FCA 748
Confidential information – former employee took preparatory steps to establish competitive business – duties and obligations to employer – implied duties of good faith and fidelity – fiduciary duties – ss 182 and 183 of the Corporations Act 2001 (Cth) – accessorial liability
The applicant, Verix Pty Ltd, formerly PGA Laminating Pty Ltd (“PGA”), brought proceedings against a former employee (“Mr Williams”) and an alleged accessory (“Mr Swanepoel”), and his alleged corporate alter ego (“Swanell Corp”) for breaches of contract, statutory duties, fiduciary and other equitable duties. There is a separate claim for infringement of copyright.
Paragraph 9 deserves special mention where Justice Beach commented:
The case for PGA was presented by Mr Marcus Fleming. He ran his case against litigants in person in a proportionate, fair and skilful fashion which considerably assisted my task in running the trial and formulating my solution.
Well done to our fellow contributor.
Mr Williams was employed by PGA as its business development manager, responsible for managing PGA’s client accounts and developing new business opportunities. He ceased being an employee in mid-November 2017. Mr Williams, together with Mr Swanepoel and Mr Jonny Yip, were said to have engaged in a course of conduct relating to the development of a new business designed to compete with PGA, including by soliciting business from and submitting tenders to its existing clients (the competitive business). PGA alleged that the respondents had received and used commercially sensitive information obtained by Mr Williams as a result of his employment, including product specifications, pricing information and information concerning business opportunities which Mr Williams ought to have pursued on behalf of PGA.
The evidence established that, during his employment, Mr Williams took steps to establish the competitive business with a view to transitioning PGA’s existing clients to the new business after his resignation, and that he did so by reference to information obtained because of his employment with PGA. Mr Swanepoel was engaged by PGA through his company, Swanell Corp, as a contractor to act as PGA’s sales consultant from about March 2016.
Justice Beach examined the various duties owed to PGA by Mr Williams, be they common law, equitable or statutory. Mr Williams owed contractual duties of fidelity and good faith, which were implied by the employment relationship and the underlying fiduciary relationship. Thereby, Mr Williams:
- was under an obligation during the term of his employment, and after termination of his employment, to keep confidential information provided to him by PGA;
- owed a duty to PGA to maintain trust and confidence with PGA and not to do anything likely to destroy or damage such a relationship of trust and confidence; and
- owed a duty to render faithful and loyal service to PGA and not to do anything in conflict between his interest and his duty to PGA.
Mr Williams owed fiduciary duties to PGA namely:
- not to place himself in a position where his interest or his duty to someone else conflicted with his duty, when acting within the scope of his employment, to act in the best interest of PGA; and
- not to take advantage of his position as an employee for the benefit of a person other than his employer.
Justice Beach found that a fiduciary’s position inhibits them not only in respect of business opportunities that the company is actively pursuing, but also opportunities in which the company might reasonably be expected to be interested, given its current line of business.
Mr Williams also owed statutory duties under sections 182 and 183 of the Corporations Act 2001 (Cth).Both sections refer to an employee gaining an advantage for themselves or someone else or causing detriment to the company. In this regard, his Honour noted that an advantage or the suffering of detriment is not necessary to establish a breach of the statutory duties and that it is sufficient to establish that the conduct was carried out in order to gain an advantage, not that the advantage was actually achieved.
In relation to the equitable duty of confidence, the information the subject of the claim must have the necessary attribute or quality of confidence and have been identified with specificity rather than generally or globally, the information has to be obtained or imparted in circumstances identifying or importing an obligation of confidence, and there needs to have been or there needs to be threatened use of that information. Moreover, Justice Beach noted that, where a party has applied skill and ingenuity to produce a compilation, equity may treat the entire compilation of information as confidential, even where some of that information is publicly available.
The evidence established that in and from July 2017, whilst an employee of PGA, Mr Williams began preparations together with Mr Swanepoel and Mr Yip to establish a business to provide film packaging for manufacturers in the food industry in competition with PGA, and in doing so he breached his contract of employment with PGA, breached fiduciary and statutory duties owed to PGA, misused PGA’s confidential information and infringed PGA’s copyright.
Mr Williams’ actions included taking preparatory steps to establish the competitive business; soliciting business from existing and prospective PGA customers with the intention of securing those customers for the competitive business to the exclusion of PGA; using PGA’s confidential information in relation to the aforesaid conduct; manipulating PGA’s pricing with customers, thus making PGA uncompetitive, causing the loss of customers and/or requiring the sale by PGA of bespoke stock at a substantial discount; acquiring obsolete stock from a third party in his capacity as an employee of PGA, to later re-sell through the competitive business, thereby denying PGA of this opportunity; unauthorised redirection of emails; deletion of emails and files; sending PGA copyright works from his PGA email to his personal Gmail; and indiscriminate and wholesale forwarding of emails from his PGA email address to his personal Gmail account.
Mr Williams was found to have breached his employment agreement, breached sections 182 and 183 of the Corporations Act, breached his equitable duty of confidence, breached his fiduciary duties in all of the manifestations Justice Beach had referred to, and infringed copyright. His conduct also was found to be flagrant within the meaning of section 115(4) of the Copyright Act 1968 (Cth), making him liable for additional damages. Justice Beach was not satisfied that the breaches of fiduciary duties were fraudulent and dishonest.
Justice Beach found that Mr Swanepoel and Swanell Corp were involved in Mr Williams’ contraventions of sections 182 and 183, and knowingly assisted Mr Williams’ breaches of his equitable duty of confidence to PGA. PGA’s claims against Mr Swanepoel of knowing involvement concerning statutory breaches were established. PGA also made out the claim of accessorial liability against Mr Swanepoel involving the breach of an equitable duty of confidence. However, as Justice Beach was not satisfied that Mr Williams’ breaches of fiduciary duties were dishonest and fraudulent (required in order to find Mr Swanepoel liable for having knowingly assisted), he did not find against Mr Swanepoel concerning knowing assistance relating to Mr Williams’ breaches of fiduciary duty. Swanell Corp was also liable as an accessory.