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[2018] VSC 540
General information, not legal advice.
Supreme Court of Victoria
2018-09-18
RIORDAN J
Original judgment source is linked above.
PROCEDURE - Application to join unitholders of a trading trust - Test for joinder of defendants - Adequacy of pleading - Purpose of pleadings.
FIDUCIARY DUTIES - Whether fiduciary duties owed by employee to employer - Whether fiduciary duties owed by independent contractor to employer - Accessorial liability of directors of competing corporation for breaches of fiduciary duties - Accessorial liability of unitholders of trading trust for breaches of fiduciary duties.
AGENCY - Whether employer liable for unauthorised wrongful conduct of employee - Whether corporate unitholder liable for wrongful conduct of corporate trustee with a common director.
BREACH OF CONFIDENCE - Whether there is accessorial liability for breach of confidence - Whether tracing is available for breach of confidence claim.
BREACH OF COPYRIGHT - Adequacy of pleading - Whether it is necessary to plead and prove identity of authors.
TRACING - Availability of tracing of confidential information into profits into the hands of a unitholder of a trading trust.
1 By a summons filed 17 August 2018, the plaintiffs apply for the following orders:
2 The first, second and third defendants oppose the joinder and a grant of leave to amend the statement of claim.
3 The proposed amended statement of claim alleges the following:
4 The first plaintiff (from 2010) and the second plaintiff (from 1999 to 2010) (together 'Countrywide') have been engaged in the business of selling advertising in magazines published in the not-for-profit sector, and they have traded as a competitor of the first defendant ('Emergency Media').
5 Emergency Media was the trustee of the ACE Unit Trust, the unitholders of which were Allviradoe, as trustee of the Contebardo Family Trust, and Edvan Nominees, as trustee of the E & V De Marchi Family Trust.
6 The second defendant ('Contebardo') and third defendant ('De Marchi') are the directors of Emergency Media.
7 Contebardo and his wife, Elvira Contebardo, are the directors and shareholders of Allviradoe, which is the trustee of the Contebardo Family Trust.
8 De Marchi and his wife, Vania De Marchi, are the directors and shareholders of Edvan Nominees, which is the trustee of the E & V De Marchi Family Trust.
9 From 2008 to 2012, Countrywide generated data files ('the Publication Data') which contained confidential information about entities to which it had recently sold advertising.
10 The Publication Data were literary works within the meaning of the Copyright Act 1968 (Cth).
11 CCC Data Management Services Inc ('CCC') was engaged by Countrywide to typeset its draft advertisements and, for that purpose, CCC was given access to the Publication Data on Countrywide's computer system.
12 Mr Erwin Silvestre, a CCC employee, had ultimate charge of the CCC staff who accessed the Publication Data.
14 The fourth defendant ('Ferraro') was an employee of Emergency Media.
15 Camillo Ventura and Maurice Cincotta were telemarketing contractors retained by Emergency Media.
16 Agnes, Ferraro, Contebardo, De Marchi, Ventura, Cincotta and Silvestre embarked on a dishonest and fraudulent scheme ('the Scheme') which was designed to misappropriate Countrywide's confidential information for the benefit of Emergency Media.
(a) Silvestre caused the Misappropriated Leads Lists to be created from the Publication Data;
(b) Silvestre e-mailed the Misappropriated Leads Lists to Ferraro;
(c) Ferraro paid Silvestre for the Misappropriated Leads Lists:
(i) initially by paying Agnes in cash, who in turn made wire payments to Silvestre; and
(ii) subsequently by Ferraro himself making the direct wire payments to Silvestre.
(d) Once Ferraro had obtained the Misappropriated Leads Lists, he printed them and passed them on to another person within Emergency Media.
(e) Emergency Media paid Ferraro for the Misappropriated Leads Lists, including by way of cash payments by Contebardo and cash cheque payments by De Marchi.
(f) From time to time, at Emergency Media's request, Ferraro provided Emergency Media with an invoice for "typesetting" as a purported basis for the payments made to him for the Misappropriated Leads Lists.
(g) Contebardo sold or otherwise supplied the Misappropriated Leads Lists to Ventura and Cincotta.
(h) Contebardo or another Emergency Media employee or contractor supplied Misappropriated Leads Lists to other Emergency Media telemarketing contractors.
(i) Ventura, Cincotta and other Emergency Media telemarketing contractors called the Converted Hot Leads listed on the Misappropriated Leads Lists and sold advertising to them on behalf of Emergency Media.
Liability of De Marchi and Contebardo for procuring and participating in breaches of fiduciary duties
18 The claims against De Marchi and Contebardo are made on the basis that each procured and knowingly participated and assisted in breaches of fiduciary duty by Agnes and CCC.
19 With respect to Agnes, it is alleged as follows:
(a) He owed fiduciary duties to Countrywide by reason of his employment with Countrywide.
(b) He breached that duty by facilitating payments from Ferarro to Silvestre in consideration of Silvestre supplying Ferraro with the Misappropriated Leads Lists.
(a) It owed a fiduciary duty to Countrywide not to use the Publication Data for its own or a third party's benefit; which duty arises from the following:
(b) It breached its fiduciary duty through Silvestre, the person who had management control of CCC's affairs in dealing with the Publication Data, and who supplied the Misappropriated Leads Lists to Ferraro.
21 With respect to De Marchi and Contebardo, it is alleged as follows:
(a) Their procurement and knowing participation in the breaches of fiduciary duty consisted of their involvement in the Scheme. In particular, they made payments to Ferraro for the Misappropriated Leads Lists (respectively 'Contebardo's conduct' and 'De Marchi's conduct').
(b) Their state of mind of dishonesty and knowledge of Agnes' and CCC's breaches of fiduciary duty can be inferred from facts particularised in paragraph [13] of the proposed amended statement of claim, which alleges various acts of incriminating conduct.
Liability of Allviradoe and Edvan Nominees for procuring and participating in breaches of fiduciary duties
22 It is alleged that Allviradoe and Edvan Nominees are also liable because each procured and knowingly participated and assisted in the breaches of fiduciary duty by Agnes and CCC, on the basis that:
(a) Contebardo's conduct was performed for and on behalf of Allviradoe.
(b) De Marchi's conduct was performed for and on behalf of Edvan Nominees.
(c) Allviradoe and Edvan Nominees, as the unitholders of the ACE Unit Trust, were entitled to distributions of profit from Emergency Media.
(d) Allviradoe and Edvan Nominees each had knowledge of the conduct and state of mind of Emergency Media (and in particular, the Scheme), through the knowledge of Contebardo and De Marchi respectively.
(e) Allviradoe and Edvan Nominees, through their directors, had the ability to stop the Scheme.
23 It is alleged that Emergency Media is liable for De Marchi's and Contebardo's conduct as its directors and shareholders; and Ferraro's conduct as its employee.
24 It is alleged that Emergency Media, Contebardo, De Marchi and Ferraro used the Confidential Information in breach of a duty of confidence owed to Countrywide.
25 It is further alleged that Allviradoe and Edvan Nominees procured and knowingly assisted those defendants to use the Confidential Information in breach of confidence knowing that the breaches of confidence were dishonest and fraudulent.
26 It is alleged that Emergency Media, Contebardo, De Marchi, Allviradoe and Edvan Nominees breached Countrywide's copyright in the Publication Data by the creation, printing, sale and distribution of the Misappropriated Leads Lists, within the meaning of s 115 of the Copyright Act 1968 (Cth). In particular, each of them had the power to prevent the infringement and did not take any reasonable steps to do so.
27 It is alleged that the profits made by Emergency Media as a result of the Scheme were subject to a constructive trust in favour of Countrywide and any benefit derived from such profits received by Allviradoe, Edvan Nominees, Contebardo and De Marchi are also subject to a constructive trust in favour of Countrywide.
28 It is alleged that, by reason of the conduct constituting the Scheme, Emergency Media has, in trade or commerce, engaged in conduct that is unconscionable within the meaning of the unwritten law in contravention of s 20 of the Australian Consumer Law ('the ACL').
30 The plaintiffs apply to join Allviradoe and Edvan Nominees pursuant to r 9.06(b)(ii) of the Supreme Court (General Civil Procedure) Rules 2005, which provides:
At any stage of a proceeding the Court may order that -
...
(b) any of the following persons be added as a party, namely -
...
(ii) a person between whom and any party to the proceeding there may exist a question arising out of, or relating to, or connected with, any claim in the proceeding which it is just and convenient to determine as between that person and that party as well as between the parties to the proceeding;
31 The principal purpose of the rule is to avoid a multiplicity of proceedings.[1] Although an order for a joinder under the rule is an exercise of discretion by the Court, in most instances a refusal to order a joinder, where a related question exists, may be futile because the plaintiff can nonetheless file a separate proceeding against the person it sought to join. However, if the Court is satisfied that the claim against the proposed defendant has 'no real prospects of success', an application for joinder will usually be refused. In these circumstances a fresh proceeding alleging the same claim could be resisted by an application for summary dismissal pursuant to s 63(1) of the Civil Procedure Act.[2]
32 Counsel for the first to third defendants contends that the claims against Allviradoe and Edvan Nominees, and the amendments to the claims against the first to third defendants, have no real prospect of success. I consider each such claim, in turn, below.
33 Mr Wise, senior counsel for the first to third defendants, submitted that the plaintiffs' proposed amended statement of claim pleads that Agnes owed each of the plaintiffs fiduciary duties solely on the basis that there existed an employee/employer relationship. The proposition that an employee, without more, owes fiduciary duties to an employer is contrary to authority.
34 Mr Maiden, senior counsel for the plaintiffs, did not contest the above proposition. However, he contended that the matter could be remedied by further particulars being provided in paragraph [9] of the proposed amended statement of claim.
35 I accept the contention of counsel for the first to third defendants that the mere existence of an employee/employer relationship does not give rise to a fiduciary duty.[3]
(a) give fair notice to other parties about the case they must meet; and
(b) determine what evidence is relevant at trial.[4]
37 In my opinion, the defendants will have fair notice of the case they must meet if the plaintiffs provide particulars of the facts on which they rely in support of the assertion that Agnes did owe fiduciary duties to them not to misuse the Publication Data.
38 Mr Wise submitted that there was no real prospect of CCC being found to owe fiduciary duties to the plaintiffs for the following reasons:
(a) CCC was engaged as a typesetter pursuant to a contract and such a relationship is not one of the accepted categories of fiduciary relationship.
(b) Commercial transactions falling outside the accepted traditional categories of fiduciary relationship often do not give rise to fiduciary duties.
(c) The plaintiffs do not plead terms of their contract with CCC which establish a proper basis for an allegation that CCC was in a fiduciary position.
39 Mr Maiden submitted that the proposed pleading cannot be said to have no real prospects of establishing a fiduciary relationship between the plaintiffs and CCC. In particular, the plaintiffs rely upon the fact that they granted CCC direct access to their computer system and allowed CCC to download Countrywide's valuable Publication Data, which was confidential information. This access rendered the plaintiffs vulnerable to CCC's power and reliant on CCC, which is a 'more prominent' criterion for the existence of a fiduciary duty.
40 The relationship between the plaintiffs and CCC does not fall within the accepted categories of fiduciary relationship, but the list is not closed.[5] Fiduciary duties may exist outside the accepted categories, and it has been said that '[t]here is no class of case in which one ought more carefully [to] bear in mind the facts of the case ... than cases which relate to fiduciary and confidential relations ...'[6] Although the courts have been reluctant to import fiduciary duties into commercial transactions, 'commercial' relationships are capable of being fiduciary, and fiduciary duties can co-exist with contract.[7]
41 In my opinion, the question of whether CCC owed fiduciary obligations to Countrywide with respect to the confidential information, by reason of the access given to it by Countrywide to the Publication Data in the circumstances pleaded, is a proper matter for determination at trial.
Can the acts of Silvestre be attributed to CCC?
42 Mr Wise submitted that, although Silvestre is alleged to be an employee of CCC who managed its office in the Philippines, there is no proper basis for alleging that Silvestre's conduct can be attributed to CCC, for the following reasons:
(b) It was not alleged that he was the 'directing mind and will' of CCC.
(c) The lists were not sent from Silvestre's business email account.
(d) The payments were made directly to Silvestre, not CCC.
43 Accordingly, CCC was not liable for Silvestre's conduct because it was not in pursuit of his employer's interest nor in apparent execution of the employment authority.
44 Mr Maiden submitted that the defendants' submissions referred to considerations relevant for vicarious liability, which were distinct from the allegation of attribution relied on by the plaintiffs. It was submitted that the acts of Silvestre are relevantly attributable to CCC because he was the person who had the management and control of CCC's affairs in dealing with the Publication Data.
45 The distinction between vicarious liability and directly attributed liability is well established. In Credit Services Investments Ltd v Evans,[8] a credit company was held liable for the misrepresentation of a salesman for a motor car dealer who arranged a lease on behalf of a credit company. It was held that, because the company chose to delegate the conduct of its business to its agent, the credit company was liable for that conduct. Significantly, McCarthy P said:
The liability of the principal here does not arise out of vicarious liability, but out of a direct liability resulting from the appointment of an agent to act as the company.[9]
46 A principal may be liable for the fraud of its agent, acting within the scope of its authority. In Lloyd v Grace, Smith & Co, the managing conveyancing clerk of a firm of solicitors fraudulently induced the plaintiff to execute deeds conveying the properties to him.[10] The firm was found liable for the fraud of the clerk '[b]ecause of what the clerk's position conveyed to the client, the clerk was able to secure the client's trust and confidence so that she unhesitatingly complied with his requests with respect to the deeds and the documents'.[11]
47 The plaintiffs do not plead that Silvestre was the 'directing mind and will' of CCC; but the 'directing mind and will' rule as a universal rule of attribution has been rejected since Meridian Global Funds Management Asia Ltd v Securities Commission.[12]
48 I consider it is arguable that, the application of the 'directing mind and will' rule to corporate attribution has been substantially limited to:
(a) cases in which corporations have been charged with criminal behaviour or quasi-criminal behaviour particularly in occupational health and safety offences;[13] and
(b) liability for acts of corporations for employee's conduct incidental to the performance of their duties. For example in Meridian Global Funds Management Asia Ltd v Securities Commission,[14] the Privy Council distinguished between a case where a corporation:
(i) would be liable for the conduct of a servant who lodged an intentionally false revenue return contrary to the statute; but
(ii) would not be liable for manslaughter by reason of the reckless driving of an employee lorry driver.
49 In my opinion, it is certainly arguable that a corporation will be liable for the fraudulent acts of its agents and employees that involve the effecting of contractual relations.
50 Even in the criminal context, the dishonest intent of employees has been imputed to companies in circumstances where the responsible agent of a company, acting within the scope of his authority, has acted fraudulently.[15]
51 Accordingly, whether Silvestre's allegedly fraudulent conduct can be properly attributed to CCC is an issue to be determined at trial.
Is there a proper basis for an allegation that De Marchi or Contebardo procured the Scheme?
(a) the Scheme was procured by Ferraro obtaining Misappropriated Lead Lists from Silvestre;
(b) once Ferraro printed the lists, they were supplied to 'another person within Emergency Media' and at some point to Contebardo; and
(c) the only pleaded conduct of either De Marchi or Contebardo relied upon in respect of the Scheme is the making of payments to Ferraro (paragraph [8A](e)) and the re-supply to others at Emergency Media of lists (paragraph [8A](g) and (h)).
53 'Procuring' a breach of duty means inducing a person to act;[16] or instigating the conduct concerned;[17] or setting out to see that something happens and taking appropriate steps to produce that outcome.[18] The pleaded conduct of De Marchi or Contebardo could not constitute procurement because:
(a) the Scheme was allegedly procured by the earlier conduct of Ferraro obtaining the lists from Silvestre;
(b) the pleading does not identify the acts of inducement made with the intention of procuring a breach of fiduciary duty; and
(c) the pleading does not allege the facts relating to the manner in which it is alleged each such inducement actually caused the breach relied upon.
(a) The fact that there is no pleading that Contebardo and De Marchi procured the first list does not mean that, in making payments for subsequent lists, they have not procured breaches of fiduciary duty.
(b) A claim for procuring a breach of duty requires proof that the person procuring has acted dishonestly and fraudulently but, unlike a claim based on participation, it is not necessary for the person actually breaching the fiduciary duty to act dishonestly and fraudulently.[19]
55 I reject the submission of the first to third defendants for the following reasons:
(a) I am not satisfied that there is no real prospect of success in the plaintiffs arguing:
(i) more than one protagonist may procure a breach of fiduciary duty; and
(ii) in a continuing course of conduct, a person who makes subsequent payments to induce a breach of fiduciary duty (after the first breach) also procures breaches of fiduciary duty.
(b) The particulars to paragraph [13] of the proposed amended statement of claim, which include the allegation of procurement by De Marchi and Contebardo, incorporate the conduct constituting the Scheme and other facts. In particular, the plaintiffs rely upon De Marchi's and Contebardo's conduct in paying for the Misappropriated Leads Lists by cash cheques and in cash. Although the particulars do not separately particularise the acts of inducement and the acts which caused the breach, in my opinion the allegation that De Marchi and Contebardo paid for the Misappropriated Leads Lists, in the circumstances described in the particulars to paragraph [13], fairly put the first to third defendants on notice as to the basis upon which the plaintiffs will contend that the payments were intended to and did in fact induce the alleged breach of fiduciary duty.
Are the pleadings and particulars of 'knowing assistance' inadequate?
56 Mr Wise submitted that the plaintiff was required to plead particulars of De Marchi's and Contebardo's knowledge, which at a minimum, was knowledge 'of circumstances which would indicate the facts to an honest and reasonable man'.[20]
57 In the proposed amended statement of claim, it is alleged that De Marchi and Contebardo knew of:
(a) the 'employment duties' of Agnes - but there are no particulars that support the proposition that either De Marchi or Contebardo knew of Agnes's existence or role;
(b) the fiduciary duties of CCC - but it is not particularised that De Marchi or Contebardo knew of Silvestre or CCC's existence or role; and
(c) the misappropriation of the Misappropriated Leads Lists by Silvestre - but it is not alleged that either De Marchi or Contebardo knew of Silvestre.
58 Mr Maiden submitted that the particulars were adequate in the circumstances for the following reasons:
(a) The plaintiffs must be careful of accusations made against a defendant when pleading equitable fraud.
(b) The submission that there is no adequate pleading that Contebardo and De Marchi knew who Silvestre or Mr Agnes was or that they had taken the Publication Data, is an attempt to argue that their 'Nelsonian blindness' exonerates them.
59 Apart from the involvement of De Marchi and Contebardo in the Scheme, and in particular the payments they each made to Ferraro for the Misappropriated Leads Lists, the plaintiffs plead, in paragraph [13] of the proposed statement of claim, numerous acts from which the plaintiffs will ask the Court to infer a dishonest intent and, at least, Nelsonian blindness to the fact that the Misappropriated Leads Lists were being acquired from persons who were breaching their duties to Countrywide.
60 Allegations of knowledge and fraud frequently rely upon inferences to be drawn from the surrounding circumstances. The proposed statement of claim particularises the facts on which the plaintiffs are relying and, in my opinion, give fair notice to the defendants about the case they must meet. Further, I am not satisfied that there is no real prospect of success.
Is there a proper basis for the proposed equitable accessorial claims against Allviradoe and Edvan Nominees?
(a) There is no proper basis for the allegations that Contebardo's conduct was performed for and on behalf of Allviradoe; or that De Marchi's conduct was performed for and on behalf of Edvan Nominees.
(b) The mere fact of common directorships does not establish common knowledge, common control or common liability.[21]
(c) The plaintiffs have not pleaded the material facts in support of the contention that Allviradoe or Edvan Nominees 'knowingly' participated and assisted in the Scheme.
(d) It is not sufficient to rely upon the common director between each trustee company and Emergency Media, particularly when neither trustee company is a sole director company.
62 The question of whether the conduct and knowledge of De Marchi and Contebardo should be attributed to Edvan Nominees and Allviradoe, respectively, is principally alleged to be on the basis that:
(a) the Scheme was for the benefit of Allviradoe and Edvan Nominees as the unitholders of the ACE Unit Trust; and
(b) Contebardo and De Marchi were respectively directors of Allviradoe and Edvan Nominees.
63 In BHP Billiton Finance Ltd v Federal Commissioner of Taxation,[22] Gordon J rejected the proposition that, by reason of some common directors and other matters, a parent company was carrying on the business of the subsidiary because the subsidiary was a 'mere conduit'.[23] Her Honour, with respect, correctly stated that 'the mere fact that corporate boards overlap is insufficient to defeat the presumption of separate existence'.[24]
64 This sound proposition of law does not deal with the issue of whether the conduct and knowledge of a person can be attributed to one company or another or both in respect of which he or she is a director.[25]
65 In my opinion, the defendants have fair notice of the accessorial claims against Allviradoe and Edvan Nominees and the facts that the plaintiffs will rely on in support of the claims. Further, I am not satisfied that there is no real prospect of success.
Is there a proper basis for the proposed statutory accessorial claims against Allviradoe and Edvan Nominees?
(a) For liability to arise under the 'unwritten law', the plaintiffs were required to plead one of the identified classes of case that attract the language of unconscionability.
(b) The claim based on statutory ancillary liability requires the plaintiffs to plead that the alleged participant had knowledge of all of the essential facts of the particular contravention.
67 Mr Maiden submitted that the complaints were essentially as to a lack of particulars; and that the pleaded breaches in the statement of claim were sufficient to give notice to the defendants of the nature of the unconscionability claim. If necessary, particulars could be provided.
68 A court, in considering a grant of relief under s 20 of the Australian Consumer Law ('the ACL') on the basis of conduct that is unconscionable within the meaning of the unwritten law from time to time, will not grant a remedy merely on the basis that the Judge forms the opinion that the conduct is unfair - it is an established proposition that the notion of unconscionable conduct is not at large.[26]
69 Unconscionable conduct within the unwritten law requires the proof of conduct which would support the grant of relief under a recognised equitable doctrine.[27] In ACCC v Sampton Holdings, the Full Court of the Federal Court recognised five categories of relief for unconscionable conduct, recognised by equity, which could found claims under s 21 of the ACL:
(i) Set aside a contract or disposition resulting from the knowing exploitation by one party of the special disadvantage of another. The special disadvantage may be constitutional, deriving from age, illness, poverty, inexperience or lack of education - Commercial Bank of Australia Ltd v Amadio. Or it may be situational, deriving from particular features of a relationship between actors in the transaction such as the emotional dependence of one on the other - Louth v Diprose; Bridgewater v Leahy [1998] HCA 66; (1998) 194 CLR 457.
(ii) Set aside as against third parties a transaction entered into as the result of the defective comprehension by a party to the transaction, the influence of another and the want of any independent explanation to the complaining party - Garcia v National Australia Bank Ltd [1998] HCA 48; (1988) 194 CLR 395.
(iii) Prevent a party from exercising a legal right in a way that involves unconscionable departure from a representation relied upon by another to his or her detriment - Waltons Stores (Interstate) Ltd v Maher; Commonwealth v Verwayen.
(iv) Relieve against forfeiture and penalty - Legione v Hateley; Stern v McArthur.
(v) Rescind contracts entered into under the influence of unilateral mistake - Taylor v Johnson.[28]
70 These categories are not exclusive, but as the Court of Appeal said in Tenth Vandy Pty Ltd v Natwest Markets Australia Pty Ltd:[29]
'[They] represent the limits of the circumstances which thus far have been recognised as attracting equity's jurisdiction to relieve against the consequences of unconscionable conduct. We accept that the list may not be exhaustive, as indeed was recognised in Sampton Holdings. In principle, one cannot say that the categories of case in which equity will intervene are necessarily closed. But, to adopt the oft-repeated apophthegm of Bangall J in Cowcher v Cowcher,[30] while equity is not yet past the age of child bearing, her progeny must be legitimate - by precedent out of principle.
71 Accordingly, the plaintiffs must identify the category of equitable relief and plead the material facts on which they rely. Further, the plaintiffs are also required to plead and particularise the facts relied upon in support of the allegation of the involvement of each of Contebardo, De Marchi, Allviradoe and Edvan Nominees in the statutory contravention.
Is there a proper basis for a claim that Allviradoe or Edvan Nominees procured or knowingly assisted in a breach of confidence?
(a) Contebardo and De Marchi did not engage in any relevant conduct on behalf of Allviradoe or Edvan Nominees and essential elements of the Scheme were withheld from them; and
(b) Australian law does not recognise equitable ancillary liability for a breach of confidence action.
73 The duty of confidence is not a fiduciary duty. However, the Supreme Court of the United Kingdom in Vestergaard Frandsen A/S v Bestnet Europe Ltd,[31] recognised a category of liability for third parties who assist in the misuse of confidential information with knowledge, including 'Nelsonian blindness'.[32] The matter is not resolved in Australia but the learned authors of Meagher, Gummow and Lehane's Equity Doctrines and Remedies have opined:
[T]here is no reason why the equitable solution should not, and every reason why it should, supply the answer to the question as to where guidance may be found for developing the equitable duty of confidence. It avoids the unhappily inconclusive and circular debate as to the need for "property" to pass into the hands of the third party as bona fide purchaser; it resists the fusion fallacy inherent in the attempt to treat the tort of inducing breach of contract as extending to breaches of equitable duties; and being equitable, rather than a legal absolute, it is susceptible of balancing competing interests at stake in particular cases.[33]
75 It is not appropriate that I resolve this question on an application for a joinder; and I am not satisfied that the plaintiffs have no prospect of success on this basis.
76 For the same reasons as expressed with respect to the claims against Allviradoe and Edvan Nominees in a participation in the breach of fiduciary duties, I consider that the defendants have fair notice of the basis on which it is contended that:
(a) Contebardo and De Marchi participated in the breach of the duty of confidence; and
(b) the knowledge and conduct of Contebardo and De Marchi should be attributed to Allviradoe and Edvan Nominees respectively.
Are the proposed copyright infringement claims fanciful?
(a) The statement of claim does not plead that the Publication Data files were original literary works within the meaning of s 32 of the Copyright Act 1968 (Cth).
(b) Paragraph [7A] of the proposed statement of claim does not allege that the persons who created the works were qualified persons, within the meaning of s 32(1)(iv) or how it is that any copyright is owned by the plaintiffs.[36]
(c) The Publication Data lists lack the requisite originality to qualify for copyright protection because as a generated list of details of customers, its expression 'is not a form of expression which requires particular mental effort or exertion'[37] and the level of skill and labour required to express the information in the files was 'clearly minimal'.[38]
(d) Distribution, by the handing of a hard infringing copy to another person, as alleged in paragraph [23B](e) of the proposed amended statement of claim, is not an infringement.
(e) None of Emergency Media, Contebardo, De Marchi, Allviradoe or Edvan Nominees 'authorised' any copyright infringement within the meaning of s 36(1)A of the Copyright Act because:
(i) to 'authorise' means to 'give formal approval to; sanction, countenance'; and non-prevention is insufficient;
(ii) none of them had the power to prevent Silvestre creating the lists in the Philippines and no material facts are pleaded in paragraph [23B](a) to the contrary;
(iii) none of them had the power to prevent Ferraro printing or selling the lists and no material facts are pleaded to the contrary in paragraph [23B](b)-(c); and
(iv) the allegation in paragraph [23B](d)-(e) that Emergency Media and its directors authorised the copyright infringement is embarrassing.
(f) The pleaded material facts are insufficient to establish a cause of action against either Allviradoe or Edvan Nominees for authorising any copyright infringement because knowledge is insufficient. The highest this case can be put is that Allviradoe and Edvan Nominees each had a common director with Emergency Media, which is insufficient.
78 In response to each of these submissions, Mr Maiden submitted as follows:
(a) The proposed statement of claim pleads that the Publication Data were 'literary works' within the meaning of the Copyright Act and were owned by the plaintiffs. It is not necessary to plead each integer of the statute but in any event, the plaintiffs alleged, by its pleaded facts, that it was original.
(b) The plaintiffs' lists comprised of thousands of datum entered by many people over many years. The defendants are aware of this and further particularity is not required. In any event, the plaintiffs will rely upon the presumptions in s 126 of the Copyright Act. The case of IceTV does not assist the defendants because, in that case, there was no dispute as to whether copyright subsisted in each Weekly Schedule as an original literary work.[39] The issue was whether IceTV infringed Nine's copyright by reproducing part of the 'time and title information' contained in the Weekly Schedules.[40] The defendants' complaint relates to a lack of evidence, which will be addressed at trial.
(c) Attribution can constitute an infringement under s 38 of the Copyright Act and, in any event, the plaintiffs also rely upon the sale of the Misappropriated Leads Lists.
(d) The proposed statement of claim pleads the fact of 'authorisation' under s 36(1A) of the Copyright Act in paragraphs [3E], [3C] and [17A].
(e) The plaintiffs plead facts in support of the contention that the conduct of Contebardo and De Marchi should be attributed to Allviradoe or Edvan Nominees.
79 The defendants' complaints, with respect to the claim in copyright, consisted of submissions about deficiencies in the pleading, the insufficiency of particulars and an assertion of the conduct of Contebardo and De Marchi is not the conduct of Allviradoe and Edvan Nominees respectively.
80 I consider that the proposed amended statement of claim pleads the necessary material facts and gives the defendants fair notice of the claims of the plaintiffs under the Copyright Act. To the extent that these complaints raise questions about the inadequacy of the plaintiffs' evidence and legal contentions, I consider such questions are most appropriately dealt with at trial with the other allegations in the proposed amended statement of claim.
81 With respect to the submission that the plaintiffs are required to identify the author of the works, reliance was placed on the decision of the Full Court of the Federal Court in Telstra Corporation Ltd v Phone Directories Company Pty Ltd, where the Court said about identification of authors:
The appellants submitted that the learned primary judge had erred by holding that they failed because they had not identified each individual author. I do not believe her Honour made such a finding. To the contrary, her Honour said "[i]f an author or authors ... cannot be identified at all , in contradistinction to a situation where the author's or authors' exact identity cannot be identified, copyright cannot subsist": ... I do not read her Honour, therefore, as having required that the appellants literally name the authors but only that they demonstrate that the authors existed. If I am wrong in my reading of the primary judge's reasons, however, I would not accept that it is necessary to identify each author. All the Act requires in the case of s 32(2) is that there be an original work first published in Australia. The necessity for there to be an original work carries with it the necessity for there to be an author or authors but all that needs to be demonstrated is that such persons exist. Their identification is not legally required by the concept of an original work. The statement by Gummow, Hayne and Heydon JJ in IceTV that "[t]o proceed without identifying the work in suit and without informing the inquiry by identifying the author and the relevant time of making or first publication, may cause the formulation of the issues presented to the court to go awry" is, I think, a counsel of wisdom rather than a legal stipulation.[41]
82 As the passage makes clear, it is not necessary to identify the authors. The plaintiffs will be required to prove that the authors of the Publication Data do exist and the facts that lead to the conclusion that Countrywide is the owner of the copyright in the Publication Data.
83 If the first to third defendants require further particulars of any of the allegations made by the plaintiffs, they are at liberty to make an appropriate request.
84 Mr Wise submitted that a tracing claim is not available where confidential information is used in a legitimate business where capital and effort is applied to transform information into some other form, which is then sold to generate profits and intermixed with the legitimate profits from the application of labour and capital.
(a) The plaintiffs' case is that Emergency Media generated profits by its use of the Misappropriated Leads Lists. Those profits were paid as distributions to the unitholders in the ACE Unit Trust, among them Allviradoe and Edvan Nominees. At the time, each of Allviradoe (via its director Mr Contebardo) and Edvan Nominees (via its director Mr De Marchi) had knowledge sufficient to impress the distributions with a constructive trust.
(b) With respect to the mixing of the profits, the plaintiffs will establish at trial what profits were made as a result of the breaches of fiduciary duties and confidence, where they ended up, and how they got into the hands of Allviradoe and Edvan Nominees.
86 In Fistar v Riverwood Legion and Community Club Ltd,[42] Leeming JA summarised the application of tracing principles with respect to innocent third parties as follows:
[T]here is nothing antithetical or incoherent about there being a further species of liability on the part of a volunteer who receives trust property, or the traceable proceeds of trust property, and who subsequently learns the true position, such that he or she is obliged in equity to account for the identifiable property remaining. To the contrary, the liability of an innocent volunteer to account for the traceable proceeds insofar as they remain in his or her possession is a natural extension of inconsistent dealing, and it is to be noted that Allsop P in Heperu expressly distinguished between the liability of a volunteer and the liability that would be imposed in accordance with Barnes v Addy.[43]
30 The tracing claims are complex; and there are unresolved issues with tracing, including:
31 However, whether or not - after consideration of how any confidential information affected Emergency Media's business - it can be said that dividends paid to Allviradoe and Edvan Nominees should be regarded as a substitute for the plaintiffs' property, is a matter for trial. I am not satisfied that the plaintiffs have no prospect of success with respect to the tracing claim.
(a) The plaintiffs have leave to join Allviradoe Pty Ltd and Edvan Nominees Pty Ltd as defendants.
(b) The plaintiffs have leave to file and serve an amended statement of claim substantially in the form of the draft Third Amended Statement of Claim dated 31 August 2018, except for the claims in paragraphs [18] and [19] ('the Statutory Unconscionability claims').
(c) The plaintiffs have leave to replead the Statutory Unconscionability claims.
[1] Boral Resources (Vic) Pty Ltd v Robak Engineering and Construction Pty Ltd [1999] VSCA 66; [1999] 2 VR 507, 509 [5] (Tadgell JA).
[2] See, eg, Mandie v Memart Nominees Pty Ltd [2016] VSCA 4 [43] (Kyrou, Ferguson and McLeish JJA).
[3] Victoria University of Technology v Wilson [2004] VSC 33; 60 IPR 392 [145] (Nettle J); cf Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 96 (Mason J); Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 176 ALR 693, 697-8 [17] (Gleeson CJ, Gaudron and Gummow JJ). For an instance where the diversion of an employer's business has constituted a breach of fiduciary duty see Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488, 493-4 [4] (Kearney J).
[4] Downer Connect Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2008] VSC 77 [1]-[2] (Harper J).
[5] Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 68 (Gibbs CJ), 96 (Mason J).
[6] Coomber v Coomber [1911] 1 Ch 723, 728-9 (Fletcher Moulton LJJ), cited with approval in Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544, 559-60 (the Court).
[7] Links Golf Tasmania Pty Ltd v Sattler [2012] FCA 634; (2012) 292 ALR 382 [481] (Jessup J).
[9] Ibid 685, citing Fridman's Law of Agency (3rd edition, Butterworths, 1971) 257.
[11] As the High Court explained in Prince Alfred College Incorporated v ADC [2016] HCA 37; (2016) 258 CLR 134, 152-3 [56] (French CJ, Kiefel, Bell, Keane and Nettle JJ).
[12] [1995] UKPC 5; [1995] 2 AC 500. See Commonwealth Bank of Australia v Kojic [2016] FCAFC 186; (2016) 249 FCR 421, 445 [97] (Edelman J).
[13] See the comments of Finkelstein J in Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (No 2) [2002] FCA 559; (2002) 190 ALR 169 [9]-[10].
[15] DPP v Kent & Sussex Contractors [1944] KB 146; Moore v I Bresler Ltd [1944] 2 All ER 515; Upper Hutt Motor Bodies Limited v Commissioner of Inland Revenue [1964] NZLR 953.
[16] Harstebt Pty Ltd v Tomanek [2018] VSCA 84 [68] fn 28.
[17] Elders Trustee & Executor Co Ltd v EG Reeves Pty Ltd [1987] FCA 332; (1987) 78 ALR 193, 238 (Gummow J).
[18] Attorney-General's Reference (No 1 of 1975) [1975] EWCA Crim 1; [1975] QB 773 (Lord Widgery CJ gave the opinion of the Court).
[19] Hasler v Singtel Optus Pty Ltd [2014] NSWCA 266; (2014) 87 NSWLR 609, 627 [77] (Leeming JA).
[20] The fourth category of knowledge referred to in Baden v Societe Generale pour Favoriser le Development du Commerce et de l'lndustrie en France SA [1993] 1 WLR 509, 575-576 (Peter Gibson J), and the most distant form of knowledge sufficient for the purposes of 'second limb' liability according to the decision in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 163-4 [177]-[178] (Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ).
[25] See the discussion at [45]-[51] above.
[26] ACCC v Sampton Holdings Pty Ltd (2002) 117 FCR 301, 319 [50] (Gray, French and Stone JJ).
[29] [2012] VSCA 103 [134] (Nettle and Neave JJA, and Bell AJA).
[30] [1972] 1 WLR 425, 430.
[33] Heydon, Leeming and Turner, Equity Doctrines and Remedies (LexisNexis, 5th ed, 2014) [42-155].
[34] (2016) 259 IR 384 [334]. Reversed on appeal in Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd [2017] FCR 1 (Allsop CJ, Middleton and Davies JJ), but there was no appeal on the question of accessorial liability for breach of confidence. Special leave to appeal to the High Court granted on 20 October 2017 (Bell, Nettle and Edelman JJ).
[35] [2011] NSWSC 1214; (2011) 94 IPR 35 [483]-[491]; overturned in Streetscape Projects (Australia) Pty Ltd v City of Sydney [2013] NSWCA 2; (2013) 85 NSWLR 196, however the trial Judge's finding that a claim may be maintained for accessorial liability for breach of confidence was not disturbed.
[36] Telstra Corporation Ltd v Phone Directories Company Pty Ltd [2010] FCAFC 149; (2010) 194 FCR 142, 181 [127] (Perram J).
[37] IceTV Pty Ltd v Nine Network Australia Pty Ltd [2009] HCA 14; (2009) 239 CLR 458, 477 [42] (French CJ, Crennan and Kiefel JJ) ('IceTV').
[39] IceTV [2009] HCA 14; (2009) 239 CLR 458, 466 [7] (French CJ, Crennan and Kiefel JJ).
[40] Ibid 467 [11] (French CJ, Crennan and Kiefel JJ).
[41] [2010] FCAFC 149; (2010) 194 FCR 142, 181 [127] (Keane CJ, Perram and Yates JJ) (Emphasis added).
[42] [2016] NSWCA 81; (2016) 91 NSWLR 732 (Bathurst CJ, Leeming JA and Sackville AJA).
[43] Ibid [47] with whom Bathurst CJ at [1] and Sackville AJA at [88] agreed.
[44] Heydon, Leeming and Turner, Equity Doctrines and Remedies (LexisNexis, 5th ed, 2014) [42-200].
[45] LexisNexis, Halsbury's Laws of Australia, 185 Equity, 'Equitable Remedies' [185-1700].
Countrywide Austral Pty Limited
Emergency Media Pty Ltd [2018] VSC 540
(1998) 194 CLR 457
(1988) 194 CLR 395
(1984) 156 CLR 41
(2000) 176 ALR 693
(1995) 182 CLR 544
(2012) 292 ALR 382
(2016) 258 CLR 134
(2016) 249 FCR 421
(2002) 190 ALR 169
(1987) 78 ALR 193
(2014) 87 NSWLR 609
(2007) 230 CLR 89
(2010) 243 FLR 451
(2002) 117 FCR 301
(2016) 259 IR 384
(2011) 94 IPR 35
(2013) 85 NSWLR 196
(2010) 194 FCR 142
(2009) 239 CLR 458
(2016) 91 NSWLR 732