5.3.1 Overarching submissions by applicants
132 The applicants submit that the following facts support an inference that "[Mr] Jordan Macdougald [was] involved in Ross Macdougald's breach of his Statutory Duty of Confidence and knowingly assisted in a dishonest and fraudulent design involving Ross Macdougald's breach of his Fiduciary Duty (Confidence), his Fiduciary Duty (Trustee) and/or his Equitable Duty of Confidence" (which are defined terms in the SOC) (the relevant inference).
133 The extraction machines: the first fact relied upon in the applicants' submissions in support of the relevant inference is that Plant Extracts purchased and uses the exact same 2 litre and 40 litre extraction machines used by Native Extracts.
134 However, for the reasons already given, the pleaded information concerning the extraction machines is not Confidential Information within the meaning of the SOC and the mere fact of the purchase and use by Plant Extracts of the same machines in its business did not constitute a breach of any duty by Mr Ross Macdougald.
135 In any event, there was no evidence that Mr Jordan Macdougald had actual or the requisite degree of knowledge that information about the brand, model number and technical features of the extraction machines constituted information which was not in the public domain (as the applicants allege in the SOC) or that it was confidential information owned by Native Extracts or the Trust. Nor did the applicants establish that Mr Jordan Macdougald had actual or the requisite degree of knowledge that the extraction machines were not ordinarily used for the purpose of manufacturing botanical plant extracts, and that this information was confidential information.
136 To the contrary, under cross-examination, Mr Jordan Macdougald gave this evidence:
Now, we then come to paragraph 44 of your affidavit, where you're referring to some extraction machines arriving. Now, you know, don't you, that these machines were ordered and paid for by Phytoverse?---The - the two machines outlined in the - my affidavit?
Yes?---I didn't at the time. I - I didn't know at the time who actually paid for them.
But you know that now?---I do know that now. Yes.
[sic] and, again, that was something that - the choosing of those machines wasn't something that you were involved in?---Well, it's pretty logical to get the same machines that I had working knowledge of.
Pretty logical. So did you discuss that with your father?---No.
So the machines just turned up?---Essentially, yes.
And were you surprised that they were exactly the same as the ones that you had seen at Native Extracts and ---?---No.
---you say you has [sic] used before?---I - I - I - I wasn't surprised. No.
You knew, didn't you, that the reason that they were exactly the same was because the information about what machine to be using and what machine to be ordering was something that Ross had - your father had from his time at Native Extracts?---Well, I just knew you could just go buy the machines. There wasn't a barrier to entry. It wasn't - they were, like, an off-the-shelf kind of thing. If you had the contact, then you could buy them.
And you say you know - you knew all about that at the time?---Yes.
But it wasn't you having any involvement in choosing these machines?---No. But I - yes, I did know that - know that at the time.
But you also knew too, didn't you, that these were machines that others hadn't been using for botanical extracts---?---I didn't know ---
--- other than Native Extracts?---I didn't know if anyone else was using them or not.
(Emphasis added.)
137 It was not put to Mr Jordan Macdougald that any aspect of this evidence was false. Nor was any evidence adduced by the applicants to contradict this evidence insofar as it relates to Mr Jordan Macdougald's knowledge. Nor was any submission made by the applicants that this evidence given by Mr Jordan Macdougald should not be accepted and why that is so.
138 The applicants also submit that:
Given the measures taken by Native Extracts to protect the secrecy of the extraction machines, knowledge of the exact model of extraction machine to be purchased could only have been obtained by Ross Macdougald as a result of his position as a director of Native Extracts. There can be no doubt that an honest and reasonable person in Jordan Macdougald's position would have known that to be the case.
139 However, the use of a commercially available extraction machine by Plant Extracts in a business engaged in manufacturing plant extracts is unremarkable. No suggestion was made by the applicants that Mr Jordan Macdougald knew about the measures taken by Native Extracts to protect the secrecy of the extraction machines, and there was no evidence to support a proposition that an honest and reasonable person in his position would have such knowledge, or why that was so. How then would Mr Jordan Macdougald or an honest and reasonable person in his position know that information as to the exact model of extraction machine to be purchased could only have been obtained by Mr Ross Macdougald as a result of his position as a director of Native Extracts? Other than submitting that there be "no doubt", the applicants' submissions do not answer this question.
140 This aspect of the applicants' submissions is therefore rejected.
141 Absence of research and development: the second fact relied upon in the applicants' closing submissions in support of the relevant inference is that Plant Extracts "created" its extracts and obtained customers and suppliers without any true initial research and development phase.
142 They submit that Plant Extracts immediately started making extracts after obtaining the extraction machines, selling those extracts to Native Extracts' customers and purchasing raw materials from Native Extracts' suppliers. A series of further facts are then listed in [120] of their closing submissions as follows:
(a) Jordan Macdougald pleads in [15(c)(ii)] of his Defence that no research or development in the botanical extract industry was undertaken and gives evidence that immediately after receiving and testing the extraction machines he and Mr Hampson started making extracts;
(b) the evidence set out [above] shows that Ross Macdougald, through Plant Extracts and under the guise of Jordan Macdougald, immediately engaged in a concerted effort to poach Native Extracts' customers;
(c) as early as 19 July 2016, Ross Macdougald, through Plant Extracts and under the guise of Jordan Macdougald, was offering potential customers "full technical data" for Plant Extracts' extracts. This is 11 days after Plant Extracts was incorporated. As discussed in Part F of these submissions, in fact, Plant Extracts "Datapacks" included SCU Certificates that belong to, and had been taken from, Native Extracts;
(d) as early as August 2016, Plant Extracts sold extracts that had already been developed by Native Extracts to pre-existing Native Extracts customers;
(e) in Plant Extracts' first year of operation (FY17):
(i) at least 82 per cent of the sales made by Plant Extracts were sales of extracts Native Extracts had already developed prior to 1 April 2016. If the sales of blends are removed from Plant Extracts' sales data, 97.8 per cent of Plant Extracts' sales were sales of extracts that had already been developed by Native Extracts;
(ii) 99.6 per cent of the sales made by Plant Extracts were sales to Native Extracts' customers prior to 1 April 2016. In other words, of the $86,180 Plant Extracts made in sales in FY17, only $345 of those sales were to customers who were not previously Native Extracts customers. Further, of the $345, $150 of those sales were to a related party (Biologi), leaving only $195 of sales to unique Plant Extracts customers;
(iii) Plant Extracts purchased raw material from Native Extracts' suppliers.
(Footnotes omitted, emphasis original.)
143 Such a case was not pleaded or opened in these terms for the purposes of seeking the relevant inference in relation to Mr Jordan Macdougald. Rather, some (but not all) of these facts were opened for the purposes of seeking a finding that there had been disclosure of Confidential Information.
144 Further, contrary to their closing submissions, the applicants plead in the SOC (as part of the facts relied upon against Mr Jordan Macdougald) that:
[15] On 8 July 2016, [Mr Jordan Macdougald] incorporated [Plant Extracts] and commenced…undertaking research and development in the botanical plant extract industry…
…
[46] On or about 8 July 2016, [Plant Extracts] commenced using the Confidential Information to … undertake research and development in the botanical plant extract industry…
145 This means that Mr Jordan Macdougald was confronted with closing submissions which contradicted the case which had been pleaded against him.
146 Having regard to the serious allegations which are made and as a matter of procedural fairness, these matters provide a sufficient reason to reject the applicants' submission concerning this second fact, and I do so.
147 However, for the following reasons, this aspect of the applicants' case as advanced in the closing submissions lacks merit, and is rejected, in any event. The evidence did not demonstrate that Mr Jordan Macdougald had actual or the requisite degree of knowledge of the matters in the series of facts relied upon by the applicants in [120] of their closing submissions (and the applicants did not identify the evidence to show that he did).
148 As to facts (a) and (c), Mr Jordan Macdougald gave evidence that he was not concerned that Plant Extracts was offering what counsel for the applicants described as "all these extracts and full technical data only 11 days after the company was registered", and that he believed that this was something that the company had capacity to do. No suggestion was made to him that there were particular facts that should have alerted him to anything or put him on notice of anything, and nor was it suggested to him that he did not have the state of mind which he said that he did. Nor was any submission made by the applicants that his evidence should not be accepted and why.
149 This evidence was given in the context of other evidence given by Mr Jordan Macdougald which was to the effect that, having regard to the way he approached it, the manufacture of the extracts using the extraction machines was not a difficult process. He explained that:
Once the machines were working in the warehouse, I began making extracts and implemented a QA system/batching for the manufacturing of the extracts. I made up the labels for the bottled extracts and Dad provided the graphic design for the logo. I based the system off the Phytoverse labels. For each extract batch produced, I took samples and made up certificates of analysis (CofA), which are one page documents with the extract name, production date, expiry, botanical names, specific gravity and refractive index results, and the colour of the extract.
150 No challenge was made to this evidence on the basis that Mr Jordan Macdougald must have been privy to, or provided with, the content of the Extract Log / Formula Book (being part of the Confidential Information in the case pleaded against him) to manufacture the extracts, or that he was not able to prepare the certificates of analysis in the way that he said that he did without being provided with information by his father.
151 Further, the unchallenged evidence of Mr Jordan Macdougald was that the certificates of analysis prepared by him were not the modified versions of the certificates issued by the Southern Cross University. The suggestion by fact (c) that Plant Extracts had, from as early as 19 July 2016, sent Datapacks to potential customers which included these certificates is therefore not supported by the evidence cited by the applicants.
152 Fact (b) relates to the conduct of Mr Ross Macdougald. In any event, Mr Jordan Macdougald gave evidence that he was told by his father, and believed, that the former customers of Native Extracts who were now buying from Plant Extracts "did not want to work with Lisa" and they were not being serviced by Native Extracts.
153 Mr Jordan Macdougald maintained this position when shown evidence of interactions with customers of Native Extracts during cross-examination as follows:
And you knew, didn't you, that this company was a customer of Native Extracts at the time?---I believe this was one of the companies that didn't want to work with Native Extracts.
And you were - believed that because you were told that by your father?---I do, yes. I did.
…
Right. So I was asking you about this Natural Beauty one. Did you know that this was a company - a customer of Native Extracts as well?---No. Again, I - I say that - like, I - all these customers I just assumed they were customers that didn't want to work with Lisa any more.
And were they - was this a customer that was in the list on your system?---I believe that we sent them oils in Phytoverse, yes.
But you also think that they were - you knew at the time they were a customer that had been a customer of Native Extracts?---I didn't know that, no.
But you assumed that that was one that was with Native Extracts but no longer wanted to work with them?---Yes.
…
And I'm taking you to … some emails that you exchanged in this period with Premika Chand at Probiotic?---Yes.
And you were familiar with them as a customer that had been purchasing from Native Extracts?---I did. I did know that they were a customer of Native Extracts. But, again, I assumed that they didn't want to work with them any longer.
Did you talk to your father about that?---My father told me that the liquorice extract that Native Extracts had sent to them had been rejected because it had micro - a micro - microbiomes in it that were found or something like that, and so they sought out a new supplier.
And that's what he told you at this time - or about this time?---Around this time. Yes.
(Emphasis added.)
154 No suggestion was made to Mr Jordan Macdougald during cross-examination that his evidence was false, that the conversations with his father were not held, that he did not believe what his father told him or, indeed, that Mr Jordan Macdougald had any reason based on any particular fact as to why he should not have believed his father or not formed the view that these customers did not want to purchase from Native Extracts. Nor was any submission made by the applicants that his evidence should not be accepted on these issues, and why.
155 In circumstances where Mr Ross Macdougald was leaving the business of Native Extracts, it is plausible, if not likely, that some customers of that business would want to follow him to any new extracts business which he established. In those circumstances, an honest and reasonable person in Mr Jordan Macdougald's position would not have any basis to suspect, and nor would it have been obvious, that Mr Ross Macdougald was poaching customers through the misuse of information contained in the List of Suppliers and Customers.
156 It follows that it was not established that Mr Jordan Macdougald had actual or the requisite degree of knowledge that his father "engaged in a concerted effort to poach Native Extracts' customers", being the customers in the List of Suppliers and Customers which forms part of the Confidential Information in the case as pleaded against Mr Jordan Macdougald.
157 As to facts (d) and (e)(i), it was common ground that Mr Jordan Macdougald had little or no involvement in the business of Native Extracts. How then did the evidence establish that Mr Jordan Macdougald had actual or the requisite degree of knowledge of the overlap between the extracts offered by Native Extracts prior to 1 April 2016 and the extracts offered by Plant Extracts in FY17, for example? This was not explained by the applicants, and yet they press this fact as a matter which supports the relevant inference. Further, even on Ms Carroll's evidence, the list of extracts which Native Extracts offered for sale was not kept secret but was a matter of public knowledge. Regarded on its own, there is nothing unlawful about a business deciding to offer the same extracts as one of its competitors, and such a fact would not have indicated to Mr Jordan Macdougald or an honest and reasonable person in his position that Mr Ross Macdougald was misusing information in the Extract Log / Formula Book which forms part of the pleaded Confidential Information.
158 Similarly, as to fact (e)(ii) and in circumstances where Mr Jordan Macdougald had little or no involvement in the business of Native Extracts, there was nothing to indicate his awareness of the extent of the overlap between customers of Native Extracts and Plant Extracts, beyond that explained in his evidence referred to above in relation to fact (b). Further, there was no suggestion that he knew or ought to have realised that his father was misusing information contained in the List of Customers and Suppliers which forms part of the pleaded Confidential Information.
159 As to fact (e)(iii), there is insufficient evidence that Mr Jordan Macdougald knew or had the requisite degree of knowledge that the suppliers being used by Plant Extracts were the same as those used by Native Extracts and that the information about these suppliers was obtained from the List of Suppliers and Customers. This is especially as Mr Jordan Macdougald had limited involvement in the business conducted by Native Extracts. Further, the evidence demonstrated that he had little involvement in contacting suppliers to Plant Extracts other than sending emails at the request of, and often drafted by, his father, with orders otherwise being placed by an employee of Phytoverse or by Mr Hampson. When asked in cross-examination about whether he questioned how his father knew which suppliers to contact, he gave this evidence:
Did you ask [your father] about that? Did you talk to him and say, "How do you know about these people"?---No, I - I never thought about it. It just was, "Send an email off". I sent it off, and then I would - you know, I would just keep doing my other duties at work.
160 Rapid growth of business compared to Native Extracts: the third fact relied upon in the applicants' closing submissions in support of the relevant inference is that Plant Extracts grew its sales and business at a substantially faster rate than Native Extracts. A series of facts are then set out in [121] of the closing submissions and cross-referenced to expert evidence to make good that proposition, as follows:
In particular:
(a) Plant Extracts' sales in its first year of operation were more than double the level of sales of Native Extracts in its first year of operation;
(b) Plant Extracts' sales in its third year of operation were materially consistent with the level of sales of Native Extracts in its seventh year of operation;
(c) in the first four years of Plant Extracts' operation (FY17 to FY20):
(i) 78 per cent of Plant Extracts' sales were of extracts made by Native Extracts prior to 1 April 2016;
(ii) 70 per cent of Plant Extracts sales were to customers that were customers of Native Extracts prior to 1 April 2016;
(iii) 54 per cent of Plant Extracts' sales were of extracts made by Native Extracts prior to 1 April 2016 to customers that were customers of Native Extracts prior to 1 April 2016;
(iv) only 3 per cent of Plant Extracts sales were to customers that were not customers of Native Extracts prior to 1 April 2016 of extracts that had not been developed by Native Extracts prior to 1 April 2016.
(Footnotes omitted, emphasis original.)
161 Such a case was not pleaded or opened in these terms for the purposes of seeking the relevant inference in relation to Mr Jordan Macdougald. Rather, these facts were opened for the purposes of seeking a finding that there had been disclosure of Confidential Information.
162 Having regard to the serious allegations which are made and as a matter of procedural fairness, this alone is a sufficient reason to reject the applicants' submission concerning this third fact, and I do so.
163 In any event, there was no evidence that Mr Jordan Macdougald had actual or the requisite degree of knowledge of the facts identified in [121] of the applicants' closing submissions. This is especially in circumstances where Mr Jordan Macdougald was not even working in the warehouse during the first year of operation of Native Extracts' business and there was no evidence that he had or would have had access to any of the sales figures of Native Extracts.
164 To the extent that the applicants again rely upon the overlap in customers and extracts, this has already been addressed in relation to the facts asserted in [120] of the applicants' closing submissions, and applying the same reasoning, this submission fails.
165 This aspect of the applicants' submissions is therefore rejected.
166 Documents taken by Mr Ross Macdougald: the fourth fact relied upon in the applicants' closing submissions in support of the relevant inference is that Mr Ross Macdougald took, and Plant Extracts used, other documents belonging to Native Extracts (although, other than certificates issued by the Southern Cross University, the submissions are opaque about what these other documents were).
167 Such a case was not pleaded or opened in these terms. Having regard to the serious allegations which are made and as a matter of procedural fairness, this alone is a sufficient reason to reject the applicants' submission concerning this fourth fact, and I do so.
168 In any event, there was no evidence that Mr Jordan Macdougald had actual or the requisite degree of knowledge that his father had taken documents from Native Extracts, whatever those documents were.
169 This aspect of the applicants' submissions is therefore rejected.
170 Business of Plant Extracts is a copy: the fifth fact relied upon in the applicants' closing submissions in support of the relevant inference is that Plant Extracts' business appears to otherwise be a wholesale copy of Native Extracts' business. As part of their closing submissions at [123], the applicants refer to the following:
(a) the name "Plant Extracts" bears striking resemblance to "Native Extracts";
(b) Plant Extracts' Product Guide, which shows Plant Extracts' range of botanical extracts, includes many of the same extracts manufactured and sold by Native Extracts. Plant Extracts also uses unique descriptions of extracts invented by Native Extracts such as "Crown of Gold", "Snowflower" and "Native Orange Pearl";
(c) Plant Extracts offers extractions in a 1:1 concentrate and a 1:10 dilution which are the exact same concentrations that were developed by Native Extracts prior to 1 April 2016.
(Footnotes omitted.)
171 Such a case was not pleaded or opened in these terms. Having regard to the serious allegations which are made and as a matter of procedural fairness, this alone is a sufficient reason to reject the applicants' submission concerning this fifth fact, and I do so.
172 In any event, I would not have accepted that this fifth fact gave rise to the relevant inference.
173 As both businesses are engaged in manufacturing extracts, there is nothing about that same word being used in the name of both businesses which would have alerted Mr Jordan Macdougald or an honest and reasonable person in his position to the prospect that his father was misusing Confidential Information belonging to Native Extracts or the Trust. Indeed, Mr Jordan Macdougald's oral evidence was that the devising of the company name was a "group effort", which I understood to mean that he was involved in choosing the name along with his father.
174 As to Native Extracts' published list of extracts and its sale of extractions in a 1:1 concentrate and a 1:10 dilution prior to 1 April 2016, such matters were disclosed to customers and are therefore in the public domain. Mr Jordan Macdougald or an honest and reasonable person in his position would not perceive that if a competitor (such as Plant Extracts) sold extracts with the same names or concentrations as Native Extracts, there has been or is likely to have been a misuse of Confidential Information by Mr Ross Macdougald, which information is owned by Native Extracts or the Trust. More than this is required.
175 This aspect of the applicants' submissions is therefore rejected.
176 Respondents' lack of evidence: the sixth fact relied upon in the applicants' closing submissions in support of the relevant inference is the lack of evidence from any witness who would be expected to be in a position to contradict the inferences readily available on the documentary record (such as, for example, Mr Ross Macdougald, Mr Hampson or Mr Moore). However, this submission cannot apply to Mr Jordan Macdougald, who gave evidence.
177 As to this, I considered Mr Jordan Macdougald to be a genuine witness who attempted to give his honest recollection of the events in question. Although Mr Jordan Macdougald gave evidence under cross-examination that he was unaware of many aspects of the business of Plant Extracts, I did not form the impression that he was being evasive or obstructive in his evidence. Rather, his answers portrayed a heavy reliance on his father's advice and that of his father's solicitor. With respect and based on my impressions of him as a witness, Mr Jordan Macdougald did not appear to be commercially astute.
178 As already noted above, no submission was made by the applicants that Mr Jordan Macdougald's evidence should not be accepted.
179 For these reasons, I accept the evidence of Mr Jordan Macdougald which is referred to above.