CATCHWORDS INJUNCTIONS - interlocutory injunction - delivery up of documents of former employer - employee allegedly acquiring information dishonestly during course of employment - employee leaving and forming company in competition with employer's business - nature of confidential information protected in equity - distinction between information obtained dishonestly and information necessarily gained by employee over a long period of employment - balance of convenience favours granting of restricted injunctive relief. Corrs Pavey Whiting and Byrne v The Collector of Customs (Vic) & Anor (1987) 14 FCR 434 Faccenda Chicken Ltd v Fowler & Ors [1987] 1 Ch 117 Wright v Gazwell Pty Ltd (1991) 22 NSWLR 317 Robb v Green [1895] 2 QB 1 Herbert Morris Limited v Saxleby [1916] 1 AC 688 C E Ellery Ltd v W Wairoa-Harrison and A B McCarthy (1987) 8 IPR 423 No SG 97 of 1995 SWF HOISTS AND INDUSTRIAL EQUIPMENT PTY LTD (ACN 005 209 898) v EDWARD POLLI and ROBERT POLLI Branson J Adelaide 5 January 1996 IN THE FEDERAL COURT OF AUSTRALIA) ) SOUTH AUSTRALIA DISTRICT REGISTRY) No SG 97 of 1995 ) GENERAL DIVISION ) BETWEEN: SWF HOISTS AND INDUSTRIAL EQUIPMENT PTY LTD (ACN 005 209 898) Applicant - and - EDWARD POLLI and ROBERT POLLI Respondents EXTEMPORE REASONS FOR DECISION CORAM: Branson J PLACE: Adelaide DATE: 5 January 1996 The applicant, by notice of motion dated 15 December 1995, seeks an interlocutory injunction restraining the respondents from using:- (a) the applicant's business records; (aa)the trade secrets or confidential information of the applicant contained in or referred to in the applicant's business records; and (b) any other property of the applicant in connection with the respondents' business. By the same notice of motion, the applicant also seeks an order requiring the return to the applicant of such of its business records and other property as are in the possession of the respondents. The respondents deny that they are, or either of them is, in possession of property of the applicant. For this reason they do not oppose the making of an order that such of the applicant's business records and other property, if any, as is in the possession of the respondents or either of them, is to be returned to the applicant forthwith. The background of this application is as follows. The principal business of the applicant is the design, manufacture, supply, installation, maintenance and servicing of overhead cranes. The first respondent was employed by the applicant for a period of approximately 19 years ending on 7 November 1995. He did not, however, perform work for the applicant after 11 July 1995 when he became ill and commenced sick leave which continued until his resignation which was effective from 7 November 1995. The second respondent, who is the son of the first respondent, was employed by the applicant for a period of approximately 3 years ending on 29 August 1995. Each of the respondents was engaged by the applicant as an electrician, engaged in the maintenance and servicing of cranes. Records from the register of business names maintained by the South Australian office of Consumer and Business Affairs disclose that on 7 March 1994 the respondents and two other persons, apparently their respective wives, registered a business name, ERML Electrical Services. Such records also disclose that business was commenced under that business name on 14 March 1994. It is not disputed that the business ERML Electrical Services operates, at least in part, in competition with the applicant, and has provided services to customers who formerly obtained such services from the applicant. Affidavit evidence filed on behalf of the applicant asserts that shortly after the first respondent commenced sick leave in July 1995, service records of the applicant described as the customer register, were unable to be found. The circumstances surrounding the disappearance of the customer register were suspicious. The customer register was maintained in a grey lever arch folder. The folder was ordinarily stored in open shelving such that its absence would have been readily apparent. An employee of the applicant has sworn an affidavit that shortly after the first respondent commenced his sick leave, he (that is the employee) consulted the customer register. About two days later, when he attempted to do so again, he found that a grey lever arch folder, which, for practical purposes was empty, had been placed in the usual storage position of the customer register. Despite a search which involved inquiry from other employees, the customer register has not been found. At about the same time a search was instituted for a 1994 wall chart which contained a complete list of the applicant's customers with information as to when services had been due during that year and as to prices charged to such customers. The wall chart, which had been kept in the office of the first respondent, was not found. The respondents deny that they took or are now in possession of the applicant's customer register or the 1994 wall chart. The evidence against them in this regard is wholly circumstantial. The written submissions of the applicant make it plain that what is here sought is an order which would prevent the respondents from using for the benefit of their business, the following information:- (a) the identity of the applicant's customers; (b) the types of cranes used by the applicant's customers; (c) the repair and service history of such cranes; (d) the specifications of the repair parts required by such cranes; (e) the dates upon which such cranes are due for service; and (f) the prices charged by the applicant to its respective customers. It would appear that the above classes of information were contained in one or other or both of the customer register and the 1994 wall chart. It is not suggested in this case that any express term of the respective employment contracts of the respondents with the applicant imposed upon them duties of confidentiality, or prevented their competing with the applicant after termination of their employment. It is however, pleaded by the statement of claim that such contracts of employment included implied terms that in the event that the employment thereunder came to an end the applicant's service records would remain in its possession and would not be used for any purpose other than the applicant's business. The applicant, as I understand its case, also asserts confidentiality protected in equity in its service records. In Corrs Pavey Whiting and Byrne v The Collector of Customs (Vic) & Anor (1987) 14 FCR 434 Gummow J stated at 443:- "It is now settled that in order to make out a case for protection in equity of alleged confidential information, a plaintiff must satisfy certain criteria. The plaintiff: (i) must be able to identify with specificity, and not merely in global terms, that which is said to be the information in question; and must also be able to show that (ii) the information has the necessary quality of confidentiality (and is not, for example, common or public knowledge); (iii) the information was received by the defendant in such circumstances as to import an obligation of confidence; and (iv) there is actual or threatened misuse of that information ... It may also be necessary ... that unauthorised use would be to the detriment of the plaintiff." Specifically in respect of the relationship of employer and employee, the Court of Appeal in Faccenda Chicken Ltd v Fowler & Ors [1987] 1 Ch 117 at 133-134 quoted with apparent approval the following categorisations of information which might be obtained by an employee in the course of his or her employment, formulated by Goulding J at first instance in that case:- "In my view information acquired by an employee in the course of his service and not the subject of any relevant express agreement may fall as regards confidence into any of three classes. First there is information which, because of its trivial character or easy accessibility from public sources of information, cannot be regarded by reasonable persons or by the law as confidential at all ... Secondly, there is information which the servant must treat as confidential (either because he is expressly told it is confidential, or because from its character it obviously is so) but which once learned necessarily remains in the servant's head and becomes part of his own skill and knowledge applied in the course of his master's business. So long as the employment continues, he cannot otherwise use or disclose such information without infidelity and therefore breach of contract. But when he is no longer in the same service, the law allows him to use his full skill and knowledge for his own benefit in competition with his former master; ... Thirdly, however, there are to my mind, specific trade secrets so confidential that even though they may necessarily have been learned by heart and even though the servant may have left the service, they cannot lawfully be used for anyone's benefit but the master's. An example is a secret process which was the subject matter of Amber Size and Chemical Co. Ltd. v Menzel [1913] 2 Ch. 239." Similar categorisations were found useful by the members of the Court of Appeal in Wright v Gazwell Pty Ltd (1991) 22 NSWLR 317. I do not consider that the evidence before me on this application is sufficient to demonstrate a serious question to be tried that the applicant's business records, and in particular its client register and 1994 wall chart contain confidential trade secrets of the kind included within Goulding J's third category in the Faccenda Chicken Case. Nor do I consider that such evidence is sufficient to satisfy the criteria outlined by Gummow J in the Corrs Pavey Whiting and Byrne Case, with the exception, possibly, of the information concerning the applicant's pricing practices. However, an employee can be prevented from using information of his or her employer, even information within the second of Goulding J's categories, if such information, and the advantage that flows from it, have been obtained dishonestly. (See Robb v Green [1895] 2 QB 1). It would be sufficient in this regard for information of a confidential nature to be memorised or copied and subsequently used to the advantage of the former employee. A contrast must be drawn, however, between information obtained in such ways and information necessarily gained by an employee over a long period of employment. The first respondent, in particular, had a very long period of employment with the applicant. As Lord Atkinson pointed out in Herbert Morris Limited v Saxleby [1916] 1 AC 688 at 703-704:- "It is claimed, however, by the appellants that this organization and general method of business are trade secrets which the respondent is not entitled either to divulge to another, or use his knowledge of them in the service of any persons other than themselves. The respondent cannot, however, get rid of the impressions left upon his mind by his experience on the appellants' works; they are part of himself; and in my view he violates no obligation express or implied arising from the relation in which he stood to the appellants by using in the service of some persons other than them the general knowledge he has acquired of their scheme of organization and methods of business." Nothing was placed before the Court on this application to suggest, for example, that the number of the applicant's clients was such that an employee with the employment history of the first respondent would not know their names or at least the names of most of them. The same situation may be presumed to prevail with respect to the types and size of parts required by certain of the cranes made and serviced by the applicant. However, although the evidence placed before me in these regards is limited, it is in my view, arguable that information such as the details of the cranes at each of the applicant's customers' premises, the service history of such cranes, the dates upon which such cranes are due for service and the prices charged by the applicant to its various customers, goes beyond information which would incidentally be picked up by an employee of long standing such as the first respondent. On the whole of the evidence before me there is, I conclude, although with some hesitation, a serious question as to whether the respondents have, or one of them has obtained information of this second kind dishonestly for the purpose of using it to the disadvantage of the applicant. Does the balance of convenience favour the granting of an interlocutory injunction? This case is in a number of ways similar to C E Ellery Ltd v W Wairoa-Harrison and A B McCarthy (1987) 8 IPR 423. McGechan J of the High Court of New Zealand in that case said at 433:- "... I consider overall justice is best served by a restricted degree of interim injunctive relief designed to restrain the possibility of worst abuse, but not being such as is likely to put the defendants, out of business if indeed they are operating honestly." I consider the same approach to be appropriate here. Upon the usual undertaking as to damages being given on behalf of the applicant the following orders will be made:- (1) The first and/or second respondent are forthwith to deliver up to the applicant at the offices of the South Australian agent of its solicitors, such agents being Messrs Daenke O'Donovan of 42-44 Waymouth Street, Adelaide, such of the papers and documents, if any, belonging to the applicant or to the possession of which the applicant is entitled, and any copies thereof and any documents in which material portions of any such papers and documents are reproduced, in the possession or control of the respondents, or either of them, or their respective servants or agents. (2) Until further order of the Court, the first and second respondents, and each of them, are restrained by themselves, their servants or agents, or by any company in which they have or either of them has a material interest, from soliciting customers or former customers of the applicant on any basis which involves consideration of the service history with the applicant of cranes owned or operated by such customers or former customers, and/or consideration of the pricing practices or policies of the applicant in respect of such customer or former customers. (3) Liberty to all parties to apply on 48 hours written notice. (4) The question of costs is reserved. I certify that this and the preceding pages are a true copy of the Extempore Reasons for Decision of the Honourable Justice Branson. Associate: Dated: Counsel for the applicant : Mr H A L Abbott Solicitors for the applicant : Daenke O'Donovan as agents for Patrick Cannon, Coburn & Associates Counsel for the respondents : Dr R Baxter Solicitors for the respondents : Johnson Winter & Slattery Hearing Date : 22 December 1995