FEDERAL COURT OF AUSTRALIA

Pennytel Australia Pty Limited v Engelke [2025] FCA 1384

ORDERS

THE COURT ORDERS THAT:

1.    Leave is granted to the parties to apply for directions to relist the matter for a hearing on costs.

THE COURT NOTES THAT:

A.    On determination of the costs of the proceedings, the proceedings will be dismissed.

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

REASONS FOR JUDGMENT

NEEDHAM J:

The proceedings

1    These proceedings were heard before me over nine days, seven in Sydney and two in Melbourne, over which time some 10 witnesses gave evidence. Somewhat unsuccessfully, I attempted to contain the length of these reasons, by asking the parties to formulate a list of factual and legal issues to be determined. Those issues have been distilled into the questions in the section Issues for Determination commencing at [31] below and are Attachment A to these reasons. I have sought to deal only with the facts as relevant to each question along with a brief overview of the parties’ cases. I have however had regard to the entirety of the evidence before me, with the caveat that the parties were asked to draw my attention to the particular parts of the Court Book and additional exhibits (totalling over 6,000 pages including voluminous spreadsheets), upon which they sought to rely.

2    The principal relief sought by the plaintiff is equitable damages arising out of what is said to be a scheme between the first to third defendants to take and misuse confidential information obtained by the first and second defendant during their respective periods of employment with the plaintiff, and to set up a competing business, using the confidential information of the plaintiff, through the fourth and then the fifth defendant as corporate vehicles. It is further alleged that the first and second defendants breached their employment contracts with the plaintiff, and that Mr Nicholas Engelke (the first defendant) and Ms Samantha Chitas (the second defendant) improperly used their positions as employees in breach of ss 182 and 183 of the Corporations Act 2001 (Cth). The first, second, third, and fifth defendants were jointly represented and will be referred to as “the defendants” in these reasons. The fourth and sixth defendants did not take part in the hearing, as explained below.

3    I have determined that the plaintiff has failed to prove its case against the defendants in that I am not satisfied that the first and second defendants took or misused confidential information, nor that there was a scheme as alleged with the third defendant. I have further found that there was no breach of the first and second defendants’ employment contracts, and that there was no breach of ss 182 and 183 of the Corporations Act. The proceedings should be dismissed with costs once the parties have had the opportunity to address on the appropriate extent of the costs orders.

The parties

The plaintiff

4    Pennytel Australia Ltd (the plaintiff) is the trading entity of a group of companies (the Pennytel Group). The Pennytel Group operates a business which sells telecommunication products such as data and internet plans, post-paid or SIM only mobile phone plans, and on-premises and cloud-based products such as voice (phone) platforms and hardware to both residential consumers and businesses.

5    The plaintiff was incorporated in 2019. In the course of expanding its business, Pennytel Holdings Pty Ltd (the ultimate holding company of the Pennytel Group) purchased the assets and customers of a number of telecommunications businesses, including, relevantly, Focus Communications Pty Ltd. The Focus purchase took place in July 2021. The plaintiff asserts that it spent over $5,000,000 on these purchases in total, and one of the assets purchased from Focus was a “significant book of customers”.

6    By the Business Sale Agreement with Focus, Holdings was required to offer employment to listed employees, including Mr Engelke and Ms Chitas. It did so, and each of those employees became employed by Pennytel. The terms of their employment is an issue in these proceedings.

7    Mr Ante Zizic, who gave evidence for the plaintiff in chief, is the Chief Executive Officer of the plaintiff, and has been in that role since 18 July 2022.

The first, second, and third defendants

8    Mr Engelke and Ms Chitas were long-term employees of Focus at the time of its acquisition, Ms Chitas having worked for Focus since 2001, and Mr Engelke since 2009. They each accepted an offer of employment to start on 29 July 2021, and continued working for Pennytel until they left that employment, sparking the events the subject of this litigation.

9    Mr Engelke left Pennytel on 6 May 2022 as Head of Corporate Services, and started work with Spirit Technology Solutions Ltd. Spirit is a technology company which specialises in fixed wireless networking, and supplied services to Pennytel, which Pennytel then re-sold to its clients. Mr Engelke was dismissed from his employment with Spirit on 13 January 2023 and briefly commenced work as a casual Business Development Manager until he commenced work with the fifth defendant, SPN Co Pty Ltd, on 6 March 2023.

10    Ms Chitas worked for Pennytel as an Account Manager until 22 January 2023. She resigned from her employment with Pennytel after it sent her a letter requiring her to show cause as to why she should not be dismissed for serious misconduct. She was on long service leave at the time. She commenced work with SPN on 23 July 2023.

11    Mr Peter Horan is the third defendant and sole director of SPN. He is the managing director of a company called Citracom Pty Ltd, and has been in that role since 2011. Citracom was a corporate partner of Focus and referred customers to Focus in exchange for commission. It is a computer consultancy business, which deals with small to medium sized businesses, providing “a broad range of computing solutions” for them. Mr Horan was a friend of each of Mr Engelke and Ms Chitas from around 2013 and has never worked for Pennytel. A company associated with Mr Horan, Web Steps, provided Mr Engelke with his casual employment before he commenced work with SPN.

The fourth, fifth, and sixth defendants

12    On 19 October 2022 Citratel Pty Ltd, the fourth defendant, was registered as a corporation. Each of Mr Engleke, Ms Chitas, and Mr Horan was a director of Citratel from 19 October 2022 to 3 May 2023, and their respective companies (NMWC Pty Ltd, a company controlled by Mr Engelke, Overmasters Holdings Pty Ltd, a company controlled by Ms Chitas, and Jeop Pty Ltd, a company of which Mr Horan’s wife was the director and shareholder) each held 40 of the 120 shares in Citratel.

13    Citratel was deregistered on 3 May 2023, which was prior to the commencement of these proceedings on 7 June 2023, in circumstances relevant to this action as described below. The defendants plead that it did not at any time commence trading. The company was reinstated by order of this Court and is currently under external administration. Citratel has taken no part in these proceedings.

14    On 16 January 2023, Mr Horan registered SPN, the fifth defendant. Mr Horan was its sole director and secretary, and its 120 issued shares were held by Jeop. SPN commenced trading in February 2023 with Mr Horan and Mr Engelke as employees. The circumstances of how SPN became registered and how it came to operate the SPN business is a subject of some dispute.

15    The sixth defendant, Telcoinabox Operations Pty Limited, is a supplier of various telecommunications services. It filed a submitting notice on 19 October 2023. It has taken no part in these proceedings. It was referred to in the evidence as TIAB. No relief is now sought against TIAB.

16    TIAB supplied services to Pennytel, as a wholesaler. Another entity, Symbio Wholesale Pty Ltd, is an entity related to TIAB and also provided services to Pennytel as a wholesaler. The services supplied were TaaS (Telecommunications as a Service), CPaaS (Communications Platforms as a Service) and UCaaS (Unified Communications as a Service). Those services enabled Pennytel to provide the services it did to its customers. In particular, the TaaS product enabled “any Australian consumer brand, telco or ICT provider to sell their own, fully branded, telecom services through Telcoinabox or Symbio Wholesale”. Symbio provided enablement, provisioning and billing of these products and services to Pennytel via direct access to the TIAB database, referred to as the TIAB Octane platform.

The pleading of confidential information

17    There is no real dispute that Pennytel owned information which was confidential, nor that Mr Engelke and Ms Chitas had access to most or all of that information. There is a dispute as to precisely what confidential information is alleged to be the subject of these proceedings.

18    The elements of a claim for equitable breach of confidence were set out by the Full Court in Optus Networks Pty Ltd (ACN 008 570 330) v Telstra Corporation Ltd (ACN 051 775 556) (2010) 265 ALR 281; [2010] FCAFC 21 (Finn, Sundberg, and Jacobson JJ) at [39] (adopting the reasoning in Smith Kline & French Laboratories (Aust) Ltd v Secretary, Department of Community Services and Health (1990) 22 FCR 73 at 87):

(a)     the information in question must be identified with specificity;

(b)     it must have the necessary quality of confidence;

(c)     it must have been received by [the defendants] in circumstances importing an obligation of confidence, and

(d)     there must be an actual or threatened misuse of the information without [the plaintiff’s] consent.

19    Paragraph 10 of the ASOC identifies that the information of “a confidential and valuable nature” was as follows:

10.    In the course of its business, Pennytel possessed certain information of a confidential and valuable nature pertaining to:

(a)    Pennytel Products and Pennytel Services;

(b)    clients, customers or prospective clients or customers (Customers);

(c)    names and contact details of Customers;

(d)    the terms on which Customers acquired Pennytel Services, including the commencement date and end date of contracts for services and the price paid;

(e)    the terms on which the Symbio Services are provided;

(f)    information regarding the affairs of Pennytel and its related entities, including products and services, finances, customer details, sales figures, employee details, pricing methodologies, finances, and similar information relating to Pennytel’s internal operations, plans, policies, practices and transactions;

(g)    information regarding the affairs of Customers of Pennytel;

(h)    proprietary information, including trade secrets, client lists, know-how, original works or inventions, designs, trademarks and trade names, whether registered or not, technical processes, systems, methods, inventions, discoveries, improvements, enhancements, records, reports, documents, papers and other materials whatsoever and any derivative works thereof, prepared by Pennytel or another employee, or by any client of Pennytel;

(Confidential Information).

20    In response, the Amended Defence pleads:

10.    To paragraph 10, they state:

(a)    the pleading is vague and imprecise in failing to specify the allegedly confidential information being referred to;

(b)    without particulars of the precise forms of confidential information being referred to, they do not know and cannot admit whether such information was confidential as it may have been within the public realm;

(c)    without particulars of the precise forms of confidential information being referred to, they do not know and cannot admit whether ‘information regarding the affairs of Customers of Pennytel’ was confidential information as it may have been within the public realm;

(d)    as to paragraph 10(h), they deny that information concerning ‘know-how’ will be confidential information, as any such information will be part of the skills and knowledge able to be freely used by employees of Pennytel; and

(e)    they otherwise admit the paragraph.

21    No particulars of the pleading were sought (at least that were in evidence). Instead, the plaintiff relied on the relevant confidential information as identified in its opening submissions as being “customer names and contact details, the terms on which the customers acquired services (including start and end dates of contracts), sales and pricing”.

Relief sought by the plaintiff

22    The Amended Originating Process (AOP) seeks declarations that each of Mr Engelke and Ms Chitas used their positions as employees of Pennytel and the confidential information obtained during that employment:

(a)    in breach of their terms of employment; and

(b)    in breach of ss 182 and 183 of the Corporations Act.

23    The plaintiff alleges that Mr Horan, Citratel, and SPN (and in the alternative Ms Chitas) were involved in those contraventions. The plaintiff submitted that it did not need to establish that SPN or Mr Horan used confidential information consciously or intentionally; but it is submitted that Mr Horan knew what was happening and “was part of it”. This is on the basis of a “common design” (Fairfax Media Publications Pty Ltd v Voller [2021] HCA 27 at [132]). An alternative case is that Mr Engelke’s actions constituted a breach of his obligations of confidentiality, and that the other defendants were parties to that breach. The plaintiff also seeks to establish factual elements of its case by relying on inferences which can, it says, be drawn from the conduct of the defendants.

24    The plaintiff in paragraph 8 of the AOP seeks to restrain the first to fifth defendants from various uses of the Plaintiff’s Records, which are defined in paragraph 9 as:

… all records of information whether in hard copy or digital form held by the plaintiff in respect of its business and includes:

(a)    a person, corporation or business who is a present or former customer or client of the plaintiff (Customers), including their name and contact details;

(b)    the terms on which Customers acquire products and services from the plaintiff, including the commencement date and end date of contracts for services and the price paid;

(c)    the price and terms on which wholesale services by Symbio Holdings Limited ACN 118 699 853 are provided to the plaintiff and its related entities for on sale to the Customers;

(d)    information regarding the affairs of the plaintiff, including products and services, finances, customer details, sales figures, employee details, pricing methodologies, finances, and similar information relating to plaintiff internal operations, plans, policies, practices and transactions;

(e)    information regarding the affairs of any client of the plaintiff;

(f)    proprietary information, including trade secrets, client lists, know-how, original works or inventions, designs, trademarks and trade names, whether registered or not, technical processes, systems, methods, inventions, discoveries, improvements, enhancements, records, reports, documents, papers and other materials whatsoever and any derivative works thereof, prepared by the plaintiff or another employee, or by any client of the plaintiff.

25    Orders 13 and 14 of the AOP seek delivery up of the Plaintiff’s Records and permanent deletion of the Plaintiff’s Records in electronic form. The plaintiff relied primarily on a remedy of equitable damages, as quantified by its expert report from Mr Ngoc Anh Nguyen, a chartered accountant with fifteen years of experience in forensic accounting and quantification of damages, and orders 8, 9, 13 and 14 as set out or summarised above.

Issues raised by the defendants

26    The Amended Defence raises three main themes; that the first and second defendants did not misuse any confidential information, that there was no scheme involving the third and fourth defendants to do so, and that in any event the confidential information was not precisely defined. The admissions by the defendants as to the pleadings as to confidentiality were hedged by paragraph 10 of the Amended Defence which, as set out above at [20], raised a “carveout” of some issues and a general complaint about the way in which the ASOC was pleaded.

The plaintiff’s business

27    As outlined above, Pennytel was in the business of selling various services, which were supplied to it on a wholesale basis by TIAB and Symbio, to both residential and business customers.

28    Pennytel employees used Octane, as well as Zoho applications (including Customer Relationship Manager or CRM, and Desk) to manage the accounts of Pennytel customers, and each of the first and second defendants had access to these services while employed by Pennytel by using a unique name and password to log in. Pennytel alleges that the information so able to be accessed was information confidential to Pennytel. Subject to those matters in contest in paragraph 10 of the Amended Defence relating to the scope of the alleged confidential information, those facts were admitted by the defendants.

29    In relation to Pennytel’s customers who were previously customers of Focus, their details were held on a CRM called ACT! which had been used by Focus while Mr Engelke worked there. Those details included names, contact details, some driver licence numbers, IP addresses, log-in details of customers, and notes concerning their credit history. It is common ground that most of the Focus customers stayed with Pennytel after the acquisition of Focus, and that those customers’ details were recorded on ACT!. It is also common ground that by logging in to ACT! (either initially by way of unique employee logins, or later, when only two logins were provided by Pennytel, one in the name of Mr Engelke and the other a generic company-wide login), employees, including the first and second defendants, had access to information which was confidential to Pennytel.

30    It is common ground that that information held in ACT! and Zoho is, subject to the carveouts in paragraph 10 of the Amended Defence, information which should not have been disclosed to third parties or competitors.

Issues for Determination

31    The plaintiff alleges that the first, second, and third defendants agreed to take, and misuse, the information to which the first and second defendants had access through their employment with Pennytel.

32    As noted above, the parties were asked to provide a list of agreed issues for determination, which formed the basis of the closing submissions. The agreed list of issues for determination is attached to these reasons, and has informed this judgment, although these reasons do not precisely reflect that structure.

33    The burden of proof lies on Pennytel to demonstrate that:

(a)    the confidential information was as pleaded and had the necessary quality of confidence; and

(b)    there was a scheme as pleaded; and/or

(c)    there was a breach of the employment agreements, or of duties under the Corporations Act.

34    I will deal first with questions of credit, the plaintiff’s claim of breaches of confidence and a scheme, and any breaches of the Corporations Act, and then with the issues arising out of the first and second defendants’ employment. As factual issues arise, I will deal with them in more detail.

Observations as to credit

35    There was a profound attack on the credit of each of the first, second, and third defendants by the plaintiff. Mr Zizic, who gave evidence for the plaintiff, was also tested as to the veracity of his evidence. I will deal with these matters generally in this section and, where necessary, specifically in relation to any relevant matters which arise.

36    I will approach credit findings for each of these witnesses with the benefit of the observations of Kunc J in Goulston v Bogasi Pty Ltd [2025] NSWSC 989 at [334] ff, where his Honour sets out the way in which proof is facilitated by oral evidence, citing Watson v Foxman (1995) 49 NSWLR 315 at 318-319, and the need for “actual persuasion” of the elements of a case, taking into account the nature of the cause of action or defence, the nature of the subject matter of the proceeding, and the gravity of the matters alleged (see also Warner v Hung, in the matter of Bellpac Pty Ltd (Receivers and Manager appointed) (In liquidation) (No 2) (2011) 297 ALR 56; [2011] FCA 1123 (Emmett J) at [48]), which elements are reflected in s 140(2) of the Evidence Act 1995 (Cth).

37    In Saravinovska v Saravinovski (No 6) [2016] NSWSC 964 at [467], Kunc J said that “evidence is to be preferred which is inherently probable in the circumstances” and, at [469], “where a witness has been found to be lying about one thing, that does not automatically mean they are to be disbelieved about everything else”.

38    In this matter, the allegations of breach of confidence and breach of contract are serious, and the need for “actual persuasion” requires more than merely the say-so of one or other of the witnesses for each side. I have been provided with a significant mass of documentation. As will be seen, some documents are not available because they were deleted by a defendant (notably Ms Chitas, but also Mr Engelke) and I am asked to make significant negative credit findings on the basis of “deliberate destruction of documents” (see Rosebanner Pty Ltd v Energy Australia [2009] NSWSC 43 at [454]-[455]). I am also asked to find that explanations given by the first, second, and third defendants are lies, and that I should infer from that finding that they are seeking to cover up the alleged scheme.

39    I have formed the view that none of the witnesses is a completely satisfactory witness, and will deal with each of them in turn.

Ante Zizic

40    Mr Zizic swore a number of affidavits and was cross-examined. Mr Zizic commenced as Pennytel’s CEO on 18 July 2022, after Mr Engelke had left. Mr Zizic had not been involved with the Pennytel group prior to that, and so much of his historical evidence is documentary or based on his inquiries, and he was only able to give direct evidence as to events after 18 July 2022. He gave evidence both from his personal involvement, particularly in early 2023, and from documents which, he said, supported the claims made in the ASOC. As will be seen, a number of those claims were later retreated from (in particular, and importantly, that Mr Engelke had accessed Octane after his employment with Pennytel had ended, that Mr Engelke had incorporated his company in May 2022, and that there were “no legitimate reasons” for Mr Engelke to be generating reports such as the ACT! report as part of his employment between his resignation and his leaving Pennytel’s employ).

41    The defendants submitted that Mr Zizic’s evidence was undermined by a number of misstatements and half-truths. For example, Mr Zizic gave evidence, in relation to the various customers who were witnesses for the defendants, that there was no evidence in Pennytel’s records of poor service or client unhappiness. However, the Court Book reflects that almost all of the customers who gave evidence had a number of issues over time and generally their problems were documented in Zoho. For example, Mr Zizic says that one customer, Eco Recyclers Pty Ltd, were late in paying an invoice and were advised that the account would be suspended if it were not paid. He said:

Other than that interaction the Zoho tickets do not confirm that there were any problems experienced by Eco Recyclers with Pennytel and Eco Recyclers Pty Ltd made no complaint prior to ceasing the contract for telecommunication services with Pennytel.

42    Ms Ward, the contact at Eco Recyclers, had said that she had had an argument with a Ms Young on 24 August 2022 who “told me to take my business elsewhere”. She then telephoned Ms Chitas “and she was able to resolve my billing issue … Sam was instrumental in keeping my business at Pennytel and was the only reason I stayed as a Pennytel customer”. Ms Ward later contacted Mr Engelke directly to do a small cabling job, and in October 2023 “reached out to SPN on the recommendation of Citracom, and since then have used SPN for all of EcoGroup’s business telecommunication services”. The company’s internet services remain at Pennytel.

43    The Zoho tickets confirm that Eco Recyclers did, indeed, have issues apart from the payment dispute. In March 2023 it had no internet and could not make calls, which was resolved; it was overcharged in late March 2023 for their Spirit services and given a credit; and in May 2023 it still had not been allocated an account manager after Ms Chitas’ departure. On 4 August 2023 it was “off air since 1.30” and a number of internal tickets were generated seeking to resolve the matter quickly. Service was restored by 6.10pm, but it was noted that “there is more than likely going to be a complaint from this customer regarding the downtime”.

44    On 18 May 2023 Ms Ward had an email discussion with Ms Dahna Fly, then her account manager at Pennytel, where Ms Fly said:

Hi Marina I have just spent time with my Manager expressing your concerns and disappointment in the way you feel that Eco has been treated by Pennytel. Again please accept my apologies on behalf of the company that you were spoken to like that. This is not how we treat our customers and it will be addressed.

45    Eco Recyclers ported their number after this incident.

46    Most of the other witnesses (to whose affidavits Mr Zizic was replying) had demonstrable concerns reflected in Pennytel documents. I do not accept Mr Zizic’s evidence on his contention that the customers called by the defendants did not have concerns with Pennytel’s service to them.

47    Mr Zizic and Pennytel clearly took a very dim view of Mr Engelke’s and Ms Chitas’ directorship of Citratel. On 11 January 2023, Mr Marra, a director and owner of Pennytel, wrote to Symbio noting that Citratel had set up a TIAB account through Symbio, and said that:

We believe that Customer databases of Pennytel & well as Spirit Technology where Nicholas Engelke now works, has now been downloaded. This will cause our company significant loses …

(as written)

48    On the basis of that belief, Mr Marra apparently informed Spirit that Mr Engelke had been involved in Citratel, which resulted in Mr Engleke’s dismissal from Spirit.

49    Pennytel took the matter seriously. It instructed lawyers, sought details from Symbio about Citratel’s activities (which Symbio declined to provide given confidentiality issues), sought undertakings from the first and second defendants, and commenced these proceedings promptly after becoming aware of Citratel, then SPN and its business. It is not surprising that its case evolved after discovery and expert evidence, but it is clear from the emphatic submissions that Pennytel’s view of the conduct of the defendants has never wavered. This is evident in the reliance by the plaintiff on the conduct of Ms Chitas in December 2021, well before the plaintiff contended that any scheme was in place. That reliance shows a desire to “hit” the defendants with any possible negative inferences that could be found.

50    Mr Zizic was however generally thoughtful and cautious in his cross-examination, but his evidence was not entirely satisfactory. When it was put to him that certain matters were not tenable, he often did not agree, appearing to stay “on script” (see, for example, his responses to cross-examination about whether a sinister inference should be drawn from Ms Chitas responding to customers during her long service leave, at T.118-20). Given the impression I have formed of his evidence – which often did not hold up to the facts, as noted above in relation to the customer complaints – I accept Mr Zizic’s evidence when there are corroborating documents, and where his evidence is inherently probable in the circumstances. I do not accept his characterisation of the conduct of Ms Chitas and Mr Engelke unless it is corroborated elsewhere.

Nicholas Engelke

51    Mr Engelke affirmed an affidavit, and was cross-examined. He was not a particularly impressive witness and tended to rely on statements of things he “would have” done instead of particular recollections. For example, there was a question of whether he deleted (“wiped”) his hard drive prior to returning it to Pennytel. In the Amended Defence he said that he had “restored [his] laptop to [its] original state before returning [it] to Pennytel” (at paragraph 77). In his affidavit he said that he had wiped it, on a direction from one of two other employees. Expert evidence shows that he did not take either step, instead, he deleted files from the laptop but some files remained in the recycle bin.

52    The robust submission of the plaintiff was that the assertion that he wiped his laptop was a lie told to cover his tracks, and demonstrative of his lack of credit, and that inferences should be drawn from his treatment of the documents on his Pennytel laptop. For the reasons set out below, I do not agree. However, some of his actions (including in relation to the Spirit customer details) are suspicious and do not assist his credit.

53    Mr Freeman, counsel for the plaintiff, set out in his written closing submissions a number of lines of cross-examination which he submitted did not show Mr Engelke in a good light, including whether he was aware of and could interpret the “four pillars report”, whether he knew what the Board considered at its meetings, his evidence on churn rate, and a throwaway remark about whether an executive of Pennytel had left or been fired. It was submitted that:

This is a witness who put himself forward as being able to interpret documents and report to those above him and yet in the context of these proceedings said that “there must have been” a confidentiality clause. The Court should have no confidence in his evidence.

and

This is … not the conduct of an honest person.

54    I agree that to some extent Mr Engelke was seeking to present his actions in the best light in the witness box, and I have to weigh his evidence against the inherent probability of events, and the onus on the plaintiff to prove serious misdeeds, including the formulation of a concerted scheme. I am assisted more by the documentation in this case and in some cases the lack of documentation (bearing in mind the submissions of the plaintiff as to how that lack of documentation should be viewed) in determining the facts of this case than I am assisted by Mr Engelke’s somewhat patchy recollections. Where Mr Engelke’s explanations are inherently probable I can accept them, such as his evidence of having a backup of his company laptop on his personal iCloud on the basis that “a long time ago [I] lost my entire computer’s content. So I backed everything up”.

Samantha Chitas

55    Ms Chitas was hampered in the witness box by some significant family losses around the time her employment was terminated, and had some emotional moments giving evidence as a consequence. She often noted that she could not recall matters, and her input into SPN management was, from her account, minimal. She, like Mr Engelke, appeared to ascribe motives or explanations to events which were not supported by the evidence. From paragraph [200] below, I deal with a conflict in the evidence about her intentions of leaving Pennytel in September or October 2023, and determine that matter against her.

56    She too had a sustained attack on her credit in terms such as the following:

Ms Chitas twice emailed clearly confidential customer lists to her sister and her personal email account. This speaks against her credit. No reasonable explanation as to why they were sent or what use was made of them has been forthcoming. When Ms Chitas was confronted with her behaviour she deliberately erased her hard disk in the face of an express warning not to do so and the obvious presumption that arises that the contents of her drive would have been against her. That was not the behaviour of an honest person.

(references omitted)

57    Clearly her evidence as to her actions from August 2022 when Citratel was set up, until July 2023 when she joined SPN, is crucial to the understanding of the relevant events. However, she was corroborated to some extent on important points by her sister’s evidence, and her explanations as to her sending or receiving the documents relied on by the plaintiff as evidence of a scheme were not unreasonable.

58    Again, as with other witnesses, her evidence is not of as much assistance to me as is the surrounding documentation and inferences to be drawn from her conduct and the objective circumstances.

Peter Horan

59    Mr Horan was somewhat testy in the witness box and sought on occasion to fend off questions with his own questions. However, I found him relatively impressive as a witness and I am able to accept his evidence generally, in particular that he had a conversation in mid-August 2022 with Ms Chitas and Mr Engelke about setting up a business, and then took steps with Mr Engelke to set that up. Again, there is an issue about a date, on which I take the view that Mr Horan was mistaken; I do not take from that the significant credit implications which are urged upon me by the plaintiff, or make negative findings in relation to what was alleged to be his questionable “business morality”.

The pleaded scheme between the first, second, and third defendants

60    The plaintiff alleges that there was an agreement between Mr Engelke, Ms Chitas, and Mr Horan entered into “by no later than 13 September 2022, alternatively, 19 October 2022” to set up a new business through a company, to undertake the same services as Pennytel, and to do so using the Confidential Information as defined in the ASOC.

61    The pleaded misuse of the Confidential Information is set out in paragraph 75 of the ASOC as follows:

In the premises of paragraphs 43-74 above, and by no later than 13 September 2022, alternatively, 19 October 2022, Engelke, Chitas and Horan entered into an agreement or understanding of or to the effect that:

(a)    they would set up a new business through a company of which they, or a company which they controlled, would be equal shareholders;

(b)    the new business would sell data and internet plans of NBN and enterprise internet fibre to residential and business customers being the same or substantially the same services marketed and sold by Pennytel and using the Symbio Services;

(c)    the new business would use the Confidential Information taken by Engelke and Chitas referred to at paragraphs 43, 47A,-47D, 49, 51, 55, 58, 60 and/or 72 above by contacting Customers of Pennytel who were at or the near the end of their contracts with Pennytel and offer them contracts with the new business at prices below that offered by Pennytel or on terms competitive with Pennytel;

(Scheme).

Particulars

Further particulars will be provided after discovery.

62    No further particulars to paragraph 75 were given.

63    Paragraphs 43-74, referred to in paragraph 75 of the ASOC, are dealt with in the section “Actions by the defendants relied upon by the plaintiff” which are set out in these reasons commencing at paragraph [70] below.

64    Pennytel alleges that, in order to hide their activities, each of Mr Engelke and Ms Chitas, on leaving Pennytel, deleted the contents of their laptops and phones, including data files and folders and, in Ms Chitas’ case, resetting the operating system by way of a system reset.

65    The plaintiff’s case relied on the fact that a portion of SPN’s business comprised “certain of Pennytel’s customers that were predominantly formerly Focus customers”. Those customers were 83 corporate or “higher yield” customers as analysed by Mr Nguyen, the plaintiff’s expert. The plaintiff alleges that each of the first to third defendants knew that they could only sign up customers of Pennytel by reason of the first and second defendants’ “taking and use of the Confidential Information”. The list of customers relied on by Pennytel are contained in Attachments “A” and “B” to the plaintiff’s closing submissions.

66    As at March 2022, Mr Engelke and Ms Chitas each had access to the ACT! CRM and the Zoho CRM as part of their employment. Each of them had, as part of their email signature, “New name, same great team. Focus Communications is now a part of the Pennytel family”. Despite the chirpiness of that email signature, Mr Engelke gave evidence that he regarded the culture at Pennytel as “toxic” and said it focused on profit rather than customers. Mr Engelke gave notice in April 2022 and was instructed to hand over to Jenny Yehson, who was taking over his role. Part of that handover was giving Ms Yehson his Octane login credentials, as her credentials were not then at a sufficient level to get the reports required for the role. Mr Engelke said he gave Ms Yehson his login credentials in early May 2022, as part of showing her the end of month reporting duties which included Octane reports.

67    The plaintiff alleges that in around March 2022, Mr Engelke and Ms Chitas took steps which were the commencement of the pleaded scheme, and that by no later than September or October 2022 there was an agreement or understanding as pleaded in paragraph 75 of the ASOC (see [61] above).

68    Mr Engelke said that he started exploring the idea of a new business in July 2022 and spoke to Mr Horan about this in August 2022. Mr Horan approached Ms Chitas around then. They denied that the new business idea was part of a scheme which relied on misusing Pennytel’s confidential information. The Amended Defence refers to this allegation as “scurrilous”.

69    The defendants contended that the steps taken prior to Ms Chitas leaving Pennytel (for example, making inquiries and later signing a Master Wholesale Agreement with TIAB, registering Citratel, registering corporate vehicles as shareholders for Citratel and later SPN, and registering SPN) were undertaken as “legitimate preparatory steps for the prospective operation of a business at a later date”. The plaintiff however characterises these steps as breaches of the first and second defendants’ employment agreements, of the implied duty of good faith, and (as to Ms Chitas) of the restraints imposed on her.

Actions by the defendants relied upon by the plaintiff

70    The plaintiff relied on a number of acts which are alleged to make up the basis of the scheme, (mainly but not entirely) as pleaded in the ASOC. Most of the acts pleaded are admitted by the defendants, but the Amended Defence pleads that they were not unlawful acts, did not make use of confidential information, or were legitimate preparatory steps taken to set up a business. This section sets out the actions asserted by Pennytel, by pleadings or by way of evidence, as making up the scheme.

The email forwarded to Ms Chitas’ sister

71    On 9 December 2021, Ms Chitas forwarded an email she had sent to “Lee” at Connexus Group (one of the businesses purchased by Pennytel) setting out a list of Pennytel customers with Octane accounts, which email attached a document titled MarginSummary_202111207-123908^M1100.xlsx (Margin Summary spreadsheet) to her sister, Ms Katie North, who worked at Telstra. While this action attracted a deal of attention during the hearing, it is not pleaded as one of the breaches of confidence alleged by the plaintiff. It was referred to in Mr Zizic’s affidavit of 12 March 2024 as being one of “some additional emails by which confidential information of Pennytel was provided to Mr Engelke and Ms Chitas” and Mr Zizic noted that Telstra was “a competitor of Pennytel”. Ms Chitas and Ms North (who gave evidence under her married name Cramp) each denied that this email had a sinister character. Ms Chitas said that she had forwarded the email to her sister for some professional advice on how to handle the situation arising in the email, and included the attachment inadvertently. Ms North said that she did not recall seeing the email, or opening the attachment.

72    The defendants point to the fact that this email or its attachment is not pleaded as part of the alleged scheme, and notes that the plaintiff does not suggest it was used. Pennytel relied on this email as a breach of the Confidential Information provisions of Ms Chitas’ employment agreement rather than as an element of the pleaded scheme.

The customer report

73    On 31 March 2022, Mr Engelke emailed Ms Chitas at her Pennytel email address an Excel spreadsheet containing details of all Pennytel’s customers (the customer report). The email said:

Hey,

I managed to merge 2 reports to show all customers in the old Focus partition with currently active services, there are some that didn’t match up so might still need to manually look them up but hopefully this will save some time.

74    The customer report is the first element pleaded in the section of the ASOC entitled Scheme between Engelke, Chitas and Horan to Set Up a Competing Business. Each of the first and second defendants says that this document well preceded their contemplation of establishing a new business.

75    The customer report contained all current Pennytel customer names, contact details, service type, and plan name of the service. Pennytel alleges that it was not part of Mr Engelke’s duties to create or send the customer report to Ms Chitas, other than for purposes of his employment, and points to the timing of the report creation, some six weeks prior to Mr Engelke leaving Pennytel. Pennytel likewise alleges that it was not a legitimate part of Ms Chitas’ role to access that report or use it other than for purposes of her employment. Mr Zizic noted that the customer report was collated by Mr Engelke using his access to Octane and that it provided “a complete view” of customer details. It covered, he said, all customers, not just Ms Chitas’ customers, and he could see no legitimate reason why Ms Chitas would need it, or why Mr Engelke would need to create it.

76    Mr Engelke said in his affidavit that he had sent the customer report to Ms Chitas so that she could review those customers and if necessary assign them to a new Pennytel sales account manager. Ms Chitas gave a similar explanation, saying that it was a legitimate part of her duties to ensure that Focus customers were assigned new sales account managers, and to request assistance from Mr Engelke to do so. They submitted that they were “simply doing their job(s)”, and the argument that the timing of the creation of the customer report was suspicious should not be accepted. The defendants contended that “Mr Engelke can hardly be criticised for doing his job up until his last day”.

77    In cross-examination, Mr Zizic was taken to some of the Zoho tickets where the account manager allocation process was being undertaken by Ms Fly, Mr Reid, and Ms Stevens (albeit in relation to a list created, possibly by Ms Fly, in September 2023). Mr Zizic was unwilling to admit that Ms Chitas may have undertaken the same exercise, but agreed that this was a task that was undertaken by other employees within Pennytel.

78    On 22 April 2022, Ms Chitas forwarded the customer report from her work email account to her personal email account. Again, this was not pleaded, but is dealt with in Mr Zizic’s second affidavit.

79    The defendants point to Ms Chitas’ explanation that she forwarded the report to her personal hotmail account because:

I just thought that I would have somewhere where I knew that it would be if I needed it, because there have been many occasions when I’ve asked for reports and then they’ve gone into the ether that is my inbox with thousands of emails and I can’t find them.

80    Ms Chitas was cross-examined on this, and it was suggested to her that she and Mr Engelke had already discussed setting up a new business “down the track”. She denied this. No such conversations are pleaded, and the ASOC pleads that the scheme was in existence “no later than 13 September 2022, alternatively, 19 October 2022”, without specifying a date on which the scheme commenced.

81    Pennytel further relied on this email as a breach of the Confidential Information provisions of each of Mr Engelke’s and Ms Chitas’ employment agreement.

ACT! screenshot and report

82    On 26 April 2022, Mr Engelke provided Ms Chitas with a screenshot of some information regarding a Pennytel customer. Mr Engelke forwarded that screenshot to his personal account. This was another action relied on which was not pleaded as part of the scheme, but was raised by Mr Zizic in his second affidavit. Mr Engelke’s explanation for this was that he was about to leave Pennytel, and he was of the view that he could action the client’s needs from Spirit, in order to best serve the interests of Pennytel and the customer. He was cross-examined about this, and in particular whether Ms Chitas could have provided those details once he started at Spirit. No particularly compelling explanation was provided, but it is noted that the customer remains with Pennytel.

83    In around April 2022, Mr Engelke generated a report from ACT! (ACT! report) which contained information concerning customers, including their names, contact details, IP addresses, login details for remote access to their systems, some driver licence numbers, and credit history. Pennytel alleges, and the defendants do not agree, that it was not a legitimate part of Mr Engelke’s role to create such a report. The report was downloaded onto his laptop on 27 April 2022. Mr Zizic confirmed in his second affidavit that the ACT! report contained “a lot of very sensitive information … and key relationship details.”

84    Mr Zizic said that he could not think of a legitimate business reason for Mr Engelke to download the report, given that he had already resigned, and the information was archival.

85    Pennytel says that ACT! was used for only historic or archival information after around 3 November 2021, and that ongoing customer information, including all new customer information, was then held on the Zoho platforms. However, Mr Engelke said that ACT! continued to be used after the Zoho platform came into use, and when Mr Engelke left Pennytel, only part of the information held in ACT! had been migrated to Zoho. Mr Brant, the former Operations Manager and then Head of Technology and Operations for Pennytel, said that he worked with Mr Engelke on the migration from ACT! to Zoho until it was complete in around January 2022, and that access to ACT! was cut off in May 2022, while Mr Engelke claimed that the ACT! to Zoho move was still being worked on in around April 2022. Mr Engelke submitted that accessing ACT! was part of his job. In support of this submission, he exhibited a photograph of his cat taken during a work-from-home day on 5 May 2022, the cat being the ostensible reason he was taking a photo that day. In the background of the photo was his computer which featured an email from a customer from NSW, and the ACT! database open in order to obtain a record for a technician based in NSW (information he says was not available in Zoho). Mr Brant said that if reports needed to be manipulated they would need to be downloaded from ACT! rather than from Zoho as that function was not available in Zoho. Mr Brant was not cross-examined.

86    Pennytel relied on Mr Engelke downloading the ACT! Report as giving rise to an inference that he was going to use its confidential information in breach of the Confidential Information provisions of his employment agreement. It further relied on the fact that the ACT! report would have been part of the upload to Mr Engelke’s iCloud, as detailed in the next section.

The iCloud Drive

87    The ASOC pleads that between 22 April 2022 and 6 May 2022 Mr Engelke created an iCloud folder on his laptop entitled “Pennytel and Focus (iCloud Drive)”, and backed up documents to that drive. Mr Engelke said the purpose of the folders “Pennytel” and “Focus” was to maintain personal records relating to his employment such as payslips, leave applications, correspondence relating to his role, and superannuation documents. He tendered a list of the current contents of the folder which indeed does reflect that the folder now contains such documents. He said he did not create an iCloud backup in April 2022, but had had one for some time, and the pleading relates only to the creation and backup of these particular folders. He denied that he backed up customer details of Pennytel and Focus customers for use in a competing business.

88    Mr Engelke denied that an automatic backup is “straight out theft” as alleged by the plaintiff, and instead said that it was a prudent cautionary process. He said that he deleted the files which were not relevant to his personal details as maintained in the Pennytel and Focus folders, and that once deleted, the backup process would have deleted them from the cloud. He was cross-examined on this point, which is dealt with further below.

89    The defendants point out that Mr Engelke resigned on 22 April 2022, and submitted that creating the folder on that day is not suspicious, but an understandable step given that he was leaving Pennytel and wished to keep his personal information when he did. He was not, it was pointed out, moving to a competitor, but to Spirit, which was a business friendly to Pennytel.

90    Pennytel relied on the creation of iCloud folders for Pennytel and Focus documents as a breach of the Confidential Information provisions of Mr Engelke’s employment agreement, and of the implied duty of good faith and fidelity.

Octane access on 2 and 3 May 2022

91    On 2 May 2022, Mr Engelke accessed Octane and downloaded a Customer Detail Report which included contact, and contract, details for all Pennytel customers on that platform, and a Detailed ConnectYou Hosted Voice Services Report which disclosed service numbers, provisioned dates, and plan names for all Pennytel customers on that platform. Mr Zizic noted that the Customer Detail Report disclosed contact details for every customer on the Pennytel Corporate partition of Octane.

92    At 12.23pm on 3 May 2022, Mr Engelke accessed Octane and downloaded a report disclosing details of disconnected customers. Mr Engelke’s explanation for the 2 and 3 May 2022 downloads were that they were part of his handover to Ms Yehson, his successor in his role. Neither party called Ms Yehson, although Mr Zizic was asked about this in his cross-examination and said that while he was aware there was a handover to Ms Yehson, he understood she had “no recollection of that time”. The defendants contended that if there were some dispute about the contents of the handover process, the plaintiff should have called Ms Yehson.

93    The defendants relied on Mr Engelke’s role at Pennytel requiring him to download the kinds of report pleaded; for example, he regularly accessed the Voice Services Report, which was part of the 2 May 2022 download, accessing it on five occasions in the last three months of 2021.

94    These activities are part of the pleaded case relating to the alleged scheme. Pennytel relied on this activity as a breach of the Confidential Information provisions of Mr Engelke’s employment agreement.

The Focus on Furniture email

95    On 3 May 2022, Mr Engelke contacted a customer of Pennytel, Focus on Furniture, by emailing “Pat and Chris” at a Focus on Furniture email address and copying the email to Ms Chitas, noting that he was leaving Pennytel, he was remaining in the telco industry “and will always have time for you both”, and confirming that they had his mobile phone number, “you are welcome to contact me if you ever need me.” Mr Zizic noted that Focus on Furniture ported their services away from Pennytel to SPN on 30 March 2023.

96    This email was pleaded in the ASOC but does not appear to have been relied upon by the time of closing submissions.

Mr Engelke’s employment finishes with Pennytel

97    Mr Engelke left Pennytel on 6 May 2022. He left to work with Spirit, which as noted above was an installation company that supplied services to Pennytel. He says he spent part of his last day deleting Pennytel files from the iCloud storage account. This is confirmed by Mr Le, the IT expert called by the plaintiff, who recorded a “bulk deletion” of files from Mr Engelke’s Pennytel laptop on 5 May 2022 at around 1.40pm.

98    At Spirit, Mr Engelke was the account manager for Pennytel.

Octane downloads on 7 and 25 May 2022

99    The plaintiff pleads that on 7 May 2022, at 7.37 am, the Octane platform was accessed under Mr Engelke’s login details, and a Customer Product Report was downloaded. The defendants deny that this was done by Mr Engelke, and the Amended Defence pleads that other employees had access to his login details. Mr Zizic says that this report disclosed the prices charged to all customers within the Pennytel Corporate partition of Octane for all the services they had with Pennytel. Similarly, it is pleaded that a login on 25 May 2022 at 1.47pm, downloading a Margin Summary Report which recorded the Pennytel billing and the margin made by Pennytel on each customer’s account, was an access by Mr Engelke. Each of these was denied. The plaintiff originally relied on each of these matters as evidence of the taking of confidential information by Mr Engelke.

100    However, material subpoenaed from VPN Solutions (the subject of the decision Pennytel Australia Pty Limited v Engelke, in the matter of Pennytel Australia Pty Limited (Objection to Subpoena) [2024] FCA 1441) established that Mr Engelke was not the person who accessed Octane on 7 May 2022 or 25 May 2022, and these allegations are no longer relied upon in the plaintiff’s closing submissions.

The Mesh customer email

101    On 23 May 2022, Ms Chitas emailed Mr Engelke, who was then working at Spirit, a list of Mesh customers of Spirit (the Mesh customer email) which included customer names, contact details, service provided, and contract information. (The Mesh customer email is incorrectly pleaded in paragraph 61 of the ASOC as being sent by Mr Engelke to Ms Chitas). Mesh was a company that had recently been acquired by Pennytel. The Mesh customer email attaches the spreadsheet of “Mesh Spirit” customers and reads “Here you go ”. The plaintiff noted that there was no explanation of why the list was sent, and relied on Mr Engelke’s cross-examination to the effect that he could have looked up that information himself in the Spirit databases, and he did not need all the information on the list.

102    Ms Chitas’ explanation was that she sent the Mesh customer email “to see what Spirit could do for us”, and that the point was for those customers to be contracted with Pennytel rather than Mesh.

103    Mr Engelke says that this was in the course of his duties as a manager at Spirit. He said that he was sent the same list at around the same time by two other Pennytel employees, in order for those customers to be properly managed by Pennytel and Spirit. Mr Engelke said he did not keep that list, because it was on his Spirit computer and would have been returned. Mr Engelke agreed that it was a confidential document of Pennytel, but had been properly sent to him by Ms Chitas (and other Pennytel employees), and that he had not placed it in his iCloud drive.

104    Pennytel relied on this as an “example of Mr Engelke’s disregard for confidentiality” and characterised Ms Chitas’ reason for sending it as “ridiculous”. The defendants counter this by claiming it is an example of the two defendants “doing their jobs for their respective employers”.

105    Additionally, the defendants submitted – on the basis of Ms Chitas’ evidence – that none of the customers on the list have moved to SPN. It does not appear from the closing submissions that the Mesh customer email is relied upon other than the submission that “they were customers to whom SPN could have marketed their services”.

The discussions with Ms McCann of Symbio and TIAB applications

106    In late July 2022, Mr Engelke and Ms McCann of Symbio had discussions, orally and by email, about Mr Engelke setting up a new company to enter into a Master Wholesale Agreement with TIAB. The Amended Defence categorises this as being not unlawful, and in the course of legitimate preparation for a new business.

107    The plaintiff relied on the documents at Tab 87 of the Court Book, which is an email thread commencing with Mr Engelke sending a request to Ms McCann on 27 July 2022 for “the info you have” from his personal email, rather than his work email address (which would have been a Spirit email at that time). Ms McCann asked him to sign an NDA (non-disclosure agreement) which Mr Engelke asked to sign in his personal name, as “I don’t have a company name registered just yet!”. On 12 August 2022 he emailed Ms McCann saying:

Things are starting to progress a bit here, I have a business partner lined up and we are making progress in getting set up!

When you get a chance could you send over the price book, I’ve been working off the Pennytel Corporate prices but want to make sure I’m using the most recent figures.

I’m hoping to have a company registered and signed up with you guys by the end of October, I have a couple of weeks leave coming up which will delay us a bit!

108    Ms McCann sent prices later that day, noting that it was “probably a lot higher than Pennytel”, to which Mr Engelke said the Pennytel prices were about “$1 or $2 cheaper” and asked if they could reduce them “depending on volume?”.

109    Mr Engelke said that he knew the prices really well, but did not have the TIAB price book which is where the “Pennytel corporate prices” would be found. He said that he kept his response about Pennytel’s prices “purposely vague, so she would give [him] the best pricing”.

110    On 23 August 2022, Mr Engelke noted that he was “still working out the finer details of the company”, and in November he returned the forms noting that “we haven’t started trading yet”. In January 2023 Mr Engelke contacted Ms McCann asking “what the next steps are and when I’ll be able to start setting up rate plans etc?”. Ms McCann replied, “There has been a bit of a delay with the holiday period/office closure but let me chase this up for you and get an update”.

111    The plaintiff relied on this exchange as part of the factual basis of the scheme, along with Citratel’s TIAB sub-wholesaler form dated 14 November 2022 (signed by Mr Engelke) and the novation of that form to SPN dated 20 January 2023 (signed by Mr Horan). It contended that the email and the applications were “only consistent” with the scheme, and that they establish Mr Engelke’s “dishonest dealing with Pennytel’s confidential information”. It notes that the TIAB wholesale prices were downloaded, including the April 22 version 1.2 (being the wholesale prices charged by Pennytel) on Mr Engelke’s Pennytel laptop. However, it appears from Mr Le’s report that this TIAB price book was deleted from the laptop on 5 May 2022. Deletion from the laptop folder would have resulted in deletion from the iCloud folder the next time the folder was synced.

112    The defendants submitted that there is no use of any confidential information in the emails or the TIAB applications, and refer to Mr Engelke’s extensive experience within the telecommunications field. They characterise this as legitimate business planning, and not a misuse of confidential information.

The “little bit naughty” email exchange

113    On 28 July 2022, at 5.26pm, Mr Engelke sent an email to Ms Chitas which recorded contract details of two Spirit customers. That email said, in part:

Hey Sam,

So it turns out I am able to see the pricing on the PDF bill, which is a little bit naughty, but I’ve attached it here anyway …

Ms Chitas replied at 5.33pm:

    It is a bit naughty but it is awsesome

    (as written)

114    Mr Zizic characterised this email exchange as “unethical”. The closing submissions make the point that Mr Engelke and Ms Chitas were prepared to show disrespect for the client in unmasking the pricing.

115    The plaintiff alleged that Ms Chitas was “not authorised” to receive those customer details. It is alleged in the Amended Defence that the email was sent at Ms Chitas’ request for pricing in the course of Mr Engelke’s employment at Spirit, and of Ms Chitas’ at Pennytel. The “naughty” comments were in relation to being able to see what the customer had redacted, and the defendants say that the information revealed was not confidential.

116    This email is pleaded as part of the scheme, and also as evidence of Mr Engelke discussing pricing and customers with Ms Chitas, and of Mr Engelke’s “disregard for confidentiality”.

117    The defendants take issue with whether this had been a breach of Pennytel’s confidence, given that Mr Engelke was then employed by Spirit, and point out that Mr Zizic believed that the relevant client remained with Pennytel. The defendants characterised Mr Zizic’s concern about this email and the ethical issues surrounding it as being “mock outrage”. Mr Engelke’s email noted that “looks like they are paying a fortune for their EE services, hopefully they are out of contract and you can save them a lot!” and the defendants submitted that this demonstrated that, far from being part of the pleaded scheme, it was part of their work for their employers.

118    The customer in the “little bit naughty” email is not one of the customers which ported to SPN.

Spirit customer details

119    On 1 August 2022, a Spirit employee sent an email to all Spirit staff attaching a list of clients who would no longer be serviced by Spirit as of 31 August 2022, as Spirit was “focusing on higher yield accounts and those with strong potential growth prospects”. On 8 August 2022:

(a)    Mr Engelke forwarded this list to his private email address; and then

(b)    forwarded that email to Mr Horan and cc’d Ms Chitas.

120    The email from Mr Engelke read:

Hi guys,

See below list, there’s no contact details with it but most of these were managed IT customers that spirit are no longer supporting.

121    The plaintiff relied heavily on the forwarding of the Spirit email to Mr Engelke’s personal address and what it says is the weakness of his explanation (that he had Mr Horan’s email on his iCloud account). The plaintiff points to Mr Engelke having Mr Horan’s email address since his time at Focus (as demonstrated by an email to Mr Horan cc’d to Ms Chitas on an unrelated topic), and contended that sending the list to his personal email address was indicative of a consciousness of guilt. The plaintiff also relied on the fact that the email was sent about one week after he had first contacted Ms McCann.

122    The Amended Defence alleged that this was for the benefit of Pennytel, and was sent to Ms Chitas at Pennytel and Mr Horan at Citracom to assist Pennytel in looking after the interest of its customers.

123    The evidence discloses that Mr Horan used the Spirit list to Google the names of the customers on it, and could not have done so without the list having been sent to him. He was robustly cross-examined about the business ethics of this practice, particularly in the light of the persons on the list not having given consent to their details being provided to him. Mr Horan said he obtained two clients for Citratel from that list, and neither of them became an SPN client. There is no allegation that any of them did in fact become clients of SPN.

Mr Horan approaches Mr Engelke and Ms Chitas

124    Mr Horan says that he first approached each of Mr Engelke and Ms Chitas in August 2022, and had his first meeting with them on 13 August 2022. Mr Horan said he had discussions with Mr Engelke before “Ms Chitas came in”. The email from Mr Engelke to Ms McCann on 12 August 2022 corroborates this (see [107] above).

125    On 13 September 2022, Ms Chitas’ sister, Ms North, sent an email to a law firm seeking advice as to a family trust for Ms Chitas. 13 September 2022 is the earlier date by which the plaintiff says that the scheme had been entered into. The Amended Defence invoked client legal privilege in relation to this email, but no ongoing objection was apparently maintained, and in any event it was pleaded that seeking to set up an entity such as a family trust was a legitimate step in preparation for a new business.

126    Ms Chitas said that she had no firm plans to leave Pennytel around the time this email was sent, and had not decided to leave Pennytel by the time Citratel had started up. However, she noted that she was at a “crossroads” in her life by 13 September 2022, and had become less satisfied with her work at Pennytel.

The first, second and third defendants establish Citratel

127    On 21 September 2022, Ms Chitas had a conversation with Mr Kucenko of PBX Installs, who provided her with their price list and capability statement. Ms Chitas replied the next day saying “Will pass on your details to our sales guys however also have a few IT companies that would be interested and a friend who is starting a business that will be very interested.” Ms Chitas agreed in cross-examination that this was a reference to Mr Engelke.

128    The plaintiff alleged that on 5 May 2022, Mr Engelke registered NMWC. The defendants deny this and say it was registered on 5 October 2022, a position reflected by the ASIC records.

129    Ms Chitas’ company, Overmasters, was registered on 11 October 2022 and Citratel was registered on 19 October 2022. The first meeting of the Citratel Board of Directors (comprised of Mr Horan) was held on 20 October 2022. Mr Zizic says about Citratel’s registration and the request by Ms Chitas’ sister regarding the proposed family trust:

Given what I now know about this trust and its corporate trustee, it is clear to me that at this time Ms Chitas was setting up her interest in the entity known as Citratel Pty Ltd, which then went on to establish a telecommunications service provider account with Symbio Holdings.

130    The plaintiff alleged that Citratel commenced trading after 19 October 2022, selling data and internet plans of NBN and enterprise internet fibre to residential and business customers, using “the same or substantially the same services marketed and sold by Pennytel and by using Symbio Services”. It is pleaded that Citratel was undertaking canvassing of customers whose contracts with Pennytel were expired or nearly expired, and that information had been sourced from the Confidential Information, as defined in the ASOC. The defence to this allegation is that Citratel did not commence trading, in October 2022 or at any other time, and its incorporation was “no more than a legitimate preparatory step for the prospective operation of a business at a later date and there was nothing unlawful about doing so”. There is no evidence that Citratel ever traded, although various steps were indeed taken to set it up as a trading entity. Equally there is no evidence that Citratel was canvassing Pennytel customers.

131    On 14 November 2022, Mr Engelke signed a TIAB sub-wholesaler application, on behalf of Citratel. In that application it was noted that Citratel was owned by Mr Horan and Mr Engelke, and that it had an existing base of customers (which the defendants say was a reference to Mr Horan’s company Citracom, rather than to Pennytel customers), and that the customers of Citracom were likely to become customers of Citratel when that business was established. On or around 3 December 2022, the Master Wholesaler Agreement was signed by Mr Engelke as a director of Citratel for TIAB to provide wholesale services to Citratel.

132    On 30 December 2022, Ms Chitas took long service leave from Pennytel, and planned to return to work on 20 February 2023. She accessed Zoho and other applications during her leave, which applications recorded customer data. It is alleged that this was not part of her duties and she was not authorised to do so “for the purposes of obtaining Customer details to use in a competing business”. In response, Ms Chitas says that her accessing the applications was in the course of undertaking her Pennytel work, when she was contacted by Pennytel employees or customers directly.

Pennytel becomes aware of Citratel

133    Around 11 January 2023, Mr Zizic became aware of the incorporation of Citratel, having been informed by Mr Marra. Mr Zizic became so aware from an email from Mr Marra to Symbio executives, in which Mr Marra asked them to cancel Ms Chitas’ access to the Pennytel partition in Octane. Symbio did so, and provided access logs to Octane. Those access logs showed:

(a)    access by Ms Chitas on 9 January 2023 while she was on long service leave. Mr Zizic’s evidence records by way of those logs that she accessed the following applications:

(i)    CRM;

(ii)    Desk;

(iii)    Creator;

(iv)    Analytics; and

(v)    Sign.

Each of these applications is customers specific.

and

(b)    access by Mr Engelke on 2, 3, and 7 May 2022 (as set out above).

134    On 12 January 2023, Ms Chitas was sent a letter by Pennytel’s lawyers asking her to explain the purpose of her involvement with Citratel and advising that her remote access to Pennytel was suspended. She responded through lawyers, saying that Citratel had not traded, and that it had not entered to any agreements. Her lawyers also asserted that Ms Chitas had “not approached nor referred any Pennytel customers to Citratel”.

135    On 16 January 2023, Ms Fly wrote to one of Ms Chitas’ clients to say that “Sam is no longer at Pennytel”. The client responded, “I’m sorry to hear Sam is no longer with Pennytel, such a wonderful account manager”. The client then forwarded the email thread to Ms Chitas who, it seems, told the client she had not been dismissed.

136    On 16 January 2023, Mr Marra wrote to Mr Krslovic and Mr Zizic to say that:

Just got a call from Spirit. Nick was escorted off premises by security on Friday night.

137    On 17 January 2023, Pennytel’s solicitor wrote once more to Ms Chitas’ solicitors to reiterate the questions as to why Ms Chitas had become a director of Citratel, and to ask “why was your client in contact with customers, Mr Engelke and Mr Horan while on long service leave, when she is not working”. It directed her to show cause why “her employment should not be terminated summarily for serious and wilful misconduct.” On 19 January 2023, Pennytel’s solicitors sent a further letter which indicated that Pennytel regarded the incident with the client outlined above as breaching a direction “not to contact employees of our client as directed in our letter of 12 January 2023”.

138    I pause here to note that Ms Chitas’ out of office email read as follows:

I am currently on extended leave however will have intermittent access to my email as of the 9/01. If you have any urgent system or network issues, please call support on [1300 number and email for Pennytel].

For anything else, I will respond within 48 hours

139    On 19 January 2023, Ms Chitas’ lawyers replied reiterating that she had not approached or referred any Pennytel customers to Citratel. Some further correspondence in the same vein ensued.

140    Ms Chitas resigned from Pennytel on Sunday 22 January 2022 by letter from her lawyer. The following day, Pennytel’s lawyers accepted her resignation, and directed Ms Chitas:

to immediately return to Pennytel all of its property including the laptop, mobile phone and Yealink desk phone and all company documents, including but not limited to documents containing confidential information as that term is defined in her Employment Agreement (Confidential Information).

141    The 23 January 2022 letter from Pennytel’s lawyers reminded Ms Chitas of her obligations under the Employment Agreement dated 23 July 2021 as to post-employment restraints and confidentiality obligations. In relation to confidentiality, the lawyers for Pennytel sought an undertaking on 12 January 2023 (which was refused by Ms Chitas’ lawyers):

In relation to Confidential Information Ms Chitas must:

(a)    not access, use, or disclose any of the Confidential Information in her possession (including by making any further copies of any Confidential Information); and

(b)    not delete, until advised by Pennytel, any Confidential Information from any device, physical storage medium, or cloud-based storage service in or on which the Confidential Information is presently held. In the event that there is any deletion of any Confidential Information by her, Pennytel reserves the right to rely upon that deletion in support an inference that she intends, unless restrained by an order of the Court, to further infringe Pennytel’s rights in relation to the Confidential Information.

142    The letter went on to threaten court proceedings were Ms Chitas to refuse to provide an undertaking or the confidential material requested in the letter. Annexure B sought an undertaking that:

3.    I have returned all hard copies of all Confidential Information (as that term is defined in the Employment Agreement) (Confidential Information) in my possession and control to Pennytel.

4.    I have permanently destroyed (such that it cannot be retrieved or reconstructed) all electronic copies of all Confidential Information in my possession or control after I advised Pennytel of what those documents are and been directed to destroy them.

5.    I have not directly or indirectly sent, disclosed or given to any third party the Confidential Information or copies or details of any other Confidential Information.

143    In Ms Chitas’ lawyers’ reply to this letter, Pennytel’s property was noted as being able to be collected or delivered. It said that she had not misled Pennytel (as alleged), and that she was aware of her post-employment obligations whilst not making admissions as to their enforceability, and would not be providing the requested declarations.

144    On 24 January 2023, at the time that Pennytel was corresponding with Ms Chitas about her involvement with Citratel, lawyers for Pennytel wrote to Mr Engelke, noting his role as a director of Citratel. That letter cited the 2, 3, and 7 May downloads from Octane, and the list of Mesh customers sent to him on 23 May 2022. It reminded him of his obligations of confidentiality and sought, as it did with Ms Chitas, an undertaking and a statutory declaration as to his use or otherwise of Pennytel confidential information. Mr Engelke did not reply.

145    A letter was sent on 27 January 2023 to the directors of Citratel and their lawyers, putting Citratel on notice of Ms Chitas’ post-employment obligations being those under the employment contract, and each of Ms Chitas’ and Mr Engelke’s confidentiality obligations and statutory obligations under the Corporations Act. Citratel resolved that it be wound up voluntarily on 30 January 2023.

Mr Horan incorporates SPN

146    Mr Horan arranged for the registration of SPN on 16 January 2023, the day after Mr Engelke was dismissed. He set up a website spnco.com.au, and executed a novation agreement of the TIAB wholesaler agreements with Citratel to SPN. The novation application described the intent of the new business:

The brand will be working closely with our sister company that looks after IT service for an existing customer base of small and medium businesses.

and for the new company’s “value proposition”:

Our target market love us for our excellent customer support and often complain of difficulties in getting any support from their current providers, this will be our differentiator in the market and the main reason for customers to come on board with us.

Mr Horan said in cross-examination that “their current providers” encompassed a reference to Telstra and Optus, not just Pennytel.

147    SPN began trading in February 2023. Around then, Mr Zizic was informed by Mr Marra of a conversation Mr Marra had with Mr Cleaver of Symbio, during which Mr Horan asked Symbio to transfer their account from Citratel to SPN, and that Symbio had approved the transfer.

148    Neither Ms Chitas nor Mr Engelke was working for Pennytel at this point. Mr Engelke worked for SPN from the inception of its business, and Ms Chitas from July 2023. Neither of them was a director or shareholder of SPN (the shares being held by Jeop). They had not, as at the time of the hearing, become directors or shareholders of Jeop.

Pennytel customers who ported to SPN

149    The plaintiff relied on the list of former customers of Pennytel who ported their services to SPN. The first iteration was a list of 30 names attached to Mr Zizic’s first affidavit. As at the close of submissions, the plaintiff pointed to some 121 former customers porting to SPN, but limited its case to the 83 customers the subject of Mr Nguyen’s expert report. Tab 268 of the Court Book was a list of customers that were ported from Pennytel to SPN, produced by way of discovery and which formed the basis of the eventual list in Attachment B to the plaintiff’s closing submissions. The majority of the customers on that list have an “origin” marking of “Focus customer” and the period of time that they were customers of Focus and then Pennytel is around 10 years, or even up to 20 years.

150    The plaintiff relied on this list to demonstrate that the customers who came across to SPN from Pennytel (having taken over Focus), was evidence of a “miraculous” level of signing-up of former Pennytel customers. Attachment B sets out those 83 customers in date order, noting that five customers ported from Pennytel to SPN in February 2023 (although the first of those was Citracom, Mr Horan’s company).

151    By the end of April 2023, some 26 customers of Pennytel had gone to SPN. Six of those customers gave evidence in the proceedings, explaining their reasons for moving to SPN. These were:

(a)    David Gibbs and Associates (noted in Attachment B as “Focus customer for over 15 years”). Mr Gibbs is a lawyer who acted for Ms Chitas and Mr Engelke in their employment issues with Pennytel, and then for the first to fifth defendants in these proceedings, from early 2023 until April 2023. In around February 2023 Mr Gibbs decided to move his businesses’ phone services to SPN, due to his loyalty to Mr Engelke and his contentment with his services, and his annoyance with Pennytel unilaterally raising prices and not responding to his concerns about those charges. Mr Gibbs was not cross-examined.

(b)    Turnkey Building Group Pty Ltd (noted in Attachment B as “Focus customer for approx 5 years / Nick family”). Mr Wilson, a director of Turnkey, gave evidence that he had issues with Pennytel providing service in around May 2023 and he sought to call Mr Engelke on his mobile. He “knew either through Nick or from a mutual friend of ours that Nick was … working … for SPN”. He said that he suggested to Mr Engelke that he bring the Turnkey business to SPN “as he had always been responsive”. In the email in which he sought to join with SPN, he said, “Looking forward to a better experience following the horrors of recent months with Pennytel”. Mr Wilson was not cross-examined.

(c)    Downeys Group Australia (noted in Attachment B as “Focus customer for over 10 years / referred by Nick / Friend”). Ms Downey gave evidence that she was the manager of Downeys Group and was a family friend of Mr Engelke, and joined as a customer of Focus because he worked there, and then remained as a customer of Pennytel. When she and her husband, the sole director of Downeys Group, had troubles with Pennytel’s service in early 2023, they decided to move their business and personal telecommunications services to SPN so Nick could look after it. She said the “sole” reason was her unhappiness with the customer service at Pennytel, and wasn’t concerned about pricing, because “Nick did a great job”. In her email to Mr Engelke when she provided her invoice, she said, “We have moved some of the mobiles to Telstra as we were having issues with coverage”. Ms Downey was cross-examined.

(d)    Eco Recyclers, also referred to as EcoGroup, (noted in Attachment B as “Focus customer for over 15 years / referred by Nick / Friend”). I deal with some of the evidence of Eco Recycler’s relationship with Pennytel in paragraphs [41] to [45] above. Ms Ward, General Manager, gave evidence that she was referred to Focus by Telstra in 2008 and Ms Chitas was her account manager. The Eco Recyclers business moved with Ms Chitas to Futuretel in 2013, and then back to Focus when Ms Chitas returned there. Ms Ward gave evidence of a dispute with Pennytel about billing in August 2022, where Ms Chitas was able to assist, and Eco Recyclers renewed their internet services with Pennytel in October 2022 (and those services remain at Pennytel). Ms Ward contacted Mr Engelke in March 2023, having used his services at both Focus and Pennytel, and then in October 2023 she “reached out to SPN on the recommendation of Citracom” and has been a telecommunications customer of SPN since. Her email to Mr Engelke of 16 March 2023 is attached to Mr Horan’s second affidavit. Ms Ward was not cross-examined.

(e)    Tarzula Pty Ltd (noted in Attachment B as “Focus customer for approx 10 years / Nick Friend”). The business had had its telecommunications services with Focus and then with Pennytel. Mr Finch, the managing director, knew Mr Engelke through setting up the original Focus systems and knew Mr Engelke’s then boss (who was the reason for him going to Focus in the first place). In March 2023, he had an issue with his NBN service and he telephoned Mr Engelke; Mr Engelke said he was no longer with Pennytel but with SPN. Around this time Mr Finch was dissatisfied with Pennytel’s late fees on his account, and in March 2023 he contacted Mr Engelke to move both his business and his family’s personal internet services to SPN because of the late payment fees and Pennytel’s attitude towards maintaining them. Mr Finch was not cross-examined.

(f)    CLP Law Pty Ltd (noted in Attachment B as “Focus customer for approx 10 years / Referred by Sam / Friend”). Ms Campbell, the Legal Practice Manager, gave an affidavit to the effect that her sister, the principal lawyer of the practice, was at university with Ms Chitas and that they were friends. They stayed with Pennytel when it acquired Focus “as Sam was to remain as our Account Manager”. Mr Engelke was their primary technical contact at Pennytel. In around March 2023 she contacted Pennytel’s customer service to seek assistance, did not receive it, and was frustrated by the “lack of support”. She texted Mr Engelke to see if he could fix the issue and he told her he was now working for SPN. Ms Campbell then asked Mr Engelke to move the firm from Pennytel to SPN. Ms Campbell was not cross-examined.

152    Ms Hulse of Floors by Greensborough (no 33 in Attachment B) was cross-examined. Ms Hulse said that she contacted Mr Engelke in mid-2023, possibly around June, and asked him where he had gone; he told her he had gone to SPN and she asked him to send her a proposal. It appears from the email attached to Mr Horan’s second affidavit that the initial contact was in late March 2023. Ms Hulse was later telephoned by Pennytel seeking information as to why she had withdrawn her company’s business. The transcript of the phone call is in the Court Book and Ms Hulse gave the Pennytel representative (Adam) some reasons for her move, including dissatisfaction with diversion charges to which the suggested solution was purchasing a new system. Ms Hulse was asked where her business was going, and who at SPN she was dealing with. She said “I couldn’t even tell you”. She explained not mentioning Mr Engelke by reason of her being at work at the time and being confused as to why Pennytel was following up. Ms Hulse said that at no time did Mr Engelke tell her that he could “beat Pennytel’s pricing”.

153    Mr Elliot, of Yellow Brick Road Finance Pty Ltd, a former Focus customer (no 78 in Attachment B), said that he approached SPN through Mr Horan, because “I always ring Peter about my computer stuff”. He denied that Mr Horan had said that he could beat Pennytel’s prices, and Mr Elliot said he understood that the price would be about the same, and he trusted Mr Horan. Mr Elliot was cross-examined.

154    Similar evidence as to the reasons for leaving Pennytel was given by Ms Sullivan of ASI Electrics (no 44 in Attachment B), and Mr Wright of Woottons Chartered Accountants (no 30 in Attachment B).

155    Only twelve of the companies in the client list at Tab 268 which formed the basis for Attachment B were referrals from Citracom.

Inferences relied on by the plaintiff

156    The plaintiff noted that there were no explanations from any of the other customers who ported to SPN, and submitted that it could be inferred that “the setting up of the business utilised Pennytel’s confidential customer details”. In particular,

the confidential customer details (names, pricing, profit and margins) were taken by Mr Engelke (who uploaded the contents of his laptop to his personal cloud in the days before he left Pennytel) and Ms Chitas who emailed customer records to her sister and to her private email with the same information.

(CB references removed).

157    The plaintiff’s submission as to the inference that should be drawn from the defendants only calling a limited number of customers to explain their move was:

The reasons for the 9 customers coming over are irrelevant because (a) if it was not for the Scheme, they would not have been customers of SPN in the first place and (b) the remaining 113 are unexplained.

158    In addition to the actions set out above, and the failure of the defendants to call any other customers, the plaintiff said that the Court should draw inferences adverse to the defendants from the following:

(a)    Ms Chitas resetting her laptop and thus removing the contents after being warned in writing not to do so;

(b)    Mr Engelke uploading “the contents of his work laptop to his personal cloud”;

(c)    the setting up of a competing business after “taking the confidential information”;

(d)    SPN using the same suppliers as Pennytel;

(e)    the “sequence and temporal proximity” of the acquisition of customers from Pennytel, and the speed of attaining a viable business within months of commencement; and

(f)    the fact that the customers who joined SPN were “higher yield corporate customers”.

159    The question of these inferences, and how they can be relied on by the plaintiff, are dealt with further below.

What was the confidential information?

160    In the Amended Defence, the defendants admitted that Pennytel possessed confidential information but did not admit that employees’ “know-how” was confidential to Pennytel. They further took issue with the claim that some of the information including “information … regarding the affairs of Customers of Pennytel” was confidential, as it may have been “within the public realm”. Paragraph 10 of the Amended Defence said that the pleading of the Confidential Information is “vague and imprecise”.

161    The plaintiff submitted that paragraph 10 of the ASOC “focuses in on customer names and contact details, the terms on which the customers acquired services (including start and end dates of contracts), sales and pricing”, and conducted its case on that basis.

162    Mr Zizic, in his first affidavit, set out some aspects of information which he considered to be confidential to Pennytel. They included:

(a)    details of customers’ identities and the length of their contracts;

(b)    the terms and prices on which Symbio provides products and services to Pennytel; and

(c)    details held in the Octane database, which provides around 95% of Pennytel’s products sold to customers. Most of those who are not enabled by Symbio (for example, customers with internet fibre connections through Spirit) are still billed though Octane. Octane holds therefore most of the financial information for Pennytel relating to revenues, buy prices, and margins.

163    Mr Zizic said that he would have regarded an employee accessing Octane for any reason other than in the course of their employment would have been immediately dismissed – a proposition Mr Engelke agreed was “fair”.

164    Mr Engelke had the top level of access to Octane, and Ms Chitas had access to the Group Financial level (the second highest) and Group (the default role for all users). At all user access levels of Octane, the operator can see the customer’s name, contact details, their type of contract or service, the rates they would pay for those services, and the date of the contract expiry.

165    Mr Zizic explained that Zoho Desk was a customer support ticket workflow management application and that it uses data feeds from Octane.

166    Accordingly, each of Mr Engelke and Ms Chitas had access to Zoho CRM and Desk. Between those two applications, the whole of the relationship a customer had with Pennytel was available. The Zoho data captures details of logins, but only for 90 days (and 60 days of audit logs). Accordingly, Mr Zizic said, he was only able to view the access history of the first and second defendants back to January 2023, which showed that Ms Chitas was accessing Zoho CRM and Desk while on long service leave. Mr Engelke’s history with Zoho had expired.

167    As noted above, the pleading as to Pennytel’s confidential information was said to be vague and imprecise. However, I regard the plaintiff’s summation of the information over which it sought protection, being “customer names and contract details, the terms on which the customers acquired services (including start and end dates of contracts), sales and pricing” as reflective of the pleading and of Mr Zizic’s evidence. The first element of the equitable claim for breach of confidence is that the plaintiff “must be able to identify with specificity, and not merely in global terms, that which is said to be the information in question” having the necessary quality of confidence (see Corrs Pavey Whiting & Byrne v Collector of Customers (Vic) (1987) 14 FCR 434 at 443 (Gummow J)).

168    In a sense the complaint about the pleading is not determinative, as there was no real dispute that the customer names and contract details, including start and end dates, was information which was confidential to Pennytel, nor that the first and second defendants had access to it.

169    There was however a dispute over whether “pricing” was confidential. Pennytel submitted that “customer details and pricing” were not known outside the business, and that customer and pricing details sit on Octane and ACT!, and cannot be duplicated without copying it. That submission may be true for customer details, but is probably less true for pricing. The defendants submitted that Mr Engelke’s knowledge of pricing was

like a greengrocer knowing the wholesale price of apples, or a car dealer knowing the list price of vehicles – the pricing might not be known by the person in the street, but knowing what the ‘going rate’ is does not mean that confidential information belonging to an employer has been misused.

170    Mr Engelke was asked in cross-examination to agree about his understanding of confidential matters. He was asked the following questions:

MR FREEMAN: ... just say when you were at Pennytel, did you consider that the name and address of a Pennytel customer was confidential, meaning that you were not entitled to disclose it to somebody outside the company?--- It probably depends on the circumstances.

Really? So your evidence is that you thought that you could disclose to somebody outside the company the name and address of a customer?---Well, for the purposes of serving the customer or the company, yes.

No. No. Okay. Put that aside. To some third party, who had nothing to do with the business of Pennytel or the customer, you’re not saying, are you – is it your evidence that you could disclose the name and address of a customer?---Well, no, not to a third party for no relevant reason.

Right. And irrespective of what’s written in a contract, you didn’t think that you could disclose the name and address of a customer to some unrelated third party outside the company; correct?---Yes. That’s probably fair to assume.

Right. I’m not asking you to assume it. I’m asking your knowledge. To your knowledge, you are not free to disclose it; correct?---Yes. If it’s for no reason to serve the company, then yes.

And that included details as to services the customer received from Pennytel; yes?---Yes.

And, again, I’m limiting my questions to unrelated third parties who have no business with Pennytel; yes?---Yes.

Or the customer. And that relates – in addition to services and pricing, but margins and profit that Pennytel was making?---Yes.

Right. So irrespective of what’s in a confidentiality clause, you didn’t consider that you were free to disclose that to third parties, did you?---No.

And later:

MR FREEMAN: What I’m suggesting to you is that – and I think you did say this before the lunch break. Putting aside what the contract says, you considered that information on customers and sales and pricing and client lists and the like – you were not free to provide those to third parties who had no – nothing to do with the business?---Yes.

You accept that, don’t you?---Yes.

…

It wouldn’t be appropriate, would it, to hand them over pricing methodologies?---Well, yes, if they definitely have nothing to do, then, probably, yes.

Yes. Or client lists?---Yes.

Now, you know – do you accept that customer lists with names, details, pricing, addresses are matters that businesses such as SPN and Pennytel were particularly sensitive about?---Yes.

171    Mr Engelke was specifically asked about “pricing” in the following exchange:

MR FREEMAN: All right. Now, in your inbox, your email inbox, you would variously receive emails during the time you worked at Pennytel, which contained customer names; correct?---Yes.

Contact details?---Yes.

Plans that they were on?---Possibly, yes.

Pricing?---Yes.

Right. Information as to customers that you would consider were confidential to Pennytel; correct?---Yes.

and later as to documents which were synced to the iCloud drive which included the TIAB price book, a document with price comparisons between Pennytel and Connexus, and the Focus price book. These documents were, while synced to the iCloud drive, deleted on 5 May 2023 (see AL-4, tab 259 of the Court Book, an excel spreadsheet created by Mr Le).

172    Clause 4.1.1 of each of the original employment contracts included, as Confidential and Proprietary Information, “without limitation: information regarding the affairs of the company including … pricing methodologies”.

173    The plaintiff submitted that Mr Engelke’s acceptance that he was not able to disclose “the names and address of customers, the services they had with Pennytel and pricing, margins and profits on those services” meant that “pricing details” were confidential to Pennytel, both contractually and generally. The onus lies on Pennytel to specify the confidential information with precision. “Pricing” cannot, in my view, mean that every aspect of the prices that Pennytel charged its customers was information which was confidential to it.

174    While equity will protect more than merely trade secrets (see Streetscape Projects (Australia) Pty Ltd v City of Sydney (2013) 295 ALR 760; [2013] NSWCA 2 at [160] (Barrett JA)), it is also the case that:

… not all confidential information becoming known to an employee during or by reason of his or her employment will be protected on termination of that employment. Where confidential information acquired by an employee during or in the course of his or her employment becomes part of the general know-how of the employee, or cannot realistically be separated from that know-how, equity will not protect it unless it is of the nature of a secret formula or process, or, more generally, something that is unlikely to be ascertained by independent inquiry or experience.

(see Manildra Laboratories Pty Ltd v Campbell [2009] NSWSC 987 at [84] (McDougall J)).

175    Mr Engelke and Ms Chitas would have been required by their roles to access prices, both retail and wholesale, and to have an overview of the kind of prices charged. It seems to me that pricing generally available within the industry would be within the experience and know-how of Mr Engelke and Ms Chitas.

176    The plaintiff relied on the fact that Mr Engelke could be found to have retained the TIAB wholesale price book in his iCloud account, because he referred to it in his email to Ms McCann as “working off the Pennytel price book”. However, the plaintiff’s expert gave evidence that it had been deleted, and Mr Engelke’s explanation was that he was keeping things “vague” because he knew the prices, and was hoping for a good price (as set out at [109] above). The fact that Mr Engelke could contact Ms McCann and be offered a price which she volunteered was “probably a lot higher than Pennytel” does not indicate a misuse of confidential information; it rather underscores that the pricing itself was available to players in the industry. Knowledge of prices within an industry fall within the Streetscape principle of being knowledge that is difficult to separate from know-how, and thus would not be, without more, confidential information.

177    In my view the plaintiff has not made out its case for the inclusion of pricing, outside of pricing as it related to specific clients or internal “pricing methodologies”, in the material which is said to be information confidential to Pennytel. The specification only of “pricing methodologies” in the employment agreement points to more than just a rate charged to a customer; it would be something more like a formula or a process by which individual prices were calculated, and would include the “margins and profit” about which Mr Engelke was asked and agreed was confidential. Mr Engelke was asked about his ability to give a competitive quote to a new customer, and agreed that knowing a customer’s pricing was helpful to providing a quote for services. However, he said that prices (such as for Aussie Broadband) were available online, and that his knowledge of the industry was such that it was possible to “jump on the web and have a look at the price [advertised by wholesale telcos such as Aldi, Woolworths, or Coles] and you know it’s a few dollars cheaper at the wholesale rate”. This is an example of the “independent inquiry or experience” referred to by Barrett JA in Streetscape.

178    Mr Engelke further said that it was standard sales practice to ask for an existing bill, to see what the prices were there. The “little bit naughty” email was central to the attack on Mr Engelke; he said that he thought removing the redactions was not what the customer wanted but it was good for Spirit and Pennytel as it enabled him to provide better pricing. He was working for Spirit at the time, and Ms Chitas was working for Pennytel. This cross-examination however went more to his credit than to any misuse of confidential information; there was no allegation that the information was used to seek to obtain that customer’s business, as the customer did not move to SPN and there was no evidence there was an approach to achieve that end. Instead, the explanation given by both Mr Engelke and Ms Chitas was that they looked at the information to provide a better Pennytel service to the customer.

179    Mr Horan gave evidence, which was largely untested, that industry standards required new clients to provide a past invoice so that SPN could “understand the potential customer’s current services, to identify what services SPN’s quote should include”. Mr Horan annexed the emails for those of the customer witnesses he could locate. In relation to Mr Elliot of Yellow Brick Road, Mr Engelke said, on being sent Mr Elliot’s Pennytel invoice, “Unfortunately we cannot beat the current pricing however we can match it”.

180    I agree with the plaintiff that the prices paid by individual customers would be information confidential to Pennytel, unless disclosed by the client themselves. I further agree that Pennytel’s “pricing methodologies”, being the formulas or processes by which they provided prices to particular customers, including margins, would also be confidential. However, I agree with the defendants that wholesale prices charged to Pennytel were, in general, not confidential information of the plaintiff, given that Mr Engelke and Ms Chitas would have the general expertise and know-how as to how companies such as Symbio and TIAB provided pricing to various customers, including the fact that a small player such as SPN could not expect to be given the volume discounts that Pennytel was able to achieve. Given the practices of the industry described by Mr Horan, it would seem that each customer who joined SPN would be required to disclose the pricing that they paid with Pennytel or any other telco prior to accepting services in any event.

181    I will adopt the wording suggested by the plaintiff in its submissions, with the addition of the underlined words relating to pricing as reflective of my above reasoning, being:

customer names and contact details, the terms on which the customers acquired services (including start and end dates of contracts), sales and pricing specific to Pennytel customers and Pennytel’s pricing methodologies

as the confidential information at the heart of this dispute. I have removed the word ‘sales’ as there were no submissions made relating only to sales and the word appears only peripherally in cross-examination (see [170]-[171] above). In my view, it is too vague, and it adds nothing to the ‘terms on which the customers acquired services’. I will refer to that definition below as The Confidential Information. The paragraph 10 “carveouts” in the Amended Defence such as know-how and skills, particularly relating to pricing in general, are not included in that definition.

182    It was not in dispute that The Confidential Information had the necessary quality of confidence, nor that it was received by Mr Engelke and Ms Chitas in circumstances importing an obligation of confidence, thus satisfying the first three categories in Optus Networks.

Was there a scheme to set up a competing business by using The Confidential Information of Pennytel?

183    The final element of the plaintiff’s claim for a breach of the equitable obligation of confidence in equity is whether there was an actual or threatened misuse of The Confidential Information, without Pennytel’s consent. The pleading is paragraph 75 of the ASOC and is set out in paragraph [61] above. As can be seen from that paragraph, the pleading is that the purpose of the various actions relied upon “was to obtain names and contact details of Pennytel and Spirit customers who could be contacted and offered data and internet plans of NBN and enterprise internet fibre plans in a new business to be set up and operated by them and with Horan.” The agreement or understanding was pleaded to be that the new business would specifically use The Confidential Information, contact customers at or near the end of their contracts, and offer them competitive contracts with SPN.

184    It is uncontroversial that by mid-October 2022, Citratel was incorporated with the purpose of establishing a new business operated by the first three defendants. Pennytel submitted that the start date should be “earlier than they have disclosed”, although the plaintiff’s written submissions do not give a hard start date. The ASOC’s pleading of a scheme commences at paragraph 43 with the 31 March 2022 email. Given that, it seems the pleaded scheme stretches back to no earlier than 31 March 2022.

185    The defendants’ case is that the idea of the new business appears to have been floated between the three of them in August 2022, and was cemented in September 2022. Mr Horan, who was in my view doing his best to tell the truth, said that he had heard from a technician at Citracom that Mr Engelke wasn’t happy at Spirit in around August 2022, and the technician “suggested that I should have a chat with Nick and see if we could do something”. Mr Horan said that he wanted to “have Sam involved in that conversation” and they

got together in the August and had a chat about it, and decided that we could potentially do something in the future, and we could, in the meantime, register a company do the preparatory work, but there was never intent to actually trade or do anything at that time.

186    It will be recalled that the steps taken were as follows:

(a)    each of Mr Engelke, Ms Chitas, and Mr Horan incorporated bodies to hold shares in the new company;

(b)    Mr Horan registered Citratel around 19 October 2022, with himself, Mr Engelke and Ms Chitas as directors and each holding 1/3 of the shares in their corporate names;

(c)    Citratel applied for, and was granted, an agreement with TIAB for the provision of services, citing a start date of 1 January 2023;

(d)    Pennytel became aware of the existence of Citratel, Mr Engelke was dismissed from Spirit, and Ms Chitas from Pennytel, and SPN was registered with Mr Horan as sole director and his company Jeop as shareholder. The plaintiff put great weight on the fact that “SPN” stands for “Samantha, Peter, Nicholas” being the first names of each of the first three defendants;

(e)    SPN commenced business in February 2023 and employed Mr Horan and Mr Engelke, and Ms Chitas followed in July 2023; and

(f)    121 former Pennytel customers were ported from Pennytel to SPN, with a significant number coming across in the first six months.

187    There is no contest that on 18 October 2022, Citratel, whose shares were owned by corporate vehicles associated with each of the first three defendants, had been registered, and that it was intended to be a corporation which would conduct a similar business to Pennytel – not an identical business, because it did not seek to include residential customers. It is likewise not in contest that SPN was incorporated to take over from Citratel, and that each of the first three defendants would be involved with that business. The defendants rely on the fact that Citratel did not trade, that SPN was not set up until after six months since Mr Engelke had left Pennytel, and that Ms Chitas, while a director of Citratel, “was not involved in the preparatory steps to set up the new business”.

188    The plaintiff said that those facts, along with the fact that the customers of SPN who have given evidence had reasons to leave Pennytel and provided SPN with their invoices, are inconsequential and insufficient to ground the contention of the defendants that there was no use of confidential information. The plaintiff said that the customers of Pennytel “would not have left but for the Scheme pleaded and [the defendants’] conduct”. In other words, had SPN not been incorporated, it said that those customers would have remained with Pennytel.

189    Mr Horan said that even though he said to TIAB that Citratel and SPN were each to commence in early 2023, he said it was “preparatory work” and there was no intention to start so soon. He noted that he referred two “large Citracom clients” to Ms Chitas at Pennytel in December 2022 and January 2023, which he would not have done had he been intending to start trading. He said that the fact that both Mr Engelke and Ms Chitas were out of work in February 2023 meant that the plan had to “pivot” and SPN start trading so that Mr Engelke could have an income.

190    The plaintiff was not able to lead, or extract, direct evidence that the defendants discussed and agreed that they would use Pennytel’s confidential information to target specific customers of Pennytel – namely higher yield small business customers such as those dealt with by Ms Chitas. The plaintiff relied on inferences to be drawn from the evidence to support that part of its pleaded case. The facts relied on to support the inferences of an agreement are:

(a)    the use of documents, including the documents comprising confidential customer details, and Mr Engelke’s uploads to iCloud;

(b)    the fact that SPN “miraculously managed to sign up so many former Pennytel customers” from February 2023; and

(c)    the conduct of each of the first and second defendants, inter alia Ms Chitas “wiping her hard disk after being warned in writing not to do so” and Mr Engelke saying he had wiped his hard disk but instead having uploaded files on it to iCloud.

191    The plaintiff relied on Thales Australia Limited v Madritsch KG [2022] QCA 205 at [38]-[44] to ground a submission that I should infer misuse of The Confidential Information from their conduct. In particular, the conduct after receiving the information (Thales at [41](b)), use of the same suppliers (Thales at [41](c)), an inability to get to the position they did at the speed they had, had they started from legitimate sources (Thales at [41](d)), and the lack of an explanation (Thales [41](e)). As to that last point, Freeburn J (with whom Morrison and Mullins JJA agreed) said:

[42] Fifth, the inference may be avoided if the defendant can demonstrate that the information was developed by its own efforts, or acquired independently, or acquired by reverse engineering of products placed on the market by the plaintiff or by a third party. However, those arguments may be difficult to sustain if the offending conduct occurs soon after the information has been received in confidence …

[45] [the lack of a logical explanation for the conduct] should not be taken too far. An inference of misuse of confidential information must still be established by means of indirect or circumstantial evidence …

192    Thales was recently referred to in Fortescue Ltd v Element Zero Pty Ltd (No 2) [2024] FCA 1157 at [58] where Markovic J said in relation to inferences: “The alleged misuse is for the most part alleged to arise inferentially from the surrounding facts and circumstances. There is no difficulty with proceeding in that way”. The Court of Appeal in Thales stressed that “none of the principles [as to inferences being drawn] alters the legal burden of proof.” As Freeburn J said (at [48]):

In a proceeding for breach of confidence the burden of proving, on the balance of probabilities, each of the three elements of the cause of action remains with the plaintiff throughout.

193    The plaintiff took me to the well-known passage in Watson v Foxman at 319:

Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.

…

Each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court “must feel an actual persuasion of its occurrence or existence”.

…

Considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a causes of action based on s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), in the absence of some reliable contemporaneous record or other satisfactory corroboration.

(plaintiff’s emphasis added)

194    See also the statements of the New South Wales Court of Appeal in ET-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24 (Bathurst CJ, Bell P, Leeming JA) at [27]:

Whilst the quality and accuracy of oral recollection of actual conversations should be treated with care and caution given the fallibility of human memory (of which there has been a growing appreciation within the judiciary in recent decades), oral testimony may still be of value and importance, as was recognised in the nuanced observations of Leggatt J (as his Lordship then was) in Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC (Comm) 3560 at [22] (Gestmin):

“the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose – though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth.” (emphasis added)

which has been adopted in this Court; Mount v Dover Castle Metals Pty Ltd [2025] FCA 101 at [117]-[120] and Westpac Banking Corporation v Forum Finance Pty Limited (in liq) (Liability) [2024] FCA 1176 at [288] and [617].

195    Paragraph [28] of ET-China.com is also worthy of note:

Documents and events have to be understood in their context, and evidence of context will often be furnished by witnesses in their oral evidence. Documents, moreover, will not always present a complete picture of events. Indeed it would be rare that they do. Nor do contemporaneous documents necessarily or invariably convey or record the background or context in which events took place. That background or context will be familiar to the actors at the time of those events but may not always emerge from documents.

196    With these principles in mind, I turn now to findings as to the evidence relied on in support of a scheme.

Elements of the plaintiff’s case as to a scheme

197    I accept the plaintiff’s submission that the business was intended to cover similar ground as Pennytel, taking into account the email exchange between Mr Engelke and Ms McCann, Mr Horan’s and Mr Engelke’s answers to the questions in the TIAB Sub-Wholesaler application for Citratel which identified “small to medium business customers predominantly in Victoria” who were “unhappy with their current service providers”, and Mr Horan’s similar (but not identical) answers on the TIAB Sub-Wholesaler application form for SPN. The difference between the Pennytel business and that of SPN is that SPN did not intend to cover residential customers. I do not regard this difference as either supporting or undermining the plaintiff’s case; while business customers were more lucrative, the confidential information which was alleged to have been taken covered both kinds of customers, and so this factor is accordingly neutral.

When did the agreement to set up a new business in competition with Pennytel occur?

198    As to the start date of the pleaded scheme, there are two inconsistencies in the defendants’ evidence as to timing. The first is, as noted above, that Mr Horan was adamant that the first conversation with Mr Engelke and Ms Chitas was on 13 August 2022. The plaintiff contended that Mr Horan’s evidence as to the date of 13 August 2022 is “inconsistent with contemporaneous documents and is an attempt to deliberately hide that discussions had been going earlier than they have disclosed”. Each of Mr Engelke and Ms Chitas were cross-examined on the basis that they had had ongoing discussions from much earlier, the plaintiff putting to them that “by May of 2022 [the three of them] were having preliminary discussions about setting up a business”.

199    I accept Mr Horan’s evidence that his first conversation with Mr Engelke and Ms Chitas was in mid-August 2022. Despite his insistence that the 13 August 2022 date was his first discussion with both of them, he agreed that he spoke to Mr Engelke first and then Ms Chitas “came in” (see [185] above). This is consistent with Mr Engelke’s email discussion with Ms McCann about his new business partner on 12 August 2022. While this is a discrepancy of a matter of days, there is nothing in the evidence of discussions earlier in 2022 than mid-August. Accordingly, I cannot, from that discrepancy of a few days, be persuaded that Mr Horan’s evidence was a conscious lie to hide the longer-running plans to set up a competing business to Pennytel.

200    The second inconsistency was Ms Chitas’ contention that she had no intention of leaving Pennytel in October 2022, which is when Citratel was incorporated. The plaintiff submitted that that timing is not supported by the 13 September email from her sister to a legal contact asking for advice for Ms Chitas relating to a “Family Trust as part of a business she is starting”. The present progressive (“is starting”) can be indicative of a current state of affairs, or a planned future event. While it is not clear that Ms Chitas had definitively determined to leave Pennytel by that time, the email is consistent with a finding that she had resolved to join Mr Engelke and Mr Horan in Citratel (and later SPN) from mid-August 2022. In her oral evidence she said that they didn’t, in mid-2022, have a structural plan “because we were looking at maybe 12 months down the track” and that Mr Horan had, through Citracom or Web Steps, a database of customers they could approach.

201    Despite the invitation to draw an inference from the various actions relied on as being evidence of a long-standing scheme (both as pleaded, and as additionally identified in the evidence of Mr Zizic), and from the inconsistencies with timing, I accept the evidence of Mr Horan, Mr Engelke, and Ms Chitas as to the time at which discussions first commenced about “going out on their own” as being in early August 2022 (the business plan) as a response to Mr Horan hearing that Mr Engelke was unhappy at Spirit. That fits with Mr Engelke’s contact with Ms McCann at Symbio late in July 2022 reflected in his email of 27 July 2022, and his affidavit evidence that he was then exploring the idea of starting his own business. That email refers to Mr Engelke starting the business. Mr Engelke’s later email to Ms McCann on 12 August 2022 is corroborative of his evidence that he first started looking around on his own, and then talked to Mr Horan (“a business partner”). The evidence of all three was that the business plan discussions were held in around August 2022.

202    The plaintiff contended strongly for a finding that the business plan was formulated between the three of them much earlier than mid-August – at least in May 2022 when Mr Engelke left Pennytel, and possibly as early as March 2022 when the customer report was downloaded – to commence a business in January 2023 or, later, for SPN, in February 2023. However, it seems to me that the only documentary evidence of any discussion between Mr Horan and Mr Engelke is reflected in Mr Engelke’s email to Ms McCann in August 2022, and the evidence points to Ms Chitas being involved at that time or shortly thereafter. As for the start date of the business, there is conflicting evidence; the indicative start dates for Citratel of 1 January 2023, and for SPN of 1 February 2023, are not supported by any evidence, direct or from which I can draw an inference, that these are anything more than dates on a form. I note the fact that Mr Engelke had been marched off the Spirit premises at the instigation of Pennytel, and was out of a job in February 2023. Mr Horan (who gave evidence, which I accept, that the Symbio/TIAB contracts were only preparatory) said that this was a factor that brought the start date forwards.

203    It was put to Mr Engelke that he was thinking about setting up his own business from the time he decided to leave Pennytel, but he rejected that contention, and I accept Mr Engelke’s evidence on that aspect. There is no evidence which would corroborate that theory (unless I am able to infer such a plan from the alleged misuse of confidential information which, as set out below, I do not). On the other hand, Mr Engelke gave evidence that he was happy at Spirit until his role changed, and there is nothing to indicate that that is not the case. If he were seeking to set up his own business, then joining Spirit (a supplier to Pennytel) was not a move which would progress that plan. Likewise, Ms Chitas encouraged Ms Ward of Eco Recyclers to remain with Pennytel after Ms Ward had the argument with Ms Young on 24 August 2022.

204    In support of the contention that the scheme commenced in May 2022 or earlier, the plaintiff cross-examined Ms Chitas on various documents, such as an email chain on 5 May 2022, in which Mr Horan sent to Ms Chitas information about a Microsoft Teams product, which she forwarded to Mr Engelke with what appears to be a technical question, “Would I register under MNF or Pingco?”. Mr Engelke replied:

This would be Pingco and MNF (TIAB) trying to onboard new partners, so we can already sell either of those and if we did want to have a look ourselves at it I would just go direct to either of them for it!

205    The plaintiff submitted that the use of the plural “we” and the reference to “ourselves” by Mr Engelke, who was leaving Pennytel the next day, indicated that this email reflected discussions between the first three defendants as to setting up a business. It was put to Ms Chitas that there would be “no reason for him to want to have a look at it” because he was leaving, and she replied that he was working for Pennytel at the time and so the response “had to be around him referring to Pennytel”. This email is relied upon as “inferential evidence” of the scheme and it is submitted that it was “only consistent” with the scheme having been formulated prior to May 2022. I do not agree that the use of the word “we” is “only consistent” with the existence of a scheme. The “we” could, in context, refer to Pennytel and Spirit, as much as it could refer to a venture between Mr Engelke and Ms Chitas. In any event, as I have noted above, the emails between Mr Engelke and Ms McCann are evidence of when the business plan was formulated, being August 2022.

206    None of the first three defendants sought to downplay the fact that they had discussions as to setting up a business together in August/ September 2022, but they differ from the plaintiff as to the impact of those discussions, the expectations of the parties as to a start date, and the terms of those discussions. The plaintiff has the onus to prove that the business plan included the darker side of the “scheme” – that they would take, and use, confidential information belonging to Pennytel, and seek to sign up the higher-yield customers who were primarily previously Focus customers.

207    On the evidence as set out above, I am able to find that the business plan (as defined above) dated from early-to-mid August 2022 between Mr Engelke and Mr Horan, (most likely around 12 August) and around then, or slightly later, with Ms Chitas (but before 13 September). This factual finding has some bearing on the way in which the plaintiff has pleaded, and run, its case. In particular, it is relevant to the pleaded actions relied upon by the plaintiff and how those actions fit into its pleading of the scheme. The handling of the various documents relied upon by the plaintiff take on a different complexion if, as I have found, there was no business plan between the three of them prior to 12 August 2022.

Did the plaintiff prove the element of the scheme that was the agreement to misuse the information?

208    The plaintiff was unable to prove directly, or by admission, that the participants in the business plan actively agreed to take and use Pennytel’s confidential information. Instead, it submitted that I should infer from the taking of the pleaded actions, and from the speed with which SPN was able to commence business, that The Confidential Information was used. Before I can determine that issue, it is necessary to review the pleaded actions (and others relied upon) to ascertain the motives behind the actions relied upon.

Did Mr Engelke obtain The Confidential Information for the purposes of the scheme?

209    Of the actions relied upon by the plaintiff, the following could be seen to be actions by Mr Engelke:

(a)    the forwarding of the customer report on 31 March 2022 (see [73] ff above);

(b)    the ACT! report downloaded to his laptop on 27 April 2022 (see [83] ff, although this is not pleaded in the ASOC);

(c)    uploading documents to his iCloud drive between 22 April and 6 May 2022 (see [87] ff);

(d)    the Octane access on 2 and 3 May 2022 (see [91] ff);

(e)    the Mesh customer email and attached list on 23 May 2022 (see [101] ff, although this is not pleaded in the ASOC);

(f)    the discussions with Ms McCann about pricing from 27 July 2022 onwards (see [106] ff);

(g)    the “little bit naughty” email of 28 July 2022 (see [113] ff); and

(h)    the Spirit customer details forwarded from Mr Engelke’s private email on 8 August 2022 (see [119] ff).

210    Each of these actions occurred before the date I have found the plan to set up the business that became SPN was formulated, with the possible exception of the Spirit customer details which were forwarded on 8 August, very close to the 12 August email to Ms McCann.

211    Having regard to my finding as to the timing, the surrounding documentation, and the lack of evidence supporting any earlier intention of setting up a business, I find that the customer report, the ACT! report, the Mesh customer email and attached list, and the “little bit naughty” email, were each actions taken in the context of Mr Engelke’s and Ms Chitas’ work for Pennytel or, later, Mr Engelke’s work for Spirit. The ACT! report and the customer report were clearly, in my view, matters which Mr Engelke routinely undertook for Pennytel. He and Ms Chitas had a good working relationship and the evidence is that they were each customer-focused and went the “extra mile” where required. The Octane access on 2 and 3 May is consistent with his duties to hand over to Ms Yehson (noting that the occasions of access to Octane under his login after his departure are no longer relied upon). The Mesh customer email and attached list was sent to him, not by him, and the “smiley face” emoji with which it was sent cannot be seen, without more, as evidence of guilt.

212    The “little bit naughty” email, while there was a sniff of shady practice in un-redacting a customer’s redaction, appears from the surrounding correspondence to have been done for the benefit of the customer and in the course of Ms Chitas’ work as an Account Manager for Pennytel.

213    The explanations for the sending or receiving of these documents are reasonable ones, and given that I accept that Mr Horan did not approach Mr Engelke or Ms Chitas until early-to-mid August 2022, I am able to find that they were undertaken in the course of Mr Engelke’s work for Pennytel and then for Spirit.

214    There is nothing in any of these incidents which by themselves, taken together, or by reason of any incriminating surrounding correspondence, points to a plan, as far back as the customer report download in March 2022 when Mr Engelke was still working for Pennytel, to take and misuse confidential information. It should be recalled that Mr Engelke’s laptop had had files deleted from it, but that the Outlook.pst files remained (as indicated in the spreadsheet AL-3 attached to Mr Le’s expert report) and that had there been a scheme on foot at that point, it is likely that there would be some mention of it, somewhere. I do not accept that Mr Engelke’s deletions of documents on 5 May 2022 were done with the intent to cover his tracks or to hide his taking of confidential information from Pennytel. That conclusion is inconsistent with his pleading and affidavit evidence that he thought he had to reset his laptop and thus wiped his hard drive of content.

215    That leaves the iCloud backup and the Spirit customer list. I have dealt above with the Symbio setup communications with Ms McCann as being consistent, not with the plaintiff’s case, but with the defendants’.

216    A major plank of the plaintiff’s case is that Mr Engelke backed up his Pennytel computer, including Pennytel emails, including customer names and other details including The Confidential Information, since his resignation in April 2022 until his last day at Pennytel on 6 May 2022. It was put to him that this was done “because you and Ms Chitas and Mr Horan were intending at some stage to set up a competing business?”. Mr Engelke’s response was:

At that time, we had never considered that. I was excited to go and work at Spirit and continue working closely with Pennytel.

217    I have accepted that at the time of the iCloud backups Mr Engelke had not yet formulated the business plan with Mr Horan and Ms Chitas.

218    I have considered the evidence about Mr Engelke’s laptop which, the plaintiff said, tends to support the submission that he lied about wiping his hard drive. Mr Engelke said that when he resigned, either Ms Ryan or Mr Brant instructed him to wipe his laptop and return it to Pennytel. Mr Brant gave an affidavit in these proceedings, and does not mention giving that instruction. He was not called for cross-examination. Ms Ryan was served with a subpoena to give evidence, but it was not called upon and she did not give evidence. The evidence discloses that she was the Chief Operating Officer before leaving Pennytel in late 2022.

219    The evidence of the expert, Mr Le, was that the laptop had not been wiped, and it was put to Mr Engelke by counsel for the plaintiff that it was a “very significant failure of recollection by yourself”? Mr Engelke did not agree. He said he recalled that he was concerned to remove confidential information such as banking passwords, and also to delete information. While information was deleted from the laptop, there were a significant number of documents which remained on the computer when it was handed back to Pennytel.

220    Mr Engelke initially had said that he “saved some personal files and data from [his] laptop first, and then wiped it and returned it to Pennytel as instructed”. He created a “Pennytel” and a “Focus” folder on his laptop and backed them up to his iCloud drive. He said that that was for the purpose of retaining personal information. In around February 2023 he moved the contents of the folders to OneDrive. The documents in the OneDrive index which was annexed to his affidavit were in the nature of payslips, leave applications, superannuation documents, and role change letters.

221    He was cross-examined, somewhat fiercely, about the uploads. It is clear that he did not wipe his computer, but he did undertake a deletion of files. The explanation for that is believable – that he wanted to ensure that he handed his computer back without confidential information on it. He had worked at Focus, then Pennytel, for many years, and kept documents relating to his own employment there (such as his Letter of Offer, tax information, and payslips). His evidence that the hard drive was “wiped” is not, in my view, only consistent with a conscious lie. I note that he had an Outlook reminder on his laptop for Friday 6 May 2022 to “Wipe laptop profile” which could explain the recollection that he had, in fact, “wiped” the laptop at the time.

222    If saying he wiped the laptop were a lie, it would be a lie without purpose given that the computer was in the hands of Pennytel and could have been, and was, checked for data. That data revealed nothing to corroborate the pleaded scheme unless I accept there were sinister motives behind the iCloud backup. I do not. It appears to me that he undertook the iCloud backup, data deletion, and removal of personal information as part of his exit from Pennytel, and prior to his going to work at Spirit. I do not find that the iCloud backup process was part of a scheme to take and misuse confidential information of Pennytel.

223    That leaves the Spirit customer list. That post-dates Mr Engelke’s first inquiry with Ms McCann. It is also different in context, as it was forwarded to his personal email and then on to Mr Horan and Ms Chitas. The explanation given was that as Spirit was no longer able to support those customers, Ms Chitas at Pennytel or Mr Horan at Citracom may have wished to. The Amended Defence includes this as one of the “legitimate preparatory steps for the prospective operation of a business at a later date” but that does not appear to be the way in which the first three defendants explained it.

224    As noted by the plaintiff, the timing of this email was suspiciously close to the formulation of the business plan. However, there was no confidential information of Pennytel included in the list attached to the email. Mr Zizic conceded as much in cross-examination. Paragraph 74 of the ASOC contended that the purpose of (inter alia) the Spirit customers email was

to obtain names and contact details of Pennytel and Spirit customers who could be contacted and offered data and internet plans … in a new business to be set up and operated by [Mr Engelke, Ms Chitas] and with [Mr] Horan.

225    It cannot be the case that the Spirit email sought to obtain names and contact details of Pennytel customers. There were none on the list. It could not have been a breach of Pennytel’s confidential information, because it contained none.

226    I am prepared to find that this email may have been sent by Mr Engelke in the context of the discussions between the three defendants for the eventual benefit of the fifth defendant, but given Mr Horan’s evidence as to the use made of that list, I find that no action was taken by SPN which resulted in those customers being managed by SPN.

Did Ms Chitas obtain The Confidential Information for the purposes of the scheme?

227    Undertaking the same exercise in relation to Ms Chitas, the relevant actions relied on by the plaintiff are:

(a)    the email and Margin Summary spreadsheet forwarded to Ms Chitas’ sister on 9 December 2021 (see [71] ff);

(b)    the customer report (as it is alleged that she was not authorised to receive it) on 31 March 2022 (see [73] ff);

(c)    the Mesh customer email and attached list on 23 May 2022 (see [101] ff);

(d)    the “little bit naughty” email reply on 28 July 2022 (see [113] ff);

(e)    the Spirit customer details forwarded from Mr Engelke’s private email on 8 August 2022 (see [119] ff);

(f)    the access to Zoho and other Pennytel applications while she was on long service leave; and

(g)    the factory reset of her laptop.

228    While I have some reservations about some of Ms Chitas’ evidence – in particular her reluctance to agree with propositions in cross-examination which did not assist her case but which had an objective basis – I found her explanation of forwarding the December 2021 email to her sister and inadvertently including the spreadsheet believable, particularly since her sister was called and gave evidence that she did not recall receiving either email or spreadsheet. There was no indication in the email to Ms North that it was the attachment, and not the email, that was important (in fact the email was a forward without any covering message). Ms North’s evidence – that she did not recall receiving the document - would be surprising had Ms Chitas sent it for some nefarious purpose. Additionally, it was sent some nine months prior to the formulation of the business plan and well before March-May 2022, the period cross-examined on by the plaintiff as the commencement of the scheme. The evidence, particularly as to timing, does not support this as being part of a scheme to take and misuse confidential information. There is no evidence, direct or able to be inferred from the surrounding facts, that this document was actually used, or its misuse was threatened.

229    I make the same comments as to the customer report, the Mesh customer email and attached list, and the “little bit naughty” email as I made in relation to Mr Engelke. Each of these are prior – in some cases well prior – to the business plan formulation and the commencement of the pleaded scheme. Pennytel’s allegation that Ms Chitas was not “authorised” to receive a customer spreadsheet is not sustainable (much as Mr Zizic’s contention that had he known about the “little bit naughty” email at the time, he would have offered an apology to Aussie Broadband for that conduct was unbelievable – an assertion he later, fairly, resiled from). Mr Zizic agreed in cross-examination that the Mesh customer email was part of what appeared to be a legitimate communication between Ms Chitas for Pennytel and Mr Engelke for Spirit.

230    The plaintiff submitted that Ms Chitas’ response as to the Mesh customer email was not believable; it submitted that it was “the third customer list she had sent”. Mr Freeman submitted for Pennytel that:

(a)    after Mr Engelke had left Pennytel, she had sent him “the entire Mesh customer list … of a business that had only been purchased by Pennytel 6 weeks before … and in the context where she knew Mr Engelke did not need the entire list”;

(b)    her stated reason for sending the list was: “I sent him a list to see what Spirit could do for us. That’s why I sent the list”; and

(c)    “The excuse she gives is that she sent it to see what he could do for us. It is a ridiculous answer. It could not possibly be accepted as reasonable conduct to keep sending around confidential information of Pennytel for a third time”.

231    I cannot agree that her answer was “ridiculous”. Mr Engelke worked for Spirit, which was a supplier of particular services to Pennytel. He gave evidence that two other Pennytel employees sent him the same list, and it was “completely reasonable to send this sort of information to a prospective supplier”. It was put to Mr Engelke that having received a confidential document he should have destroyed it; it does not seem to me that that is a particularly commercial reaction to being sent a list of customers for a legitimate purpose. Despite there being no context to the covering email, Mr Engelke says he quoted the services from Spirit to the various people who had sent it to him.

232    I make the same comments as to the Spirit email as I made in relation to Mr Engelke, however, it appears that it was sent to Ms Chitas prior to her involvement in the business plan. Ms Chitas said that she did not know why Mr Engelke had sent it to her, and because it contained IT customers rather than telco customers, “it was more to do with Pete”, and she deleted it. This has an air of objective reality.

233    In relation to her access to Zoho and other apps while being on leave, Ms Chitas said that despite this, she continued to look after her Pennytel clients and, as noted above at [189], dealt with two “large” clients referred to her from Mr Horan’s company. This is corroborated by a text exchange on 13 January 2023 with Ms Fly and Ken Zebra which refers to a customer “referred by Citracom”. Ms Chitas’ out-of-office email contemplated that she would respond after 9 January 2023 to clients with non-urgent problems. The Court Book includes other examples of her liaising with Pennytel and with her customers during her long service leave. For example, there are texts with a Mr Scott about his VoIP invoices, and, on 10 January, a query from a Focus customer named Craig who asked:

Hello Sam,

Are u still with focus, our computer guys need password for modem supplied by focus.

Are u able to assist.

Modem is netcom NLXXXXXXX.

regards Craig

To which Ms Chitas replied, annexing a picture:

Hi Craig! Focus is no more however I am working for the company that bought us!

Here are the details. Feel free to give your IT guy my detsils if he needs anything else

(both texts as written, modem number anonymised).

234    A Mr Workman called Ms Chitas on 23 December 2022; she responded in early January assisting him to sign in. There is also an email dated 11 January 2023 to Corporate Support reporting on a call she received from a client about issues with their handsets; this was an email from her Pennytel address. This client was one of the first two clients to join SPN in February 2023 although nobody from that company was called by either party.

235    The overwhelming evidence is that Ms Chitas was a diligent account manager seeking to assist her customers even though she was on extended leave, on one occasion logging on late at night to do so. The plaintiff has not identified any specific confidential information that she is alleged to have accessed during that time, merely that she was not authorised by Pennytel “to access and use [Zoho and other applications] for the purposes of obtaining customer details to use in a competing business”. There is no evidence that she did so for those purposes. Given the other evidence, as to her managing clients while on leave, I cannot infer from the timing of the access that it was for the purpose of setting up a competing business; there is clear evidence that she was undertaking her work for Pennytel for the customers who contacted her while on leave. I find that her access to Zoho and other applications while on leave was in the course of her work at Pennytel and a legitimate use of Zoho and other applications. There is no evidence at all to suggest, and much evidence going the other way, that her purpose was to “obtain names and contact details of Pennytel and Spirit customers who could be contacted and offered … plans in a new business”. In any event, in early January 2023, the only steps that had been taken by her towards the new business were the formulation of the business plan, the registration of Citratel and her appointment as director, and Mr Engelke and Mr Horan – not Ms Chitas – signing up with TIAB. No customers joined SPN until February 2023.

236    In the chain of correspondence regarding Ms Chitas’ resignation, she was directed to return any confidential information to Pennytel and, by letter of 23 January 2023 she was told:

… Ms Chitas must not delete any documents until Ms Chitas has first advised us what documents she possesses and is advised that she may do so, because the preservation of documents may be necessary to enable Pennytel to determine the extent of any breaches of her employment obligations arising out of the downloading of the Confidential Information.

237    At the end of January, Ms Chitas returned her laptop to Pennytel. It had had the operating system reinstalled and so any data on it had been deleted. Her mobile phone was also returned, with a factory reset, so that no information could be obtained from it either.

238    It will be recalled (and is set out at [141]) that the 23 January 2023 letter warned Ms Chitas not to delete any confidential information. The plaintiff relied on Mr Le’s expert evidence that Ms Chitas’ laptop was erased and the operating system reinstalled on 26 January 2023. It is submitted that this was “deliberate and done with the purpose of covering her tracks”, I was urged to apply the maxim omnia praesumuntur contra spoliatorem (see Rosebanner at [454]) and infer that the contents of the laptop would have been deleterious for her case (Rosebanner at [455]). In MCT Dairies Inc v Probiotec Limited [2009] FCA 1385, Rares J held that the presumption can arise even if no intention to destroy evidence has been shown (at [36]). MCT Dairies was a case in which documents had been destroyed, apparently in accordance with a document destruction policy, when those documents were relevant for discovery and use in Court proceedings in the US. There was no evidence as to when they were destroyed.

239    The cases relied upon by the plaintiff do not, as submitted, demonstrate that mere destruction of documents results in a negative inference that the documents would have been actively harmful to the destroying party’s case. In MCT Dairies, for example, Rares J (at [37]), did not accept a submission that the respondent deliberately destroyed the documents to suppress them from discovery or evidence. That finding meant that, instead of grounding an inference that the missing documents supported an assertion of wrongdoing, the Court found that “the absence of those documents does not assist [the respondent’s] case, and means it lacks any corroboration they may have given it”. And, at [38], the Court found in favour of the respondent, despite the absence of any corroborating documents, on the basis that it was “inherently unlikely” that the respondent would have allowed the alleged transgressions because of other evidence as to the long-term business relationship, external factors, and the severe consequences had it engaged in such behaviour.

240    Here, Ms Chitas’ evidence was that while she was aware that Pennytel’s lawyers were writing to her, she was not specifically aware of the demand that she not delete her hard drive. She said that she never had an intention to delete any confidential information, but rather reset the laptop so that information that was personal to her would not carry over. It was put to her that Mr Horan had reset it for her, as she did not know how to install Windows, which she denied, saying that “it just resets, doesn’t it?”. The cross-examination on this issue appeared to conflate the IT expert Mr Le’s evidence that “the reset process is an intentional action” with a need to reinstall the operating system as a further intentional action, when the evidence was that the reset process did in fact reset the laptop by reinstalling the operating system “to return it to its state when the device was first purchased”. She denied that she intended to delete all her work emails as she understood that Pennytel had access to them as they were “in the Cloud”. This was confirmed by Mr Zizic in cross-examination, when he was asked:

MR MILLER: But in terms of anything that was on – anything was sent out or sent to Ms Chitas using a work email, you had it. You already had all of that information?---Yes.

Yes. And in fact, your affidavit attaches many communications passing between Ms Chitas and Mr Engelke and Mr Horan. That’s correct, isn’t it?---Yes.

So the factory reset of the laptop hasn’t hampered you at all in using or in obtaining the email communications; that’s correct?---The Pennytel account, that’s correct, yes.

241    Prior to Ms Chitas going on long service leave, she had had some significant family losses, and her evidence was that Mr Horan and Mr Engelke were not keeping her updated with the progress of Citracom and then SPN and that “Pete kept me out of it largely just because he knew what was going on with my family”.

242    I am not able, on the evidence, either directly or by way of inference, to find that Ms Chitas took the actions she did in December 2022 and January 2023 with the intention of obtaining customer lists from Zoho and other applications, or resetting her laptop with a view to protecting herself and deleting wrongfully obtained confidential information. The explanations she gives, far from being ridiculous, are consonant with human experience.

Agreement or understanding that SPN would use Pennytel confidential information

243    The plaintiff pleads this element in a very specific way: that SPN would use The Confidential Information by contacting customers of Pennytel who were at or near the end of their contracts with Pennytel and offer them contracts with the new business at prices below that offered by Pennytel or on terms competitive with Pennytel (see paragraph 75 of the ASOC).

244    The plaintiff in section 7.2 of its closing submissions set out a number of aspects which, it is submitted, gives rise to an inference that the defendants intended to use The Confidential Information. These include (in summary):

(a)    the fact of the new business being agreed to, and then Citratel established with each of the first three defendants as directors and (indirect) shareholders;

(b)    the new business (SPN) providing the same services as Pennytel but focused on corporate customers;

(c)    “what ultimately happened” being the movement of 121 customers from Pennytel to SPN, 83 of them by June 2024, which were higher yield business customers;

(d)    the conduct of the first and second defendants in the pleaded and other actions relied upon, a lack of explanation for doing so, and the deletion by Mr Engelke and Ms Chitas of files from their laptops and mobiles; and

(e)    the naming of SPN reflecting their initials, and a possibility that each of Ms Chitas and Mr Engelke may take a 1/3 shareholding in the future.

245    The defendants submitted that the plaintiff’s pleading effectively amounts to a conspiracy, and that accordingly, the gravity of the matters alleged should be taken into account in determining whether the case has been proven (see s 140(2)(c) of the Evidence Act, and Briginshaw v Briginshaw (1938) 60 CLR 336 per Dixon J at 362). It was submitted that the specificity of the pleading bound the plaintiff to a contention that the scheme encompassed not only that the defendants sought to set up a competing business, but that they did so “by using the confidential information of Pennytel”.

246    As I have found above, only the Spirit email was sent by Mr Engelke with the new business in mind, and Ms Chitas did not take any of the actions attributed to her with the purpose alleged by the plaintiff. The mere fact that the business proposed by the defendants was similar to that of Pennytel’s does not give rise to an inference that it was intended thereby to use Pennytel’s confidential information. This is particularly so where the plaintiff has been unable to prove a substantial plank of its case – that the agreement to set up a new business did not occur as early as it contended for, with the result that many of the actions relied upon could not have been with the misuse of The Confidential Information in mind.

247    I do not consider that Pennytel has discharged its onus in relation to the purpose of the various actions relied upon being the pleaded scheme, nor the intent of Mr Engelke or Ms Chitas in deleting documents being nefarious. Pennytel has not been able to prove the existence of the pleaded scheme.

Misuse of confidential information – how did the Pennytel clients get to SPN?

248    The question still remains, however, as to whether Mr Engelke and Ms Chitas did, in fact, misuse confidential information available to them. It will be recalled that although I have found that the various documents relied upon by the plaintiff were not downloaded, sent, or retained by the first and second defendants for the purpose of the pleaded scheme, it is part of the plaintiff’s case that the following documents remained available for them to use once SPN was actively engaged in business:

(a)    the email attaching the spreadsheet forwarded by Ms Chitas to her sister, if Ms North were able to provide it to Ms Chitas; this was not part of the pleading, and I note that Ms North in her affidavit says she must have deleted the email as she no longer has a copy;

(b)    the customer report forwarded by Ms Chitas to her personal email on 31 March 2022. In her affidavit Ms Chitas says that she no longer has a copy of this email, and has no downloaded or saved copy of the attachment;

(c)    the ACT! Report, if it remained in Mr Engelke’s iCloud after he deleted the folders from his laptop prior to its return; and

(d)    the Spirit customer list, which was forwarded to Mr Horan, and Ms Chitas, and to Mr Engelke’s personal email, but, as will be recalled, was not confidential information of the plaintiff.

249    Paragraph 76 of the ASOC includes the allegations:

(c)    Engelke, Chitas and Horan were each directors of Citratel and were responsible for Citratel and the manner in which Citratel’s business was would be conducted as pleaded in subparagraph (a); and

(d)    Engelke, Chitas, Horan and Citratel by its directors knew that Citratel and SPN:

(i)    could only sign up Customers of Pennytel if Citratel and SPN had knowledge of the Customers of Pennytel, including their names, contact details and terms of their contracts with Pennytel;

(ii)     knew or ought to reasonably have known that knowledge of the Customers of Pennytel, including their names, contact details and terms of their contracts with Pennytel was Confidential Information and that Pennytel was unaware and did not consent to the taking and use of the Confidential Information by Citratel and SPN.

Particulars

Full particulars after discovery and the issue of subpoenas.

250    No further particulars were in evidence.

251    Paragraph 80 pleads that from February 2023 to date, SPN had signed up Pennytel customers by porting them from TIAB to SPN, resulting in Pennytel losing those customers, and they did so by using some of the Confidential Information.

252    The plaintiff relied on “direct evidence of taking and misuse; circumstantial evidence of misuse; and the lack of a reasonable explanation from the defendants” as the elements that prove “actual or threatened misuse”. The plaintiff’s key question was “where was [SPN] getting [its] customers from for [its] new business?” The plaintiff submitted that the list of customers available to Ms Chitas (the customer list and the ACT! report) correlate with Mr Nguyen’s, the plaintiff’s expert, evidence on high-margin customers who left Pennytel and went to SPN. However, the plaintiff was not able to show – apart from the Focus on Furniture email where Mr Engelke said he would always be available to the customer – any actual approaches to customers to join SPN. The pleaded allegations are quite specific in that particular customers were targeted and approached at the end of their contracts. Yet the plaintiff has not been able to prove that aspect apart from relying on inferences of wrongdoing, which would be much more easily reached had I found that there was a purpose to the pleaded and other actions of the defendants relied on by the plaintiff.

253    The defendants on the other hand brought evidence from ten customers who each denied being approached, or encouraged, to leave Pennytel. They each had reasons to leave Pennytel. Only three of those customers were cross-examined. The defendants submitted that against an inference that confidential information must have been used, “Pennytel’s own case includes over a thousand pages of customer interactions including many pages of logged customer complaints” which back up the stated reasons for the witness customers leaving Pennytel.

254    The plaintiff contended that the Thales factor of an inability to get to “the position they have, at the speed they have, had the defendant simply started from legitimate sources and worked everything out for himself” (at [41](d)) results in an irresistible inference that confidential information such as the ACT! report and customer report had been used. However, there is no evidence as to what would be a speedy setup. Five invoices were issued to former Pennytel customers by SPN in February 2023, one of which was Citracom, Mr Horan’s company. A further twelve companies were issued their first SPN invoice in March 2023, a number of which were noted as “Nick / friend” or “Sam / family”. An important factor is the loyalty which the customers who gave evidence seemed to owe to Mr Engelke or Ms Chitas; many had been with them through various companies over a number of years. The evidence shows that customers often rang Ms Chitas (including customers from the Focus years) seeking her assistance; there is no reason why that should not have continued after she commenced work for SPN.

255    The evidence of Mr Nguyen is that the Pennytel customers who left for SPN tended to be those who had been at Pennytel – or its purchased businesses such as Focus – for a long time. At paragraph 3.3.11 of his report, he observed that “the average tenure for Transferred customers is 9.83 years. This is more than double the average tenure of Retained Corporate customers, being 4.44 years”. This is consistent with the defendants’ position that customers followed them, rather than the plaintiff’s position, that those customers would only have moved providers had they been targeted, and that, in effect Pennytel’s rates had been undercut by SPN. There is no evidence that SPN was cheaper than Pennytel; in fact, they were about the same, or (going on Ms McCann’s estimates) slightly more expensive.

256    Mr Horan gave evidence that SPN was not solely servicing former Pennytel customers, and that it undertook business development such as social media marketing, networking, LinkedIn, and referrals from current customers. The defendants pointed to the numbers of customers lost by Pennytel between February 2023 to October 2024, a total of 398, of which Mr Zizic said only 78 went to SPN (although Mr Nguyen’s report specifies 83, and that is the figure relied on by the plaintiff in its loss claim).

257    There is a difference between the parties as to who should have established the reasons for customers leaving Pennytel. The plaintiff’s position is that, having established by way of inference that the customers left because of misuse of confidential information, the defendants should have called the remaining customers – over 100. In contrast, the defendants said that that would be both oppressive, and would impermissibly reverse the burden of proof; particularly so, where the defendants submitted that the basis for the inference has not been made out.

258    In this, I must agree with the defendants. While, as noted in Thales (at [40]) that instances of direct evidence of misuse are likely to be rare, I consider that where the misuse is pleaded as specific approaches to high-yield customers at or nearing the end of their contracts, something more than inferences of the type asserted must be proved. There is no evidence that anyone was approached; there are ten witnesses who say they were not. The plaintiff appears to have founded its initial case, inter alia, on the directorships and shareholding of Citratel and concerns about Mr Engelke accessing Octane after his departure from Pennytel (which it was shown during the trial that he had not), and about Ms Chitas working while on long service leave and accessing Zoho (which I have found did not have a sinister reason). Those initial concerns of Pennytel did not appear, after the evidence, to be well-founded.

Conclusion on the scheme

259    Given the findings I have come to as to the timing of the formulation of the business plan, and my findings as to the lack of misuse of any confidential information, the fourth element in Optus Networks has not been made out. Accordingly, the part of the plaintiff’s case relying on the pleaded scheme and the misuse of confidential information does not succeed.

Were there breaches of the Corporations Act duties by any of the first to third defendants?

260    The plaintiff alleged that the conduct of Ms Chitas and Mr Engelke was in breach of ss 182 and 183 of the Corporations Act. Section 182(1) provides:

182  Use of position—civil obligations

Use of position—directors, other officers and employees

 (1)    A director, secretary, other officer or employee of a corporation must not improperly use their position to:

(a)     gain an advantage for themselves or someone else; or

(b)     cause detriment to the corporation.

261    Section 183(1) provides:

183  Use of information—civil obligations

Use of information—directors, other officers and employees

(1)     A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to:

(a)     gain an advantage for themselves or someone else; or

(b)    cause detriment to the corporation.

Note 1: This duty continues after the person stops being an officer or employee of the corporation.

262    Section 182 of the Corporations Act codifies aspects of the contractual obligation to serve with loyalty and fidelity (see Labelmakers Group Pty Ltd v LL Force Pty Ltd (No 2) [2012] FCA 512 per Tracey J at [106]), and mirrors the equivalent equitable duty.

263    Section 183 has been said to reflect the fiduciary obligation under the general law (see Smart EV Solutions Pty Ltd v Guy [2023] FCA 1580 at [69] (Derrington J)). It continues, as set out in Note 1, beyond the employment of the employee.

264    The test of impropriety for the purposes of ss 182(1) and 183(1) of the Corporations Act is an objective one. This test was established by the joint majority in R v Byrnes (1995) 183 CLR 501, which dealt with the predecessor of s 182(1), and established the test for “improper use” in the following terms at 514-515:

Impropriety consists in a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case.

265    As to the meaning of “information” in s 183(1) of the Corporations Act, the plaintiff accepted the “narrower view” as expressed by Derrington J in Smart EV Solutions at [71]-[72]:

[71]    While there has been some difference of opinion about the type of “information” to which the section applies, the view that arguably accords best with the statutory language is that the term extends broadly to “knowledge of facts” or to “any information that a person may have acquired because of their position in the company”: Australian Securities and Investments Commission v Somerville (2009) 77 NSWLR 110, 124 [39]; Digital Cinema Network Pty Ltd v Omnilab Media Pty Ltd (No 2) [2011] FCA 509 [163]; Prestige Lifting Services Pty Ltd v Williams (2015) 333 ALR 674, 702 [207]; DHL Supply Chain (Australia) Pty Limited v United Workers’ Union [2021] FCA 707 [33]. See, generally, the discussion in Plus One [534] – [544]. Although instances of breach of confidence may fall within the reach of s 183, the question posed by the section is not whether the information is confidential, but how the information is acquired — specifically, whether it has been obtained because the person in question is a director, other officer or employee: see McNamara v Flavel (1988) 13 ACLR 619, 625; United Petroleum at 451 [649].

[72]    That having been said, it might also be argued that a narrower view of the term “information” must for now prevail at first instance in this Court after the Full Court in Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd (2008) 81 IPR 1 (Futuretronics) endorsed at 9 – 10 [44] – [46] the statement of Young J in Rosetex Company Pty Ltd v Licata (1994) 12 ACSR 779 at 784 that “‘information’ … means the sort of information which equity would protect by injunction if a director used it in breach of his fiduciary duties”. The position apparently adopted by the Full Court has been adhered to on multiple subsequent occasions: see, eg, Blackmagic Design Pty Ltd v Overliese (2010) 84 IPR 505, 534 [86]; Links Golf Tasmania Pty Ltd v Sattler (2012) 213 FCR 1, 230 [700]; GDP Group Pty Ltd v Saye [2022] FCA 688 [73]; New Aim Pty Ltd v Leung [2022] FCA 722 [248] – [251]. A Full Court constituted by five Judges recently found it unnecessary to reconsider the correctness of that position: New Aim Pty Ltd v Leung (2023) 410 ALR 190, 203 [58] – [59].

266    The plaintiff relied on Mr Engelke downloading the ACT! Report and customer report and sending it to Ms Chitas, the Octane access on 2 and 3 May and the iCloud back up. As established above, these actions were either within the scope of Mr Engelke’s regular duties, or did not support the inference sought to be drawn as to an improper use of his position. It did not consist of a “breach of the standards of conduct that would be expected of a person in the position” of Mr Engelke at Pennytel (R v Byrnes at 514-515).

267    I am also unable to find that Ms Chitas improperly used her position to gain an advantage or cause a detriment to Pennytel. As discussed in my reasons above, the email and Margin Summary spreadsheet forwarded to Ms Chitas’ sister was sent some nine months prior to the formulation of the business plan, the Mesh customer email and “little bit naughty” email were made prior to the business plan formulation and commencement of the pleaded scheme, and Ms Chitas’ explanations for accessing Zoho and other apps while on leave was corroborated with documentary evidence that did not imply any sinister motivation, but rather that Ms Chitas was responding to clients in the scope of her ordinary duties.

268    I agree with the defendants’ submission that the conduct alleged does not meet the test of improper use as set out in R v Byrnes.

269    In light of these findings, it is not necessary to consider whether damages should be awarded under s 1317H of the Corporations Act for any breach of s 182(1) of the Corporations Act.

270    In seeking to prove a breach of s 183(1), the plaintiff submitted that Mr Engelke’s participation in the scheme, his inferred use of The Confidential Information, and the speed at which SPN was set up and gained former Pennytel customers, constituted a contravention of s 183(1) of the Corporations Act. I have not found any evidence, or inferences that can lead to a conclusion to the proper level of satisfaction, of either Mr Engelke or Ms Chitas seeking to use information obtained as an employee to divert customers from Pennytel to SPN once that company got underway. I accept the defendants’ submission that the test of improper use has not been made out in respect of s 183(1).

Accessorial liability under the Corporations Act

271    Liability under ss 182 and 183 can extend to a person involved in a contravention of ss 182(1) and 183(1). The definition of a person involved in a contravention is found in s 79 of the Corporations Act, and relevantly s 79(c) which provides that a person is involved in a contravention if the person “has been in any way… knowingly concerned in, or party to, the contravention”. In Yorke v Lucas (1985) 158 CLR 661, the High Court interpreted this to mean that the person must have knowledge of the essential facts constituting the contravention, although they do not have to know that those facts amount to a contravention (see also Productivity Partners Pty Ltd (t/as Captain Cook College) v Australian Competition and Consumer Commission (2024) 419 ALR 30; [2024] HCA 27).

272    The plaintiff’s position is that by reason of entry into and fulfilment of the scheme, Mr Horan and SPN (through Mr Horan) had actual knowledge of the essential elements of Mr Engelke and Ms Chitas’ contraventions of s 182(1) and s 183(1) of the Corporations Act. It alleged that Mr Horan was knowingly concerned, under s 79 of the Corporations Act, in these statutory contraventions, and was therefore liable under s 182(2) and s 183(2) of the Corporations Act.

273    Given my findings on the existence of a scheme, and the lack of misuse of confidential information, Mr Horan does not have any separate liability for his involvement in Citratel and, later, SPN.

274    I will deal briefly with the elements that the plaintiff relied upon in seeking to attach liability to Mr Horan. Mr Horan said in his affidavit that he considered the clients that Citracom had referred to Ms Chitas at her various places of employment (including Focus and Pennytel) would “very likely follow me to a new venture”. He denied that he had seen confidential information of Pennytel’s, including “documents, reports or client lists or anything that [he] would identify as being Pennytel’s confidential information”.

275    On 26 January 2023, Mr Engelke received an offer of employment letter from Web Steps, a business owned by Mr Horan, to commence in the role of Business Development Manager. In cross-examination, Mr Horan accepted that he had hired Mr Engelke, through Web Steps, to work in the SPN business, and that by the end of January 2023, he intended for Mr Engelke and Ms Chitas to be involved in the business of SPN. Mr Horan denied that SPN intended to start trading on 1 February 2023, which was a denial the plaintiff alleged went “fairly and squarely to his credit”, however Mr Horan did accept that by February, the SPN business was “up and running”.

276    The plaintiff relied on the fact that Mr Horan had inserted confidentiality provisions into the Web Steps, Citracom and SPN employment contracts as evidence of his understanding of the importance of keeping client details confidential. The plaintiff submitted that Mr Horan was “happy to sit back and take the new business through SPN from former Pennytel customers notwithstanding his clear understanding from his own employee contracts that customer details were confidential”.

277    The plaintiff relied on the above facts to demonstrate that Mr Horan intended SPN to be a continuation of the scheme which was pleaded in relation to Citratel, that is, for Mr Engelke and Ms Chitas to take and misuse Pennytel’s confidential information. The plaintiff drew on some of Mr Horan’s answers about whether Mr Engelke and Ms Chitas being involved in Citratel was wrong in order to make submissions about his “attitude to reasonable business morality”, but Mr Horan’s view was that as Citratel was not actually competing, they were “not actually doing anything wrong”. The latter view is reflected in my reasons as set out above as to whether Ms Chitas was involved in a competitive business or whether she was merely taking preparatory steps towards one.

278    For completeness, the plaintiff also submitted that each of Mr Engelke, Mr Horan and SPN were involved in the contravention of section 182 by Ms Chitas. As I have not found any such contraventions, this ground cannot succeed.

Was it unlawful for SPN to start trading in February 2023?

279    The plaintiff’s case is based on an assumption that SPN commenced by reason of the pleaded scheme and by unlawfully using confidential information. In the absence of proof of those contentions, there was nothing unlawful about SPN starting trading in February 2023.

The plaintiff’s case on the employment agreements

280    Separately from the issue of confidential information, the plaintiff alleged (as clarified by the time of the closing submissions) that:

(a)    Mr Engelke breached the terms of his employment agreement relating to disclosing The Confidential Information to other persons, and using it for purposes not in the proper performance of his duties; not returning The Confidential Information on leaving the company; and failing to advise his employer of a conflict of interest;

(b)    Mr Engelke breached the implied term of good faith and fidelity while employed by Pennytel;

(c)    Ms Chitas breached the terms of her employment agreement relating to disclosing The Confidential Information to other persons, and using it for purposes not in the proper performance of her duties; not returning The Confidential Information on leaving the company; and

(d)    Ms Chitas breached the implied term of good faith and fidelity (while employed) or the contractual restraint period in her employment agreement (for the six months after 23 January 2023) not to compete with or divert business from Pennytel.

281    There was a preliminary issue as to which documents formed the basis of the first and second defendants’ terms of employment. I will deal with that issue first, then go on to examine whether the alleged breaches are made out, including determining, in relation to Ms Chitas, whether the restraint was reasonable or, as submitted by the defendants, void.

What were the first and second defendants’ terms of employment with Pennytel?

282    A preliminary issue was the terms upon which each of the first and second defendants were employed. As noted, they each were initially employed by Focus, and they were offered employment within the Pennytel group once the Focus business was sold.

283    Each of Mr Engelke and Ms Chitas signed an employment agreement in (relevantly) the same terms with Pennytel, Mr Engelke on 23 July 2021, and Ms Chitas on 26 July 2021. They were each sent a Contract of Employment with a Schedule of “Entitlements, Duties and Obligations” under cover of a letter from Rebecca Ryan, the General Manager of Pennytel at the time (together, original employment contract). It is not in dispute that each of them owed a duty of good faith and loyalty to Pennytel (at least, Mr Engelke and Ms Chitas said, during the periods of their employment), or that they each had access to confidential information during that time. Nor is it in dispute that the original employment contract bound each of them when first signed.

284    Mr Engelke commenced work with Pennytel as a technician, after Focus was acquired by Pennytel. On 5 October 2021, he was promoted to Corporate Business Manager, and on around 1 November 2021 he was promoted to Head of Corporate Services. He was not provided with a new employment contract for either of these roles. Mr Engelke pleads that his change of position meant that he was no longer bound by the terms of his original employment contract, as they were specific to his former position as Senior Technician, and his duties and responsibilities had “profoundly changed”.

285    Ms Chitas also entered into an original employment contract with Pennytel. She was employed as an Account Manager.

286    The two original employment contracts signed by Mr Engelke and Ms Chitas respectively contained the following term as to “consequences of termination”. In each of the quotes in the following paragraphs, the relevant portion relied upon by the plaintiff is emphasised by underlining:

8.3. Consequences of termination:

8.3.1. If you terminate your employment, or if your employment has been terminated, you must:

8.3.1.1. promptly return all property of the Company that is in your possession or control, including any document containing any Confidential Information, as the term is defined in section 3.2 of Schedule 1; and

8.3.1.2. not represent yourself as having any ongoing connection with The Company.

8.3.1.3. All obligations imposed on you under section 3 of Schedule 1 (“Obligations”) shall survive the termination of your employment and you continue to be bound by the same subsequent to termination. You acknowledge and agree that:

8.3.1.3.1. the Obligations are fair and reasonable for the purposes of protecting the Company’s business and goodwill;

8.3.1.3.2. your benefits and entitlements granted to you pursuant to your employment with the Company are adequate consideration for the Obligations, and that no other consideration or compensation is necessary in respect of the such Obligations;

8.3.1.3.3. any breach of the Obligations are likely to cause the Company substantial and irrevocable damage which is difficult to measure, and accordingly, in the event of any such breach or threatened breach, the Company shall have the right to obtain an injunction from a court restraining such breach or threatened breach and the right to specific performance of the Obligations subsequent to the termination of your employment;

8.3.1.3.4. the Company shall be entitled to other remedies to the maximum extent permitted by law; and

8.3.1.3.5. if at any time hereafter, you are offered an arrangement or contract which may cause you to breach the Obligations, you must notify any person, firm, company or entity of your obligations.

287    The Obligations appear in Clause 3.1 of the Schedule relevantly as follows:

3. Obligations

3.1. Electronic Communications

3.1.1. You may be given a computer, a phone and other types of electronic communications equipment for the duration of your employment with the Company to support you in the performance of your duties.

3.1.2. You will also have access to computer software, internet, phone, fax, email and voicemail supplied by the Company.

3.1.3. You acknowledge and agree that:

3.1.3.1. all material transmitted or received by electronic communications belongs to the Company and may be monitored by the Company. Audit trails detailing the dates and times of all internet site visits, together with the duration of such activities may be recorded and email activity may also be monitored. Should circumstances warrant it, the content of internal/ external email messages may also be intercepted and viewed by persons authorised by the Company, and if necessary, be blocked and quarantined.

3.1.3.2. you must use all electronic communication equipment and systems supplied by the Company to communicate with other persons solely for business-related purposes.

3.1.3.3. you may be charged for the use of such equipment and system for any personal purposes unless such use is reasonable in the circumstances.

3.1.3.4. in using the equipment and systems, you must:

3.1.3.4.1. safeguard your account and password.

3.1.3.4.2. comply with confidential information requirements.

3.1.3.4.3. respect the privacy of others.

3.1.3.4.4. use plain language format.

3.1.3.5. you must not use the equipment and system for any illegal or unacceptable activities,

including:

3.1.3.5.1. dissemination, mailing, display, posting, receipt or solicitation of illegal, obscene, threatening, defamatory, intimidating or harassing material or hate propaganda.

3.1.3.5.2. defamation of other users, individuals or organisations.

3.1.3.5.3. posting or in any way compromising the personal information of others as prohibited by the provisions of privacy laws.

3.1.3.5.4. theft, extortion, sabotage, fraud or blackmail, violation of copyright, trade secrets or infringement of any patent or other proprietary interests, including any activity that supports the illegal distribution of copyright material or software, or any such activity as prohibited by copyright laws.

3.1.3.5.5. gaining, or attempting to gain, unauthorised access to any kind of network, service, information, communications, computing facility or resource using the Company's facilities.

3.1.3.5.6. attempts to monitor or tamper with another user's electronic communications, except for monitoring by systems administrators in the performance of their authorised duties attempts to store or transfer any information, or to circumvent another user's authentication or security of any network or account, and any other activity, which can be construed as either 'cracking' or 'hacking';

3.1.3.5.7. damaging or destroying the integrity of a system, or the data or programs stored on a system.

3.1.3.5.8. dealing in any way with sexually explicit or pornographic material.

3.1.3.5.9. harassing another person.

3.1.3.5.10. injuring or disparaging the reputation of the Company, its partners or staff;

3.1.3.5.11. injuring or disparaging the reputation of a person outside the company, including any client of the Company.

3.1.3.6. you must not use the equipment and system for any:

3.1.3.6.1. unauthorised use or disclosure of the Company's Confidential Information, as the term is defined in section 3.2 herein, including forwarding any email relating to the business or management of the Company to any person outside the Company, or to any private email account utilised by you which is shared with family members or friends.

3.1.3.6.2. publishing or distributing any material which has not been approved for distribution.

3.1.3.6.3. uploading, downloading, modifying or removing files from the network.

3.1.3.6.4. downloading any shareware, freeware or other executable files from the Internet without the express prior approval of your supervisor.

3.1.3.6.5. posting information to the Web, ftp or gopher servers, without the express prior approval of your supervisor.

3.1.3.6.6. posting information to unapproved newsgroups, forums, blogs or discussion groups.

3.1.3.6.7. distributing, displaying, soliciting or receiving material, which is in any way contained herein, or generally accepted social standards.

288    Despite the references to the defined term “Company’s Confidential Information” being found in “clause 3.2 of Schedule 1” (see clause 3.1.3.6.1 of the Schedule), neither that particular definition nor that numbered clause exists. It can be construed as a reference to the “Confidential Information” found in clause 4.1 of the Schedule, relevantly as follows:

Confidential and Proprietary Information

4.1. You may be entitled to, or may become aware of, information which is confidential to the Company (Confidential Information) during your employment, including, without limitation:

4.1.1. information regarding the affairs of the company, including products and services, finances, customer details, sales figures, employee details, pricing methodologies, finances, and similar information relating to the Company’s internal operations, plans, policies, practices and transactions.

4.1.2. information regarding the affairs of any client of the Company.

4.1.3. proprietary information, including trade secrets, client lists, know-how, original works or inventions, designs, trademarks and trade names, whether registered or not, technical processes, systems, methods, inventions, discoveries, improvements, enhancements, records, reports, documents, papers and other materials whatsoever and any derivative works thereof, prepared by the Company or another employee, or by any client of the Company.

4.1.4. Except in the proper performance of your duties or as required by law, you must not:

4.1.4.1. disclose any Confidential Information to any other employee or to any third person outside the Company.

4.1.4.2. use any Confidential Information for any other purposes.

4.1.5. Unless written prior authorisation is

given by your supervisor, you must not:

4.1.5.1. copy, modify or reproduce any Confidential Information.

4.1.5.2. search or access any document prepared by another person within the company.

4.1.6. You agree to waive all proprietary rights, title and interests you may have, including moral rights, in any Confidential Information, and all proprietary information which you may have developed or created or enhanced, or assisted in such development, creation or enhancement, during the course of your employment, and that all such Confidential Information belong solely to the Company, or its clients or licensors, whichever the case may be.

4.1.7. You must not retain and must return or destroy at the direction of the Company, any Confidential Information which you are in possession or control upon your leaving the employment of the Company.

289    Clause 4.2 provided that all reasonable steps must be taken to avoid a conflict of interest arising, and should such a conflict arise, the employee should promptly notify their supervisor.

290    Clause 4.3 of the Schedule provided for a restraint. It read:

4.3 Restraint

4.3.1. For the purposes of this section:

4.3.1.1 “Client” means any person, firm, company or entity which has at any time before or during the Restraint Period been a client of the Company.

4.3.1.2 “Prospective Client” means any person, firm, company or entity which has at any time before or during the Restraint Period been in negotiations with the Company for the supply of services; and

4.3.1.3 “Restraint Period” means the period during which you must comply with the restraint obligations below, being the duration of your employment with the Company and for 6 months after termination of such employment.

4.3.2. In order to protect the Company's goodwill and in consideration of the benefits derived by you pursuant to your employment with the Company, you acknowledge and agree that, unless prior written consent has been given by the Company, you will not directly or indirectly, during the Restraint Period:

4.3.2.1 engage, or assist others in engaging, in any business or enterprise that is competitive with our business, whether or not as an owner, partner, officer, director, employee, consultant, investor, lender or otherwise.

4.3.2.2 either alone or with others, solicit, canvass, divert or take away, or attempt to solicit, canvass, divert or take away, the business or patronage of any Clients or Prospective Clients.

4.3.2.3 either alone or with others, supply, or attempt to supply, to any Client or Prospective Client products and services like the products and services offered by the Company; and

4.3.2.4 either alone or with others, solicit, induce or attempt to induce, any of the Company's employees or contractors to terminate his or her employment or engagement with the Company, or to hire or engage any such employee or contractor.

4.3.3. Each of the restrictions contained in paragraph 4.3.2 is a separate and independent restriction, notwithstanding that it may be contained in the same phrase, and if any part is found to be void and unenforceable, the remainder will remain valid and enforceable.

Which documents form the terms of employment for Mr Engelke?

291    In relation to Mr Engelke, the Amended Defence pleads that once he became Corporate Business Manager on 5 October 2021, his “employment duties and responsibilities had profoundly changed, such that his employment was no longer bound” by the original employment contract.

292    The email sent by Ms Ryan to Mr Engelke on 5 October 2021 said, “I am pleased to confirm your role change to Corporate Business Manager with Pennytel Australia”. That letter did not specify that he was no longer bound by the original employment contract. After noting that his role had changed, it set out his management responsibilities, as well as his salary. The specification of his then current salary was numbered in a similar but not identical format to the original employment contract. The email went on to say his salary would be reviewed in six months’ time.

293    Later on 5 October 2021, Mr Engelke and Ms Ryan corresponded by email about the role change. In that email chain, Mr Engelke raised the long hours he had been working as a technician and asked for a salary increase. He wrote:

My employment contract says that if I am required to work beyond my ordinary hours I will be remunerated and that I need to seek prior approval to work overtime. Instead of seeking approval in advance which isn’t really possible except for pre organised tech jobs, so I am asking for a salary increase of 20% to cover the additional hours and responsibilities.

294    Ms Ryan replied on 6 October 2021, noting that management roles did not have overtime, and that there were “minimal long days”. Apart from Mr Engelke referring to his “employment contract”, there was no other discussion about the original employment contract or any other form of contract.

295    On 8 November 2021, Ms Ryan wrote to Mr Engelke “confirm[ing] your role change to Head of Corporate Services with Pennytel Australia.” For this position, he did receive a pay increase of 10% and had “an overall responsibility of the Corporate Business Clients”.

296    Mr Zizic said in his affidavit of 7 June 2023 at paragraph 36:

Mr Engelke was employed by Pennytel Australia as a Senior Technician from 29 July 2021 to 7 November 2021. On 8 November 2021 Mr Engelke was promoted to the role of Head of Corporate Services. The role change included direct management of the Corporate Services Team Members and an overall responsibility of Corporate Business Clients. He was in this role until he resigned and exited the business on 6 May 2022.

297    Mr Zizic did not provide any detail around any employment contract discussions for the role of Head of Corporate Services, merely annexing a copy of the letter from Ms Ryan and the contract of employment signed on 23 July 2021 before his evidence as to the role changes.

298    However, because Mr Engelke was bound by a duty of fidelity during his employment with Pennytel (see Irving M KC, The Contract of Employment (1st ed, LexisNexis Australia, 2012) p 370 at [7.30]), the defendants submitted that “those written terms probably do not materially add to the common law obligations”.

299    In support of the submission that the original employment contract did not apply after 8 November 2021, the defendants pointed to the absence of a “job mobility clause” and relied on Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567 (Ashley J) where an employee was initially engaged on the basis of his employment being able to be terminated by one month’s notice by either party, as “an understudy to the General Manager” of a construction project. During his two years of employment with the defendant, Mr Quinn functioned in three other roles; a period of over a year when he acted as General Manager, a period of three months when he was construction manager for a different project and construction manager for the whole group, and finally, six months of various duties in several construction projects, but not the project where he had been general manager. In that case, the plaintiff contended that each change of position supplanted the previous contract of employment.

300    Mr Millar, counsel for the defendants, relied on the statement of Ashley J at 576-7:

… the passage highlights what seems to me to be a valid point - that where employer and employee agree to an alteration in the employee's duties and responsibilities which is profound, a court should be more ready to hold (unless the original contract of employment provided for the contingency) that a new contract has replaced the old; or at least that the old contract, as varied, contained terms objectively appropriate to the new relationship created.

301    The passage referred to above is from a South Australian case of Federated Mutual Insurance Co of Australia v Sabine [1920] SALR 284 per Murray CJ at 292:

… unless the original agreement gave the employer the right to the services of the employee in any capacity he chose to direct from time to time there would be a new employment whenever a change was made in the duties to be performed, and it would be a question of fact in each case what the terms of the new employment were.

302    Each of the decisions in Quinn v Jack Chia, and Federated Mutual Insurance Co stressed that the Court must consider the factual circumstances of each contract of employment and each position. The terms in question in each case were the period of notice which was originally agreed to be one month, but after significant (or profound) promotions, the period of notice was assessed to be a “reasonable” one (of 12 months in Quinn v Jack Chia, and six months in Federated Mutual Insurance Co).

303    Clause 5.1 of the original employment contract provides:

5.1. You will be part of the Victorian Business Sales Department of the Company, reporting to the General Manager of Pennytel Australia. However, you may still be required to undertake work with other departments of the Company in response to the needs of the business.

304    The Schedule to the original employment contract provides:

2. Duties

2.1. Your principal duties are as follows:

2.1.1. Victorian Business Sales

2.1.1.1. In a team environment, retain and grow the Pennytel Corporate Clients.

2.1.1.2. Understand the company’s goal and purpose so that you can adapt in situations to enhance the company’s performance.

2.1.1.3. Other reasonable tasks the company advises as per the ongoing needs of the business.

305    These provisions were relied on by the plaintiff to demonstrate that the terms of the original employment contract would continue to apply to Mr Engelke despite his promotions.

306    The question in relation to Mr Engelke’s employment is not whether a period of notice of termination from a lower level of employment subsisted into a higher level of employment; here, the terms relied on by the plaintiff are terms relating to the use of confidential information and post-employment restraints, which would doubtless have been imported into any contract of employment for Mr Engelke’s subsequent roles in the same, (or, in the context of the post-employment restraints, possibly more stringent) terms. Mr Zizic’s evidence was that “all of its employment agreements with staff” contained the confidential information clause.

307    Ashley J referred to having regard to the “industry norm” when determining what Mr Quinn’s period of notice should be (at 581). Pennytel submitted that Mr Engelke continued to be bound by the confidentiality and restraint provisions in the original employment contract despite his change of role. It submitted that:

The construction contended for by Mr Engelke produces a commercially absurd result that a change in duties anticipated in the wording of the employment agreement discharge him from all liability under the confidentiality clause and he is contractually free to do as he pleases. Reasonable persons would not so construe a contract.

308    It seems to me that the change of duties from Senior Technician to a management role within Pennytel was not the kind of change which would have released Mr Engelke from his previous obligations to safeguard his employer’s confidentiality, nor the restraints on his post-Pennytel employment. In my view, the proper basis to have regard to Mr Engelke’s terms of employment is the contract he signed on 23 July 2021, which, given his question as to his contractual rights, appears to have been the parties’ view at the time. In any event, the defendants accepted that various kinds of confidential information were the confidential information of the plaintiff.

Which documents form the terms of employment for Ms Chitas?

309    By the time of the plaintiff’s closing submissions, the plaintiff relied only on the original employment contract. This was a step back for the plaintiff, as the contention was, as Mr Zizic said in his first affidavit that employee contracts were “altered in respect of confidential information” in February 2022 and that Ms Chitas was estopped from relying on the original employment contract. The alleged estoppel was based on a further employment contract being sent to Ms Chitas by letter dated 4 February 2022, as pleaded and alleged by Pennytel. This is not admitted by Ms Chitas, who says that she has no recollection of receiving the further employment contract from Ms Ryan. However, at the end of the day, the plaintiff did not press this contention.

310    Accordingly, as the plaintiff cannot prove that Ms Chitas agreed to the further employment contract, Ms Chitas is bound by the original employment contract.

Was the Employee Handbook part of the contract of employment for either of the first or second defendants?

311    In January 2022, Pennytel adopted two new systems, an HR unit called Zoho People and an internal company communications unit called Zoho Connect. The email notifying the employees as to these changes was from Rebecca Ryan to the “Pennytel All Hands” email address. The email included a link to the Pennytel Employee Handbook. Clause 1.2 identified the “Purpose of the Employee Handbook” as “the Employer’s rules and regulations, the policies and procedures relating to your employment and also contains information on your benefits and protections … all employees are required to comply with the… Handbook”.

312    Clause 1.4 of the Handbook provided:

1.4 GENERAL

Amendments to this Employee Handbook will be issued from time to time.

This Employee Handbook does not form part of your contract of employment, unless expressly stated otherwise. However, in any event, the Employee Handbook may be considered when interpreting your rights and obligations under your terms of employment.

313    To the extent that the contents of the Employee Handbook are relevant, given that disclaimer, the following clauses were relied upon by the plaintiff:

7.1 IT and Computer Policy

…

ii) Use of computer equipment

In order to control the use of the Employer’s computer equipment and reduce the risk of contamination, the following rules will apply:

•    the introduction of new software and applications must first of all be checked and authorised by management before general use will be permitted

•    only authorised employees are permitted access to the Employer’s computer equipment

•    only software that is used for business applications may be used on the Employer’s computer equipment

•    computers are to be locked at the end of the day before leaving work

•    no software may be brought onto or taken from the Employer’s premises without prior authorisation and

•    unauthorised copying and/or removal of computer equipment and/or software will result in disciplinary action up to and including termination.

…

8. STANDARDS

…

8.4 CONFLICT OF INTEREST

You may not be involved, employed or engaged in any activity which may be or is likely to create a conflict of interest. The Employer may take whatever action it determines appropriate to avoid the actual or potential conflict of interest. Such action may include transfers, reassignments, changing shifts, or, where the Employer deems such action appropriate, termination of employment.

    …

17.4 CONFIDENTIALITY

All Employer business information is regarded as confidential; this includes customer and staff information. Therefore, you must take steps to protect Employer records at all times against loss, unauthorised access, alteration, or destruction.

You are required to take special care to secure all records and to prevent unauthorised disclosure of any Employer or other business information. Customer or customer contact information is particularly sensitive as customers have a legal right to expect personal information held about them to be held in utmost confidence. On behalf of the Company it is your legal obligation to ensure these rights are protected.

Precautions must be taken to ensure third parties, including members of your family, visitors or other persons visiting or residing in your home do not become aware of any information which is confidential.

Information must not be left unattended when you are working and when materials are not in use they should be locked away in a secure place. Similar precautions must be taken when transporting documents in the course of your work.

You must take responsibility for destroying safely any paperwork containing confidential Employer business that is no longer required. Where necessary, papers can be brought to the Employer’s offices for confidential shredding.

If you have any reason to believe that Employer information is lost, altered or has been accessed by any unauthorised person, you must report this to your manager without delay.

Use of any computer equipment owned by the Employer, its software, etc. is limited to yourself alone and to business applications only. Personal equipment such as a printer or modem may not be connected to any of the Employers’ equipment or property without consent. Information personal to you should not be stored on the computer.

314    The ASOC does not plead that the Handbook formed part of the terms of employment of either Mr Engelke or Ms Chitas. However, as will be seen, the plaintiff alleged failures by each of the first and second defendants arising out of the “unauthorised copying” of the information on their company-owned laptops and mobile phones, relying on the Handbook.

315    Mr Engelke accepted in cross-examination that he was aware of the Handbook and understood that he was not free to undertake “unauthorised copying”, and that he should protect confidentiality in emails. Ms Chitas was less forthcoming about her knowledge of the Handbook but did not dispute that she had received it, and agreed that she had had a conversation with Ms Ryan about it.

316    Accordingly, I will regard the Handbook as forming part of the policies and procedures of Pennytel, which applied to the first and second defendants while employed by Pennytel, but not as part of the employment contracts of Mr Engelke or Ms Chitas. In the plaintiff’s submissions, the Handbook was relied upon to give context to the confidential information clauses in the respective employment contracts. However, where the terms of the Handbook are not pleaded as binding the first two defendants, it should not be used to bolster the express provisions relating to their conduct in their respective employment contracts.

Implied term of good faith and fidelity

317    Each of the first and second defendants admitted that such a term should be implied into their contract. However, they denied that they breached the implied term by reason of the ability of an employee to take preparatory steps towards setting up a new business, even if that business is in competition with the then employer. The defendants relied on the statement of Lord Kenyon in Nichol v Martyn (1799) 2 Esp 732:

A servant, while engaged in the service of his master, has no right to do any act which may injure his trade, or undermine his business; but every one has a right, if he can, to better his situation in the world; and if he does it by means not contrary to law, though his master may eventually be injured, it is damnum absque injuria. There is nothing morally bad, or very improper, in a servant, who has it in his contemplation at a future period to set up for himself, to endeavour to conciliate the regard of his master’s customers, and to recommend himself to them, so as to procure some business from them as well as others. In the present case, the defendant did not solicit the present orders of the customers; on the contrary, he took for the plaintiffs all those he could obtain; his request of business for himself was prospective, and for a time when the relation of master and servant between him and the plaintiffs would be at an end.

And, more recently, Besanko J in Lifeplan Australia Friendly Society Ltd v Woff [2016] FCA 248 at [338]:

An employee may take certain preparatory steps towards new employment or a new business without breaching his or her duties to his or her existing employer. What may be done without breaching the duties of fidelity and good faith will depend very much on the particular circumstances of the case: Robb v Green [1895] 2 QB 1 per Hawkins J; Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VicRp 7; [1967] VR 37; Futuretronics.com.au Pty Limited v Graphix Labels Pty Ltd [2007] FCA 1621; Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 2.

318    The plaintiff relied, inter alia, on Bryson J’s statements in Weldon & Co Services Pty Ltd v Harbinson [2000] NSWSC 272 at [10](2) where his Honour said:

The contract of employment contains an implied promise to serve with good faith and fidelity. Loyalty is required, and unless the employer knows and approves of the activity the implied promise is broken if the employee conducts competing business activities while in the employment, and also if the employee takes preliminary steps to establish a competing business in some way which is not loyal to the employer, such as by making copies of the employer’s list of clients or by canvassing the employer’s customers to bring their business over to the new enterprise being established. There are remedies, which can include injunctions, based on breach of contract.

and Labelmakers per Tracey J at [116]:

If an employee who is taking preparatory steps with a view to setting up a competitive business fails to inform his or her employer about what he or she is doing and actively seeks to ensure that the employer does not become aware that the preparatory steps are being taken, it may reasonably be inferred that the employee is aware that what he or she is doing is antipathetic to the interests of the employer: see Able Tours v Mann (2009) 187 IR 1 at [185]-[186].

319    As it is not contested that the duty of good faith and fidelity forms part of the contracts of employment, I will deal with this part of the plaintiff’s case along with the allegations of breaches of express terms of the employment contracts below.

Did Mr Engelke breach his employment contract?

320    As can be seen from the facts set out above, the idea of the new business had been floated between Mr Engelke and Mr Horan, and Ms Chitas had been approached and agreed to come on board, in August/September 2022. By 6 November 2022, the three of them had set up their corporate vehicles, and Citratel had been registered. Between 6 November 2022 and 22 July 2023, Ms Chitas had considered price lists for “a friend setting up a new business” and Citratel had applied for TIAB services citing an “an existing customer base with IT services and existing account managers with customer relationships”.

321    It is alleged in the plaintiff’s closing submissions that Mr Engelke breached clauses 4.1.4, 4.1.5, 4.1.7 and 4.2, of the original employment contract. The plaintiff relied on the following matters (summarising the contractual terms which are set out above at [288] and [289]);

(a)    4.1.1 – Disclosing Confidential Information to another employee or to any third person, and using Confidential Information for any other purposes: The customer report, creating the iCloud drive and uploading documents to the Cloud, and the 2 and 3 May Octane access.

(b)    4.1.5 – Copying, modifying, or reproducing Confidential Information, and searching or accessing documents prepared by another person within the company without written prior authorisation: As for (a) above.

(c)    4.17 – Not retaining and returning Confidential Information: Creating the iCloud drive and uploading documents to the Cloud.

(d)    4.2 – Conflicts of interest: As for (a) above.

(e)    Implied term of good faith and fidelity: As for (a) above.

In relation to each of the clauses above, the plaintiff said in its closing submissions that “misuse is also inferred from failing to disclose what became of those documents”.

322    As can be seen from the analysis of whether Mr Engelke misused the information to which he had access after he left Pennytel and Spirit, I do not accept that Mr Engelke misused the information. The actions relied on by the plaintiff do not on their face appear to be breaches of cl 4.1.1 given that most of the “disclosures” of confidential information were for the purposes of his employment; liaising with Ms Chitas in relation to accounts, or handing over to Ms Yehson, for example. I have noted above that Ms Yehson was not called, and Mr Zizic gave second-hand evidence that she does not remember. This leads me to the view that she was, for the purposes of a Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 inference, both available to the plaintiff, and unable to assist the plaintiff’s case.

323    Likewise, I have found that the iCloud backup by Mr Engelke was not a misuse of confidential information, given that I accept Mr Engelke’s evidence that he did not maintain Pennytel’s documents on iCloud.

324    The remaining question is whether any of these actions constitute a “conflict of interest” that must be disclosed. In its closing submissions, the actions relied upon as conflicts of interest that should have been disclosed to Pennytel were:

(a)    the customer report;

(b)    creating Pennytel and Focus folders on his laptop and uploading Pennytel documents onto iCloud; and

(c)    downloading documents on 2 and 3 May 2022.

The plaintiff further submitted that “misuse is also inferred from failing to disclose what became of those documents”.

325    I do not regard these actions as putting Mr Engelke into a position of conflict of interest, as I have found that the purposes of creating or downloading/backing up these documents were not sinister. As submitted by the defendants, a conflict of interest must involve an “actual repugnance” between duty and interest; maintaining some documents on his iCloud after leaving the employ of Pennytel, where I have found those documents were not used, is not sufficient. Nor is creating or downloading documents in the course of his employment (the ACT! list and the documents on 2 and 3 May 2022) where those documents were not used in breach of confidence.

326    It is not asserted that Mr Engelke has breached his post-employment restraints. I have found that Mr Engelke had only determined to investigate setting up his own business when he contacted Ms McCann initially, which was after the actions relied upon. I have also found that there was no evidence of active canvassing of customers using any documents that may have been retained.

327    As to the issue of a breach of good faith and fidelity, the plaintiff relied on Mr Engelke’s retention of documents on his personal iCloud. Mr Engelke said that he thought he deleted “all that stuff” after his departure. He was cross-examined on the logical inconsistency of “downloading” files on 6 May 2022 and then deleting them soon afterwards, with the implication that he must have kept them; but this characterisation does not take into account the automatic “syncing” of files on iCloud and the fact that Mr Engelke handed his laptop back to Pennytel with documents such as a Pennytel suppliers spreadsheet downloaded on 6 May 2022, Connexus pricing information, and Focus price books on it. Mr Engelke was cross-examined about the spreadsheet AL-3, attached to Mr Le’s expert report, and he remained adamant that he had not specifically backed up his computer, but instead, “was just saving it within folders on the computer, which then synced to the cloud”.

328    The plaintiff submitted, in strong terms, that his explanation was not believable; it was submitted in closing written submissions that:

8.3.40    This was straight out theft. This only inference that the Court could draw knowing that:

(a)    Mr Engelke took the files and never disclosed it;

(b)    he never disclosed why he took all the files;

(b)    the new business was up and running 10 months later; and

(c)    that many of the higher yield corporate customers came over to SPN;

was that it was taken to use to in the future to set up a competing business and/or was ultimately was used in the setting up and conduct of such business.

(as written)

329    Each of these submissions rests on the assumption that the files were “taken” with a purpose in mind, which purpose was actioned in SPN’s eventual trading. I have found that that assumption is not correct.

330    At the time of Mr Engelke’s departure from Pennytel, when the documents were synced, he was not, as I have found, planning to set up a business in competition with Pennytel. I have found that there was no specific intent in his possession of the documents relied upon by the plaintiff, and so I am of the view that there was no breach of his duty of good faith and fidelity by having his computer backed up to iCloud. Given the factual findings I have made, the submission that the “only inference” that can be drawn from Mr Engelke’s iCloud backup is that he stole the documents for use in a future competing business cannot be made out.

331    Accordingly, the plaintiff does not succeed on this part of the claim.

Did Ms Chitas breach her employment contract?

Confidential information provisions

332    The plaintiff’s opening submissions do not hold back in characterising pleaded breaches by Ms Chitas. For example, in relation to the email to Ms North, Ms Chitas’ sister, Mr Freeman says:

This was a flagrant breach of clause 4.1.4.1 of the Chitas Agreement and her confidentiality obligations. There can be no legitimate justification for this. This … underlies her total disdain for her obligations as an employee and in respect of Pennytel’s customer records.

333    Similarly to Mr Engelke, it is alleged in the table in the plaintiff’s closing submissions that Ms Chitas was “a party to, and participated in the Scheme” by which she breached clauses 4.1.4 and 4.1.7 of the original employment contract. The plaintiff relied on the following matters (again, summarising the contractual terms which are set out above at [288] and [289]):

(a)    4.1.4 – Disclosing Confidential Information to another employee or to any third person, and using Confidential Information for any other purposes: The email and Margin Summary spreadsheet forwarded to Ms Chitas’ sister on 9 December 2021, and the customer report.

(b)    4.1.7 – Not retaining and returning Confidential Information: As for (a) above.

334    In relation to each of these breaches, the plaintiff said in its closing submissions that by resetting her laptop hard drive, the Court “would infer that she had disclosed and used confidential information as part of the Scheme”.

335    It was submitted that the spreadsheet emailed to her sister, and the receipt of the customer report, were breaches of the confidential information provisions of her employment agreement. I have found above that the email to her sister was inadvertent, and it was, in any event, not pleaded. As for the customer report, that was obtained in the proper course of her duties and there is no evidence that it was misused. Accordingly, I do not find that these actions were undertaken in breach of her terms of employment, including the implied duty of good faith and loyalty.

Did Ms Chitas breach the contract of employment?

336    The plaintiff submitted that Ms Chitas was a party to the setting up of Citratel, that she had knowledge of the establishment of SPN, and that she “sat on the sidelines for 6 months while a business in which she has an interest signs up clients or prospective clients”. It is contended that this was a breach of the contract of employment, both while and after she was employed by Pennytel, and a breach of the duty of good faith and fidelity.

337    The plaintiff’s closing submissions alleged that Ms Chitas had a conflict of interest by becoming a director and shareholder of Citratel while working for Pennytel, in breach of cl 4.2 of the original employment contract and the implied term of good faith and fidelity. It further relied on a breach of cl 4.1.5 (as per Mr Engelke, above) but did not expand further on the alleged breach. It should be noted that the ASOC does not plead Ms Chitas breached clauses 4.2 or 4.1.5. In closing oral submissions, Mr Millar submitted that the breach of cl 4.2 had not been invoked as it was not raised in the ASOC or the agreed list of issues for determination provided to the Court.

338    I have found that Ms Chitas did not misuse the confidential information; however, was she entitled to take “preparatory steps” to set up a new business in competition with Pennytel, even while employed at Pennytel, as the defendants contended?

339    The parties take opposing views. The plaintiff dealt with the evidence as to actions while employed at Pennytel in its closing submissions as follows:

When the existence of Citratel came to light, SPN Co (Samantha Peter Nicholas) was registered with Mr Horan as the front but ultimately with the same 1/3 interests. She was a party to the original setting up of a Citratel and it continued under the guise of SPN and she had full knowledge of its activities.

Sitting on the sidelines for 6 months while a business in which she has an interest signs up Clients or Prospective Clients is a breach.

Inferred from deleting her laptop hard drive.

(references omitted)

and as to breach of good faith and fidelity:

Ms Chitas was a party to, participated in and put into effect, the Scheme. While an employee, she engaged in the conduct at 84(a)-(c) of the ASOC and failed to disclose to Pennytel the matters at paragraph 84(d) of the ASOC.

340    The plaintiff relied on Bryson J’s statements in Weldon (extracted at [318] above) which found that preliminary steps to set up a competing business without the knowledge of the employer gave rise to remedies in breach of contract. That case dealt with the implied duty of good faith and fidelity as there was no contractual provision expressly preventing Ms Harbison from taking such steps, but the principle could also apply to breach of an express term.

341    The examples in Weldon of breaches of the implied duty of good faith and loyalty were analysed as “conducting competing business activities” and the disloyalty examples were making copies of the employer’s client list, or canvassing those clients to bring their business over to the new enterprise, when it was established.

342    As noted above it was Ms Chitas’ involvement with Citratel, as a director, which led to her resignation from Pennytel. SPN was registered by Mr Horan on 16 January 2023 – before Ms Chitas had left Pennytel. Ms Chitas maintained that she was not involved in the preparatory steps to set up the new business, including the contact between Citratel and TIAB. It is clear that she did take some preparatory steps – for example, in seeking advice on a family trust, taking the shareholding in Citratel through Overmasters, and considering price information from PBX Installs for Mr Engelke.

343    Ms Chitas said that she was not involved in the creation of SPN, and that “Nick and Peter handled it”. I can infer that Ms Chitas was aware of it, because she was aware of the S in the name standing for her first initial, and “… saw this as an opportunity to set up a company in which all three of us could ultimately work, as we had originally hoped to do through Citratel”.

344    I pause to note that the submission that Ms Chitas “had an interest” in SPN was based on cross-examination of Mr Engelke (at T.349) where he agreed that it was intended that, when SPN was up and running and “the money” that Mr Horan had put in was resolved, they “might have another discussion about where to from here” (ie, ownership of SPN shares by Mr Engelke and Ms Chitas). Ms Chitas said that she wasn’t aware of any conversations which Mr Horan and Mr Engelke had had about this. Ms Chitas said that February to April – after she had resigned from Pennytel, and was dealing with deaths in her close family– were “a blur” and she was not aware of what SPN was doing in relation to customers.

345    Ms Chitas relied on the fact that she “did not start work with SPN until after the six-month restraint period had ended”. In her affidavit, she said:

I waited until 23 July 2023 to start working at SPN in my current role as a Business Telecommunications Specialist, six months after my resignation from Pennytel.

346    I am unable to find on the evidence that Ms Chitas “had an interest” in SPN during her employment, or for the six months after she resigned from Pennytel.

347    The defendants submitted that “the word engage is a verb, and the prohibition is not infringed by planning a future business, or even holding a passive interest in a present business”. But the contract does not merely restrain Ms Chitas from “working at” a competing business; it requires that she not “engage, or assist others in engaging, in any business or enterprise that is competitive with our business”.

348    Most of the cases relied upon by the defendants in support of Ms Chitas’ assertion that she was not working for Citratel or SPN until after the six months had expired, and that there was no harm in engaging in preparatory steps towards a future business, relate to the implied duty of good faith. Two which are particularly relied upon are Lifeplan at [338], and Weldon at [15]. These are cases in which the preparatory steps were undertaken where there was no contractual stipulation such as the present, and where the employer relied on the breach of an implied term of good faith and fidelity. In Weldon, there was no express agreement relating to activities to set up a business or the use of confidential information during, or after the cessation of, Ms Harbinson’s employment, and no express restraint (at [5]). The defendant set up practice as an accountant the day after her employment ended, having done preparatory work including gaining professional indemnity insurance and obtaining her own practising certificate whilst employed by the plaintiff, and by using its equipment. On setting up her own practice, she “sent messages and letters and made telephone contact with many persons who had been clients of the plaintiff and whose work she had done while employed. She told these persons that she had established her practice and offered to do accounting work for them.” (at [9]).

349    The plaintiff sought to draw a link between the situation in Weldon – where the office consisted of only two persons – with Ms Chitas’ role at Focus and then at Pennytel. Bryson J said (at [27]) in Weldon:

In the present circumstances where the plaintiff was conducting a small public accountancy and tax agents' practice with only two persons working as accountants in it, and the defendant had responsibility for direct contact with many clients without close supervision, I am of the view that the defendant’s duty required that she should not conduct a rival business, however large or small, which would or could divert paying clients who otherwise might bring their business to the plaintiff and obtain the defendant's services in that way. This would be the expectation of reasonable people who applied their minds to the circumstances of a small accountancy practice...

350    The plaintiff submitted that “this is an apt description as to the intimacy of the Pennytel office in Victoria and the complete control over local business customers by Ms Chitas”. With respect, the evidence does not establish that proposition. While Ms Chitas was an account manager, there were a number of other account managers, and her position was very different to that of Ms Harbinson, who worked only with one other accountant in the office of Weldon & Co.

351    I have found above that Ms Chitas was not siphoning customers to Citratel (or SPN) during her employment by Pennytel – she referred, for example, two large Citracom clients to Pennytel in December 2022 (see [189] above). However, she was a director and, through Overmasters, a shareholder, of Citratel. Was this “engaging, and assisting others to engage”, in the business that became SPN? As Besanko J said in Lifeplan at [338], “What may be done without breaching the duties of fidelity and good faith will depend very much on the particular circumstances of the case” (citing Robb v Green [1895] 2 QB 1 per Hawkins J).

352    The particular circumstances of this case are finely balanced. While it seems to me that Ms Chitas was doing more than merely sitting on the sidelines, she did not take any steps to misuse confidential information or to divert clients from Pennytel while she was employed. She agreed to come on board with Mr Engelke and Mr Horan in August/September 2022, becoming a director of Citratel and taking shares in it through Overmasters, and to that extent, she was preparing to engage in such a competitive business. It was not said by Ms Chitas that she did not intend to join Citratel; in fact, the TIAB documents demonstrate that she did, by referring to her expertise as an “existing account manager … with customer relationships” (a document signed on 14 November 2022 by Mr Engelke). Citratel, it should be remembered, did not trade. SPN did not trade until after Ms Chitas left Pennytel.

353    In Bristol-Myers Squibb Pharmaceuticals Pty Ltd v Collins (1995) 31 IPR 488 Hedigan J found that preparatory steps which included incorporating a company, negotiating a draft distribution agreement for competitive products, engaging employees to be sales persons, trialling products and seeking their registration under Federal legislation, were not, “singly or in combination, more than preparatory steps preceding the establishment of a business.” (at 497). See also Helmet Integrated Systems Ltd v Tunnard [2007] IRLR 126; [2006] EWCA Civ 1735 at [49], and Weldon. As noted above, the defendant in Weldon was found to have breached her obligations by doing private work while employed, but the preparatory work she undertook for her own future business was not found to have been a breach as it was merely preparatory.

354    While I have found that I do not accept Ms Chitas’ assertions about when she intended to leave Pennytel, I do accept that she was not further involved in Citratel, and not involved in the business of SPN at all, until she joined that business after the six month period expired.

355    Ms Chitas was aware (having been reminded in clear terms by the correspondence between lawyers in January 2023) of her post-employment restraints, and both Mr Engelke and Mr Horan were aware of that period. Merely “sitting on the sidelines” after leaving Pennytel, and waiting out a period of restraint, is not a breach of the contractual restraint. Ms Chitas was neither engaging in SPN’s business nor diverting clients to them, and I cannot infer from her actions during her employment that she breached her restraints thereafter. The submission that waiting out a restraint period with an intention to join a competing business is a breach of that restraint involves an illogical leap which would result in a de facto indefinite extension of the restraint period, as the restraint period would never end.

356    In the circumstances, I do not find that Ms Chitas breached her obligations of good faith and fidelity, or the terms of her employment agreement, by taking the limited steps that she did to set up a business in competition with Pennytel while employed by Pennytel.

Were the restraints valid?

357    If I am wrong, and Ms Chitas did breach either the contract terms or her duty of good faith and loyalty, I would need to determine whether the restraints were, as contended by the defendants, invalid. There are two separate questions. The first is whether the restraint on engaging in competitive business was valid whilst Ms Chitas was employed, and the second is whether it was valid for the post-employment period.

358    The plaintiff submitted that by taking preparatory steps towards or commencing to set up a business which would be in competition with Pennytel, Ms Chitas breached cl 4.3.2 of her employment agreement which read (relevantly):

4.3.2 … you will not directly or indirectly, during the Restraint Period:

4.3.2.1 engage, or assist others in engaging, in any business or enterprise that is competitive with our business …

4.3.2.2 … attempt to solicit, canvass, divert, or take away, the business or patronage of any Clients or Prospective Clients;

4.3.2.3    … attempt to supply to any Client or Prospective Client products and services like the products and services offered by the Company …

359    It will be recalled that the Restraint Period was the period of her employment with Pennytel, and a subsequent six months post-employment.

360    Ms Chitas’ employment contract is governed by Victorian Law (clause 9.1).

361    While it was not in dispute that the restraint clause formed part of Ms Chitas’ original employment contract, the defendants argued that the restraint extended beyond the protection of Pennytel’s legitimate interests and is void and unenforceable as an unreasonable restraint of trade. The onus lies on Pennytel to show that the restraint was reasonable as at the time of the agreement.

362    In relation to the terms of restraint while Ms Chitas was employed; I have no doubt that it was a legitimate protection of Pennytel’s interests to protect its goodwill. Ms Chitas, who had worked for Focus and then Pennytel for an extensive period of time, was peculiarly well placed to take advantage of that by her access to the kind of confidential documents which are at the heart of this case. There is no doubt that the restraint during Ms Chitas’ employment is valid.

363    In 3D Access Pty Ltd v Buzasi [2025] FCA 1105 at [35]-[39], Snaden J summarised the principles that regulate the enforcement of post-restraint covenants. Although this case concerned the granting of injunctive relief, the general principles set out are relevant.

364    At [36] of 3D Access, his Honour cited Just Group Ltd v Peck (2016) 344 ALR 162, 173 [30]-[31] (Beach and Ferguson JJA and Riordan AJA) as authority for “the starting position” that a post-employment restraint is prima facie invalid, unless in all the circumstances it is no more than is reasonably necessary for the protection of the employer’s business and not contrary to the public interest. To demonstrate the former, “the enforcing party must show that the clause goes no further than necessary to protect its legitimate interests”. His Honour went on to say, at [37], that “in the employment context, restraints that limit competition per se are not enforceable: Just Group, 174 at [32]”.

365    Employment restraints which relate to prevention of competition and solicitation of clients have “a long pedigree” in businesses undertaking professional services; see Birdanco Nominees Pty Ltd v Money (2012) 36 VR 341; [2012] VSCA 64 (Maxwell P, Redlich JA and Robson AJA at [2] per Maxwell P). I do not regard Pennytel as being in the “professional services” category, it being involved in sales of telecommunication products and so not having the trust and confidence aspect of the professional services businesses in Birdanco Nominees and Weldon (both accountancy firms).

366    As noted above, I accept that Pennytel had a legitimate interest in protecting confidential information and customer connections which it sought to protect by restraining an employee from being involved in a competitive business. The plaintiff bears the onus of proving this legitimate interest, and relied on Pennytel’s purchase of the assets and customers of a number of telecommunications businesses, including, relevantly, Focus.

367    The defendants relied on the summary in Brilliant Lighting v Baillieu [2004] VSC 248 at [11] as enumerating the relevant factors for assessing reasonableness of a restraint. These are:

(a)    the activity restrained;

(b)    the duration of the restraint;

(c)    the geographical coverage of the restraint;

(d)    consideration received; and

(e)    bargaining position of the parties.

368    The scope of the restraint in terms of its geographic area and duration was said to be unreasonable. The defendants submitted that the six-month restraint period was “an excessively long period of protection from legitimate competition”. The geographical coverage of the restraint was also said to be unreasonable as it was not limited to any particular area. This last submission has some force. On its face, a restraint which is not confined to a particular geographic location may go beyond what is necessary to protect the employer’s legitimate interest. Although Pennytel is a telecommunications company, and has offices elsewhere, the Focus customers upon which this case is mainly concentrated are Victorian businesses.

369    The types of activities restrained were also argued to be too wide, and therefore unreasonable. The defendants submitted that it was “manifestly an attempt to shield Pennytel from mere competition”. In particular, they relied on the fact that the non-solicitation clause applied to any Client or Prospective Client of Pennytel, as defined in clause 4.3.1 and extracted below:

4.3.1.1. “Client” means any person, firm, company or entity which has at any time before or during the Restraint Period been a client of the Company.

4.3.1.2. “Prospective Client” means any person, firm, company or entity which has at any time before or during the Restraint Period been in negotiations with the Company for the supply of services.

370    The defendants submitted that the effect of these definitions could result in an unwitting breach of the restraint clause as it precluded Ms Chitas from dealing with entities that she was unaware had been clients of Pennytel from many years ago, with entities currently a client of Pennytel with which she had no dealings, or clients who were in negotiations with both SPN and Pennytel at the same time but unknown to her.

371    As indicated above, restraints that limit competition per se are not enforceable and a covenant of that nature must be tethered to, for example, particular clients with which the employee worked (3D Access at [37] citing Freedom Finance Accounting Pty Ltd v Goldstein [2017] VSC 179, [42] (McDonald J) citing Birdanco Nominees at [80]-[85] (Robson AJA)).

372    The defendants also relied on the fact that Ms Chitas’ salary was $79,579.50 per annum. Unlike the case of a highly paid business executive, it was unreasonable to exclude Ms Chitas from working in her chosen field for six months. It was also argued that the restraint was not a product of commercial negotiation, presumably relying on the principle that the courts take a stricter view of covenants in restraints of trade in employment contracts than those contained in contracts for the sale of a business.

373    In my view the post-employment restraint provisions are excessive, particularly as to length and the geographical reach, but also as to the wide definition of clients. It would have been reasonable, in my view, to restrict Ms Chitas’ activities to a period of say three months (which would have given customers a reasonable time to settle in to a new account manager) and to restrict it to Victoria, and to current customers of Pennytel. Accordingly, as Victoria does not have the equivalent of the Restraints of Trade Act 1976 (NSW) which allows an invalid restraint to be read down to a reasonable provision, the defendants argued that the entire post-employment restraint is invalid.

374    As set out in Wallis Nominees (Computing) Pty Ltd v Pickett (2013) 45 VR 657 at [94]-[95] and Just Group at [39], the impugned part of a restraint may be struck out if, by so doing, it can be simply removed without changing the meaning of the remaining part – ie, an independent covenant. The plaintiff does rely on these cases at paragraph 13 of its closing submissions, however it does not rely on them to base an argument that, if the Court found the restraint was unreasonable, the impugned part could be struck out to make it enforceable. In relation to the timeframe for the post-employment restraint, there is no ability insert a new term, but only to strike out a part of the clause, as if it were “simply crossed out with a blue pen” (Wallis Nominees at [94]). In my view it would not change the balance of clause 4.3.1.3 if it were to read:

"Restraint Period" means the period during which you must comply with the restraint obligations below, being the duration of your employment with the Company and for 6 months after termination of such employment.

375    However, the geographical reach of the provision and the definitions set out above as to Clients and Prospective Clients are not able to be amended in a way which enables a reasonable restraint without changing the meaning, and so I would find that the entirety of the post-employment restraint in Ms Chitas’ contract of employment is invalid and unenforceable.

What are the damages claimed by Pennytel?

376    I should briefly note Pennytel’s claim to damages. It relied on cl 8.3.1 of the original employment contracts (as set out at [286] above). Pennytel also relied on the expert report of Mr Nguyen. On the basis of a “transferred customer list” he determined that 83 customers were ported from Pennytel to SPN between 19 October 2022 to March 2024. He noted that 98% of those customers were “corporate” customers, and calculated the gross margin from transferred as opposed to retained customers. He expressed the view that the transferred customers had a higher profit margin for Pennytel than the retained customers. He calculated a loss of profit before interest of $764,705. The plaintiff submitted that interest should run from 28 February 2023, being the “first bill run of SPN”, which Mr Nguyen calculated to 1 June 2024, totalling $76,301.

377    The plaintiff did not restrict itself to damages arising from those customers however, submitting that “their loss does not form the limit of the injury to the plaintiff, for the wholesale canvas of [its] customers was likely to … diminish receipts and profit”. It was submitted that “the amount that Mr Nguyen opin[ed] was the loss of the income from 83 customers: the very thing that a Court can legitimately assess to “neutralise the unfair head start the new business obtains by using the confidential information” Gold Titan Pty Ltd v Lopez (No 2) [2021] FCA 1523 at [7]”. It was submitted that losses for breach of contract are not limited to the trading loss, but can extend to diminution of goodwill (Gold Titan (Abraham J) at [8]). There was no specific submission on the extent of the diminution of goodwill. I note the evidence that Pennytel suffered a churn in customers unrelated to the existence of SPN.

378    The defendants submitted that “there has to be a causal link between the breach and the loss” and pointed to one of the actions put as a breach of the contract of employment, the sending of an email to Ms North by Ms Chitas some 12 months prior to her termination, noting that it does not follow that the loss of clients years later by Pennytel is a basis for assessing that loss as flowing from that alleged breach. If no link could be drawn to a loss on the part of the plaintiff, then it was submitted that even were the plaintiff to be successful, “we’re in nominal damages territory”.

Delivery up and Restraints

379    The plaintiff also sought remedies in relation to the documents themselves; that they be delivered up to the plaintiff and that the defendants be restrained from using them. The first and second defendants denied that they retained any copies, or that they used the information. I have accepted their evidence that this is so, and on the basis of my findings above do not need to make any orders.

Determination

380    As the defendants have been entirely successful in resisting the relief sought, the proceedings should be dismissed.

381    The defendants wish to be heard on the question of costs. The parties have leave to approach my chambers to have the matter relisted for a short hearing on costs, after which final orders both dismissing the proceedings, and determining the costs, will be made.

Associate:

Dated:    13 November 2025

Attachment A – agreed issues for determination

1.0    Confidential Information

1.1    What is the information and has it been identified with specificity?

1.2    Does the information have the necessary quality of confidence?

1.3    Was the information received by Mr Engelke and Ms Chitas in circumstances importing an obligation of confidence?;

1.4    Was there a scheme between each of Mr Engelke, Ms Chitas and Mr Horan to set up a competing business by using the confidential information of Pennytel?

1.5    Has there been an actual or threatened misuse of the information without Pennytel’s consent:

(a)    in furtherance of the Scheme and as pleaded at paragraphs 43-46, 47A-47D, 48-55, 57, 61, 61A-61C, 66A-66F, 69-76, 77(b), 79-83 and 85 of the Amended Statement of Claim (ASOC)?;

(b)    as pleaded at paragraphs 43-46, 47A-47D, 48-55, 57, 61, 61A-61C, 66A-66F, 69-76, 77(b), 79-83 and 85 of the ASOC?

1.6    Was the information received and used by Ms Chitas, Mr Horan and/or SPN in circumstances where they knew or ought to have known that the information was confidential to Pennytel?

1.7    If yes to 1.5 and/or 1.6, has Pennytel suffered loss and damage and if so how is the loss and damage assessed?

2.0    The Chitas Employment Agreement

2.1    What were the terms of the Chitas Employment Agreement?

2.2    Did Ms Chitas breach the terms of clauses 4.1.4.1, 4.1.4.2, 4.1.7 and 4.3 of the Chitas Employment Agreement and the implied term if good faith, and if so, which terms?

2.3    Was clause 4.3 of the Chitas Employment Agreement an unreasonable restraint of trade?

2.4    If any provisions of the Chitas Employment Agreement which are valid and were breached, has Pennytel suffered loss and damage and if so how is the loss and damage assessed?

3.0    The Engelke Employment Agreement

3.1    What were the terms of the Engelke Employment Agreement?

3.2    Because of Mr Engelke’s change in employment duties, was he bound by any one or more of the terms of the Engelke Employment Agreement?

3.3    If yes to 3.2, did Engelke breach any of the terms of clauses 4.1.4.1, 4.1.5, 4.1.7 and 4.2 of the Engelke Employment Agreement and the implied term of good faith, and if so, which terms?

3.4    If yes to 3.3, has Pennytel suffered loss and damage and if so how is the loss and damage assessed?

4.0    Section 182(1) of the Corporations Act

4.1    Did Mr Engelke, as an employee of Pennytel, improperly use his position to gain an advantage for himself or someone else or to cause detriment to Pennytel?

4.2    If yes to 4.1, what is the loss or damage?

4.3    Did Ms Chitas, as an employee of Pennytel, improperly use her position to gain an advantage for herself or someone else or to cause detriment to Pennytel?

4.4    If yes to 4.3, has Pennytel suffered loss and damage and if so how is the loss and damage assessed?

5.0    Which parties, if any, have accessorial liability under section 79 of the Corporations Act for any breaches of section 182(1) of the Corporations Act?

6.0    Section 183(1) of the Corporations Act

6.1    Did Mr Engelke:

(a)    as an employee of Pennytel acquire information by virtue of his position as an employee of the Pennytel;

(b)    make improper use of that information;

(c)    made that improper use in order to gain directly or indirectly an advantage;

(d)    gained that advantage either for himself or someone else;

(e)    alternatively made that improper use to cause detriment to Pennytel.

6.2    If yes to 6.1, has Pennytel suffered loss and damage and if so how is the loss and damage assessed?

6.3    Did Ms Chitas:

(a)    as an employee of Pennytel acquire information by virtue of her position as an employee of the Pennytel;

(b)    make improper use of that information;

(c)    made that improper use in order to gain directly or indirectly an advantage;

(d)    gained that advantage either for herself or someone else;

(e)    alternatively made that improper use to cause detriment to Pennytel.

6.4    If yes to 6.3, has Pennytel suffered loss and damage and if so how is the loss and damage assessed?

7.0    Which parties, if any, have accessorial liability under section 79 of the Corporations Act for any breaches of section 183(1) of the Corporations Act?

SCHEDULE OF PARTIES