Federal Court of Australia

Agility CIS Ltd v White (No 2) [2022] FCA 293

ORDERS

THE COURT ORDERS THAT:

1.    The Applicants’ Amended Statement of Claim dated 30 November 2021 be struck out pursuant to r 16.21 of the Federal Court Rules 2011.

2.    Leave is granted for the Applicants to re-plead their Statement of Claim by 4.00 p.m. on 2 May 2022 or such other time as may be agreed by the parties.

3.    The Applicants pay the Respondents’ costs of the application on a lump sum basis to be agreed or in default of agreement in such lump sum as determined by a Registrar of this Court.

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

REASONS FOR JUDGMENT

ANDERSON J:

introduction

1    The Respondents by their interlocutory application dated 18 February 2022 seek orders that the proceeding be summarily dismissed pursuant to s 31A of the Federal Court Act 1976 (Cth) (FCA Act) or that the Amended Statement of Claim dated 30 November 2021 (ASOC) be struck out pursuant to r 16.21 of the Federal Court Rules 2011 (Cth) (Rules).

2    On 23 September 2021, I struck out the Applicants’ Statement of Claim dated 22 April 2021 pursuant to r 16.21 of the Rules and granted the Applicants leave to file an Amended Statement of Claim: Agility CIS Ltd v White [2021] FCA 1145 (Agility).

3    In Agility, I struck out the Applicants’ Statement of Claim because it did not identify:

(a)    the alleged confidential information with sufficient precision to enable the Court to identify what is sought to be protected: Agility [36] and [37];

(b)    the manner of the alleged misuse of confidential information: Agility [38]-[42]; and

(c)    the claim because of the lack of particularity exposed the speculative nature of the Applicants’ claim: Agility [40].

respondents’ submissions

4    The Respondents submit that the ASOC fails to rectify the defects in the previous Statement of Claim and suffers from the same deficiencies that caused me to order it be struck out on 23 September 2021.

5    The Respondents contend that it is plain from the Applicants’ continued inability to articulate the alleged misuse of their confidential information with any specificity that it is a claim that has no reasonable basis and therefore ought never have been brought. On this basis, the Respondents contend that the proceeding should be dismissed.

6    In support of their application, the Respondents rely on the affidavit of Nicole Joy Wearne dated 18 February 2022 (Wearne affidavit).

7    The Respondents submit that there are two substantive changes to the pleading introduced by the ASOC:

(a)    The alleged confidential information has now been defined only as “the source code of ORION and its supporting applications”: ASOC at [8]. No particulars of the source code are provided. However, Confidential Annexure A is said to contain “a description of the components of the ORION source code” comprising various elements and forms of code which have been used in the source code.

(b)    The ASOC includes an additional allegation from which a misuse of confidential information is said to be able to be inferred: the fact that a former employee of Utility Software Services Pty Ltd (USS) told a former employee of the Applicants that he had observed “employees of USS writing source code for CORE by displaying and referring to the source code of ORION”: ASOC at [17]. The unnamed “employees of USS” are not otherwise identified in the pleading.

8    The Respondents contend that neither of these amendments are sufficient to address the fundamental deficiencies identified by the Court in Agility for the following reasons:

(1)    First, the ASOC continues to describe the alleged confidential information in wide and general terms without specifically identifying the information that is sought to be protected. In particular, while the ASOC purports to limit the claim to the “source code of ORION and its supporting application” it still fails to identify with any particularity the confidential information that is said to comprise the source code. That is so even though the Applicants are able to identify at least one aspect of the source code (the source code for the application on the ‘fat client’) which is not the subject of the claim. Further, insofar as Confidential Annexure A purports to describe “the components of the ORION source code”, it continues to do so in abstract terms that lack the precision required to enable the Respondents to meaningfully respond to the claim.

(2)    Second, the ASOC continues to make no attempt to identify the disclosure or use of the alleged confidential information which is said to constitute an actionable misuse by the Respondents. In particular, it continues to make no attempt to connect any of the allegations from which a misuse of confidential information is said to be able to be inferred with any particular confidential information of the Applicants. The new allegation does not even relate specifically to the Respondents (bearing in mind there were approximately 20 employees of USS that worked on the development of CORE) and is expressed in such a vague and indirect fashion that, even if proven at trial, it would not support a finding of misuse of any particular confidential information by the Respondents: see Wearne affidavit at [9(e) and (f)].

(3)    Third, the Applicants continue to resist providing further particulars of the Respondents’ misuse of the alleged confidential information and have still not identified with any precision “what it is that constitutes the breach”. Instead, they continue to adopt the approach of setting out every substantive aspect of their system and alleging that the whole of that system has been taken or misused in the hope that they will be able to extract information from the Respondents which might assist them to identify some actionable conduct: Wearne affidavit at [10]-[12]. That suggests the claim continues to be one which is fundamentally speculative in character.

9    The Respondents submit that the fact that the Applicants still cannot articulate with particularity either the information which is said to be confidential or that which is said to have been misused is a clear indication that they do not have a good cause of action against the Applicants and ought not to have commenced the proceeding: Meridian VAT Reclaim Australia Pty Ltd v Agius [2006] VSC 503 per Harper J at [45].

10    The Respondents submit that none of the allegations from which the Applicants seek to infer a misuse of confidential information provide a foundation for the Court to infer, as a matter of probability or likelihood, that there was any misuse of any identified confidential information on the part of the Respondents. The Respondents submit that, at best, the Applicants seek to raise the possibility of such misuse, as a matter of conjecture from highly equivocal and uncertain allegations, rather than logical deduction from known or assumed facts: Jones v Dunkel (1959) 101 CLR 298 per Kitto J at 306 and Gurnett v Macquarie Stevedoring Co Pty Ltd (1955) 75 WN (NSW) 261 per Street CJ at 264.

applicants’ submissions

11    The Applicants submit that the ASOC addresses the deficiencies in the Statement of Claim. First, the Applicants submit, that the confidential information in dispute is now limited to the source code for ORION and its supporting applications (ORION Source Code), as described in the Confidential Annexure to the ASOC. Secondly, the Applicants submit that the alleged misuse is identified in clear terms. It is alleged that the First to Third Respondents referred to and used the ORION Source Code in the course of their work for USS on the development of USS’ CORE software: ASOC [17]. Further, the Applicants submit that it is alleged that the on-going conduct of the Respondents in relation to CORE necessarily involves a misuse of the confidential information of the Applicants because CORE was developed by reference to the ORION Source Code: ASOC [4(d)], [5(c)], [6(d)], [18] and [19].

12    The Applicants accept that their pleaded case of misuse of confidential information rests on inferences. The Applicants submit that the inferences on which they seek to rely are rational and would be opened to a court at trial, when the court would have available the evidence which permits a proper assessment of the inferences advanced.

13    The Applicants accept that the relevant principles for determining this application are set out in Agility at [7]-[14] and [41]. The Applicants rely upon the following additional matters of principle:

(a)    for the purposes of the present application, all the facts alleged in the relevant pleading are to be accepted as true. Provided that the pleading fulfils its basic function of identifying the issues, that it discloses an arguable cause of action and that it apprises the other party of the case that it has to meet at trial, it should be allowed to stand: Niven v Grant (1903) 29 VLR 102, 106 and Young Investments Group Pty Ltd v Mann [2012] FCAFC 107 per Emmett, Bennett and McKerracher JJ at [6];

(b)    the power to strike out pleadings is discretionary and should be employed sparingly and only in a clear case. It must be established that the applicants’ case is so untenable that it cannot possibly succeed: Australian Competition and Consumer Commission v Pauls Ltd [1999] FCA 1750 per O’Loughlin J at [10].

14    The Applicants submit that the amendment to the ASOC to identify the confidential information as the “ORION Source Code” is significant because a number of authorities have accepted that the identification of a corpus of “source code” is sufficient to found a breach of confidence claim. The Applicants rely upon the observations of Perry J in ObjectiVision Pty Ltd v Visionsearch Pty Ltd [2014] FCA 1087 at [94]:

… it has long been recognised that computer source code is (or can embody or contain) valuable confidential information and that the same may be said of particular information deployed in source code such as algorithms and associated development documents.

15    The Applicants also rely upon the following authorities as accepting that the identification of a corpus of “source code” is sufficient to found a breach of confidence claim: CA Inc v ISI Pty Ltd (2012) 95 IPR 424, [368] – [375]; IPC Global Pty Ltd v Pavetest Pty Ltd (2012) 122 IPR 445, [13(b)] and [205]; University of Sydney v ObjectiVision Pty Ltd [2019] FCA 1625; 148 IPR 1, [744] and Campaigntrack Pty Ltd v Real Estate Tool Box Pty Ltd [2021] FCA 809; 160 IPR 362, [307] and [314].

16    The Applicants submit that the Respondents criticisms of the ASOC should be rejected for the following reasons.

17    First, in the Applicants’ submission, the relevant confidential information has been identified with specificity in the ASOC at [8] and the Confidential Annexure A. The Applicants submit that the identification of the Orion Source Code (as defined) as a body of confidential information is consistent with the approach taken in other decisions of this Court. The Applicants submit that the ASOC makes clear what the Applicants seek to protect and it would readily be possible to frame relief to achieve that protection.

18    Secondly, the Applicants submit that the Court, in determining this application, is required to proceed on the basis that the allegations pleaded in the ASOC are true. The question is whether those allegations give rise to a tenable case. On that basis, in the Applicants’ submission, the Court should proceed on, at least, the following assumed facts:

(a)    the First to Third Respondents had access to a version of ORION, and therefore to the ORION Source Code during the course of their employment at USS: ASOC [17], particular (b);

(b)    the First to Third Respondents assisted USS in the development of CORE: ASOC [14];

(c)    employees of USS developed the source code for CORE by referring to the ORION Source Code: ASOC [17], particulars (c)-(f);

(d)    it would not have been possible for USS to develop CORE in the timeframe that it did (approximately three years from June 2015 to June 2018) without reference to the ORION Source Code: ASOC [17], particular (g); and

(e)    the Fourth Respondent is providing on-going development and support services in relation to CORE and the First to Third Respondents are personally involved in that conduct: ASOC [4(d)], [5(c)], [6(d)], [18] and [19].

19    The Applicants submit that taken together, the above assumed facts are sufficient to show that the following inferences would be open to the Court at trial aided at that time by the parties’ evidence:

(a)    the First to Third Respondents were aware of, and involved in, the use of the ORION Source Code in the development by USS of CORE;

(b)    the Respondents (by their commercial activities in relation to CORE) are engaged in conduct that necessarily involves an on-going use of the Applicants’ confidential information (i.e. by developing software with reference to the ORION Source Code).

20    The Applicants submit that the above inferences for which they contend are neither irrational nor speculative. They are not, in the Applicants’ submission, mere assertion. Rather, they are consistent with the roles played by the First to Third Respondents at USS who held senior positions, among other matters identified at [17] of the ASOC.

21    Finally, the Applicants submit that it is important for the Court to bear in mind that the power to strike out a pleading should be used sparingly and only in a plain and obvious case where, for example, the case is so untenable that it could not possibly succeed.

relevant principles

22    The relevant principles in determining an application to strike out a statement of claim pursuant to r 16.21 of the Rules are set out Agility at [7]-[18]. I do not propose to repeat those principles on this second strike out application, save to observe that:

(1)    In a claim for misuse of confidential information, it is vital that the information which is said to be confidential is defined with precision, and the disclosure or use of that information which is said to constitute a misuse of that information is specified with particularity: Pioneer Concrete Services Limited v Galli (1985) VR 675 at 711.

(2)    One of the reasons the courts insist on such specificity is to avoid actions being brought before the courts that are merely speculative in character, and to prevent a former employer from using a generally worded claim to stifle the right of an employee to use the skill and experience of that employee (or their “know-how”): Creative Brands Pty Ltd v Franklin [2001] VSC 338 (Creative Brands) per Warren J at [16]; Liberty Financial Pty Ltd v Scott (No 4) (2005) 11 VR 629 per Harper J at [12]-[13].

(3)    If the claim amounts in substance to little more than that the Respondents left their former employer, established their own business and are now competing in a market place against their former employer - that will not be sufficient to make out even an arguable case of misuse of confidential information: Creative Brands at [22].

23    With these principles in mind, together with the principles referred to by the parties in their written submissions, which were not in dispute, I turn to consider the strike out application.

consideration

24    The amendments which were made by the Applicants to paragraph 8(b) of the ASOC, in which they defined the alleged confidential information as “comprising the source code of ORION and its supporting applications” together with the particulars subjoined to that paragraph contained in Confidential Annexure A, fails to identify the alleged confidential information with sufficient precision to enable the Court to identify what is sought to be protected. Confidential Annexure A contains “a description of the components of the ORION source code” comprising various elements and forms of the source code. No particulars of the source code are provided.

25    The pleading at paragraph 8(b) of the ASOC is also inconsistent with the particulars provided in Confidential Annexure A. As a consequence, it is not possible to know, with the required precision, the source code or those parts of the source code that are said to comprise the confidential information.

26    The confidential information as defined in paragraph 8(b) of the ASOC pleads that the whole of the corpus of the source code of ORION and its supporting applications are the confidential information which is sought to be protected. Paragraph 17(a) of the ASOC pleads misuse of parts of the ORION source code and, in particular, the Stored Procedures and the algorithms that they embody as described in Confidential Annexure A. It is apparent from paragraph 5 of Confidential Annexure A that the Applicants do not claim that it is the whole of the ORION source code that has been allegedly misused. The source code for the applications stored on the “fat client” is said to comprise about 15% of the source code of ORION but the Applicants do not allege that this aspect of the ORION source code has been misused by the Respondents. The Applicants identify one aspect of the source code that they accept has not been misused, but do not specify which part or parts of the remaining source code has been allegedly misused. The ASOC does not identify which “Stored Procedures” were allegedly misused by the Respondents. The ASOC does not identify how it is said that the Respondents misused those “Stored Procedures” in the development of CORE.

27    The inconsistency which exists between paragraph 8(a) of the ASOC (alleging the confidential information comprising the whole of the corpus of the source code of ORION and its supporting applications) and Confidential Annexure A (which refers to part or parts of the source code albeit without any precision) demonstrates why the amended pleading is defective and must be struck out.

28    The inconsistency between paragraph 8(b) of the ASOC and Confidential Annexure A is also demonstrated by the Applicants' solicitors' email dated 28 January 2022 responding to the Respondents' solicitors' letter of complaint dated 20 December 2021: Wearne affidavit at NJW-3. In that letter, the Respondents' solicitors state:

You appear to assert in your letter that our clients in effect maintain a claim in relation to the entirety of ORION's source code. However, this is not so. The PowerBuilder PowerScript code represents a substantial portion (approximately 15%) of ORION's source code. Our clients do not allege misuse of this code, as is expressly noted in paragraph 5 of Confidential Annexure A to the Amended Statement of Claim.

In our clients ' view, the further identification of the specific Stored Procedures (and Triggers and Functions) misused by your clients is a matter for evidence and these allegations may in any event be further particularised following the completion of discovery.

29    It is apparent from this response that the Applicants only rely on misuse of part of the ORION source code, yet the Applicants have failed to identify what parts of the ORION source code are alleged to have been misused. The Applicants have failed to identify in the ASOC what is said to constitute the breach. It is no answer for the Applicants to say in their solicitors' letter dated 28 January 2022, that further identification of the specific “Stored Procedures” (and Triggers and Functions) misused by the Respondents was a matter for evidence, and these allegations may in any event be further particularised following completion of discovery. The Applicants' claims as presently pleaded in the ASOC are expressed in wide and general terms such that the claims have all the hallmarks of being purely speculative.

30    The ASOC makes no attempt to identify the disclosure or use of the alleged confidential information which is said to constitute an actionable misuse by the Respondents. The amendments made to paragraph 17(a) of the ASOC do not attempt to connect any of the allegations from which a misuse of confidential information is said to be able to be inferred with any particular confidential information of the Applicants. The new allegation from which it is said that misuse can be inferred at paragraph (a)(ii) of the particulars subjoined to paragraph 17, does not relate specifically to the Respondents, noting that there were some 20 employees of USS that worked on the development of CORE. Even accepting, for the purpose of a strike out application that all the facts alleged in the relevant pleading are to be accepted as true, what is alleged in paragraph 17 and in particular, paragraph (a)(ii) of the particulars is expressed in such vague and indirect terms that even if proven at trial, it would not support the finding of misuse of any particular confidential information by the Respondents.

31    The amendments to paragraph 17 of the ASOC do not provide a foundation for the Court to infer that as a matter of probability or likelihood that there was any misuse of any identified confidential information on the part of the Respondents. The matters upon which the Applicants rely to infer misuse of confidential information in paragraph 17 of the ASOC are no more than conjecture based on highly equivocal and uncertain allegations rather than logical deduction from known or assumed facts: Gurnett v Macquarie Stevedoring Co Pty Ltd (1955) 75 WN (NSW) 261 per Street CJ at 264.

32    The amendments to paragraph 17 of the ASOC do not cure the defect in the Statement of Claim and the Applicants have not identified with any precision what it is that constitutes the breach: Lynx Engineering Consultants Pty Ltd v The ANI Corporation Ltd (No 2) [2009] FCA 363 per McKerrarcher J at [49] and Agility at [40]-[42].

33    The amendments made in the ASOC do not address the defects I found to exist in the Statement of Claim in Agility at [36].

34    I am satisfied that the discretion under r 16.21 of the Rules ought be exercised to strike out the ASOC dated 30 November 2021 because the Applicants’ case, as presently pleaded, discloses no reasonable cause of action and is untenable.

disposition

35    The ASOC dated 30 November 2021 will be struck out pursuant to r 16.21 of the Rules. I will not order the proceeding be dismissed pursuant to r 26.01 of the Rules and/or s 31A of the FCA Act.

36    I will give the Applicants leave to re-plead their Statement of Claim by 4.00 p.m. on 2 May 2022 or such other time as may be agreed by the parties.

37    The Applicants will pay the Respondents’ costs of the application on a lump sum basis to be agreed, or in default of agreement, in such lump sum as determined by a Registrar of this Court.

Associate:

Dated:    29 March 2022

SCHEDULE OF PARTIES