FEDERAL COURT OF AUSTRALIA

Rauland Australia Pty Ltd v Johnson (No 1) [2019] FCA 1174

ORDERS

THE COURT ORDERS THAT:

1.    The second respondent’s interlocutory application filed on 15 May 2019 is dismissed.

2.    Costs are reserved.

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

REASONS FOR JUDGMENT

STEWART J:

Introduction

1    This judgment is on an interlocutory application brought by the second respondent (Hills Ltd) against the applicant (Rauland Australia Pty Ltd) in which it seeks to strike out paragraph 15 of the amended statement of claim filed on 30 May 2019. The first respondent is Ms Johnson who used to be employed by Rauland and is now employed by Hills. Ms Johnson has played no part in the interlocutory application.

2    The interlocutory application was filed on 15 May 2019 before the statement of claim was amended, but the amendments did not satisfy Hills so the application is to be taken as directed at the amended statement of claim rather than the statement of claim at which it was originally directed.

3    For completeness I mention that Hills had originally sought also to strike out paragraph 16 of the statement of claim but during oral argument Mr Brennan of counsel, who appeared with Mr McIntosh of counsel for Hills, said that that aspect of the interlocutory application was not pressed by Hills. I therefore need say no more about it.

The applicable rule

4    The provision relied on for the strikeout is r 16.21(1)(d) of the Federal Court Rules 2011 (Cth). That rule provides that a party may apply to the Court for an order that all or part of a pleading be struck out on the ground that the pleading is “likely to cause prejudice, embarrassment or delay in the proceeding”. As will be seen, Hills contends that the averments in paragraph 15 are irrelevant and will therefore cause prejudice or delay, or are embarrassing within the meaning of that concept as established in the authorities.

5    In the latter regard, embarrassment “carries the connotation of a pleading which is susceptible to various meanings, or contains inconsistent allegations or in which alternatives are confusingly intermixed or in which irrelevant allegations are made tending to increase expense”, with that list not being exhaustive: Spiteri v Nine Network Australia Pty Ltd [2008] FCA 905 at [22] per Edmonds J citing Bartlett v Swan Television and Radio Broadcasters Pty Ltd [1995] FCA 638; ATPR 41-434 (emphasis added).

6    It is clear on the authorities that the power to strike out a pleading or portion of a pleading is discretionary and it should be employed sparingly and only in a clear case: Radisch v McDonald [2010] FCA 762; 198 IR 244 at [20] per Gilmour J.

7    Some 20 years ago in Australian Competition and Consumer Commission (ACCC) v Pauls Ltd [1999] FCA 1750; (2000) ATPR 41-747, O’Loughlin J said in the context of an application to strike out a pleading on grounds that included that it was repetitive and had “the tendency to cause prejudice, embarrassment or delay” that:

[10] … The modern system of pleading requires only that the material facts on which a party’s claim is based be stated; the claim is not expected to be formulated as an elegant model of legal purity: Carr v McDonald’s Australia Ltd (1994) 63 FCR 358 at 367 and there is now a tendency against taking a pedantic approach to a pleading: Coshott v Kam Tou Mak (Wilcox J, 3 March 1998, unreported). (Emphasis added.)

8    The admonition against taking an overly pedantic approach to pleading has been picked up and approved on countless occasions since then. See, for example: Australian Building and Construction Commissioner v Molina [2017] FCA 1501 per Gilmour J at [13]; Qualify Me Pty Ltd v Get Qualified Australia Pty Ltd [2016] FCA 192 per Markovic J at [20]; Tameeka Group Pty Ltd v Landan Pty Ltd [2015] FCA 1218 per Markovic J at [32]; Takemoto v Moody’s Investors Service Pty Limited [2014] FCA 1081 per Flick J at [20] and Radisch at [19].

9    That approach is also required by s 37M of the Federal Court of Australia Act 1976 (Cth) that sets out the overarching purpose of the civil practice and procedure provisions governing the Court. That purpose includes facilitation of the just resolution of disputes “as quickly, inexpensively and efficiently as possible” (s 37M(1)(b)). See Comcare v John Holland Rail Pty Ltd (No 4) [2011] FCA 253; 210 IR 65 at [3] per Bromberg J. Striking out part of a pleading and requiring that it be re-pleaded will not serve those ends save in a clear case. Of course, any delay, expense and inefficiency arising from an objectionable pleading will weigh in favour of it being struck out, but the overarching objective will not be served by an overly pedantic approach to pleadings that encourages strikeout applications that are not strictly necessary.

10    In systems of civil procedure that do not require notice of a party’s intended evidence well in advance of the trial, there is a greater need for pleadings to be full and precise. That is in order to ensure that other parties are not taken by surprise at trial and so that they can properly prepare for trial.

11    However, in the system of civil procedure adopted by this Court it is the general practice – and it will be the course adopted in this case – that all parties must give notice of the evidence that they intend to adduce. Insofar as witness evidence is concerned, that will either be by way of affidavits or by way of outlines of evidence. Insofar as documents are concerned, that will be by way of giving notice of the documents that are intended to be tendered. Admissibility of the evidence on grounds of relevance will be determined with reference to the pleadings which must give proper notice of the scope of a case that has to be met, but notice of the details of the factual allegations underpinning those pleadings that do not appear from the particulars furnished in or alongside the pleadings will be given by way of notice of evidence to be adduced.

12    The distinction is between the facta probanda, being the ultimate facts in issue, and the facta probantia, being the facts to prove or disprove the ultimate facts: Hayes v Federal Commissioner of Taxation [1956] HCA 21; 96 CLR 47 at 51 per Fullagar J. It may be that the facta probantia will not appear from the pleadings and the particulars, but in that event notice of them will inevitably be given in the notice of evidence to be adduced.

13    Those considerations are relevant to any consideration of prejudice that may arise from an infelicity of pleading.

The pleaded case

14    Rauland’s originating application sets out the relief that it claims as follows:

1.    Account of Profit from each Respondent;

2.    Equitable damages against each Respondent;

3.    Equitable compensation from each Respondent;

4.    Declaration under the Corporations Act 2001 (Cth) s 1317E that each Respondent breached section 183 of the Act.

5.    An order for compensation under section 1317H of the Corporations Act 2001 (Cth) from each Respondent;

6.    An account of profits under section 115(2) and/or (3) the Copyright Act 1968 (Cth) against each Respondent;

7.    Damages;

8.    Interest;

9.    Costs.

15    In summary, the amended statement of claim makes the following averments in support of that relief.

16    It avers that Rauland’s business involves, amongst other things, the design, supply and support of technological communication solutions to healthcare organisations. (Paragraph 2.)

17    It avers that Ms Johnson was employed by Rauland under an employment contract that was subject to certain standard conditions. It is said that the terms of the employment contract included that Ms Johnson would not, during her employment or after it ended, disclose Rauland’s documents to any third party without authorisation and she would not disclose information obtained about the business and affairs of Rauland. (Paragraphs 4 and 5.)

18    Paragraph 6 avers that Ms Johnson was subject to a restraint for a period of 12 months after termination of her employment not to be engaged or involved in any business or undertaking that was, amongst other things, of a similar kind to that of Rauland or which competes with any aspect of Rauland’s business.

19    Paragraph 7 avers that Ms Johnson was employed by Rauland from on or about 22 February 2015 until on or about 4 October 2017.

20    It is then averred that during 2017 and until her departure from Rauland, Ms Johnson led certain tender application processes on behalf of Rauland and, on or around 21 September 2017 (being a few weeks before her employment ended), she created a backup file of her Rauland Microsoft Outlook email account and copied that backup file onto a removable storage device. The backup file is referred to in the amended statement of claim as the “Employment Information”. (Paragraphs 8-10.)

21    It is then averred that the copying of the Employment Information involved the reproduction of the works in material form for the purposes of the Copyright Act 1968 (Cth). (Paragraph 12.)

22    Paragraphs 13 and 14 aver that the copying and retention of the Employment Information by Ms Johnson was not authorised by or disclosed to Rauland.

23    There follows the paragraph that is complained of:

15.     The Employment Information contained documents that:

(a)     were original literary works of Rauland that were authored, within 50 years preceding the date of commencement of this proceeding, by employees of Rauland within the scope of their employment with Rauland;

(b)    were literary works obtained by Rauland under license which required Rauland to protect the copyright thereof; and

(c)    contained information that was at all material times highly confidential to Rauland and which constituted trade secrets.

                    Particulars

       i.    The information was acquired by Rauland by the use of skill and effort on their part;

       ii.    The information is of a highly confidential nature;

       iii.    Ms Johnson only had access to the information by virtue of her employment with Rauland and the position which she held during the course of that employment;

       iv.    Rauland restricted access to the Employment Information to certain persons in its employ;

       v.    Rauland made known to Ms Johnson that it regarded the information in the Employment Information as confidential;

       vi.    The information contained in the Rauland Documents is of a type which, by usage or practice of the trade carried on by Rauland, is treated as confidential.

       vii.    Further particulars to be provided upon discovery.

24    Paragraph 16 avers that the Employment Information included documents directly relevant to the tenders.

25    It is then averred that on 3 October 2017, Ms Johnson terminated her employment with Rauland with effect from 4 October 2017, and that she did not return the Employment Information or the devices upon which it was stored to Rauland. (Paragraphs 17-18.)

26    It is averred that in or around March 2018, Ms Johnson commenced employment with Hills and that Hills is a competitor of Rauland in the provision and support of technological communication solutions to healthcare organisations. (Paragraphs 19 and 20.)

27    Paragraph 21 avers that during 2017-2018, Hills, in competition with Rauland, was involved in one of the tender processes referred to at [20] above.

28    Paragraph 22 avers that on or around 4 June 2018, Ms Johnson provided information from the Employment Information to Hills. That information is referred to in the amended statement of claim as the “Rauland Documents” and is identified in the particulars as being three documents which contain information related to Rauland’s tender proposal that were attached to an email dated 4 June 2018 from Ms Johnson to Mr Bregg of Hills.

29    Paragraph 23 avers that on or around 21 June 2018, Mr Bregg on behalf of Hills utilised the Rauland Documents to make a side-by-side comparison with Hills’ equivalent product offering for the tender, and the particulars identify that the comparison document was sent by Mr Bregg to Ms Johnson by email on that day.

30    Paragraph 24 avers that during June 2018, Ms Johnson, acting on behalf or Hills, utilised the relevant documents (i.e. the three documents attached to the email from her to Mr    Bregg of 4 June 2018) in aid of Hills’ tender proposal.

31    Paragraph 25 avers that in July 2018 the tender was awarded to Hills.

32    Thereafter, the amended statement of claim pleads a number of causes of action.

33    First, it pleads breach of contract against Ms Johnson from which it has suffered loss and damage, including but not limited to the loss of competitive advantage in tenders against Hills. (Paragraph 27.)

34    Second, it pleads that Ms Johnson owed to Rauland an equitable obligation of confidentiality which she breached as a consequence of which Rauland has suffered and continues to suffer loss and damage. (Paragraphs 28-30.)

35    Third, it asserts that Ms Johnson breached s 183 of the Corporations Act 2001 (Cth) by making improper use of the Employment Information (i.e. the backup of her Microsoft Outlook email account created on 21 September 2017) for the advantage of herself and/or Hills by reason of which Rauland has suffered and continues to suffer loss and damage. (Paragraphs 31-32.)

36    Fourth, it asserts that Ms Johnson infringed Rauland’s copyright in documents contained within the “Confidential [sic: read Employment] Information” by reason of which she and/or Hills obtained an advantage, benefit or gain entitling Rauland to an account of profits under s 115(2) or s 115(3) of the Copyright Act. (Paragraphs 33-35.)

37    The following is then averred against Hills:

    Conduct of Hills

36.    By reason of the matters alleged in [8]-[16] and [22]-[25], Hills were knowingly concerned in the breach of the Confidentiality Obligation by Ms Johnson.

37.    By reason of the matters alleged in the preceding paragraph, Rauland has suffered and continues to suffer loss and damage.

         Particulars

           Particulars to be provided following discovery.

38.    Further, or in the alternative, by reason of the matters alleged in [22]-[25] Hills, by being involved in the contravention, breached section 183 of the Corporations Act 2001 (Cth).

39.    For reason of Hills' breach of section 183 of the Corporations Act 2001 (Cth), Rauland has suffered and continues to suffer loss and damage.

                Particulars

        Particulars to be provided following discovery.

 Hills’ objection to paragraph 15

38    In oral submissions, Mr Brennan referred to a letter from Hills’ solicitors to Rauland’s solicitors which set out the complaint with regard to paragraph 15 of the statement of claim. The letter put the complaint as follows:

The allegations made in paragraphs 15 and 16 of the Statement of Claim can only be material to your client’s claims for relief to the extent that they are allegations concerning the Rauland Documents or any document which was the immediate source of any Rauland Document.

39    Mr Brennan explained that the complaint was thus as to the materiality of the allegations in paragraph 15 to the relief sought in the proceeding.

40    He submitted, which appears to be correct and not in dispute, that the allegations in subparagraphs (a) and (b) of paragraph 15 relate only to the copyright cause of action. In that regard, Mr Brennan submitted that there is no allegation in the amended statement of claim of the use of any document within the Employment Information other than the Rauland Documents (i.e. the three attachments to the email of 4 June 2018) by Ms Johnson or Hills so as to cause Rauland loss or Ms Johnson or Hills profit or gain so as to justify damages, an account of profit or any other relief sought in the originating application.

41    Mr Prince of senior counsel, who appeared with Ms Wong of counsel for Rauland, submitted that that was not correct because merely the copying of the information constituted a use of it by Ms Johnson. There was some debate, with reference to the authorities, whether that is correct, but I need not resolve that. That is because paragraph 33 of the amended statement of claim, which is within the paragraphs that plead the breach of copyright cause of action, avers that Ms Johnson infringed Rauland’s copyright in documents contained within the Employment Information, and paragraph 34 avers that by reason of that infringement Ms Johnson has by herself and/or for the benefit of Hills obtained an advantage, benefit or gain.

42    It is thus tolerably clear that Rauland’s case is that Ms Johnson used documents from within the Microsoft Outlook database that she copied in breach of Rauland’s copyright from which she and/or Hills gained an advantage. The averments in subparagraphs (a) and (b) of paragraph 15 are necessary elements to that cause of action, which if successful will sound in an account of profits or damages.

43    I was told that the Microsoft Outlook database is very large and contains a very substantial number of documents. Those facts, taken together with the failure of the amended statement of claim to identify exactly which documents – beyond the Rauland Documents – are said to have been advantageously used by Ms Johnson in breach of copyright, would cause significant prejudice to Hills in the course of preparation for trial. That is because, so it was said, Hills would have to assess all the documents covered by paragraph 15 (i.e. the whole database) with reference to the characteristics that subparagraphs (a) and (b) aver that they have.

44    However, I consider that that prejudice can be avoided by Hills seeking appropriate further particulars of the relevant allegations, and it will in any event be substantially avoided by appropriate pre-trial directions in due course requiring Rauland to identify what documents it proposes to tender. Clearly it will not be able to rely on a breach of confidence in respect of documents that it does not tender or which it does not prove in some other way. If it proposes to prove the relevant documents in some other way, notice of the evidence amounting to that proof will have to be given.

45    It follows that prior to the trial Hills will be on notice of the particulars of the case that it has to answer. The amended statement of claim could serve that function more fully, and ideally it should, but I am not satisfied that its failure to do so is such as to rise to the level of “prejudice, embarrassment or delay” within the meaning of r 16.21(1)(d), particularly when one takes into account the importance of not being overly pedantic in this respect.

46    I am therefore not satisfied that subparagraphs (a) and (b) of paragraph 15 should be struck out.

47    With regard to the averments in subparagraph (c), Mr Brennan accepted that they will be material to the quantum of damage on the breach of contract claim, but only to the extent that there is an allegation of something which, by reason of the alleged breach of contract, caused damage. Mr Brennan submitted that the allegations with regard to breach of contract are limited to the Rauland Documents, and thus to the extent that subparagraph (c) covers all the other documents in the Employment Information database it is irrelevant and will cause prejudice and delay.

48    Mr Brennan made the same submission in relation to the breach of confidence cause of action, i.e. in the absence of relief in the form of a restraint or a declaration it is necessary for the breach of confidence that is alleged to be causative of the loss that is claimed. In that regard, the amended statement of claim at paragraph 29 pleads the alleged breach of confidence only in relation to the Rauland Documents.

49    In respect of the Corporations Act cause of action, much the same submission was made. Mr Brennan submitted that paragraph 31 of the amended statement of claim limits the improper use of information under s 183 to the use of the Rauland Documents. He also submitted that that is what was intended by the pleading, and was confirmed when further particulars were sought and furnished.

50    In my view, the objection to subparagraph (c) can be dealt with in relation to the breach of confidence cause of action on its own. In that regard, it is a necessary element to that cause of action that the relevant information was, in the words of the subparagraph, “highly confidential to Rauland and … constituted trade secrets”. That much was not in issue. The gravamen of the complaint was that the averments in subparagraph (c) apply to all of the Employment Information and are not restricted to the documents that are pleaded as giving rise to the breach of confidence, being only the Rauland Documents. Given the substantial number of documents within the category of Employment Information, it was submitted that that gives rise to relevant prejudice.

51    In my view, however, as long as the pleading of the breach of confidence cause of action, including the particulars that have been given, is restricted to the Rauland Documents the prejudice does not arise because Hills will only have to consider the averments in subparagraph (c) in relation to those documents. If the pleading, including the further particulars, is broadened to identify other documents then that position will change, but in any event there will be no relevant prejudice.

Conclusion

52    For those reasons, the interlocutory application filed by Hills on 15 May 2019 should be dismissed. As I have not heard submissions on costs, I will reserve all questions of costs at this stage.

Associate:

Dated:    1 August 2019