Bitzer Australia Pty Ltd v Japp [2014] FCA 1040 | Case summary

The evidence on the application 20 The evidence Bitzer submitted to the Court was received without objection and was uncontradicted. What follows is a brief summary of it. 21 Bitzer is a market and innovation leader in Australia in the refrigeration industry. It is also the sole Australian manufacturer of refrigeration and heat exchange equipment. It distributes to the Australian and New Zealand markets products designed and manufactured by Bitzer GmbH as well as by Buffalo Trident. Generally speaking, customers engage Bitzer to design a refrigeration system for a specific purpose and Bitzer's engineers design the system, which is then assembled with components manufactured by Bitzer, Bitzer GmbH, Buffalo Trident, or third-party suppliers. Sometimes, where there is no standard component available for a particular function, Bitzer's engineers design and manufacture components specifically for that function. Among its customers are large users of commercial refrigeration equipment, such as Woolworths and Coles. 22 In developing and conducting its business Bitzer creates and uses information and technical data of a highly sensitive and commercially valuable nature, the secrecy of which it tries to protect at all times. That material includes plans, drawings, schematics and technical drawings of electrical systems derived from the investment of "thousands of engineering hours"; commercial details of products manufactured or sold by Bitzer including the costs of manufacture, profit margin and key account discount structure, test results, performance comparisons and proposed sale prices of new products. The information taken by the respondents covered the gamut of these items. It related to Bitzer's compressors, compressor systems, heat exchange products, heat pumps and condensing units. 23 Mr Japp worked for Bitzer from 1 September 2003 until March 2005 when he was transferred to Bitzer South East Asia where he worked for Mr Rudischhauser. On 5 December 2010 Mr Japp entered into a written contract under which he was appointed as a consultant for a brief period and thereafter as Bitzer's marketing manager and heat exchange technical manager. In the course of his duties he was privy to commercially sensitive and confidential information relating to Bitzer's operations. Bitzer supplied him with a laptop computer and a mobile phone to assist him in his work and he had complete access from that computer to all of Bitzer's records, including its confidential information. 24 Mr Rudischhauser's employment was terminated by Bitzer on 27 June 2012. A month later, together with Mr Patil, who was still a Bitzer employee, he formed Hephaestus Pty Limited. Two days after that, on 2 August 2012, Hephaestus Pty Limited and GJ Walker together formed Coldworks. Mr Rudischhauser and Mr Patil, together with the directors of GJ Walker, became directors of Coldworks. 25 On 16 September 2012 Mr Patil sent an email to officers or employees of a competitor of Bitzer in China (Cold Magic) attaching a confidential drawing and a complete presentation given in October 2011 to Bitzer's employees explaining Carel control products (critical components of Bitzer's screw pack compressor systems). The confidential drawing was created for a specific customer design described by Mr Gibson in his final affidavit as "highly confidential intellectual property owned by [Bitzer]". 26 Mr Patil's employment came to an end on 28 September 2012. The day before, Mr Patil sent to his personal email address contact details for all of Bitzer's clients. 27 On 3 October 2012, soon after he left Bitzer, Mr Patil sent an email to Mr Japp, copied to Mr Rudischhauser, asking Mr Japp to "get someone to line up Buffalo condensers" (which were designed and sold by Bitzer) and to "provide tech details along with cost (of the condenser + ComMECH Unit)". 28 In the months leading up to his departure from Bitzer, Mr Japp passed on to Mr Patil and Mr Rudischhauser at their behest other confidential information belonging to Bitzer. Several examples were tendered in evidence on the costs application. 29 One was an email from Mr Japp to Mr Rudischhauser dated 27 September 2012 attaching Bitzer's complete customer list for Asia and their addresses. The email requested Mr Rudischhauser to remove Mr Japp's name and "all Bitzer names" from the list and to make the list "clean before you forward it". 30 A second is an email chain beginning with an email sent from Mr Patil to Frankie Chan at Cold Magic and Mr Rudischhauser on 4 October 2012 to which Bitzer electrical drawings were attached. This email was apparently forwarded to Mr Japp, who responded to Mr Patil: Are you nuts don't use bitzer docs rework as your own. 31 The third was an email from Mr Japp dated 15 January 2013, the subject of which was entitled "Information as promised", sent to Mr Patil and Mr Rudischhauser with instructions that it not be passed on to others in its current format "as it has authors etc included" and with a request that the data in it be cut and pasted into a new Excel spreadsheet. Mr Japp also wrote: Vivek I have given you data on best market prices for WRC, LDV1 and LDV2 (new). We need to ensure we are competitive against this level. This will basically ensure we will win always… If you really want VB details see the file 2011 price list margin data. There is a TAB with VB data inside for you. 32 Mr Japp had been employed by Bitzer specifically to develop the LDV2 (also called LDV-D) condenser for Buffalo Trident. 33 The attachments to the email consisted of the 2011 price list and margin analysis; the 2012 master price list; and the comparison between the LDV-D and Heatcraft condensers. 34 On 21 March 2013 Mr Rudischhauser sent an email to Mr Patil, Mr Japp and Damon Walker (a director of Coldworks) directing Mr Patil to approach Cold Magic to determine whether it could build heat pumps from Bitzer's designs and asking Mr Japp to obtain as much information as possible from Bitzer's records while he continued to work there, with the object of providing a quotation to Woolworths for an alternative to Bitzer's product. Mr Rudischhauser began the email with these words: [T]his is a great opportunity. We should be able to utilize the screw up of Bitzer to shine in the right light and present us as the professional chiller/HVAC/Dehum/Heatpump company. 35 On 26 March 2013 - two days before Mr Japp's employment with Bitzer came to an end - Mr Patil sent three emails to Mr Walker and Mr Rudischhauser (copied to Mr Japp at his hotmail address). Attached to the first was a presentation given by Bitzer to Coles on heat pump designs and costings including technical and commercial details, from which the references to Bitzer and Coles had been expunged. The email also set out Bitzer's costings for six specific heat pumps extracted from Bitzer's computer records. Attached to the second were some of Bitzer's confidential designs for heat pumps for installation in Coles supermarkets. Attached to the third were more of Bitzer's confidential heat pump designs for Coles, together with alternative pricing, and a duplicate of the Bitzer presentation to Coles. In the body of the third email Mr Patil noted: AJ [Andrew Japp] will get us latest BOMS [bills of materials, that is components and parts] & actual costs in next day or so 36 Mr Gibson referred to this course of conduct in his affidavits (without objection) variously as stealing and theft. 37 A convenient summary of the respondents' conduct with respect to compressors appears in annexure PG6 to Mr Gibson's second affidavit. It is an incomplete analysis from the documents obtained as a result of the Court's search orders showing how Bitzer's confidential information had been used by the respondents to develop a business with its Italian rival, Dorin. Mr Gibson began his analysis with the following statements: 1 Compressors are the most important part of Bitzer's business: each of the systems sold by Bitzer incorporates a compressor which has been manufactured by Bitzer. Bitzer also sells compressors to third parties. 2 When Coldworks was first established it was not involved in the sale or distribution of compressors but, following the theft and use of Bitzer's confidential information set out below, Coldworks has entered the compressor market. 3 The steps adopted by the respondents were as follows: (i) firstly, they acquired confidential information which contained details of the costs to Bitzer of producing and obtaining the various compressors; the types of compressors purchased by individual Bitzer customers; the sale prices of compressors to individual customers after allowing for the confidential discounts offered to those customers; and the compressor models which had the best sales (ii) they then used that confidential information to create a written market strategy for their own proposed compressor business, a strategy which addressed both short-term success and long-term viability. This suggested the setting of prices for Dorin Compressors by reference to the known costs and discount structures of Bitzer compressors, and the targeting of Bitzer compressor customers by reference to the nature and extent of Bitzer's sales to those customers in the past. (iii) they then targeted Bitzer's customers by sending quotes to them for the supply of compressors of the nature and model which they knew, from Bitzer's confidential information, those customers had purchased in the past, and for prices which, having regard to their knowledge of Bitzer's cos's and customer discounts, they knew would be attractive to those customers. They also arranged for (scil.) Coldworks to purchase shipment of Dorin compressors with specifications comparable to the most popular models sold by Bitzer. 38 Thereafter Mr Gibson expanded on the three steps by reference to documents found on Mr Japp's computer or otherwise found in the respondents' possession. 39 Plainly, the respondents' purpose was to acquire and use Bitzer's confidential information and intellectual property for their own advantage to undercut Bitzer and position Coldworks initially as a real competitor in the marketplace and ultimately to undermine Bitzer's dominance.

Conclusions 40 For the following reasons Bitzer should have the orders it seeks. 41 First, it is fair to say that Bitzer succeeded in its action, although it did not get all that it asked for. The evidence obtained from the respondents as a result of the search orders and discovery was, in truth, overwhelmingly against them. This was the only reason the respondents were not in a position to defend the proceedings further and the litigation was brought to an end. As their solicitor, Mr Johnston, candidly put it, the respondents had effectively capitulated, having been caught red-handed. He conceded that Bitzer would undoubtedly have established that the respondents had engaged in theft and use of confidential information. It also necessarily follows from those concessions, which were entirely appropriate, and also from the limited evidence Bitzer presented on this application, that the respondents breached their duties under ss 182 and 183 of the Corporations Act by using their positions as officers or employees to gain an advantage for themselves or others or to cause detriment to Bitzer (s 182) and by improperly using information obtained in that capacity to gain an advantage for themselves or others or to cause detriment to Bitzer (s 183). What is more, there is also uncontradicted evidence of infringement of Bitzer's copyright in its designs. In these circumstances, Bitzer's decision not to press for declaratory relief is immaterial. 42 Second, there is no evidence to support the submission that the respondents should pay only 65% of the costs. It is true that the respondents were cooperative after the proceeding was launched and plainly sought to minimise costs. In this respect, it is clear that they honoured their obligations under s 37N of the FCA Act. That requires all parties to litigation in the Court to conduct proceedings in a way that is consistent with the overarching purpose of the civil practice and procedure provisions of the FCA Act and the Federal Court Rules 2011 (Cth) ("FCA Rules"), that is to say, to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible (see FCA Act, s 37M). Section 37N(4) of the FCA Act states that, in exercising the discretion to award costs in a civil proceeding, the Court or a Judge is required to take into account any failure to comply with the duty imposed by s 37N. Complying with the duty, however, does not entitle a party to a reward or a discount. 43 Third, the mere fact that Bitzer did not press its claim for damages, compensation or an account of profits does not warrant a reduction in the costs for which the respondents should be liable. There is no evidence that the respondents incurred any costs in defending this aspect of the proceeding. Nor is it likely that any costs Bitzer may have incurred in investigating such a claim were significant. 44 Fourth, I do not consider that the costs order should distinguish between the respondents on the basis that Messrs Rudischhauser and Patil were not joined to the proceeding until 24 July 2013. 45 In general, where a court orders that costs be paid by two or more parties, whether applicants or respondents, third parties or non-parties, the liability is joint and several: G E Dal Point, Law of Costs, 2nd ed, LexisNexis Butterworths, Australia, 2009, [11.2]. The rationale for this principle is clear: Were the law otherwise, it would imperil a basic principle of the law of costs, the costs indemnity rule. As the successful litigant is prima facie entitled to its costs of the action, he or she should not, it is reasoned, lose out if one of the parties against whom the costs order is made cannot or will not meet its share of the costs burden. It follows that a person who discharges a costs liability can seek contribution from others who are jointly liable to meet that liability. The issue of contribution - that of determining the relative responsibility for costs between those against whom the order is made - is a matter to be dealt with as between them rather than one that rests in the party who is awarded costs. (Citations omitted.) 46 Of course this is not an invariable rule. It would not, for example, be just to saddle some respondents with costs the applicant incurs because of a separate and distinct defence run by a particular respondent in which they played no part: cf. Stumm v Dixon & Co (1889) 22 QBD 529. 47 Where, however, unsuccessful respondents have "basically the same interest", it is appropriate to make them jointly and severally liable for the applicant's costs: Shang v Zhang (No 2) [2007] NSWSC 1355 at [18]. That way the applicant will be paid and any questions of contribution between the respondents can be sorted out later, either amicably or upon taxation. 48 But Mr Johnston argued that this principle only applies from the time a person becomes a party to the proceeding. The difficulty with his argument is that it does not take into account the breadth of the Court's power and the ability of the Court in an appropriate case to make an order for costs against a non-party: Knight v FP Special Assets Limited (1992) 174 CLR 178 ("Knight") at 192 (Mason CJ and Deane J), 203 (Dawson J), 205 (Gaudron J). If it is in the interests of justice, such as where the non-party is the "real party" or the "effective litigant standing behind an actual party", an order that a non-party pay or contribute to costs may be made: Knight at 190, 202, 205. 49 In Kebaro Pty Ltd v Saunders [2003] FCAFC 5 the Full Court reviewed the authorities and concluded at [103]: In our opinion, the authorities establish, on the foregoing analysis, the following propositions: • A non-party costs order is exceptional relief, although some categories of factual situations are now recognised as within the discretion, for example, the situation described by Mason CJ and Deane J in Knight at 192-193. The width of the jurisdiction is illustrated by a recent English decision that there can be circumstances in which it would be appropriate to order costs in favour of a non-party against a party (see Individual Homes v Macbreams Investments, 23 October 2002, High Court of Justice Chancery Division at 8). • Whilst such an order is extraordinary, the categories of case are not closed, although in order to warrant its exercise, a sufficiently close connection, or as Gobbo J [in Bischof v Adams [1992] 2 VR 198 at 204-5] expressed it, a "real and direct and ... material" connection with the principal litigation, must be demonstrated; in the words of Callinan J [in Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation (2001) 179 ALR 406 at 414 [37]], the non-party can fairly be liable if adjudged by its conduct, to be a real party to the litigation, even if not the real party. (Original emphasis.) 50 These cases, of course, are concerned with the situation in which the non-party never becomes a party. As the Full Court observed in State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174 ("Sportsbet") at [15] the FCA Rules do not preclude the recovery of costs that were incurred before a party was formally joined. Depending on the circumstances of the case, costs incurred in preparing for the litigation may be recovered. Insofar as the involvement of Mr Rudischhauser and Mr Patil was disclosed by the search orders, the costs Bitzer incurred in applying for and executing them are of this nature. 51 Here, the evidence reveals that the respondents were engaged in a common enterprise, albeit that the participation of Mr Rudischhauser and Mr Patil was unknown until after the search orders were carried out. I have no doubt that they would have been parties from the outset if Bitzer had then known of their involvement. Mr Rudischhauser and Mr Patil both encouraged Mr Japp to pass over Bitzer's confidential information and its intellectual property with the common purpose of sharing the spoils. If the order Bitzer sought are not made, then Mr Japp may well end up paying the lion's share of the costs without having any right to obtain a contribution from his accomplices, although to some extent at least he appears to have been doing their bidding. 52 In all these circumstances it seems to me that it is in the interests of justice that all respondents be jointly and severally liable for Bitzer's costs regardless of when they became parties. 53 Accordingly, the order will be that the respondents pay Bitzer's costs, including reserved costs, on a joint and several basis. I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katzmann.

Bitzer Australia Pty Ltd v Japp

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