Directed Electronics OE Pty Ltd v Gridtraq Australia Pty Ltd

Federal Court of Australia (Full Court)|2023-09-06|Before: Button JJ

The appeal be dismissed with costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT: 1 This is an appeal from a judgment given on 24 November 2022 which resolved complex allegations of breach of fiduciary duty, breach of confidence and infringement of copyright against multiple sets of parties: Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd (No 8) [2022] FCA 1404. The Appellant also appeals from orders made on 14 March 2023 which gave effect to the trial judge's reasons insofar as they concerned the Appellant's claims against the Respondents to this appeal. The trial took place in Melbourne over about nine weeks and was made more complicated by the COVID-19 pandemic and the need to take evidence from witnesses in South Korea via interpreters. The reasons for judgment are 4,003 paragraphs long. Largely, the Applicant ('Directed Electronics') was successful against most of the parties it pursued with the trial judge accepting its basic allegation that two of its former employees had colluded with one of its suppliers to misappropriate its business. 2 At trial, Directed Electronics pursued a wide-ranging case against three sets of respondents: (a) two of its former employees and an entity associated with them ('the Employee Parties'); (b) its South Korean suppliers, their associated entities and their managing director ('the Supplier Entities'); and (c) former business associates of Directed Electronics and their associated entities ('the Gridtraq Parties'). The Gridtraq Parties had been involved with Directed Electronics through a joint venture which had ended in a dispute. That dispute ended in 2016 with the joint venture vehicle being placed into voluntary administration and then being subject to a deed of company arrangement. There was also a deed of agreement and release. The effect of these was to transfer 100% control of the joint venture vehicle to the two directors and shareholders of Directed Electronics. 3 The trial judge accepted that the Employee Parties and the Supplier Entities had been involved in the attempted misappropriation of Directed Electronics' business. However, he concluded that Directed Electronics had failed to demonstrate that the Gridtraq Parties had been involved in this. Even so, his Honour accepted that the Gridtraq Parties did have in their possession two sets of documents: (a) the CAN Bus data and vehicle parameters; and (b) the Directed Specification. However, he concluded that these had not been used, as Directed Electronics contended, as part of the larger scheme of misappropriation. 4 This large case against the Gridtraq Parties was pursued on the basis that the Directed Specification, CAN Bus data and vehicle parameters were literary works in which copyright inhered. Directed Electronics alleged, and failed to demonstrate, that they had been utilised as part of the wider scheme of misappropriation conducted by the Employee Parties and Supplier Entities. In the case of the CAN Bus data and vehicle parameters the case was also pursued on the basis that these contained information confidential to Directed Electronics but, for the same reason, this case failed. No appeal was pursued in respect of the alleged misuse of confidential information in the Directed Specification. 5 Following the delivery of the trial judge's reasons the parties agreed that the Gridtraq Parties would give undertakings to the Court to destroy all copies of the Directed Specification, CAN Bus data and vehicle parameters in their possession and to confirm on oath that this had occurred. The trial judge noted these undertakings on 14 March 2023, and on that day dismissed Directed Electronics' proceeding against the Gridtraq Parties and ordered Directed Electronics to pay 90% of the Gridtraq Parties' costs on a lump sum basis. From these orders Directed Electronics now appeals. 6 Its point is brief. The trial of the proceeding had involved only the question of liability with the issue of remedies being deferred. Directed Electronics submitted that the findings of the trial judge showed that the Gridtraq Parties had infringed its copyright because they had in their possession copies of the Directed Specification, the CAN Bus data and the vehicle parameters, and the primary judge was wrong to dismiss the breach of copyright case on the basis that the use the Gridtraq Parties made of the works went nowhere and was ephemeral. By dismissing its proceeding on 14 March 2023, Directed Electronics contended that the trial judge had denied it the opportunity at the remedies stage to argue that the Gridtraq Parties should pay Directed Electronics for its use of the copyright material on a foregone licence basis. It also says that it was denied the opportunity to argue for an award of additional damages under s 115(4) of the Copyright Act 1968 (Cth) ('Copyright Act'). In relation to its claim for breach of confidence, Directed Electronics says that the Gridtraq Parties did in fact use the CAN Bus data and the vehicle parameters in relation to products they were seeking to market to their own customers in competition with Directed Electronics. As the Gridtraq Parties correctly observed, however, these uses were unrelated to the efforts made by Directed Electronics to tie them to the misconduct of the Employee Parties and Supplier Entities. 7 For the following reasons, this case was never run.

Pleadings - copyright 8 In the Third Further Amended Statement of Claim, the breach of copyright claims appear at Section Q. It is alleged at ss138-139 that copyright inhered in 11 works, including the Directed Specification, the CAN Bus data and the vehicle parameters. At s141 there is an omnibus allegation that the Employee Parties, the Supplier Entities 'and/or' the Gridtraq Parties reproduced the works and communicated them to others. Whatever the grammatical implications of 'and/or' are, it is clear that Directed Electronics did not advance a free standing copyright infringement case in which only the Gridtraq Parties were involved. This is because of the particulars which were provided. For the three works, these particulars were cross-referenced to the 'Schedule 1 Particulars' at ss87-90 and Sections 11.3, 11.5 and 11.6. What is described at ss87-90 is a train of alleged misconduct between the Supplier Entities and the Gridtraq Parties. Whilst it is true that copying by the Gridtraq Parties is alleged, it is plain that this was part of a set of allegations of misconduct between the Supplier Entities and the Gridtraq Parties. These particulars also explain why the trial judge made the findings now relied upon by Directed Electronics but they equally show that this was not the case it sought to advance. The same is true in relation to Sections 11.3, 11.5 and 11.6. Each of those links the conduct to part of the larger case advanced against the Gridtraq Parties: Schedule 1 Particulars ss92, 96 and 98. Thus the copyright case now pursued was never pleaded.

Pleadings - confidential information 9 The confidential information case against the Gridtraq Parties appears at Section O.4 of the Third Further Amended Statement of Claim. At s133G it was alleged that the Gridtraq Parties had used or threatened to use the 'Directed Confidential Information' (which includes the three works) to further their own business interests. The particulars for this were ss51AB, 64, 88E, 90 and 112 and a general statement: 'The Applicant refers to the parts of this Statement of Claim concerning appropriated opportunities in so far as they apply to the Gridtraq parties (see particular (ii) to paragraph 130(a) above for relevant Sections'. There is no s51AB in the Third Further Amended Statement of Claim. Assuming this to be an erroneous cross-reference to s51G, that paragraph and those which follow concern allegations of the Gridtraq Parties' involvement in the overall misappropriation case. The same is true of each of ss64, 88E, 90, 112 and the sections referred to in particular (ii) to s130(a). Thus, the confidential information case sought to be advanced in this Court was never pleaded.

Closing submissions 10 In its closing submissions, Directed Electronics dealt expressly with the topic of the relief it sought arising from the liability hearing under the heading 'Relief Arising from Liability Phase'. It outlined the extensive relief it would seek against the Supplier Entities and Employee Parties. As against the Gridtraq Parties, it foreshadowed that it would seek additional damages for copyright infringement under s 115(4) of the Copyright Act on the basis that the facts 'in their totality ... establish a joint enterprise involving a course of dealing over an extended period of time intended to benefit the respondents and to despoil the business of Directed in a deliberate, highly calculated and cynical way over a period of years'. No mention was made that Directed Electronics was also pursuing a separate case against the Gridtraq Parties which was not part of that alleged joint enterprise and which would have required its own separate remedies hearing. If the proposed foregone licence case had actually existed, the omission to refer to it in this part of the submissions is a striking omission. Whilst the possibility of a claim for additional damages under s 115(4) was adumbrated it is clear that it was linked to the joint enterprise. Likewise, whilst the submissions touched briefly on the form of the orders, nothing was mentioned which could conceivably relate to the case now pursued.

The process leading to the final orders 11 A timetable for written submissions on relief was prepared. The Gridtraq Parties went first and suggested that they would undertake to destroy any copies of the CAN Bus data and vehicle parameters in their possession, that the proceedings against them be otherwise dismissed and that Directed Electronics pay 95% of their costs on a lump sum basis. Directed Electronics responded by suggesting that the question of final relief in relation to the Gridtraq Parties be sent to mediation. The Gridtraq Parties did not think this useful as the quantum of costs should be able to be negotiated readily between experienced practitioners. At this point, the Gridtraq Parties also proposed to provide an undertaking to destroy any copies of the Directed Specification. In reply Directed Electronics made various points about the destruction of the documents, costs (it said the appropriate proportion of the Gridtraq Parties' costs it was to pay should be 70% rather than 95%) and the need for a mediation. 12 At no point, however, did Directed Electronics suggest that the Gridtraq Parties would be involved in a further remedies hearing to deal with the case which has now been raised in this Court. A hearing then took place before the trial judge on 8 March 2023 in which the debate as to whether the Gridtraq Parties should have 70% or 95% of their costs was pursued. His Honour concluded that the appropriate costs order was that Directed Electronics should pay 90% of the Gridtraq Parties' costs. There was no submission made to the trial judge that he should not make the order finally disposing of the proceeding because, in fact, Directed Electronics still had a case for a remedies hearing. 13 The trial judge then made the orders giving effect to these conclusions on 14 March 2023. The failure of counsel for Directed Electronics to indicate at this hearing that the proceeding should not be dismissed because there was still a case which existed which needed a remedies hearing is entirely inconsistent with the argument which has taken up a day of this Court's time.

Conclusions 14 The case now pursued was not pleaded, run or mentioned in Directed Electronics' explicit submissions at trial as to what would occur at the remedies hearing. It was not suggested to the trial judge that he ought not to dismiss the proceeding against the Gridtraq Parties because this separate case had been run and required a remedies hearing. No doubt, the reason for this is that the trial judge would have been incredulous at such a contention. The suggestion that the trial judge erred in failing to detect a case not ever mentioned to his Honour is hopeless. Directed Electronics' complaint before this Court about the costs order below was wholly dependent on the success of its other grounds of appeal, and consequently must also fail. The appeal is bereft of merit and should be dismissed with costs. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Perram, Downes and Button.

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