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[2022] FCA 762
Federal Court of Australia
2022-07-01
Mr J, O'Sullivan J
Original judgment source is linked above.
Division: General Division
Registry: South Australia
National Practice Area: Commercial and Corporations
Sub-area: Commercial Contracts, Banking, Finance and Insurance
Number of paragraphs: 94
Dates of hearing: 27 - 29 April 2022
Counsel for the Applicants: Mr B Roberts QC with Mr T Besanko & Ms H Doyle
Solicitor for the Applicants: Illes Selley Lawyers
Counsel for the First, Second and Third Respondents: Mr J Sheahan QC with Mr Kozminsky and Ms Brumby
Solicitor for the First, Second and Third Respondents: Arnold Bloch Leibler
Counsel for the Cross-Claimant: Mr J Sheahan QC with Mr Kozminsky and Ms Brumby
Solicitor for the Cross-Claimant: Arnold Bloch Leibler
Counsel for the Cross-Respondents: Mr B Roberts QC with Mr Besanko and Ms Doyle
Solicitor for the Cross-Respondents: Illes Selley Lawyers
BETWEEN: LK LAW PTY LTD First Applicant
LIPMAN FAMILY PTY LTD (ACN 627 125 580) Third Applicant
AND: JASON DEMETRIOS KARAS First Respondent
J&A KARAS PTY LTD (ACN 627 126 112) Second Respondent
KARAS LLP (and another named in the Schedule) Third Respondent
AND BETWEEN: JASON DEMETRIOS KARAS Cross-Claimant
AND: LK LAW PTY LTD (and others named in the Schedule) First Cross-Respondent
order made by: O'SULLIVAN J DATE OF ORDER: 1 July 2022
THE COURT ORDERS THAT:
Introduction 1 By their interlocutory application filed 15 March 2022, the first to third respondents, Jason Demetrios Karas (Mr Karas), J & A Karas Pty Ltd (Karas Pty Ltd) and Karas LLP (together, the respondents) and Mr Karas as cross-claimant, seek a number of orders. 2 This decision deals with the first two categories of those orders. The first category is directed to striking out various paragraphs of the applicants' originating application and statement of claim and the second category seeks two interlocutory injunctions. The orders sought in those categories are in the following terms: Pleadings 1. The following paragraphs of the originating application and statement of claim be struck out in redacted form: a. paragraph 2 of the originating application; b. the following paragraphs of the statement of claim: i. 33 to 39; ii. 40 (the words "Whilst Mr Karas … paragraphs 34 and 36 above") and 40.4; iii. 43, 45 to 52; iv. 61, 62, 69, 71, 76, 78, 79, 82, 83 and 84.2; 2. Paragraphs 1 to 32, 40 (other than those parts to be redacted), 41, 42, 44, 53 to 60, 63, 64, 65, 66, 67, 68, 70, 72, 73, 74, 75, 77, 80, 81 and 84 (other than 84.2) of the statement of claim be struck out. Use of confidential information 3. An interlocutory injunction restraining the applicants / cross-respondents from retaining any persons, including any: a. solicitors, or person within the organisation of any solicitors; b. counsel; c. experts; who have seen, or directly or indirectly made use of, the Confidential Information from continuing to act or perform work for the applicants / cross-respondents in the proceeding. Note: This Order 3 does not prevent the applicants/cross-respondents retaining the persons mentioned therein in responding to the cross-claim and this interlocutory application. 4. An interlocutory injunction restraining the applicants / cross-respondents whether by themselves, their servants, agents, lawyers, counsel or experts retained in the proceeding on their behalf, or howsoever otherwise, from: a. using the Confidential Information, or any part of it; b. disclosing to any person the Confidential Information, or any part of it or any document in which the Confidential Information or any part of it is contained. Note: This Order 4 does not prevent the applicants / cross-respondents using the Confidential Information for purposes of responding to the cross-claim and this interlocutory application. 3 The confidential information referred to in the interlocutory application has the meaning given to that phrase in the cross-claim at [9]-[11].
Overview 4 The respondents to the main proceedings, and cross-claimant in the cross-action, allege that the applicants in the main proceedings, who are the cross-respondents in the cross-action, breached Mr Karas' confidence. Consequently, they seek the interlocutory relief in the cross-claim. 5 The applicants in the main proceedings dispute any breach of confidence and in the alternative assert that if there was a prima facie case of a breach of confidence, there is no confidence in an iniquity.
Documents read 6 Without objection, the respondents and cross-claimant read and rely upon: (1) The affidavit of Jason Karas, sworn 11 March 2022 and filed 15 March 2022 (first Karas affidavit); and (2) The affidavit of Jason Karas, sworn 20 April 2022 and filed 22 April 2022 (second Karas affidavit). 7 The respondents also tendered three expert reports of Mr Denis Brock (Mr Brock), dated 9 March 2022, 5 April 2022 and 13 April 2022. The three reports were received as a bundle as evidence in the interlocutory application and marked exhibit R1. 8 Without objection, the applicants, LK Law Pty Ltd (formerly known as Lipman Karas Pty Ltd) (LKPL), Scipio John Lipman (Mr Lipman) and Lipman Family Pty Ltd (Lipman Family) (together, the applicants/cross-respondents) read and rely upon: (1) The affidavit of Scipio John Lipman, sworn and filed 1 April 2022 (Lipman affidavit); (2) The affidavit of David Cross, sworn 31 March 2022 and filed 1 April 2022 (Cross affidavit); and (3) The affidavit of Brooke Hall-Carney, sworn 31 March 2022 and filed 1 April 2022 (Hall-Carney affidavit).
Background 9 I summarise below the background to the business relationship between LKPL, Mr Lipman and Mr Karas, and the genesis of the dispute between the parties. In so doing, I am not making findings of fact, but recording what is largely common ground that exists between them. 10 The background facts of this matter are not generally in dispute. Rather, it is the characterisation of the business relationship between the parties and the significance and effect of that business relationship on the issue of confidentiality asserted over documents/information, primarily emails. 11 Both Mr Lipman and Mr Karas are qualified legal practitioners. In 2004, both were equity partners in the legal firm Fisher Jeffries. In or about August 2004, Mr Lipman and Mr Karas established the legal firm LKPL. Apart from Mr Lipman and Mr Karas, a further nine employees, who had previously been with both Mr Lipman and Mr Karas at Fisher Jeffries, worked at LKPL. 12 Between 2005 - 2009, Mr Karas spent a considerable amount of his time in Hong Kong working on a substantial litigation matter. 13 In 2008, Mr Lipman and Mr Karas decided to establish a "Lipman Karas" practice in Hong Kong. As part of investigating how they might establish such a practice, Mr Lipman and Mr Karas sought advice from a Hong Kong firm of solicitors, Tanner De Witt. That advice, in summary, was that LKPL could not immediately establish a legal firm in Hong Kong advising on Hong Kong law using the name Lipman Karas. That was because Mr Lipman was not admitted as a solicitor in Hong Kong. LKPL could, however, register as a foreign law firm in Hong Kong, using the name "Lipman Karas" and advising on foreign law. 14 The advice from Tanner De Witt continued that after LKPL had practised as a foreign law firm in Hong Kong for three years, a firm practising Hong Kong law under the name "Lipman Karas", could practice in Hong Kong notwithstanding Mr Lipman was not qualified as a solicitor to practice in Hong Kong. 15 In October 2008, Mr Karas was admitted to practice in Hong Kong as a solicitor. 16 The strategy adopted by Mr Lipman and Mr Karas was that over the three-year period, Mr Karas would establish a registered Hong Kong law firm under the name "Karas Lawyers" with Mr Karas being the sole proprietor of that firm. Whilst Mr Karas was practising under the name "Karas Lawyers", Lipman Karas would establish itself as a foreign law firm practising foreign law in Hong Kong with Mr Tim Kentish (Mr Kentish) as the proprietor of that firm. Mr Kentish was to act as LKPL's agent in Hong Kong. 17 On 17 February 2010, the foreign law firm Lipman Karas, as agent for LKPL, and Karas Lawyers entered into an agreement known as an "association agreement". The association agreement is annexed to the first Karas affidavit at pp 18-23 of annexure JK-1: First Karas affidavit at [19]; Lipman affidavit at [41]. The association agreement recorded, amongst other things, that: Recital C - On 6 November 2009 the Law Society of Hong Kong registered an Association between Lipman Karas and Karas Lawyers in accordance with section 39C of the Legal Practitioners Ordinance. Clause 2.1 - Premises (a) Lipman Karas will permit Karas Lawyers to share and use with Lipman Karas the premises located at 1702, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong (Premises). (b) Lipman Karas will be responsible for all costs associated with the Premises and will maintain contents and public liability insurance in respect of the Premises. Clause 2.3 - IT (a) Lipman Karas will permit Karas Lawyers to share and use with Lipman Karas the information technology infrastructure, including personal computers, servers, printers, photocopiers, fax machines, videoconferencing equipment, mobile telephones and landline telephones (the IT infrastructure). (b) Lipman Karas will be responsible for all costs associated with the IT infrastructure (including consumables) and will maintain the IT infrastructure to a reasonable standard. Clause 2.4 - Staff (a) Lipman Karas and Karas Lawyers will share the resources of staff employed by the respective firms. (b) Each firm will be responsible for the salaries and related on-costs of its respective staff. Clause 3.1 - Premises Fee (a) In consideration of the use of the Premises, Karas Lawyers will pay Lipman Karas an annual fee (Premises Fee) calculated in accordance with the following formula: … 18 Having spent three years practising as a foreign law firm in Hong Kong, in late 2012 Lipman Karas ceased to practise as a foreign law firm. Mr Karas changed the name of Karas Lawyers to Lipman Karas and began trading as "Lipman Karas" in Hong Kong (LKHK). 19 There is a difference in emphasis between Mr Lipman and Mr Karas about how the LKPL and LKHK relationship worked. Mr Lipman refers to a letter from Mr Karas to the Law Society of Hong Kong dated 8 October 2012: Lipman affidavit at [44]; first Karas affidavit at [20]; annexure JK-1 pp 24-34 in which Mr Karas states, amongst other things, that: It is proposed that the offices of Lipman Karas will, for the purposes of the distribution of profits among principals, operate as a single economic entity. and that in a letter from Mr Lipman as a principal of LKPL to the Law Society of Hong Kong enclosed with Mr Karas' letter dated 8 October 2012, Mr Lipman states that from 10 December 2012 the renamed Karas Lawyers will act as the firm's Hong Kong branch. 20 In contrast, Mr Karas deposes that there was always a relationship of debtor and creditor between LKPL and LKHK: First Karas affidavit at [24]-[25]. Mr Lipman disputes that characterisation: Lipman affidavit at [113]. 21 After the change in name to LKHK in December 2012, Mr Lipman described how the two firms worked together: Lipman affidavit at [48]. Mr Karas described it by focusing on what he described as the "debtor/creditor" relationship with LKPL and highlighted the profit sharing and drawings arrangement. 22 Thereafter, the relationship continued. Both Mr Lipman and Mr Karas highlighted in their respective affidavits features of the relationship which they say support their respective cases. In the case of Mr Lipman, broadly speaking, it is that Mr Karas conducted LKHK as agent for LKPL, and in the case of Mr Karas, that he operated LKHK as a sole owner. 23 In passing, I note that in 2012, what I will describe in neutral terms as a third Lipman Karas entity, had commenced practice in London as LKLLP. There were three owners of that entity with Lipman Karas UK Ltd owning 50% of the business. The two 50% shareholders in Lipman Karas UK Ltd were Mr Lipman and Mr Karas: first Karas affidavit at [21]. 24 By early 2019, the relationship between Mr Lipman and Mr Karas had deteriorated. There are many reasons why that seems to be the case and it is not necessary that I go into them at this stage. 25 By December 2020, Mr Lipman and Mr Karas had decided to go their own ways and needed to separate their respective interests. 26 After Mr Lipman and Mr Karas decided to separate their business interests, negotiations commenced between the two of them with the parties executing a facilitation agreement in which a third party was appointed to assist in the resolution of the dispute: Lipman affidavit at [83], annexure SJL-35. 27 With the assistance of that third party, agreement was reached and on 25 May 2021 Mr Lipman, Mr Karas, Lipman Karas Pty Ltd, J&A Karas Pty Ltd, and Lipman Family Pty Ltd executed a separation agreement (separation agreement). The effective date of the separation agreement was 31 May 2021: First Karas affidavit, annexure JK-1 pp 138-176; Lipman affidavit, annexure SJL-2. 28 In summary, by the separation agreement, Mr Karas kept LKHK and Mr Lipman took over LKPL. The name of the firm Lipman Karas in Hong Kong was changed to Karas LLP and there were mutual releases. 29 Clause 5 of the separation agreement deals with transitional arrangements. Clause 5.2 concerns the ongoing provision of legal services by LKPL to LKHK in relation to various LKHK "Projects" and provides: 5.2 From the Effective Date until the completion of the LKHK Projects, Jason and LKHK will (a) instruct LKPL and LKPL will provide legal services to LKHK in relation to [various clients] and (b) continue to utilise LKPL lawyers presently engaged on the LKHK Projects, at the LKPL rates that are applicable for each of those LKHK Projects as at the Effective Date, to be invoiced monthly by LKPL to LKHK and paid by LKHK to LKPL when LKHK receives payment from its client, subject to the instructions of the respective clients for whom LKHK is engaged to provide legal services in respect of the LKHK Projects. Those legal services are anticipated (but not guaranteed) to generate [fees] for LKPL. (Square brackets provided) 30 Clauses 5.7, 5.8, 5.10 and 5.11 concern information technology: 5.7 As soon as practicable after the Effective Date, Skip and LKPL will transfer all IT, accounting, document management, legal database and other business support information and systems in respect of LKHK, LKHK personnel, LKHK matters and LKHK clients to such systems as designated by Jason and LKHK, with all such transfers to be completed by no later than 31 October 2021 or for such longer period as may be mutually agreed in writing. 5.8. Skip and LKPL will provide to Jason and LKHK ongoing access to the information referred to in clause 5.7 above until the transfer has been completed as certified by the Chief Technology Officer of LKPL to Jason and LKHK. 5.9 … 5.10 Jason and LKHK must continue to maintain IT security in accordance with LKPL security and IT policies, until the transfers set out in clause 5.7 have been completed and the ongoing access set out in clause 5.8 has been terminated. 5.11 If required, third party access to LKPL IT systems and network must be certified by the Chief Technology Officer of LKPL, with such certification not to be unreasonably withheld. 31 Prior to this time, all the information technology, including emails generated by user accounts at LKPL and LKHK, had gone through a common server operated by LKPL. 32 Mr Karas acknowledges this in the first Karas affidavit at [86], [87] where he says: 86 LKPL provided IT support to LKHK, including an email server for my email account jkaras@lipmankaras.com (prior to July 2021) and storage of electronic documents on a server (prior to October 2021). 87 I accessed my email account jkaras@lipmankaras.com from two laptop computers on which I also stored documents. 33 Mr Lipman deposes that there was an Information Technology Security and Data Protection Policy which applied to "everyone at Lipman Karas": Lipman affidavit at [10.2]. Mr Lipman annexes that policy at annexure SJL-3 and refers to clause 24 which is under the heading "EMAIL USE": 24. All messages that you send, receive or store are the property of LK. All messages sent internally, externally and received are stored permanently. Email messages stored on the LK system should not be considered private and management may have cause to monitor your use of the computer system or internet usage, or access your individual email account. While these occurrences are rare, this should be borne in mind. 34 Mr Karas deposes that the only email policy which he is aware is that titled "Lipman Karas - IT Security and Data Protection Policy" dated 17 September 2019: First Karas affidavit at [99], annexure JK-1, pp 551-556. He deposes that the policy appears to be directed to employees of LKPL and asserts he has never been bound by the policy. He continues that he has never been an employee of LKPL, LKHK or LKLLP and nor could he (nor any employee of LKHK) be bound by a policy by which legally privileged information confidential to his Hong Kong clients could "belong" to LKPL.
A dispute arises 35 The dispute between the parties has arisen as a result of Mr Lipman becoming aware of dealings between Mr Karas and the fourth respondent, Mishcon de Reya LLP (Mishcon). Mishcon is a legal firm practicing in, at least, the United Kingdom. 36 Mr Lipman deposes as to the searches of the LKPL IT system he commissioned upon becoming aware between July and early October 2021 of what he described as a "relationship" between Mr Karas and Mishcon. Mr Lipman does not depose as to what he became aware of in July and August 2020 but deposes that on 28 September 2021 he learned from a public announcement that Mishcon had received approval to open a branch office in Hong Kong in association with Karas LLP : Lipman affidavit at [4]-[5]. 37 Mr Lipman deposes further that as a result of information obtained from the Chief Operating Officer of LKPL on 6 October 2021, together with his knowledge attained on 28 September 2021 from the public announcement concerning Mishcon and Karas LLP, he became concerned about the nature of Mr Karas' relationship with Mishcon given Mr Karas' obligations under clause 5.2 of the separation agreement, as well as what he described as a security concern: Lipman affidavit at [6]-[9]. 38 Consequently, on 7 October 2021 Mr Lipman directed Ms Brooke Hall-Carney, a Principal of LKPL, to cause searches to be undertaken of LKPL's email system for emails relating to Mishcon, and certain of Mishcon's employees. The results of that search were such that he authorised Mr David Cross, a Principal and Director of LKPL, to review the emails identified in the search carried out by or on behalf of Ms Hall-Carney. Mr Cross printed a number of those emails and provided them to Mr Lipman in four red lever arch folders: Lipman affidavit at [12]-[16]. The documents/information that is the subject of the dispute in this interlocutory application are contained within those folders and have been pleaded in the statement of claim. 39 Mr Lipman deposes that during the course of his negotiations with Mr Karas, which led to the separation agreement, he was unaware of certain matters set out in [18] of the Lipman affidavit. 40 In the context of this interlocutory application, I am unable to determine conclusively whether or not Mr Lipman was unaware of those matters and indeed if those matters were correct. 41 Mr Karas addresses these matters by asserting a breach of confidence on the part of the applicants/cross-respondents. In particular, he deposes that apart from himself, the only person with access to his email account, documents and laptops was LKPL's Chief Technology Officer, Mr David Marshall, and that he assumed Mr Marshall would not breach his privacy. He continues that he has never given his consent for his email account and private documents to be accessed by Mr Lipman or anyone else at LKPL: First Karas affidavit at [88]. 42 Mr Karas refers to the allegations made in various paragraphs of the statement of claim identified in the first category of the respondents' interlocutory application, and deposes that the allegations made in those paragraphs are based on confidential information found by the applicant in Mr Karas' private emails and private documents after obtaining access to them without his consent. He annexes those emails and documents and refers to other documents that he has not been able to locate. 43 Mr Karas deposes further that many of the emails and documents are either marked confidential or commercial in confidence expressly, or are self-evidently confidential communications. He deposes that he did not provide any of that information to Mr Lipman or to any other person, and that none of it is in the public domain such that the documents could only have been obtained by an unauthorised search of his email account and electronic documents.
Statement of claim (SOC) 44 The applicants have filed an interlocutory application, dated 1 April 2022, in which amongst other things they seek to amend the originating application and statement of claim, both filed on 21 December 2021. Leave is required pursuant to r 8.21 of the Federal Court Rules 2011 (Cth) (FCR) to amend the originating application and after the pleadings have closed, leave is required to amend a statement of claim pursuant to FCR 16.53. It is a moot point as to whether leave is required to amend the statement of claim at this stage, but in any event the application has not been considered in view of the respondents' interlocutory application. Under those circumstances, I proceed on the basis of the originating application and statement of claim which were both filed 21 December 2021. 45 The applicants allege that Mr Karas owed fiduciary and statutory duties to LKPL: SOC at [62]. (a) As a director of LKPL; (b) Further or in the alternative in his conduct of LKHK as a trustee and/or agent for LKPL; (c) Further or in the alternative by reason of being in a position whereby he undertook to act in the interests of LKPL, alternatively LKPL and LKHK to the exclusion of his own separate interest; and (d) Further or in alternative in the course of the discharge of his duties as a Director of LKPL, a duty to treat the assets and undertaking and corporate opportunities of LKHK as part of the LKPL business that were subjected to these duties. 46 The applicants' claims as against the respondents revolve around two pleaded courses of conduct by Mr Karas against the background of the pleaded fiduciary and statutory duties. 47 The first course of conduct pleaded is a failure by Mr Karas to disclose various matters: SOC at [61]. 48 In summary, the second course of conduct is pleaded as: SOC at [63]. (a) The failure to disclose the matters pleaded in [61] in the circumstances of the fiduciary and statutory duties allegedly owed by Mr Karas; (b) The representation by Mr Karas by virtue of the entry into the facilitation agreement that he would negotiate with Mr Lipman in good faith for separation when that representation was false; (c) The express and implied representations reflected in clause 5.2 of the separation agreement that he was at liberty to refer work to LKPL as he saw fit, when that representation was false; and (d) The representation in clause 5.2 of the separation agreement and the anticipated fees when Mr Karas did not intend to honour that obligation. 49 It is against that background that the applicants plead causes of action against Mr Karas in: (1) Misrepresentation, relying on s 7(1) of the Misrepresentation Act (SA) 1972: SOC at [61]-[65]. (2) Misleading and deceptive conduct contrary to s 18 of the Australian Consumer Law: SOC at [66]-[68]. (3) Breach of fiduciary duty: SOC at [69]. (4) Breach of statutory duties: SOC at [70]. (5) Breach of confidence and breach of s 183 of the Corporations Act 2001 (Cth). 50 The applicants claim various forms of relief, including equitable rescission of the separation agreement; declarations that Mr Karas has breached his fiduciary duties to LKPL; declarations as to Mr Karas holding the assets of LKHK on constructive trust, alternatively equitable compensation equating to the beneficial interest that would have been retained in LKHK and the additional revenue from LKHK on account of work performed by LKPL's lawyers for matters in respect of which LKHK was retained; alternatively an account of profits in respect of gains allegedly made by Mr Karas: SOC at [84]. 51 As against the fourth respondent, Mishcon, the applicants claim for loss and damage arising out of : (1) The second limb of Barnes v Addy (1874) LR 9 Ch App 244 by reason of "knowing assistance" to Mr Karas in breaching his fiduciary duties. (2) Accessorial liability pursuant to ss 181, 182 and 183 of the Corporations Act 2001 (Cth).
Statement of cross-claim (SOCC) 52 In the cross-claim, Mr Karas alleges as against each of the cross-respondents that on a date currently unknown but likely between April 2021 and October 2021, one or more of the cross-respondents improperly conducted or caused to be conducted a search of Mr Karas' emails, attachments and documents stored on a computer system controlled by the first cross-respondent, as a result of which the documents were discovered and retrieved: SOCC at [13]. 53 Mr Karas alleges further that each of the cross-respondents knew or ought to have known that the documents contained confidential information: SOCC at [14]. 54 Mr Karas pleads that the documents were provided to the cross-respondents' solicitors and counsel such that each of them knew or ought to have known that the documents contained confidential information; had been retrieved from the computer system controlled by the first cross-respondent; and retrieved without the knowledge or consent of Mr Karas: SOCC at [15], [16]. 55 As a consequence of the matters pleaded at SOCC [13]-[16], Mr Karas pleads that each of the cross-respondents, their solicitors and their counsel knew or ought to have known that they were under an equitable obligation not to make any use of the confidential information: SOCC at [17]. 56 As a consequence of the matters pleaded, Mr Karas claims: (1) An injunction restraining each of the cross-respondents whether by themselves, their servants, agents, lawyers, counsel or experts from using the confidential information or any part of it or disclosing to any person the confidential information or any part of it or any document in which the confidential information or any part of it is contained. (2) An order that each of the cross-respondents: (a) Deliver up all hard copies of the documents, and any other documents containing any part of the confidential information in their possession, custody or power; (b) Deliver up any storage device, any copies of the documents, and any other documents containing any part of the confidential information in their possession, custody or power; (c) Delete all electronic copies of the documents, and any other documents containing any part of the confidential information in their possession, custody or power; (d) Delete or destroy all other documents in their possession, custody or power which contain or record information derived from the confidential information and documents; and (e) Provide by affidavit written confirmation of compliance with these orders.
The application for an interlocutory injunction 57 As I have noted above, the respondents and cross-claimant seek an interlocutory injunction in terms of paragraphs 3 and 4 of the interlocutory application filed on 15 March 2022 that is: 3. An interlocutory injunction restraining the applicants / cross-respondents from retaining any persons, including any: a. solicitors, or person within the organisation of any solicitors; b. counsel; c. experts; who have seen, or directly or indirectly made use of, the Confidential Information from continuing to act or perform work for the applicants / cross-respondents in the proceeding. Note: This Order 3 does not prevent the applicants / cross-respondents retaining the persons mentioned therein in responding to the cross-claim and this interlocutory application. 4. An interlocutory injunction restraining the applicants / cross-respondents whether by themselves, their servants, agents, lawyers, counsel or experts retained in the proceeding on their behalf, or howsoever otherwise, from: a. using the Confidential Information, or any part of it; b. disclosing to any person the Confidential Information, or any part of it or any document in which the Confidential Information or any part of it is contained. Note: This Order 4 does not prevent the applicants / cross-respondents using the Confidential Information for purposes of responding to the cross-claim and this interlocutory application. 58 The interlocutory application is brought in the name of the first to third respondents and Mr Karas as cross-claimant, because orders are sought consequent upon the matters alleged in the cross-action and in the defence filed in the main proceedings. It is also because, as I understand the position, if the breach of confidence claim in the cross-claim is made out, that will necessarily result in the main action being unsuccessful. 59 A very significant volume of material has been filed both in support of the interlocutory application and in opposition to it. A critical feature of the dispute between the parties will be the nature of the legal relationship between the applicants and the respondents and how, if at all, that relationship evolved with time.
Legal Principles 60 The applicable legal principles are not in dispute. The respondents and Mr Karas, as cross-claimant, must establish to the satisfaction of the Court, that there is a prima facie case on the cross-claim and that the balance of convenience favours in whole or in part the granting of the interlocutory injunction sought: Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57, at [65]-[72] (Gummow and Hayne JJ) (ABC v O'Neill).
Prima facie case - interlocutory injunction 61 Insofar as the cross-claim is concerned, it is not necessary for Mr Karas to show that it is more probable than not that he will succeed in his claim for breach of confidence. It is sufficient for Mr Karas to show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial: ABC v O'Neill at [65]. 62 Mr Karas claims in equity for a breach of confidence: SOCC at [18].
Principles - breach of confidence 63 There are four elements which need to be satisfied in order to establish a claim for breach of confidence: Popeye Holdco Pty Ltd (Receivers and Managers Appointed) v Intermediate Capital Asia Pacific 2008 GP Ltd (No 2) [2018] FCA 408; (2018) 125 ACSR 108 at [29] (Besanko J) citing the judgment of the Full Court of this Court in Optus Networks Pty Ltd v Telstra Corporation Ltd (2010) 265 ALR 281; [2010] FCAFC 21 at [39] (Finn, Sundberg and Jacobson JJ): (1) The information in question must be identified with specificity; (2) It must have the necessary quality of confidence; (3) It must have been received by the cross-respondent in circumstances importing obligation of confidence; and (4) There must be an actual or threatened misuse of the information without the applicant's consent. 64 The first and fourth elements are satisfied. What is in issue between the parties on this application is whether the information satisfies the second and third elements, namely the documents have the necessary quality of confidence and the information is being received by the cross-respondent in circumstances importing an obligation of confidence.
Second element: the necessary quality of confidence 65 Mr Karas submits that information has the necessary quality of confidence in that it was not public property or public knowledge or otherwise in the public domain: Coulthard v South Australia (1995) 63 SASR 531, 547. There is no dispute that the documents/information was obtained from emails and calendar entries sent and received by Mr Karas regarding his communications with Mishcon. He submits the subject matter of those emails/calendar entries, and thus the information within them, was confidential and in some cases expressly stated on the documents to be confidential. 66 I consider that per se the documents/information have the necessary quality of confidence. 67 The cross-respondents deny the necessary quality of confidence exists on the basis there can be no confidence in an iniquity. They submit that the information in question discloses a breach of fiduciary duty by Mr Karas and a further "civil wrong" in the form of misleading and deceptive conduct engaged by him. They refer to the statement by Gummow J in Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 74 ALR 428, 450: Applicants' Submissions (AS) at [74]. … information will lack the necessary attribute of confidence if the subject matter is the existence or real likelihood of the existence of an iniquity in the sense of a crime, civil wrong or serious misdeed of public importance, and the confidence is relied upon to prevent disclosure to a third party with a real and direct interest in redressing such crime wrong or misdeed. 68 It is common ground between the parties that the existence of, or the real likelihood of the existence of an iniquity, must be established in an interlocutory hearing such as this to a prima facie level: A G Australia Holdings Ltd v Burton [2022] NSWSC 170; (2002) 58 NSWLR 464, [202] (Campbell J as his Honour then was). 69 This matter does not involve any question of the "public interest" defence to an action for breach of confidence as developed in England based on Gartside v Outram (1856) 26 LJ Ch 113 to which Campbell J referred to in passing in AG Australia, and which has not been accepted in Australia: Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) at p 451; see also Crown Resorts Ltd v Zantran Pty Ltd [2020] FCAFC 1; (2020) 276 FCR 477, [28]-[34] (Allsop CJ). 70 Whether there is a prima facie case of an iniquity in this matter turns on the nature of the legal relationship that existed at various times as between LKPL, Mr Lipman and Mr Karas. Although a significant amount of material has been placed before the Court, that material does not allow me to reach a conclusion at this stage of the proceedings and at a hearing such as this, as to the nature of the legal relationship that existed between LKPL, Mr Lipman and Mr Karas at the relevant times. 71 I have considered the reports of Mr Brock which deals with various scenarios relating to legal practice in Hong Kong and the relationships that may or may not exist between a Hong Kong law firm and a "Foreign Law Firm": Exhibit R1. 72 Mr Brock's reports answer a number of questions but the reports are of limited assistance in the determination of this interlocutory application in the absence of factual findings and a conclusion as to the nature of the legal relationship at the critical times. 73 Notwithstanding there is a suggestion of an iniquity, in the absence of a conclusion as to the nature of the legal relationship, I cannot conclude at this time whether or not a prima facie case of an iniquity is made out. 74 Under those circumstances, I accept for the purposes of this application only, that the documents/information had the necessary quality of confidence.
The third element: receipt in circumstances importing an obligation of confidence 75 The third element is that the documents/information must have been received by the cross-respondents in circumstances importing an obligation of confidence. 76 The cross-respondents submit that the contested documents were disclosed by Mr Karas to LKPL when they were stored in LKPL's email system and the circumstances of that disclosure did not import an obligation of confidence on LKPL, nor place any restriction on LKPL generally or more specifically on Mr Lipman. They submit further that any duty to keep the contested documents confidential was directly negatived. In summary, they rely on the following matters: (a) With one exception, the contested documents were sent or received by Mr Karas at his LKPL email account as a Director of LKPL and a Principal of the firm; (b) The email policy of LKPL that applied since January 2021, and indeed its predecessor in 2019, made it clear that all emails that Mr Karas sent or received on his LKPL email account should not be considered private and were the property of LKPL: Lipman affidavit at [10.2], annexure SJL-3; first Karas affidavit at [99], annexure JK-1, pp 551-556; (c) Clause 5.10 of the separation agreement provided that Mr Karas would continue to be bound by LKPL's security and IT policies; (d) There has never been a distinction between employees and principals at LKPL in relation to this policy, whether in Australia or overseas; and (e) LKPL's directors have both statutory and common law rights to inspect the documents held by LKPL to discharge their fiduciary and secretary obligations, giving Mr Lipman and Mr Cross, in their capacity as Directors of LKPL, common law rights to inspect the contested documents in circumstances where Mr Lipman was concerned about a potential cyber security risk and concerns that Mr Karas' relationship with Mishcon was inconsistent with his obligations under the separation agreement: AS at [66]. 77 Mr Karas submits that as a recipient of the confidential information, the cross-respondents, specifically Mr Lipman, knew or ought to have known, in the relevant circumstances, the information obtained by him was confidential. Mr Karas relies upon the judgment of Debelle J in Coulthard v State of South Australia (1995) 63 SASR 531, 545-546 where his Honour said that it was a: … well-established principle of equity that the court will "restrain the publication of confidence information improperly authority justly obtained or information imparted in confidence which ought not to be divulged: Lord Ashburton v Pape [1913] 2 Ch 469 at 475; Commonwealth v John Fairfax & Sons Ltd (1980) 147 CLR 39 at 50. The essence of the duty which equity enforces is using the information without the consent of the plaintiff: see Saltman Engineering Co v Campbell Engineering Co (1948) 65 RPC 203 at 213 where Lord Greene MR said: "If a defendant is proved to have used confidential information, directly or indirectly obtained from a plaintiff, without the consent, expressed or implied, of the plaintiff, he will be guilty of an infringement of the plaintiff's rights." The court will restrain the publication not only of confidential information in the form of trade secrets but also of an individual's private secrets: Prince Albert v Strange (1849) 18 U Ch 120; Argyll v Argyll [1967] Ch 302, and has restrained the publication of tribal secrets of Pitjantjatjara Aboriginals communicated in confidence to an anthropologist: Foster v Mountford (1976) 29 FLR 233. As Mason J noted in Commonwealth v John Fairfax & Sons Ltd (at 51), the equitable principle has been fashioned to protect the personal, private and proprietary interests of the citizen. 78 Mr Karas also relies upon the judgment of Gray J in Sullivan v Sclanders & Goldwell International Pty Ltd [2000] SASC 273; (2000) 77 SASR 419, 429 where his Honour said at [57]: … information which is not obtained consensually cannot be freely used. Equity will intervene by reason of the circumstances in which the defendant obtained the information, rather than by any intrinsic value or importance in the information itself or by any apprehended damage which might result from its misuse. 79 Relying on those authorities, Mr Karas submits that it is not in dispute the cross-respondents obtained access to private emails and documents, without his knowledge or consent, by conducting a search of LKPL's server and then conducting a detailed document review.
Consideration - prima facie case - interlocutory injunction 80 Put at its highest, Mr Karas submits that LKPL's Security and IT policy did not apply to him as a Director and/or Principal of LKPL. That is little more than a bare assertion. 81 Nonetheless, in view of any evolution of the legal relationship that existed, at least between LKPL, Mr Lipman and Mr Karas (if indeed that be the case), and/or whether there had been a change in the confidentiality status of documents/information stored on LKPL's server, consequent upon the separation agreement, notwithstanding the terms of clause 5.10 of that agreement, the extent of any confidentiality in Mr Karas' documents/information is not a matter that I am able to determine based on the material before me at this stage of the proceedings and on an application such as this. Accordingly, for the purposes of this application, I accept that the confidential information may well have been received in circumstances importing an obligation of confidence.
Conclusion on prima facie case 82 In all the circumstances, although the matter is not free from doubt, I consider Mr Karas has established a prima facie case that the cross-respondents have acted in breach of confidence.
Balance of convenience 83 In ABC v O'Neill, when referring to the relevant principles on an application for an interlocutory injunction, Gummow and Hayne JJ cited from the judgment of Kitto, Taylor, Menzies and Owen JJ in Beecham Group Limited v Bristol Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618, 622-623 where their Honours said that on such an application the Court addresses itself to two main inquiries. The first concerned the prima facie case and the second, the balance of convenience which their Honours described in these terms: "… The second inquiry is … whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted." 84 Neither party spent a great deal of time on the balance of convenience. Mr Karas submitted that if the interlocutory relief is not granted, the cross-claim will be rendered nugatory, the confidentiality he claims will be lost without the benefit of a trial and the continued use of the confidential information by the applicants/cross-respondents will be such that Mr Karas will lose the opportunity to have the allegations in the cross-claim determined according to law. 85 Mr Karas presses for the interlocutory injunctive relief which, if granted, will enable him to have his cross-claim finally determined, in particular the question of whether a duty of confidence arose on the part of the applicants. If successful, his claim to preserve his confidential information will be successful, and if unsuccessful, the applicants/cross-respondents will be able to pursue the relief sought in their statement of claim using the confidential information and legal advisors of their choosing: Cross-claimant's submissions in reply to the cross-respondents' submissions dated 22 April 2022 at [3]. 86 The applicants/cross-respondents submit that should the relief sought by Mr Karas be granted, the cross-claim will be rendered unnecessary and relief in terms of the final relief sought on the cross-claim would have been procured by the interlocutory application. That is because if granted, the contested documents could not be used in the trial of the main proceedings and the applicant will be deprived of its legal advisors of choice in prosecuting the main proceedings. 87 In response, Mr Karas submits that the practical effect of the interlocutory injunction is not akin to final relief and submitted the form of interlocutory injunction sought permits the applicants/cross-respondents to retain any person and use any information in the cross-claim.
Consideration - balance of convenience 88 One only has to consider the ramifications of granting the interlocutory injunctive relief sought by Mr Karas to appreciate that notwithstanding his submissions, he is seeking final relief. If the interlocutory injunctions he seeks are granted in the terms sought, not only will the applicants/cross-respondents be precluded from utilising their legal advisors currently retained in the main proceedings in prosecuting those proceedings, the inevitable result will be a multiplicity of proceedings. I did not understand Mr Karas' counsel, Mr Sheahan QC, to disagree with that proposition: Transcript dated 27 April 2022, p 11, lines 23-41; transcript dated 29 April 2022, p 93, lines 25-45 - p 94, lines 1-47 - p 95, lines 1-6. 89 The prospect of a multiplicity of proceedings leads inevitably to a significant increase in the quantum of costs; delay in the event there is an appeal from the decision on the cross-claim ahead of the main proceedings; the prospect of inconsistent findings; and given credit is likely to be in issue, the need for different judges of this Court to hear the cross-claim and the main proceedings. 90 Further, there is currently a confidentiality regime over these proceedings to protect the confidentiality asserted by Mr Karas. That regime may, to the extent strictly necessary, be maintained such that in the event that Mr Karas is ultimately successful in his defence to the proceedings and his cross-claim, his right to confidentiality will be maintained. To that extent, denying his claim for an interlocutory injunction will not result in irreparable prejudice. 91 Whereas the cross-claimant has established, albeit not without considerable doubt, a prima facie case to be tried, I entertain no doubt that the balance of convenience lies firmly against the granting of the interlocutory injunctions sought for the reasons I have set out above.
Conclusion on the application for an interlocutory injunction 92 The respondents' / cross-claimant's application for interlocutory injunctions is dismissed.
The application to strike out certain paragraphs of the statement of claim 93 The paragraphs of the statement of claim the subject of the strike out application are paragraphs which are alleged to contain confidential information. No argument was advanced on whether those paragraphs should be struck out because that was inextricably bound with the application for interlocutory injunctions. In view of my decision to refuse interlocutory injunctions in the terms requested, or at all, no basis has been advanced to strike these paragraphs out and I decline to do so.
Applicant's-cross-respondent's interlocutory application dated 1 April 2022 94 There remains the question of the applicants' - cross-respondents' interlocutory application dated 1 April 2022 in which they seek orders: (i) Dispensing with compliance with FCR 8.06 in relation to service of the originating documents on Mishcon: and (ii) Granting leave to amend the originating application and statement of claim. 95 There was no argument on this application. Under the circumstances, I am not prepared to make the orders and I will deal with that application at a case management hearing on a date which I will fix in the near future. I certify that the preceding ninety-five (95) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Sullivan.
Associate: Dated: 1 July 2022 SCHEDULE OF PARTIES SAD 222 of 2021 Respondents Fourth Respondent: MISHCON DE REYA LLP (OC 399969) Cross-Respondents Second Cross-Respondent SCIPIO JOHN LIPMAN Third Cross-Respondent LIPMAN FAMILY PTY LTD (ACN 627 125 580)
LK Law Pty Ltd
Karas
[2000] SASC 273
(2002) 58 NSWLR 464
(2006) 227 CLR 57
(1968) 118 CLR 618
(1987) 74 ALR 428
(1995) 63 SASR 531
(2020) 276 FCR 477
(2010) 265 ALR 281
(2000) 77 SASR 419
(1980) 147 CLR 39
(1976) 29 FLR 233