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[2026] NSWSC 171
Supreme Court of NSW
2026-03-11
Richmond J
Original judgment source is linked above.
Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: Direct Flow Pty Ltd t/as Arthur Rubber v Petersen [2026] NSWSC 171
Hearing dates: 14-17 July 2025
Date of orders: 11 March 2026
Decision date: 11 March 2026
Jurisdiction: Equity
Before: Richmond J
Decision: (1) Judgment for the plaintiff in the amount of $50,000.
(2) Direct the parties to bring in short minutes for a timetable on the issue of costs within 14 days.
Catchwords: EQUITY — Breach of confidence — Breach of fiduciary duty — Where defendant used confidential information and other assets of employer to provide himself a head start in new business — No question of principle
INTELLECTUAL PROPERTY — Copyright — Ownership — Where author was an employee — Whether work made ‘in pursuance of the terms of… his employment’ under Copyright Act 1968 (Cth), s 35(6)
EQUITY — Equitable remedies — Assessment of equitable compensation where evidence of loss is limited — Principles to be applied
Legislation Cited: Copyright Act 1968 (Cth), s 35(6)
Cases Cited: AIIB Pty Ltd v Beard [2009] NSWSC 1001
Anderson v Canaccord Genuity Financial Ltd (2023) 113 NSWLR 151; [2023] NSWCA 294
A-One Accessory Imports Pty Ltd v Off Road Imports Pty Ltd (1996) 143 ALR 543
Australian Executor Trustee (SA) Ltd v Kerr [2021] NSWCA 5; (2021) 151 ACSR 204
Botanical Water Technologies IP Ltd v Driver [2025] NSWCA 162
Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34
Bristol and West Building Society v Mothew [1998] Ch 1
Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36
Clear Wealth Pty Ltd v Kwong (No 2) [2012] NSWSC 1233
Commissioner of Taxation v Murry (1998) 193 CLR 605
Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434; [1987] FCA 266
Del Casale v Artedomus [2007] NSWCA 172; (2007) 73 IPR 326
Digital Pulse Pty Ltd v Harris [2002] NSWSC 33; (2002) 166 FLR 421
EdSonic Pty Ltd v Cassidy (2010) 189 FCR 271; [2010] FCA 1008
Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd [1999] HCA 15; (1999) 161 ALR 599
Et-China.com International Holdings Ltd v Cheung [2021] NSWCA 24; (2021) 388 ALR 128
Flynn v PPK Mining Equipment (No 3) [2024] NSWSC 663
Gerrard Toltz Pty Ltd v City Garden Australia Pty Ltd (in liq) (No 2) [2024] NSWCA 232
GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers [2005] VSCA 113
Gunasegaram v Blue Visions Management Pty Ltd [2018] NSWCA 179; (2018) 129 ACSR 265
Hartnell v Birketu Pty Ltd (2022) 105 NSWLR 541; [2021] NSWCA 201
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64
Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46
Jardin and Jardim Investments Pty Ltd v Metcash Ltd [2011] NSWCA 409; (2011) 285 ALR 677
LJP Investments Pty Ltd v Howard Chia Investments Ptd Ltd (1990) 24 NSWLR 499
Maguire v Makaronis (1997) 188 CLR 449; [1997] HCA 23
Manildra Laboratories v Campbell [2009] NSWSC 987
Metstech Pty Ltd v Park [2022] NSWSC 1667
Michael Wilson & Partners Ltd v Nicholls (2011) 244 CLR 427; [2011] HCA 48
Murdoch v Mudgee Dolomite & Lime Pty Ltd [2022] NSWCA 12; (2022) 398 ALR 658
Nicholls v Michael Wilson & Partners [2010] NSWCA 222; (2010) 243 FLR 177
Optus Networks Pty Ltd v Telstra Corporation Ltd [2010] FCAFC 21; (2010) 265 ALR 281
Placer (Granner Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10; (2003) 196 ALR 257
Ramsay v BigTinCan Pty Ltd [2014] NSWCA 324; (2014) 101 ACSR 415
Re Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547
Recovery Partners GP Ltd v Rukhadze [2025] 2 WLR 529; [2025] UKSC 10 at [25]
Smith Kline & French Laboratories (Aust) Ltd v Secretary, Dept of Community Services and Health (1990) 22 FCR 73
Southern Cross Financial Group (Newcastle) Pty Ltd v Rodrigues [2005] NSWSC 979
Sprout v Trading NSW Pty Ltd (t/as Sprout AG) v PBH Trading Pty Ltd (No 2) [2025] NSWSC 645
The Australian Special Opportunity Fund LP v Equity Trustees Wealth Services Ltd [2015] NSWCA 225; (2015) 323 ALR 570
V-Flow Pty Ltd v Holyoake Industries (Vic) Pty Ltd [2013] FCAFC 16 (2013) 296 ALR 418
WA Fork Truck Distributors Pty Ltd v Jones [2003] WASC 102
Watson v Foxman (1995) 49 NSWLR 315
Xiao v BCEG International (Australia) Pty Ltd (2023) 111 NSWLR 132; [2023] NSWCA 48
Youyang v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 5
Texts Cited: J D Heydon, M J Leeming and P G Turner, Meagher, Gummow & Lehane’s Equity, Doctrines and Remedies (5th ed, LexisNexis, 2015)
Category: Principal judgment
Parties: Direct Flow Pty Ltd (Plaintiff)
Andrew Petersen (Defendant)
Representation: Counsel:
J Catlin (Plaintiff)
S Fendekian (Defendant)
Solicitors:
Hansons Lawyers (Plaintiff)
Commins Hendriks (Defendant)
File Number(s): 2022/191060
Publication restriction: Nil
The plaintiff, Direct Flow Pty Ltd (Direct Flow), conducts a retail business in Wagga Wagga of selling rubber products, parts and accessories under the name ‘Arthur Rubber’. It brings these proceedings against its former employee Andrew Petersen, the defendant, who commenced a similar business in Wagga Wagga under the name ‘Maxx Rubber’ shortly after resigning from his position with the plaintiff.
The plaintiff claims that Mr Petersen has used the plaintiff’s confidential information in breach of the equitable duty of confidence he owes to the plaintiff and that the steps Mr Petersen took prior to termination of his employment with the plaintiff breached his fiduciary duty of fidelity and loyalty to the plaintiff. The relief sought by the plaintiff is equitable compensation for loss it claims to have suffered by reason of these breaches.
At the hearing, the plaintiff was represented by Mr J Catlin of counsel and the defendant by Ms S Fendekian of counsel.
The lay evidence relied on by the plaintiff at the hearing comprised affidavits made by (a) John Bailey and his wife Lisa Bailey, each of whom is a director of the plaintiff; (b) Peter Butt, the previous owner of the plaintiff’s business; (c) Daniel Connolly, an information technology consultant who performed work for the plaintiff’s business in 2017; (d) Mark Rapley, a marketing consultant and the managing director of Rapley Holdings Pty Ltd trading as JAM Media which performed marketing services for both the plaintiff and Mr Petersen during the relevant period; (e) Sally Wishart and Neil Druce, who had been customers of the plaintiff. Each of them was cross examined.
The plaintiff also relied on an expert report by Mr Jaret Le Roux, a digital forensic expert who was cross examined.
The lay evidence relied upon by Mr Petersen comprised affidavits by himself and by Michael Kain and Tom Grigg, who had been customers of both Arthur Rubber and Maxx Rubber deposing to their dealings with Mr Petersen after he ceased to be employed by the plaintiff. Mr Petersen was cross examined, but Mr Kain and Mr Grigg were not required for cross examination.
In assessing the evidence of all the witnesses I have borne in mind that:
the fallibility of human memory increases with the passage of time, particularly where disputes or litigation intervene: Watson v Foxman (1995) 49 NSWLR 315 at 319; Re Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547 at [7];
reliable contemporaneous documents generally furnish the most reliable source of evidence as to what occurred or, at the very least, provide a generally reliable reference point from which to assess the reliability of witness testimony: Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd [1999] HCA 15; (1999) 161 ALR 599 at [15]-[16]; Et-China.com International Holdings Ltd v Cheung [2021] NSWCA 24; (2021) 388 ALR 128 at [25]-[29] (and cases there cited);
when the law requires the proof of any fact the Court must feel an actual persuasion of its occurrence or existence before it can be found, and ‘it cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality’: Briginshaw v Briginshaw (1938) 60 CLR 336 at 361; [1938] HCA 34 per Dixon J.
The key witnesses were Mr Bailey, Mr Butt and Mr Petersen. I formed the view that Mr Butt sought to give truthful and accurate evidence and I accept his evidence.
In relation to Mr Bailey and Mr Petersen, they both gave unresponsive answers in cross examination on several occasions and I consider that their strong animosity towards each other, as a result of the circumstances surrounding Mr Petersen’s resignation from his employment with the plaintiff and the events which followed it, may have affected their recollection of key conversations and events about which they are in dispute which occurred around 7 years before the hearing. In relation to Mr Petersen, I have not accepted his evidence on two important matters, the registration of the ‘Arthur Rubber’ business name and his use of the Customer List, and I do not regard his evidence as to his conduct in the 18 months prior to the termination of his employment as reliable. Accordingly, I have treated their evidence, where it conflicts, with caution and have given the greatest weight to the evidence of other witnesses, contemporaneous documents, other objective factual surrounding material and the inherent probabilities and improbabilities:
(a) the point of sale software system and data base MYOB Retail Manager; (b) the embedded data in Retail Manager namely client names, client addresses, client contact phone telephone numbers, client retail history; (c) information as to client purchasing cycles, client product preferences, client budgets contained in the embedded data referred to in (b); (d) information about suppliers including their pricing information, discounts or special pricing arrangements with the plaintiff; (e) a sophisticated catalogue 81 pages in length listing stock inventory for thousands of products, and containing details including prices, graphics and photos of the products., in which it claims to also own copyright.
It is alleged that the Trade Information was imparted to Mr Petersen in circumstances of confidentiality and as a consequence Mr Petersen owed to the plaintiff an equitable duty of confidence not to miss use the information or, alternatively it was an implied term of his contract of employment that he not miss use the information (SOC, [10]-[13]).
It is also alleged that during the period of his employment he was bound by reason of the responsibilities reposed in him as an employee to a limited fiduciary duty to not abuse the Trade Information, not to act contrary to his employer’s interests and not to engage in conduct in conflict with his employer’s interest (SOC, [14]).
It is alleged that from around 2014 Mr Petersen engaged in a number of acts while an employee of the plaintiff for the purpose of ‘covertly profiting from’ the plaintiff’s business. These acts were (a) obtaining his own ABN with the business name ‘Arthur Rubber’ and registering a website with the hyper link address ‘arthur rubber.com.au’; (b) soliciting customers of the plaintiff’s business; (c) wiping trading data from the plaintiff’s computers without permission; (d) just prior to his departure saving Trade Information on a portable data device which he has refused to return to the plaintiff (SOC, [15]-[21])..
It is alleged that following termination of his employment with the plaintiff, he opened premises around the corner from the Arthur Rubber business offering identical products and services trading under the name Maxx Rubber, and communicated to customers of the Arthur Rubber business that the Maxx Rubber business was the successor of the Arthur Rubber business (SOC, [22]-[24]).
In addition it is alleged that Mr Petersen created a product catalogue substantially similar to the plaintiff’s catalogue and used it in the Maxx Rubber business including in his communications with the plaintiff’s customers (SOC, [25]-[26]).
The SOC then pleads essentially four claims:
that the use and distribution by the defendant of the Maxx Rubber catalogue was an infringement of the plaintiff’s copyright in its catalogue (SOC, [27];
that the plaintiff engaged in passing off himself as the plaintiff’s business by communicating to customers that the Maxx Rubber business was associated with Arthur Rubber business, and by creating and using the Maxx Rubber catalogue (SOC, [28]);
by the conduct referred to above the plaintiff had engaged in a scheme to use the Arthur Rubber business as a ‘springboard’ for the conduct of the Maxx Rubber business in breach of his fiduciary duty or his duty of trust confidence and fidelity to the plaintiff;
by his use of the Trade Information the plaintiff breached his duty of confidentiality to the plaintiff.
At the commencement of the hearing, Mr Catlin said that the breach of copyright and passing off claims were not pressed. However, the relevant conduct including the use of the plaintiff’s catalogue was part of the conduct relied on for the other two claims.
At the hearing the plaintiff elected for equitable compensation for the loss suffered in respect of the breaches referred to in (3) and (4) above. In relation to quantum of the loss claimed, the SOC at [35] pleads that by reason of the breaches referred to above, the plaintiff suffered loss and damage, and gives as particulars of the loss a schedule setting out average sales figures for 20 customers of the Business for various periods. This claim was not supported by admissible evidence at the hearing, and instead the plaintiff’s claim was reformulated as equitable compensation for a loss of $130,000 based on the income statements for plaintiff for the 2018 to 2021 financial years (see below).
In his defence, Mr Petersen denies the breaches of duty alleged, but does not raise any defences such as laches, acquiescence or delay.
Accordingly, the issues for determination are:
whether by his use of the Trade Information Mr Petersen breached his duty of confidentiality to the plaintiff;
whether by the conduct referred to above while he was an employee of the plaintiff, Mr Petersen breached his duty of fidelity, or his fiduciary duties to the plaintiff;
if so, whether equitable compensation is payable.
In around 1994 Bill Arthur started a business in Wagga Wagga selling foam and rubber products and later aboveground pools (the Business). In the early years of its operation, the trading name was ‘Arthur Rubber Foam & Pools’.
In February 2006 Mr Petersen became an employee in the role of Manager. At the time Mr Petersen commenced employment, there were 5 employees, including Mr Arthur and Mr Petersen who were full-time, together with Mrs Arthur and two casual employees who worked in the business from time to time.
One of Mr Petersen’s first tasks was to computerise the point-of-sale and stock control for the business using the MYOB Retail Manager software programme. He had access throughout his employment to the retail manager programme, but not to the MYOB Account Right programme which was the financial software programme used for completion of BAS, payment of wages and financial statements. A bookkeeper was employed to deal with those matters.
Mr Petersen deposed that during the period from 2006 until his resignation in 2017, the Business was operated as a retail business which in addition to selling rubber and foam both off-the-shelf and custom measured, also sold swimming pools, pool equipment, chemicals for pools, and had a flooring section offering indoor and outdoor mats and matting. It had a website from 2007 on which its industrial products catalogues referred to below were displayed (ARFP website), and sold its products to business and residential customers both in and outside New South Wales.
On around 1 October 2010, Mr Arthur sold the Business to Peter Butt and his partner Leonie Lewis.
In May 2017 Mr Butt and Ms Lewis, as vendors, entered into a contract for the sale of the Business to Direct Flow for a price of $175,000 plus an amount for trading stock at a valuation to be based on wholesale prices (which was ultimately agreed to be $80,000) (the Contract). The directors of Direct Flow are Mr and Mrs Bailey (the latter being the daughter of Ms Lewis).
The contract described the business being sold as one conducted under the name ‘Arthur Rubber Foam & Pools’, and stated that the assets sold included the chattels, fittings, fixtures and furniture, goodwill, intellectual and industrial property, licenses, permits, plant, quotas and software of the business together with any other items referred to in the contract is forming part of the business. Completion of the contract occurred at the end of June 2017.
For the entirety of the period of his employment in the Business, including when operated by the plaintiff, he did not have a written contract of employment.
Mr Petersen described his role as that of a manager with duties which included implementation of the MYOB retail manager system when he first started, and more generally customer service, ordering stock, delivery of stock, marketing, preparing quotes, invoices and receipts, and many other matters pertaining to the day-to-day management of the business. This is consistent with his tax returns for the years ended 30 June 2016 and 2017 which stated his occupation as 'manager-sales and marketing’. It is apparent from those tax returns that in the final two full years of his employment, his gross salary was $55,826 pa (2016 year) increasing to $65,256 (2017 year).
He was not responsible for banking, except when the owners were absent and in these periods he would go to the local bank branch to deposit the cash or cheque receipts for the business.
His role also included backing up the computer system for the business onto a USB drive two to three times per week, which he brought back to work the following day. This was standard practice before the ‘cloud’ existed because it was the most practical way to ensure information would not be lost if there was a major computer failure, fire or theft.
Mr Petersen’s hours of work were from 8:30 am to 5:30 pm Monday to Friday and alternative Saturday mornings until 12:30 pm.
During the period of his employment, Mr Petersen did not have a work mobile phone and often took calls from customers of the business on his personal mobile phone. A number of customers over the years came to know his mobile phone number. His work email address was not linked to his mobile phone or his home computer and he used the computer at work to send emails.
Over the period from 2007 to 2017 Mr Petersen created a number of product catalogues for the Business, each entitled ‘Industrial Products Catalogue’, which gave detailed specifications and prices for the various rubber and foam products available for sale including photographs of the products. There were seven iterations of this catalogue over the period from 2007 to 2017.
The first of these catalogues was dated June 2008 and Mr Petersen undertook around half the work for that catalogue at home in his own time. This catalogue was issued using the trading name ‘Arthur Rubber Foam and & Pools’. Over the period from 2008 to 2011 this catalogue was revised and updated with four further ‘editions’ being produced.
In 2011, Mr Petersen commenced work on a new version of the catalogue, which he says he prepared from scratch and it took approximately 12 months to create largely through Mr Petersen working on it at his own home outside of work hours and using his own resources. This new catalogue was dated June 2012, was described as the ‘5th edition’, adopted a new format and used the trading name ‘Arthur Rubber’ prominently, but ‘Arthur Rubber Foam & Pools’ also appears in various places within the catalogue. It opens with the statement:
Welcome to Arthur Rubber’s 5th Edition of our Industrial Rubber Catalogue.
We offer a wide range of rubber and foam products for residential, commercial, rural and industrial applications for within the Wagga Wagga and Riverina region plus an increasing number of intra-and out-of-state customers through the use of our website.
This 5th Edition of the catalogue was provided to customers in hard copy in the store and by email, and was also available on the ARFP website from at least 2013 onwards. It (and later catalogues) included on the last page the statement: ‘This catalogue – designed, compiled and produced by Andrew C Petersen 05/12’.
Mr Petersen continued to work on updating and improving the catalogue and by about May 2017, the 6th Edition was in existence and available both in hard copy and on the ARFP website. The trading name used in this catalogue was now simply ‘Athur Rubber’. This was a version of the catalogue in place when the plaintiff acquired the Business.
Mr Petersen was never remunerated by Mr Butt for his time and effort in preparing the catalogues. Mr Petersen’s evidence is that Mr Butt said to him on one occasion (although he does not identify when this was) that he would be ‘looked after’ and ‘covered’ for all his time and effort in putting the catalogue together. Mr Butt’s evidence, which I accept, is that he never discussed with Mr Petersen providing any additional remuneration for Mr Petersen’s work on the catalogues and simply gave Mr Petersen a bonus every Christmas and time off.
During 2017 Mr Petersen completed a new version of the catalogue (described as the 7th Edition) again largely in his own time and using his own personal resources. The 7th Edition of the catalogue has some differences compared to the previous catalogues, but it is similar in style to the earlier versions and adopted the ‘Arthur Rubber’ business name and logo which had been used in the earlier versions from around 2012.
Mr Butt first became aware of the existence of the 7th Edition during a conversation in around April or May 2017 in the Wagga Wagga store when he told Mr Petersen that he was selling the Business to the plaintiff. During this conversation Mr Petersen showed Mr Butt the catalogue and offered to sell it to him. Mr Butt declined to do so, as he could not see the need for it as the Business already had a catalogue. Mr Butt did not tell Mr Bailey about this conversation.
In around mid-July 2017, after the sale of the Business to the plaintiff, Mr Petersen told Mr Bailey when they were working together in the Wagga Wagga store about the 7th Edition of the catalogue. Mr Petersen deposed that they had a conversation to the following effect:
Petersen: I have been working on two projects to take the business forward.
Bailey: What are they?
Petersen: A new catalogue and some work on content for the website.
Bailey: Can I have a look at it?
Petersen: I have a printed copy of it at home which I can bring in tomorrow.
On around 7 October 2010, Mr Butt and Ms Lewis registered the business name ‘Arthur Rubber Foam & Pools’. The plaintiff took over the registration of this business name on completion of the sale of the Business under the Contract.
It is apparent from the industrial products catalogues that from at least June 2012 the Business was also using a shortened trading name ‘Arthur Rubber’. Mr Petersen deposed to a conversation with Mr Butt in around 2013 and 2014 in which he told Mr Butt that with all the marketing being done using the business name ‘Arthur Rubber’ he should register that name and that the cost would be about $140, and Mr Butt responded ‘We don’t need it. Who would want it. I’m not doing that’. Mr Petersen’s evidence was that he considered registration of the name to be ‘cheap insurance’ to protect the brand and so he instructed his accountant ‘to register the name Arthur Rubber on my behalf’. Subsequently, on 21 August 2014 the business name ‘Arthur Rubber’ was registered by Mr Petersen.
Mr Butt denied this conversation ever occurred. He was unwell in 2014 due to prostate cancer and took time off from work for about 3 to 4 months to recover and hence, if the matter was raised by Mr Petersen with Mr Butt, it was possibly at a time when he was in poor health and not able to give his full attention to the affairs of the Business. However, his firm evidence was that he never spoke to Mr Petersen about the registration of this business name.
It is not in dispute that Mr Butt and Ms Lewis did not become aware that Mr Petersen had registered ‘Arthur Rubber’ as a business name until shortly before the Contract was exchanged. Mr Petersen’s evidence is that at some point in 2017 Ms Lewis ‘confronted me about the name ‘Arthur Rubber’ being registered in my name’ and said to him ‘You shouldn’t have it’ and that he told her ‘No worries you can have it’. However, contrary to the impression sought to be given by this evidence, it is clear that Mr Petersen initially resisted transferring the business name to Mr Butt and Ms Lewis, and it was only after he met with a solicitor to obtain advice on whether he could retain the name, that he agreed to give up his registration of the name. As he put it in his email to Mr Rapley on 6 June 2017:
My ‘ownership’ of the trading [name] did put the ‘cat amongst the pigeons’ and got his (Leonie’s son-in-law-John) lawyers all ‘fired up’.
I did have a meeting with a solicitor from Walsh & Blair ($440) with conflicting responses from my in-house discussions to their written response – it got into the ‘money’ aspect only.
To ‘keep the peace’ and to avoid all sorts of ‘legal’ threats which may be all bluff (as my accountant was quite adamant that there was no illegality in me registering the name), I have organised the transfer of the Arthur Rubber name to Peter.
This has not lessened my endeavours to stick to my plan to have an updated Product Catalogue and a new website ‘under construction’.
I feel that John’s solicitors have taken the opportunity of making ‘extra’ money by not allowing John and myself of ‘having a conversation’.
I prefer Mr Butt’s evidence on the topic of the alleged conversation about registering the business name ‘Arthur Rubber’ in 2014. However, ultimately nothing turns on whether it occurred because there is no dispute that Mr Petersen never told Mr Butt that he had registered the name ‘Arthur Rubber’, or seek his consent to do so and it is clear that he sought to conceal that matter from Mr Butt. This is apparent from Mr Petersen’s email to Mr Rapley of 28 April 2016 in which he said that the ‘owners’ (being Mr Butt and Ms Lewis) did not know that he ‘owned’ the business name and requested Mr Rapley to send all correspondence to Mr Petersen’s private email address.
On around 31 May 2017 Mr Petersen transferred the business name ‘Arthur Rubber’ to Mr Butt and Ms Lewis, and they transferred it to the plaintiff on 28 June 2017.
As a result of the dispute over Mr Petersen’s registration of ‘Arthur Rubber’ his relationship with Mr Bailey did not get off to a good start. It deteriorated further from around August 2017 due to the refusal of Mr Bailey to pay anything to Mr Petersen for his work on the 7th edition of the industrial products catalogue, and tensions created by Mr Bailey’s lack of experience in conducting a retail business.
In September 2017 Mr Petersen commenced seeking employment elsewhere, although there is no detail in the evidence as to the efforts he made in this regard. He did not secure any job interviews, possibly due to his age (he was then 64 years old).
In October 2017 the plaintiff engaged Mr Danny Connolly, an IT professional, to install new computers at the plaintiff’s Wagga Wagga store. Mr Connolly deposed that in the course of performing this task he asked Mr Petersen whether there was any data that needed to be migrated from the old computers to the new computers and Mr Petersen replied ‘No, I’ve already wiped them clean’. Mr Peterson denied that he said those words, and says that all he did was delete some files on the old computers after all the information on them had been migrated to the new computers by Mr Connolly and that he made the deletions because Mr Bailey had told him that the old computers were to be used by his children. Mr Connolly told Mr Bailey about Mr Petersen’s ‘wiped them clean’ comment in an email sent in February 2020 and this clearly led Mr Bailey to have further suspicions about Mr Petersen’s conduct during his employment. In my view, nothing turns on whether Mr Petersen used the words ‘wiped them clean’ and I accept his evidence as to why he made the deletions from the old computers.
On 11 November 2017, Mr Petersen downloaded the ‘Customer List’ for the Business in PDF format from the MYOB retail manager programme (Customer List) on to his home desk top computer and then transferred it to his laptop, and on 8 October 2021 he renamed the file which contained the Customer List ‘Mum’s recipe - Meat Loaf’. He said in cross examination that he renamed the computer file in this way because he was ‘rattled’ by the various allegations made against him by the plaintiff, including fraud (T164.7). I deal with Mr Petersen’s evidence regarding the downloading of the Customer List in relation to issue 1 below.
On 20 November 2017 he registered the business name Maxx Rubber. On 23 November 2017 he sent an email to Mr Rapley stating that he had decided to start a new business marketing rubber and rubber related products, and asking Mr Rapley to register the domain names ‘maxxrubber.com.au’ and ‘maxrubber.com.au’ for him.
On 4 December 2017, Mr Petersen gave his resignation letter to the plaintiff. His last day of work for the plaintiff was on 11 December 2017. He deposed that on his last day he gave Mr Bailey his keys to the ARFP premises and the portable USB which had been used to back up the business computer, including the MYOB retail manager programme. Mr Bailey denies this and says the keys and USB were not returned until two weeks later. It is not necessary to resolve the question of when the keys and USB were returned as ultimately nothing turns on it.
On 12 January 2018 the solicitors for the plaintiff wrote to Mr Petersen drawing his attention to his obligation not to disclose or use confidential information belonging to the plaintiff and adding:
During your employment with Arthur Rubber & Foam, you held a position of trust by virtue of your senior position and had access to our client’s confidential information including but not limited to systems and processes, plans, pricing information, proprietary software, customer and supplier lists, marketing and strategic plans and other trade secrets. All this material is confidential and of a commercial value to our client
Any confidential information of our client held by you is to be returned to our client immediately including delivering of any originals or copies (including electronic copies) of our client’s confidential information in your possession, custody or control.
The improper use of our client’s confidential business information without their consent is an infringement of our client’s intellectual property rights including copyright. Such unlawful use may result in legal action for the appropriate damages.
Whilst our client did not have any formal written contract with Direct Flow Pty Ltd trading as Arthur Rubber & Foam he acknowledges his post-employment obligations not to disclose or use confidential or sensitive information which belongs to his former employer.
We are instructed to advise that our client does not hold any original copies or electronic copies of any confidential information which is the property of Direct Flow Pty Ltd.
On 16 January 2018 Mr Petersen emailed Mr Rapley confirming that he had left Arthur Rubber and that he intended to ‘start a new business under the name ‘Maxx Rubber’ as soon as possible as I already have some customers wanting to deal with me’, and dealing with matters concerning the catalogue and website for that business (referred to below).
In mid-February 2018 Mr Petersen registered his ABN for GST purposes and his first sales under the business name Maxx Rubber occurred in early February 2018.
Over the next few months he worked on revising the 7th edition industrial products catalogue for use in his Maxx Rubber business, and also finalising the website. In an email to Mr Rapley on 26 April 2018 he asked for assistance from him in making changes to ‘the ‘sleeping’ website that I have been working on for the last 2 years … mainly the SKU’s and prices’. Mr Petersen accepted in his evidence that there are similarities between the two catalogues, and that is because he used the former to create the latter.
During the period from February to June 2018 he conducted the Maxx Rubber business from his home and then from early July 2018 he opened leased premises in Wagga Wagga not far from where Mr Bailey’s store was located. Mr Petersen completed the Maxx Rubber industry products catalogue in September 2018 and the Maxx Rubber website in October 2018.
In the period from February to the end of September 2018 Mr Petersen sold products to customers for which 49 tax invoices were issued and all but 7 of those customers were customers appearing on the Customer List.
It is necessary to set out the relevant facts regarding the ARFP website and a proposed website created by Mr Petersen for ‘Arthur Rubber’ in 2016 and 2017 while employed by Mr Butt and then the plaintiff.
In around 2007 the ARFP website was established by JAM Media. Mr Petersen gave all instructions to JAM Media for the work they performed which involved converting the existing products catalogue of the Business, which was only available in hard copy, to an electronic product catalogue which could be accessed through the website as well as the continued development and maintenance of the website. JAM Media recorded their client as ‘Arthur Rubber Foam & Pools’, and invoices for the work performed by JAM Media were paid by the owners of the Business.
By 2016 the then current version of the industrial products catalogue was available on the ARFP website and could be downloaded as a PDF. However Mr Petersen, and those at JAM Media familiar with the website, were of the view that the website was in need of updating.
On 15 March 2016, Mr Petersen sent an email to Mr Andrew Littlewood, who worked at JAM Media, making an enquiry about the cost of creating a new website. After stating that he envisaged that the site ‘would be a little smaller (in content) to the current Arthur Rubber Foam & Pools site’, he went on:
Is there a start-up level which can be built up on over period of time?
As I have discussed previously, the ARFP site is way out of date and I feel it would be better to start from scratch.
The business is being put on the market (not public yet) and as such there are other options open for both myself and a potential buyer.
I have all but finished the Products Catalogue which has come up very well.
I just have to figure out putting in the hyperlinks from the contents table to the particular page that item is on and then modifying the PDF to keep it below 7MB.
I am taking off next month so I might come in and see you personally for website options.
Please respond to this email address only.
In an internal email sent by Mr Littlewood to Mr Rapley and others at JAM Media on the following day, Mr Littlewood commented that ‘Andrew from Arthur Rubber Foam wants a new website - He or another may be purchasing the business (not public info yet) and wants a quote on a site’.
From this time, Mr Petersen communicated with JAM Media at regular intervals in person and by email (sent using his private email address) to create a separate website using the domain name ‘arthurrubber.com.au’. He paid to JAM Media $8,942.40 from his own resources for the work they did on this website, of which $7,876 was incurred on or before 10 February 2017. Ultimately, the website was not established and instead Mr Petersen created his Maxx Rubber website taking advantage of the work done on this proposed Arthur Rubber website.
On 26 April 2016, Mr Petersen sent an email to Mr Rapley, which after noting that Mr Butt had now put the Business on the market for sale, included the following regarding the new Arthur Rubber website (emphasis added):
It is my intention to create the “real” Arthur Rubber over the next few months and have it ready to start when the time comes.
I have Business & domain name plus a new Product Catalogue (Andrew has a copy) which will be our main marketing tool in conjunction with the website.
I have now started to get a new Arthur Rubber website established.
Once the website is done I will then only have one more part of the equation to achieve (which I am working on).
I have also had discussions with my accountant who is being kept informed of the progress of events and has been supportive of my intentions.
Very few people know that I own the business name (especially the owners) so would appreciate that all correspondence being sent to this email address.
I have always liked dealing with JAM Media and have found the service and expertise to be of a very high standard.
I do regret that ARFP (after Bill retired) never supported you as much as I would have liked as there were a lot of miss opportunities.
Unfortunately due to Peter’s ignorance of current marketing and his business “modus operandi” of continual cost cutting, there isn’t a lot of future left.
He (and his partner), never made the connection that, if they picked up their “game” the whole business would improve…….. it could have been another story!
I look forward to be part of the process of building a new website (always like a challenge) and hopefully my plans will come to fruition in the not too distant future.
As this email records, Mr Petersen had registered by this time both the business name and the domain name for ‘Arthur Rubber’. He said in his affidavit evidence that he registered the domain name as part of his role as manager of the Business to ‘safeguard and ‘park’ the domain name so no one else could use it’. The expert report of Mr Le Roux establishes that Mr Petersen registered the domain name in September 2014.
Mr Petersen said in cross examination that his reference in the above email to creating the ‘real’ Arthur Rubber meant that ‘the business had been held back, so I wanted to drive the business forward’ (T17421); that when he said there was ‘one more part of the equation to achieve (which I am working on)’ he meant a buyer for the business who would be receptive to the value of the improved marketing he was working on to take the business forward (T174.50 to T177.21); and the things he was ‘working on’ to improve the business were ‘the catalogue and the website’ (T178.43).
He was not cross-examined on the reference in the email to his accountant being ‘supportive of my intentions’ and in the last sentence to ‘hopefully my plans will come to fruition’. I infer that he was intending to benefit personally in some way from the steps he was taking to create the ‘real’ Arthur Rubber. One possible way he could benefit was by purchasing the business himself if no other buyer could be found. Importantly, despite his knowledge that his employers, Mr Butt and Ms Lewis, wished to sell the business and had it on the market for sale, he was not contemplating informing them of the matters referred to in the email which he regards as of benefit to the Business and therefore to be in the interests of his employer.
On 2 May 2016, Mr Petersen sent another email to Mr Rapley which stated:
Please find attached copy of payment for the balance of Inv 9796.
I have also attached a copy of the original Registration of the Arthur Rubber business name to confirm my ‘ownership’ of the name.
Some time ago … I mentioned to you that I had placed ‘my ownership’ on every page of the current Product Catalogue (PDF) which is on the ARFP website.
We did have a brief discussion about it and that for all intended purposes I have do have (sic) the IP on that Catalogue.
…
I look forward to starting work on the ‘new’ Arthur Rubber website.
On 22 July 2016 Mr Petersen went into the office of JAM Media and gave to a web designer there a copy of the 7th Edition of the industrial products catalogue for inclusion in the products page of the new Arthur Rubber website.
On 24 August 2016 Mr Petersen sent a further email to JAM Media providing feedback on the current draft of the new website which now included the 7th Edition of the catalogue.
There are no further communications between Mr Petersen and JAM Media until early June 2017 which is explained by the delay in Mr Butt finding a purchaser for the Business.
Ultimately, Mr Bailey and his wife Lisa (whose mother is Ms Lewis) agreed to purchase the Business through their company, the plaintiff. They attended the store in April 2017 for two days where they met Mr Petersen for the first time. He sent them an email shortly afterwards, on 16 April 2017, which attached a document entitled ‘Arthur Rubber – A synopsis’ (Synopsis) setting out a description of the Business and ways in which it could be improved, including improving the website, product catalogue and operating systems. In his covering email he made a number of observations as to why the business had not grown, including some criticisms of Mr Butt’s approach to the business, and then said: ‘I have also been working on fixing this business’s future over the past 2 years, if you are interested in hearing them’.
Mr Bailey responded the following day by an email in which he said that he would ‘take it [ie the Synopsis] & use what is necessary to make Arthur Rubber what its potential really is!’ and that it would be a pleasure to work with Mr Patersen.
This positive state of affairs in April 2017 was undermined by the problem which arose shortly afterwards when it was discovered that Mr Petersen held the registration of the business name ‘Arthur Rubber’ in his own name and did not immediately give it up.
The two men did not speak again until mid-July 2017 when Mr Bailey commenced working in the Wagga Wagga store. There was a discussion between Mr Petersen and Mr Bailey about what Mr Petersen had said in his email above regarding work he had been doing over the last 2 years ‘on fixing this business’s future’ in the conversation set out at [42] above.
Importantly, in that conversation while Mr Petersen told Mr Bailey about the 7th Edition catalogue and provided a copy to him shortly afterwards, he did not disclose that he had been working with JAM Media on creating a new website. Rather, he mentioned only that he had done ‘some work on content for the website’. The natural inference from these words is that Mr Petersen had some ideas for the existing ARFP website, not that he had funded work on creating a completely new website. Mr Bailey’s evidence, which I accept, is that he did not know about the new ‘Arthur Rubber’ website until after Mr Petersen’s resignation.
On 6 June 2017, Mr Petersen sent an email to Mr Rapley, following an enquiry from Mr Rapley as to who would be paying the outstanding amount for development of the new website, which included the following (emphasis added):
As John has not spoken with me directly (which he should) I can only presume that he still needs me to remain as manager
Peter has expressed directly to John that he will only assist John in the short term as he wishes to retire fully
I am hoping that John will take a “realistic” approach to the business and get me “on board”
John is a roof plumber and as such has no “retail” or sales experience, limited computer skills – knows how to use a smart phone and no knowledge of our product range!
He is younger than Peter and should be able to learn quickly – I hope
I know that no one is indispensable but John would be “shooting himself in the foot” if he doesn’t keep me on
In my role as manager I will be pushing hard for him to make the improvements needed as mentioned in my synopsis which include the Catalogue and website among others
If he doesn’t modernise the business then it will slide further downwards
I hope that “common sense” will prevail and the business gets a chance to take on a new dimension
I found the whole events of the past few weeks totally unnecessary as direct dialogue would have taken out all of the division which solicitors love to enjoy ($’s)
Nevertheless of what may happen I intend to continue with the website work as it will continue to be an asset regardless of who owns the business
I do apologise for not keeping you informed but my wife lost her mother at the end of April after a lengthy period of sickness plus I have had to undertake a physical stocktake for the end of May which is an involved and time consuming process
I will forward another payment later in the week
I appreciate your confidentiality on this information regarding the sale of the business
The statement in this email that he intended to ‘continue with the website work as it will continue to be an asset regardless of who owns the business’ indicates that Mr Petersen saw the website as having potential value to him if it was not ultimately used by the plaintiff. That would only be if he were to use it for another activity conducted by him independently of the plaintiff. In any event, his approach in seeking compensation from Mr Bailey for his work on the 7th Edition of the catalogue indicates that he was not intending to hand over the website without compensation of some kind.
On 23 November 2017 shortly before he retired from his employment with the plaintiff, Mr Petersen sent the email to Mr Rapley referred to earlier which stated that he had ‘made the decision to start up a new business on my own, just marketing rubber & rubber related products’ and asking for assistance in registering the domain names ‘Maxxrubber.com.au’ and ‘maxrubber.com.au’.
On 16 January 2018, Mr Petersen sent an email to Mr Rapley which after referring to his proposed new business continued:
As John Bailey is not one to be trusted, I would appreciate if you could remove all references to Arthur Rubber from the website that I have been working on for the last 18+ months.
Could you please rename all your internal references to this website to Maxx Rubber (sic) as to prevent it being mistakenly made available.
John is aware that I have commenced a website but doesn’t know that JAM is involved.
John did mention that he may ‘build’ a new one as he has ‘mates’ in Sydney but he may still contact JAM Media regarding the existing website (hence keeping ‘mum’ on the ‘my’ website work).
I am also seeing a solicitor later this month to make sure there is no incumbency issues relating to my position as manager, in starting up a new business.
I am also working on a modified Product Catalogue so I can forward it to my customers.
Once it is finished (nearly), I can then start forwarding the few amendments (and deletions or as you mentioned-hide them) for the Maxx website.
Contrary to the statement in this email that Mr Bailey was aware that Mr Petersen had commenced a website, there is no evidence that Mr Bailey was aware of this new website as noted earlier.
On 26 April 2018, Mr Petersen sent Mr Rapley an email to update him on ‘what’s been happening’ which included the following:
Since the 1st February I have sold over $15K of rubber, all from home with no stock on hand
I have also been to Sydney and Melbourne to confirm supply from my suppliers which went well, with them all wanting to support me
Apart from doing a lot of work on my late mother-in-law’s house and other long overdue jobs around our house, I have been working on revising the Product Catalogue with product content and allocating new SKU’s for all the product lines (can’t use the old Arthur Rubber one’s)
My wife’s mum’s house has been sold and settlement goes through at the end of this month
We will be investing some of this money into the Maxx Rubber business, mainly with the goal of getting a premise set up within a few months (ideally by 1st July)
I am in the last stages of the Product Catalogue allocating new SKU’s to all the product lines plus have started setting up my MYOB accounting system
I was wondering what needs to be done regarding setting up the new Maxx Rubber web site……
Once I get a premise, could the web site be set up with the most minimum of info such as an About page, map and an email contact
This email contact needs to be Andrew@maxxrubber.com.au ………. Is this something that JAM can organise?
I would then also need to be able to go into the “sleeping” website that I have been working on for the last 2 years and make changes to its contents – mainly the SKU’s and prices
I would also need to change some of the content images as some items/lines that have been deleted or added ………… if I can’t do it, I can supply the changes?
It is now settled that in order to make out a case for protection in equity of allegedly confidential information, a plaintiff must satisfy certain criteria. The plaintiff: (i) must be able to identify with specificity, and not merely in global terms, that which is said to be the information in question; and must also be able to show that (ii) the information has the necessary quality of confidentiality (and is not, for example, common or public knowledge); (iii) the information was received by the defendant in such circumstances as to import an obligation of confidence; and (iv) there is actual or threatened misuse of that information: Saltman Engineering Co Ltd v Campbell Engineering Co (1948) 65 RPC 203 at 215; The Commonwealth v John Fairfax and Sons Ltd (1980) 147 CLR 39 at 50–51; O’Brien v Komesaroff (1982) 150 CLR 310 at 326–328. It may also be necessary, as Megarry J thought probably was the case (Coco v A N Clark (Engineers) Ltd [1969] RPC 41 at 48), and as Mason J (as he then was) accepted in the Fairfax decision was the case (at least for confidences reposed within government), that unauthorised use would be to the detriment of the plaintiff.
See also Smith Kline & French Laboratories *(*Aust) Ltd v Secretary, Dept of Community Services and Health (1990) 22 FCR 73 at 87; Optus Networks Pty Ltd v Telstra Corporation Ltd [2010] FCAFC 21; (2010) 265 ALR 281 at [38]-[39].
In relation to the second requirement regarding the necessary quality of confidence, this is a question of fact having regard to a range of factors including: (a) the extent to which the information is known outside the business; (b) the extent to which the trade secret was known by employees and others involved in the plaintiff’s business; (c) the extent of measures taken to guard the secrecy of the information; (d) the value of the information to the plaintiffs and their competitors; (e) the amount of effort or money expended by the plaintiffs in developing the information; (f) the ease or difficulty with which the information could be properly acquired or duplicated; (g) whether it was plainly made known to the employee that the material was by the employer as confidential; (h) the fact that the usages and practices of the industry support the assertions of confidentiality; (i) the fact that the employee has been permitted to share the information only by reason of his or her seniority or high responsibility; (j) that the owner believes these things to be true and that belief is reasonable; (k) the greater the extent to which the ‘confidential’ material is habitually handled by an employee, the greater the obligation of the confidentiality imposed; (l) that the information can be readily identified: Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 334; Del Casale v Artedomus [2007] NSWCA 172; (2007) 73 IPR 326 at [40].
It is clear that customer lists can constitute information that is confidential to an employer and for which the employer can obtain protection under the equitable duty of confidence: eg Telstra Corporation Ltd v First Netcom Ltd (1997) 78 FCR 132 at 138; 38 IPR 531; Clear Wealth Pty Ltd v Kwong (No 2) [2012] NSWSC 1233 at [33].
It was common ground that the relationship between the plaintiff and Mr Petersen, as one of employer-employee, fell within a recognised category of fiduciary relationship and consequently he was subject to fiduciary obligations to CHRE: Anderson v Canaccord Genuity Financial Ltd (2023) 113 NSWLR 151; [2023] NSWCA 294 at [109], [125]-[126], [129]-[151]. However, in order to determine whether the conduct of the employee is in breach of his or her fiduciary obligations it is necessary to determine the scope (or subject matter) of the fiduciary relationship, i.e. the scope of the area within which the employee is not entitled to act self-interestedly: Anderson at [126], [152]-[166].
The scope of fiduciary obligations must be moulded according to the nature of the particular relationship and the facts of the case, including the course of dealing between the parties: see Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 102; [1984] HCA 64 per Mason J; Chan v Zacharia (1984) 154 CLR 178 at 196; [1984] HCA 36; Anderson at [153]-[166].
As Gleeson JA observed in Gunasegaram v Blue Visions Management Pty Ltd [2018] NSWCA 179; (2018) 129 ACSR 265 at [152]:
[I]t is necessary to focus on the actual functions or responsibilities assumed by the fiduciary to determine the subject matter over which his or her obligations extend, at least for the purposes of deciding whether there is a conflict of interest and duty or a conflict between duties: Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 (Grimaldi) at [179].
In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.
An example of a particular activity falling outside the scope of the fiduciary relationship of an employee is Murdoch v Mudgee Dolomite & Lime Pty Ltd [2022] NSWCA 12; (2022) 398 ALR 658 at [142]-[150] where it was concluded that the acquisition by a director and an employee of a quarry in Victoria fell outside the scope of the fiduciary duties owed by them to the plaintiff, in particular because the geographical scope of the plaintiff’s business did not extend to Victoria: Anderson at [165].
Within the scope of the fiduciary relationship, the fiduciary has a duty of ‘absolute and disinterested loyalty’ to the principal which is reflected in two overlapping but independent proscriptive obligations:
the ‘conflict rule’ which is an obligation not to promote his personal interest by making or pursuing a gain in circumstances in which there is a conflict or a real or substantial possibility of a conflict between his personal interests and those of the principal; and
the ‘profit rule’ which is an obligation not to make a profit or gain by reason of or by use of his position as a fiduciary without the informed consent of the principal: Chan v Zacharia at 198-199 per Deane J; Hospital Products at 103-4 per Mason J; Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43 at [67]-[69] per Gageler J.
In Recovery Partners GP Ltd v Rukhadze [2025] 2 WLR 529; [2025] UKSC 10 at [25] Lord Briggs JSC expressed the necessary link for the ‘profit rule’ as being that the profit is ‘made from, out of, or otherwise sufficiently connected with, the fiduciary relationship’.
The significance of the fiduciary’s duty of loyalty as the foundation of both of these ‘rules’ was emphasised Gageler J in Ancient Order at [67] referring with approval to the following observations of Millett LJ in Bristol and West Building Society v Mothew [1998] Ch 1 at 18*:*
A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary.
The essential purpose of the rule that a fiduciary must not without his principal’s consent keep for himself a profit from his position as such, and the related rule that a fiduciary must avoid placing himself in a position where his interest and his duty may conflict (usually called the conflict rule), is to protect or deter those who have undertaken an obligation of single-minded loyalty to someone else from being tempted by human frailty to fall short of that obligation.
Informed consent is a defence. There is no duty on a fiduciary to obtain the informed consent of the principal, “[r]ather, the existence of an informed consent [will go] to negate what otherwise was a breach of duty”: Maguire v Makaronis (1997) 188 CLR 449 at 467; [1997] HCA 23.
The defence of fully informed consent was not raised in the present case.
As there was no contractual restraint on Mr Petersen competing with his employer after termination of his employment, he was free to use his retained knowledge of the customers, their identity, requirements and so on, in particular where he had personally dealt with them for some time and can reasonably be expected to recall their details in his mind: Southern Cross Financial Group (Newcastle) Pty Ltd v Rodrigues [2005] NSWSC 979 at [63]. He was also free to take some steps prior to termination of his employment to prepare to compete with his employer when his employment came to an end.
The principles relevant to determining when the employee has crossed the line between permissible steps in preparation for undertaking a competing business and steps which amount to a breach of the employee’s fiduciary obligation to his or her employer were summarised by Palmer J in Digital Pulse Pty Ltd v Harris [2002] NSWSC 33; (2002) 166 FLR 421 as follows (at [20]-[24]):
An employee has a duty to act in the interests of the employer with good faith and fidelity. That duty is implied in every contract of employment if it is not otherwise imposed by an express term. In addition, the duty is imposed upon every employee by the law of fiduciaries, the relationship of employer and employee being recognised as a paradigmatic fiduciary relationship.
The obligations imposed by the duty are not coterminous with the employee's normal working hours: they govern all the activities of the employee, whenever undertaken, which are within the sphere of the employer's business operations and which could materially affect the employer's business interests. Whether a particular activity could materially affect the employer's business interests is a question of fact and degree.
The duty of loyalty requires that an employee not place himself or herself in a position in which the employee's own interest in a transaction within the sphere of the employer's business operations conflicts with the employee's duty to act solely in the employer's interest in relation to that transaction. A fortiori, an employee may not take for himself or herself an opportunity within the sphere of the employee's business operations without the employer's fully informed consent.
When the employment ceases, the employee is free to compete with the employer unless subject to a valid contractual restraint on competition. The employee may take away and utilise the benefit of personal relationships built up with particular customers of the former employer and may solicit any customer whom the employee can recall without the aid of a list taken from the former employer and without deliberate memorisation of a customer list. The employee may not, however, use for his or her own benefit confidential information of the former employer, whether to solicit business from the former employer's customers or to carry out work for such customers even if unsolicited.
The remedy for breach of the contractual duty of loyalty is damages. The remedy for breach of the fiduciary duty of loyalty is either an account of the profits derived by the employee from the breach or equitable compensation. The employer need not elect between these remedies until the time at which judgment is to be entered.
While the SOC pleads a breach of the equitable duty of confidence in relation to the Trade Information, ultimately the plaintiff’s focus was only on the Customer List. The plaintiff submitted that the copying of the Customer List was a breach of the equitable duty of confidence, and also that the Court should infer that he did use the Customer List to contact customers of the plaintiff in light of the evidence that he did contact by telephone at least two customers who are on the list, being Mrs Wishart and Mr Druce.
The defendant accepted that the weight of the authorities is that customer lists are generally regarded as confidential information and that the first three elements of the action for breach of the equitable duty of confidence set out in the passage from Corrs Pavey quoted earlier are made out. However, there was no evidence to suggest that the fourth element (that there was an actual or threatened misuse of that information) was made out because the Court should accept Mr Petersen’s explanation for why he downloaded the Customer List, and there was no evidence to suggest that he used the information on the Customer List to contact customers of the plaintiff, particularly as the Customer List did not include telephone numbers of the customers and there is no evidence that he communicated with any of those customers by letters addressed to their residential or business addresses. Further, it should not be inferred from the fact that he downloaded the Customer List that he downloaded other confidential information of his employer such as the other information on the plaintiff’s MYOB retail manager programme.
As noted above, the defendant does not dispute that the Customer List satisfies the first three elements stated in Corrs Pavey. In my view, that concession was correct: the information has been identified with specificity, it has the necessary quality of confidence being a list of 50 pages setting out details of 1,841 clients of the Business including contact names and addresses (although not telephone numbers) and it was disclosed to Mr Petersen in circumstances which imported an obligation of confidence. That last element is satisfied because the Customer List was downloaded from the plaintiff’s MYOB software system which was accessible only by certain employees of the plaintiff and is confirmed by the fact that Mr Petersen obtained the list surreptitiously and then refrained from disclosing that he had it when the plaintiff asked him to return all customer lists in his possession in January 2018 and took steps to conceal that he had it in October 2021 after receiving the letter from the plaintiff’s solicitors alleging that he had it: see AIIB Pty Ltd v Beard [2009] NSWSC 1001 at [157].
This leaves the fourth element. The plaintiff must establish that there has been an actual or threatened misuse of the Customer List by Mr Petersen. In considering this question I have borne in mind that Mr Petersen was entitled, following termination of his employment, to contact customers of the Business using his recollection of their names and contact details. However, I am satisfied that he downloaded the Customer List with the intention of using it to assist him in the conduct of his new business and that he did use it that purpose. My reasons for this finding are as follows.
First, Mr Petersen did not disclose to the plaintiff that he had downloaded the Customer List and offer to return it when asked to do so in the letter sent by the plaintiff’s solicitors to Mr Petersen on 12 January 2018 referred to earlier. To the contrary, he instructed his solicitors to respond to the letter denying that he held any original copies or electronic copies of any confidential information plaintiff, which they did by the letter dated 31 January 2018.
When asked in cross-examination why he did not return the Customer List in January 2018 when asked to do so he said ‘probably because I didn’t know it was still on the computer’ although he accepted that it ‘would have been fresh in his memory’ when he received the letter dated 12 January 2018 that he had previously downloaded it (T167). I reject his evidence that he ‘didn’t know’ that the Customer List was on his computer particularly as he also gave evidence in cross examination that he had in January 2018 deleted ‘most’ of the Arthur Rubber material left over on his computer (T164). In my view it is highly likely that he was aware when instructing his solicitors to respond to the letter dated 12 January 2018 that he had the Customer List on his computer. If he had no intention in January 2018 of using the Customer List then there is no reason why he did not return it at that time.
Further, when the question of customer lists was raised again in October 2021, he sought to conceal that he had the Customer List by renaming the folder on his computer which contained it.
Secondly, the first time he gave any evidence as to why he had downloaded the Customer List on 11 November 2017 was in cross examination, when he gave the following evidence (T187):
Q. Why did you move it to that computer?
…
A. It was my plan then to complete two reports for the business; one was the monthly sales and GP report, which I had been doing since 2010. The second report was a demographics report, which was I, which was what I needed that customer list for, because it had the address or town and postcode, because we use the - that demographics report was done once a year, so that we could see where the sales are come from geographically.
Q. You've never produced a demographics report as part of this proceeding?
A. No, because both of those reports, because I've got so busy and also my relationship with Mr Bailey was deteriorating, neither of those reports were--
Q. Talking about--
A. produced.
I do not accept this explanation for why he downloaded the Customer List. First, there is no evidence that Mr Petersen ever prepared marketing reports of this kind. Secondly, as at 11 November 2017, as Mr Petersen frankly acknowledges in the above exchange, his relationship with Mr Bailey was ‘deteriorating’ and there is no evidence to suggest that Petersen was at this time seeking to repair that relationship. To the contrary, by no later than 23 November 2017 he had decided to leave his employment with the plaintiff and start a new business, as stated in his email to Mr Rapley of 23 November 2017. Thirdly, had this been the real reason for downloading the Customer List, there is no reason why he would not have given this explanation to the plaintiff’s solicitors in January 2018 when asked to return the Customer List.
Thirdly, there is evidence that he had contact with customers of the Business in February 2018.
For these reasons, the plaintiff’s claim that Mr Petersen misused the confidential information contained in the Customer List is established.
The plaintiff submitted that Mr Peterson was in a fiduciary relationship with the plaintiff because he was an employee who in his role as manager had special knowledge regarding the retail manager system and also with responsibilities for all dealings with JAM Media, both of which placed him in a special position of trust vis-à-vis his employer. The plaintiff submitted that Mr Petersen breached his fiduciary obligation to the plaintiff of fidelity and loyalty by misusing the assets of the plaintiff as a springboard to make his new business ready to go when he left the plaintiff’s employment. These assets were the catalogue, the website, the business name ‘Arthur Rubber’ and the Customer List. Emphasis was placed on Mr Peterson’s emails to JAM Media, particularly the statement that he intended to create the ‘real Arthur Rubber’ and the steps he took in creating 7th Edition of the catalogue and a new Arthur Rubber website for his own benefit.
The defendant submitted that the conduct complained of did not involve a breach of his fiduciary obligations:
The registration of the ‘Arthur Rubber’ business name was done to protect the Business in circumstances where the then owner, Mr Butt, refused to do so.
There was no evidence to support the allegation that the defendant solicited any customers of the plaintiff while employed by the plaintiff and he relied on know-how when contacting customers after termination of his employment.
There was no substance to the allegation that the defendant improperly wiped data from the plaintiff’s computers before termination of his employment.
The creation and use of the Maxx Rubber catalogue and website was not conduct in breach of any fiduciary duty owed to the plaintiff. He produced the Maxx Rubber catalogue in his own time and at his own expense and in so far as there were similarities between it and the 7th Edition of the plaintiff’s industrial products catalogue, his position was that he is the lawful owner of any copyright in that catalogue because he created it in his own time at his expense, and the owner of the business (Mr Butt) was not even aware of its existence at the time he sold the Business to the plaintiff.
In addition, the defendant’s work on the 7th Edition and the new ‘Arthur Rubber’ website while he was an employee of Mr Butt and then the plaintiff is concerned, were matters he disclosed to Mr Bailey around the time he provided the Synopsis to him, when he told Mr Bailey that he had been working on ‘a new catalogue and some work on content for the website’ and that the Synopsis referred to the need to update both the catalogue and the website. In light of this, there was nothing sinister in what Mr Peterson was doing when communicating with JAM Media about these matters, and it was perfectly consistent with him holding aspirations for the potential of the Business if Mr Butt sold to a new owner who shared Mr Peterson’s vision for the Business.
There does not appear to be any dispute that the conduct of Mr Petersen in creating the various editions of the industrial products catalogue (including the 7th Edition of that catalogue), in instructing JAM Media to create a new ‘Arthur Rubber’ website, in registering the business name ‘Arthur Rubber’ (albeit that he gave up his registration in May 2017) and in downloading the Customer List were all matters within the scope of his fiduciary relationship with his employer.
In my view, that is the correct position. He was a manager of the Business responsible throughout the period of his employment for the sales and marketing activities of the Business. In the course of his employment in that role he created catalogues of the products sold by the Business and established the ARFP website using the original business name of the business (Arthur Rubber Foam & Pools) which advertised its products for sale through the industrial products catalogue published on it. All of his conduct in creating the catalogues and advertising the Business through a website and dealing with the MYOB retail manager programme was performed in his role as the manager of sales and marketing for the Business and was in the ordinary course of his employer’s business. Such conduct was, therefore, within the scope of his fiduciary relationship with his employer.
In addressing the question whether any of the impugned conduct involved a breach of Mr Peterson’s fiduciary obligations to the plaintiff, it is necessary to consider first the ownership of copyright in the 7th Edition of the industrial products catalogue, a matter on which the parties are in dispute. This question turns the application of s 35(6) of the Copyright Act 1968 (Cth).
In Metstech Pty Ltd v Park [2022] NSWSC 1667 at [555]-[565] Rees J summarised the principles to be applied in determining whether an employer or employee owns copyright in a work created in an employment context as follows:
Part III of the Copyright Act provides for the subsistence of copyright in “work”, including a literary or artistic work, which is “original”. As Burley J explained in University of Sydney v Objectivision Pty Ltd [2019] FCA 1625; (2019) 148 IPR 1 , “Original works emanate from authors. The question concerning originality is whether the work originated from the author in the sense that it was not copied by the author”: at [471]. That is, “originality means that the creation … of the work required some independent intellectual effort, but neither literary merit nor novelty or inventiveness are required in patent law”: IceTV Pty Ltd v Nine Network Australia Pty Ltd (2009) 239 CLR 458; [2009] HCA 14 at [33] (per French CJ, Crennan and Kiefel JJ). The question is not the novelty or the worth of the thought which a person injects into their work but whether the expression is original: University of Sydney at [482].
Section 10 of the Copyright Act defines “artistic work” to include “a … drawing … whether the work is of artistic quality or not”, where “drawing” is defined to include a diagram, map, chart or plan”. It does not include a circuit layout within the meaning of the Circuit Layouts Act 1989 (Cth).
Section 10 of the Copyright Act defines “literary work” as:
literary work includes:
(a) a table, or compilation, expressed in words, figures or symbols; and
(b) a computer program or compilation of computer programs.
“Computer program” means a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result.
…
The general rule (the rule of “first ownership”) is that copyright vests in the person who created the work in question. Section 35(2) of the Copyright Act provides:
Subject to this section, the author of a literary, dramatic, musical or artistic work is the owner of any copyright subsisting in the work by virtue of this Part.
As the High Court explained in IceTV, the “author” of a literary work and the concept of “authorship” are central to the statutory protection given by the Copyright Act, where key provisions of Part III fix on “the author”: at [22] (per French CJ, Crennan and Kiefel JJ), [97] (per Gummow, Hayne and Heydon JJ). The “author” is the person who brings the copyright work into existence in its material form: IceTV at [98] (per Gummow, Hayne and Heydon JJ). Where a literary work is brought into existence by the efforts of more than one individual, it is a question of fact and degree which one or more of them have expended sufficient effort of a literary nature to be considered an author of the work within the meaning of the Act: IceTV at [99] (per Gummow, Hayne and Heydon JJ).
Section 35 provides exceptions to the general rule of first authorship. Relevantly, section 35(6) provides:
Where a literary, dramatic or artistic work to which neither of the last two preceding subsections applies, or a musical work, is made by the author in pursuance of the terms of his or her employment by another person under a contract of service or apprenticeship, that other person is the owner of any copyright subsisting in the work by virtue of this Part.
Accordingly, a corporation may be the owner of copyright in a literary or artistic work where its employees are the authors and they made the literary work in pursuance of the terms of their employment. The relevant test is stated in IceTV at [96], quoting Dixon J in Victoria Park Racing and Recreation Grounds Co Ltd v Taylor (1937) 58 CLR 479 at 510 :
Perhaps from the facts a presumption arises that the plaintiff company is the owner of the copyright but, as corporations must enlist human agencies to compose literary, dramatic, musical and artistic works, it cannot found its title on authorship. No proof was offered that the author or authors was or were in the employment of the company under a contract of service and that the book was compiled or written in the course of such employment.
As David Brennan observes in Copyright Law (2021, Federation Press):
For this rule to vest ownership it requires answers to two nested questions:
(1) Was the author in a contract of service (ie an employee) as opposed to a contract for services (ie an independent contractor)? Only for the former can the author’s work possibly be subjected to s 35(6).
(2) Assuming the contract is one of employment, was the work made in the course of employment or outside the employment relationship on the author’s own account? Only for the former can s 35(6) apply to the work.
As Moore J explained in EdSonic v Cassidy (2010) 189 FCR 271; [2010] FCA 1008 at [41] : (emphasis added)
There is no authority of which I am aware which addresses, directly, the scope of the expression “is made by the author in pursuance of the terms of his or her employment”. However what the expression raises for consideration, in my opinion, is not the bare question of whether the author is employed under a contract of service at the time a work is made but whether the relevant work is made in furtherance of the contract of employment with the employer. That is, did the employee make the work because the contract of employment expressly or impliedly required or least authorised the work to be made.
A company has no entitlement to copyrighted work created by an employee in the course of their extra-curricular activities or that goes beyond the scope of their employment relationship: for example, Redrock Holdings Pty Ltd v Hinkley [2001] VSC 91; (2001) 50 IPR 595 (per Harper J).
It was common ground that the 7th Edition of the industrial products catalogue was an original literary work for the purposes of the Copyright Act and the only issue was who owned the copyright in it. In my view, this is correct and is consistent with the accepted view that trade catalogues are capable of being original literary works the subject of copyright*:* A-One Accessory Imports Pty Ltd v Off Road Imports Pty Ltd (1996) 143 ALR 543 at 552-553. The 7th Edition of the catalogue is a compilation with sufficient originality to attract copyright protection due to the effort expended by Mr Petersen in selecting the information to be used, which was directed to the preparation of a self-contained catalogue for use by the Business, ie an up-to-date, complete listing of information about all the industrial products sold in the Business: cf A-One Accessory Imports at 553-554.
Nor was there any dispute that Mr Peterson was the author of the catalogue. The issue is whether s 35(6) of the Copyright Act applies to confer ownership of the copyright in his employer, which turns on the phrase ‘is made by the author in pursuance of the terms of his or her employment’. If so, then if that person was his previous employer (Mr Butt and Ms Lewis) because the catalogue was created before the sale of the Business to the plaintiff, the Contract effected an assignment of the copyright to the plaintiff.
As noted by Rees J in Metstech in the above passage, Moore J concluded in EdSonic Pty Ltd v Cassidy (2010) 189 FCR 271; [2010] FCA 1008 at [41] that the phrase ‘is made by the author in pursuance of the terms of his or her employment’ in s 35(6) raises the question whether ‘the relevant work is made in furtherance of the contract of employment with the employer. That is, did the employee make the work because the contract of employment expressly or impliedly required or [at] least authorised the work to be made’.
Mr Peterson’s duties as an employee included responsibility for the sale and marketing of his employer’s products. He recognised in emails to JAM Media in connection with the ARFP website that the industrial products catalogues before the 7th Edition which were uploaded to that website were created by him in his role as an employee (eg his email dated 18 October 2014 to Mr Rapley referring to ‘our website’ and that he was working on ‘a new version of our products catalogue’ directed at ‘our industrial (rubber) side of the business’). The creation of the 7th Edition of the industrial products catalogue was a further iteration of those earlier catalogues and was in furtherance of his duties in his role as manager of sales and marketing as it was directed at listing all the relevant information for all the industrial products sold in the Business (being the major focus of the Business at the relevant time). It was in furtherance of his contract of employment or, put another way, within the scope of his employment to create the catalogue. The fact that he did a large part of the work outside usual working hours does not detract from this conclusion. As Palmer J noted in Digital Pulse at [21] quoted earlier, the duty of good faith and fidelity to which he was subject is not coterminous with his normal working hours as an employee.
For these reasons, I find that copyright in the 7th Edition of the industrial products catalogue was at all relevant times owned by the plaintiff.
During the 18-month period prior to termination of his employment Mr Peterson used the ‘Arthur Rubber’ business name and domain name to create the 7th Edition of the catalogue and the new Arthur Rubber website. Both names were aspects of the goodwill of the Business which was owned by the owner of the business, his employer: Commissioner of Taxation v Murry (1998) 193 CLR 605. In the work on that new website, he deployed an important asset of the business, the 7th edition of the catalogue, the copyright in which was owned by his employer. He concealed what he was doing from his employer because he intended that he would benefit one way or another from having created both the catalogue and the new website. Ultimately, he did benefit by taking the 7th edition of the catalogue and the new website with him when he left his employment, together with the Customer List, with a view to using these assets to establish his new Maxx Rubber business. By engaging in this conduct, he placed his personal interest in conflict with his fiduciary duties of fidelity and good faith to his employer (relevantly, the plaintiff).
I do not accept the defendant’s submissions for why there was no breach of duty summarised at [120] above. Dealing with each in turn:
I do not accept that Mr Petersen registered Arthur Rubber business name to ‘protect the Business’, but irrespective of his purpose in doing so it is his use of the business name, taken with the other matters referred to above, in the 18 months prior to termination of his employment which gave rise to the breach of duty.
While I accept that Mr Petersen relied, in part, on his know-how when contacting customers after termination of his employment, it is his misuse of the Customer List together with the other conduct referred to above which gives rise to the breach of fiduciary duty.
I have not taken into account the allegation that Mr Peterson improperly wiped data from the plaintiff’s computers, which has not been established.
In so far as the Maxx Rubber catalogue and website are concerned, the relevant breach of duty is the creation of the 7th edition of the Arthur Rubber catalogue and the work on the new Arthur Rubber website with the intention of benefiting personally, one way or another, from doing so. I am satisfied that he did in fact benefit from doing so through his use of them in creating the Maxx Rubber catalogue and website which effectively gave him a head start in the establishment of his new business.
I do not accept that Mr Petersen disclosed the website to Mr Bailey. While the 7th edition of the catalogue was disclosed, it was withheld from the plaintiff despite it being an asset of the Business, the copyright in which was owned by his employer.
The following general principles regarding equitable compensation can be stated:
Equitable compensation is available where the breach of the equitable duty of confidence or fiduciary duty produces a loss to the party to whom the duty was owed with the aim being to ‘restore the plaintiff, as nearly as possible, to the position the plaintiff would be in had no equitable breach occurred’: Xiao v BCEG International (Australia) Pty Ltd (2023) 111 NSWLR 132; [2023] NSWCA 48 at [39]-[41].
A claim for equitable compensation requires a causal link between breach and loss – there ‘is no equitable by-pass of the need to establish causation’: Youyang v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 5 at [44]. The test to be applied is the ‘but for’ test: Ancient Order at [9] per Kiefel CJ, Keane and Edelman JJ and [88] per Gageler J; Botanical Water Technologies IP Ltd v Driver [2025] NSWCA 162 at [80]. Its application does not involve a consideration of remoteness or foreseeability like in tort or contract – it is only necessary that the loss be causally connected to the breach on a ‘common sense view’ of causation: The Australian Special Opportunity Fund LP v Equity Trustees Wealth Services Ltd [2015] NSWCA 225; (2015) 323 ALR 570 at [160]; Gerrard Toltz Pty Ltd v City Garden Australia Pty Ltd (in liq*) (No 2)* [2024] NSWCA 232 at [142].
The plaintiff needs only to lead ‘a minimum of evidence to discharge the evidentiary burden of causation, as “[e]quity must strive to repair the breach of fiduciary duty lest the fiduciary in default could be exonerated too easily… [and] the courts being seen to wink at wrong-doing”’: GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers [2005] VSCA 113 at [66], citing Maguire v Makaronis (1997) 188 CLR 449 at 492-493; [1997] HCA 23.
Once the plaintiff’s onus to prove loss has been discharged, the evidentiary onus shifts to the defendant to show that ‘all or part of the loss would have been suffered even if the defendant had not breached the trust’: A**ustralian E**xecutor T**rustee (SA) Ltd v Kerr [2021] NSWCA 5; (2021) 151 ACSR 204 at [99]; applied in the context of a breach of fiduciary duty in Botanical Water at [83]; Gerrard Toltz at [139]. In deciding this question, if there is any speculation involved then that speculation should be resolved in the plaintiff’s favour: Maguire v Makaronis at 470-472; Botanical Water at [82]; Gerrard Toltz at [141].
However, the defendant may discharge this evidentiary burden by (a) demonstrating that the defendant has satisfied the claimed loss in part; (b) demonstrate that the balance of the loss for which the plaintiff claims is loss the plaintiff would have suffered even had the defendant adhered to the defendant’s equitable duties; or (c) deploying both (a) and (b) together: AET at [99], citing J D Heydon, M J Leeming and P G Turner, Meagher, Gummow & Lehane*’s Equity, Doctrines and Remedies* (5th ed, LexisNexis, 2015) at [23-230]; Gerrard Toltz at [139].
In determining the quantum of the relevant loss, the Court must ‘do its best to assess the probabilities, or indeed possibilities, involved’, which may itself involve a degree of speculation: Ramsay v BigTinCan Pty Ltd [2014] NSWCA 324; (2014) 101 ACSR 415 at [82]. In so doing, the Court should ‘assess the compensation in a robust manner, relying on the presumption against wrongdoers, the onus of proof, and resolving doubtful questions against the party “whose actions have made an accurate determination so problematic”’: Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 at 59, citing LJP Investments Pty Ltd v Howard Chia Investments Ptd Ltd (1990) 24 NSWLR 499 at 508. If it is not impossible for a plaintiff to adduce precise evidence of its loss (eg if the plaintiff chooses to refrain from disclosing all information available to it, or if the plaintiff simply ran a poor case), then the Court should be less inclined to engage in such estimation and guesswork: Placer (Granner Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10; (2003) 196 ALR 257 at [38] per Hayne J, referred to in Ramsay at [79]. In ascertaining the quantum of equitable compensation, the Court may discount or adjust the amount of compensation ‘akin to a Sellars discount’ so as to fashion the remedy to the fit the nature of the case: Flynn v PPK Mining Equipment (No 3) [2024] NSWSC 663 at [126].
In awarding equitable compensation, the Court ought not take into account any element of penalty: V-Flow Pty Ltd v Holyoake Industries (Vic) Pty Ltd [2013] FCAFC 16 (2013) 296 ALR 418 at [55], citing Meagher, Gummow and Lehane at [23-02]. Thus, notwithstanding the Court’s entitlement to ascertain the loss in a ‘robust’ manner in accordance with the principles derived from Houghton above, that does not give the Court the ability to surreptitiously incorporate any notion of penalty or exemplary damages as part of this calculation: Nicholls v Michael Wilson & Partners [2010] NSWCA 222; (2010) 243 FLR 177 at [178]-[182] (reversed on appeal but not on this point: Michael Wilson & Partners Ltd v Nicholls (2011) 244 CLR 427; [2011] HCA 48).
In closing submissions the plaintiff submitted that its equitable compensation ought to be calculated in the amount of $100,000 for the financial years 2018 and 2019 or $130,000 if the 2020 financial year is included (T232.40-45). In support of these figures the plaintiff relied on its income statements for the financial years ended 30 June 2019 and 2021 which showed that the plaintiff had a profit (before tax) for the 2018 year of $30,610, a loss for the 2019 year of $69,911, a loss for the 2020 year of $287 and a loss for the 2021 year of $608. The claimed loss of $100,000 is calculated on the basis that the plaintiff should have earned a profit (before tax) of around $30,000 in the 2019 year but made a loss of $70,000 representing a total loss of $100,000 and if the 2020 year is included the additional loss is a further $30,000 representing the profit (before tax) which should have been earned in the 2020 year.
The defendant submitted that, if he failed on the issues concerning liability, the maximum period for assessing equitable compensation in this case should not exceed 30 June 2019 which is approximately 18 months after the defendant resigned from his employment. In so far as calculation of the loss was concerned, the defendant submitted that the Court should be cautious in placing reliance on the plaintiff’s income statements. First, there was no forensic accounting report and the plaintiff had not put into evidence a complete set of its financial statements for the 2018, 2019 and 2020 years. Rather it was relying upon extracts (ie income statements) which needed to be read in conjunction with a compilation report prepared by the accountant who prepared the financial statements. Secondly, the financial material does not include information regarding the financial years prior to the defendant’s resignation from employment. While the plaintiff may not have that information, it would have been readily available from Mr Butt. The defendant submitted that a more reliable guide was the defendant’s tax returns for the 2018 and 2019 income years which showed that at the highest the plaintiff’s lost sales to Maxx Rubber for the 2018 and 2019 financial years cannot exceed $64,697.
Further, the defendant submitted that Mr Bailey had accepted in cross examination that there could have been a number of factors which resulted in the decline in sales for the plaintiff including COVID, his lack of knowledge of retail manager, the steep learning curve operating the Business, the fact that he was commuting from Sydney to Wagga Wagga and increasing prices of goods. In relation to the COVID pandemic, I note that this was not a material factor in the 2018 and 2019 financial years as the first lockdown did not occur until March 2020.
In my view, the plaintiff suffered a loss in 2019 financial year after the termination of Mr Petersen’s employment which is causally connected to the defendant’s breach of his duty of confidence and his fiduciary duties to the plaintiff. I am not satisfied that the defendant has satisfied his evidentiary onus of demonstrating that no part of the loss is attributable to his breaches of duty.
However, care is required to recognise that if the defendant had not engaged in conduct which gave rise to his breach of those duties and had simply resigned in December 2017 and commenced the new business without taking advantage of the 7th edition of the Arthur Rubber catalogue, the ‘sleeping website’ and the Customer List, the plaintiff could have no complaint about his conduct of that competing business.
The plaintiff in its opening submissions put its case on the basis that the impugned conduct involved the defendant using assets of the plaintiff as a springboard to get his own business up and running immediately at the expense of his employer. The ‘springboard’ or ‘headstart’ concept has been applied to the assessment of damages where the defendant has misused confidential information: see eg Jardin and Jardim Investments Pty Ltd v Metcash Ltd [2011] NSWCA 409; (2011) 285 ALR 677 at [115]-[116]. In the present case I have found that there was a misuse of the plaintiff’s confidential information as well as other breaches of fiduciary duty. In these circumstances, the ‘springboard’ concept can be used, at least by analogy, to estimate amount of the loss for which compensation should be given, including the period for which the loss relates. As Pullin J said in WA Fork Truck Distributors Pty Ltd v Jones [2003] WASC 102 at [94]:
In my view, the "headstart" cases are no more than a collection of cases dealing with circumstances where a person has gained an advantage which is measured by reference to the advantage which has followed the misuse of the information. By analogy, that approach can be applied here. The plaintiff, instead of waiting until he terminated his employment, by giving proper notice, and then taking the considerable time which was necessary to set up his competing business - which he was entitled to do - took the time of his employer and established the business so that he was in a position to start in competition almost immediately after he left his employment. If he had not breached his duties and contract, he would not have been able to start in business straight away. He therefore gained a "headstart" as a result of his breach of contract and breach of fiduciary duty.
I regard this as the appropriate approach for the assessment of the plaintiff’s loss in the present case: WA Fork Truck Distributors at [77]. Had the defendant not breached his equitable duties to the plaintiff and set out to commence a new business from scratch, it is reasonable to expect that he would have been in a position to commence his new business within 12 months i.e. by January 2019. The financial position of the plaintiff in the last 6 months of the 2018 financial year was not altered by the plaintiff’s breaches as his activities were not significant in that period. He only commenced significant operations in July 2018 when he opened his business premises.
In view of the defendant’s extensive know-how and experience as a result of working for the plaintiff for some 12 years, I consider that he would have been able to create the Maxx Rubber Catalogue and Website from scratch by the end of the 2019 calendar year. Alternatively, if the loss is to be calculated for the entire 2019 financial year, in view of the various concessions by Mr Bailey as to the existence of several factors which may have resulted in the decline in sales as described in paragraph [135] above, it is appropriate to apply a discount, consistent with the principles in Flynn above, of 50% to the amount of loss: see eg Sprout v Trading NSW Pty Ltd (t/as Sprout AG) v PBH Trading Pty Ltd (No 2) [2025] NSWSC 645 at [21]-[26]. On either basis, and adopting a robust approach to the assessment of equitable compensation, the loss suffered by the plaintiff can be estimated as 50% of the ‘loss’ of $100,000 suffered in the financial year ended 30 June 2019, being $50,000.
For the above reasons, the plaintiff has succeeded in its claim that the defendant breached his equitable duty of confidence and his fiduciary duties to the plaintiff, and I assess the equitable compensation payable to the plaintiff at $50,000.
I will give the parties an opportunity to make submissions on costs.
**********
Correcting typographical error in catchwords
Direct Flow Pty Ltd t/as Arthur Rubber
Petersen [2026] NSWSC 171
(2023) 113 NSWLR 151
(1996) 143 ALR 543
(1938) 60 CLR 336
(1984) 154 CLR 178
(1998) 193 CLR 605
(1987) 14 FCR 434
(2007) 73 IPR 326
(2002) 166 FLR 421
(2010) 189 FCR 271
(1999) 161 ALR 599
(2021) 388 ALR 128
(2022) 105 NSWLR 541
(1984) 156 CLR 41
(1997) 44 NSWLR 46
(2011) 285 ALR 677
(1990) 24 NSWLR 499
(1997) 188 CLR 449
(2011) 244 CLR 427
(2022) 398 ALR 658
(2010) 243 FLR 177
(2010) 265 ALR 281
(2003) 196 ALR 257
(1990) 22 FCR 73
(2015) 323 ALR 570
(2013) 296 ALR 418
(1995) 49 NSWLR 315
(2023) 111 NSWLR 132
(2003) 212 CLR 484
(1980) 147 CLR 39
(1982) 150 CLR 310
(1991) 22 NSWLR 317
(1997) 78 FCR 132
(2012) 200 FCR 296
(2018) 265 CLR 1
(2019) 148 IPR 1
(2009) 239 CLR 458
(1937) 58 CLR 479
(2001) 50 IPR 595