Blackmagic Design Pty Ltd v Overliese

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

BETWEEN: BLACKMAGIC DESIGN PTY LTD (ACN 098 098 287)

REASONS FOR JUDGMENT 1 On 22 January 2010, I gave judgment in this proceeding: Blackmagic Design Pty Ltd v Overliese [2010] FCA 13. The questions which remain for determination relate to the terms of the orders that ought to be made to reflect my reasons for judgment, and to costs. 2 Ultimately the parties reached a consensus as to the terms of the permanent injunction by which Messrs Overliese and Young, and Atomos, would be bound. That consensus is reflected in the orders which I make today. The parties also agreed that the need for Messrs Overliese and Young, and Atomos, to deliver up documents etc on which the applicant's confidential information is recorded may be addressed by reserving liberty to apply in that regard. To keep this aspect within reasonable bounds, I have placed a 60-day time limit upon this liberty to apply. 3 With respect to the apparent need for a declaration under s 1317E of the Corporations Act 2001 (Cth), the parties drew my attention to One.Tel Ltd (in liq) v Rich (2005) 53 ACSR 623, 641 [70] and to Pascoe v Divisional Security Group Pty Ltd (2007) 209 FLR 197, 202-203 [13-14]. The applicant accepted that these authorities demonstrated that it did not have standing to apply for a declaration under s 1317E and, therefore, that the court could not make one. Notwithstanding, the applicant applied for a declaration under s 21 of the Federal Court of Australia Act 1976 (Cth), substantially reflecting the extent of its success in this proceeding. Counsel for the applicant, however, were able to point to no practical respect in which a declaration made under the general powers of the court would add to the determination of the issues in dispute. As I pointed out in the course of argument, if I were going to make a declaration recording the extent to which the applicant was successful, I ought likewise make a series of declarations recording the extent to which the applicant was unsuccessful. Unsurprisingly, counsel for the applicant were not enthusiastic about this suggestion. I take the view that a declaration would add little to the judicial determination of the matters which were resolved on 22 January 2010, and I do not propose to make one. 4 That leaves the question of costs, upon which the parties made quite extensive submissions. I shall deal first with the costs of the fourth respondent, Ms Young. She was wholly successful in the proceeding and would, in the normal course, be entitled to her costs. However, the applicant submitted that, when Ms Young was joined as a respondent (about two months after the commencement of the proceeding), the documentary indications were that she had played a role in Atomos, and that the true (ie limited) extent of her role did not become clear until she had given evidence. Considerations of this kind are, however, insufficient as a basis to depart from the normal course. The question is not whether the applicant acted reasonably in joining Ms Young, but whether the circumstances are such as would warrant a departure from the normal course whereby the unsuccessful party pays the costs of the successful party. Apparently having little or no direct understanding of the extent of Ms Young's involvement, and supposing the worst from documents which went no further than to provide a basis for a range of inferences - some malignant, some benign - the applicant chose to sue Ms Young, and failed in that proceeding. In my view, the circumstances are not such as to warrant a departure from the normal rule that costs follow the event. 5 Ms Young also claimed that her costs be taxed on an indemnity basis. When the proceeding was commenced on 12 May 2008, she was not a respondent. The applicant's suspicions that Ms Young was part of the Atomos project were aroused by certain documents made available to it as a result of the execution of the search order of 12 May 2008. On 18 June 2008, its solicitors wrote to Ms Young, enclosing a copy of a letter of demand which they had sent to Messrs Overliese and Young on 13 June 2008. In their letter to Ms Young, they continued: We are now in possession of various communications and documents which passed between Mr Young and Mr Overliese in the establishment and operation of the Business. We believe based on those documents that: · a number of the email communications between Mr Young and Mr Overliese in relation to the Business were also sent to you or from you; · a number of these emails contained the Confidential Information and the Intellectual Property; · other documents indicate that you have assisted Mr Overliese and Mr Young by sourcing investors for Atomos and the Business and drafting a business plan for use with the Business; and · the website related to Atomos, located at atomosaudio.com, is registered with your name as the contact. In light of the above, we believe that you have engaged in conduct which constitutes: (a) inducement to Mr Young to breach his employment contract with [the applicant]; (b) inducement of Mr Young and/or Mr Overliese to breach fiduciary obligations owed by them to [the applicant]; (c) unauthorised use of the Confidential Information and Intellectual Property in circumstances where you were aware or should have been aware of the confidential nature of the information you were utilising; and (d) aiding and abetting Atomos to engage in misleading and deceptive conduct under the Trade Practices Act and Fair Trading Act. The applicant's solicitors demanded that Ms Young provide a written undertaking that she would desist from certain conduct, and deliver up electronic and other documents constituting the confidential information and intellectual property to which the applicant asserted ownership. 6 By letter dated 25 June 2008, Ms Young's solicitors responded in the following terms: We refer to your letter dated 18 June 2008 addressed to Mrs Claire Young. We are instructed to respond to that letter as follows: 1. Mrs Young has no knowledge of the allegations referred to in your letter under reply concerning Mr Young, Mr Overliese and Atomos Audio Pty Ltd. 2. Mrs Young registered a URL on behalf of Atomos Audio Pty Ltd and assisted with generic planning documentation at her husband's request because she has expertise in these areas arising out of her occupation as an IT professional and Business Project Manager. 3. Ms Young denies that she has engaged in the conduct referred to in your letter and does not know what "communications and documents" you rely upon in support of your beliefs. You are welcome to provide us with copies and/or details of those "communications and documents" in order that we may obtain Mrs. Young's further instructions and seek to clarify any confusion in this respect. 4. Mrs. Young's husband, Jeromy, and his friend, Ian Overliese have also used her computer on various occasions. You can not therefore assume that just because an email communication may have been sent by Mrs. Young or to her that she has in fact read that communication or that she is the author thereof or that she has acted improperly towards your client. 5. As far as Ms Young is aware, the planning assistance that she provided in relation to Atomos Audio Pty Ltd related to the audio industry which is separate from and different to the video industry in which your client is involved. We consider your allegations concerning Mrs Young's involvement in this matter to be misconceived and incorrect. There is nothing in your letter which indicates any legal basis for your demand that Mrs Young provide the extensive and unreasonable undertakings contained in your letter. Nevertheless, insofar as any confidential information or intellectual property belonging to your client may exist on Ms. Young's computer or anywhere else that you consider it to be she is willing to provide you with an undertaking that she will not use that information or property in any way as a gesture of her good faith. Furthermore, as far as Mrs Young is aware, there is nothing for her to deliver up to you as all confidential information and intellectual property that you refer to has been delivered up to the Court in this matter. Kindly provide us with precise details of the confidential information and intellectual property referred to in your letter under reply in order that Ms. Young may provide you with her undertaking and that there may be no mistake as to the extent thereof. We reiterate the contents of our previous correspondence to you in response to your unfounded allegations concerning competition by our clients with products made and sold and/or planned to be sold by your client. We also note that you have been incorrectly referring to Atomos Audio Pty Ltd as "Atomos Pty Ltd". Please ensure that you set out its correct name in future communications. For the sake of clarity we are also instructed to inform you that Mrs. Young will comply with all obligations that she may have in law towards your client. Our clients' rights in relation to the allegations contained in your letter under reply are strictly reserved. Should your client seek to pursue orders of the nature contained in your letter under reply, Ms Young's instructions are that she will defend those proceedings. 7 Ms Young's solicitors received a response from the applicant's solicitors dated 1 July 2008. The letter enclosed by way of service a number of documents, including a copy of a notice of motion, returnable on 4 July 2008, to join Ms Young as a respondent in the proceeding (and to do other, presently immaterial, things). To the extent that the letter dealt with Ms Young's position, it stated the following: Joinder of Claire Young to the proceeding - on 18 June 2008, we sent a letter of demand to Ms Young and received a response from you dated 25 June 2008 confirming you acted for Ms Young and noting that Ms Young "had no knowledge if [sic] the allegations" referred to in our letter and specifically noting that our client's "allegations concerning Ms Young's involvement in this matter to be misconceived and incorrect". For the reasons outlined in Mr Clarke's affidavit, particularly paragraphs 10, 15(o), 17(d), 25, 27(l) and 30(d), we are of the view that the denial of involvement by Ms Young cannot be sustained, and accordingly our client seeks the joinder of Ms Young to the proceeding; This response, in my view, amounted to a rejection of Ms Young's preparedness to enter into the kind of undertaking to which her solicitors referred in their letter of 25 June 2008. 8 The affidavit of Mr Clarke to which the applicant's solicitors referred to in their letter of 1 July 2008 dealt with material obtained under the execution of the search order to which I have referred. I shall deal with each of the paragraphs of that affidavit mentioned in the letter. 9 In para 10 of his affidavit, Mr Clarke referred to a number of emails that he had discovered on Ms Young's "Medion Mini Tower desktop computer". Each of those emails bore a date in June 2007, and each was from Mr Overliese to Mr Young. They related, in various detailed respects, to what were then the proposals of those men to establish a business in the audio industry. Nothing in those emails related to the applicant, and they pre-dated by some time the emergence of any idea that Atomos might be involved in the market for video capture cards. 10 In para 15 of his affidavit, Mr Clarke referred to a document which he had located on the DVD marked "d" and on the USB key which Mr Overliese had used on 12 May 2008 as mentioned in para 72 of my reasons dated 22 January 2010. Subparagraph (o) referred to a short document with three columns headed "what", "who" and "comments". Under the first column were such items as "find manufacturer", "submit patent" and "investigate trade-shows". One of the items in the first column was "US visa situation", alongside which in the "who" column was "both/Claire/Sarah?". There is, however, nothing in this document which would suggest that the respondents had any intention to operate in the market for video capture cards. 11 In para 17 of his affidavit, Mr Clarke referred to documents which he located on Mr Young's "iMac" computer. Subparagraph (d) thereof was as follows: Document entitled "Atomos" which was an attachment to an email sent in August 2007 from Mr Overliese. This document demonstrates Claire Young's, Mr Young's wife, involvement in the strategy and planning of Atomos, in particular the task listed as "Get web hosting/email/calendar". This document also contains the following tasks: (i) "US registration" on 12 August; (ii) "Design First Products"; and (iii) "Get USB keys and keep copies of each other's volumes", which indicates to me that further device in addition to the 2 USB keys discovered during and after the execution of the Search Order may exist and have not been handed up by the respondents pursuant to their obligations under the Search Order. In August 2007, Messrs Overliese and Young had no intention that Atomos would operate in the video market. The documents to which Mr Clarke referred here had no apparent connection with the applicant. 12 In para 25 of his affidavit, Mr Clarke referred to other documents which he had located on Ms Young's Medion computer. There were documents which Mr Clarke perceived contained sensitive data derived from the business of Mr Young's former employer. There were indications that Messrs Overliese and Young had been communicating via the Grouphub website, including some of the communications of 7 February 2008 to which I referred in my reasons of 22 January 2010, and files uploaded by Ms Young onto Grouphub on 11 February 2008 or thereafter, including one called "CashFlowModel.xls" and another called "DecisonRegister.xls". There were emails passing between Ms Zubac and Mr Young (apparently with reference to the matters to which I have referred in para 51 of my reasons). The events of 7 February 2008, and for at least a week or thereabouts after that, represented the high point of Mr Overliese's interest in taking Atomos into the video market. It seems that it was on about 13 February 2008 that Ms Young uploaded spreadsheets at least for a cash-flow model, and a decision register, for Atomos. These are referred to in the summary of postings on Grouphub to which Mr Clarke referred in para 25 of his affidavit. He referred to them again in paras 27(l) and 30(d) of his affidavit. 13 After the letter from the applicant's solicitors of 1 July 2008, there does not appear to have been any further consideration given, by either side, to Ms Young's solicitors' letter of 25 June 2008, or to the undertaking proffered in it. On the present application, the applicant caused to be exhibited to its solicitor's affidavit a deal of later correspondence, but that, so it seems to me, was concerned with the parties' difficulties over the maintenance of confidentiality for documents in the pre-trial period, rather than with the question whether the applicant should settle with Ms Young along the lines proposed in her solicitor's letter of 25 June 2008. 14 Although it was an open letter in every respect, Ms Young's solicitor's letter of 25 June 2008 was effectively a Calderbank offer. In it, Ms Young indicated her readiness to provide an undertaking that she would not use, in any way, the applicant's confidential information or intellectual property. As events have transpired, she has succeeded in the litigation without being restrained in similar terms. By reason of that success, she will secure a costs order in her favour. However, to obtain the additional advantage of having those costs taxed on an indemnity basis, Ms Young needs to establish that the applicant's rejection of her offer was unreasonable: Black v Lipovac (1998) 217 ALR 386, 432; CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 at [75]. 15 The question must, of course, be approached by reference to the situation that presented itself to the putative offeree at the time that the offer was open for acceptance. In the circumstances of the present case, I am not persuaded that the applicant's refusal of Ms Young's offer in June 2008 should be regarded as unreasonable. It would then have appeared to the applicant that Messrs Overliese and Young at least had it in contemplation to set up business in opposition to the applicant, and had made some use of information that was confidential to the applicant. The postings on Grouphub would not have excluded the reasonable inference by the applicant that Ms Young was a subordinate participant in this project. The fact that matters were proved to be otherwise, and the fact that Ms Young offered denials on 25 June 2008, do not, in my opinion, justify the characterisation of the applicant's decision to proceed against Ms Young as unreasonable. 16 For the above reasons, I will make the usual order of costs in favour of Ms Young, and refuse her application that those costs be taxed on an indemnity basis. 17 I shall consider next the circumstances of Mr Young. To the extent that the applicant invoked the equitable jurisdiction of the court to restrain a breach of confidence, it succeeded. On the other hand, it proceeded against Mr Young on a number of causes of action which were unsuccessful: under the Corporations Act 2001 (Cth), to restrain a diversion of business opportunity, for equitable damages, under the Trade Practices Act 1974 (Cth), in copyright and under his contract of employment. Counsel for the applicant accepted that their client had not succeeded as against Mr Young in these respects, but submitted that it was required to come to court to vindicate its rights, and to establish a factual case generally, and that it had been substantially successful, in the sense of obtaining an injunction to restrain Mr Young from breaching its confidence. Further, counsel stressed that the basis upon which I held for the respondents on the copyright claim related to a defence that was introduced by amendment only on the sixth day of the trial, when the respondents opened their case. 18 It is important to recognise that this is not (save perhaps as between the breach of confidence and the Corporations Act aspects of it) a case in which alternative claims were made, in effect setting up different jurisprudential justifications for relief in respect of particular injurious conduct said to be actionable (as, for instance, would be the case where a trader passing off his or her business as that of another was also accused of misleading conduct under s 52 of the Trade Practices Act). Rather, this is a case in which a series of admittedly related acts and transactions, occurring over a period of months and involving separate subject matters, is said to involve instances of actionable conduct in various respects. For example, the accusation against Mr Young that he breached the confidence of the applicant is in no sense an alternative to the accusation that he reproduced its copyright works without authorisation; or to the accusation that he misled the applicant about the potential to achieve 10 bit performance over one lane. The applicant could have succeeded against Mr Young for breach of confidence (which it did) without making the other claims to which I have referred. Further, had it failed against Mr Young in its breach of confidence case, the other claims would not have stood as true alternatives providing, in effect, a second string to the applicant's bow with respect to the confidential information with which Mr Young was alleged to be entrusted. 19 The applicant also submitted that, even viewing its various claims as discrete rather than as in the alternative, a great deal of the costs which it was obliged to incur were necessary to provide the factual foundation, and the background, for a proper understanding and a determination of the claims on which it succeeded. It would be wrong, it was submitted, simply to deprive the applicant of its costs, and to allow Mr Young his costs, with respect to so much of the proceeding as represented the arithmetical proportion represented by the claims on which it failed. There is, in my view, substance in this position, but it cannot be pressed too far. It could likewise be said by Mr Young that much of the foundational factual material was necessary to provide an understanding of the claims upon which he succeeded. 20 There were also a number of aspects of the applicant's case against Mr Overliese into which Mr Young was, in effect, roped for no better reason than the applicant's suspicion that all of Mr Overliese's acts and omissions were probably done on behalf of Atomos. As the evidence turned out, it was not seriously suggested on behalf of the applicant that Mr Young had anything to do with so much of Mr Overliese's conduct as was said to involve infringements of copyright or breaches of s 52 of the Trade Practices Act. Also, a deal of the evidence (including all the expert evidence in the case) related to accusations which the applicant made against Mr Overliese of technically sophisticated attempts to hide the existence of the applicant's material on his computer. Even at the highest point of the applicant's case, Mr Young was caught up in its allegations on these matters only by way of assumed association via his involvement in Atomos. Further, a great deal of attention at trial was given to the question whether, technically, the "simple card" devised by Mr Overliese had the capacity to deliver 10 bit performance over one lane. In the applicant's case as pleaded, Mr Young was said to be part of this project, and I have decided that aspect in favour of him. 21 As will be apparent, I consider that this is a case in which any costs order made by the court should reflect the degree of success which the different parties had. This is not simply a matter of apportioning entitlement to costs according to the parties' success on various "issues": rather, the applicant made claims with respect to separate aspects of the respondents' conduct which was said to have legal consequences. As has frequently been mentioned, there is no mathematical precision in any of this, but, based on my understanding of the questions arising in the case as a whole, and upon the respective contributions which those questions made to the parties' need to devote resources to the proceeding, I am disposed to think that the applicant should be treated as having succeeded against Mr Young with respect to about 25% of its case. Rather than require the applicant to pay 75% of Mr Young's taxed costs, and Mr Young to pay 25% of the applicant's taxed costs, I think that justice would be done if I were to require the applicant to pay one half of Mr Young's costs, to be taxed if not agreed. 22 Turning to Mr Overliese, the general approach which I will take is as indicated above in relation to Mr Young. Mr Overliese's position is different in some respects. The applicant has succeeded against him under s 183 of the Corporations Act, but, as I indicated in my reasons of 22 January 2010, I consider this to be in the nature of the claim in the alternative to the applicant's breach of confidence case. It was, however, necessary for the parties to give some attention to the requirements of this section in their respective cases as presented to the court. Mr Overliese was the principal actor in a number of the areas of controversy raised by the applicant's allegations, but, save with respect to confidential information and under s 183, he successfully warded off those allegations. He did not have to contend with allegations based on a restraint clause in his own contract of employment, but it was alleged that he induced Mr Young's breach, so, in terms of legal work to be done, that is not a point of discrimination. On the other hand, I do accept the applicant's point about the late amendment of Mr Overliese's copyright pleading. He originally denied that he had reproduced the applicant's works, but, by an amendment made on the sixth day, he admitted reproduction of most of the copyright works alleged, and raised for the first time the defence which ultimately succeeded. This is a circumstance to be placed on the scales. 23 Overall, I am disposed to the view that Mr Overliese's position differs somewhat from that of Mr Young in relevant respects and that the applicant should be regarded as having succeeded as to about 35% against him. I could order that Mr Overliese pay 35% of the applicant's taxed costs, and the applicant pay 65% of Mr Overliese's taxed costs. For the sake of simplicity and efficiency, however, I think justice would be done if the applicant were ordered to pay 30% of Mr Overliese's costs, to be taxed if not agreed. 24 My attention has not been drawn to any respect in which the costs of Atomos should be treated differently from those of Mr Overliese. It was no more than the corporate vehicle for the embryonic venture which Messrs Overliese and Young had in mind. In the circumstances, I shall treat its costs in the same way as I have treated those of Mr Overliese. 25 The respondents sought that, to the extent that I should award costs in their favour, I should do so on an indemnity basis, at least to a limited extent (in the case of Ms Young, this was, as I understand it, additionally to her own claim for indemnity costs to which I have referred). They relied first on an email sent by their solicitors to the solicitors for the applicant on 16 May 2008, purporting to set out the terms upon which the solicitors' clients on both sides had "negotiated a settlement". Mysteriously, this email was an exhibit to an affidavit read by the applicant at trial. It was one document in 13 lever-arch folders which constituted the Court Book at trial. In the course of his opening, senior counsel for the applicant informed me, with the assent of counsel for the respondents, that all their affidavits were to be treated as having been read in their entirety, "and [we] leave it to your Honour to decide the questions of admissibility in due course". I acceded to this unsatisfactory expedient, and the question now arises whether the email of 16 May 2008 should be admitted. 26 I think it should. It was part of the applicant's evidence, and no objection was taken to it by the respondents, who now want to use it to their advantage. Notwithstanding that the email was conspicuously protected under s 131(1) of the Evidence Act 1995 (Cth), I think that the unopposed tender of it calls up the exception in para (b) of subs (2). However, I take the view that the terms of the email are insufficient - by a considerable margin - to make good a claim for indemnity costs. The email represents no more than evidence of a settlement proposal which did not proceed. I know nothing of the applicant's response to it, and I know nothing of the circumstances by which the proposal lapsed. I am in no position to infer that it was the applicant which unreasonably insisted on continued litigation in the face of a settlement proposal which ought to have been accepted. 27 The respondents relied next on a letter from their solicitors to the applicant's solicitors dated 12 June 2008. It was headed "Without Prejudice Save as to Costs". The letter was as follows: Blackmagic Design Pty Ltd v Overliese & Ors Federal Court of Australia Proceeding No. VID 328 of 2008 We refer to the above proceeding. In an attempt to resolve the matter and save the parties the costs of trial, we are instructed that our clients are prepared to agree to settlement of the proceeding on the following terms: (a) Payment by our clients to your client of $15,000 within 14 days of acceptance of this offer. (b) Our clients will consent to an extension of the consent injunction issued by the Honourable Justice Jessup on 9 July 2008 until 31 December 2009. (c) Our clients will covenant not to seek compensation from your client pursuant to your client's undertaking as to damages. (d) Each side will bear its own costs of the proceeding. (e) The proceeding is to be otherwise dismissed by consent. (f) Formal terms of settlement, including comprehensive mutual releases and mutual non-disparagement undertakings, will be entered into and are to remain confidential between the parties save for disclosure to their respective advisers and as required by law. This offer will remain open for acceptance for 7 days from the date of this letter, and will expire at 4:30pm on 19 June 2009. If your client does not accept this offer, we rely on this letter on the question of costs in accordance with the well-known principles in Calderbank v Calderbank [1975] 3 AII ER 333. Had this letter articulated a proposal for settlement in which the respondents were prepared to accept something less than they achieved at trial, the question would then arise whether the applicant acted unreasonably in rejecting it. However, the letter did no such thing. It proposed only that Messrs Overliese and Young, and Atomos, be restrained until 31 December 2009. As matters have transpired, the applicant has succeeded in obtaining a permanent injunction as against those parties. The letter of 12 June 209 does not, therefore, provide a foundation for an indemnity costs claim on behalf of the respondents. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jessup.