Pet Tech Pty Ltd v Batson

Judgment 1The defendant was employed by the plaintiff between 16 November 2009 and 30 September 2011. On or about 10 November 2009, the parties entered into an agreement on the terms set out in the offer of employment dated 9 November 2009. This was referred to in evidence as the employment contract. It was a term of the employment contract that an Employee Intellectual Property Agreement, called by counsel in addresses an "EIPA" be executed and the defendant executed such a document on 10 December 2009. The plaintiff had issued a Statement of Claim on 30 August 2012 which sought: (1) an injunction restraining the defendant from using any confidential information belonging to the plaintiff; (2) an order for the defendant to deliver up any copies of the plaintiff's confidential information; (3) an order restraining the defendant from working with a named competitor; (4) damages; and (5) costs. 2The EIPA is a very strange document which so far as relevant reads as follows: I, the undersigned employee, agree as follows for the benefit of JobReady Solutions Inc., its parents, subsidiaries and affiliates (collectively "JobReady Solutions"): 1. Confidentiality I agree that information that is not generally known to the public to which I have been or will be exposed as a result of my being employed by JobReady Solutions is confidential information that belongs to JobReady Solutions. ... JobReady Solutions' confidential information includes, without limitation, information relating to JobReady Solutions's trade secrets, research and development, product development plans, inventions, know-how, software (including source code and object code), procedures, manufacturing, engineering, purchasing, accounting, marketing, sales, customers, suppliers, financial status or employees. ... 7. Noncompetition After Employment by JobReady Solutions Ends. For twenty-four (24) months after my employment by JobReady Solutions's ends, regardless of the reason it ends, I will not, directly or indirectly: (a) sell, market or propose to sell or market products that compete or will compete with JobReady Solution's then existing or reasonably anticipated products ("Competing Products") in any geographic area where JobReady Solutions's products are then marketed. ... (c)work for or with, or provide services or information to, any person or entity that: (i) sells, markets or proposes to sell or market Competing Products in any geographic area where JobReady Solutions's products are then marketed, (ii) is designing or developing Competing Products, or (iii) is shown on the attached list of Competing Companies. 3The confidentiality clause, clause 1, in its penultimate paragraph in bold type contains the following: I have the burden in any dispute of showing that information is not JobReady Solutions's confidential information. 4It would seem that the plaintiff has merely used an American document without any professional advice. The chapeau to the first clause refers to "the benefit of JobReady Solutions, Inc.". This entity does not exist in Australia. It may exist in the United States. Clause 13 says that the "[v]enue and jurisdiction of any lawsuit involving this agreement or my employment shall exist exclusively in state and federal courts in [county], [State]...". This again suggests that this is an American document which has been adopted to Australia unthinkingly. 5The plaintiff purported to terminate the defendant's contract for his conduct. The defendant sued for wrongful dismissal. Those proceedings were settled by a Deed of Release which involved the plaintiff in these proceedings without admission of any liability whatsoever paying a modest amount of money to the defendant in these proceedings and the parties agreeing that the Deed was in full and final settlement of their disputes. The Deed of Release also contained a confidential information clause preventing the defendant disclosing any information that was confidential and made available to him in confidence. There was no clause reversing the onus of proof. 6I heard the case on 29 October 2013. Ms LR Young, of counsel, appeared for the plaintiff and Mr Y Shariff, of counsel, appeared for the defendant. The case was scheduled to last more than a day but Mr Washbourne, the Chief Executive Officer of the plaintiff decided that he should go to a speaking engagement in Adelaide rather than attend Court. After some hesitation, Mr Shariff agreed not to cross-examine Mr Washbourne so I read his affidavit and the case finished the same afternoon. 7Originally the plaintiff had claimed a number of orders. However as the two year limitation on restraint of trade after termination of employment had expired by the time of hearing the plaintiff did not seek most of the orders sought in the Statement of Claim and also did not seek damages. The sole question left was whether there should be an order that the defendant be restrained from using confidential information and should deliver up to the plaintiff any copies of documents in that category in his possession. 8The matters that I need to consider and order to decide these matters are as follows: (a) the construction of the EIPA; (b) did the EIPA survive termination of the contract?; (c) what is the effect of the attempt to shift the onus of proof as to what is confidential information?; (d) has the plaintiff shown there was any confidential information?; (e) has the plaintiff shown that the defendant has any confidential information or is imposing any threat?; and (f) the result of the case. The Construction of the EIPA 9This arises because of the very peculiar way in which the document is drafted. Whatever its effect under American law might be I have to deal with its effect in New South Wales. Who are the parties to the Agreement? One is obviously the defendant. The other is JobReady Solutions Inc which does not exist. Ms Young says that JobReady Solutions is the trading name of the plaintiff and that would appear to be almost correct however the trading name is not JobReady Solutions Inc. But even accepting Ms Young's submission, the contract is not only with the plaintiff but also "its parents, subsidiaries and affiliates". Now a contract with more than one party is either a joint contract, a joint and several contract or a several contract. As Glanville Williams says in Joint Obligations (Butterworths, 1949) at 35 if there is no specification as to whether the contract is joint or otherwise it is taken to be a joint contract. The contract accordingly must be construed as one with not only the plaintiff but also jointly with its parents, subsidiaries and affiliates. Under rule 6.20 of the Uniform Civil Procedure Rules 2005 all these people must be plaintiffs before the contract can be enforced. 10However I really only wish to point this out. The pleadings seem to accept that the contract did exist and did exist with the plaintiff. However the contract must be construed contra preferentem and it would seem to me clear that if the plaintiff in future wishes to have its contracts enforceable it will need to get some local lawyers to draft an actually enforceable contract. As on the pleadings it seems to have been accepted, in the instant case, that there was a contract, I will pass on. (b) Did the EIPA survive termination of the Contract? 11In Bond v Rees Corporate Advisory Pty Ltd [2013] VSCA 13 at [47] Tate JA with whom Maxwell P agreed referred to the leading cases of General Billposting Company Ltd v Atkinson [1909] AC 118 to which her Honour referred to as "General Billposting" and Kaufman v McGillicuddy (1914) 19 CLR 1 (Kaufman) and then said: The decisions in General Billposting and Kaufman have been interpreted as standing for the proposition that an employee's post-employment restraint of trade obligations do not survive the termination of the employment contract where termination is effected by the employee accepting the employer's repudiation of the contract. However, the reason why the general rule does not apply and why these obligations do not survive termination of the employment contract is not clear... 12However her Honour held at [48] that it was not necessary for that Court to resolve the question in that case. 13The law is also reviewed in a recent issue of the Law Quarterly Review. In (2013) 129 LQR 508 and following there is a note entitled "Survival of Restraint of Trade Clauses" by Francis Dawson of the University of Auckland which refers not only to Bond v Rees Corporate but also to an Alberta case of Globex Foreign Exchange Corporation v Kelcher Maclean (2011) 337 DLR (4th) 207. The Alberta Court of Appeal would not enforce a post termination restriction where an employee had been unlawfully dismissed and followed General Billposting. 14In the instant case the employee was purportedly dismissed for misconduct. However he sued for wrongful dismissal and those proceedings were settled with a Deed of Release and a payment for the employee. Accordingly the unlawfulness of the termination was never established nor can it ever hereafter be established. The Deed of Release contained its own confidentiality clause and that must be something that continues after employment because the employment had well and truly finished at the time the Deed of Release was entered into. It might be argued that the confidentiality clause in the Deed of Release superseded anything that was in the original EIPA but that was not actually argued before me. 15The General Billposting doctrine seems to be being queried by academic and other lawyers at present time and indeed it was even considered to be on shaky grounds by the Victorian Court of Appeal but it is a doctrine that has been sanctioned by the High Court in the Kaufman case and I consider that as a single Judge I would need to follow it. However as it cannot be shown in the instant case that there has been a wrongful termination the doctrine does not apply. As the point about the Deed of Release superseding the original contract was not argued I must work on the basis that the restraint survived termination. Paragraph (c) - Can the contract shift the onus? 16As far as I am aware, there is no reported authority on whether a provision in a contract which purports to shift the onus of proof in civil proceedings in valid or else void as outsing the jurisdiction of the court. Ms Young could not point to any case either but argued that it was a similar scenario to that presented in Dobbs v The National Bank of Australasia Ltd [1935] HCA 49; (1935) 53 CLR 643. 17I applaud the submission based on Dobbs' case. It seems to be perhaps the nearest case of authority that touches on the instant point however I am not sure that it provides the whole answer. 18In Dobbs the plurality said it was quite common in mercantile contracts for a person to agree to a certificate of an engineer or architect and they quoted James LJ from Ex parte Young; In Re Kitchin (1881) 17 Ch D 668 at 672 where his Lordship said: If a surety chooses to make himself liable to pay what any person may say is a loss which the creditor has sustained, of course he can do so, and if he has entered into such a contract he must abide by it. 19In Dobbs at 652 the plurality said that: A clear distinction has always been maintained between negative restrictions upon the right to invoke the jurisdiction of the Courts and positive provisions giving efficacy to the award of an arbitrator when made or to some analogous definition or ascertainment of private rights upon which otherwise the Courts might have been required to adjudicate. It has never been the policy of the law to discourage the latter. The former have always been invalid. 20The present provision does not fit squarely into either category. It is not a provision which remits the question of amount to a certifier nor is it a direct removal from the Court's jurisdiction of that question. 21The extent to which the decision in Dobbs applies is still I believe open. Most of the cases which apply Dobbs are in the well-worn territory of bank officers issuing certificates in mortgage cases. In Shomat Pty Ltd v Rubinstein (1995) 124 FLR 284 at 288 I noted that it may be that it is implied in the guarantor or debtor's acceptance of a certificate that the certifier will be under some fiduciary duty to make proper enquiries before he or she certifies. As far as I know no one has ever taken that thought further. 22In Novamaze Pty Ltd v Cut Price Deli Pty Ltd (1995) 128 ALR 540 at 548-549 Drummond J in the Federal Court: At the core of this head of public policy is a notion that the citizen is entitled to have recourse to the court for an adjudication on his legal rights. A contractual agreement to deny a person that "inalienable right" contravenes this public policy and is void. A disincentive to a person to exercise this right of recourse to the Court can, depending upon how powerfully it operates to discourage litigation, amount to a denial of this right just as complete as an express contractual prohibition against litigation. ... There is no necessity to assume that only an express ouster of jurisdiction will infringe this head of public policy. Given this and given the importance of the right of a citizen to resort to the court for an adjudication upon his legal rights, it is, I think, at the very least, arguable the contractual provision that places a substantial fetter on this right of recourse to the court is equally as bad as an express prohibition against going to court. 23His Honour referred with approval to what Bankes LJ had said in Czarnikow v Roth, Schmidt & Co [1922] 2 KB 478 at 485: No one has ever attempted a definition of what constitutes an ouster of jurisdiction. Each case must depend on its own circumstances. Each agreement needs to be separately considered. 24What then is the effect of a contract which provides that the onus of disproving that something is not confidential information is on the defendant? 25In my view it comes very close to being void for an ouster of jurisdiction of the Court. It virtually means that whatever the plaintiff says must be accepted by the Court unless the contrary is proved. On the other hand, by analogy with the commonly accepted reading of Dobbs' case, it is not a substantial fetter on the party to have the Court find the truth because the party who bears the onus is at liberty to discharge that onus. 26Thus in my view I must treat the provision as not offending the rule of public policy and it is therefore valid. 27It probably matters very little in the instant case because the evidence as to what is the confidential information is extremely vague. Although it is always difficult to put chapter and verse on each piece of information there does need to be some degree of specificity before the Court is able to grant an injunction and that is not really present in the instant case. (d) - Has the plaintiff shown that any information that the defendant has is confidential? 28Mr Washbourne identifies the following as the plaintiff's confidential information: 1. Information about the plaintiff's products, specifications, operating capabilities, benefits, features and price structures. 2. Price lists/structures, customer and potential customer lists, operational specifications. 3. Material of the type included in confidential exhibit MW1. 29MW1 contains a number of proposals and lists of potential contacts. 30As I have mentioned earlier Mr Washbourne was not available for cross-examination. His affidavit of 14 November 2012 is in the most general terms. He says in paragraphs [2] and [3] that the main business of the plaintiff is to provide software for the training and employment services industries and it has various aspects including management software for registered training organisations known as RTOs. He says in paragraph [9] that "[i]n order to be able to properly market the Plaintiff's products and services, the Plaintiff makes available to its salespeople a variety of materials which contain information about the Plaintiff's products, specifications, operating capabilities, benefits, features and price structures (the "Confidential Information")". He then claims in paragraph [10] that information is highly confidential because if any of the plaintiff's competitors had access to it, it would cause significant disadvantage to the plaintiff. This is fleshed out in paragraph 26 of the affidavit. 31As Mr Shariff, counsel for the defendant, points out, it is not in dispute that the defendant had access to some confidential information during the period of his employment. However the plaintiff's case, he says, fails at the first hurdle because it has failed to identify with specificity the information said to have been disclosed. He then makes the following submissions in paragraph 8 and following of his outline of closing submissions which I fully endorse: 8. It is a basic requirement that the former material will be recognised as having the character of confidential information, the information in question must be identified with precision and not merely in global terms: Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434 at 443 per Gummow J; Hammamax Hi-Tech Pty Ltd v O'Donnell [2001] NSWSC 634 per Palmer J at [20]-[26]. 9. Therefore, a plaintiff who seeks to restrain a former employee from using confidential information must be able to identify with specificity, and not merely in global terms, the relevant information that is said to be confidential: Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717; (2006) 71 NSWLR at [14] per Brereton J. 32In the instant case there is no more than a very vague outline of what is claimed to be confidential but that also suffers from the vice that some of it would ordinarily not fall within the category of confidential information. There is generally speaking no confidentiality in a company's price list: see Cactus Imaging at 16 [17]. This is not a broad rule that applies to every case. There would be some situations such as where a company has found from experience that it is best to sell certain products in a package or that it is best to sell them by the half dozen or that its salesperson should tell the customer that the price is X dollars but then give a discount in certain circumstances. None of that is shown to be the case with the present company. 33Thus the plaintiff has not made out its case for confidential information. Even if the reverse onus clause is applicable, it would seem to me that it only applies where there is some valid allegation of confidential information so that there really is a tussle between the disputants. It does not apply where no case for confidential information is put forward at all. (e) - Does the defendant have any such information? 34There is insufficient material to show that even if the alleged information is confidential that it is still in the defendant's possession or that the defendant has made any threat to use it. Mr Washbourne's affidavit continually says that he is "concerned" about various things but there is just no concrete evidence to indicate that those concerns are valid, especially in view of the defendant's denial. The evidence that was given by Mr McDonald also does not really take the matter any further. He cannot recall what was said by the defendant on the relevant occasion and did not see the documents that Mr Baston was supposed to have had with him. I could not conclude that Mr Baston had in his possession or has in his possession any of the plaintiff's confidential information. (f) The Result 35It follows that the proceedings must be dismissed and with costs. As Mr Shariff puts it at [29] of his written closing submissions: "The orders sought by the Plaintiff are generic, vague and unenforceable. They only serve to disclose that there has been no proper particularisation or specification of the alleged confidential information". The plaintiff's case has insufficient support to warrant me granting any orders. Mr Shariff indicated that he wished to be heard on the question of costs. These reasons are being delivered on the last day of term. I will probably not be sitting again in Equity until March 2014. As to the basis of the costs order the defendant may present written submissions on the question by 17 February 2014 and the plaintiff in reply by 1 March 2014 and in the first week of March arrangements can be made with my then Associate or failing that person being identified the Associate to the Chief Judge in Equity for the matter to be relisted if counsel wish to speak to their written submissions, otherwise I will deal with the matter of costs on the papers next March.