FEDERAL COURT OF AUSTRALIA Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2014] FCA 111 Citation: Bayley & Associates Pty Ltd v DBR Australa Pty Ltd [2014] FCA 111 Parties: BAYLEY & ASSOCIATES PTY LTD v DBR AUSTRALIA PTY LTD (ACN 133 308 737) and NIGEL HUCKSTEP File number: ACD 20 of 2010 Judge: FOSTER J Date of judgment: 20 February 2014 Legislation: Copyright Act 1968 (Cth) ss 32, 35, 36 and 115(4) Federal Court of Australia Act 1976 (Cth) s 51A Date of hearing: Heard on the papers Date of Last Submissions: 10 January 2014 Place: Sydney (via video link to Canberra) Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 25 Counsel for the Applicant: Mr IM Neil SC and Mr MJ Heath Solicitor for the Applicant: Goodman Law Counsel for the Respondents: Mr WL Sharwood Solicitor for the Respondents: Bradley Allen Love Lawyers IN THE FEDERAL COURT OF AUSTRALIA AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY GENERAL DIVISION ACD 20 of 2010 BETWEEN: BAYLEY & ASSOCIATES PTY LTD Applicant AND: DBR AUSTRALIA PTY LTD (ACN 133 308 737) Second Respondent NIGEL HUCKSTEP Fourth Respondent JUDGE: FOSTER J DATE OF ORDER: 20 FEBRUARY 2014 WHERE MADE: SYDNEY (VIA VIDEO LINK TO CANBERRA) THE COURT: 1. ORDERS that there be an inquiry as to the amount of damages for which the fourth respondent is liable to the applicant in respect of the fourth respondent's breaches of clauses 3, 21 and 22 of the Australian Workplace Agreement made between the fourth respondent and the applicant on 15 November 2007, and in respect of the fourth respondent's breaches of the duty of fidelity owed by him to the applicant, constituted by the following conduct on the part of the fourth respondent in the period between September 2008 and 5 December 2008: (a) establishing the second respondent for the purpose, inter alia, of competing with the applicant; (b) diverting or soliciting business or custom for his own and/or the second respondent's benefit from the Defence Signals Directorate; (c) taking documents that were the property of, and the contents of which were confidential to, the applicant, being the documents identified in Schedule 1 to these Orders, by emailing copies of those documents in an electronic, digital or machine readable form from his email account with the applicant to his email account with the second respondent on 21, 22, 27 and 31 October 2008, on 5, 8, 15 and 24 November 2008, and on 2, 4 and 5 December 2008, for the purpose of using those documents and their contents, either by himself or with the second respondent, in competition with the applicant; (d) soliciting business or custom for his own and/or the second respondent's benefit by submitting a tender in the second respondent's name to be appointed to a panel maintained by the Australian Public Service Commission in competition with the applicant's tender for the same appointment; (e) assisting a competitor of the applicant, called 'nCompassHR', to tender for the same appointment in competition with the applicant's tender; and (f) diverting the business or custom of Steven Hayes, Alan Arnold, Michael Brown, Michael Cooke, Lisa Norman, Daffyd Gywnn Jones, Paul Robottom, Stephen Healey, Richard Shurmann, Kenneth Skelton and David Long from the applicant to the second respondent. 2. ORDERS that the fourth respondent pay to the applicant the amount ascertained by the inquiry referred to in Order 1 above, together with interest thereon pursuant to section 51A of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act). 3. DECLARES that the fourth respondent breached the fiduciary duty which he owed to the applicant by engaging in the conduct described in Order 1(a) to (f) above. 4. NOTES that, in respect of such breaches, the applicant elects to pursue its claim for equitable compensation. 5. ORDERS that there be an inquiry as to the amount of equitable compensation payable by the fourth respondent to the applicant referred to in Order 4 above. 6. ORDERS that the fourth respondent pay to the applicant the amount ascertained by the inquiry referred to in Order 5 above, together with interest thereon pursuant to section 51A of the Federal Court Act. 7. DECLARES that the fourth respondent breached the equitable duty of confidence which he owed to the applicant: (a) by engaging in the conduct described in Order 1(c) above, and (b) by using the said documents, the contents thereof and/or the information therein, and/or procuring their use by or for the benefit of the second respondent, as set out in Schedule 2. 8. NOTES that, in respect of such breaches, the applicant elects to pursue its claim for equitable compensation. 9. ORDERS that there be an inquiry as to the amount of equitable compensation payable by the fourth respondent to the applicant referred to in Order 8 above. 10. ORDERS that the fourth respondent pay to the applicant the amount ascertained by the inquiry referred to in Order 9 above, together with interest thereon pursuant to section 51A of the Federal Court Act. 11. ORDERS that there be an inquiry as to the amount of damages for which the second respondent is liable to the applicant in respect of the second respondent's breaches of clauses 2.1(d) and 3.1(b) of the Auspicing Agreement made between the applicant and the second respondent on 10 December 2008 by soliciting the services of, and entering into a contract for services with, Stuart Jenkins. 12. ORDERS that the second respondent pay to the applicant the amount ascertained by the inquiry referred to in Order 11 above, together with interest thereon pursuant to section 51A of the Federal Court Act. 13. DECLARES that each of the documents listed in Schedule 2 (the Copyright Documents) is a literary work within the meaning of section 32 of the Copyright Act 1968 (Cth) (Copyright Act). 14. DECLARES that copyright subsists within the meaning of section 32 of the Copyright Act in each of the Copyright Documents (the Subsisting Copyright). 15. DECLARES that the applicant is the owner within the meaning of section 35 of the Copyright Act of the Subsisting Copyright (the applicant's Copyright). 16. DECLARES that the second respondent infringed the applicant's Copyright within the meaning of section 36 of the Copyright Act by reproducing the Copyright Documents. 17. DECLARES that the fourth respondent infringed the applicant's Copyright within the meaning of section 36 of the Copyright Act by reproducing, and/or by authorising the reproduction by the second respondent, of the Copyright Documents. 18. ORDERS that there be an inquiry as to the amount of damages payable by the respondents to the applicant for infringing the applicant's Copyright (including, if appropriate, whether additional damages pursuant to section 115(4) of the Copyright Act should be ordered and, if so, the quantum thereof). 19. ORDERS that the respondents pay to the applicant the amount ascertained by the inquiry referred to in Order 18 above, together with interest thereon pursuant to section 51A of the Federal Court Act. 20. ORDERS that, within twenty-one (21) days of the date of these declarations and orders, each of the second and fourth respondents deliver to the applicant, by its solicitors, Goodman Law, of Canberra, every copy, whether in written or printed form, of any of the Copyright Documents, and any adaptation thereof, that is in their possession, custody, control or power. 21. ORDERS that, within twenty-one (21) days of the date of these declarations and orders, each of the second and fourth respondents destroy or delete every copy in electronic, digital or machine readable form of any of the Copyright Documents, and any adaptation thereof, that is in their possession, custody or control. 22. ORDERS that, within thirty (30) days of the date of these declarations and orders, the fourth respondent, in his own right and also in his capacity as an officer of the second respondent, file and serve an affidavit: (a) deposing to compliance by each of the second and fourth respondents with Orders 20 and 21 above; and (b) in the case of each copy of any of the Copyright Documents that has at any time been in the possession, custody, control or power of either the second respondent or the fourth respondent, but has ceased to be so at any time prior to the making of the said affidavit, deposing to his knowledge, information or belief as to the time, date and circumstances in which the said copy ceased to be in the possession, custody or control of either the second respondent or the fourth respondent, and the identity and location of any person, firm or corporation who acquired or obtained possession, custody or control of the said copy. 23. ORDERS that, within thirty (30) days of the date of these declarations and orders, each of the second and fourth respondents deliver to the applicant, by its solicitors, Goodman Law, of Canberra, a schedule identifying any of the Copyright Documents which have been transmitted by the second respondent and/or the fourth respondent to any other person or entity. 24. ORDERS that the second and fourth respondents pay the applicant's costs of and incidental to the proceeding to date (with the exception of work covered by existing costs orders to the intent that such costs orders will remain of full force and effect and not be disturbed by this order). 25. ORDERS that the applicant may forthwith tax its costs as ordered in Order 24 above and all other costs orders of which it presently has the benefit. 26. ORDERS that the second and fourth respondents may also forthwith tax all costs orders of which they, or either of them, presently have the benefit. 27. ORDERS that the proceedings be listed for directions at 9.15 am on 6 March 2014 before the ACT List Judge. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY GENERAL DIVISION ACD 20 of 2010 BETWEEN: BAYLEY & ASSOCIATES PTY LTD Applicant AND: DBR AUSTRALIA PTY LTD (ACN 133 308 737) Second Respondent NIGEL HUCKSTEP Fourth Respondent JUDGE: FOSTER J DATE: 20 FEBRUARY 2014 PLACE: SYDNEY (VIA VIDEO LINK TO CANBERRA) REASONS FOR JUDGMENT 1 On 10 December 2013, I delivered Reasons for Judgment which addressed all questions of liability in this proceeding (Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2013] FCA 1341) (the principal judgment). 2 I did not make final orders in respect of liability on 10 December 2013. Rather, in order to give the parties a fair opportunity to consider and respond to the findings which I had made in the principal judgment, I made orders that: 1. Within twenty-one (21) days of the date of the publication of these Reasons for Judgment, the applicant lodge with the Associate to Foster J draft Declarations and Orders which it contends give effect to these Reasons for Judgment. 2. Within twenty-one (21) days thereafter, the respondents inform the Associate to Foster J whether they agree that the draft Declarations and Orders proposed by the applicant fairly reflect these Reasons for Judgment and, if the respondents do not so agree, within the same timeframe, the respondents lodge with the Associate to Foster J their version of the Declarations and Orders which they consider the Court should make in order to give effect to these Reasons for Judgment. 3. Thereafter, the question of the relief to be granted by the Court at this stage of the proceeding be decided on the papers. 3 On 19 December 2013, the solicitors for the applicant submitted a draft set of declarations and orders which the applicant contends I ought now to make in order to give effect to the principal judgment. The applicant's draft proceeds upon the basis that, insofar as pecuniary relief is concerned, the applicant, intends to elect (or has already elected) to pursue its claims for damages or equitable compensation (as the case may be) rather than any claim that it might have had for an account of profits. I will note that the applicant has made this election when I make final declarations and orders in relation to liability. 4 The solicitors for the second and fourth respondents (the respondents) provided to the Court their comments on the applicant's draft by letter dated 9 January 2014 addressed to my Associate with which was enclosed a marked up version of the applicant's draft declarations and orders showing the amendments proposed by the respondents. The solicitors for the respondents accepted many of the declarations and orders proposed by the applicant. However, they took issue with some of those declarations and orders. 5 By these Reasons for Judgment, I determine the form of final relief to be awarded to the applicant as a consequence of the principal judgment. That relief relates to liability alone and does not go so far as to assess or quantify any of the applicant's claims for pecuniary relief. 6 In addition to ruling on the issues raised by the parties, I have found it necessary to make several other amendments to the applicant's draft declarations and orders. The only point of substance raised by me concerns the applicant's claim for declarations that the respondents breached their contracts with the applicant. 7 The applicant has also sought an order that its costs be paid on an indemnity basis as and from 30 May 2012. In support of that application, the applicant's solicitors forwarded to my Associate a copy of a letter from those solicitors to the solicitors for the respondents dated 30 May 2012. Part of that letter has been redacted. As I understand the applicant's position in respect of indemnity costs, it relies solely upon the proposition that the respondents unreasonably rejected the offer contained in its lawyer's letter dated 30 May 2012. I shall mark that letter as Exhibit PX-1. I will return to the question of indemnity costs later in these Reasons. 8 The respondents have raised the following issues: (a) In respect of proposed declarations 5 and 9, which are declarations declaring that the fourth respondent is liable to pay equitable compensation to the applicant for breaching the fiduciary duty and equitable duty of confidence which he owed to the applicant, the respondents submit that a qualification should be added to each of those declarations to the effect that the amount of equitable compensation should be expressed to be subject to reduction in the event that the amount of equitable compensation to be awarded duplicates some or all of the damages to be awarded pursuant to the award of contractual damages under Order 1 of the proposed declarations and orders. (b) The respondents also submit that the inquiry as to damages to be ordered in respect of the second respondent's breach of the Auspicing Agreement entered into between it and the applicant on 10 December 2008 should be limited to the breach constituted by soliciting Mr Jenkins to leave the applicant and by otherwise interfering with the due performance of Mr Jenkins' duties as an employee of the applicant (as to which see [259]-[261] of the principal judgment). The applicant, on the other hand, has propounded a declaration and consequential orders which encompass an inquiry into breaches by the second respondent of its contractual obligations of confidentiality under the Auspicing Agreement. (c) The respondents also submit that I should not, at this stage, make a declaration that the applicant is entitled to additional damages pursuant to s 115(4) of the Copyright Act 1968 (Cth) because I have not yet made a finding to the effect that the applicant is so entitled and certainly did not do so in the principal judgment. (d) The respondents also submit that I should not order delivery up of the fruits of the respondent's breaches of duty at this stage but rather should wait until the entire proceeding has been determined. 9 As to issue (a), I do not think that the qualifications sought by the respondents should be imposed. It is quite clear that there is potential for the applicant to be over-compensated if care is not taken in due course when the Court comes to assess and quantify the pecuniary relief to be awarded to the applicant. However, these concerns can be adequately met at the inquiry stage. In my judgment, there is no need to build in the qualifications for which the respondents have contended. 10 As to issue (b), at [262]-[264] (esp at [264]) of the principal judgment, I held that any inquiry into the damages flowing from the second respondent's breaches of the Auspicing Agreement should be confined to the breaches concerning Mr Jenkins and should not extend to the breaches of the contractual terms of confidentiality. I adhere to that view. For this reason I agree with the respondents that the inquiry should be more limited than that which has been proposed by the applicant in its draft declarations and orders. 11 As to issue (c), I agree with the respondents' submission. The question of whether additional damages are warranted and the quantum thereof are both matters to be decided at the inquiry stage. 12 As to issue (d), I do not agree with the respondents. Orders for delivery up substantially as sought by the applicant will be made. 13 At [283] of the principal judgment, I indicated that I would not be prepared to make declarations to the effect that the respondents had breached the Australian Workplace Agreement between the applicant and the fourth respondent and the Auspicing Agreement between the applicant and the second respondent. I considered then that declarations in those terms were inappropriate. I gave brief reasons for that view in the principal judgment. I adhere to that view. Therefore, I decline to make declarations to the effect that the respondents breached their respective contracts with the applicant. 14 Apart from the applicant's proposals concerning costs, the above matters sufficiently highlight the points of substance which have called for alterations to the applicant's draft. I have also made other changes but these are largely matters of style. 15 The applicant seeks three things in respect of costs: First, the applicant seeks an order for costs in its favour against both respondents. As indicated in the principal judgment there is no difficulty with this. Second, the applicant seeks an order that it be permitted to tax those costs forthwith. This is opposed by the respondents. In the circumstances, I am prepared to make such an order given the substantial amount of costs incurred to date and the fact that the liability hearing was undertaken pursuant to an order for separate trials. Third, the applicant seeks an order that its costs be taxed as and from 30 May 2012 on an indemnity basis. This is also opposed by the respondents. 16 The applicant's claim for indemnity costs is based solely upon the proposition that the respondents unreasonably rejected the offer of settlement made by the applicant in Exhibit PX-1. 17 Omitting formal parts, Exhibit PX-1 is in the following terms: We are instructed to make an offer of settlement in the following terms: 1. The second respondent shall consent to a verdict in favour of the applicant on the causes of action identified in paragraphs 22, 30, 34(a)(ii), 34(b), 34(d) and 37 of the Third Further Amended Statement of Claim, and admit that it is liable to the applicant in relation to those causes of action for the relief claimed in Orders 4, 5, 7 and 18 as set out in the Amended Originating Application. 2. The fourth respondent shall consent to a verdict in favour of the applicant on the causes of action identified in paragraphs 10, 19, 30, 34(a)(i), 34(b) and 34(c) of the Third Further Amended Statement of Claim, and admit that he is liable to the applicant in relation to those causes of action for the relief claimed in Orders 11, 12 (insofar as it refers to compensatory damages), 16, 17 and 18 as set out in the Amended Originating Application. 3. The second and fourth respondent [sic] shall pay the costs of the applicant of these proceedings up to the date when this offer is accepted, either as agreed or taxed, on a party and party basis, for which amount they shall be jointly and severally liable. 4. The second and fourth respondent may then elect (a) to have the quantum of their liabilities as aforesaid determined by the Court, in which case: i. The applicant shall give them a discount of five percent on the total of the amounts found to be due by them to the applicant; but ii. they shall pay the costs of the applicant in relation to such a determination, either as agreed or taxed, on a party and party basis, for which they shall be jointly or severally liable; or (b) to forego the determination referred to in paragraph 4(a)(i) above, and instead pay the applicant the sum of [this figure has been masked] for which sum they shall be jointly and severally liable. 5. The second and fourth respondents shall deliver up to the applicant with [sic] seven days of the date when this offer is accepted each and every copy of any of the documents defined in paragraph 9(d) of the Third Further Amended Statement of Claim as 'Huckstep's Bayley Documents' that is in their possession, custody and control, and shall thereupon file an affidavit in these proceedings certifying that (i) they have complied with this requirement, and (ii) they have no copy of any of such document in their possession, custody or control. This offer is only open to be accepted in its entirety by both the second and fourth respondents. Unless we notify you to the contrary, this offer will remain open until the commencement of the trial. Although this offer is made "without prejudice", we reserve the right to refer the Court to it on any issue as to costs which may arise. 18 Exhibit PX-1 is headed "Without Prejudice save as to costs". 19 The proposal contained in Exhibit PX-1 addresses far more than the subject matter of the liability hearing. It contains a detailed proposal in relation to the applicant's claims for compensatory damages. That particular proposal is contained in par 4 of Exhibit PX-1. The effect of the proposal set out in that paragraph was that, if the respondents chose to accept the applicant's offer contained in Exhibit PX-1, the respondents would be put to their election between proceeding to have the Court determine the quantum of the applicant's claim for compensatory damages at the respondents' cost or agreeing to pay (presumably soon after acceptance of the offer) a specified sum of money. In Exhibit PX-1, that sum of money has been blacked out. In addition, the offer required that it be accepted before the commencement of the trial which, as at the date of the offer, was only 13 days away. 20 I do not think that the offer contained in Exhibit PX-1 sufficiently matches the claims in play at the liability hearing to support a claim for indemnity costs. 21 By making the offer contained in Exhibit PX-1 the applicant was seeking to bring to an end the whole of the proceeding at a time when the only hearing which was imminent was the hearing in respect of liability. Although, in principle, endeavouring to resolve the entire proceeding was laudable, the form of offer which was made went far beyond that which was then under consideration. Had the offer been more confined it might well have served as a useful comparator to the result which has so far been achieved. However, it was not so confined and fails to serve that purpose. 22 For the reasons which I have explained, I am not prepared to order costs on an indemnity basis. 23 In any event, I think that the time allowed for the respondents to consider the offer, in the form in which it was put, was too short. Further, were I minded to regard the offer, as put, as sensibly relating to the subject matter of the upcoming hearing, I do not think that I am in a position sensibly to assess it when the applicant has covered up the figure which appears in par 4(b) of Exhibit PX-1. 24 The declarations and orders which I propose to make will reflect the observations and reasons set out above. In large part, nonetheless, they are based upon the draft set of declarations and orders submitted to the Court by the solicitors for the applicant on 19 December 2013. 25 I will also list the matter for further directions as soon as practicable in order to progress the inquiries which I will now order. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster. Associate: Dated: 20 February 2014