HIS HONOUR:
1 Factual Background. The plaintiff company claims remedies relating to events in which the defendant left the plaintiff's employment and established her own accountancy practice. The principal of the plaintiff is Mr Brian C. Weldon, who has practised as an accountant since January 1962. He became a registered Tax Agent in September 1975 and in May 1977 established the Public Accountancy practice now conducted as the plaintiff. Since February 1986 the practice has been conducted at 2nd Floor, 12 Falcon Street, Crows Nest. The defendant was employed by the plaintiff as a trainee accountant in 1987 for some months and then returned to the United Kingdom. In 1989 she emigrated to Australia, sponsored by Mr Weldon. The defendant was employed as an accountant by the plaintiff from June 1989 until she gave notice of her intention to resign on 31 March 1999; her employment ended when the notice expired on 14 April 1999.
2 The defendant received training from Mr Weldon and also attended professional seminars and pursued studies of her own. In June 1992 she was approved by the Tax Agents Board as a nominee of the plaintiff, and she became a registered Tax Agent on 18 December 1997. After a course of study and examination the defendant received a public practising certificate from the Society of Certified Practising Accountants on 7 March 1999.
3 Until 1990 an accountant called Mr White was also a principal of the plaintiff. When Mr White left the practice the defendant was the only person other than Mr Weldon who performed accountancy services. The defendant's main work for the plaintiff was preparing company accounts, annual tax returns and corporate and individual tax records, mainly for small businesses. For some clients the plaintiff had a retainer to provide accountancy support at a monthly or other regular fee. Her degree of responsibility increased with the passage of time and the progress of her experience, studies and examinations, and tax agent registrations. Mr Weldon offered the defendant a position as a principal analogous to a partner, and she declined. The defendant was a senior employee with a high degree of responsibility, including responsibility for the plaintiff's interests in its relations with clients. For some years she dealt separately and directly with a number of the plaintiff's clients with little or no intervention by Mr Weldon, so that she was the client's direct point of contact. Mr Weldon dealt almost exclusively with other clients.
4 By 1999 the defendant's remuneration by salary and superannuation contribution was $78,000, which was a substantial salary having regard to the nature of the work being done and of the practice. She was also given a bonus each year.
5 There was no comprehensive agreement in writing establishing the terms of the employment. Some details relating to remuneration were in writing. There was no express agreement relating to use by the defendant of confidential or other information gained in the employment, or relating to the defendant's conduct after her employment ended. There was no agreement restraining competition should she leave her employment.
6 The plaintiff's office was open on business days for ordinary office hours from 9:00am to 5:00pm, but the defendant worked longer hours on ordinary business days and sometimes attended at the office to work at weekends. Much of the office work was done on computers linked to an internal network, using standard programs for preparing tax returns and making calculations. The defendant did not have computer equipment at her home and could not use this network there.
7 Late in 1998 the defendant began to make preparations to leave her employment and establish practice as a public accountant on her own. She did not tell Mr Weldon that she proposed to do this. In January 1999 she arranged professional indemnity insurance which was to commence on 1 March 1999; to be effective the insurance depended on her obtaining her public practising certificate, which she did on 7 March. She was absent on annual leave from 11 February 1999 until 8 March 1999, and went to the United Kingdom during that period. On her return she did work to complete tax returns which had to be lodged by 15 March. On 23 March 1999 the plaintiff paid the defendant a bonus of $12,000. Mr Weldon and the defendant discussed the plaintiff's business and the affairs of clients, including at a luncheon meeting on 23 March, without the defendant indicating that any large turn of events was impending. They attended a fringe benefits tax law seminar on Friday 26 March 1999 at the expense of the plaintiff. When the defendant gave two weeks notice of termination on 31 March, this action was altogether unexpected by Mr Weldon.
8 On 15 April 1999, the day after her employment ended, the defendant established herself in practice as an accountant and tax agent trading as Christine Harbinson and Co in office space at 1st Floor, 44 Miller Street, North Sydney, in the office of Mr Barden's company James Barden Collings Pty Ltd. She had in fact used the name Christine Harbinson and Co in several pieces of accountancy work before that day, but not in the conduct of a business which was accessible to the public at an identifiable place. In letters and returns she had referred to Mr Barden's office or to her home as the firm's address.
9 As soon as she set up practice the defendant sent messages and letters and made telephone contact with many persons who had been clients of the plaintiff and whose work she had done while employed. She told these persons that she had established her practice and offered to do accounting work for them.
10 Apart from claims based on express covenants restraining competition, the usual bases for claims by employers against former employees who operate competitively are these:
(1) Former employees are free to compete but they are not free to remove their employer's property; so they are not free to remove the employer's lists of customers. There are remedies based on property rights.
(2) The contract of employment contains an implied promise to serve with good faith and fidelity. Loyalty is required, and unless the employer knows and approves of the activity the implied promise is broken if the employee conducts competing business activities while in the employment, and also if the employee takes preliminary steps to establish a competing business in some way which is not loyal to the employer, such as by making copies of the employer's list of clients or by canvassing the employer's customers to bring their business over to the new enterprise being established. There are remedies, which can include injunctions, based on breach of contract.
(3) An employee may incur fiduciary duties relating to the protection of interests of the employer which are not property under the general law but are protected in equity in ways similar to the protection given to property. Equitable remedies may be given against misuse of trade secrets and confidential information, and against interception of a maturing business opportunity by using opportunities which came to the employee through the employment. The concepts of trade secrets, confidential information and maturing business opportunities are not highly defined, and much depends on circumstances.
11 There is some tension between, on one hand, the policy of the law favouring competition and the former employee's ability to compete and, on the other, the equitable remedies available when a former employee has intercepted a maturing business opportunity. It is not enough to invoke a remedy that the employee knows that a customer exists and requires a particular service, and has obtained that service through the employee. Canvassing the customers of the former employer is permitted, and something more concrete is required to constitute a maturing business opportunity which may be protected.
12 The Defendant as a Fiduciary. The plaintiff's claims depend on contentions that the defendant has incurred duties as a fiduciary in addition to her duty to serve with loyalty and good faith arising by implication from her contract of employment. Her position as a fiduciary was relied on to support claims relating to alleged misuse of confidential information consisting not of communicating information to others, but of using it for her own advantage. It was also contended that there were breaches of fiduciary duty relating to her acting for clients who had formerly been clients of the plaintiff, and for clients whom she had had the opportunity to refer to the plaintiff as potential clients during her employment. Other fiduciary duties which may arise in relation to employment were not invoked in the plaintiff's case.
13 It is, I think, clear and it was not contested that the defendant's position and responsibilities were such that she incurred fiduciary duties with respect to the use of confidential information, and that she should be classified as a senior executive so as to incur fiduciary duties with respect to maturing business opportunities: see Canadian Aero Services Ltd v. O'Malley (1973) 40 DLR (3d) 371 (the Canaero case). The issue was whether the fiduciary duties extended to the defendant's conduct and she was in breach of them.
14 The Statement of Claim. In the statement of claim the plaintiff relies on a number of grounds. It is alleged that the plaintiff had confidential information which was known to the defendant, being lists of clients, lists and records incorporating the fees charged to clients and files for clients comprising accounting records necessary for preparation of client taxation returns and financial statements. It is alleged that the implied term requiring the defendant to act loyally and in good faith required the defendant to direct to the plaintiff any inquiry for accounting and taxation services and advice for which a fee would be rendered. On the same grounds it is also alleged that the defendant was required not to misuse any confidential information and that, in breach of this implied term, the defendant provided accounting and taxation services and advice to a number of individuals and entities for reward.
15 It is alleged that the defendant did a number of acts of preparation to enter practice while employed by the plaintiff, and that these were breaches of contractual duty. Many matters were alleged under this head. Among them is that in August 1997 and later the defendant notified the Australian Tax Office that she would be the registered tax agent for a number of individuals and entities without disclosing this to the plaintiff. It is alleged that she used a pad of forms of notification which was in the plaintiff's office for this purpose.
16 In paras 55 and 56 of the Statement of Claim it is alleged that while she was still employed by the plaintiff the defendant removed from the plaintiff's premises, and made, a list or lists of the plaintiff's clients, including lists incorporating fees paid by those clients. This allegation is of prime importance. It is also alleged that the defendant while still employed removed a number of clients' files comprising the clients' accounting records necessary for the preparation of tax returns and financial statements. Clients whose records were allegedly removed are named:
Gabriel Fine Foods Pty Ltd
Toby Copping Grip Services Pty Ltd
Terry McCart Enterprises Pty Ltd
Themed Food & Beverages Pty Ltd
Paterson and Partners Pty Ltd
JGP Pty Ltd
James Barden Collings Pty Ltd.
17 It is alleged (statement of claim paras 67 and 68) that from February until 14 April 1999 the defendant entertained plaintiff's clients during working hours without seeking reimbursement.
18 It is alleged that the defendant solicited the plaintiff's clients for business while still employed by the plaintiff. The allegations are that she advised a number of the plaintiff's clients that she was leaving the employment, that she advised a number that she was leaving the employment and establishing a new practice and that she asked a number of the plaintiff's clients to retain her to provide accounting and taxation services and advice.
19 It is further alleged that the defendant solicited the defendant's clients subsequent to her departure from the plaintiff's employment. These solicitations are alleged to have been misuse of confidential information relating to the identity of the clients and the nature of the business for which they retained the plaintiff.
20 It was alleged that the defendant's conduct was misleading and deceptive within the meaning of s 42 of the Fair Trading Act.
21 The plaintiff claimed a number of remedies including: an injunction restraining the defendant from soliciting named clients of the plaintiff, and from using or copying customer lists or other confidential information; and a declaration that the defendant holds upon constructive trust for the plaintiff fees received from persons to whom she provided accounting and taxation services while employed by the plaintiff, and also fees she received from persons who were the plaintiff's clients and who now retain her. There were also claims for equitable damages, exemplary damages, an account of profits, interest and costs.
22 Private Clients. While she was employed by the plaintiff the defendant did accounting and tax agent work for private clients, who were not clients of the plaintiff, and did not pay fees received from these clients to the plaintiff. In some cases these persons came to the defendant through personal or social connections, and in some cases they had associations of some kind with persons who were clients of the plaintiff. For most of these she received no fees, but in two cases she did charge and was paid fees, $100 in one case and $400 in the other. Occasionally work was done for private clients during office hours, although it was typically done outside ordinary office hours, such as at weekends, when the defendant also did much work for the plaintiff.
23 So far as appears from the evidence, the question whether the defendant could do work for private clients and the question whether she should bring any available work into the firm were never dealt with expressly; she was never told in terms that she could not take private work, or that she had to bring any work which was available into the company, but Mr Weldon's expectation was that she would bring in any work which was available, and this was what the defendant felt obliged to do. However the expectation could only relate to work which was a commercial opportunity; it could not relate to work which was to be done by way of favour without fee, or for merely nominal payments, small gifts or returned favours.
24 The defendant's counsel contended that there was no implied contractual obligation to direct to the plaintiff any inquiry of which the defendant had knowledge for accounting and taxation services and advice for which a fee was to be charged. In my opinion there is no basis for the implication of such an implied contractual term. There is no evidence of either an express agreement or of a practice which could establish that it was within the scope of her duties to solicit for or draw in new business. If an opportunity to gain new business came to her knowledge while she was in the employment she was not under a contractual obligation to seek to further that opportunity and draw the business into the firm. On the other hand if an existing client actually gave her some additional instructions, the contractual duty of fidelity and good faith would require her to give Mr Weldon an opportunity to accept those instructions on behalf of the plaintiff. It would be a breach of the implied contractual duty for her to take an opportunity like that for herself; and would also attract equitable remedies under the Canaero principles.
25 There was no express term of the contract of employment which forbad or otherwise dealt with work done privately for persons who were not clients of the employer; legal control over the defendant's conduct arose under the implied duty to serve with good faith and fidelity. Obligations in equity with respect to confidential information may also have application.
26 There is no element of active abuse of opportunities created by the employment such as is found in Reading v Attorney-General [1951] AC 507 and Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] 1 Ch 196. What is required by good faith and fidelity has to be determined on consideration of the circumstances, including the nature of the employer's business, the position of the employee in it and the actual or potential impact of what the employee does on the employer's interests. Many skilled workers and manual workers can be regarded as having done all that is required of them if they work according to their ability for stipulated hours; what they do at other times is not their employer's concern. For employees who do professional work or highly skilled work such as the defendant in circumstances where the employer's interests are in the employee's hands and a high degree of loyalty to the employer's interests is necessary, the duty of good faith and fidelity can operate to limit what the employee does out of ordinary working hours, and to prevent or limit competitive behaviour. A process is required like that followed by Lord Greene MR in the Hivac case (see pp 174-175 and 177) to ascertain what implication if any needs to be made into the contract of service with regard to the employee's use of spare time.
27 In the present circumstances where the plaintiff was conducting a small public accountancy and tax agents' practice with only two persons working as accountants in it, and the defendant had responsibility for direct contact with many clients without close supervision, I am of the view that the defendant's duty required that she should not conduct a rival business, however large or small, which would or could divert paying clients who otherwise might bring their business to the plaintiff and obtain the defendant's services in that way. This would be the expectation of reasonable people who applied their minds to the circumstances of a small accountancy practice. The expectation is heightened by the long period of the defendant's employment, her substantial remuneration and the great extent to which the plaintiff's affairs and dealings with clients were entrusted to her. The defendant acknowledged in evidence that if she had been approached in a social event by someone who needed accounting work she would have felt obliged to say that she was employed by Weldon & Co, which could do the work, and that she would attend to it at Weldon & Co. In her circumstances, if she was to perform work for which she was to be paid the loyal and faithful thing to do was to take the opportunity for her employer, if that could be done. The contrast between her circumstances and those of a manual worker who works only for defined hours and is not let into confidences is very great.
28 On the other hand for an employee to do work out of the ordinary hours of employment for relatives and friends who do not pay for the services is not a breach of loyalty and fidelity to the employer. Unless the persons for whom work is done are able and willing to retain the employer and pay for the work, there is no injury to the employer's interests when the employee uses her skill and performs the work for nothing. It is very common and only to be expected that employees with professional skills are asked in social and family situations to help people in circumstances in which the request would not be made if the work had to be paid for. For almost all of the persons for whom the defendant did any work of this kind, the work was, to her, simple, minor and unpaid, and for the most part it was done outside ordinary office hours, with minimal exceptions. On a number of occasions she used the plaintiff's equipment, for example on weekends she sometimes used a program on the computer which calculated tax payable.
29 While the defendant was employed by the plaintiff she did some work for James Barden Collings Pty Ltd (which at an earlier time was named James Barden Consulting Pty Ltd). Its principal is Mr Ian James Barden and its business is advising in insurance and superannuation. The company's office is at 44 Miller Street, North Sydney, and the defendant eventually established her practice in the same office space. On occasions in the past Weldon & Co referred work to James Barden Collings Pty Ltd and on occasions James Barden Collings Pty Ltd referred work to Weldon & Co, but there was no standing arrangement or commitment to make such referrals. From time to time Mr Barden referred work to three other accounting firms. James Barden Collings Pty Ltd did not ever retain Weldon & Co to perform accounting services for a fee, and indeed has not ever retained the defendant, during or after the period she was in the plaintiff's employment, to perform accounting services for a fee. There is business association arising from the defendant's occupying office space, as arranged before her employment ended.
30 In a form of letterhead which the defendant used on a few occasions before 16 April 1999 (an example of which is at Exhibit B Vol.3-17 p7.1) the defendant quoted the office telephone number of James Barden Collings Pty Ltd as a point of contact with her. In and after May 1998, while she was still employed, the defendant several times did work for Mr Barden and his company by way of favour; as explained by Mr Barden, he asked her to get some of his accounts organised to give to the accountant who was to prepare his 1997 income tax return. He gave her a number of his company's documents and she worked on them as requested. In about November 1998 he gave her some further documents to work on on the same basis.
31 The defendant carried out the work for Mr Barden and his company while still employed by the plaintiff, and she used the plaintiff's office space and equipment to do so; it has not been shown that she did so during ordinary working hours. In Exhibit B Vol.3-17 p6 there are a number of examples of documents that the defendant produced including a form of 1998 tax return for Mr Barden himself, the calculation of his tax payable and drafts for annual accounts for the year to 30 June 1998. The annual trial balance document 6.18 has an inscription which shows it was printed at 9.37 am on 7 January 1999 (which was a Thursday). She also prepared ledgers or drafts of ledgers for the company for the years ended 30 June 1997 and 1998. These documents were recorded in the plaintiff's computer under the file name "Christine" which was used for work done by the defendant generally, and was accessible to other users of the network including Mr Weldon; she did not take any measure to conceal the work. On the other hand she did not point out to Mr Weldon the fact that this work was being done, without fee and on the basis of helping a friend, for a commercial organisation which retained other accountants. The defendant had some papers belonging to James Barden Consulting Pty Ltd which Mr Barden had given her to work on, and some print outs of work she had produced, in her possession when the Anton Pillar order was executed, and they were then seized.
32 The defendant's undertaking and performing this work for James Barden Collings Pty Ltd was not, in my opinion, a breach of her duty of loyalty and good faith. The work gave rise to no earnings for which she could be made accountable to her employer, and there was no commercial opportunity to make earnings, as the work was performed on the basis of friendship and favour, and Mr Barden and his company had other accountants. The plaintiff's only recognisable grievance would relate to the use of its office equipment, electricity and paper which could give rise to a claim for no more than a nominal amount of damages.
33 The plaintiff also complained that the defendant acquired some private clients through the plaintiff's office shortly before her departure. Clients in this class who are identified are the Bartletts. Plaintiff's counsel suggested there were others but the form of cross-examination did not identify them; he referred to "… people like the Bartletts" (t.347.1).
34 In the practice which she established on 15 April 1999 the defendant has undertaken accounting work for Bartlett & Partners Agencies Pty Ltd. The evidence of the defendant, which is the only evidence dealing with the subject, shows that that company approached her at some time in March 1999 while she was still employed by the plaintiff and asked her to do their accounting work. At that time Bartlett & Partners retained another firm of accountants, Messrs Krochmalick & Herwitz, to do their accountancy work. The Bartletts did not at any time retain Weldon & Co as accountants and, although plaintiff's counsel submitted that Bartlett & Partners had been referred to Weldon & Co by Mr Barden or his company, there is no evidence that that happened. The defendant's evidence, which I accept, was that the approach was specifically an approach to her for her to do the work, and that the Bartletts chose not to approach Mr Weldon. In March 1999 the defendant wrote to Messrs Krochmalick & Herwitz to arrange to take over the accountancy work; these arrangements were still in hand on 11 April 1999, when she wrote a report to Bartlett & Partners (document 7.1), and they were completed on 20 April when Messrs Krochmalick & Herwitz asked her to collect Bartlett & Partners' books and records. At least twice (documents 7.1 and 7.6 - while still employed the defendant wrote letters about Bartlett & Partners affairs on letterhead which described herself by a firm name, and one letter described her as a certified practising accountant.
35 The Bartletts knew of the defendant through Mr Barden. Shortly before 25 March 1999, when the defendant had already decided to leave her employment but had not informed the plaintiff, the Bartletts approached the defendant and asked her to become their accountant. The Bartletts knew that she was not going to be employed at Weldon & Co as she was soon to leave. They required no accounting work to be done at the time of their approach, as they had completed their 1998 tax return, and they told her that they would not be requiring taxation work until the 1999 tax return was to be prepared. She agreed to do their work in due course, and took some steps preparatory to doing so; on 25 March she wrote a letter to Mr Bartlett on the subject, about that time she wrote to their then accountants to make arrangements to take over the accountancy work, as professional courtesy required that they be informed. On 11 April she wrote to Mr Bartlett referring to a need to start work on his fringe benefit tax return later in the week.
36 It was anomalous behaviour on her part to make these communications and use these letterheads while still employed, but she was not in a position actually to do any work until 20 April 1999 when the earlier accountants indicated that they had no professional objection, and I see no reason to doubt the evidence that the approach was made directly to her for her to perform the work. The retainer was not available to Weldon & Co, and did not constitute a business opportunity for Weldon & Co. Documents relating to Bartlett & Partners were in the defendant's possession and were seized on the execution of Anton Pillar order. As Bartlett & Partners was never a client of the plaintiff and was never willing to put its work into any new hands except the defendant's, I am of opinion that the plaintiff has no claim to any remedy.
37 The defendant prepared 1998 personal income tax returns for Mr Murray Ward and Mrs Jill Ward, completed the work and sent them their returns on 5 February 1999. In March she checked their 1998 Notice of Assessment and rendered an account for $100. The defendant did the work substantially in her own time, but she used the computer and the computer program in the plaintiff's office to type up and print out documents. The cost in time and use of facilities to the plaintiff can have been no more than nominal. The defendant did not use letterhead identifying herself as an accountant in practice. She gave her own tax agent's certificate on the returns. The opportunity to do the Wards' work was of commercial value.
38 The defendant also completed 1998 personal income tax returns for Mr and Mrs Litschner. She completed their 1997 income tax return and attended to matters relating to the amendment of a return and provisional tax. She wrote a letter of advice to Mr and Mrs Listchner on 20 January 1999. The tax return, which she certified as a tax agent, was handwritten, but she used the defendant's computer and program and paper to print out a one page estimate of tax. In her Defence she admitted that she made charges totalling $400, although the document tendered in evidence refers to $200: see Ex B p.20.19. This too represented a commercial opportunity, although very modest.
39 Otherwise there were no charges for what had been referred to as private clients, and the damages in respect of minimal usage of the plaintiff's computers, computer programs, paper and time to print work for them can be no more than nominal. The cases where the defendant charged $100 and $400 are exceptions. For the payment of $100, the events and the amount are of minimal significance. The work for which the defendant was paid $400 came to her in circumstances associated with the plaintiff's accountancy practice, and the work should be regarded as a commercial opportunity which, if advantage were to be taken of it, it was her duty to direct towards her employer. The plaintiff is entitled to recover either her profit, which I will treat as the whole of her fees, or damages arising from failure to make the opportunity to earn a fee available to the plaintiff. The maximum amount involved is $500, not an appropriate claim on which to base a law suit, and it is impractical to initiate any inquiry as to quantum of damages or to go through any process of offering the plaintiff an election: to do so would involve more in costs than the amount under consideration. I will assume that the plaintiff would elect to take the profits, treat them as $500 and give judgment for that sum.
40 Lists of Clients. The plaintiff's principal claims were based on allegations that the defendant removed lists of information showing the names and contact details of clients and the amounts of fees charged to clients. I was asked to infer that she made such lists while still in the plaintiff's employment by writing down details from records of the plaintiff, or that she actually removed copies of records of the plaintiff. There is no direct evidence that any document being a list of clients or of charges kept in the plaintiff's office was missing after she left, or that she ever had any list which was a copy of any such a record, whether copied during the employment or after it had ended. Evidence shows that after she established her practice the defendant was in possession of several lists of clients, and of a list showing amounts which clients could be expected to be charged. These lists do not correspond, except in the most general ways, with any lists which the plaintiff was shown ever to have had. The names of clients do not appear in the same detail or in the same order as in any list of the plaintiff's; the contact details do not correspond exactly and when the defendant's lists show amounts expected to be charged to clients, they correspond in some cases but not in others with information in the plaintiff's records about what clients actually have been charged.
41 As part of her work while employed by the plaintiff the defendant instructed Ms Heidi Martin, a secretary, to construct a Microsoft Excel spreadsheet listing clients whose work the defendant performed in the plaintiff's office. She had the spreadsheet modified and printed out by Ms Martin from time to time. One form, apparently the latest form of the list, is Annexure E to Mr Weldon's affidavit of 9 June 1999. It is unremarkable that the defendant would have had such a spreadsheet prepared, and that she would have had access to it from time to time, as it was important to keep track of the progress of work and the state of compliance with time limits for submitting tax returns. There is no evidence that the defendant removed any copy of the spreadsheet from the plaintiff's office, and there is no evidence showing that any of the lists which were in the plaintiff's possession correspond in any significant way with any of the spreadsheets.
42 The defendant's evidence was that she did not remove any lists or make any lists for removal while she was still in employment. According to her evidence the lists which were found in her possession on executing the Anton Pillar order were compiled by her when she set up practice. She set about compiling them immediately she set up practice, and had the advantages of fresh memory of the names of clients and their contact details, and personal acquaintance with the persons who dealt with the plaintiff on behalf of clients; in some cases she recollected addresses, telephone numbers or other contact details. She had unimpeded access to telephone directories and to inquiries to people she could contact for the contact details of others.
43 On execution of the Anton Pillar order the plaintiff's representatives found three lists. One was a list headed 'Potential Company Clients' (Ex B 36.8 and 36.9). This list included telephone numbers for some but not all potential clients, and estimates of fees for some but not all potential clients. These estimates amounted to $76,900. Another was in two pocket notebooks (Ex E). One notebook had, on one page only, a list of seven persons mostly recognisable from other evidence as clients of the plaintiff, with amounts against the names totalling $38,100; the other had a similar list on two pages, including another list of names with figures totalling $55,000 at a number of other jottings which are very difficult to follow. The third was Ex B.11.1 which comprised four pages of notes in a diary recording names, in most cases with addresses or other contact details, mainly telephone numbers.
44 For these lists, and the lists referred to in the drop down menu which Ms Nguyen found on the defendant's computer on executing the Anton Pillar order, there is in my opinion no substantial evidence that any of the lists was removed from the plaintiff's office, or copied by the defendant while employed by the plaintiff, or deliberately memorised by the defendant while in the employment. The lists which are in evidence are generally chaotic, disordered and incomplete, and their nature strongly supports the defendant's claim that she compiled them from memory after leaving the plaintiff's employment. It has not been shown that they correspond significantly with any list maintained by the plaintiff, and it is very unlikely that the defendant, the nature of whose occupation requires method and order, would have produced documents like these which are clearly jottings, if she set about making copies of records available to her.
45 The defendant's lists appear to be consistent with her account of how they were prepared, being lists which she wrote down progressively on the basis of recollection and inquiries. There are gaps and repetitions which were very unlikely to have occurred had she prepared the lists when she still had ready access to the plaintiff's records. Cross examination on the circumstances of preparation of the defendant's lists was very lengthy and detailed, and her responses under forceful challenges did nothing to disturb confidence in her account of how she prepared the lists. Her evidence appears to me to be inherently probable, when taken with the form of the lists which she was later shown to have.
46 The claim that it should be found on the probabilities that the defendant prepared lists while still in the employment was based on circumstances which in my view have no real force as support for such a finding. One of the circumstances was that a record in a note book was found on a bedside table in her home on the execution of an Anton Pillar order about nine days after she set up practice. The suggestion was to the effect that the fact that this was found at her home and not at her office in some way showed an endeavour of concealment; this was fanciful and baseless.
47 Another matter related to attempts to print out records in her computer. When the Anton Pillar order was executed at her business premises the computer was operated to show a "drop down menu" on the screen which listed the last four documents which had been accessed before the order was executed. The titles of these documents suggest that they were lists of clients or potential clients. However the documents themselves could not be accessed by Ms Nguyen, the computer operator who was a member of the plaintiff's party conducting the search. Several weeks later the defendant produced to the court, in answer to a notice to produce, a list which, based on its heading and contents, could well have been referred to in the drop down menu; her evidence was that the list was a consolidation of two of the documents named, and that she had deleted the other two before the search took place.
48 This led to an elaborate course of inquiry in which, eventually, a computer expert, Mr Hindle, searched for all information on the defendant's computer, including deleted information so far as search could be made for it. Mr Hindle concluded that the contents (whatever they were) of the deleted lists had been removed from the computer record by unusual measures; they were not, as deleted records usually are, accessible in parts of the computer memory to which access is not ordinarily obtained.
49 The defendant gave evidence explaining, as far as she was able, what work she had had done on her computer. She firmly denied that she had undertaken any deliberate measure of concealment. The plaintiff, which bore the onus of proof, produced no evidence showing what had been in the lists which corresponded with the titles in the drop down menu, and had the fullest opportunity for investigation, commencing with a search conducted by a skilled person on the execution of the Anton Pillar order, and continuing with search and examination by a highly skilled expert. None of the uncovered material ever established in any way that the defendant had made copies of any list which belonged to the plaintiff, or that the plaintiff had any relevant lists to copy to which the descriptions in the drop down menu could have been given.
50 The evidence of Mr Hindle shows that the unavailability of the contents of the lists could well have occurred through processes which the defendant said were applied in circumstances which she has explained. These were quite different to any endeavour to conceal documents, and exclude concealment as a motive for the processes.
51 The plaintiff had most unusually extensive opportunities to establish whether the defendant had any copy of or derived from the Excel spreadsheet in her possession; the opening event in the litigation was that the plaintiff executed an Anton Pillar order and rigorously searched the defendant's office, home and car, without any success in establishing that the defendant had any such document in her possession. There was no material in the evidence which could in any way justify the use of Anton Pillar proceedings as the opening step in the litigation. Nothing I have heard suggests that the ordinary processes of discovery and interrogatories should not have been relied on. The lists which were found in the defendant's possession and the list which she later produced printed from her computer appear to bear out her claim that she compiled lists herself after leaving employment. The plaintiff had the advantage of the attendance of a person skilled in the use of computers on the Anton Pillar order, and later of rigorous searches by a highly qualified expert of the material on the defendant's computer, including material which is not accessible in ordinary use and has, for ordinary purposes, been deleted. With all these advantages, the plaintiff could not produce evidence that the defendant ever made or had a copy of any list from the plaintiff's office. There is no good reason not to accept, as I do, the defendant's denials. Submissions by plaintiff's counsel in substance asked me to reverse the onus of proof.
52 Mr Hindle's evidence establishes the following things. Mr Hindle's brief was to examine the hard disk drive of the defendant's computer and find the deleted files. It was not his brief to find specifically files which were created before 23 April and had been deleted, and he would not have been able to do that. He was not given and did not examine the disk which was taken on 23 April by Ms Nguyen during the execution of the Anton Pillar order.
53 Mr Hindle's examination established that the file Company.xls was created on 19 April 1999 and remained in the operating system at all times from 19 April to 2 June, when he inspected the hard disk; there was never any deletion of Company.xls. In Windows 98, the operating system on the defendant's computer, a file can be deleted by following instructions which are part of the Windows 98 program and require a "double delete" procedure; that is, the instruction to delete the file has to be given, and then confirmed in answer to another prompt. This would place the deleted file in the Recycle Bin. A file can be removed from the Recycle Bin by following another part of the Windows 98 operating system; again, the operator has to follow the procedure to delete the document and then confirm the decision to delete it in answer to another prompt. An operator who had done these things would not be able to get the document back using the Windows 98 operating system. It follows that the Company.xls document found by Mr Hindle had not been through these processes to delete it and then restored into the Windows 98 system.
54 However, Mr Hindle was able with his expertise and a Norton Utilities program to search the hard disk for deleted DOS files. A document which has been deleted from the Recycle Bin by the processes available in the Windows 98 system might still exist on the hard disk as a DOS file; it would remain on the hard disk among deleted DOS files, but the computer might write over it by using the same part of the memory capacity of the disc to record new material: this could take place at random. Another way in which a deleted document in the DOS files could be lost is that during defragmentation of the hard disk drive the computer could allocate other information over it. There is a defragmentation program within Windows 98. Defragmentation reorders the hard disk drive, and does not directly overwrite information. Information on the hard disk showed that there was a defragmentation on 18 May 1999. Files which had been deleted from Windows 98 could become beyond recovery in the DOS system as a result of reordering data during defragmentation.
55 Mr Hindle searched the hard disk for the three files other than Company.xls the names of which appeared on the drop down menu found by Ms Nguyen on 23 April. After spending about an hour on a specific search for those file names he established that he could not find anything in that way. He searched the names again. Mr Hindle found 23 Excel files in DOS; none of them matched the three files he was searching for. Then he searched for key words furnished by the plaintiff's solicitors which, I infer, were regarded by the plaintiff's solicitors as likely to identify files which could have borne names such as appeared in the drop down menu. When he applied the key words search he identified six documents which contained the key words. Mr Hindle concluded that the six documents must have entered the DOS system through use of the Windows 98 prompts for deletion. They must have gone through normal operations of Windows 98 for deletion to get to the unused portion of the disk, and there could not have been any utilisation of the McAfee File Shredder to delete or disguise the documents which were found. There is no way of knowing from the information on the hard disk drive whether the file shredder had ever been used to delete or disguise other documents. The six documents which Mr Hindle identified using the key word search were not put forward in the plaintiff's case as establishing that the defendant had removed lists from the plaintiff's office.
56 Mr Hindle's evidence showed that a file could be concealed by renaming it. In the Windows 98 system, if a file is renamed it cannot be traced. Renaming is a very simple procedure. As an example of an exercise in concealment, it would be easy to change the name of a file to something completely irrelevant.
57 Neither Mr Hindle's evidence nor any other evidence gives a basis for the inference that Ms Nguyen could not find the documents named in the drop down menu because Ms Harbinson had done something to conceal them. There is no evidence that the defendant had any warning or opportunity to delete or conceal files for the purpose of evading the Anton Pillar order, and no evidence that she did those things. It is clearly established that Company.xls was created on 19 April and that it was not ever deleted. The reason why Ms Nguyen could not access it is unexplained, but there is no reason to think that the defendant concealed it or prevented access to it. For two other documents named on the drop down menu found by Ms Nguyen the high probability is that they had been created and also deleted before execution of the Anton Pillar order on 23 April; that is, deleted by being deliberately removed from the Recycle Bin in one of the normal operations of Windows 98. Following that they would be in the unused portion of the hard disk, not accessible through Windows 98, although accessible to an expert with the capacity of Mr Hindle. They would be at risk of being overwritten and completely lost, and it should be inferred that that happened, without any deliberate action by the defendant to bring it about. In my finding the remaining two documents had been deleted by the defendant before 23 April without any purpose of concealment, or any sinister purpose.
58 Destruction of Documents. The plaintiff's counsel contended that the defendant's conduct in relation to the four documents appearing in the drop down menu inspected by Ms Nguyen on execution of the Anton Pillar order, three of which were not produced at any stage, gave rise to some factual inference adverse to her. Counsel relied on the following statement in the judgment in Allen v. Tobias & Anor (1958) 98 CLR 367 at 375:
"It is perhaps desirable to refer again to one question of fact which Sholl J. left unsettled. Did the defendant and his brothers execute the agreement with the council drawn up in April 1953, the three copies of which were destroyed by the defendant? Notwithstanding the difficulty which his Honour felt in arriving at a conclusion, there are two grounds why the Court should proceed upon the assumption that the document was so executed. In the first place to presume the fact against the defendant seems but a proper application to the circumstances of the principle omnia praesumuntur contra spoliatorem. It is a far cry from the municipal warfare of the present case to a case in Prize but no statement of the principle could be more apposite than that of Sir Arthur Channell delivering the opinion of the Privy Council in The Ophelia [(1916) 2 A.C. 206]: 'If any one by a deliberate act destroys a document which, according to what its contents may have been, would have told strongly either for him or against him, the strongest possible presumption arises that if it had been produced it would have told against him; and even if the document is destroyed by his own act, but under circumstances in which the intention to destroy evidence may fairly be considered rebutted, still he has to suffer. He is in the position that he is without the corroboration which might have been expected in his case' [(1916) 2 A.C., at pp.229, 230]".
59 In Allen v. Tobias enough was known about the contents of the document to establish that its production would certainly have been relevant and important; production of the destroyed document would have shown whether it had been executed. In The Ophelia [1916] 2 AC 206, to which the High Court referred, production of the ship's log would certainly have shown whether or not it had been engaged in hospital ship activities or combatant activities. A naval ship must have a log. It is a very far cry from a Naval Prize case where it was relevant to show what the ship had been doing and its commander destroyed the log on capture, to the present case where the plaintiff is contending that the contents of the documents would probably be relevant, but their contents are not known. The function of a ship's log is to show what the ship has been doing. There is no parallel with lists which the defendant compiled for her own use and for that of no one else, and deleted before she had any apparent motivation for concealment. It is an ordinary and unremarkable thing for a person to compile a document on a computer, decide not to retain it for some reason and delete it. The basis for an adverse inference has not been established. The list Company.xls which was produced, and became Ex J, does not bear out the contention that any list was copied. There is no basis for thinking that the defendant knew in advance that her computer was to be inspected, or had any opportunity to delete documents on it with that knowledge, or took any such opportunity. There is no difficulty in believing the defendant's evidence that she discarded two documents and consolidated two others before 23 April 1999. It would be quite simple for documents which had been treated in that way to pass beyond retrieval in the ordinary workings of the computer system.
60 The most that can be said is that the titles of the three documents which have not been found suggest that the defendant once had documents which would be relevant for discovery purposes but by 23 April she no longer had them as they had been deleted. There was no discovery order. She was never in a position to produce the documents or copies of them on notices to produce. (I incidentally observe that use in this case of notices to produce as a substitute for discovery was not appropriate.)
61 The plaintiff and the plaintiff's counsel spent a great deal of time and endeavour in an attempt to establish that there is some mystery about the terms of the missing documents. The end result is that there is no basis for finding that the defendant engaged in deliberate concealment, and no basis for finding that the documents contained any matter which would tend to confirm that the defendant removed, copied or deliberately memorised any list maintained by the plaintiff.
62 In my finding the defendant did not do anything to conceal Company.xls, and it was not through any deliberate conduct of hers that it was not found on 23 April on the execution of the Anton Pillar order. It should not be found that the McAfee File Shredder had been used to delete any relevant documents pre-dating the time of Mr Hindle's inspection. The probabilities are that documents which had been deleted became irrecoverable through the normal operation of the system. This could well have happened through de-fragmentation on 18 May 1999. It should not be found that the defendant intentionally concealed information relevant to the plaintiff's claim by deleting any document, or that she intentionally prevented access to any document, or that she covered up any wrongdoing.
63 Fee Estimates. Plaintiff's counsel contended that the defendant had made improper use of information in the plaintiff's office relating to fee estimates. At various times and in various documents the defendant made three different estimates of the fees which were to be generated in her practice. In making an estimate and paying a premium for professional indemnity insurance she adopted $70,000; at other places she adopted other figures, the highest being $76,900. Mr Weldon made an estimate of the fees charged to the clients whose work the defendant did while employed and was later retained to do; Mr Weldon's estimate is in the order of $70,000. While the plaintiff's contentions in this regard were very difficult to understand, they seemed to be to the effect that the fact that the defendant made estimates, including an estimate well before she left the employment, which was approximately although not exactly correct according to Mr Weldon's later estimate, demonstrates that she must have deliberately compiled and removed information about fees from the plaintiff's office. This submission was without substance.
64 There is no evidence that the plaintiff maintained any list of the fees charged to clients which the defendant may have removed or memorised. While there are some parallels between fees appearing in the defendant's notes and fees which the plaintiff had actually charged, there are more instances where resemblances are approximate or there is no particular resemblance; to my mind this makes it very improbable that there was a process of copying or deliberate memorisation. In any event there is no evidence that there was such a process.
65 Defendant's Activities Commencing 15 April 1999. In the period from 15 to 22 April 1999 the defendant was very active in making contact with potential clients including persons whose work she had done while employed by the plaintiff. She made many telephone calls and sent many fax messages and letters, and her activity was particularly high on 15 and 16 April. The number of persons contacted is not exactly established but was in the order of 40 or 50. It was contended to the effect that her ability to make as many contacts as this shows that she must have extracted information from the plaintiff's records before she left her employment. I do not accept this: it is in no way difficult to believe that after actively conducting the accountancy business of many clients the defendant would be able to contact them readily. For a number of cases she said that she obtained the telephone numbers by inquiring of others or by referring to the telephone book; this is in no way difficult to accept, and acceptance is not any more difficult because some of the telephone numbers which she knew were not published in the telephone book. The evidence shows that the defendant was able to remember many details about clients and how to make contact with them, and that she followed this up with great assiduity and promptness; these are all things that she was perfectly entitled to do.
66 It was suggested that it was a test of the defendant's veracity that when she gave evidence many months later she did not remember a fax number which she had written down within a few days after leaving employment. There is no substance in this criticism. It is in no way difficult to believe of the defendant that she remembered names of many principals and organisations, addresses and contact numbers including details of post office box and telephone numbers, within a few days of leaving the employment.
67 Confidential Information Relating to Identity of Clients. The identity of the plaintiff's clients and related information including addresses, telephone and other contact numbers and the identities of the persons in each client's organisation with whom to deal are, in some sense, confidential information. It is obvious from the nature of the work done in the plaintiff's practice that some degree of care and discretion must be used in making information about the identity of clients available to outsiders, and in letting anyone outside the organisation have the use of the information. The information is in no sense a secret or a trade secret; providing accountancy support services and preparing statutory and taxation returns for clients necessarily involves communicating to public authorities and others the fact that the plaintiff is engaged in work for the client; there is no element of secrecy, although confidentiality, to some degree, arises from the need to restrict distribution of information to proper occasions. A much higher degree of confidentiality attaches to information in detail about clients' affairs and business.
68 In his very extensive references to judicial decisions the plaintiff's counsel took me to the classification of confidential information made by Goulding J in Faccenda Chicken Ltd v. Fowler [1985] 1 All ER 724; (1984) ICR 589 at 598-599, to the treatment of Goulding J's classification by the Court of Appeal of England in that case ([1987] Ch 117) and to later discussion of that treatment by the Court of Appeal of New South Wales in Wright v. Gasweld Pty Ltd (1991) 22 NSWLR 317. Information relating to the names and contact details of clients falls within Goulding J's second class: "information which the employee must treat as confidential (either because he is expressly told it is confidential, or because from its character it obviously is so)" but which he is free to use after his employment has terminated.
69 The controversy arising out of the English Court of Appeal's obiter dicta about what may be protected by a restrictive covenant is not involved in the present case, as there are no contractual provisions or other special arrangements or circumstances suggesting an unusual or a high degree of confidentiality attaching to the identities and contact details of clients. The former employee's liberty of action was recognised in the judgment of the Court of Appeal of England: see [1987] Ch 117 at 135-137, paras (3) and (4). The entitlement of a former employee to enter into competition, and to use the former employee's knowledge of the identity of clients and their interest in obtaining goods or services of the relevant kind is very clearly established, and in my view there is no room for the implication of any contractual term restricting competition or use of that information, or for the imposition of a similar restriction by employing equitable principles.
70 In the words used by Gleeson CJ (dissenting) in Wright v. Gasweld at 330: "I would also regard information as to the identity of customers as of a low order of confidentiality." A former employee's entitlement to use knowledge which the former employee remembers, and the absence of an entitlement to make notes and lists while in the employment and take them and use them, are very long established and are not open to doubt or debate. They were recognised in the judgment of Harvey CJ in Eq in Ormonoid Roofing & Asphalts Ltd v. Bitumenoids Ltd & Ors (1930) 31 SR (NSW) 347: see particularly 354-356. In my view the plaintiff's claim to restrict the defendant's access to clients fell to be decided within these limits, and the plaintiff's claim that it should be inferred that the defendant had removed the list of customers was of very high importance in this regard.
71 It should not be found that there was misuse of any confidential information relating to the identity of clients and the nature of the business for which they retained the plaintiff. For the purpose under consideration there was no confidentiality to be protected; that is to say, the plaintiff was entitled to use her general knowledge of the identity of clients and their likely need for future accounting work for her own advantage after leaving employment. There is no basis for any finding that the defendant's conduct was misleading or deceptive. There were no circumstances and there was no legal duty which required her to notify him of her intentions.
72 I do not accept the observations of Pritchard J in SSC&B: Lintass New Zealand Ltd v. Murphy [1986] 2 NZLR 436 at 456: "To my mind the distinction which seemed to have been drawn in Robb v. Green [1895] 2 QB 1, 13 between using a written list of customers compiled while in the employment of the master, and drawing on a retentive memory for the same information, is quite unreal. There is no valid reason why a servant, endowed with a good memory, should be accorded more extensive rights of canvassing his master's customers than one who is not so blessed." In my opinion the distinction is very well established, and is soundly based on the former employee's liberty to engage in competition, qualified by not being entitled to remove lists which are the employer's property, or to make copies or commit lists to memory which have the same effect in substance. I am not aware of any other expression of the view stated by Pritchard J.
73 Opportunity Created by the Defendant's Employment. Plaintiff's counsel sought to bring the defendant's exploitation of these opportunities within the principle relating to diversion of a maturing business opportunity which the employer is actively pursuing, stated in the judgment of Laskin J in Canadian Aero Service Ltd v O'Malley & Anor (1973) 40 DLR (3d) 371 at 381-382. There have been many applications of this principle. It is based on the fiduciary duty incurred by officers and highly placed employees with respect to commercial opportunities which, although they are not property, are accorded much the same protection. A maturing business opportunity often takes the form of an opportunity to supply some services or goods which is approaching the stage where a contract can be formed but has not yet reached it; an unconscionable diversion of such an opportunity to the employee who was managing the employer's interests may be restrained. This however is a different subject to the former employee's canvassing customers, including customers who are quite likely to require further services of a kind supplied in the past, for the supply of further services. The distinction, which is difficult to elucidate fully but usually well recognisable on the facts, is one between canvassing a customer and intercepting a maturing business opportunity which the employer was actively pursuing.
74 In most client situations in this litigation the position was that the annual cycle of preparation and lodgment of income tax returns had concluded in or before March 1999, and could be expected to resume again at the end of the financial year on 30 June 1999, while the customers' likely need for continuing accountancy support services, for statutory returns and records and otherwise, was obvious. On the facts there was in my opinion nothing in the nature of maturing business opportunity of the kind which has been protected under the Canaero decision and the cases in which it has been followed.
75 The plaintiff's counsel contended that where the substantial portion of soliciting of business took place the day after the defendant's departure and the clients solicited were used to dealing with the defendant, the information has been exploited by the defendant in such a way that she should be held to be accountable. He claimed that this contention was supported by Coordinated Industries Pty Ltd v. Elliott & Anor (1998) 43 NSWLR 282, particularly at 287. In my opinion the observations of Hodgson CJ in Eq. in that case relate to activities directed to obtaining the benefit of a particular piece of work or commission which was in hand when the employee left. His Honour was not addressing a case where the employee was not seeking the advantage of continuing a particular job on which she had been engaged when she left. The nature of the taxation work is cyclical and the work for preparing returns for the year to 30 June 1998 had been completed; the defendant was seeking retainers which would bring her future work on taxation returns, statutory records and accountancy support which it was obvious that clients were likely to require, but which did not involve continuation of existing commissions or particular jobs which had been broken off by her leaving. The fact that the defendant engaged in a very high degree of activity immediately on setting out business does nothing to confer any rights on the plaintiff.
76 The plaintiff's counsel also based claims for equitable remedies on the footing that the defendant's opportunities for obtaining retainers for accounting work had been gained, at least in large part, by her having solicited, while she was still in the plaintiff's employment, for work to be given to her after her employment ended. The basis of this is that during the two weeks after the defendant gave notice of termination of employment she, as her evidence shows, told persons for whom she performed a large amount of work and whom she considered should be advised of her leaving, that she was leaving the plaintiff's employment and that she had tendered her resignation. She said in evidence:
"I did this as a courtesy to those persons as in some cases I had performed work for them in the employ of the plaintiff for a number of years. I did not tell every person I performed work for, only those where I had such an association."