Skyreach Pty Ltd v Morrison[2014] QDC 214

DISTRICT COURT OF QUEENSLAND

1. [1]
   HIS HONOUR: The plaintiff carried and carries on business of supplying and renting equipment and machinery throughout Australia. The plaintiff sues seven defendants in these proceedings. The first, second and third defendants, who are individuals, were formerly employees of the plaintiff. The primary claim against those defendants is that they took confidential information from the plaintiff and used it to commence and conduct a competing business through the fourth defendant. There is also a claim against the fifth defendant, who used – who hired plant and equipment to customers of the plaintiff. The sixth and seventh defendants are companies associated with the first defendant, so it is alleged, and the second and third defendants, respectively, and it is alleged they were knowingly concerned in the contravening of the fiduciary duties alleged to be owed by the individual defendants to the plaintiff.

2. [2]
   There were two applications that came before his Honour Judge Botting on the 8^th of August 2014. The first in time was an application by the plaintiff filed 22 July 2014 seeking disclosure. In it, there was listed the relevant documents according to the plaintiff. The defendants filed an application on 6 August 2014 seeking that certain paragraphs of the statement of claim be struck out. Those applications were adjourned by his Honour Judge Botting to today, 12 September 2014. Since those applications were filed, the issues, to some extent, have narrowed as to what paragraphs of the statement of claim should be struck out, as an amended statement of claim has been filed on 9 September 2014. Regarding disclosure that has been opposed, although, to some extent, it seems accepted that some disclosure might be ordered, but certainly not the disclosure the plaintiff seeks.

3. [3]
   There are two typographical errors in this amended statement of claim filed 9 September 2014. They will, no doubt, be corrected, and I need not spend any more time on them. However, what remains is that the defendants say, paragraph 64F, subparagraphs (b), (c) and (d), ought to be struck out, and, in addition, paragraph 3 of the prayer of relief, to the extent that the fourth, sixth and seventh defendants are referred to therein. In addition, paragraph 63B was sought to be struck out, however, that appears now to – has been sought to be struck out, however, the plaintiff has pointed out that that is also the source of a typographical error, that is, the word “this” in the second line should be “their”.

4. [4]
   Nevertheless, I have to decide the substantial point raised by the defendants, which is that the plaintiff is seeking to charge the relevant defendants with a constructive trust. As I understood the argument, it was that is too far-reaching and that a Court would not give the plaintiff relief in the circumstances by ordering that there is a constructive trust. A number of authorities were referred to me during argument. It seems to me they all agree with the general propositions that have been established. In particular, in Grimaldi v Chameleon Mining No Liability and another (Number 2) [2012] FCAFC 6, the Court said at paragraph 510:

A knowing recipient will ordinarily be liable to hold what is trust property in the strict sense (or its traceable proceeds) as well as any profit received which is attributable to the trust property, to the extent that these remain extant and to return these to the claimant.

5. [5]
   At paragraph 513,^[1] the Court said:

The relief which is appropriate to effectuate this liability can take a variety of forms – the imposition of a constructive trust on an asset which constitutes the benefit in question; compensating the fiduciary’s principal for the loss inflicted on it, that loss being commensurate with benefit derived; the avoidance of a transaction between the two; an account of profits; etc. In determining what is the appropriate relief and its extent require two questions to be answered: (i) what is the breach of fiduciary duty – the misappropriation of “trust” property; the improper diversion of an opportunity; an undisclosed personal interest in a sale or purchase, etc?; and (ii) what is the profit or benefit which the fiduciary has made in consequence of that breach: [quoting] Hospital Products^[2]at 110.

6. [6]
   In addition, at paragraph 514,^[3]the Court said:

(iv) The stringent rule requiring a fiduciary to account for profits ought not be carried to extremes: “The liability … should not be transformed into a vehicle for unjust enrichment of the plaintiff”.

7. [7]
   The defendants’ submissions today were that what the plaintiff seeks in the amended statement of claim is to extend the liability beyond what is appropriate in the circumstances. I was also referred to Jardin, J-a-r-d-i-n, and another v Metcash Limited and another (2011) NSWCA 409, where the Court, at paragraph 113, said – and I leave out the references:

That advantage is secured if the confidant commences to use the information before it loses its confidential character and becomes common knowledge. In that circumstance, the confidant may be restrained from using the information for the period during which the unfair advantage is reasonably expected to continue […] or may be ordered to pay compensation or required to submit to an account of profits for that period

8. [8]
   The effect of these authorities, it was argued by the defendants, is that the Court limits the relief in circumstances such as the present where the breach, if proven, is not shown to have any more use to anyone beyond the restraint of trade period imposed on the individuals in this case, which was two years, or there would not be a valuation of the business or any other asset by way of a constructive trust imposed on the relevant defendants.

9. [9]
   It seems to me that the Hospital Products Limited case (1984) 156 CLR 41 does support the possibility that, in a case where the facts justify it, a constructive trust could be imposed. In effect, the submissions of the defendants today were asking me to decide, in my opinion, the case before it is tried. I consider that the allegations made in the statement of claim can support the imposition of a constructive trust; that is, I should say, it is an arguable case and not one that can be excluded on an application to strike out; that is, it is not that clear in this case that the plaintiff would not succeed to the relief sought. Therefore, I have come to the view that the paragraphs sought to be struck out should not be struck out and the application that seeks to strike out those paragraphs be dismissed. There may be argument about costs, because as I’ve said, the matter has moved from where it was before it came to Judge Botting, to coming before me today.

10. [10]
    That leads me to the disclosure application. The position by the defendants was that once the plaintiff provided further and better particulars, the defendants would be in a position to assess the plaintiff’s request for disclosure. The particulars were provided on 17 July 2014;  however, there was no further disclosure, and although, as I’ve said, my impression of the submissions this afternoon is that it was accepted some disclosure might be warranted, the disclosure sought by the plaintiffs is opposed.

11. [11]
    It is not in dispute that rule 211 of the Uniform Civil Procedure Rules^[4]requires disclosure of each document in the possession or under the control of a party, and directly relevant to an allegation in issue in the pleadings. While sub-rule (2) of rule 211^[5]provides the duty disclosure and continues until the proceeding is decided, the way the applications were argued before me today, I accept the plaintiff seeks only a disclosure as required by the expert, Mr Benjamin, and contained in the exhibit to his affidavit. If there is to be further disclosure, then that will have to be the subject of a separate application.

12. [12]
    Rule 223 of the UCPR^[6]provides for Court orders relating to disclosure in sub-rule (4). If an order were made under sub-rule (1) or (2),^[7]it may only be made if there are special circumstances and the interests of justice require it or it appears there is an objective likelihood the duty to disclose has not been complied with or a specified document or class of documents exists or existed and has passed out of a possession or control of a party. I was referred to authorities - the effect of which are that a more flexible approach to disclosure - is now appropriate under the UCPR.^[8]The fact that an order for disclosure is likely to facilitate the just and expeditious resolution of the real issues will enable and perhaps require the making of such an order.

13. [13]
    The cases I have been referred to in support of that proposition are Mercantile Mutual Custodians Proprietary Limited v Village/Nine Network Restaurants and Bars Proprietary Limited [2001] 1 Qd R 276 at paragraph 10 and Peninsula Shipping Lines Proprietary Limited v Adsteam Agency Proprietary Limited [2008] QSC 317 at paragraph 43. The argument here is not so much that the documents do not exist - although there is evidence that some no longer exist – the argument is that they should not be the subject of disclosure because it is too far reaching and beyond what are the issues in these proceedings. As I have said, I have already ruled that in my opinion the plaintiff has an arguable case for a constructive trust. I do not accept that the restraint of trade, being one for two years restraining the employees after leaving the business, is a reason to limit the disclosure.

14. [14]
    In my opinion, the time period to be covered by these documents is in excess of that two years and is in accordance with Mr Benjamin’s affidavit, or the exhibit to it. I also do not accept that there should be a limiting of the customers. It is always the case in these disputes that one party is concerned as to the extent of disclosure being required by the other party; it is also said that the documents are confidential; many other things are said against disclosure sought as it is in this case by the plaintiff; there is a confidentiality undertaking been given to protect the defendants. In my opinion, the documents sought are directly relevant in this case to the issues in the pleadings. And as I have said, I accept it’s arguable that the plaintiff could recover beyond some profit that might have been made since the three individual defendants left the plaintiff’s employ.

15. [15]
    Therefore, I am not prepared to make an order as per the draft order put before me by Mr Logan who appears on behalf of the defendants. My attitude to the order is that the defendants make further disclosure in accordance with the letter which is the letter exhibit 2 to the affidavit of Stuart Charles Leslie Benjamin, filed 31 July 2014. If the plaintiff is prepared to exempt any particular category of documents because of other evidence that it is prepared to accept, that is a matter for the plaintiff and the plaintiff and the defendants can agree to not have disclosure in that area. However, my position reached after hearing all the arguments this afternoon and considering the relevant authorities and evidence, is that there should be further disclosure in accordance with exhibit 2 to Mr Benjamin’s affidavit.

16. [16]
    Therefore, I think it come down to an argument about costs – unless the parties want to talk about the form of orders – but my attitude is that the defendants application filed – I think it’s 6^th August 2014 – is dismissed; that’s not to limit arguments about costs, but that’s the first order I make. The second order I make is that the defendants give further disclosure in accordance with exhibit 2 to the affidavit of Stuart Charles Leslie Benjamin filed 31 July 2014.

17. [17]
    HIS HONOUR: Regarding the costs of both these applications, while there has been some history behind the applications being filed and then being brought before his Honour Judge Botting and then being adjourned and being brought before me, I come to the view that on balance, the significant factor is that the defendants have failed on both applications; the plaintiff has succeeded and ought to have its costs; the matter were opposed and as I said, the defendants have failed. I see no other circumstance that persuades me to make another order – a different order as to costs. Therefore, the plaintiff’s costs reserved before Judge Botting on 8^th of August 2014 and the plaintiff’s costs of both applications be paid by the defendants on the standard basis.