JUDGMENT
1 The plaintiff company (Artedomus) imports from Italy marble, other stone products (including limestone) and ceramics for retail to the more prestigious end of the building industry. It is an Australia-wide business with a turnover in the vicinity of ten million dollars per annum. The defendants, Mr Del Casale and Mr Savini, are former employees and directors of Artedomus who joined, at about the time of their departure from that company, in doing business through the third defendant Stone Arc Pty Limited (Stone Arc), a company formed by Mr Del Casale while he was still a director of Artedomus. In these proceedings against the defendants, the plaintiff has claimed various remedies, including damages or an account of profits, on the basis that each of Messrs Del Casale and Savini committed breaches of his duty of confidentiality owed to Artedomus; that Mr Del Casale also committed breaches of fiduciary duties owed as a director, of statutory duties owed as a director under sections 182 and 183 of the Corporations Act 2001 and of the express terms of a covenant or agreement associated both with the termination of his employment and with a sale of shares in Artedomus in which he was interested, requiring him not to compete with Artedomus for a period of three years "and to keep confidential any commercially sensitive information he may be in possession of or have become aware of during his employment by the Company and the Trustee [through which the business of the company had been carried on at an earlier date]"; that Mr Savini was involved in the contraventions of sections 182 and 183 by Mr Del Casale and knowingly assisted in his breaches of fiduciary duty; and that Stone Arc had knowingly profited from the breaches of duty of Mr Del Casale and Savini, by whom the shares in it were owned. These reasons for judgment are concerned only with the question whether Artedomus has established a cause or causes of action, the issues of relief having been deferred to a later hearing, if that becomes necessary.
2 Artedomus was formed in 1998 to take over the business conducted since about 1986 by Mr Angelo Schepis and his associates, particularly Mr Varano and Mr Bradley Hancock. Mr Schepis was at all relevant times Managing Director of Artedomus and had managed the earlier business. He was born in Messina in north east Sicily and had migrated to Australia at about the age of twenty-two. In about 1991, the head office of the business, which had been in Perth, was moved to Sydney because Mr Schepis sought a wider horizon. He is a licensed builder who has imported stone into Australia since 1985 and is experienced in the development of stone products for the Australian market. A large proportion of the stone products of Artedomus has its source in little known quarries in remote regions of Italy. The evidence indicates that Artedomus has expended money and time in travel to Italy and attendances at trade fairs in order to source new stone products and suppliers, in negotiations with suppliers once identified, in the development, together with them, of the processing of the product to make it suitable for export to Australia, including the establishment of quality control measures, and in the arrangement of reliable and safe transportation. When found, a new product has to be marketed to architects and designers in Australia so that its qualities may be recommended to the ultimate customers.
3 This case is concerned particularly with a stone known as Modica, as well as by other names, which is marketed by Artedomus in Australia as Isernia. It is a variety of limestone obtained in the province of Ragusa in south eastern Sicily, that is south and west of Syracuse, not by quarrying from a continuous body of rock, but by the extraction of separate boulders lying at or close to the surface of the land over wide areas. Artedomus imports it under an exclusive agreement with an Italian company known as Arredo Italia, and its success in the Australian market may be gauged from the fact that in the financial year 2001-2002 sales of Isernia made up about thirty per cent of the total sales effected by Artedomus. This was that company's largest selling product. The story of its introduction to Australia is an interesting illustration of the methods pursued by Mr Schepis, and by others in the industry, and shows the difficulties that may be encountered. It was in 1991 that Mr Schepis saw, at a marble fair in Verona, Italy, an exhibition of furniture which utilised Modica stone. Following the fair, Mr Schepis addressed repeated requests for samples to the representative of Arredo Italia who had shown this furniture in Verona, but entirely without response. Then, about a year later, on another trip to Italy, Mr Schepis actually went to the province of Ragusa where he called upon Arredo Italia, but was not able to see a responsible person. Since he had come to this part of Sicily specially to try to import some Modica to Australia, he then made a search in the province for other possible suppliers, but considered that they did not have the necessary facilities to enter into the export trade for the Australian market. However, about six months later, Mr Schepis received a telephone call from the then new General Manager of Arredo Italia, Mr Taballi, who arranged to send samples to Australia. Mr Schepis liked the samples, which he believed to be unique among the products available in Australia, so in about 1993 he obtained the first container load from Arredo Italia, and over the next couple of years, he received several further container loads. However, his experience was that the material was not well packed for transport, not well loaded into the containers, and suffered from a lack of quality control. Despite these disadvantages, Mr Schepis entered upon the task of marketing the stone, using the name Isernia, by demonstrating its qualities to architects, designers and others, supplying samples, by advertising and by other means. In about 1995 or 1996, the stone started to achieve some popularity with architects and designers in Australia, but the consignments that were received from Arredo Italia continued to exhibit problems. Mr Schepis therefore arranged for an employee of Arredo Italia to be trained at the premises of two other Italian companies with which he dealt, located in southern Italy, and developed conjointly with Arredo Italia a sandblasting technique suitable for this stone. He also arranged a business trip by the Managing Director of Arredo Italia to Australia so that he could appreciate better the problems created here by the lack of quality control in Sicily. Over the period to 2002, Artedomus and its predecessor were the sole importers of Modica into Australia, and the quantities imported grew steadily. In about 1996, Mr Schepis went to Ragusa again to endeavour to source additional suppliers, but without success.
4 The name Isernia was chosen for the Modica stone by Mr Schepis, as other names had been chosen for other stones, in order to avoid revealing its place of origin. Isernia is the name of a small town in Italy, further north than Naples, and some seven hundred kilometres from the Sicilian province of Ragusa. Similarly, a lava stone from Sicily was sold on the Australian market as Grigio Ercolano, after the ancient town of Herculaneum, near Naples, destroyed with Pompeii in 79 AD by the eruption of Vesuvius. It was Mr Savini who chose that name. The object, of course, was to preserve a measure of uniqueness for the products of Artedomus by making it difficult for competitors to locate and purchase the same type of stone either from the same supplier or another quarry in the close vicinity. Having expended substantial sums of money on product development and on building up an appreciation in the marketplace of the appearance and physical characteristics of Isernia, it was clearly in the interest of Artedomus to endeavour to keep the source of this product to itself. There was debate, in the evidence, concerning the degree of the difficulty a competitor might have in tracing the origin of such a stone, and undoubtedly it would be possible to do so by having a skilled person attend trade fairs in Italy. However, that would cost money and might or might not be productive in the long run, having regard to the experience of Mr Schepis upon his first attempts to obtain Modica stone and the possibility (something a competitor would have to consider) that the only appropriate quarry which might be discovered after much expenditure of time and effort as well as money, might have an exclusive contract with Artedomus, as indeed Arredo Italia has, or regards itself as having.
5 Although the defendants disputed the point, the evidence shows quite clearly that considerable efforts were made by Artedomus to conceal the source of Isernia, and the making of those efforts is itself eloquent in support of the contention of Mr Schepis that secrecy in this regard was, and was seen to be, of real value to the company. The very use of the name Isernia, with its tendency to divert attention from the province of Ragusa in Sicily, is significant. But there was evidence also of an elaborate and expensive exercise undertaken by Artedomus, involving Mr Del Casale personally, which cannot be interpreted otherwise than as indicating that great importance was attached to the confidentiality of the source from which Isernia was obtained. What happened was the following. An architect having specified Isernia for a project at North Sydney known as "The Pinnacle", a successful tenderer for the building contract requested an opportunity to see this stone in Italy. In order to avoid disclosing the source of the stone in the province of Ragusa in Sicily, Mr Schepis arranged to have one of his other exporters, the well known Italian company named Bimarmi, make available a factory located in Puglia in southern Italy, not very far from Bari on the Adriatic coast, for the exhibition of a quantity of Modica, and then had the Modica sent from Arredo Italia in Sicily to the factory at Puglia. Mr Del Casale happened to be on holidays in Italy at the time, and Artedomus paid for him to travel to the Bimarmi factory in order to conduct the viewing and to take steps to ensure that the real origin of the stone was not disclosed. According to Mr Del Casale, he arrived late, and there had already been a disclosure, but he does not deny the evidence of Mr Schepis that his instructions were to get to the factory first and to remain until after the customer had left in order to ensure that the customer did not talk to the factory staff about the origin of the stone. Although the builder nevertheless discovered that origin, according to Mr Del Casale, there is no evidence that he disclosed it to anyone else. In fact, it appears he was unable to utilise his knowledge because he seems to have got no further than ascertaining the name of Arredo Italia, which refused to do business with him by reason of its exclusive arrangements with the plaintiff.
6 Apart from naming the product, as sold in Australia, Isernia, and taking the steps that have been mentioned, Mr Schepis took a number of other precautions. He repeatedly emphasised, both to Mr Del Casale and to Mr Savini, that the source of products such as Isernia must not be disclosed, and it was the practice at Artedomus that neither the name of the supplier in Italy nor the region from which the stone came would be revealed, either to clients or to persons in the industry. This information was revealed only to senior management, to the head of the warehouse and to accountants responsible for paying the suppliers. While Mr Del Casale took issue with the evidence of Mr Schepis on these matters, what is most significant is the limited nature of his denials. He referred in his affidavit in chief to one example of a client who, according to them (but Mr Schepis denied this), was told the name of the supplier of Isernia, and he claimed that from a particular database called Goldmine, used by the staff of Artedomus to access details of clients, builders and architects, it was possible also to ascertain details of suppliers in Italy and the rest of the world. A stock list too showed the identity of suppliers as a heading for each product line. However, later evidence established that the identity of suppliers was revealed in the stock list only by a code word which would not convey the source of the product to anyone who did not know the code. Similarly, the Goldmine database does provide contact details for various overseas suppliers, but it gives no indication, and I accept the evidence of Mr Schepis that neither does any other Artedomus system available generally to employees, linking a particular product to a particular supplier. I accept that only the directors, the warehouse manager and those responsible for payments to suppliers were permitted access to information that linked the supplier with the product.
7 The defendants also drew attention to the Artedomus website which, they say, has links to "most of" the websites of suppliers to Artedomus detailing their locations and the materials they suppy. But this is disingenuous. The suppliers to which links are provided on the website are the prestigious suppliers of well known products which will add lustre to the name of Artedomus; however, Arredo Italia, the supplier relevant to the allegations in this case, and the other suppliers of little known stone, are not linked to the Artedomus website for the very reason that such a linkage might make it easier for competitors to ascertain the source of such stone imported by Artedomus and, perhaps, find an alternative supplier of it.
8 The single example given of an outsider permitted to deal with a supplier direct was a Mr Doyle. Early in the year 2000, Mr Doyle was introduced to Mr Schepis by Mr Savini, being described by him as "a close personal friend of mine" who had access to substantial funds in Europe. At that time, the stone required by Mr Doyle for his own house at North Stradbroke Island was a stone referred to as San Sebastian supplied by the very well known supplier, Bimarmi. It is clear that the same considerations of confidentiality which applied to the relatively unknown Arredo Italia did not apply in the case of Bimarmi, and Mr Schepis agreed to allow him to order a large quantity of San Sebastian directly from Bimarmi. In the year 2002, Mr Doyle was building himself a house at Terrey Hills in which he wished to use a large quantity of Isernia. As the story was recounted in the affidavit of Mr Savini:
"Again Artedomus organised a quotation to be sent directly from its supplier, Arredo Italia to Mr Doyle. …However, given that the material was in stock at the time and a good price was negotiated, Mr Doyle opted to take the stock in Australia direct from Artedomus ."