Turbosoft Pty. Limited v. Burgess [1999] NSWSC 1005

New South Wales Supreme Court CITATION : Turbosoft Pty. Limited v. Burgess [1999] NSWSC 1005 revised - 30/09/99 CURRENT JURISDICTION : Equity Division FILE NUMBER(S) : No. 3176 of 1999 HEARING DATE(S) : 29th September 1999 JUDGMENT DATE : 29 September 1999

PARTIES : Turbosoft Pty. Limited (Plaintiff) Terry Burgess (Defendant) JUDGMENT OF : Hodgson CJinEq at 1

COUNSEL : Mr. C. Robinson for Plaintiff Mr. R. Bellamy for Defendant SOLICITORS : Anthony Ziade & Associates, Ashfield for Plaintiff Haralambis Lawyers, Surry Hills for Defendant CATCHWORDS : PROCEDURE - COSTS - Plaintiff discontinues after obtaining return of material taken by defendant employee - Basis of costs decision. DECISION : See page 7 of judgment

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

CORAM: HODGSON, CJ in Eq.

Wednesday 29th September 1999

NO. 3176 OF 1999 TURBOSOFT PTY. LIMITED V. BURGESS

JUDGMENT

1 On 14 July 1999, the plaintiff commenced these proceedings against a former employee, seeking various orders in relation to records and information which were alleged to be records and information of the plaintiff. The matter was returned on 19 July 1999; and on that day directions were given for the filing of affidavits by the defendant in relation to the interlocutory application, and the matter was stood over to 22 July 1999. On 22 July 1999, orders were made by consent and without admissions to the effect that until further order, the defendant was restrained in relation to certain information annexed to the order, and also from soliciting clients. On 3 August 1999, the defendant swore an affidavit in which he said that he had not disclosed to any person any of the information referred to in the order; and the material in the possession of the defendant containing that information has now been returned to the plaintiff. 2 In those circumstances, the plaintiff has decided not to pursue any further relief in the proceedings, and the interlocutory orders are now to be terminated and the proceedings dismissed. What I have to decide is the appropriate order as to costs in those circumstances. 3 The defendant was employed by the plaintiff in January 1998, and he resigned on 31 March 1999. It is not disputed that, on 17 March 1999, the defendant caused to be transmitted to him by e-mail two substantial data bases concerning customers of the plaintiff. The defendant says that he was contacted concerning job opportunities in March 1999, that he was offered a job, and that he accepted this job approximately mid-March 1999. 4 It appears that the managing director of the plaintiff first became aware of the transmission of the data bases to the defendant on about 23 June 1999, when the employee of the plaintiff who had transmitted those data bases heard from a customer of the plaintiff about a contact made to that customer by the defendant. 5 The plaintiff's solicitor then on 29 June 1999 sent a letter to the defendant, alleging that shortly before leaving the plaintiff the defendant deliberately took a substantial body of confidential information, the property of the plaintiff, and that he had used that information in the course of his new position. The letter went on to allege that the removal of the information was done without the plaintiff's consent, in breach of its security arrangements, and in breach of clauses of his service contract. The letter went on to require that, before 5pm on 1 July 1999, the defendant remove the information from any computer hard disc, return to the plaintiff all portable media containing the information, provide a written signed undertaking to make no further use of the information, identify in writing all persons who have copies or who have had access to the information, and provide an explanation. The letter went on to say that, failing compliance with those requirements, the plaintiff would commence proceedings. 6 Solicitors acting for the defendant replied by letter of 2 July 1999, advising that the defendant collected the previous letter on 1 July 1999 and claiming that the requested deadline was unreasonable and unfair. The letter stated that the defendant strenuously denied and disputed the matters alleged, and went on to say that at least seven days was required to properly consult with and advise the defendant. 7 By letter dated 5 July 1999, the plaintiff's solicitors extended the deadline to 5pm on 7 July 1999, and enclosed a copy of the employment contract. 8 It appears that there was no response from the defendant or his solicitors before 13 July 1999; and by letter to the defendant's solicitors on that day, the plaintiff's solicitors referred to the previous correspondence and the employment contract, and referred to the defendant's obligations "concerning competitors of Turbosoft and confidential information obtained while employed by Turbosoft." This letter went on to indicate that the defendant was given a further opportunity to provide "proper written undertakings concerning confidential information of Turbosoft and those other obligations referred to above." The letter specified 5pm that day as the time by which such undertakings should be provided. It indicated that, failing such undertakings or acceptable arrangements for them, proceedings would be commenced for injunctive relief. 9 The defendant's solicitors responded by a letter dated 14 July 1999, seeking further particulars, especially as to the identification of the confidential information and the obligations said to arise under the employment contract. Notwithstanding that letter, the plaintiff commenced the proceedings on 14 July 1999 and obtained an order for short service. 10 Mr Robinson for the plaintiff submitted that that history shows that the plaintiff acted reasonably in commencing the proceedings, and that the plaintiff obtained the relief substantially sought; and that accordingly the defendant should pay the plaintiff's costs of the proceedings. 11 Mr Bellamy for the defendant has provided a written outline of submissions, which I will leave with the papers. He submitted that it remained very much in dispute as to whether the material in the defendant's possession at the commencement of the proceedings was the property of the plaintiff, or was confidential information. He submitted that the plaintiff must be considered as having failed on all other allegations made against the defendant. 12 He submitted that it would be inappropriate for the Court to determine, on the material provided on the interlocutory application and without cross-examination, whether the material was owned by the plaintiff or was confidential information, and certainly inappropriate to determine whether the defendant acted in breach of his obligations to the plaintiff in the acquisition of this material. 13 He referred me particularly to the decision of Australian Securities Commission v Austhome Investments Limited (1993) 11 AC 136, and particularly to the propositions set out in the judgment of Hill J at 143. He submitted that, in accordance with those propositions, I should not determine the outcome of a hypothetical trial of the proceedings, but rather determine on the material before me whether the plaintiff acted reasonably in commencing the proceedings, and whether the defendant acted reasonably in defending them. He accepted, as put by Hill J, that I could take into account the fact that interlocutory relief had been granted. However, in circumstances where the interlocutory relief was granted by consent and without admissions, he submitted that I should not take the interlocutory orders as any kind of concession by the defendant that the plaintiff had a case, and he referred me to Baltic Shipping Co. v Dillon (1991) 22 NSWLR 1 at 9. 14 Mr Bellamy further submitted that the first letter of 29 June 1999 did not identify the alleged confidential information, so that it could not be said to be unreasonable for the defendant to have initially disputed the allegations and subsequently sought particulars of them. Furthermore, the letter from the plaintiff's solicitors of 13 July 1999 made demands for undertakings relating to other matters apart from the alleged confidential information, and it was reasonable for the defendant to have sought further particulars. In the circumstances of the correspondence, it was unreasonable for the plaintiff to have commenced proceedings without first replying to the request for particulars in the letter of 14 July 1999 and giving the defendant a reasonable time thereafter to respond. 15 Finally Mr Bellamy submitted that, if I were to consider the plaintiff was entitled to some costs, the defendant should be given costs relating to those issues which the plaintiff raised but then abandoned. 16 In my opinion, it was reasonable for the plaintiff to make the demand which it made on 29 June. The information then available to the plaintiff was that shortly before resigning from the plaintiff, the defendant had obtained large data bases concerning customers of the plaintiff, and that the defendant had recently been in contact with one of those customers. 17 However, I am not satisfied that the defendant acted reasonably in resisting that demand by the plaintiff. The defendant had in fact accepted other employment about the middle of March, that is, about the time when he obtained the data bases or possibly a little earlier. The defendant does swear that the obtaining of that kind of information was something that employees of the plaintiff did in the course of their employment, but I do not read his affidavit as swearing that he obtained this particular information for any particular purpose connected with his employment by the plaintiff. 18 I accept that it would not be appropriate for me to find as a fact that the defendant acted in breach of his obligations in obtaining the information. However I think it is appropriate that for me to say that, on the material before me, I am not satisfied that the defendant acted reasonably in the circumstances in resisting the plaintiff's demand. 19 There is some force in the submission that this particular material was not plainly identified in the letter of 29 June 1999. However I think there is also force in the contention, put by Mr Robinson for the plaintiff, that an employer having reason to suspect that an ex employee had some confidential information would not wish to precisely limit the confidential information specified to the employee and thereby signal to the employee that other confidential information might with impunity be retained. Furthermore, the defendant has not put on any evidence that he was in doubt about what was being referred to in the plaintiff's letter of 29 June 1999. 20 Mr Bellamy did submit that the material was not confidential. I would not make a finding that it was material of such confidentiality that it could be protected by a covenant from being used after employment; but in my opinion it is reasonable to consider it as information of sufficient confidentiality to make it a breach of an employee's obligation to take it during employment and retain it, for any purpose other than the purposes of the employment. 21 In my opinion therefore, once the defendant's solicitors had replied strenuously disputing the material in the letter of 29 June 1999, the plaintiff, after giving a short period as requested in that letter, would have been justified in commencing proceedings. I do not think that is altered by the wider claims made in the letter of 13 July 1999. The plaintiff has obtained substantially what it sought, and it is reasonable for it to seek no further relief. 22 For those reasons, in my opinion the plaintiff is entitled to an order for costs against the defendant. The remaining question is whether it should be the whole costs of the proceedings or something less. I see no reason why the plaintiff should not have the full costs of preparing and filing the summons, and of the interlocutory application and appearances, and of today's argument. The only question in my mind is whether some of the costs of preparation of affidavits should be disallowed. However, in all of the circumstances of the case, particularly circumstances where the plaintiff was not in a position to know exactly what the defendant had done and what the defendant had not done, I do not think sufficient ground is shown to reduce the costs payable to the plaintiff. 23 For those reasons I will order that the defendant pay the plaintiff's costs of the proceedings. 24 The orders are these. 25 I note that material sought to be returned by the plaintiff has been returned. 26 I terminate the interlocutory relief. 27 I dismiss the summons. 28 I order that the defendant pay the plaintiff's costs of the proceedings. *************