New South Wales Supreme Court CITATION : Freedom Motors Australia Pty Limited v Vaupotic [2003] NSWSC 579 HEARING DATE(S) : 23 June 2003 JUDGMENT DATE : 27 June 2003 JURISDICTION: Equity Division JUDGMENT OF : Davies AJ DECISION : Inquiry into damages and other relief ordered. See para 25. CATCHWORDS : Breach of confidential information - whether injunction should issue - springboard principle - inquiry as to damages Balston Ltd v Headline Filters Ltd [1987] FSR 330 CASES CITED : British Franco Electric Pty Ltd v Dowling Plastics Pty Ltd [1981] 1 NSWLR 448 Titan Group Pty Ltd v Steriline Manufacturing Pty Ltd (1990) 19 IPR 353 Freedom Motors Australia Pty Limited (First Plaintiff) PARTIES : Mulco Tool & Engineering Pty Limited (Second Plaintiff) Stan Vaupotic (First Defendant) Leonardo Fabian Garcia (Second Defendant) FILE NUMBER(S) : SC 4303/02 COUNSEL : DA Smallbone (Plaintiffs) M Duncan (Second Defendant) SOLICITORS : Doherty Partners (Plaintiffs) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DAVIES AJ Friday, 27 JUNE 2003 4303/02 - FREEDOM MOTORS AUSTRALIA PTY LIMITED & ANOR v STAN VAUPOTIC & ANOR JUDGMENT 1 HIS HONOUR: In my reasons for judgment of 12 June 2003, I reserved for further consideration the issue of the relief to which the plaintiffs are entitled. At the further hearing, Mr DA Smallbone of counsel appeared for the plaintiffs, Mr M Duncan of counsel appeared for the second respondent, Leonardo Fabian Garcia. The first defendant, Mr Stan Vaupotic, did not take part in the hearing. 2 No orders are sought against Mr Vaupotic. The claim against him will be dismissed. I am informed that Mr Vaupotic did not incur any costs of his own. Accordingly, there will be no order as to costs in respect of the proceedings against him. 3 The case against Mr Garcia based upon the confidentiality of Freedom's process of converting vehicles for wheelchair access failed. However, I held that Mr Garcia had taken with him or retained, when he left his employment with the plaintiffs, a large number of documents which contained information which was confidential to the plaintiffs. Moreover, during the period when he was employed by the plaintiffs, Mr Garcia breached the obligation of good faith which he owed to the plaintiffs by seeking to induce and by inducing customers or potential customers of the plaintiffs to deal with him, Mr Garcia, rather than with the plaintiffs. Moreover, after leaving the plaintiff's employment, Mr Garcia used confidential information concerning customers and potential customers to induce them to deal with him. 4 Mr Garcia left the plaintiffs' employment on 30 May 2002 and, in early June 2003, commenced the business of converting vehicles for wheelchair access. Mr Garcia used the business name "Wheelchair Accessible Vehicles". These proceedings were commenced in September 2002. On 8 October 2002, Campbell J granted an interlocutory injunction. On 15 October 2002, his Honour continued the interlocutory injunction, although his Honour made more specific the information which was not to be used or disclosed by the defendants. On 29 October 2002, his Honour continued the injunction until delivery of judgment in the suit or further order. It does not seem that Mr Garcia took much notice of his Honour's orders. However, over a period, Mr Garcia made changes to the process of conversion which he had adopted and he substituted other suppliers of goods and services for those used by the plaintiffs. 5 Relying upon the "springboard" principle, Mr Smallbone sought a continuation of the order made by Campbell J until 11 October 2003. Mr Smallbone referred in particular to the judgment of O'Loughlin J in Titan Group Pty Ltd v Steriline Manufacturing Pty Ltd (1990) 19 IPR 353. Mr Smallbone submitted that an injunction was appropriate but that it should be limited in time. He submitted that 11 October 2003 would be an appropriate terminating date. 6 In my view, it would be inappropriate to continue the order made by Campbell J. That order is much more extensive than any injunctive order I would now make, even if such an order were warranted. His Honour's order referred to "designs, shapes, dimensions, tolerances, procedures, costs and material detail for component parts for the conversion of vehicles … And any adaptations derived from those details." I have held that Mr Garcia and Mr Vaupotic were entitled to use the knowledge of the plaintiffs' process of conversion which they had gained in the course of their employment. 7 The only matters in respect of which an injunction could be considered are matters such as Mr Garcia's knowledge of the customers and potential customers of the plaintiffs, his knowledge of the break-up of the costs involved in the conversion of vehicles and of the pricing policy and practices of the plaintiffs. 8 These matters are now past history, and in any event, Mr Garcia has been the subject of restraining orders since 8 October 2002. These matters are not of sufficient significance to justify the imposition of an injunctive order relating to the future. I do not accept that it would be appropriate to impose a restraint simply to deprive a defendant of the fruits which the defendant may have gained from a past breach of duty in relation to confidential information. Thus, in British Franco Electric Pty Ltd v Dowling Plastics Pty Ltd [1981] 1 NSWLR 448, Wootten J refused an injunction in circumstances where the defendant may have obtained a benefit of a "springboard" but the information was now a matter of public knowledge. Similarly, in Balston Ltd v Headline Filters Ltd [1987] FSR 330, Scott J said at 341:- "These past breaches of duty, if that is what they were, cannot, in my judgment, sustain an interlocutory injunction on their own account. Whether an injunction, interlocutory or otherwise, can ever be justified on the ground that the grant is necessary in order to deprive a contract-breaker of the fruits of his breach of contract, I regard as highly questionable." 9 Insofar as an injunction was justified having regard to Mr Garcia's actions, the orders made by Campbell J dealt adequately with that matter. No further order is required. If Mr Garcia breached his Honour's orders, that matter can be taken up in other proceedings. 10 The plaintiffs have elected to seek damages. Mr Smallbone has sought an inquiry before the Master as to the damages suffered by the plaintiffs as a result of activities of Mr Garcia which were carried out in breach of his obligation of good faith to the plaintiffs. The precise ambit of the inquiry cannot be ascertained until after Mr Garcia has given discovery. However, the following appear to be the categories making up the subject of the inquiry: (i) Mr Garcia's activities whilst employed by the plaintiffs in seeking to induce and inducing customers or potential customers of the plaintiffs to deal with him rather than the plaintiffs. (ii) Mr Garcia's activities after leaving the plaintiffs' employment by using confidential information of the plaintiffs to assist him to induce customers or potential customers of the plaintiffs to deal with him rather than with the plaintiffs. (iii) The use of drawings which were confidential to the plaintiffs in the course of the business of Wheelchair Accessible Vehicles. (iv) The use by Mr Garcia of confidential information of the plaintiffs with respect to prices and costs. (v) The use of the plaintiffs' documentation such as invoices and letters of quotation. 11 Other categories were suggested by Mr Smallbone. However, these categories intrude into Mr Garcia's entitlement to make use of the knowledge which he and Mr Vaupotic gained during the course of their employment with the plaintiffs as to the means of carrying out conversions of the type which the plaintiffs carried out. I do not regard the use by Mr Garcia of his knowledge of the plaintiffs' suppliers as involving an improper use of confidential information. This was knowledge which Mr Garcia obtained during the course of his employment and which became part of his general stock of knowledge of the industry which he was entitled to use after ceasing to be employed by the plaintiffs. 12 While categories can be determined, it will be incumbent upon the Master, before making an order for damages, to determine that any relevant event in respect of which damages are awarded was an event which was carried out in breach of Mr Garcia's obligation of good faith to the plaintiffs. 13 Mr Smallbone seeks an order for discovery. Mr Smallbone seeks an order that Mr Garcia give within 28 days verified discovery in respect of the inquiry. However, Mr Garcia was unrepresented at the trial and may well be unrepresented in the inquiry. I consider that it would be preferable that an order for discovery should identify the types of documents which are sought. A directions hearing before the Master should be sought. 14 Mr Smallbone seeks an order that Mr Garcia within seven days make available to the plaintiffs copies of the business accounts maintained by him pursuant to paragraphs 2 and 3 of the orders made by Campbell J. However, those accounts would go well beyond the matters to which the inquiry will direct its attention. I would not make such an order at the present time. 15 Mr Smallbone submitted that an order should be made that Mr Garcia within 28 days file and serve an affidavit disclosing the sales made by him in respect of wheelchair conversions since 30 May 2001, specifying the names of the customers, the amounts charged and the work performed. Such an order would again go beyond the ambit of the inquiry. The plaintiffs do not seek an account of profits. 16 Mr Smallbone sought the following order for delivery-up of documents:- "7. Orders that the second defendant do forthwith deliver up to the Court for destruction all originals and copies (whether on paper, electronic or other media) of the documents listed in the schedule hereto . … Schedule All documents retained in the custody, control or power of the second defendant by himself, his servants or agents, of the following classes: (a) Documents retained as a result of having written, drawn or obtained them in the course of his employment with the first plaintiff. (b) Documents retained as a result of copying from the documents or records of the first plaintiff or of the second plaintiff. (c) The second defendant's business plan. (d) The plaintiffs' quotations to customers. (e) The plaintiffs' quotation and work order forms. (f) The plaintiffs' costing forms and calculation sheets. (g) Records of enquiries made by customers or prospective customers to the first plaintiff. (h) Documents which record or contain the plaintiffs' labour estimates. (i) Documents which are the same or substantially the same as the documents within Exhibit AD7 of the Affidavit of Adam Daniel affirmed 24 December 2002 with page numbers 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, ,67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 85, 87, 89, 91, 108, 120, 121, 122, 126, 128, 129, 130, 133, 134, 135, 136, 137, 139, 140, 141, 142 and 143. (j) Documents which are the same or substantially the same as, the documents within Exhibit AD8 of the Affidavit of Adam Daniel affirmed 24 December 2002 with page numbers 152, 153, 154, 155, 156, 157, 158, 159, 160, 161, 162, 163, 164, 165, 166, 167, 168, 169, 170, 171, 172, 173, 174, 175, 176, 177, 178, 179, 180, 181, 182, 183, 184, 185, 186, 187, 188, 189, 190, 191, 192, 193, 194, 195, 196, 197, 198, 199, 200, 201, 202, 203, 204, 205, 206, 207, 208, 209, 210, 211, 212, 213, 214, 215, 216, 217, 218, 219, 220, 221, 222, 223, 224, 225, 226, 227, 228, 229, 230, 231, 232, 233, 234, 235, 236, 237, 238, 239, 240, 241, 242, 243, 244, 245, 246, 247, 248, 249, 250, 251, 252, 253, 254, 255, 256, 257, 258, 259, 260, 261, 262, 263, 264, 265, 266, 267, 268, 269, 270, 271, 272, 273, 274, 275, 276, 277, 278, 279, 280, 281, 282, 283, 284, 285, 286, 288, 289, 290, 292 and 293." 17 I have some concerns about this order for the documents are no longer accessible on Mr Garcia's computer. He has not had access to them since he reformatted his computer. The documents which he has on paper are documents which have been put in evidence during the trial of this case. However, having been informed by counsel for both parties that they have no current instructions to appeal, I consider that it would be unjust to the plaintiffs not to make an order which entitles them to the return of the documents which were their documents and which they regard as confidential. 18 I shall make the order sought by Mr Smallbone with the following changes: · I would omit para (c), for Mr Garcia's business plan was his document not the plaintiffs. · In para (h), I would omit the words "or contain" for the ambit of those words is uncertain. · In paras (i) and (j), I shall omit the words "or substantially the same". I consider that Mr Garcia is entitled to retain his own documents even though they may be substantially similar to the plaintiffs' documents. I earlier made the point that, so far as I can ascertain none of the documents contain material that is truly secret or even vital. All that the documents served to do was to assist Mr Garcia to establish business quickly. That effect has ceased by now. 19 Mr Smallbone sought a declaration that Mr Garcia had contravened s 182(1) of the Corporations Act 2001 in respect of his dealings with Raymond Gary Dobson and with Clayton Brooke. I consider that the plaintiffs are entitled to that declaration, notwithstanding that no additional relief is sought. 20 Mr Smallbone sought a declaration that Mr Garcia breached s 42 of the Fair Trading Act 1987 in respect of an advertising flyer which was distributed at an exhibition on or about 21 or 22 October 2002 and in an advertisement which appeared in the Summer 2002/2003 edition of the Paraquad magazine. That allegation has been established. I shall make the declaration. No further relief is sought. Mr Smallbone sought an order that Mr Garcia deliver up to the Court for destruction the original and all copies held of the advertising flyer. I shall make that order. 21 Mr Smallbone seeks the following order: "11. Orders that the second defendant by himself, his servants and agents be restrained from further distributing or publishing or causing to be distributed or published: (a) any document or advertisement claiming that he or "WAV" was the first to convert Chrysler Voyager vehicles for rear access for wheel chairs; and (b) any document or advertisement claiming that he or "WAV" originated the idea for the conversion of Chrysler Voyager vehicles for rear access for wheel chairs; and (c) any document or advertisement claiming that he or "WAV" has performed modifications on the following vehicle models, until such time as he has performed such modifications on those vehicles: Kia Carnival, Toyota Tarago, Mercedes Benz Vito, and Holden Commodore; and (d) any document or advertisement claiming that he or "WAV" has 20 years experience in the modification of vehicles for conversion to rear access for wheelchairs; and (e) any document or advertisement claiming that his or "WAV's" method of conversion is unique and distinctive." Mr Garcia has shown a propensity to mislead and deceive the public. Mr Garcia has made all these claims. They were incorrect and they were misleading. The statement set out in para (e) was misleading for the process of conversion which Mr Garcia's firm adopted was very substantially based upon the method of conversion which the first plaintiff, Freedom Motors Pty Ltd, introduced into Australia in 1997. I shall make the order sought. 22 The last issue concerns costs. Mr Smallbone sought an order that Mr Garcia pay 80% of the plaintiffs' costs of the proceedings against Mr Garcia. Mr Duncan submitted that the figure should be no more than 30 - 50% of the costs. 23 It is very difficult to assess how much of the costs would have been directed to the issues on which the plaintiffs succeeded and how much to those issues on which the plaintiffs failed. For the purpose of these reasons, I assume that one half of the costs of the proceedings were attributable to the issues on which the plaintiffs failed. Certainly, the plaintiffs failed on the issues which were of most importance to the parties. However, it is not usually appropriate to divide costs between issues on which the plaintiff succeeds and those on which the plaintiff fails. If a defendant's actions justify the institution of legal proceedings, the plaintiff is ordinarily regarded as entitled to the plaintiffs' costs although the plaintiff has joined in the proceedings issues on which the plaintiff is not successful. 24 I take account of all these factors but I am most influenced by the fact that Mr Garcia acted in such a way as to justify the plaintiff in taking proceedings against him. Indeed, his actions were such as to make it almost inevitable that legal proceedings would be instituted against him. I am of the view that justice would be done if I ordered that Mr Garcia pay 65% of the plaintiffs' costs of the proceedings. 25 I shall make the following orders and declarations: (i) Order that the claim made against the first defendant be dismissed. (ii) Order that the matter be remitted to the Master for an inquiry into the compensation payable by the second defendant to the plaintiffs in respect of the breaches by the second defendant of the duty of good faith and confidence implied in his employment contract and that there be judgment for the amount found to be due upon the taking of the inquiry and interest thereon pursuant to s 94 of the Supreme Court Act 1970. The inquiry will include but is not limited to matters relating to the five categories of activities specified in para 10 above. (iii) Order that the second defendant do forthwith deliver up to the Court for destruction all originals and copies (whether on paper, electronic or other media) of the documents listed in the schedule in para 16 of this judgment as amended by para 18 of this judgment. (iv) Declaration pursuant to s 1317E of the Corporations Act 2001 that the second defendant has contravened s 182(1) of the Corporations Act 2001 in respect of his dealings with Raymond Gary Dobson and with Clayton Brooke. (v) Declaration that the second defendant has engaged in misleading and deceptive conduct in breach of s 42 of the Fair Trading Act 1987 by preparing, distributing or publishing or causing to be prepared, distributed or published: (a) an advertising flyer to members of the general public (including to potential customers of both the first plaintiff and second defendant) at an exhibition at the Novotel Hotel at Wollongong on or about 21 and 22 October 2002; and (b) an advertisement which appeared in the Summer 2002/2003 edition of the Paraquad magazine. (vi) Order that the second defendant do within 28 days deliver up to the Court for destruction the original and all copies of the said advertising flyer which are in his, his servants' and agents' custody, control or power. (vii) Order as set out in para 21 of this judgment. (viii) Order that Mr Garcia pay 65% of the plaintiffs' costs of the proceedings. ********** Last Modified: 06/30/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.