Intellectual Property Law Update – WeChat confidential information and lawyers beware, how to prepare expert reports

Intellectual Property
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M Marcus
C Cunliffe 2
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New Aim Pty Ltd v Leung [2022] FCA 722

Equity – confidential information – whether information is required to be a trade secret – WeChat list of contacts maintained by employee

Evidence – independent expert’s report – duties and responsibilities of instructing solicitors

The Applicant, New Aim Pty Ltd (New Aim), conducts a large-scale e-commerce business in Australia and sources its products from suppliers in China. It is a competitive market. The first respondent, Mr Leung, commenced employment with New Aim as a junior office assistant in 2009, and when he resigned in January 2021, he was Chief Commercial Officer.

The second and third respondents were also former employees of New Aim. The fourth and fifth respondents are competitors of New Aim.

In October 2021, New Aim obtained an interlocutory injunction against the respondents, including orders restraining them from reproducing or disclosing the confidential information of the applicant, defined in the orders as meaning the identity and/or contact details of persons who were suppliers of products to the applicants as at January or March 2021.

When the proceeding commenced, it was confined to claims of equitable breach of confidence, breach of the Corporations Act and breach of contract.

A critical issue for the Court was to determine how it should characterise the information which the applicant said had been misused. The question for the Court was what specific information had been used by the first respondent and whether the confidentiality of that information was protected by the law. The case is illustrative of the fact that breach of confidence cases turn on their own facts, rather than hard and fast principles.

Also of particular significance in this case are the findings arising from the following introductory comments by Justice McElwaine, “[s]ave for one witness, I conclude that each person who gave evidence before me did so conscious of the need to assist me in making findings of fact on contested issues between the parties…The exception is Ms…, an expert witness for the applicant”. What followed is a must read for everyone who works with experts in relation to the preparation of their independent reports or affidavits. The authors suspect that many practitioners will need to review their practice in light of the decision.

WeChat information

In relation to the confidential information case, Justice McElwaine set out the four elements to the claim and then analysed each. His Honour found that he was principally concerned with the conduct of the first respondent, Mr Leung, and by reason of that fact, there was a need to distinguish between know-how and information which is obviously confidential to which the label of “trade secret” is sometimes applied.

Contrary to the principles discussed in Faccenda Chicken Pty Ltd v Fowler [1987] 1 Ch 117, Justice McElwain concluded that, when considering post-employment restrictions on employees, the Australian authorities do not support confinement of the post-employment principle to confidential information which is in the nature of a trade secret, if by that label what is intended is reference to a readily identical subset of confidential information”. The situation is more fluid.

New Aim’s claim as finally expressed was found by the Court to be limited to the list of WeChat contacts recorded in Mr Leung’s personal mobile telephone (WeChat information). Mr Leung used his personal mobile for his work, including to communicate with Chinese suppliers to New Aim. Mr Leung added to his WeChat contacts various comments. Mr Leung’s use of WeChat was with the knowledge of New Aim.

While the court accepted that the WeChat information was not generally known outside New Aim’s business, it did not follow that the information was not able to be ascertained by inquiry, noting that New Aim had not adduced any evidence of exclusive supply agreements with any supplier nor that it required suppliers to enter into confidentiality agreements or to provide undertakings which bound a supplier not to divulge the fact they were suppliers to New Aim.

The Court concluded that, with persistence, some degree of market knowledge of the e-commerce business in Australia and the range of potential suppliers, a person who is employed in a competing e-commerce business to that of New Aim was able to ascertain the identity of particular suppliers of particular products to New Aim. It may be observed here that other cases have found that something that has been constructed solely from materials in the public domain may possess the necessary quality of confidentiality: for something new and confidential may have been brought into being by the application of human skill and ingenuity.

The Court also concluded that New Aim did not ever make it known to Mr Leung that it regarded the WeChat information as confidential. New Aim did not attempt to restrict the use of the WeChat information by Mr Leung. New Aim was aware that Mr Leung maintained the WeChat information on his personal mobile telephone and permitted Mr Leung to use his personal mobile telephone for work-related purposes. New Aim did not ever request Mr Leung to transfer his personal WeChat contact details to any of the more formal supplier databases that it developed and maintained over time.

A further matter in the case was the extent to which the WeChat information was able to be identified and readily isolated from the employee’s general know-how which the employee was entitled to use after the end of employment. The Court concluded that a person of ordinary honesty and intelligence would not conclude that the WeChat information was the property of New Aim. The WeChat information lacked the inherent quality that was necessary to elevate it above the accumulated general knowledge and know-how of Mr Leung.

Expert evidence

The consideration by his Honour of the expert evidence is instructive to all practitioners about the care that needs to be taken in the preparation of expert evidence before the Federal Court.

Of significant concern for the Court was the degree of collaboration between the applicant’s solicitors and the expert in relation to the report by the expert. Ultimately, the expert agreed in cross examination that her report was a collaboration between her and the lawyers for the applicant. The Court found that parts of the deponent’s witness statement bore “a remarkable similarity to paragraphs in the witness statement” of another witness for New Aim and the judge concluded those parts were written by a lawyer not the deponent. One of those parts was a crucial conclusion of the deponent relevant to the case. After it was revealed during cross-examination that the deponent had received email communications from the lawyers suggesting that she make changes to her draft report, those communications were called for production and revealed that all that the deponent had initially sent to the solicitors was her biography and some general information about her company and the lawyers drafted her statement apparently by reference to a book she had written and some videoconferences. The Court concluded that “It would appear that most of the report was, at least initially, the product of drafting by the lawyers for the applicant, albeit in reliance upon some material of a non-specific nature that Ms Chen provided to the lawyers.”

The Court stated that, in some circumstances, the fact that an expert witness may agree with a form of words for the expression of the expert's opinion which are put to the expert in an admissible form may not detract from the independence of the expert and the reliability of the opinion expressed. However, the Court concluded that what occurred in this case went well beyond permissible guidance of that character.

The Court was invited by counsel for the respondents to reject the entirety of the expert report, or alternatively to place no weight upon it. The Court ultimately rejected the expert evidence in its entirety.

The Court concluded that the expert could not be regarded as independent and also found that the conduct engaged in in preparing and delivering the report of the expert was misleading. Importantly, the Court stated that, even if in some circumstances it is proper for lawyers to draft an independent expert witness statement for consideration by the putative expert (where the statement is drafted based on instructions from the expert), that fact must be disclosed in the expert report conformably with the obligations that the expert assumes in accordance with the Expert Evidence Practice Note and the Harmonised Expert Witness Code of Conduct.

Further, in the event of such collaboration, all correspondence relating to the manner of preparation of the report should be disclosed and, to the extent that oral advice is conveyed to the expert, the substance should be documented and disclosed. The Court found that in this situation those obligations had not been complied with and therefore, the Court rejected the expert's written report in its entirety, together with the expert’s oral evidence.

This decision may come as a surprise to many intellectual property law practitioners, who often work closely with experts in the preparation of their evidence, especially when the expert has not assisted a court before. It is well understood that, while assistance can be provided with the form of words used to seek to ensure they are in admissible form, the opinions expressed must be those of the expert and not those of the lawyers representing a party and that the expert is there to assist the Court and not the party who has engaged them. However, practitioners may be surprised by the Court’s indication that, where there is collaboration of that kind, it must be spelt out in the report ultimately prepared. It is not presently clear how detailed that account of collaboration needs to be.

For example, where a report or affidavit is prepared by a solicitor on oral instructions from an expert (that is, in conference), the decision leaves open to question whether it will be sufficient for the deponent to simply state as much and confirm that the opinions expressed are those as were conveyed by the expert to the solicitor with the solicitor assisting in, for example, the structure of the document and the form of expression, but not the substance. Alternatively, it may be the case that the Court would expect far greater detail. We expect that there will be further guidance in relation to this issue, either in decisions to come (including in the recently filed appeal in this case) or in amendments to GPN-EXPT practice note, the Federal Court’s guidance to practitioners concerning expert evidence.

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