(2) that they were aware as they 'fessed up on 4 May 2006.
73 In my view the former finding should be made. The revelation on 4 May does not appear to be a revelation that there was a breach of the Corporations Act, but rather that the defendants thought in commercial fairness that they needed to make a disclosure.
74 However, it really does not matter whether the defendants were aware of their obligations under the statute or under the general doctrines of equity.
75 The evidence clearly shows that they did not in fact know about their obligations under the Corporations Act mainly because they never associated their position with the technical description of officer of a corporation as used in the relevant sections of the Corporations Act.
76 In view of what I said in Rosetex, it is sufficient to focus on the general fiduciary duties.
77 As I have set out in the facts, the defendants submitted their resignations in January 2006 to take effect on 3 July 2006. This was in accordance with clause 10 of the employment agreements. As I have said, their employment was terminated in May 2006.
78 Between January and May 2006, the defendants were still employed by the plaintiff and still owed the plaintiff fiduciary obligations. The provisions of clauses 6 and 9 (and 13) applied to them. The defendants seemed to have thought that formulating their business plans outside regular office hours enabled them to pave the way (I deliberately use a non-technical term here) for the start of their own business. Had they kept to the planning and preparation stage they may have escaped criticism from the court. However, the evidence shows that they did proceed beyond this, that they made contact with Allianz and other persons in the reinsurance industry.
79 The defendants say that because they did not do their work for themselves in office hours, they are not guilty of any breach of fiduciary duty. However, as Mr Wood submits, Palmer J in Digital Pulse Pty Ltd v Harris (2002) 40 ACSR 487, 491 (a passage not disturbed by the Court of Appeal when it allowed the appeal in Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298, see [5]) said:
"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 employer's business operations without the employer's fully informed consent."
80 I have already set out in para 32 of the facts what the defendants admittedly did to prepare for their exodus from the plaintiff company. To my mind these matters breached the fiduciary duties owed by the defendants under the employment agreements.
81 Unfortunately in one sense, I think it must follow that there has also been a breach by each of the defendants of ss 182(1) and 183(1) of the Corporations Act. I say "unfortunately", because I believe that under s 1317E(1) it is mandatory for me to make a declaration of contravention in the form of s 1317E(2). However, I have not heard counsel on that matter and I am willing for the argument to be reopened to persuade me that this is not a correct approach.
82 (d) I now pass to the question of remedy. Mr Wood says that the only appropriate relief is an injunction to prevent the defendants from gaining the advantage or as sometimes said, gaining the springboard of the information they have acquired. He suggests a period of four months from the orders that would be made consequent upon the delivery of these reasons.
83 There was some debate before me as to whether a springboard injunction as it is popularly called, can be granted in cases other than cases of protection of confidential information. See the judgment of Jacobson J in ICAP Australia Pty Ltd v BGC Partners (Australia) Pty Ltd [2005] FCA 130 [65]. With respect, I consider that that proposition is too narrow. Of course, Jacobson J was speaking as a member of a statutory court which only has confined powers. This court has plenary powers including the powers given to it by s 23 of the Supreme Court Act 1970 to make whatever orders are appropriate in the circumstances of the case. Whilst it takes fair notice of precedents because the orders of this court should not depend on the idiosyncratic notions of fairness and justice of individual judges (see per Deane J in Muschinski v Dodds (1985) 160 CLR 615), the court does have full scope to take whatever order is appropriate in the circumstances. See also the decision of Giles JA in Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd [2001] NSWCA 111 at [182] to [184].
84 Because of the difficulty of making orders focused on the exact confidential information which is in question, as Mason P said in Woolworths Ltd v Olson [2004] NSWCA 372 at [67], a recognised method of protection is to restrain the former employee from taking up employment with a competitor whom he might be willing to provide with the information in question. See also Portal Software Pty Ltd v Bodsworth [2005] NSWSC 1179 at [83].
85 Order 1(a) in the amended summons seeks an order that up until 4 February 2007, each of the defendants be restrained from "directly or indirectly carrying on (whether alone, in partnership or in joint venture with anyone else) or otherwise be involved in a senior or managerial capacity (whether as trustee, principal, agent, shareholder, unit holder or in any other capacity) in any business competitive with the plaintiff's business." With respect, I think there are problems with that order, both problems with it not going far enough in not mentioning companies and directorships and also because it uses the words "business competitive with the plaintiff's business".
86 As to that last phrase, it could be argued that a business that deals directly with farmers and not through brokers was not such a competitive business. The court must endeavour to avoid such dry arguments.
87 It seems to me that it would be more appropriate to make an order that the defendants and each of them be restrained from acting in a senior or managerial capacity or as a director or officer of Rural Affinity Pty Ltd or any other partnership, company or joint venture which in any way deals with the underwriting of insurance to persons involved in the agriculture or viticulture industry. However, I will allow counsel at the short minutes stage to work out the exact text of the restraint.
88 The next question is for how long the springboard injunction should last.
89 Equity has the obligation to see fair play by restraining the misuse of confidential information. It is not usually practically possible to issue an injunction in the form that a person not use specific information as it is almost impossible to police. Confidential information does tend to age and although there is no direct evidence, in the insurance industry, vital information as to the rates available in the market will doubtless change within a matter of months. On the other hand, information as to what areas are hail prone and so a bad risk will last for a long time. The identity of people who would be likely to wish to effect insurance on agriculture or viticulture crops is something that one can obtain for oneself by survey within a few months.
90 The other factor that must be borne in mind is that whilst the defendants would have become free of most (but not all) restrictions to their contract on 3 July 2006, they in fact started taking advantages on 3 January through to 4 May, a period of four months. On 9 June 2006, Windeyer J declined to make wide-ranging injunctions but, without objection by the defendants, made orders that the defendants not solicit or otherwise approach any of the plaintiff's employees to leave the plaintiff's employment and not to solicit or make any approach to 17 listed brokers with a view to establishing a relationship with or obtaining the custom of that person in a business which competes with the plaintiff. However, other activities of the defendants in preparation to compete with the plaintiff were left unaffected, though there was an obligation to keep accounts.
91 The springboard doctrine was originally formulated by Roxburgh J in Terrapin Ltd v Builders' Supply Co (Hayes) Ltd [1967] RPC 375, 391. The essence of the doctrine is, to use Roxburgh J's words:
"That a person who has obtained information in confidence is not allowed to use it as a springboard for activities detrimental to the person who made the confidential communication."
92 The authorities show that a springboard injunction cannot last longer than the time when the confidential information which grounds it ceases to be confidential. However, it will often be appropriate to have it in place for a much shorter period because a competitor may very well find out the information by its own research over a short period of time.
93 Dean, The Law of Trade Secrets and Personal Secrets 2nd ed (Thomson, Sydney, 2002) para [3.420] based on what O'Loughlin J said in the Federal Court in Titan Group Pty Ltd v Steriline Manufacturing Pty Ltd (1990) 19 IPR 353, 382 et seq, says that the court will calculate the time that would be taken by a competitor acting reasonably with commercial prudence to develop a marketable product, but it is not inappropriate to look at what the defendant actually did in an effort to determine objectively the appropriate length of the springboard restraint. In the Titan case O'Loughlin J took into account the fact that the defendant was not actually working full time in development of the competing product. This is also the case in the present matter.
94 As I read the authorities, it is also relevant to look at the contractual period during which the defendant is restrained. See the discussion in Gurry, Breach of Contract (Clarendon Press, Oxford, 1984) pp 252 et seq. In the present case the contractual period was negotiated at arm's length that being nine months. Nine months from 4 May brings us to 4 February 2007.
95 Because there has only been a very limited injunction pending trial, the defendants may well have been developing their competing product during the time the case has taken to come to final hearing. That must also be taken into account.
96 As the cases show, it is almost impossible to fix the springboard period with any degree of precision. Taking into account all the factors I have mentioned, it seems to me that a period expiring on 4 February 2007 is the most appropriate.
97 Accordingly, I will grant the sort of injunction I have indicated up to 4 February 2007.
98 There is one other matter with which I must deal.
99 On the first day of the hearing there was returnable a notice to produce requiring the production of "documents or things evidencing or recording the legal advice referred to on page 13 of the Rural Affinity Business Plan dated March 2006." After argument, I set aside the notice to produce with costs and said I would give my reasons later. I am now doing so.
100 Before I give those reasons, might I once again make it completely clear that it is not good practice to have subpoenas and notices to produce returnable before the trial judge on the first day of a hearing. The court specially sets aside time at 9 am before a Deputy Registrar for the return of subpoenas. Many practitioners have overlooked para 13 of Practice Note SC Eq 1 which reads:
"Subpoenas are to be made returnable before the Deputy Registrar in the 9 am list. In particular, the practice of making subpoenas returnable on the first day of hearing is to be avoided as this usually causes delays while documents are examined. … ".
101 There is still a lot of hearing time being wasted by barristers and solicitors deciding too late what notices to produce and subpoenas are necessary. If the Practice Note continues to be disregarded it may be that penal orders will have to be made against members of the profession for the waste of trial time.
102 What I have just said applies generally, not just to this particular case. Having, however, delivered that general message I will now turn to this particular case.
103 When the matter came before Windeyer J last June his Honour ruled on 6 June 2006 that the defendants had not waived privilege over the material.
104 However, the plaintiff says that there was a fresh action which amounted to waiver when an affidavit of 8 June 2006 was read before Windeyer J. The waiver is said to be in an affidavit of James Hooper, the second defendant, sworn 8 June 2006 which was read before Windeyer J on that day.
105 That affidavit annexed the March 2006 Business Plan and the first paragraph of p 13 read as follows:
"Legal advice has been obtained to determine what activities can be performed during the restraint period. In summary, Landmark can prevent us from making contact with intermediaries who currently deal with Landmark during the restraint period. However, our legal advice is that there is a strong case that we cannot be prevented from approaching the 'end customer' direct or via an intermediary that does not currently deal with Landmark."
106 Mr Sirtes puts that for there to be a waiver of privilege there must be a disclosure of the substance of the advice rather than merely the effect of the advice and that that material is insufficient to give rise to a waiver.
107 The argument focuses on s 122(2) of the Evidence Act 1995 which removes the privilege from communications between lawyer and client "if a client or party has knowingly and voluntarily disclosed to another person the substance of the evidence".
108 Mr Hewitt says that the ruling was made by Windeyer J because the only disclosure up to 6 June had been in the course of making a confidential communication, vide s 122(2)(a) but on 8 June the disclosure in the affidavit was sufficient to amount to a disclosure of the substance of the evidence. He referred to the decision of Rolfe J in Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 40 NSWLR 12 at 18 and following. His Honour there considered whether there was a distinction between the substance of advice and the effect of advice and went on to say that counsel had submitted:
"That it is not sufficient to constitute the substance of the advice to say what the conclusion is for that … is nothing more than giving the effect of the advice". The logical extension of that submission is that all the reasoning behind the conclusion must be exposed before it can be said that there is a disclosure of the substance. I do not agree essentially for the reasons I have given. In my opinion the substance of the advice may well be disclosed if the ultimate conclusion, without the supporting reasoning process, is revealed. At that stage there has been, in my opinion, a disclosure of the substance of the advice, that is, what the advice is. Further the ultimate conclusion, whilst it may be a 'result' or 'consequence' of the reasoning is more than that: in its own right it is the essence or vital part of the advice."
109 There was an appeal against this decision to the Court of Appeal which was dismissed and then an application for special leave to the High Court of Australia which was refused by Kirby J, Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 70 ALJR 603. At 607 Kirby J said:
"I agree that a mere reference to the existence of legal advice would not amount to a waiver of its contents. … But … it is strongly arguable that the public reference to the supporting legal advice, waived the privilege as to the precise content of the legal advice on that point."
110 Since then there have been a number of utterances by high judicial authorities on the point. In Bennett v Australian Customs Service (2004) 140 FCR 101, Gyles J, who constituted a Full Federal Court with Tamberlin and Emmett JJ, reviewed the cases to that date at p 119 and said that to draw a distinction between the conclusion expressed in legal advice on the one hand and the reasons for that conclusion on the other was to commit a question of law and that the predominant view on the authorities was that the voluntary disclosure of the gist or conclusion of legal advice amounts to waiver in respect of the whole of the advice to which reference is made including the reasons for the conclusion.
111 The Federal Court has also recently considered the matter in AWB Ltd v Cole (No 1) [2006] FCA 571 and (No 5) [2006] FCA 1234, both decisions of Neil Young J. His Honour said in the first judgment [136]:
"In my view, the distinction between a mere reference to advice having been obtained, and a reference that discloses the content or substance of the advice, has not been eliminated by the High Court's restatement of the relevant principles as to waiver in Mann v Carnell (1990) 201 CLR 1".
112 His Honour then went on to consider Bennett's case particularly to the judgment of Tamberlin J in that case who referred to authorities drawing a distinction between a mere reference and cases in which the substance of the advice had been disclosed. He referred to various other cases decided recently in the Federal Court of Australia.
113 In the second case at [158] his Honour repeated what he had said in his earlier judgment by reference and repeated the proposition that "the authorities draw a distinction between a mere reference to the existence of legal advice, which will not usually amount to a waiver, and cases in which the gist or substance of the legal advice has been disclosed".
114 The matter was considered by the Court of Appeal in this State in Chen v City Convenience Leasing Pty Ltd [2005] NSWCA 297.
115 In Seven Network Ltd v News Ltd (No 10) (2005) 227 ALR 704, Sackville J again reviewed the authorities and noted that questions of the waiver of legal professional privilege will involve questions of degree; see [48] at p 716. See also Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341.
116 The present, to my mind, is a borderline case. Borderline cases of this nature need to be decided by impression because dwelling on the matter usually only leads to confusion rather than to clarity. Bearing in mind that questions of waiver are philosophically based on the proposition found in Mann v Carnell, Chen's case and the Seven Network case that it would be unfair for a person both to parade the substance of a legal opinion and also to claim privilege about it so as to prevent the other party from testing what was said, it seems to me to follow from this philosophical base that if on one's impressionistic reading of the material one sees that it is a borderline case and has some doubt about the matter, then the doubt should be resolved by maintaining the privilege.
117 My assessment of the material conscious of all I have said in this case (except that AWB v Cole (No 5) had not been decided when I made my ruling), is that the privilege has not been waived.
118 I set aside the notice to produce for the reasons I have just given. In the ultimate, it made no difference as even without the material the plaintiff has been successful.
119 The plaintiff is entitled to the sort of injunction I have indicated earlier. I stand the matter over until 31 October at 9.30 am for the purpose of short minutes being brought in. However, it may well be that in view of these reasons the plaintiff wants some immediate order which can be cast as an interim order pending the formal orders being made at the short minute stage. Accordingly I will list the matter at 9.30 am on Thursday 26 October for that purpose. However, if counsel for the plaintiff do not wish to take advantage of that time, I would be obliged if they would contact my associate at least 48 hours beforehand.