Cape Australia Holdings Pty Ltd v Iannello

REASONS FOR JUDGMENT 1 The two applicants are related companies which provide industrial services to companies operating in the oil and gas and resources industries. The first applicant is the parent and controlling entity of the second applicant. Mr Stephen Murdoch is and was in June 2008, the executive director of the first applicant. Mr Iannello, the respondent, is a former employee of the second applicant, Total Corrosion Control Pty Ltd (Total). He resigned from his employment with Total on 18 June 2008. 2 The applicants seek orders that Mr Iannello give preliminary discovery of a number of categories of documents under O 15A r 3 and r 6 of the Federal Court Rules (the Rules). 3 Mr Iannello commenced employment with Total in October 2003 in the position of maintenance manager based at Total's Kwinana office. During the period of Mr Iannello's employment, BP Oil Refinery Pty Ltd (BP) was one of Total's major clients. Before his departure on 18 June 2008 from Total, Mr Iannello had been exposed to the site agreement which Total had recently negotiated with BP. 4 On 21 June 2008, Mr Murdoch sent Mr Iannello a letter. In the letter, Mr Murdoch stated that he noted Mr Iannello's assurances that he would not join a competitor or set up any business in competition with Total after his resignation. Mr Murdoch went on to remind Mr Iannello of his "confidentiality and intellectual property obligations to TCC". The letter also stated that copies of the agreements "which you signed as part of your employment" were attached. However, those documents are not attached to the letter that was annexed to Mr Murdoch's affidavit. The letter concluded with the following paragraph: We naturally take our rights under these arrangements very seriously. We will not hesitate to enforce those agreements and if necessary seek appropriate injunctions from the court to restrain any anticipated breaches. 5 It appears that Mr Murdoch wrote a letter in like terms to Mr Iannello's brother, Mark, who had also been an employee of Total, and had also resigned on the same day. 6 On 23 June 2008, a firm of solicitors, Piper Alderman, responded to Mr Murdoch's letters of 21 June 2008, on behalf of Mr Iannello and his brother, Mark. The Piper Alderman letter stated that their clients acknowledged their obligations in relation to Total's confidential information. The letter went on to say that their clients were examining their personal records to ensure that they were not in possession of any such confidential information and if they found any such information they would advise Total. The letter invited Total to itemise "any particular items about which you may have specific concerns". 7 Further, Piper Alderman denied the allegation that Mr Iannello, or his brother, had given any assurance as to their post-employment business activities. The letter went on to say that: …despite the absence of any specific post employment restraint in their contracts, we are instructed that our clients are willing to consider any reasonable concerns you have about their post-employment business activities. To that end, we invite you to write to us detailing any specific matters about which you might seek our clients' agreement. 8 The letter also stated: Our clients are surprised at the tenor of your letter given the recent spill and fill of positions which made it clear to our clients that their services were not highly valued by your company. Nonetheless, their offer to resolve any outstanding concerns you have remains genuine. 9 On 21 August 2008, Mr Murdoch was advised by Ms Chapman, Total's site administrator at the BP Oil Refinery at Kwinana, that the records she had seen, indicated that Mr Iannello had gained access to the BP Kwinana site on 20 August 2008 by using an access card issued to Mr Iannello whilst he was employed by Total. 10 On 21 August 2008, Blake Dawson, solicitors for Total, wrote to Piper Alderman stating that Mr Iannello, whilst he had been employed by Total, had access to confidential information which was protected by contract. The letter alleged that Mr Iannello was approaching Total's clients and "attempting to lure them away" by "leveraging off" the confidential information. "Specifically", said Blake Dawson, "TCC is aware that your clients have been making approaches to BP". 11 Blake Dawson also stated that in the days leading up to the termination of his employment at Total, Mr Iannello had access to a new agreement between Total and BP executed in June 2008. The letter went on to say that Total was concerned that Mr Iannello was now using their confidential information in his capacity as an employee of Seat Corrosion Control (Aust) Pty Ltd (SCC) to attempt to compete with Total for services to BP. It was alleged that Mr Iannello was using confidential information belonging to Total to assist SCC break into the Western Australian market. 12 Further, Blake Dawson stated that Mr Iannello had entered the BP Kwinana Refinery facility using security cards which were registered with Total to meet with a BP employee, Mr John Newton. The letter stated that Total suspected that this was for the purpose of attempting to obtain work from BP for SCC. 13 The letter demanded that Mr Iannello was not to enter the BP Kwinana site again whilst representing that he was a Total employee and to return the security cards. The letter also demanded that Mr Iannello cease using Total's confidential information, and that he comply with his contractual obligations. The letter concluded by saying: TCC considers your clients' actions represent serious attempts to damage the business of TCC. If your clients do not comply with the requirements of TCC…TCC will take whatever legal action (including any urgent application to restrain your clients' conduct) it sees fit to protect its business and enforce the Agreements without further notice to your clients. Given your clients' flagrant disregard for their obligations under the Agreements, TCC will seek to recover its costs of any legal action on a full indemnity basis from your clients. 14 By a letter dated 25 August 2008, Piper Alderman responded to the letter from Blake Dawson. Piper Alderman stated that Mr Iannello was not employed by SCC. Further, it was said that, in visiting the BP Kwinana site, Mr Iannello and his companion did not represent that they were Total employees and made it perfectly clear, although it was already known to BP, that they had ceased employment with Total two months earlier. The solicitors said that Mr Iannello entered the BP Kwinana site as a visitor to introduce himself and Mr Mark Iannello to the BP Kwinana staff and there had been no discussion about the Total‑BP agreement. It was also said that the access cards had been returned to BP as the cards were the property of BP, although registered in the name of Total. 15 The letter also stated that their clients had previously acknowledged their obligations in respect of confidential information. It was said that at the time of their leaving Total's employment "they took steps to ensure that all copies of what might be regarded as confidential information have been returned to [Total] both in hard and soft copy form". 16 The Piper Alderman letter went on to say that their clients "invite you again, as contained in our letter of 23 June 2008, to itemise any particular items of confidential information and intellectual property about which your client has specific concerns". 17 On 26 August 2008, Ms Chapman told Mr Murdoch that she had received a business card from Mr Iannello which stated that he worked as General Manager, Perth Office of Giovenco Industrial Services (Giovenco). 18 At an unspecified time, but after Mr Iannello had resigned from the employment of Total, Mr Murdoch directed that a search be undertaken of Total's computer database. The search was undertaken by an external information technology company, Silverfern, which provided computer backup services to Total. The search undertaken by Silverfern included a search of emails sent and received during a period which included May 2008. The result of the search was provided to Mr Murdoch. 19 By reason of the contents of the letter from Blake Dawson referred to at [20] below, I infer the search was conducted and results communicated to Mr Murdoch before 3 September 2008. 20 By a letter dated 3 September 2008, Blake Dawson responded to the letter from Piper Alderman. Blake Dawson demanded that Mr Iannello return all access cards to the industrial sites of Alcoa, Kwinana Nickel Refinery and Worsley Alumina Pty Ltd. The letter went on to state: Our client believes that your clients hold the following property of TCC: (a) copies of contracts entered into between TCC and customers; including BP; and (b) copies of pricing information for projects with Worsley Alumina Pty Ltd and Alcoa, along with other projects. Please confirm whether your client holds the above mentioned property of TCC, or any other property owned by TCC that is in their custody, power or possession. 21 The Blake Dawson letter also stated that Total had undertaken searches of the computer system and discovered that Mr Iannello had deliberately deleted emails sent and received over a particular "block of time" leading up to his last days of employment with Total. 22 The letter went on to state: This indicates to our client that your clients may have removed material that was evidence that they had breached fiduciary obligations and obligations of confidence which they owed to our client. Despite your clients' efforts to remove such material, our client has discovered email communications between Darren Iannello and Giovenco Industrial Services Pty Ltd (Giovenco), prior to your clients ceasing employment with TCC. Those communications vindicate our client's suspicions concerning the conduct of your clients. Specifically, Darren Iannello emailed Giovenco on 28 May 2008, forwarding client details and information to Giovenco, and asking Giovenco to provide quotes on work that had been referred to Darren Iannello as an employee of TCC, for the purpose of obtaining a quote from TCC. Our client has also discovered that Darren Iannello forwarded emails to his personal email account which contained client details and confidential information concerning work that had been referred to TCC, including work for TCC's major client, Alcoa. This indicates that your client intended to retain this information for continued future misuse. (Original emphasis.) 23 Blake Dawson also stated that they had been instructed that Mr Iannello had contacted Total's employees in an attempt to induce them to provide him with confidential information. 24 The letter concluded by stating: On our instructions, it is apparent that, despite your clients' declarations of their innocence, they have engaged in a course of conduct to improperly exploit their employment relationship with TCC, in clear breach of contract and fiduciary duty. TCC demands that your clients immediately discontinue this course of conduct and take the actions described above to return property belonging to our client. In addition, your clients are clearly liable for TCC's losses arising out of their conduct, including in respect of the business opportunities of which TCC has been deprived. 25 By a letter dated 8 September 2008, Piper Alderman responded by denying that Mr Iannello held the documents referred to in the Blake Dawson letter. The letter stated: In relation to emails, the fact that emails sent and received have been deleted is no indication of any removal of so called evidence as to breach of fiduciary obligations or obligations of confidence. It would not be uncommon in most employment situations that employees delete emails sent and received on a daily basis. In any event, all emails were backed up onto a server which TCC would have access to and from which TCC could easily determine the content of any deleted emails. The only email you refer to specifically was an email to Giovenco Industrial Services Pty Ltd on 28 May 2008. That company did not exist in May 2008. Our client, Darren, believes the email referred to was in relation to TCC obtaining Giovenco Industries to perform a particular service in Sydney which TCC was not able to perform. In relation to emails sent to Darren's personal email account, your client will recall that, on the termination of Darren's employment, he presented his laptop computer to a technician from Silverfern, a company which looks after TCC's computer systems. All confidential files that were on the computer were cleaned from the laptop and transferred to the TCC server. Once again, our clients repeat their invitation to you that if there is anything specific that you believe our clients have in their possession, please list it, they will look for it and if it is in their possession, they will return it. However at this stage their comprehensive searches of material in their possession does not reveal any of TCC's confidential information. 26 By a letter dated 26 September 2008, Blake Dawson responded by saying that they had been instructed to apply for preliminary discovery under O 15A of the Rules.