N P GENERATIONS PTY LTD v FENELEY No. SCCIV-00-242 [2001] SASC 185

Supreme Court of SA|2001-06-05|Before: Wicks JJ, Debelle J

Judgment No. [2001] SASC 185

(Full Court: Debelle, Williams and Wicks JJ: Civil)JUR

DEBELLE J. The central issue in this appeal is the extent to which, if at all, a former employee in a real estate business may take from the business and use a list of customers or clients of the business who engage it to manage rental properties. In the real estate industry, such a list of customers is commonly called "the rent roll".

This is an appeal from a judge of this Court who had dismissed an appeal from a decision of a magistrate. The respondent had prepared a list of some of the customers listed on the rent roll. The magistrate had dismissed the appellant's claim for damages grounded on the respondent's alleged use of the list and a claim for delivery up of that list.

The appellant carries on business as a real estate agent and rental property manager at Blackwood. The respondent was employed by the appellant from 26 August 1996 to 3 March 1999 as the manager of its rental property business. There was no written contract of employment. The rental property business was an extensive part of the appellant's business and in 1999 involved the management of some 140 properties. The respondent's duties required her to manage these properties and those duties involved periodic and often regular contact with the owners of the properties or their tenants.

On 3 March 1999 the respondent gave two weeks notice of her intended resignation. Her employment was terminated by the appellant later the same day. At the time of her resignation, and immediately thereafter, the respondent did not expect to take up employment elsewhere. However, she was living with a Mr Michael Anstey, who conducted his own real estate business which competed with the appellant's business and traded as M V Anstey Real Estate. By 8 March 1999 she had decided to commence employment with him.

The appellant kept a list of the rental properties it managed and their owners. I will call it "the rent roll". It was the responsibility of the respondent to keep the rent roll up to date. The appellant employed an administrative assistant in its property management business called Ms Simpson. The respondent gave Ms Simpson information from time to time to be entered on the rent roll.

While employed by the appellant, the respondent kept a diary for the year 1999 and an address book. The diary and the address book contained information handwritten by the respondent including the names, addresses and telephone numbers of some of the owners of rental properties which she had managed during her employment with the appellant. In the course of her work, the respondent used the diary and address book extensively and usually carried them with her. At no time did the respondent keep the fact of the existence of the diary or the address book secret. She used the address book when at the office or on the road. Ms Simpson possessed a similar address book. When her employment was terminated, the respondent took with her the address book and the diary.

The Respondent Contacts the Appellant's Customers

Following the termination of her employment, the respondent twice made contact with some of the owners of the properties listed on the rent roll. It is convenient to call them "landlords". The first contact occurred on 4 March 1999, the day after she had left the appellant's employ. The respondent telephoned eight of the landlords and a man called Leith, who was a plumber and who had worked for the appellant carrying out maintenance work on the various properties. The respondent informed those nine people that she had left her employment and stated that she did not want them to speculate about where she had gone. The magistrate found that the respondent had a relationship of "great personal trust" with these eight landlords and he accepted the respondent's evidence that she did not solicit them to engage her or any other person to manage their properties. However, all eight landlords terminated their arrangements with the appellant and retained M V Anstey Real Estate to manage their properties. These eight landlords owned eleven properties. The magistrate found that these landlords took their business to the respondent because of her skills and other personal qualities.

The respondent made a second contact with other landlords in the following way. On about 12 March 1999, four days after the respondent had commenced her employment with M V Anstey Real Estate, the respondent sent a letter to 46 landlords who owned rental properties managed by the appellant. All letters were written on plain note paper in her own hand. With some minor variations, the letters were in the following terms:

This short courtesy note is to advise you that I am no longer at L.J. Hooker - Blackwood. I am writing to let you know how much I enjoyed working with you and managing your property. It has been a pleasure to represent your property interests.

Each letter showed the respondent's home address and telephone number.

The appellant instituted proceedings in the Magistrates Court alleging that the respondent had acted in breach of her duty of confidence in using the information in the address book, claiming that that information was confidential. The appellant claimed damages and delivery up of all documents, which presumably included the address book and the diary, held by her containing the confidential information. The magistrate found that the information in the address book was not confidential information, that the terms of the respondent's employment did not include any covenant restraining her from competing on termination of her employment, that upon termination of her employment the respondent was at liberty to compete with the appellant, that the names of the eight landlords were not trade secrets of the appellant, and that the respondent had not acted in breach of any duty to the appellant in contacting either the eight landlords or later the 46 landlords. The magistrate did not deal with the diary. The magistrate dismissed the appellant's claim.

The appellant appealed to a judge of this Court who dismissed the appeal. Although the judge held that the magistrate had erred in concluding that the information in the rent roll was not confidential information, he determined that the respondent was not in breach of any contractual or other obligation of confidence in using the information in the address book after her employment had been terminated by the appellant. His reasons for that conclusion were that, although the respondent had compiled the address book from the records of the appellant, she had compiled it for the legitimate purpose of performing her duties and not in anticipation of leaving her employment and competing with the appellant. The judge noted the respondent's evidence that she had used the address book for the purpose of contacting only two of the eight landlords. He also referred to her evidence that, relying on her memory, she recalled about one-third of the addresses of the 46 landlords whom she later contacted. The judge was not prepared to go behind the magistrate's finding that the respondent did not contact the eight landlords to solicit their custom.

The appellant appeals against this judgment. There is no cross-appeal by the respondent. Thus, this Court can proceed on the footing that the respondent accepts the judge's decision that the appellant's list of customers is confidential information. In any event, I respectfully agree with the decision of the trial judge on that question. Lists of customers are capable of being confidential information: Robb v Green [1895] 2 QB 1; on appeal, [1895] 2 QB 315; Wessex Dairies Ltd v Smith [1935] 2 KB 80; Faccenda Chicken Ltd v Fowler [1987] Ch 117 at 136 - 138; and Peninsular Real Estate Ltd v Harris [1992] 2 NZLR 216 at 218 - 219. Whether a customer list is confidential information or not will depend upon the particular facts and circumstances of each case: Faccenda Chicken at 136. The list will be confidential if it represents the result of work done by the former employer: Robb v Green (supra) at 18 - 19; and Faccenda Chicken at 136; or if it represents the results of the employer's labour in the composition of the list, experience of the trade and practical utility: International Scientific Communications Inc v Pattison [1979] FSR 429 at 434. This is not an exclusive list of relevant criteria. In this case the list of customers was clearly prepared over a period of time and represented the appellant's work in establishing this part of its business. The rent roll was treated as confidential by the appellant and its employees. It was not available to the public and was plainly of value to the appellant's business. Obviously, the appellant would not disclose the list to other real estate agents. The rent roll was therefore confidential information.

The issues in this case concern not the use of the rent roll itself, but the use of the address book and diary which were compiled from the rent roll by the respondent for a legitimate purpose. The appellant contends that the judge has erred in holding that the respondent did not act in breach of any duty to the appellant in using that information after her employment with the appellant had ceased.

Although the notice of appeal states that the appellant appeals against the whole of the judgment, there are only two grounds of appeal. They are:

"1. The learned judge erred in law in holding that the respondent might lawfully make any use of information which was confidential to the appellant after her employment with the appellant had ceased without the consent of the appellant.

2. Alternatively, the learned judge erred in law in holding that the respondent might lawfully make use of such information contrary to the interests of the appellant."

The judge did not hold that the respondent might lawfully use information, confidential to the appellant, after her employment with the appellant had ceased without the consent of the appellant. Instead, he held that the respondent had not acted in breach of any duty to the appellant. He was not prepared to go behind the magistrate's findings that the respondent did not contact the eight landlords to solicit their custom. That is not the only difficulty with this notice of appeal. The grounds of appeal do no more than assert propositions of law since, it is well settled that a former employee cannot, upon the termination of his employment, use confidential information reposed in him by his former employer without the consent of the employer: Faccenda Chicken (supra) at 135 - 137, to name but one authority. As the hearing of the appeal proceeded, it became apparent that the appellant was challenging the judge's conclusion that the respondent had not acted in breach of any duty to the appellant. I therefore propose to deal with the appeal on that footing.

I deal first with the address book. It contains 115 separate entries. Of those, 65 are plainly landlords who had engaged the appellant to manage their property. In each case, the entry contains the name and address of the landlord, telephone numbers (often a business as well as a residential number and in some cases a mobile telephone number or number of a facsimile machine), and the address of the rental property. In addition, it contains 18 other entries which, on their face, are related to the conduct of a rental property business including, for example, telephone numbers of plumbers, electricians and other tradespersons, as well as persons to read meters and contacts to stop newspapers. Most of the entries of landlords appear to have been made at the same time. It is not clear whether the remaining 32 entries are of a business or private nature. It is reasonable to infer that some are private. The issue was not explored in evidence. These entries usually consist simply of a name and telephone number.

The starting point for considering whether the respondent acted in breach of any duty to the appellant is that the address book was initially compiled for a legitimate purpose. There was no appeal from the magistrate's finding that the address book was compiled for use by the respondent in her employment by the appellant as the manager of the rental property business. That finding must therefore be accepted. I note in passing that, if it was to be used in her employment, it is curious that it contained only 65 of the 140 landlords. However, it is unnecessary to stay with that question.

It is convenient to set out some well settled principles.

1. In the absence of a valid restraint of trade clause, a former employer cannot prevent a former employee from simply competing: Stenhouse Australia Ltd v Phillips [1973] UKPC 1; [1974] AC 391 at 400.

2. As a general rule, a former employer cannot, therefore, prevent a former employee from contacting or even soliciting clients or customers of the former employer: Stenhouse; Faccenda Chicken.

3. An employee after ceasing employment may not use confidential information obtained in the course of that employment for the purpose of competing with his or her former employer or indeed in any other way detrimental to the former employer's interests: Faccenda Chicken per Neill LJ at 136 para (4).

I turn to examine whether the respondent owed any duty to the appellant and, if so, whether she breached that duty.

As Lord Denning MR noted in Seager v Copydex [1967] 1 WLR 923 at 931:

"The law on this subject does not depend on any implied contract. It depends on the broad principle of equity that he who has received information in confidence shall not take unfair advantage of it. He must not make use of it to the prejudice of him who gave it without obtaining his consent."

To like effect, are the remarks of Megarry J in Coco v A N Clark (Engineers) Ltd [1969] RPC (No 2) 41 at 46 that the equitable obligation not to use confidential information other than for the purpose for which it was disclosed stems from the concern of equity to enforce obligations of conscience. See also the discussion in Meagher, Gummow and Lehane, Equity, Doctrines & Remedies (1992) (3rd edition) (hereinafter "Meagher et al") at para 4106.

It follows that, where confidential information is entrusted to an employee for a limited purpose, it can only be used for that purpose and no other: Morrison v Mears (1851) 8 Hare 241, 256; [1851] EngR 790; 68 ER 492, 499 which has been consistently followed and applied since: Torrington Manufacturing Co v Smith & Sons (England) Ltd [1966] RPC 285, 301; Smith Kline & French Laboratories (Aust) Ltd v Secretary, Department of Community Services & Health (1990) 22 FCR 73. See also the discussion in Dr Gurry's text, Breach of Confidence, (OUP 1984) 113 - 115; and in Meagher et al, at para 4110.

Thus, it is a breach of good faith and a breach of the equitable obligation to preserve the confidence of an employer if an employee, without the consent of her employer, discloses to persons outside the business information on the list of customers: Faccenda Chicken at 135 - 136. Similarly, it is also a breach of good faith and a breach of the equitable obligation to preserve the confidence of an employer if an employee makes a copy of a list of customers of the employer for use after her employment ends: Robb v Green; Wessex Dairies Ltd v Smith; Faccenda Chicken at 136, or deliberately memorises such a list for that purpose: Faccenda Chicken at 136; Westminster Chemical NZ Ltd v McKinley [1973] 1 NZLR 659 per Speight J at 665.

I think that the same principles must apply with equal force to a list of the employer's customers made by an employee legitimately for the purpose of performing the duties for which she has been engaged in those instances where the employee seeks to retain the list upon the termination of her employment. There is no sound reason why those principles should not apply. Be it a list of some or all of the customers, it is, nevertheless, a list of customers which is capable of being used by the former employee in a way which is unauthorised and which may cause loss or damage to the former employer. The obligation of conscience already mentioned has the necessary consequence that, if a departing employee takes with her copies of a list of customers which were initially prepared for legitimate purposes, the departing employee has an obligation to return the copies to her former employer. To hold otherwise would be to make it quite impossible for an employer to uphold the integrity of the customer list or of any other kind of confidential information. Applying those principles to the names and addresses on this rent roll, those names and addresses could be copied by the respondent into an address book for the purpose of assisting her in the management of the appellant's business but could not be used for any other purpose. It follows that, on ceasing her employment, she could no longer use her list of names and addresses. In other words, the list of names and addresses were confided to the respondent for a specific and limited use, namely, to enable her to manage the appellant's rental property business. Once her employment by the appellant ended, she could no longer use that list or any copy of it.

It seems that it is not necessary for a former employer to prove actual or apprehended detriment in order to recover a list of customers: Dunford & Elliott Ltd v Johnstone & Firth Brown Ltd [1975] FSR 143 at 148; Ohio Oil Co v Sharp 135 F.2d 303 (1943); Attorney-General v Observer Ltd [1990] AC 109 at 256, 270 and 282. In Commonwealth v John Fairfax & Sons Ltd [1980] HCA 44; (1980) 147 CLR 39 at 50 - 51, reliance was placed on the views of Megarry J in Coco v A N Clark (Engineers) Ltd (supra) at 41 which stated that detriment was a necessary requirement to enforce an obligation of confidence. But, as Lord Denning MR pointed out in Dunford & Elliott Ltd v Johnstone & Firth Brown Ltd at 148, Megarry J questioned whether detriment was essential. It is plain that the retention of the list on ceasing employment arms the former employee with a capacity to use the list to the prejudice of the person who gave it without obtaining consent: cf. Seager v Copydex (supra) at 931. When customers or clients are approached by the former employee, the former employer will never be able to prove whether the list was used or not. The decision in Commonwealth v John Fairfax & Sons Ltd may, therefore, have to be reviewed. But it is unnecessary to stay with this question as, in this case, the appellant can point to detriment or potential detriment in that the respondent has admitted using the list for the purpose of approaching at least two of the eight landlords first contacted and for the purpose of approaching about one-third of the second group of landlords.

Given that the address book was compiled from the appellant's records for use in its business, the respondent was obliged to deliver up the address book once her employment had been terminated. The fact that the book contained about 30 entries of a personal nature did not relieve her of that obligation. Obviously, the respondent should have been given an opportunity to make a copy of the personal entries, if she wished to do so.

The judge below held that the respondent had compiled the address book for a legitimate purpose, that she had a legitimate purpose for contacting the landlords, that the respondent had not solicited business, and that the respondent had not breached any contractual obligation or obligation in confidence in using the address book to contact the eight landlords even if she had used it to contact them all. It was implicit in his reasons that the respondent was under no obligation to deliver up the address book on ceasing her employment with the appellant. The magistrate adopted a similar approach.

That reasoning fails to have any regard to the equitable principles governing the use of confidential information and, in particular, to the fact that the appellant's list of customers was entrusted to the respondent for the limited purpose of managing the appellant's rental property business. That list was no doubt amended as clients came and went but the amendments were made in the course of the respondent's employment. The list as amended remained the appellant's list. The fact that the respondent made her own list for her own purposes does not alter the fact that it is a copy of what was contained on the appellant's list. There seems to be implicit in the judge's reasons the notion that reasonable use may be made of the information which, coupled with the fact that the respondent would have remembered names and addresses of some customers and could have ascertained telephone numbers by use of a telephone directory, resulted in no breach of any duty. But it is plain that the respondent did not remember all of the telephone numbers or addresses and needed to resort to her list of names and addresses. For the reasons expressed above, she could not resort to her address book to supplement her memory.

For all of these reasons, the judge has erred in his approach. In my view, the respondent was under an obligation to deliver up the address book. It is already an exhibit. It will be necessary to hear the parties as to what, if any, arrangements are necessary to enable her to copy the private entries.

Different factors need to be considered in relation to the diary. It is obviously a work diary. It has a page for each day of the working week, each page having space for entries at each half hour between 8.00am and 6.00pm. An examination of the entries to 3 March 1999 suggest that the overwhelming number of entries are related to the respondent's duties in her employment. If there is anything of a personal nature it is limited to a note of the time and date of an appointment. It obviously includes the names of some landlords as well as notes of the addresses of some rental properties. It could therefore provide the base for the preparation of a list of at least some of the appellant's customers.

The equitable obligation requires non-disclosure and delivery up, if appropriate, of what is confidential. In this respect, as Gowans J noted in Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VicRp 7; [1967] VR 37 at 40, a distinction has to be maintained between information and knowledge acquired in confidence by an employee during his employment which he uses or discloses for his own advantage while he is still an employee, and information and knowledge so acquired which he uses for his own advantage after his employment is finished. A further distinction has to be drawn between information which forms part of the employee's stock of general knowledge, skill and experience, and that which could be fairly regarded as a separate part of the employee's stock of knowledge (whether it be identifiable as "particular" or "detailed" or "special") which a man of ordinary intelligence and honesty would regard as to the property of the former employer: see also Printers & Finishers Ltd v Holloway [1965] RPC 239 at 253 and Faccenda Chicken at 136 - 137. Other assistance can be gained from the list of some of the relevant matters identified by the Court of Appeal in Faccenda Chicken at 137 - 138, namely,

(3) whether the employer impressed on the employee the confidentiality of the information; and

(4) whether the relevant information can be easily isolated from other information which the employee is free to use or disclose.

It is clear from the remarks of the Court of Appeal that this is not an exclusive list. As McLelland J noted in Riteway Express Pty Ltd v Clayton (1987) 10 NSWLR 238, the principles discussed in Faccenda Chicken involve a reconciliation of two interests, namely,

(1) the right of any person to use and exploit for the purpose of earning his living all the skill, experience and knowledge which he has at his disposal, including the skill, experience and knowledge which he has acquired in the course of previous employment; and

(2) the right of an employer to have its secrets kept confidential.

The diary is clearly a record kept by the respondent in the course of her employment and for the purpose of that employment. It could be used to assist in the preparation of a list of some but not all of the rental properties and the names of some of the landlords. In that sense, it does contain some confidential information which also appears in the rent roll. However, the information is not compiled from the rent roll. Instead, the entries in the diary are made as a consequence of telephone calls or other requests to the respondent which caused her to note an appointment to see a landlord or to visit or inspect a landlord's property. It is equally clear that the respondent would have to undertake a considerable degree of other work to ascertain the addresses of the landlords and their telephone numbers. The diary also includes other information which is not confidential. Furthermore, the respondent was under no obligation of confidence in relation to the diary. The appellant had not required that it be confidential. It includes information which could be fairly described as part of the respondent's general knowledge, skill and experience. These latter factors point to the conclusion that the diary is not confidential information and, in my view, those latter factors prevail over the other factors I have identified. For these reasons, I do not think that the diary constitutes confidential information.

The judge has not addressed the question of the diary in his reasons. For the reasons expressed, there is no obligation on the respondent to deliver up the diary.

As already mentioned, this appeal is limited to the question whether the respondent was in breach of any duty to the appellant in using her address book and diary after her employment with the appellant had ceased. The notice of appeal then seeks orders allowing the appeal and remitting the matter to the judge for further consideration. However, the notice does not state what matters should be remitted for consideration.

On the hearing of the appeal, Mr Manetta, who appeared for the appellant, said that the matter should be remitted to the judge to make findings of fact on the question whether the respondent had used the address book for the purpose of contacting the eight landlords. He submitted that neither the magistrate nor the judge had made findings on that issue. It is clear that the magistrate did not make any finding of fact on this issue. Instead, his reasoning proceeded on the footing that the respondent was at liberty to use the information in her address book and diary. On the appeal before the judge, the appellant had, contrary to its contentions to this Full Court, submitted that the magistrate had found that the respondent had used the address book to contact the eight landlords. It was submitted on behalf of the appellant that the respondent should have filed a notice of alternative contention to put in issue the asserted finding. The judge rejected that submission. I respectfully agree with his conclusion. The magistrate's reasons show that he made no such finding. The judge also reviewed the evidence. He said:

"Her evidence was that she knew from memory the telephone numbers of three of the property owners. She used the address book to ascertain the telephone numbers of two of the property owners. Another of the property owners was contacted by his father, who was also a property owner and had been contacted by the respondent. There was no evidence as to whether the responded (sic) used the address book in order to contact the other two property owners. Although she used the address book to contact two of the property owners by telephone, she knew from memory their names and addresses. It is not known if their telephone numbers were listed in the telephone directory, but it appears that she could have contacted them by personally visiting their respective homes. In that sense, the address book was not essential."

When addressing the question whether the respondent had used the address book, he said:

" Furthermore, there was no evidence to suggest that, with respect to the eight property owners, the respondent had to consult the address book to identify them as such. As has been mentioned, all that was proved is that the respondent knew their identities and consulted the address book to ascertain two telephone numbers. The submission is contrary to the evidence of the respondent which was accepted. Consequently a notice of contention was unnecessary.

I do not think the respondent was in breach of any contractual obligation or duty of confidence in using the address book when contacting the property owners even if that is what happened in relation to all of them and this ground of appeal must fail."

With respect, the passage immediately above does not express clearly whether or not the judge is making a finding of fact as to the extent to which the respondent had used the address book to contact the eight landlords. In fairness to the judge, he did not have to make a finding because he was dealing with the appellant's submission that a notice of contention was necessary. The evidence of the respondent shows that she in fact used the address book for the purpose of contacting three of the landlords whose telephone numbers she could not remember. She remembered the numbers of three other landlords. She was not asked whether she knew from memory the names of the remaining two landlords.

Both the magistrate and the judge found it unnecessary to deal with the question of damages given the finding that the respondent did not contact the eight landlords to solicit their business and there was no appeal from that finding. The fact that the respondent did not contact the landlords for the purpose of soliciting their business does not necessarily mean that she did not breach her duty of confidence in using the list. I think it necessary to hear the parties as to the course this action should now take.

The relief which the appellant sought in these proceedings is two-fold. First, it claims damages for the loss of income occasioned by the eight landlords transferring their custom to M V Anstey Real Estate. For the reasons above, the court should hear the parties as to the course the appeal should take. Secondly, it claims delivery up of the address book and the diary. For the reasons above, I would allow the appeal and order delivery up of the address book. I would hear the parties as to the terms of the order. I would make no order in relation to the diary. The only remaining questions are what orders should be made as to the costs before the magistrate, the judge in this Court, and on this appeal. I would hear the parties on those issues also.

WILLIAMS J. I would agree with the orders proposed by Debelle J for the reasons which he has given.

WICKS J. I agree with the order proposed by Debelle J. I agree with his reasons and have nothing to add.

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