Digital Products Group v Opferkuch

Digital Products Group Pty Limited PARTIES : v Christian Opferkuch

COUNSEL : Plaintiff: H Packer Defendant: M Tyson (solicitor)

SOLICITORS : Plaintiff: Alvaro Edwards Solicitors Defendant: Corrs Chambers Westgarth

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY JUDGE LIST

2709/08 Digital Products Group Pty Limited v Christian Opferkuch JUDGMENT 1 HIS HONOUR: This is an application for an interlocutory injunction to restrain the defendant pending the determination of the proceedings from "using, copying or showing to any person or entity any schedules or prices, national monthly sales reports, national sales per capita reports of the plaintiff or any other information obtained by him during his employment with the plaintiff relating to the pricing, sales and marketing of the plaintiff's products." The plaintiffs also seeks an order that the defendant deliver up any schedules of prices, national sales reports, national sales per capita reports or other documents containing or referring to the pricing, sales and marketing of the plaintiff's products obtained by the defendant during his employment with the plaintiff. 2 The plaintiff is an importer and distributor of digital TV products such as set-top boxes and digital TV recorders. Between August 2005 and 10 December 2007 the defendant was employed by the plaintiff as an account manager with responsibility for customers in Queensland and the North Coast of New South Wales. The defendant is presently employed by Toppro Pty Ltd ("Toppro") as its State Manager for Queensland and Victoria. Toppro is a subsidiary of a Korean manufacturer of digital TV products which formerly supplied its products to the plaintiff. Toppro and the plaintiff are competitors in the wholesale supply of digital TV equipment to retailers. 3 When the proceedings were commenced the plaintiff sought orders to restrain the defendant from communicating with customers of the plaintiff whose names were obtained by the defendant or became known to him from the records of the plaintiff, or who were customers of the plaintiff during the defendant's employment. That claim has not been pursued. The plaintiff also initially sought an order restraining the defendant from using, copying or showing to any person any customer lists, schedules of prices or any other confidential information of the plaintiff. A modified form of that relief is now sought. 4 During the hearing the focus of the plaintiff's complaint was on the defendant's making available to his employer, or himself using for his employer's benefit, information obtained by him during his employment with the plaintiff as to the volume of sales of particular products made by the plaintiff to its customers and the prices charged. The plaintiff, as I understand it, accepts that the identity of its customers is not confidential and does not seek to restrain the defendant from endeavouring to sell the products of his new employer to these same customers in competition with the plaintiff. 5 The plaintiff contends that the defendant has himself used confidential information he received during the course of his employment with the plaintiff in his new employment, being information as to the prices the plaintiff charged for different products and the volume of sales made to individual retailers. The plaintiff's claim is that any such use of information of that kind is in breach of an express term of the defendant's contract of employment with the plaintiff or, alternatively, is a breach of an implied term of fidelity, the operation of which term extends beyond the termination of his employment. The plaintiff also claims that the defendant has acted and there is reason to apprehend he will act in breach of his equitable duty of confidence. 6 On the question whether there is a serious question to be tried in respect of these claims the principal issues are, first, what information as to pricing and sales of the plaintiff's products was given to the defendant during his employment; secondly, whether such information was and remains confidential; thirdly, whether there is a serious question to be tried that the defendant retained any such information in written or electronic form after the termination of his employment; fourthly, whether the defendant has used and threatens to use in the future any such written (including electronic) materials he may have retained; and fifthly, whether the plaintiff is entitled to restrain the defendant from using knowledge he carries in his head about sales previously made by the plaintiff to its customers. 7 Questions as to the balance of convenience will turn on the scope of the orders which might be made if the plaintiff establishes a serious question to be tried. Thus, if an injunction were given which precluded the defendant from using any knowledge he might have as to the plaintiff's previous wholesale prices for particular customers and if such knowledge was relevant to the defendant's present employment and could not be put out of his mind when dealing with those same companies for his new employer, then such an injunction could effectively preclude the defendant from carrying out his present employment. On the other hand, an injunction restraining the defendant's use of any written or electronic documents obtained during his employment relating to the volumes of sales or wholesale prices of the plaintiff is unlikely to occasion hardship because, as I understand the defendant's submissions, he has not retained, or if he has, he has not used, such documents. 8 There is also a question as to whether the plaintiff should be refused interlocutory relief by reason of delay in commencing the proceedings. 9 From 2002 until mid-2007 the plaintiff was the distributor in Australia of products manufactured by Topfield Co Ltd of Korea ("Topfield"). In September 2007, that company appointed a new distributor and in late 2007 formed a subsidiary, Toppro, to market Topfield products in Australia. The Korean company changed its distribution arrangements because it discovered that the plaintiff was acting as distributor of a competing product called Beyonwiz. 10 There is prima facie evidence that whilst employed by the plaintiff, the defendant was privy to monthly sales reports which contained details of sales made by the plaintiff broken down by area and by customer source and that he was also privy to wholesale prices at which the plaintiff supplied products to its customers. This included information not only in relation to sales of Topfield products but also other products, including Beyonwiz products. 11 The defendant argued that no confidentiality attached to such information, either because it was readily available from other sources or because it would rapidly become outdated by changes in the market. The defendant adduced evidence that certain prices for the plaintiff's products are not confidential, for example recommended retail prices. But the defendant's evidence did not show that the prices at which the plaintiff supplied its retailer customers were generally available. There was evidence that, on occasion, such information might be revealed by making enquiry of a retailer, but that does not mean that there is not a prima facie case that such information was not publicly available, or that the circumstances in which the plaintiff acquired the information did not import obligations of confidence. 12 Costs and prices which are not generally known may well be confidential information entitled to protection (see for example Thomas Marshall (Exports) Ltd v Guinle [1979] Ch 227 at 248-249). Evidence referred to later in these reasons of use made by the defendant of information as to the plaintiff's sales and prices of a particular product demonstrates that such information can be of value to a competitor. In my view, that is sufficient to demonstrate that the information is of a kind capable of protection. Whilst there is evidence of changes to prices such that the kind of information to which the defendant was privy is likely in time to become outdated, it is not possible to say that in the six months or so since the termination of the defendant's employment such information as he received about the plaintiff's sales has become outdated. Indeed, as will be seen later in these reasons, the defendant referred to pricing information and information as to volume of sales dating back almost 18 months in communications with the Korean head office of his employer. 13 There is a serious question to be tried that the defendant may have retained documents, either in writing or electronic form, containing such information. Following the termination of his employment the defendant was required to return, amongst other things, his mobile phone, his laptop computer and all paperwork and folders relating to his job and the plaintiff. The defendant deposed that he organised the delivery of all such information to the plaintiff. On 8 January 2008, the plaintiff complained by email that the defendant had wiped his mobile phone and laptop of all data, leaving nothing on them. On 21 January 2008, the plaintiff's solicitor wrote to the defendant saying that the plaintiff was concerned that the defendant's computer did not contain any data, emails, correspondence, or other information relating to its business. There was no substantive response from the defendant to these complaints. In his affidavit the defendant deposed that he had not deleted any such information. That question cannot be resolved on the present application. However, the absence of a response to those complaints indicates that there is a serious question to be tried as to whether the defendant did delete all such information, as was asserted, and if so, why. 14 There is corroborative evidence the defendant retained data in written or electronic form with respect to the plaintiff's sales. On 8 January 2008, the defendant was asked by his employer's head office in Korea to provide a sales plan for the distribution of a particular Topfield model. On the same day he provided detailed suggestions as to the recommended retail prices and wholesale prices for that and other similar models. By mistake he copied his email reply to his former employer. His email included a statement of the number of units sold and the average price for units sold by the plaintiff during the financial year July 2006 to June 2007 of that model or an equivalent model. Later that same day the defendant sent another email, also copied in error to the plaintiff, advising that, "I just realised that the figures that I used from DPG [the plaintiff] were incorrect." He provided new information in the following terms, "During the financial year July 2006 to June 2007 we sold approx 7,454 units at an average price of $412 ex …" 15 The defendant gave no explanation as to how he obtained the data referred to in these emails. The data is not of the kind likely to be carried in someone's head, and if it were, it would be inexplicable that there should be a difference between the two sets of figures supplied on the same day. There is a serious question that the defendant may have provided the figures using documents he had retained after termination of his employment with the plaintiff. 16 The defendant has not clearly stated in his affidavit that he did not retain reports containing sales information from his previous employment. The plaintiff's director, Mr Kemp, deposed in his first affidavit that he was concerned that a competitor such as Topfield might have access to the plaintiff's complete sales figures for the period up to late 2007 for all of the plaintiff's product lines. In response the defendant denied having provided Toppro or Topfield with access to the plaintiff's complete sales figures for the period up to late 2007. This was not a denial that he had supplied to his new employer some sales figures for the plaintiff's sales. 17 In Ormonoid Roofing & Asphalts Ltd v Bitumenoids Limited (1931) 31 SR (NSW) 347, Harvey CJ in Eq said at 354-355: " In my opinion the cases show that where an employee in the course of his employment and for the purposes of his employment has obtained particular information with regard to his employer's business such as knowledge of processes, details of management or particulars of customers which have become stored up in his mind as a necessary consequence of the way in which his master employed him, there is no justification in the absence of an express contract, for preventing him making use of that knowledge. ... If in the ordinary course of their employment by the use of their native intelligence they appreciate what they are doing and the details of those processes become part of their own stock of knowledge in my opinion the employee is at perfect liberty to make use of such knowledge after he leaves his employer's business unless he has agreed not to, and then only so far as such an agreement is reasonable. Where, however, the employee while in his master's employment for his own purposes supplies himself with written documents or copies containing particulars peculiar to his master's business and proposes to use such particulars after he leaves his master's employment it is clear from numerous cases in the courts that he can be prevented from so doing. In point of fact the taking of such steps for supplementing his own knowledge indicates that the particulars therein contained have not become part of his acquired knowledge but that that knowledge has to be supplemented by particulars in an objective form and the acquisition of such substantive materials is regarded by the courts as a breach of an implied contract under which he was engaged in service. " 18 This principle has been applied not only to knowledge of an employer's manufacturing or trade processes, but also to other aspects of an employer's business that may be confidential. In Weldon & Co Services Pty Ltd v Harbinson [2000] NSWSC 272, Bryson J (as his Honour then was) applied the principle in relation to an ex-employee's solicitation of clients of the former employer; that is, whilst the employee was not entitled to take and use lists of the employer's customers after termination of her employment, she was entitled to use her general knowledge of the identity of those clients and their likely need for future services (at [70]-[72]). 19 In the absence of an express contractual term of the contract the defendant would be entitled to make use of his general knowledge of the plaintiff's sales and pricing in his new employment, but prima facie it would be a breach of his duty of fidelity and good faith or, alternatively, a breach of an equitable duty of confidence, for him to keep and use any information, however stored, concerning the plaintiff's sales during his later employment. In my view, there is a serious question to be tried that the plaintiff has used documents retained by him from his employment with the plaintiff containing such information, and that such use is a breach of the obligation of fidelity in his contract of employment or an equitable duty of confidence. 20 The plaintiff's claim goes wider. It seeks to restrain not just the use of documents, but information which the defendant obtained during his employment and which he may have retained in his mind. There is no evidence that the defendant embarked on a course of surreptitious memorisation of any such information. In my view, any such information that the defendant has is part of his general know-how which he cannot be prevented from using in his new employment, even though he is doing so in competition with his former employer, in the absence of an express contractual restraint. 21 The plaintiff contends that there is such a restraint. It says it provided the defendant with a written offer of employment in terms which included the following: " Confidential Information You must keep secret during and after your employment all information that you obtain about the business/company and affairs of the business/company, or clients or customers of the business/company. Any document or written material provided by the business/company is the business/company's property and must not be removed, passed on, copied or disclosed to third parties except with the business/company's authority. Any such document or written material must be returned to the business/company on the termination of your employment. If you are requested to do so by the business/company, you will enter into such further confidentiality agreements with the business/company as the business/company may reasonably require. Confidential information includes, but is not limited to, any information (written or oral) of a commercial, operational, technical or financial type, which is not publicly available. " 22 The letter concluded: " Until the 'Acceptance' clause (below) in the duplicate copy of this letter has been signed, you will be deemed to have not accepted this offer of employment. Accordingly, we ask that you consider the offer carefully and let us have your response by 31st August 2004. If the information contained herein and the enclosed documents do not contain all the matters discussed with you during the interview process, you must let the business/company know as a matter of urgency. " 23 The defendant did not sign the acceptance clause, but was nonetheless employed by the plaintiff. 24 If the terms as to "Confidential Information" were terms of the defendant's employment, he was required to keep secret after his employment all information he obtained about the business and affairs of the plaintiff or its clients or customers. It may be noted that whilst there was a definition of what was to be included in the expression "confidential information", that term itself was not used in the clause. The relevant restraint was on the disclosure of information about the business of the plaintiff or its customers, not about the defendant's use of such information. 25 The clause would not justify a wider restraint against use by the defendant of his knowledge of the plaintiff's sales and pricing for which the plaintiff contends. In any event, as the defendant did not indicate his acceptance of those terms by signing the letter but was employed nonetheless, I do not think there is a prima facie case that the clause was a term of the defendant's employment. 26 It follows that there is a serious question to be tried that the defendant has used and, unless restrained, will in the future use, documents (whether in written or electronic form) obtained during his employment with the plaintiff containing prices and information as to volume of sales and that such a use would be a breach of his contract of employment or an equitable duty of confidence. I am not satisfied that there is a serious question to be tried that the use by the defendant of his knowledge in relation to the plaintiff's sales, without recourse to records made or obtained by him during his employment by the plaintiff, would be such a breach of contract or of an equitable duty of confidence. 27 As indicated earlier in these reasons it is not suggested that the defendant would suffer any hardship if he were restrained from using any such records. On the other hand, the plaintiff would be very hard pressed to establish what, if any, sales may have been lost or what other damage it might have suffered if the defendant were to misuse any such records which may still be in his possession. The balance of convenience is in favour of granting an injunction to restrain the use of such records. 28 There was a significant delay in the plaintiff instituting these proceedings. The plaintiff became aware in January 2008 of the email correspondence which alerted it to at least the possibility of the defendant's use of such records in his new employment, but the proceedings were not instituted until 9 May 2008. To a certain extent, that delay is explained, if not excused, in the affidavit of the plaintiff's solicitor, Mr Alvaro. Some part of the delay could be explained by the plaintiff's expectation that it would receive a response to correspondence from its solicitors. There was also evidence that the plaintiff's solicitor has been engaged in other legal proceedings for the plaintiff and he explains this as extending the time taken to gather and compile the evidence. 29 Whilst delay will often be a sufficient ground for refusing interlocutory relief, in this case there is no suggestion that such delay as there has been has occasioned any prejudice to the defendant. In my view, it is a factor to go into the scales as to whether or not an injunction should be given, but I am not persuaded that interlocutory relief should be refused because of the plaintiff's delay. 30 For these reasons I propose the following orders, subject to any submissions the parties' legal representatives might have as to the precise form of the orders:

Upon the plaintiff, by its counsel, giving the usual undertaking as to damages pending determination of the proceedings or earlier further order, order:

1. The defendant, by himself, his servants and agents be restrained from using, copying or showing to any person other than his legal advisers any documents, whether in written or electronic form, made or obtained by him on or prior to 8 January 2008 containing information as to prices charged by the plaintiff to its customers or the volume of sales made by the plaintiff, including but not limited to any schedules of prices, national monthly sales reports or national sales per capita reports of the plaintiff and that he be restrained by himself, his servants or agents from using, copying or showing to any person other than his legal advisers any copies, extracts or summaries of any such documents.

2. Within seven days the defendant: (a) file and serve an affidavit deposing as to whether after 8 January 2008 he retained any and, if so, what documents of the kind described in order (1) and if so in respect of any such documents as are no longer in his possession, custody or control describe what became of such documents; and (b) deliver any such documents as remain in his possession, custody or control to the plaintiff.

[The parties' legal representatives addressed.] 31 I note the plaintiff, through its counsel, gives the usual undertaking as to damages and I make those orders. 32 The exhibits may be returned. 33 The plaintiff's claim has been significantly narrowed from that which was originally made in the notice of motion and the plaintiff has not been wholly successful, even on the claim as so narrowed. On the other hand, the plaintiff has had some measure of success. In my view, the appropriate order is that the costs of the plaintiff's notice of motion of 9 May 2008 be costs in the proceedings. I so order. 34 I stand over the proceedings to 17 June 2008 to the Registrar's list.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.