Nuera (Australia) Pty Ltd v David Bain [2005] NSWSC 24 | Case summary

005577/03 NUERA (AUSTRALIA) PTY LTD v DAVID BAIN JUDGMENT 1 The plaintiff is a textile agent. For a period of about fourteen years ending on 18 September 2003 the defendant was an employee of the plaintiff. Shortly after that date he set up business in rivalry to the plaintiff operating through a company called Tex Force Australia Pty Limited. 2 The plaintiff became concerned that the defendant was dealing with one of its customers, Giltex Fabrics Pty Limited which trades as Gilda Fabrics, and it sought an injunction restraining the defendant from selling certain products to Gilda Fabrics, and it ALSO sought damages. 3 By its amended statement of claim the plaintiff relied on three causes of action. First, it said that there was a contract between the parties preventing the defendant from using any confidential information or trade secrets of the plaintiff. The evidence shows that there was no such contract and this claim is no longer pressed. Secondly, relying upon general equitable principles, the plaintiff said that during the course of his employment with the plaintiff the defendant had acquired certain confidential information and that in breach of his equitable obligations he had been using that information to the detriment of the plaintiff. Thirdly, the plaintiff said that the defendant had acquired certain information during the course of his employment with the plaintiff and that, contrary to the provisions of s183 of The Corporations Act 2001 he had improperly used that information to gain an advantage for himself or for his company or to cause detriment to the plaintiff. 4 I will deal first with the alleged breach of equitable obligation. The role of a textile agent was described in different terms by different witnesses, although I do not think any significant turns upon these differences. 5 Mr Souster, the managing director of the plaintiff, said that the plaintiff acts as agent for companies that manufacture textile fabrics for export from Asian countries to Australia and to other countries. 6 The defendant said that the role of a textile agent is to represent a textile supplier or manufacturer and to promote and sell the principal's products to assist the principal with creative ideas such as colours and designs. 7 Mr Gilbert, the managing director of Giltex, said that his company used textile agents in a variety of ways, including carrying out the time consuming task of travelling overseas, seeing suppliers there and attending at trade fairs, advising about a variety of questions concerning fabrics that might be purchased, and advising about the activities of other entities in business in competition with Giltex. 8 As a generality there are four levels of actors relative to this litigation. 9 At the first level there are manufacturers and suppliers of fabrics, mainly located in south-east Asia and so far as is now significant mostly in China or Taiwan. 10 At a second level there are textile agents who fundamentally represent their principals, the first level actors. 11 At a third level there are entities such as Giltex who purchase products from first level actors using the second level actors as intermediaries and at a fourth level there are the customers of the third level actors, such as furniture manufacturers, curtain manufacturers and sometimes chains of retailers. 12 There appears to be significant competition at each of these levels. At the first level there may be as many as a thousand actors, although only about one hundred to one hundred and fifty export fabrics to Australia. They manufacture products or they represent manufacturers and they make available for sale products that can be adapted in various ways by or on behalf of the third level actors. 13 The first level actors generally identify their products for sale in ways that are meaningless except to those in the trade, for example by a string of letters or numerals. 14 A typical sale by a first level actor to a third level actor is formed by a textile agent negotiating the sale and issuing sale notes to each of the principal concerned and the buyer. It appears to be the norm that in such a typical case a textile agent issues two copies of the sale note, one to the principal and one to the buyer. These are identical except for the prices mentioned. The principal authorises the agent to charge a commission which may be as high as ten or even fifteen percent but is more commonly about five percent and the two copies of the sale notes when compared reveal how much commission is being charged by the agent to the principal. 15 Contrary to the plaintiff's case and, notwithstanding the practice just mentioned, apparently designed to conceal either the fact or the amount of the commission by the agent to the principal, it appears to be common knowledge and the common expectation that the agent will charge the principal a commission of about five percent. In addition, the agent charges the buyer a further commission, the amount of which is directly negotiated between agent and buyer. 16 The third level actors typically market their products through various brand names and either commonly or universally they treat the products purchased from the first level actors in a variety of ways so as to make their products more commercially attractive to the fourth level actors. 17 If a fabric becomes fashionable other third level actors will routinely copy the product or produce other products that are generally similar. If a product becomes fashionable it may remain fashionable for about three to five years, gradually becoming less popular. 18 When the defendant gave notice to the plaintiff, he said in substances that he did not know what he was going to do thereafter and he left on cordial terms. In fact he had decided to set up a rival business and he did so within a few weeks. His lack of frankness at and just before the time he left his employment naturally caused Mr Souster to be suspicious and various other circumstances evidently served to increase this suspicion. 19 In addition, it is right to say that Mr Souster or the plaintiff taught the defendant a good deal about the business of textile agents. Nevertheless, within well recognised limits the defendant is entitled to set up business in rivalry to the plaintiff and to use his general stock of knowledge about the workings of the business of a textile agent. There is no dispute between the parties about the law to be applied here so that it seems sufficient to refer only to Freedom Motors Australia Pty Limited v Daupotic [2003] NSWSC 506 at 13-18. 20 The defendant said, and I accept, that before he ceased working for the plaintiff he did not contact any of the plaintiff's customers so as to attempt to solicit business for himself or for his company. His evidence to that effect is corroborated by the evidence of Mr Gilbert and by the evidence of Mr Durman, who formerly worked for another customer of the plaintiff, Kibby Fabrics. 21 The defendant also said, and I accept, that he did not do anything that might have been described as taking away a list of the plaintiff's customers. There was no list of customers as such and the identity of the plaintiff's customers cannot be described as confidential information or as being in the nature of a trade secret. There were not very many of them and they commonly advertise their businesses in different ways. 22 More significantly the defendant said, and I accept, that after he started to operate his own business through Tex Force he made a point of not buying products from the principals of the plaintiff. 23 Instead, he travelled to China and Taiwan looking for and finding other suppliers. 24 As between suppliers, the level of competition appears to be such that usually, and perhaps always, one can find a manufacturer or supplier who will match or closely match the products sold by rivals and there seems to be nothing in the nature of a secret about this. There may be secrets about techniques and details but generally speaking the first level actors seem to substantially reproduce each other's products. 25 During the period when the defendant had been employed by the plaintiff, he had represented the plaintiff in its dealings with Giltex and had come to know Mr Gilbert. During that period the plaintiff had sold to Giltex various fabrics and the plaintiff and Giltex between them had adapted those fabrics in various ways so as to produce six particular fabrics in respect of which the plaintiff now seeks an injunction. These are products sold by Giltex under the brand names Weatherwash, Peacock, Passion Suede, Dream Suede, Micro King and Killer Savage. 26 Within the trade it was apparently no secret that Giltex was selling these fabrics and there was no secret about their general characteristics. It was only to be expected that if such products were successful the competitors of Giltex would set out to market rival products generally similar, if not identical, and I see no sensible basis in the evidence for thinking that they would not succeed in at least putting on the market products that they hoped would prove competitive. 27 In time the defendant located suppliers in Asia able to supply fabrics similar to those supplied by the plaintiff's principals and the defendant offered those alternative fabrics to Giltex and to other third level actors. They were not identical to the fabrics sold by the plaintiff and they were generally cheaper. 28 The product Weatherwash will serve as an example. The defendant located a source and telephoned Mr Gilbert from Taiwan to say he had done so. He quoted a price that Mr Gilbert found attractive and indeed exciting, in that it was significantly lower than the price that the plaintiff was then charging Giltex, and since Weatherwash was then fashionable, Mr Gilbert foresaw significant additional profits for Giltex and he bought the fabric offered by the defendant. 29 The plaintiff contends that the prices it charged and its profit margins constituted confidential information. I do not accept this. The evidence, particularly that of Mr Gilbert and Mr Durman shows that third level actors expected textile agents to be paid a commission by their principals and generally expected it to be of the order of five percent. It seems clear that the prices sought by the first level actors were regarded as very important, so that there was an obvious competition between the first level actors as to the prices they were seeking. In any event every completed contract of sale meant that there was a third level actor and a first level actor who each received a copy of the sale notes. 30 The first level actor always knew the price paid to it and the third level actor knew, at least approximately, how much the first level actor was being paid and exactly how much it was paying. 31 I do not doubt that the prices actually paid, either to the first level actors or by the third level actors were commercially sensitive and not known precisely and generally by their rivals, but it was not confidential information of the kind protected by the law. 32 Further, the evidence does not show that the defendant used whatever knowledge he had about prices charged by the plaintiff in any improper way. Rather, he ascertained the prices at which his Asian suppliers were prepared to sell fabric similar to the fabrics sold by the plaintiff and he then quoted Giltex, and presumably others, accordingly. Mr Gilbert, and presumably others, found the prices that the defendant quoted attractive. 33 The further amended summons described the confidential information sought to be protected by reference to the profitability and profit margins of the plaintiff and the plaintiff's method of charging and I have dealt with this. 34 However, in oral evidence Mr Souster went further, referring to the way in which the plaintiff designed or participated in the design of various fabrics in various ways, the terms and conditions upon which the plaintiff dealt with its customers, the way in which the plaintiff arranged its supply routes and the way in which it arranged Greige contracts, meaning contracts for the supply of fabrics that had not then been dyed. The evidence does not establish that some of these matters involved the use of confidential information, as recognised in this branch of the law or that the defendant used that information improperly. 35 As to the design questions, the defendant has not been shown to have used any information that he had. He appears to have left any design work to his customers. 36 The complaint about the terms of trade apparently refers to the words routinely appearing on the sales notes issued by the plaintiff reading, "We acknowledge your instructions to place an order with our principal covering goods as detailed above. If not correct, please advise by return. Principal's confirmation of sale will follow shortly and their official sale note is the binding contract. Counsel did not press this complaint, I think rightly. 37 Similarly, the complaint about the way in which the plaintiff arranged its Greige contracts was not developed so that the plaintiff's complaint should be regarded as not established. 38 The claim for equitable relief therefore fails. The claim under the Corporations Act depends essentially upon the proposition that the defendant obtained information because of his employment with the plaintiff and he used that information in order to obtain sales for Tex Force from Giltex, which sales would otherwise have been made by the plaintiff to Giltex. 39 In Rosetex Company Pty Limited v Licata (1994) 12ACSR 779 Young J, as he then was, examined the position under s 232 (5) and (6) of the Corporations Law the predecessor to s 183 of the Corporations Act. Having referred to earlier authority and to the history of the legislation his Honour concluded that the information referred to was information that equity would protect by injunction if, in that case, a director used the information in breach of his fiduciary duties and that there was improper use of that information in circumstances where equity would regard there having been a breach of fiduciary duty. His Honour affirmed this decision in Folkserv Pty Limited v Pacchiarotta [2000] NSWSC 729 at 28 saying that generally speaking, "If there has been no improper use of information under the general equitable principles there is no improper use of information under the statute." The plaintiff did not contend that these decisions were incorrect but in any event I consider that the reasoning is persuasive. 40 I give judgment for the defendant and order the plaintiff to pay the defendant's costs. **********

Nuera (Australia) Pty Ltd v David Bain

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