought to preserve that benefit for LKPL (or a considerable part of it) for a period of time following entry into the agreement.

45    Finally, there was evidence to the effect that:

(1)    LKHK was established as an initiative of LKPL, not as the individual action of Mr Karas;

(2)    the funds to establish LKHK were provided by LKPL;

(3)    the intention had been to establish a Hong Kong office of the practice that Mr Lipman and Mr Karas had established in Adelaide;

(4)    the plan was to establish an office in Hong Kong as part of a single financially integrated firm;

(5)    it was not possible to carry the planned intention into effect because of aspects of the regulation of legal practice in Hong Kong;

(6)    after taking advice as to how to proceed, LKHK was established together with another practice that could serve foreign clients; and

(7)    a few years after its establishment, the other practice ceased and LKHK became the only practice in Hong Kong.

46    These origins, the use of the same practice name, the sharing of profits as between Mr Karas and Mr Lipman, the extent to which fee earners of LKPL undertook work on LKHK files, the provision of services by LKPL to LKHK and the extent to which practices were adopted by LKHK that maximized profits in LKPL were all aspects that were not disputed by Mr Karas on his application for an interlocutory injunction. They were practices that had been adopted over many years. It is evidence that runs counter to the claim advanced by Mr Karas that LKHK was a practice that was to be conducted by him solely in his own interests.

47    In short, there was material before the Court on the interlocutory application that was contrary to the claims by Mr Karas to the effect that LKHK was managed and operated as a sole practice for his benefit and to the exclusion of any obligations or duties to act in anyone’s interests other than his own interest. Nevertheless, in order to focus upon the merits of the point of contention concerning alleged iniquity advanced for the Lipman Applicants we will make the assumptions that we have outlined in favour of Mr Karas.

Relevant aspects of the claims by the Lipman Applicants

48    Much of the Lipman Claim proceeded on a foundation as to the legal and factual character of the interest of Mr Karas in LKHK that was inconsistent with the basis upon which Mr Karas advanced his claim to confidential information (and the assumptions we have made). However, in two significant respects, the claims by the Lipman Applicants were consistent with the way in which Mr Karas put his case.

49    Firstly, it was claimed that Mr Karas owed fiduciary duties to LKPL as a director of that company. He was alleged to owe a fiduciary duty not to misuse his position as a director and not to place himself in a position where his duty to LKPL and his self-interest conflicted. It was further alleged that he had a duty not to use confidential information available to him as a director of LKPL other than for a purpose in the discharge of his functions as a director. These matters were not disputed by Mr Karas. Rather, it was claimed in answer that, because LKHK was a sole practice, Mr Karas could enter into the arrangement with MDR. Further, it was claimed that he had not used his position as a director of LKPL (or any information available to him as a director of LKPL) in securing those arrangements.

50    However, even assuming the answering claims of Mr Karas to be correct, the case against him included an allegation to the effect that the loss of revenue from LKPL (to the benefit of Mr Karas personally) through some change to the long standing arrangements whereby a considerable amount of fee and service income was earned by LKPL from LKHK was a dealing that Mr Karas, as a director of LKPL, had a duty to avoid. That aspect of the case did not depend upon Mr Karas being shown to have used information obtained by him as a director of LKPL. Nor did it depend upon the Lipman Applicants demonstrating that the information used in entering into the agreement with MDR was confidential to LKPL. It was enough that it was in the interests of LKPL to maintain the arrangements between LKPL and LKHK because they were of considerable financial benefit to LKPL. The claim against Mr Karas for breach of his duty as a director of LKPL encompassed a claim to the effect that when he participated in the clandestine dealings with MDR he breached his duty not to allow a conflict between the interests of LKPL and his personal interests. An aspect of the claim against him is that his dealings with MDR were dealings in which he pursued his own interest to the detriment of the interests of LKPL (and that he did so without some form of informed consent as to those dealings).

51    As to the first claim, Mr Karas maintained that he had respected the arrangements recorded in the Separation Agreement to the effect that certain parts of the arrangements by which LKPL earned revenue from LKHK would be preserved. However, the difficulty with that submission is that it assumes the propriety of the negotiated outcome recorded in the Separation Agreement when the Lipman Applicants allege that its terms were infected by the breach of duty by Mr Karas.

52    Secondly, it was claimed by the Lipman Applicants that there was an overarching partnership in respect of the three practices of LKLLP (in London), LKHK (in Hong Kong) and LKPL (in Adelaide) pursuant to which they were to be conducted ‘with the object of generating profits to be shared by them’ and that the partnership gave rise to fiduciary duties on the part of Mr Karas. It was further alleged that by reason of the position of Mr Karas as a partner of Mr Lipman (in the overarching partnership), Mr Karas owed a fiduciary duty not to misuse his position as a partner to obtain a benefit for himself or a third party, not to place himself in a position of conflict and not to deal with partnership property, including the practice and goodwill of LKHK, without Mr Lipman’s consent. It was further alleged that Mr Karas ‘owed an equitable duty of confidence as a partner pursuant to the overarching partnership not to use confidential information available to him as a partner other than for a proper purpose in the discharge of his function as partner’.

53    As to the second claim, Mr Karas alleged that it was a claim that could not be sustained in the face of the evidence to the effect that LKHK was operated by Mr Karas as a sole trader (an aspect of his case that is assumed to be correct for present purposes). He also relied upon the fact that the agreement with MDR did not involve any dealing in the property of LKPL. However, those aspects did not stand in the way of a claim that there was a partnership in respect of the profits generated by the firms and the agreement with MDR deprived the overarching partnership of the profits received by Mr Karas from LKHK. A partnership confined to the sharing of profits received by each of Mr Lipman and Mr Karas from the three practices is within the overarching partnership case. It would mean that there was no duty as to the operation of the sole practice of LKHK but that there was a partnership obligation in respect of the profits that were received by Mr Karas from LKHK. He was not free to receive those profits into his own hands. Nor was he free to take steps, in his own interest, to deprive the overarching partnership of those profits. To do so would be to prefer his own interests over his shared interest with Mr Lipman in the overarching partnership in respect of the profits generated by their respective interests in the three firms. Indeed, on such a case, issues may arise as to whether any capital profits received by Mr Karas from the sale of LKHK were profits of the overarching partnership.

54    Importantly, Mr Karas did not refute the evidence to the effect that the profits earned by Mr Lipman and Mr Karas from the three practices were shared. Mr Karas himself described [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]. Indeed, there was evidence to the effect that steps were taken to maximise the amount of the profits that were received into LKPL. As has been explained, in part, the derivation of revenue in LKPL was achieved by fee earners employed by LKPL undertaking work on matters being conducted for clients of LKHK. In part, it was achieved by service fees being charged by LKPL to LKHK.

55    Therefore, even assuming the case as advanced by Mr Karas, there is significant undisputed evidence to support the existence of an overarching partnership with the characteristics alleged by the Lipman Applicants.

56    In short, even making all relevant assumptions in favour of Mr Karas as to the basis for his claim to confidentiality in respect of the Information, in two significant respects there is a reasonable basis for a least two of the alternative claims made by the Lipman Applicants of breach of fiduciary duty by Mr Karas. Further, Mr Karas advanced no real explanation as to why his dealings with MDR were not a breach of those two aspects of the duties that he was alleged to owe. Therefore, at least to the extent of the two claims that have been described, even adopting assumptions favourable to Mr Karas, it must be concluded that there is a reasonably arguable claim that he breached his fiduciary duties by entering into negotiations with MDR for the sale of LKHK, by entering into the Framework Agreement and by selling the LKHK practice without Mr Lipman’s knowledge and in failing to disclose those matters to Mr Lipman before entering into the Separation Agreement.

57    Having identified those two aspects of the claims made by the Lipman Applicants, does the existence of those claims provide the basis for a defence of iniquity that can be advanced in answer to the claim to confidentiality raised by the cross-claim advanced by Mr Karas?

The authorities concerning the defence of iniquity to a claim to confidentiality

58    It is well established that a claim for breach of confidence may be answered on the basis that the allegedly confidential information discloses an iniquity. The nature of what must be established at a final hearing to raise such an answer has been variously expressed.

59    In A v Hayden (No 2) (1984) 156 CLR 532 at 546-547, Gibbs CJ reasoned by reference to authorities concerned with the circumstances in which a claim to privilege from discovery may be refuted on the basis of a claim of fraud. His Honour concluded:

Similarly, where an obligation of confidentiality has arisen, whether as a result of express contract or because the relationship between the parties gave rise to a duty of confidence, the party who alleges facts which show that the obligation does not extend to the circumstances of the case must prove his allegations. That means that in the present case the defendants must establish, at least prima facie, that the failure to disclose the information would tend to obstruct the course of justice and would be contrary to the public interest. It would not be enough to justify the disclosure of the confidential information in the present case that the police have requested it. It would be necessary to show, at the very least, that there is reasonable ground to believe that any plaintiff whose identity it is sought to disclose is implicated in the commission of an offence. Put in another way, at least what has to be shown prima facie is that there is ‘a bona fide and reasonably tenable charge of crime’ against any plaintiff whose identity is sought to be disclosed. The bona fides of the police in the present case is not in doubt, but it is a question whether any charge against each plaintiff is reasonably tenable.

60    Significantly, confidentiality does not extend to protect information from disclosure where there is at least a prima facie case that the information will identify a person who is implicated in the commission of an offence.

61    In Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434, Gummow J reasoned that where a claim is made to the protection of confidential information according to equitable principle then it is necessary to consider whether the information in question would not be protected because it did not have the necessary quality of confidence by reason of its subject-matter. His Honour expressed the relevant principle in the following terms at 456:

… information will lack the necessary attribute of confidence if the subject-matter is the existence or real likelihood of the existence of an iniquity in the sense of a crime, civil wrong or serious misdeed of public importance, and the confidence is relied upon to prevent disclosure to a third party with a real and direct interest in redressing such crime, wrong or misdeed.

62    Expressed in those terms information will not be confidential if its content concerns the real likelihood of a civil wrong or serious misdeed of public importance.

63    The reasoning of Gummow J was considered with approval by Allsop CJ in Crown Resorts Limited v Zantran Pty Limited [2020] FCAFC 1; (2020) 276 FCR 477 at [30]-[33]. As the Chief Justice there explained (White J agreeing):

(1)    The authorities concerned with the way in which iniquity qualifies the circumstances in which there may be a claim to confidentiality could be viewed as ‘denying the necessary element of (legally recognised) confidentiality to communication; or as a defence of just cause or excuse to disclosure for breaking the confidence … or as the basis for not implying a term of fidelity into the relevant contract’ (at [29]).

(2)    There is no broad defence of ‘public interest’ to a claim of confidentiality (at [30]).

(3)    ‘[A] contractual confidentiality provision is unenforceable if it would have an adverse effect on the administration of justice by impeding the efficient running of civil litigation’ (at [38]).

64    In AG Australia Holdings Ltd v Burton [2002] NSWSC 170; (2002) 58 NSWLR 464, an employee of GIO Australia, Mr Burton, had entered into an employment contract with an express confidentiality term. Pursuant to that term, Mr Burton had executed a confidentiality undertaking in favour of GIO Australia. Class action proceedings were brought against GIO Australia. A lawyer for the representative applicant persuaded Mr Burton to make a witness statement for the purpose of the proceedings. It was obtained on the basis that any information that Mr Burton provided to the lawyers for the applicant could only be used in the court proceedings. The solicitors for GIO requested an undertaking that those acting for the representative applicant would not counsel or procure Mr Burton to breach his duty of confidentiality owed to GIO Australia. The undertaking was not forthcoming and orders were sought restraining from communicating or using confidential information of GIO Australia including information known to Mr Burton.

65    One of the contentions advanced in opposition to the application for orders restraining communication or use was a claim that such an order would be void as being contrary to public policy because it would prevent disclosure properly required for the due administration of justice. After a detailed survey of the relevant law, Campbell J concluded that a person in the position of Mr Burton was not free on the grounds of public policy to disclose the confidential information he possessed to a solicitor who bona fide wished to received that information for the purpose of advancing litigation: at [170].

66    His Honour then addressed a contention to the effect that ‘the court will not confer the cloak of confidentiality on information which discloses an iniquity’: at [173]. He considered the reasoning of Gummow J in Corrs Pavey Whiting & Byrne, but found that the principle as there articulated had no room to apply where reliance was placed upon a contractual protection of confidence. His Honour then dealt with the authorities concerned with iniquity as an answer to a contractually based claim to confidentiality. The divergence in the authorities as to whether there is a public policy which prohibits the enforcement of such a contractual provision where it amounts to an iniquity was explained: at [181]-[197]. However, in the result, reliance upon iniquity failed because of what was required as to proof of iniquity.

67    As to proof of iniquity, Campbell J reasoned as follows:

(1)    In the context of the related principle of legal professional privilege ‘there must be a prima facie case established that the communications came into existence for [an illegal or improper purpose], before the privilege is shown not to apply’ (at [198]).

(2)    The party alleging that confidentiality cannot be maintained bears the burden of establishing a prima facie case (at [199]).

(3)    ‘The mere allegation that conduct which counts as iniquity has been committed is not enough’ (at [200]).

(4)    A prima facie case of iniquity must be made out (at [202]).

(5)    The cases in which the ‘iniquity’ rule had been invoked were cases where the information sought to be confidential was information that crimes or other anti-social activities which fell within the description ‘iniquity’ had been committed (at [204]).

(6)    The evidence did not enable a conclusion to be reached that the information obtained from Mr Burton disclosed an iniquity as distinct from simply being relevant to an allegation of iniquity (the latter being insufficient) (at [208]).

68    In the course of the above reasoning, reference was made in Castrol Australia Pty Ltd v EmTech Associated Pty Ltd (1980) 51 FLR 184 in which Rath J referred to authorities which emphasised the ‘gravity of the conduct’ that was required before some form of public interest might be raised as an answer to a claim of breach of confidence. A general interest in the truth being told in legal proceedings was not enough. It was found that there was no sufficient excuse for disclosure in that case.

69    It appears that confidential information that came into existence as part of conduct that was negligent or that was misleading or deceptive contrary to a statutory standard would not be enough to give rise to iniquity. Rather, as explained by Gummow J in Corrs Pavey Whiting & Byrne (as approved by Allsop CJ, White J agreeing, in Crown Resorts) there must be iniquity in the sense of a crime, civil wrong or serious misdeed of public importance and an attempt to rely upon a claim to confidence to prevent disclosure to a party with a real and direct interest in redressing that crime, wrong or misdeed. Further, as has been observed, the information itself must disclose or contain the iniquity: AG Australia Holdings v Burton at 520-521; see also AWB Limited v Honourable Terence Rhoderic Hudson Cole (No 5) [2006] FCA 1234; (2006) 155 FCR 30 at [217]-[218].

70    In our view, a breach of fiduciary duty that is said to have been committed with deliberation is a civil wrong of the requisite character. A breach by a fiduciary of some other duty may not be sufficient. Equity attaches particular significance to any breach of the proscriptive duties of a fiduciary. It is a significance that is apparent in the remedies that are available for breach of such duties. It would be inconsistent with such principles if a fiduciary, in the face of a prima facie case of breach of fiduciary duty, could claim confidentiality in respect of information in respect of which there was an arguable basis to claim that the information itself was the means by which those duties were breached or would otherwise disclose the breach. For reasons that have been given, even making favourable assumptions to Mr Karas, the Lipman Claimants have established a reasonably arguable case that Mr Karas has engaged in conduct of that kind. Where, as here, there is an attempt to rely upon confidentiality to prevent disclosure to parties with a real and direct interest in redressing that conduct which has been established on a prima facie basis, the iniquity defeats the claim to confidentiality to the extent that the iniquity is disclosed by the information. It has been demonstrated that the Information discloses the alleged iniquity because it contains the communications and dealings that are said to amount to a breach of fiduciary duty.

The proper approach on an interlocutory application

71    It was common ground that if the claim to confidential information maintained by the cross-claim of Mr Karas was to be determined at a final hearing then the demonstration of a prima facie case of iniquity would be a sufficient answer to the claim. An issue arose as to how the question of iniquity was to be approached when raised at the interlocutory stages of a proceeding.

72    An applicant for an interlocutory injunction must demonstrate that there is a serious question to be tried, the applicant is likely to suffer injury for which damages will not be an adequate remedy and the balance of convenience favours the grant of the relief sought: Australian Broadcasting Corporation v O’Neill [2006] HCA 46; (2006) 227 CLR 57 at [19] (Gleeson CJ and Crennan J). As to whether there was a serious question to be tried, Mr Karas had to demonstrate a ‘sufficient colour of right to the final relief’ in order to support interlocutory relief: Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199 at [11] (Gleeson CJ). If there was a sufficient basis for a claim then an assessment of the strength of the claim was also relevant to the balance of convenience: Samsung Electronics Co Limited v Apple Inc [2011] FCAFC 156; (2011) 217 FCR 238 at [67].

73    As has been indicated there is some divergence of views as to whether iniquity operates to narrow the information in respect of which there can be a claim to confidentiality or whether it operates as a defence. In our view, the emphasis in the authorities upon the party disputing the claim to confidentiality having to demonstrate a prima facie case of iniquity supports the latter over the former. We will adopt that approach.

74    The principles to be applied in determining whether information is confidential were set out with characteristic care by Besanko J in Popeye Holdco Pty Limited (Receivers and Managers Appointed) v Intermediate Capital Asia Pacific 2008 GP Limited (No 2) [2018] FCA 408 at [29]-[38]. On the basis of the assumptions we have made, there is no real issue that the information was confidential to Mr Karas as the sole proprietor of LKHK. Therefore, subject to the alleged defences of iniquity and unclean hands, he has demonstrated a sufficient colour of right to final relief.

75    In most instances, establishing an arguable basis for a defence to a claim would not, of itself, be a sufficient basis to decline to grant interlocutory relief. However, in the case of iniquity, the defence will be made out at the final hearing if there is a prima facie case of iniquity. For reasons we have explained, the Lipman Applicants have demonstrated a firm basis for such a prima facie case. Further, even on the basis of favourable assumptions for Mr Karas, there is no real uncertainty as to whether such a prima facie case exists. In short, Mr Karas has not demonstrated a colour of right in the form of an answer to the defence of iniquity insofar as it is based upon allegations of breach of fiduciary duty on the part of Mr Karas in the form of a conflict of interest as a director of LKPL or as a partner in the overarching partnership. Although there is a live issue for determination as to whether there is an overarching partnership to share the benefit of the profits from the three firms, there is considerable evidence to support the existence of a partnership of that kind. The obligations of Mr Karas as a director of LKPL are not in dispute and it is certainly arguable that he acted in conflict between his duty as a director and his personal interest in entering into the agreement with MDR.

76    In short, taking account of the defence of iniquity, the claim by Mr Karas to confidentiality is weak at best and, in all likelihood, will fail.

77    The case for Mr Karas as to what should occur at the interlocutory stage where orders were sought pending the final determination of the claim that the relevant information was confidential to Mr Karas was developed by reference to what occurred in British American Tobacco Australia Ltd v Gordon [2007] NSWSC 230. In that case, it was alleged that certain documents and information were not entitled to protection because there was a prima facie case or reasonable grounds for believing that ‘they relate to or contain an iniquity’: at [11]. On an interim application to protect the information from disclosure, it was found that, but for the claim to iniquity there had been a breach of confidence in relation to the information. This is similar to the present case. It was then noted by Brereton J that the main issue at the final hearing was likely to be whether there was a prima facie case ‘that the documents and information in which confidence and privilege are claimed disclose an iniquity’. In short, like the present case, there the issue about the confidentiality of the information turned upon the question whether there was an iniquity.

78    One of the issues to be determined in British American Tobacco was whether there should be a contested interlocutory hearing of the claim to confidential information or whether that claim should be determined at an expedited final hearing. Another issue was whether, on the balance of convenience, the claim to confidential information should be heard at the same time as the claim that was the foundation for the alleged iniquity.

79    As to the question whether there should be an interlocutory hearing, Brereton J reasoned as follows (at [73]):

The issues on the interlocutory hearing would be whether the Plaintiffs had a serious case for final relief, and the balance of convenience. While, on a final hearing the main issue would apparently be whether the Defendants could make out a prima facie case that the documents disclose the iniquities for which they contend, on an interlocutory hearing, the Defendants would face the somewhat higher hurdle of showing that their iniquity case was so strong as to deprive the Plaintiffs of what is otherwise - on the presently available material, particularly Mr Gordon’s own affidavit - plainly a seriously arguable case for final relief. In the absence of any suggestion of urgency attending the institution of the [proposed proceeding advancing the claims which were the foundation for the alleged iniquity], the balance of convenience in a breach of confidence case almost always favours the grant of injunctive relief, because confidences once disclosed cannot be recaptured.

80    It can be seen that the ultimate requirement that there be a prima facie case of iniquity in order to defeat the claim to confidential information at a final hearing was seen to translate into a ‘somewhat higher hurdle’ of demonstrating a strong case of iniquity. By that expression his Honour could not be requiring more than a prima facie case of iniquity at the interlocutory stage. To do so would be to impose a higher burden at the interlocutory stage than would arise at a final hearing of the claim to confidentiality. Rather, his Honour must have been emphasising the confidence with which the court would need to be satisfied as to the existence of such a seriously arguable case in order to decline to protect the confidential information pending a final hearing as to whether there was such an arguable case. Put another way, at the interlocutory stage, if there was uncertainty as to whether there was a serious arguable case (or, as stated in other authorities, as to whether there was a prima facie case) then, at the interlocutory stage, that was an issue that should be viewed as one that ought be determined at a final hearing because a refusal of interlocutory relief would result in loss in protection of any confidentiality.

81    The distinction between British American Tobacco and the present case is that, for reasons that have been given, there is a very strong basis for a claim of iniquity. Put another way, it is difficult to see the basis upon which Mr Karas would be able to refute, at a final hearing, the existence of a prima facie case as to iniquity in the form of the two claims of breach of fiduciary duty by the communications in respect of which confidentiality was claimed. None was articulated. As has been explained, assuming all points advanced by Mr Karas in his favour there was still a prima facie case of iniquity as to those two claims.

82    In those circumstances, the further issue as to whether it might be appropriate for a final hearing as to the merits of the claim to confidentiality to be heard at the same time as the final hearing of the substantive claims said to give rise to iniquity falls for determination in circumstances where Mr Karas has failed to demonstrate a basis for an interlocutory order protecting the confidential information. As Mr Karas has failed to demonstrate a basis for interlocutory relief, it is difficult to see why, nevertheless, there should be some form of order that would defer to hearing of the claims made by the Lipman Applicants until after a final hearing of the cross-claim brought by Mr Karas.

The balance of convenience

83    For reasons that have been given, Mr Karas has not demonstrated sufficient merit in his claim to confidentiality to support his claim to interlocutory relief based upon his cross-claim. The reason for that insufficiency is the availability of the defence of iniquity.

84    The grant of the relief sought would also delay for a considerable period the claims by the Lipman Applicants. It would do so in circumstances where, for reasons that have been given, the claim to confidentiality was likely to fail.

85    If indeed (contrary to the views expressed) there had been merit demonstrated in the claim to confidentiality then for reasons expressed by Brereton J in British American Tobacco the balance of convenience would have favoured the grant of the relief sought pending the determination of the cross-claim on an expedited basis. However, the lack of merit in the claim means that course is not appropriate in the present case.

Notice of contention to be upheld as to para 1.3

86    The notice of contention for the Lipman Applicants raised four alternative contentions. The third of those contentions (stated in para 1.3) was to the effect that the primary judge’s decision to decline the application for an interlocutory injunction should be upheld on the basis that there was no confidence in the relevant information as the Lipman Applicants have established a prima facie case of iniquity.

87    For reasons that have been given, the Lipman Applicants have demonstrated that the claim to confidentiality in the relevant information is weak by reason of the strength of the claim that there was a prima facie case of iniquity. In those circumstances, the conclusion that the decision by the primary judge to refuse to grant interlocutory injunctive relief sought by Mr Karas should be upheld.

88    It follows that it is not necessary to consider the other points raised by the notice of contention and that if leave is given to bring the appeal, the appeal should be dismissed. In those circumstances, we only deal briefly with the many other points raised.

Other claims on the notice of contention

The required quality of confidence (para 1.1)

89    Mr Karas claims that the Information was of a kind that equity would protect as being confidential to him personally. The primary judge approached the matter on the basis that ‘per se’ the documents had the necessary quality of confidence because they were not public property or public knowledge, they were emails and calendar entries regarding communications by Mr Karas with MDR and in some cases they were marked confidential.

90    The question whether they were confidential was tied up with whether they were records of LKHK and whether Mr Karas was the legal and equitable proprietor of that firm. On the evidence, there was an arguable basis for the claim by Mr Karas that he was the legal and equitable proprietor of LKHK and that he was solely responsible for its management. The fact that the documents were held on a server that was under the control of LKPL was not determinative. There was ample evidence before the primary judge to the effect that the email and other services were provided by LKPL to LKHK.

91    The Lipman Applicants also placed reliance upon the terms of an email policy. It is addressed separately below. For reasons there given, the terms of the email policy are not a clear basis upon which to conclude at this interlocutory stage that the Information lacks the requisite degree of confidentiality.

92    In those circumstances, aside from the issue of iniquity it was reasonably arguable that the Information remained confidential to LKHK.

93    The statutory rights that LKPL has to access and deploy its own information did not include any information that it held on behalf of third parties as a provider of services to those third parties. In short, the same arguable issues as to the nature and character of the relationship between LKHK and LKPL affected any statutory rights to the information.

The significance of the email policy (para 1.2)

94    Mr Karas was no mere employee who had used the email account of his employer to record private information. Mr Karas was a director of LKPL who had been in practice with Mr Lipman for 15 years. The dispute between the parties concerning the significance, if any, of the policies published by LKPL concerning information technology security and data protection stated that emails should not be considered private. Much was sought to be made of their content. For present purposes, the policies ought be approached on the basis that they were directed at emails sent by employees of the Lipman Karas practices. There is a sufficiently meritorious contention to that effect advanced by Mr Karas. The email policy is not a sufficient basis for concluding in the context of an application for interlocutory injunctive relief that the Information was not confidential to Mr Karas.

95    Finally, reference was made to certain terms of the Separation Agreement relating to compliance with email policies. Those terms were agreed after the relevant events. They do not alter the character of the Information which relates to the affairs of LKHK prior to when those terms were agreed. There was no term of the Separation Agreement that was said to bear upon the character of the Information itself.

The defence of unclean hands (para 1.4)

96    The defence of unclean hands is available as a separate answer to a claim to the protection of confidential information. Relying on Moody v Cox & Hat [1917] 2 Ch 71 at 87-88 and Meyers v Casey (1913) 17 CLR 90 at 123, Rath J in Castrol Australia v EmTech found that for the defence to succeed it must appear that ‘the depravity, the dirt in question on the hand, has an immediate and necessary relation to the equity sued for’: at 216.

97    Iniquity of the kind described by Wood V-C in Gartside v Outram is directly relevant to a defence of unclean hands: Crown Resorts at [33].

98    In the present case, the evidence shows that the documents in issue record the dealings by Mr Karas with MDR that are said to have been in breach of his duties (relevantly for present purposes as a director of LKPL and as a partner with Mr Lipman in the overarching partnership). They are part of the means by which the breach of fiduciary duty was alleged to have been undertaken. They form part of the conduct giving rise to the alleged liability.

99    For similar reasons to those developed in relation to iniquity there is considerable merit in the defence of unclean hands. Therefore, there was a reasonably arguable defence based upon unclean hands (assuming that there was no prima facie case of iniquity). If that defence was to be relied upon in the absence of an iniquity then complex issues would arise as to where the balance of convenience may lie and whether steps might be taken to hear both the claim by the Lipman Applicants and the cross-claim. As explained below, we consider it likely that, absent the claim of iniquity, the balance of convenience would favour the grant of relief on the basis that there would be an expedited hearing. It was not demonstrated that the strength of the defence of unclean hands was a sufficient reason to adopt a different course. For reasons stated below, we would not have concluded that the availability of the defence of unclean hands would have tipped the balance towards denying injunctive relief.

The proposed grounds of appeal

100    On the assumption that it is appropriate for leave to be given (as to which, see below), we make the following observations concerning the merits of the proposed grounds of appeal.

Alleged error as to irreparable prejudice (proposed ground 4)

101    For Mr Karas it was argued that the primary judge erred in finding that there would be no irreparable prejudice to Mr Karas if the injunction was refused. The claim made by Mr Karas was to protection of confidentiality in the Information. As has been observed, there is no general defence of public interest to such a claim. The fact that the Information might provide a basis to support claims to be made in litigation did not mean that the Lipman Applicants could breach the confidentiality in the Information. As was noted by Campbell J in AG Australia Holdings v Burton, in cases like the present what will be lost if an injunction is not granted ‘is the loss of the opportunity of having … proceedings tried in accordance with the law, and meaning by that tried using evidence, obtained through procedures, which are in accordance with the law’: at [220]. As stated by Brereton J in British American Tobacco ‘[u]se of confidential information to institute proceedings … is an abuse of information received in, or as a result of, confidence, and will be restrained by a court of equity’: a [28]. The restraint upon use of the Information that would arise if it was demonstrated to be confidential would include its use for commencing legal proceedings.

102    The primary judge approached the consideration of the balance of convenience without bringing to account the prejudice to Mr Karas of the Lipman Applicants using the Information for the purpose of maintaining the proceedings. As to prejudice, his Honour reasoned at [90] as follows:

Further, there is currently a confidentiality regime over these proceedings to protect the confidentiality asserted by Mr Karas. That regime may, to the extent strictly necessary, be maintained such that in the event that Mr Karas is ultimately successful in his defence to the proceedings and his cross-claim, his right to confidentiality will be maintained. To that extent, denying his claim for an interlocutory injunction will not result in irreparable prejudice.

103    Approaching the matter in that way was to confine the consideration of prejudice to the prejudice that would flow if there was further disclosure of the Information. It failed to focus upon the issue of use of the Information in the conduct of the proceedings.

104    For those reasons, ground 4 has been made out.

Alleged error as to seeking final relief (proposed ground 2)

105    The primary judge approached the analysis of the balance of convenience on the basis that Mr Karas was seeking final relief: at [86], [88]. However, what was sought was an order that would prevent the use or disclosure of the Information pending the final hearing of the cross-claim. This was not a case where there was an imminent and final step to be taken which if restrained was a matter that could not be undone at a later time. Nor was it a case where the practical or commercial effect of a restraint for a time was such that by the time of any final hearing the significance of the subject matter of the dispute would have passed.

106    His Honour observed that the grant of the relief sought would require the Lipman Applicants to engage new lawyers. That was correct if the Lipman Applicants proposed to continue their claims and could demonstrate that they were able to do so without resort to the Confidential Information. However, the alternate course was to proceed with expedition to the conduct of a hearing of the cross-claim. In that event, new lawyers would only be required if the cross-claim was upheld. If that were so, then the engagement of new lawyers would be a necessary consequence of the vindication of a claim to confidentiality in respect of the Information. It was not the case that the grant of the injunction would lead to the necessary consequence that the Lipman Applicants would have to engage new lawyers.

107    For those reasons, we accept that ground 2 has been made out.

Alleged error in having regard to case management considerations (proposed ground 3)

108    In finding that the balance of convenience was against the grant of the relief sought, one of the matters relied upon concerned the consequence of a separate hearing of the cross-claim. His Honour put the matter in the following way at [89]:

The prospect of a multiplicity of proceedings leads inevitably to a significant increase in the quantum of costs; delay in the event there is an appeal from the decision on the cross-claim ahead of the main proceedings; the prospect of inconsistent findings; and given credit is likely to be in issue, the need for different judges of this Court to hear the cross-claim and the main proceedings.

109    For Mr Karas it was contended that in doing so the primary judge incorrectly allowed matters of case management to be used as a source of authority to affect substantive rights. Reliance was placed upon the following reasoning of Allsop CJ in Crown Resorts at [2]-[4]:

The error was in applying … the proposition (reflected in the terms of the relief sought and granted in the proceeding below) that the Court possessed power, discretionary in character, to relieve a person of a subsisting and otherwise enforceable obligation of confidence owed to a party to the litigation if to do so, on balance, was in the interests of the more convenient running of the litigation and so in the administration of justice. This power was said to be derived from the cases concerned with the voidness or unenforceability of contract, or provisions in contracts, that have a tendency to interfere with or affect the administration of justice when placed in the context of modern statutory and judicial approaches to litigation and case management …

…

… The courts themselves are obliged to approach the management and control of litigation informed by reference to the same considerations [as are expressed in statutory provisions concerned with the overarching or overriding purpose of the conduct of civil litigation] The effects of these obligations are real and powerful; and the width and strength that they give to the power of the courts in case management of litigation should be recognised. Such recognition should not, however, distort the reach of that procedural power into some false warrant of authority to set aside, revoke or suspend substantive rights of parties to litigation.

110    It may be accepted that matters of case management are procedural. It may be accepted that case management could not be a basis for rejecting a claim to confidentiality (noting that such claims are themselves subject to principles that protect the open administration of justice).

111    In a case such as the present, a determination that there was a sufficiently arguable claim to confidentiality in the Information would not mean that matters of case management were irrelevant when it came to the balance of convenience. There remained the possibility that the claim to confidentiality may be determined concurrently with the substantive claim brought on the basis of access to that information. Provisional receipt of information may be possible. In short, it may be that the precise relief sought may be refused by reason of the availability of procedural orders that may adequately preserve the confidentiality in all the circumstances.

112    However, usually there would be difficulties with such a course. They would expose the party claiming confidentiality (in the present case Mr Karas) to having to defend the proceedings brought on the basis of the confidential information thereby depriving the party (albeit provisionally) of part of the protection that the right affords. There would also be difficulties in how to approach the making of findings in the proceedings if the claim to confidentiality was upheld. As we have noted, these matters of prejudice are significant and, for reasons we have given, likely to lead to a conclusion that it is appropriate to grant of the relief sought where a sufficiently arguable claim to confidentiality has been demonstrated.

113    Concerns of the kind identified by the primary judge are real where, as here, reliance is placed upon iniquity. In such cases, if the claim to confidentiality is first adjudicated then there will still be a need to address the question whether there is an arguable case as to the matters the subject of the claim that provides the foundation for the alleged iniquity. There is a risk that the same issues may need to be addressed for different purposes. However, the prospect of inconsistent findings as to matters that depend upon credit is unlikely when there need only be a prima facie case as to claim said to give rise to iniquity. Nevertheless, there is a risk of delay, especially if there is an appeal.

114    In the circumstances of the present case, where, for reasons that have been given, the basis for the claim to confidentiality has not been established, it would be necessary to assume (contrary to our conclusion as to iniquity) some respect in which there was a sufficiently arguable case in order to determine how to approach matters of case management. Nevertheless had there been an arguable claim to confidentiality in the Information, for reasons we have given, we consider it unlikely that such matters would have been a reason why the injunctive relief sought should have been refused (and other considerations support the grant of the relief sought).

Alleged error as to balance of convenience (proposed ground 1)

115    For Mr Karas, it was submitted that each of the above grounds ‘alone or in combination’ demonstrated error on the finding by the primary judge in finding that the balance of convenience did not favour granting the interlocutory relief sought. For reasons we have given, had the notice of contention not been upheld as to the point concerning iniquity we would have allowed the appeal on the basis that such error had been demonstrated.

Leave to appeal

116    For reasons we have given, the proposed grounds of appeal had merit. They concerned alleged errors by the primary judge as to the matters that were relevant in weighing the balance of convenience. They were not confined to a complaint about the evaluative task of weighing considerations. The application for leave to appeal concerned the refusal of orders that concerned a substantive claim to confidentiality. If it was determined that the primary judge was correct in concluding that there was a sufficiently arguable claim that the Information was confidential, then (as we have explained) it would follow that there was error. In that event, Mr Karas would lose the protection from use of confidential information as the basis for proceedings against him. Therefore the requirements established by Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 for sufficient doubt and that there be substantial injustice if leave were refused have been demonstrated.

117    For those reasons, there should be leave to appeal.

Conclusion and costs

118    The orders should provide for leave to appeal and for the appeal to be dismissed. This is not a case in which it would be appropriate to contemplate a separate order as to costs to reflect the extent to which Mr Karas has been successful. The Lipman Applicants have been successful as to the result. Many of the points were interconnected. We have dealt with the appeal on the basis of assumptions that were favourable to Mr Karas. However, many of those points were in issue. In all the circumstances, we would also order that Mr Karas pay the costs of and incidental to the appeal.

119    There is an order of the primary judge that is in place that preserves the confidentiality of the Information in the course of the conduct of the proceedings. It operates until the first day of the final hearing with liberty to apply. It will be a matter for the case managing judge as to the appropriate approach to the Information in the further conduct of the proceedings.

120    In the appeal, confidentiality orders were made to continue the protections put in place by the primary judge for the purposes of the appeal. It appears that those orders, if continued, may apply to matters addressed in these reasons. In case Mr Karas takes the view that there remains some basis upon which aspects of the appeal proceedings or these reasons ought to be kept confidential we will make an order that the reasons be kept confidential for 14 days or until further order and we will allow for liberty to apply as to any further order as to confidentiality in respect of the appeal and these reasons. If no application is made then the confidentiality orders made in the appeal will come to an end. Otherwise, any ongoing issues as to confidentiality in the conduct of the proceedings should be dealt with by the primary judge having regard to the matters determined by these reasons.

Subsequent interlocutory application

121    After these reasons were prepared and the parties were notified of when they were to be delivered, the Lipman Applicants (the respondents to the appeal) filed an interlocutory application in which they sought to adduce in the appeal further pleadings that had been filed since the hearing of the appeal in the cross-claim by Mr Karas. It appeared that they were of the view that the filing of those documents provided support for contentions they had advanced in the hearing of the appeal. The interlocutory application was, in effect, an application for leave to reopen the case for the Lipman Applicants on the appeal. In circumstances where this Court had concluded that the appeal should be dismissed, no purpose would be served in entertaining the interlocutory application. In those circumstances, we are of the view that the delivery of these reasons should not be delayed on account of the interlocutory application. In those circumstances, the interlocutory application should be dismissed.

Associate:

Dated:    17 February 2023