Reported Decision : 63 IPR 258 New South Wales Supreme Court CITATION : Woolworths Limited v Mark Konrad Olson & Anor [2004] NSWSC 849 HEARING DATE(S) : 7/09/04, 8/09/04, 9/09/04, 10/09/04, 13/09/04, 14/09/04, 15/09/04, 17/09/04 JUDGMENT DATE : 22 September 2004 JURISDICTION: Equity Division Commercial List JUDGMENT OF : Einstein J DECISION : Limited relief to be given. Short minutes of order to be brought in. ; [NOTE: This is the edited text of the judgment delivered on 22 September 2004. It does not include material [the subject of a confidentiality regime imposed by Court order] which may not be published except in such manner and for such purposes as the Court specifies. (See note at end of Judgment)] CATCHWORDS : Anton Pillar relief granted by Federal Court - Cross-vesting orders made under Jurisdiction of Courts (Cross-Vesting) Act 1987 - Litigation before Supreme Court consolidated to include joint hearing of Federal Court proceedings, proceedings before Industrial Relations Commission under section 106 of Industrial Relations Act 1996-Confidential information - Intellectual Property - Fiduciary obligations of employee - Breach of copyright - Exemplary damages - Contract of employment - Employee agrees to be bound by employers code of conduct requiring employees to declare any interest they might have that could adversely affected employer - Fraudulent intent of employee - Employee determines to accept employment with competitor and to send to home computer e-mail attachments containing highly confidential information of first employer - Conflict between duty and interest exists from moment when employee forms intention to dishonestly take and use employers confidential information for his own benefit, contrary to fiduciary and contractual obligations - Further conflict of duty and interest constituted by the preferring by employee of his own interests in failing to disclose the conflict - Summary dismissal of employee - Restraint of Trade covenants - Employee proposes as soon as permitted to take up a position with major competitor - Relief - No evidence as to any pecuniary loss suffered by employer as a result of employees breach - No evidence of profit acquired by employee - Nominal damages - Restraint provision held invalid - Not possible to read down restraint period or geographic area to give restraint a reasonable operation - Court cannot redraft restraint provision Copyright Act 1968 (Cth) Copyright Amendment (Digital Agenda) Act 2000 (Cth) Corporations Act 2001 (Cth) Evidence Act 1995 (NSW) LEGISLATION CITED : Industrial Relations Act 1996 (NSW) Interpretation Act 1987 (NSW) Jurisdiction of Courts (Cross--Vesting) Act 1987 (Cth) Restraints of Trade Act 1976 (NSW) Trade Practices Act 1974 (Cth) A Buckle & Son Pty Ltd v McAllister (1986) 4 NSWLR 426 Adami v Maison de Luxe Ltd (1924) 35 CLR 143 Adamson v New South Wales Rugby League Ltd (1991) 31 FCR 242 Amalgamated Mining Services Pty Ltd v Warman International Ltd (1992) 24 IPR 461 Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 Angus & Coote Pty Ltd v Render (1989) 16 IPR 387 Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37 ASX Operations Pty Limited v Pont Data Australia Pty Limited (No 1) (1990) 27 FCR 460 Attorney-General v Blake [1998] Ch 439 Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 Australasian Performing Right Association Ltd v Commonwealth Bank of Australia (1992) 40 FCR 59 Autodesk Inc & Ors v Yee & Anor (1996) 35 IPR 415 Autodesk Australia Pty Ltd v Cheung (1990) 17 IPR 69; 94 ALR 472 Bailey v Namol Pty Ltd (1994) 53 FCR 102 Barry v Incitec Ltd & Greenleaf Pty Ltd (1991) 45 IR 143 Bell v Lever Brothers Limited [1932] AC 161 Bettini v Gye (1876) 1 QBD 183 Blyth Chemicals Limited v Bushnell (1933) 49 CLR 66 Boardman v Phipps [1967] 2 AC 46 Boston Deep Sea Fishing & Ice Company v Ansell (1888) 39 Ch D 339 Brackenridge v Toyota Motor Corporation Australia Ltd (1996) 142 ALR 99 Briginshaw v Briginshaw (1938) 60 CLR 336 Bristol & West Building Society v Mothew [1998] Ch 1 Brown v Cunich [1994] ATPR 46-117 Bruce v AWB Ltd (2000) 100 IR 129 Buckley v Tutty (1971) 125 CLR 353 Burazin v Blacktown City Guardian Pty Ltd (1996) 142 ALR 144 Butler v Fairclough (1917) 23 CLR 78 Butt v Long (1953) 88 CLR 476 Canadian Aero Services Ltd v O'Malley (1973) 40 DLR (3d) 371 Canberra Bushrangers Baseball Team Pty Ltd v Byrne (ACTSC), Higgins J, No SC707 of 1994, 21 December 1994, unreported). Canson Enterprises Limited v Boughton & Co [1991] 3 SCR 534 Chappell & Co Ltd v Associated Radio Co of Australia Ltd [1925] VLR 350 Clouston & Co Limited v Corry [1906] AC 122 Coco v AN Clark (Engineers) Limited [1969] RPC 41 Colour Control Centre Pty Limited v Ty (1996) 39 AILR 5-085 Columbia Pictures Industries Inc & Anor v Luckins (1996) 34 IPR 506 (FCA) Comax Secure Business Services Limited v Wilson (unreported, QBD, Richard Seymour QC, 21 June 2001) Concut Pty Limited v Worrell (2000) 176 ALR 693 Consul Development Pty Limited v DPC Estates Pty Limited (1975) 132 CLR 373 Courtaulds Northern Textiles Ltd v Andrews [1979] IRLR 84 Curro and Anor v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 Dart Industries Inc v Décor Corporation Pty Limited & Anor (1993) 179 CLR 101 Davies v General Transport Development Pty Ltd [1967] AR (NSW) 371 Desmond Henry Randall v Aristocrat Leisure Limited [2004] NSWSC 411 Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 Drafting and Enforcing Post-Employment Restraints (1997) 10 AJLL 181 EFG Australia Ltd v Kennedy [1999] NSWSC 922 Elcom v Electrical Trades Union of Australia, New South Wales Branch (1983) 5 IR 267 Ernest Turner Electrical Instruments Ltd v Performing Right Society Ltd [1943] Ch 167] Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269 Exxon Corporation v Exxon Insurance Consultants International Ltd [1981] 2 All ER 495 Faccenda Chicken Ltd v Fowler & Ors [1987] Ch 117 Farley v Lums (1917) 19 WALR 117 Fiduciary Ltd v Morningstar Research Pty Ltd [2004] NSWSC 664 FNH Investments Pty Ltd v Sullivan [2003] FCAFC 246 Francis v South Sydney District Rugby League Football Club Ltd [2002] FCA 1306 Galipienzo v Solution 6 Holdings Limited (1998) 28 ACSR 139 Gilbert J McCaul (Aust) Pty Limited v Pitt Club Limited (1957) 59 SR (NSW) 122 Gooley v Westpac Banking Corporation (1995) 129 ALR 628 Gray v Motor Accident Commission (1998) 196 CLR 1 Guth v Loft (1939) 5 A 2d 503 SCDel Harmer v Cornelius (1858) 5 CBNS 236 Harris v Digital Pulse Pty Limited (2003) 44 ACSR 390 Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 Heptonstall v Gaskin and Ors [2004] NSWSC 80 Herbert Morris Ltd v Saxelby [1916] 1 AC 688 Hollingsworth v Commissioner of Police (No 2) (1999) 47 NSWLR 151 Home Counties Dairies Ltd v Skilton [1970] 1 All ER 1227 Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Idameneo (No 123) Pty Limited v Angel-Honnibal [2002] NSWSC 1214 CASES CITED : Incitec Ltd v Industrial Court of New South Wales (1992) 45 IR 155 Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443 International Writing Institute Inc v Rimila Pty Ltd & Anor (1994) 30 IPR 250 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 IRAF Pty Ltd v Graham [1982] 1 NSWLR 419 Jennings v Stephens [1936] Ch 469 Johnson v Unisys Ltd [2003] 1 AC 518 Jupiter General Insurance Co Ltd v Ardeshir Bomanji Shroff [1937] 3 All ER 67 Kabushiki Kaisha Sony Computer Entertainment v Stevens & Ors (2003) 200 ALR 96 Knogo Corporation v Halligan (1984) ATPR 40-460 Kone Elevators Pty Ltd v McNay (1997) ATPR 41-564 Lakatoi Universal Pty Ltd & Walker [2000] NSWSC 113 Laws v London Chronicle (Indicator Newspapers) Ltd [1959] 2 All ER 285 Littlewoods Organisation Ltd v Harris [1978] 1 All ER 1026 Lloyd's Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 72 ALR 643 Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 Maggbury Pty Limited v Hafele Australia Pty Limited (2001) 76 ALJR 246 Malik v Bank of Credit and Commerce International SA (in liq) [1997] 3 WLR 95 Mellor v Australia Broadcasting Commission [1940] AC 491 Meyrick v Stirling Bros Ltd (1899) 1 WALR 51 Mitchforce Pty Ltd v Industrial Relations Commission of New South Wales & Ors (2003) 57 NSWLR 212 MJA Scientifics International Pty Ltd & Anor v SC Johnson & Son Pty Ltd (1998) 43 IPR 275 Neary v Dean of Westminster [1999] MLR 288 New Zealand Netherlands Society v Kuys [1973] 1 WLR 1126 News Ltd v Australian Rugby League Football Ltd (1996) 64 FCR 410 Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 North v Television Corporation Ltd (1976) 11 ALR 599 Nottingham University v Fishel (QBD) [2000] ICR 1462; [2000] IRLR 471 O'Brien v Komesaroff (1982) 150 CLR 310 Ogden Industries Pty Ltd v Lucas (1968) 118 CLR 32 Orr v University of Tasmania (1957) 100 CLR 526 Orton v Melman [1981] 1 NSWLR 583 Pascoe v Federal Commissioner of Taxation (1956) 30 ALJR 402 Pedler v Richardson (Young J, Supreme Court of New South Wales, 16 October 1997, unreported) BC9705263 Pepper v Webb [1969] 1 WLR 514 Perkins v Grace Worldwide (Aust) Pty Ltd (1997) 72 IR 186 Petrofina (Great Britain) Ltd v Martin [1966] Ch 146 Pilmer v The Duke Group Ltd (in liq) (2001) 207 CLR 165 PMC Holdings v Smith [2002] EWHC 1575 (QB) Polygram Records Inc & Anor v Raben Footwear Pty Ltd (1996) 35 IPR 426 Prenn v Simmonds [1971] WLR 1381 Prior v Lansdowne Press Pty Ltd [1977] VR 65 Queensland Co-operative Milling Association v Pamag Pty Ltd (1973) 133 CLR 260 R v Darling Island Stevedoring & Lighterage Co Ltd; Ex parte Halliday & Sullivan (1938) 60 CLR 601 Raben Footwear Pty Ltd v Polygram Records Inc & Anor (1997) 75 FCR 88 Ravenscroft v Herbert & New English Library Ltd [1980] RPC 193 Reading v Attorney General [1951] AC 507 Regal (Hastings) Limited v Gulliver [1967] 2 AC 134 Rentokil Pty Ltd v Lee (1995) 183 LSJS 444 Robb v Green [1895] 2 QB 1 Rouen v Ryan [2001] NSWCA 230 Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 Ryan v Rouen [2000] NSWSC 468 Saltman Engineering Co Limited v Campbell Engineering Co (1948) 65 RPC 203 Sea Acres Rainforest Centre Pty Ltd v State of New South Wales (2001) 109 IR 56 Sheldrick v WT Partnership (Aust) Pty Ltd (1998) 89 IR 206 Solution 6 Holdings Ltd and Ors v Industrial Relations Commission of New South Wales and Ors (2004) 208 ALR 328 State Rail Authority v Earthline Constructions Pty Limited (O'Keefe CJ, Supreme Court of New South Wales, 14 September 1994, unreported) Stevenson v Barham (1977) 136 CLR 190 Sullivan & Anor v FNH Investments Pty Ltd t/as Palm Bay Hideaway (2003) 57 IPR 63 Talk of the Town Pty Ltd v Hagstrom (1990) 99 ALR 130 Telstra Corp Ltd v Australasian Performing Right Association Ltd (1997) 191 CLR 140 Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488 Turner v Mason (1845) 14 M & W 112 Vardy v Cuthbert (1872) 3 AJR 25 Victoria University of Technology v Wilson & Ors [2004] VSC 33 Walker v Industrial Court of New South Wales & Anor (1994) 53 IR 121 Warman International Limited v Dwyer (1995) 182 CLR 544 Watson v Foxman (2000) 49 NSWLR 315 Webb v Ryleen Pty Limited (Young J, Supreme Court of New South Wales, 8 November 1994, unreported) BC9403215 Whitfeld v De Lauret & Co Ltd (1920) 29 CLR 71 Woolworths Limited ACN 000 014 675 v Mark Konrad Olson & Anor [2004] NSWSC 871 Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 Youyang Pty Limited v Minter Ellison Morris Fletcher [2003] HCA 15 Woolworths Limited ACN 000 014 675 (Plaintiff) PARTIES : Mark Konrad Olson (First Defendant) Dianne Olson (Second Defendant) FILE NUMBER(S) : SC 50116/04 COUNSEL : Mr RM Smith SC, Mr MA Jones (Plaintiff) Mr RM Goot SC, Mr SEJ Prince (Defendants) SOLICITORS : Clayton Utz (Plaintiff) Maddocks (Defendants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Wednesday 22 September 2004 50116/04 Woolworths Limited v Mark Konrad Olson & Anor JUDGMENT The proceedings 1 These proceedings arise out of the employment by Woolworths Limited ["Woolworths"] of Mr Mark Konrad Olson as 'Business Manager-Rebuying 1 (Stocksmart)' and concern their respective legal rights and liabilities in circumstances in which Woolworths purported to terminate that employment in July 2004. 2 Mr Olson contends that he had on 5 July 2004 resigned from employment with Woolworths with effect from 2 August 2004. The contract of employment 3 Woolworths contends that the material contract of employment was dated 1 February 2003 as varied by a letter dated 7 February signed by the Chief Executive Officer of Woolworths ["the Service Agreement"]. 4 Mr Olson contends that at the time in February 2004 when he was demoted by Woolworths [as a result of a breach of Woolworths: policy regarding receipt by e-mail and a failure to delete inappropriate material] a new contract ["the second contract"] came into existence displacing and replacing the Service Agreement. Cross vesting and consolidation 5 On 9 July 2004 Woolworths commenced proceedings in the Federal Court of Australia [N 1077/2004] against Mr and Mrs Olson "the Federal Court proceedings"]. An Anton Pillar order was made on 9 July 2004. 6 On 28 July 2004 Mr Olson commenced proceedings against Woolworths before the Industrial Relations Commission of New South Wales in Court Session seeking relief under section 106 of the Industrial Relations Act 1996 ["the Industrial Relations Commission proceedings" or "the section 106 proceedings"]. 7 On 2 August 2004 the present proceedings were commenced by Woolworths seeking orders for the removal of the Industrial Relations Commission proceedings to the Supreme Court and for the transfer of those proceedings to the Federal Court of Australia. Subsequently by consensual orders made under the Jurisdiction of Courts (Cross-Vesting) Act 1987, both the Federal Court proceedings as well as the Industrial Relations Commission proceedings were transferred to the Supreme Court and orders were made for each of those proceedings to be consolidated with these Supreme Court proceedings. Project Mercury 8 The heart of the dispute concerns a project ["Project Mercury"] on which Mr Olson worked and in respect of which his conduct is alleged to constitute legal wrongdoing giving rise to various causes of action. In broad terms the project which commenced in about the end of 2002 involves an attempt to redefine by use of various software systems and other steps, the Woolworths supply chain. On the evidence costs associated with that supply chain represent between 12 and 14 percent of total retail sales which in the financial year 2003 were $22 billion. 9 The project: · involved a transformation of Woolworths' supply chain and logistics functions so as to result in the supply of products from suppliers into Woolworths' stores for sale to consumers at reduced cost; · involved various processes, systems and procedures specifically designed and devised by Woolworths' employees to improve the supply and logistics functions and operations of Woolworths' business and reduce the costs of those functions and operations · was and continues to be implemented by Woolworths at a cost of approximately $1 billion; · is expected to result in savings to Woolworths of approximately two thirds of the accumulated savings attributable to a large corporate reorganisation and re-alignment project [Project Refresh] - a three phase project which commenced in 1999 10 A considerable volume of evidence was adduced by Woolworths to explain what was involved in Project Mercury. That evidence was generally not the subject of any serious challenge. Indeed Mr Olson himself gave evidence that: · "Woolworths is embarking on an industry-changing supply chain undertaking" [Affidavit 2004 paragraph 81] · "Mercury relies on building complex and well developed supply software packages. An example of that infrastructure is the further development of the automated store ordering system (AutoStockR). That system utilises data collected at point-of-sale. Once that data is enhanced, it will allow for future store forecast requirements, including better promotional planning information. This will also allow Woolworths to consolidate the information up the supply chain, [Confidential section of judgment. Not to be disclosed – see Court Order 22 September 2004]. This, once combined with new technology to be developed in the Transport Management and Replenishment systems, will provide Woolworths with an integrated view of requirements [Confidential section of judgment. Not to be disclosed – see Court Order 22 September 2004]. An example of the sophistication of the planned system is that Woolworths could predict how many tins of Golden circle pineapple slices will be needed by each individual store around the country in two weeks' time. This would allow for orders to be placed against Golden Circle, for delivery by either Golden Circle or Woolworths into the Brisbane DC for on-forwarding to stores via the Woolworths' DC network. Obviously, for a system such as this to work there are many, many components that need to also be in place, from sophisticated software to collect data at the point of sale to sophisticated systems for processing and analysing that data. That infrastructure is significantly ahead of Franklins capability, to my understanding, either now or at any time in the foreseeable future." [Affidavit 3 August 2004 paragraphs 84-86] 11 Notwithstanding that close to the end of Woolworths' case, Mr Olson conceded that the subject information was properly described as 'confidential information', it has remained necessary, bearing in mind the manner in which the proceedings were litigated, to closely focus upon why it is that the subject materials are properly regarded as confidential information. This is because firstly, it is always necessary where relief sought is grounded upon a cause of action in terms of confidential information, to identify what it is that is confidential and why it is appropriately protected by some, and if so what particular court order. This focus is also because Mr Olson contended that understanding exactly what had been downloaded to the home computer was relevant to the fraudulent intent case-the proposition being that on examination, that which had been downloaded was simply not sufficiently detailed to permit of inappropriate use and/or to be of utility to a competitor. For those reasons the judgment treats to a real extent with the detail of Project Mercury and with the environment in which the confidential information requires to be understood. A number of the witnesses called by Woolworths treated with this subject from their separate perspectives, regularly giving similar or overlapping detail. The urgency of the hearing and the requirement to expedite the furnishing of a judgment has led to the need to repeat a deal of this material although, had more time been available, it would have been possible to considerably summarise this evidence. 12 As it is certain that an order will be necessary to limit the access to so much of this judgment as deals with highly confidential material generally treated with in closed court and subjected to the confidentiality regime, the convenient course seems to me to include a deal of the detailed evidence concerning Project Mercury in an appendix. To a certain extent witnesses who gave evidence on that topic also travelled into treating with evidence concerning Mr Olson and other matters so that what is to be found in the appendix will also include some non confidential materials. Ultimately the parties will require to identify with precision precisely which sections to be found both in the main section of the judgment as well as in the appendix, are to be the subject of a permanent confidentiality order. The Options 13 Mr Olson had on 1 July 1999 been granted 80,000 Options to purchase shares in the capital of Woolworths of which, subject to the terms of the Executive Option Plan 1999, 60,000 were exercisable by Mr Olson on 1 July 2004 ["the Options"]. Woolworths' claims 14 It is inappropriate to repeat the record. The full pleaded case is to be found in the Contentions section of the amended statement of claim. What follows is to be regarded as no more than an overview of certain of those allegations. The Court is of course at the same time hearing the Federal Court proceedings as well as the section 106 proceedings. By and large all of the material allegations made in the Federal Court proceedings have simply been repeated in the present proceedings. It will however be necessary to deal with the allegations made in and issues arising by reason of the section 106 proceedings. The alleged fraudulent intentions of Mr Olson 15 Woolworths alleges that on or before 30 June or 1 July 2004, Mr Olson formed a fraudulent intention, which he deliberately concealed and refrained from communicating to Woolworths. The alleged fraudulent intention was to breach the terms of the Service Agreement by: · terminating his employment with Woolworths under the Service Agreement to accept employment with Franklins Pty Ltd ["Franklins"]; · removing, prior to termination, Woolworths' Works and Confidential Information into his own possession; · suppressing, and concealing from, Woolworths any knowledge of: - his proposed employment with Franklins until he had exercised the Options and had removed Woolworths' Works and Confidential Information into his own possession; and - the above described removal of Woolworths' Works and Confidential Information; and - using the Woolworths' Works and Confidential Information) for his own personal gain and advantage including using those materials and/or having them available to him to assist him in and in connection with his employment with Franklins. 16 Woolworths alleges that Mr Olson breached a number of terms of the Service Agreement and breached fiduciary duties said to have been owed to it. The fiduciary duties pleaded are: · a duty not to have a personal interest in or an inconsistent engagement with, a third party, which is in conflict with the obligations owed to Woolworths; · a duty not to obtain an advantage from the use and/or distribution of original literary works of Woolworths' and of confidential information. 17 Woolworths further claims relief for breach of copyright in relation to certain Works ["the Works"] said to have been confidential in nature and to have contained information which was commercially sensitive and proprietary to Woolworths, also said to constitute confidential information within the meaning of the Service Agreement. Woolworths' claims to intellectual property in respect of Project Mercury 18 Woolworths contends that as part of [or in connection with] Project Mercury, a number of original literary works were authored by employees of Woolworths pursuant to the contract of employment, these being described as follows: · the following electronic data files containing documents in relation to Woolworths' "Supply Chain Generic Replenishment Model", and any copies of them and any other documents containing, embodying, or substantially reproducing those documents: · "Standard DSD 1.3.jpg"; · "Standard XD V1.3.jpg"; · "Standard Stocked V1.5.jpg"; · "Vendor Managed V1.0.jpg"; · "Standard DCM 1.5.jpg"; and · "equisites V1.0.jpg", or, alternatively, "Requisites V1.0.jpg"; · the following electronic data files containing documents in relation to Woolworths' "Supply Chain Generic Replenishment Model", and any copies of them and any other documents containing, embodying, or substantially reproducing those documents: · "Generic Replen Model SCRC- v1.14.doc"; · "Vendor Managed V1.0.vsd"; · "Standard XD V1.3.vsd"; · "Standard Stocked V1.5.vsd"; · "Standard DSD V1.3.vsd"; · "Standard DCM V1.5.vsd"; and · "Requisites V1.0.vsd"; and · the document which is a Microsoft PowerPoint Presentation entitled "Rod Presentation - Replenishment" and bears the file name "Rod Presentation.ppt", and any copies of it and any other documents containing, embodying, or substantially reproducing that document. 19 Woolworths contends that: · it was at all material times the owner of copyright in the Works; · each of the Works: - was confidential in nature; - constituted descriptions of processes, systems and procedures specifically designed and devised by Woolworths to improve the supply and logistics functions and operations of Woolworths' business; - was therefore a trade secret; and - contained information that was commercially sensitive and proprietary to Woolworths; and, further, - comprised Confidential Information within the meaning of the Service Agreement. 20 Woolworths' contends that the shares were issued by it without knowledge of the above-described fraudulent intention, in reliance upon particular representations said to have been implicit and in the mistaken belief that Mr Olson was entitled to exercise the Options on 1 July 2004. 21 The representations are pleaded as arising from the circumstances of the exercise of the Options and the deliberate concealment from Woolworths of the alleged fraudulent intention to breach the terms of the Service Agreement. 22 The allegation is that Mr Olson represented to Woolworths and/or deliberately induced to Woolworths to assume that: · he was complying with his obligations under the Service Agreement; · he intended to comply with his obligations under the Service Agreement; · he was complying with his fiduciary duties to Woolworths; · he intended to comply with his fiduciary duties to Woolworths; · he did not have the above described claimed fraudulent intention; · he was acting honestly; and · he intended to act honestly. The principal issues 23 In the result the three principal issues which arise on the Woolworths' case are: Issue 1 Is Woolworths entitled to recover from the defendant the profits which he made when he exercised the options and on 1 July 2004 was allotted 60,000 shares in the capital of Woolworths? Issue 2 Has Woolworths validly enforced the restraint provision in the service agreement between the parties? Issue 3 Irrespective of the validity of the restraint, has Woolworths established that Mr Olson misused its confidential information in breach of clause 5 of the service agreement and if so what relief should be granted? 24 Issue 1 requires a critical question of fact to be determined, namely whether prior to the allotment of shares to Mr Olson, he decided to resign his employment with Woolworths and take up employment with Franklins and take with him to Franklins whatever documents he thought might assist him in the performance of his duties at Franklins 25 Issue 2 involves whether or not Woolworths has validly invoked the restraint provision [in clause 10 of the service agreement] and whether that provision is effective in law. Without being exhaustive the essence of Mr Olson's contention involves the propositions that once he was demoted at the end of February 2004, the service agreement was no longer binding on him and/or alternatively, if it is, it is unenforceable at general law and/or alternatively, if enforceable, is an unfair contract susceptible of variation or modification pursuant to orders to be made under section 106 of the Industrial Relations Act. 26 Issue 3 treats with whether, irrespective of whether the restraint is effective, the Court in the proper exercise of the relevant discretion, would restrain Mr Olson in respect of the use of the information and knowledge which he acquired whilst working on Project Mercury. The issue involves an assessment of the significance of Project Mercury to Woolworths and the extent of Mr Olson's involvement in that project and the knowledge which he thereby gained. 27 Woolworths seeks: · to enforce a 6 month restraint against Mr Olson in terms of the Notice either from 30 June 2004 or 12 July 2004; · obtain equitable relief in order to deal with the exercise on 1 July 2004 by Mr Olson of the options granted to him in June 2000 effective 1 July 1999, by an account of profits; · obtain exemplary damages against Mr Olson for his alleged "contumelious disregard for Woolworth's rights" in relation to the downloading to their home computer by Mr Olson or Mrs Olson, of 2 emails and a number of attachments; · obtain additional damages pursuant to s115(4) of the Copyright Act. Mr Olson's case 28 The case put by Mr Olson centrally seeks to provide an innocent explanation in relation to each of the relevant events. These events are summarised by him as follows: · discussions involving Mr Olson and a potential employer, Franklins culminating in the acceptance by Mr Olson on 5 July 2004 of an offer of employment by Franklins (undisputed on the evidence); · consideration by Mr Olson of his future employment at Woolworths following approaches from and discussions with senior management at Woolworths as recently as 30 June 2004, to restore Mr Olson to an executive role, inter alia in Project Mercury, following his demotion from an executive role in Project Mercury in February 2004 (undisputed on the evidence); · to facilitate his consideration of his future employment within Project Mercury, the forwarding by Mr Olson to his home by email of some Project Mercury documents on 2 July 2004, his last day at work prior to taking 1 week's leave (there being no evidence to the contrary); · the exercise by Mr Olson of the subject Options to acquire Woolworths' shares, he having elected to exercise those options by notice dated 21 June 2004 and having made arrangements for funding the exercise of the Options with Macquarie Bank on the recommendation of Woolworths. 29 His case is that: · he has provided an innocent explanation in relation to all of these events. · he was never asked prior to his employment being terminated or the institution of the proceedings, for any such explanation. · there is no evidence before the Court that can establish fraudulent intention to the requisite standard of proof [see: Briginshaw v Briginshaw (1938) 60 CLR 336]. 30 There are a number of other issues of principle raised by Mr Olson, as for example, [without being exhaustive]: · the contention that Mr Olson was for the purposes of the Copyright Act, licensed or authorised to deal with the Works in the way that he did, the contention being that as an employee he was permitted to have access as part of his job function for work-related purposes to Woolworths' Internet or intranet and to acquire from those sources information for work-related purposes; · the contention that as the Service Agreement was displaced by the so-called second contract, the restraint provision in the Service Agreement was no longer operative; · the contention that if the Service Agreement prevails and the restraint provision contained in it is operative, Woolworths is not able to rely upon that provision for a number of reasons including that the restraint is void on public policy grounds. 31 Mr Olson also seeks to rely upon his section 106 Industrial Relations Act claim inter alia seeking to establish unfairness under that section arising either from the terms of the contract itself, the surrounding circumstances and/or from the manner of performance or operation of the contract. 32 The cross claim contains a number of counts including an implied and fundamental term that at all times Woolworths would maintain the trust and confidence in the employment relationship. Woolworths conduct of 12 July 2004 in seeking and executing the Anton Pillar orders, in entering the home premises without justification and in alleging the anti-competitive restraint is said to constitute a repudiation of the contract. The Evidence 33 It is convenient to turn directly to the evidence. What follows represents the Court's findings in that regard. The seriousness of the allegations made by Woolworths warrants particular attention being given to all material parameters of Mr Olson's employment and there is a need to travel through certain background to put the recent events into context. Commencement of employment with Woolworths and subsequent progression 34 Mr Olson commenced employment with Woolworths in June 1985. Until 12 July 2004, he worked in a series of positions, of ever increasing seniority. Woolworths accept that he was a competent and hardworking employee. Employment with Safeway's 35 Prior to 23 June 2000 Mr Olson had worked for Safeway (for 15 years) in Victoria. 36 By April 1994 Mr Olson had achieved the status of manager. Undertakings to protect confidential information and declarations in respect of conflicts of interest 37 Managers were required to sign undertakings to protect confidential information, and declarations that they did not have, and would inform Woolworths if they did have, any conflict of interest. 38 Declarations to this effect were signed by Mr Olson. These arrangements were formalized when Mr Olson signed the Woolworths Code of Conduct on 15 October 2003. The Code of Conduct contains at page 15 a section entitled "Conflict of Interest". Included in that section is the requirement that: "All employees of Woolworths are expected to declare any interest they might have that could adversely affect the company." …. Failure to disclose a conflict of interest is a serious issue". Executive Option Plan 39 In 1999 Woolworths established a scheme known as the Executive Option Plan ("the Option Plan") also called LTIP (Long Term Incentive Plan). In March 2000 Mr Olson was invited to participate in the Option Plan. He applied for, and obtained 80,000 options over ordinary shares in Woolworths at an exercise price of $5.11 per share. The options were to be exercised in accordance with the plan rules. They were divided into four tranches and were subject to vesting and exercise conditions. They could not be exercised (without Board consent) if the holder ceased employment before the exercise date (Rule 5.7(b)). The effect of this Rule was that the options lapsed if the employee ceased employment prior to the option becoming vested and the exercise date reached. Move to New South Wales – June 2000 40 In June 2000 Mr Olson moved his family to New South Wales and took up the position of Business Manager – Replenishment at Woolworths Yennora premises. Commencement of work by Woolworths to develop a supply chain strategy for the future-2001 41 In 2001 Woolworths commenced work to develop a supply chain strategy for the future. The expression "a supply chain strategy" refers to the combined processes and procedures used in the Woolworths business to acquire stock from suppliers, distribute that stock through a distribution centre ("DC") and make the stock available on shelves for sale to consumers in Woolworths stores. The supply chain involves sophisticated and complex relationships. The object of this work was to achieve a reduction in costs associated with the supply chain [Confidential section of judgment. Not to be disclosed – see Court Order 22 September 2004]. Any reduction in those costs is estimated to increase profitability and competitive advantage. Process modeling - September 2001 42 By September 2001 the project had advanced to a stage where part of the work involved devising a supply chain model. This involved the procedure known as process modeling. It ultimately resulted in a plan or model which identified how each of the steps in the proposed future supply chain for particular classes of product would relate with one another. Six models developed - by April 2002 43 By April 2002 six models had been developed. They were recorded in plans. They had been written by Mr Maier, a Woolworths employee. These may be referred to as "the 6 Process Models" or "the six plans". These are the plans which Mr Olson sent from his Woolworths laptop to his wife's email address on her home PC by the 7.37am email on the morning of 2 July 2004. The Process Models are the Works as defined in paragraph 10 of Woolworths' amended statement of claim. 44 As earlier indicated it is now not disputed that the process plans contained information highly confidential to Woolworths. Nor is it disputed that the plans were brought into existence as part of Woolworths' planning for its future supply chain. On the clear evidence the Process Models are but a small portion of the vast amount of information which Mr Olson had available to him on 2 July 2004 concerning the Project. Resolution to embark upon a total re-engineering of the supply chain - November 2002 45 At a board meeting in November 2002 Woolworths resolved to embark upon a total re-engineering of its supply chain. This involved the rationalization of its DC's, and the integration using computer systems of forecasting, replenishment and distribution functions. The various steps in that endeavour became known as Project Mercury. The Process Models record the elements of the Project. Mr Olson manages the implementation of StockSMART - January 2002-July 2003 46 In the period January 2002 to July 2003 Mr Olson managed the implementation of a project known as StockSMART. It was a DC replenishment planning system. Mr Olson successfully implemented that project. 47 It was complete by March or April 2000. StockSMART inter relates with projects (particularly AutoStockR) in the Project. Mr Olson is appointed to Mercury Program as Replenishment Program Manager - 24 June 2003 48 On 24 June 2003 Mr Olson was appointed to the Mercury Program as the Replenishment Program Manager. Replenishment was one of the activities planned to be implemented as part of the Project in August 2003. 49 Within the general category of Replenishment there were three sub-projects. These involved the project known as Tactical Long Life Flow Through and two projects relating to the use of AutoStockR. 50 The terms of the letter of appointment addressed to Mr Olson and dated 24 June 2003 welcoming him to the Mercury Program and outlining the terms and conditions of his employment [PX 2/830 et seq] as a result of his selection into that program included the following: " Conditions of Employment During the course of your involvement in the Mercury Program, you will have access to information designed to allow Woolworths to maintain our competitive advantage. Please refer to your existing Executive Service Agreement to understand how your standard terms and conditions apply to your involvement on the Mercury Program. Due to the sensitive nature of the Mercury Program, please make specific reference to: * Confidentiality and Access (Clause 5) * Restraint (Clause 10); and * Intellectual Property (Clause 13.G). … Agreement to Changes to Terms and Conditions of Employment During the course of your employment with the Mercury Program you will have access to information that enables Woolworths to maintain a competitive advantage. In recognising the importance of retaining you as a valuable employee and at the same time, protecting that competitive advantage it is necessary to either reinforce or alter some of the conditions of your employment. Confidentiality Each year we ask you to sign a confidentiality statement and the following reinforces your prior undertakings. During the term of your employment you must: i) not disclose to any third party any Confidential Information or trade secrets or intellectual property relating to the Company or a Related Body Corporate; ii) not use or attempt to use any such Confidential Information or trade secrets or intellectual property in any manner which is not in the proper course of your duties and for the sole benefit of the Company or a Related Body Corporate; and iii) use your best endeavours to maintain the secrecy of and prevent the disclosure of any such Confidential Information or trade secrets or intellectual property to third parties. You should note that these obligations survive your employment but will cease to apply to information which comes into the public domain, other than as a breach of your obligations by you. Intellectual Property Intellectual Property refers to creations of the mind, ie inventions or literary and artistic works. The term includes computer programmes, databases, symbols, names, images and designs used in business. This means that during the term of your employment: i) All intellectual property rights in any intellectual property developed or created by you in the course of your employment, whether created during business hours or not, will vest in the Company, and you will have no claim to or interest of any nature in such intellectual property. (ii) Notwithstanding paragraph (i), to the extent necessary you assign to the Company all present and future intellectual property rights in all intellectual property developed or created by you in the course of your employment. Restraint In addition to reinforcing the above, we wish to add a restraint clause as follows. This works essentially so that should you resign and we feel it necessary to restrain you from working for a competitor, we will pay you for the period we wish you not to work. You should note that it would not always be necessary to invoke this clause and we will advise in writing should we deem it necessary to invoke. (a) (i) Within 14 Business Days of the termination of your employment, the Company may elect that the restraint provided for by this clause shall apply to you by notice in writing; and (ii) You acknowledge that these restraints are reasonable in terms of their geographic scope duration and the activities restricted and having regard to the duties performed. You also acknowledge that: 1. These restraints go no further than is necessary to protect the legitimate business interests of the Company; and 2. These restraints do not unreasonably restrict your rights or otherwise work harshly. (b) The written notice referred to in paragraph (a) must be followed by a cheque drawn in your favour for each month of the Restraint Period. (c) Where written notice is given to you in accordance with paragraphs (a) and (b), you agree to be bound by the Restraint. (d) For the avoidance of doubt, payment of the Restraint Payment is in addition to any other payment, which the Company is required to pay you. I have read and understood the above and accept the changes to the terms and conditions of my employment as outlined in this document." 51 Mr Olson worked as the Replenishment Program Manager on the Project from July 2003 to February 2004. Late December 2003 - April 2004 - Rod Presentation - Replenishment 52 Ms Winn is the general manager of the Mercury Program responsible for the project. She gave evidence in relation to the material the subject of the 7.42am email entitled "Rod Presentation-Replenishment". Her evidence was that the attachment to the e-mail comprised a series of slides which were used in the course of a presentation given between late December 2003 and April 2004 to Woolworths managers about aspects of the Project. The presentation was a communications and training document which depicted the replacement and flow-through aspects of the project. It described the strategy to be adopted by Woolworths in the project including costs associated with the implementation and diagrammatic descriptions of certain features and interactions within the project. It was a PowerPoint presentation. 53 Ms Winn had been involved in and had presented the first part of the presentation entitled "Mercury-Why Bother?". 54 The remainder of the presentation had been presented by Mr Evenden. That part of the presentation showed a diagrammatic depiction of the processes and integration of a number of features and systems of the project and specifically those relevant to replenishment and flow through. By "flow through" Ms Winn referred to the process of using AutoStockR and POS information to achieve accurate forecasting and ordering such that goods delivered to the Distribution Centres, and required for delivery to supermarkets on certain day, are able to then be picked on the day that they arrive into the DC for delivery to the store. The presentation also detailed the benefits of moving towards flow through and included the determination of the flow through objectives, and the basis upon which a particular product was determined as being appropriate for flow through. Her evidence included the following: · This Presentation was given on a number of occasions in the period late December 2003 to April 2004 to internal Woolworths groups comprised of senior business managers, business managers and assistant business managers within Buying and Marketing. The Presentation was given each time in a room called the Main Auditorium at Woolworths Yennora offices. The Presentation was used to train the Buying and Marketing teams in the objectives of the business transformations to occur with the implementation of the Project. · To my knowledge, the Presentation was not presented to any persons other than officers of Woolworths. · The Presentation was not provided to staff in hard copy. · The Presentation was restricted in its access to those members of Woolworths staff who were engaged in the Project. The Presentation was only available electronically on a restricted drive. By that I mean a hard drive on the Woolworths network which can only be accessed by authorised persons. · Mr Olson obtained a copy of this presentation due to the fact that on at least one occasion in or about February 2004 when Mr Evenden was not available to give the section of the presentation for which he was responsible, Mr Olson gave it in his place. Mr Olson would only have been able to access the Presentation due to his role in Project Mercury. · Whilst there are some features of the Project which are specific to Woolworths, the diagrammatic description which is incorporated in the Presentation is a plain English explanation of the interaction of processes which Woolworths intends to implement through the Project. Further the Presentation contains details of business reasons and objectives associated with the Presentation. The Utility of the Presentation to a Competitor of Woolworths · I have been asked to comment on whether the contents of any of this Presentation would be of any advantage to a competitor of Woolworths, and if so what that advantage would be. · Whilst the features of the Project which are diagrammatically depicted within the Presentation are features which could be identified and implemented by an Australian competitor, the interactions are, to the best of my knowledge, unique to Woolworths. As far as I am aware, no competitor has achieved the level of planning and process development of these interactions to achieve an effective flow through process. The slides essentially detail, in a way which is easy for non-technical people to understand, the detailed process flows underlying flow-through. These detailed processes are depicted in the DCM plan which is one of the plans in the confidential exhibit "DJ2" referred to in the Affidavit of David John Jacobs sworn on 9 July 2004, a copy of which is produced and shown to me at the time of making this statement. · If a competitor were to have access to the Presentation, it would give them an advantage by reducing the amount of time that would need to be spent in the development of the interactions which are depicted in the Presentation. The slides would assist a competitor who was wanting to develop a supply chain strategy to understand through simple diagrams the complex interaction between systems and processes being utilised by Woolworths. That assistance would be substantially enhanced in the case of a competitor who also had access to the DCM plan referred to in paragraph 26 above. · Using the details and pictorial depictions of the Woolworths supply chain model in the Presentation (particularly in combination with the DCM plan), a competitor would be able to shortcut the development timeframe by leveraging the intellectual rigour that Woolworths has invested in the Project. It would therefore damage the "first mover" advantage that Woolworths has by being the first Australian supermarket retailer to engage in the process mapping of the interactions of a number of supply chain features to achieve effective flow through. [Statement of Ms Winn of 29 July 2004 paragraphs 19-28] 55 Ms Winn under cross-examination gave the following evidence: "Q. And you would agree with me, would you not, that one can obtain any number of supply chain systems from a variety of software manufacturers? A. There's no end to end supply chain system available I believe from any manufacturer. The unique thing about - the thing that is special about this and why we regard it as important to Woolworths is the fact that it takes a number of different systems and actually very carefully, at a very detailed level works through how all of those systems interact . So it is not just one supply chain system available from one manufacturer, no. It is [how] it [is] all integrated, and that work in terms of threading together how those systems work is the part that clearly we spent a lot of time making sure it works efficiently and effectively. Q. Yes, and importantly because it is end to end and integrated? A. Indeed, yes. Q. And that is what makes it so important as far as you are concerned? A. Yes. Well - yes indeed, but every step along that way is important. So the interaction from a transport management system into our replenishment systems all - each piece of that is important in its own right but it is important as an end to end model as well . Q. That is right, it only works as an end to end model? A. No, each piece works independently, each interdependency works, the interfaces between the various systems have been thought through." [Transcript 95] Evidence given by Mr Pokorny 56 Mr Pokorny's position at Woolworths is General Manager, Merchandise Logistics and Homeshop. He has prime responsibilities in the Supermarket Division for the replenishment of the Distribution Centres (and joint responsibility with the General Manager Operations for store stock levels) and inventory management in Distribution Centres. As such he is heavily involved in work groups and various control groups that oversee the shaping and implementation of key components Project Mercury, in one aspect of a larger corporate reorganisation and re-alignment project, Project Refresh, which has been a major feature of the development of the business under the current Chief Executive Officer. Further, he is a member of the Chief Executive Officer's Mercury Steering Committee that oversees the effective alignment, implementation and realisation of the benefits of Project Mercury across the supermarket division. 57 Mr Pokorny also gave evidence [in his affidavit supplemented by evidence given in the witness box] concerning Mr Olson's role within Project Mercury. Portions of his evidence are set out in the Appendix. The evidence was as follows: "Prior to 1 March 2004, Mr Olson was employed in the position of Program Manager Replenishment - Project Mercury, and lead a project team which was responsible for shaping Woolworths' future replenishment processes and systems focusing on the efficient movement/replenishment of stock, including all of the cost analysis associated with the Replenishment initiatives in Project Mercury. He was [from August 2003 until his demotion] actively involved in leading and participating in working groups, project control groups and attending planning workshops which included attendance at various meetings of the Chief Executive Officer's Mercury Steering Committee. In the role of Manager - Replenishment he controlled a team of 20 people responsible for perishable replenishment. The perishable area is one of the more challenging areas of replenishment dealing with fresh foods and short shelf life products. In that new role, Mr Olson maintained continued involvement with Project Mercury. His involvement included attendance at replenishment working party meetings (held fortnightly), the Buying and Marketing Replenishment Management meetings (held weekly) reviewing general issues but including updates and discussions on Mercury issues (most recently discussing In Bound Service Level Measurement, National Distribution Centre range management). In this role, Mr Olson was also part of the Buying and Marketing Inventory/Replenishment Strategy team that meet quarterly to review structure, resourcing and Mercury program implementation (and Mr Olson attended the last such meeting on 2 July 2004). Due to Mr Olson's experience gained in an earlier roles of Program Manager - Stocksmart Replenishment Systems and Program Manager Replenishment - Project Mercury, he was often called upon to make comment upon various Project Mercury replenishment related issues, such as commenting on flow through considerations in replenishment. Mr Olson took responsibility for leading the Stock Smart project, which was a key part of improving our forecasting for distribution centre replenishment. It had a number of components to it, including the automation of the purchase orders and purchase order management Stock Smart was a key component in enabling us to move Project Mercury forward and it enabled us to manage stocks in a more efficient manner and that was one of the key components of providing an EBIT return on the Project Mercury activity. During the course of Mr Olson's employment with Woolworths and, in particular, during the period 2001 to 2004 he had involvement and awareness of most aspects of Project Mercury and had access to virtually all documents relating to replenishment including stock flow plans and other confidential documents and confidential information in respect of Project Mercury generally. As at 2 July 2004, he had in electronic files the documents which constitute "Confidential Exhibit DJ1" and "Confidential Exhibit DJ2" to the Affidavit of David John Jacobs sworn 9 July 2004." Evidence of Messrs Thomas, Maier and Larkin 58 It is convenient to next deal with three further of the witnesses called by Woolworths, each of whom gave significant evidence on a number of areas including the content of the subject e-mails and parameters of confidentiality. They are Messrs Thomas, Maier and Larkin. Their evidence is set out in the appendix. Mr Olson is demoted - February 2004 59 In February 2004 Woolworths management came to learn of a number of Woolworths employees involved in transmitting and/or receiving pornographic emails on the Woolworths internal computer systems. Olson was one of the employees involved. He had received six pornographic emails in the period June 2003 to February 2004. Two of the six were classified as X-rated in that they involved explicit sexual acts involving one or multiple people. The other four were rated as R-rated on the basis that they involved explicit full frontal exposed bodies or body parts. One of the four was rated R-humorous. 60 Forty-seven Woolworths employees were involved. Those who sent X-rated material were terminated. 61 Mr Olson received X-rated material and was demoted. This occurred at a meeting on 25 February 2004. There is a dispute as to the content of the discussions on that occasion and in particular as to whether Mr Olson was told that his executive standing in the company was to be revoked. The relevance of this is that Mr Olson contends that this conversation discharged him from his service agreement (which applied to Executives) which he entered into on 1 February 2003. 62 The evidence before the Court is that Mr Olson was interviewed by Mr Brookes, Ms Singh and Mr Evenden on 25 February 2004. Each of these persons have given evidence in relation to the matter. Only Mr Olson contends that he was informed that his executive standing in the company would be revoked. 63 A standard script [Annexure F to the statement of Mr Brookes of 4 August 2004] for the individual meetings was utilised. Insofar as those who were to be demoted are concerned the standard script includes the following: "Demotion: The consequences of this decision are: · Effective date-? · You will be moved from an Executive to Non Executive role. Your new position will be? · Your salary will be reduced from $? to $? · Your STIP will move from 40% to 25% · Your car will be changed from Berlina to Executive as soon as possible · A formal counselling record of this interview and action will be placed on your personnel file. · Any further breaches of this policy, in whatever form, will result in your Summary Dismissal." 64 Ms Singh gave evidence that she had a clear recollection that Mr Brookes did not say during the meeting that Mr Olson's executive standing in the company would be revoked. She was strongly tested in cross-examination on this evidence. Her evidence is accepted as reliable. Not only did she have a clear recollection of what had been said, but the simple fact was that, as she recalled the position, her understanding was that if Woolworths were to have demoted Mr Olson to a non-executive status, his salary would have reduced down to $87,000, being the entry-level to executives. In fact his salary was only reduced from $130,000 to $120,000 which left him at least three grades above the executive status entry-level [that is to say an employee would become an executive when graded at level 19]. 65 Although it is true that Ms Singh had made a note in her handwritten record of the counselling session stating that "Mark was called back into Bernies office and advise (sic) that he would be demoted as per attached script" and this was not strictly accurate [because had the script been followed to the letter, Mr Olson would have been advised that he would be moved from an executive to a non-executive role], I am satisfied that on the balance of probabilities her evidence may be regarded as reliable on the issue of what in fact happened. Her evidence was consistent with that given by Mr Brookes to which I now turn. Evidence given by Mr Brookes 66 Mr Brookes is the Chief General Manager Project Refresh phase 3. He gave evidence on a number of areas including the uniqueness of Project Mercury, the establishment of the Project Mercury Team and the circumstances of Mr Olson's demotion. 67 It is unnecessary to chronicle the detail of the evidence given by Mr Brookes concerning the discussion which took place at the meeting on 25 February 2004. The critical parameter concerns whether or not he accepts or denies the allegation that he had stated that the 'executive' standing in the company of Mr Olson would be revoked. He absolutely denies making any such statement. That denial and the whole of his evidence is accepted as reliable. He was asked why he was so certain that he had not indicated that Mr Olson's executives standing would be revoked, and answered relying upon the importance of the Long Term Incentive Plan [LTIP]: "Q. And you also told him he would be moved from an executive to non executive role? A. No, that's not right. I said to him that all other parts of his LTIP plan would remain in place and that he would be in a managerial role. Q. You said the words "all other parts of your remuneration, including LTIP, remain in place"? A. That's right, yes. Q. Are you sure of that? A. I am certain. I am certain, yes. Q. I want to suggest to you that you didn't say that but that - sorry, I want to put to you that you didn't say that, that his LTIP would remain in place? A. I did say that to him. Q. And I want to put it to you that you said words to the effect of, "Your executive status with the company will be revoked"? A. That is not true. HIS HONOUR: Q. How sure are you about that? A. I am certain because I understand the importance of the LTIP plan to each of our individuals being such a significant end game potential sum of money, if their options vested successfully. So it is a key component of an individual's remuneration package and therefore something I knew that each of the individuals being counselled that had options and LTIP would be most worried about it." 68 The last answer is in terms which ring very true. 69 Mr Brookes also gave evidence concerning the area of the contractual restraint to the following effect: · "I am aware that Mr Olson signed a Service Agreement dated 1 February 2003 ("the Service Agreement"). I have signed an agreement in identical terms. I had no discussion with Mr Olson at the meeting on 25 February 2004 about the Service Agreement. · I am aware that clause 10 of the Service Agreement provides for a restraint. The terms of that restraint extends to Australia and New Zealand. · Woolworths' competitors conduct business operations both in Australia and New Zealand. In Australia its competitors in the supermarket industry are Coles Myer, FAL (Foodland Associated Limited), Aldi, MetCash, Franklins and many other lesser competitors throughout the whole of Australia. Coles Myer operates in every area in which Woolworths operates. FAL competes with Woolworths stores in food in northern New South Wales, Queensland and Western Australia. Aldi competes with Woolworths in New South Wales, Queensland and Victoria. MetCash competes with Woolworths in all states of Australia, except Western Australia. · Two competitors of Woolworths' in Australia also have operations in New Zealand. Coles conducts Kmart stores in New Zealand. FAL operate three food banners (Woolworths, Countdown and Foodtown) in New Zealand. · Woolworths' business extends beyond the supermarket industry. Woolworths owns Dick Smith Electronics in Australia and also New Zealand. Dick Smith Electronics has a number of competitors in Australia. Harvey Norman, Bond & Bond, Retrovision, Beta Stores, Big Byte and Noel Lemmings, compete with Dick Smith in New Zealand." [Statement of Mr Brookes 4 August 2004 paragraphs 54 – 58] Evidence of Mr Evenden on the executive standing issue 70 Mr Evenden was not able to recall any discussion in the meeting of 30 June 2004 to the effect that Mr Olson 's executive standing in the company would be revoked or words to that effect. Effectively as I understood his evidence, it was that he could not recall one way or the other. Mr Olson works in a demoted position - 28 February-12 July 2004 71 In the period 28 February to 12 July 2004 Mr Olson worked in his demoted position as Manager Replenishment and Perishables and Fresh Products for New South Wales at a reduced salary and not in the Project. His evidence is that his wife was angry and upset by the demotion. He gave evidence that his wife thought he had been unfairly treated and made plain that she was having a hard time understanding why he had been demoted for the particular breach. He told Mr Brookes at the end of April that his wife was very angry and upset with Woolworths and was having a hard time understanding the severity of the punishment for the crime. 72 As to his own state of mind his evidence under cross examination was that knowing what the policy was he agreed that he had been wrong and that he accepted the fact that he was being demoted and went about getting on with life. 73 His later evidence included the following in answer to a question which I asked: "Q. What I don't have any understanding of is as far as you were concerned, the extent to which what had happened became not necessarily public, but knowledge to some of those with whom you worked, or within the firm. I don't know as obviously I wasn't there. I have got no understanding of whether it is, as it were, kept fairly secret, yes X has been demoted. No-one really knows what they did, or whether or not it becomes a talking point and sniggering and so forth. Are you able to help me from your own perspective? I am only interested in as you saw or observed that type of thing. Was it quiet, or was it not quiet and, if so, in what fashion as you understood it? A. It was certainly one of the things that concerned me, coming back into the business, because I was based at Parramatta. I was coming back into Yennora and people would be wondering what's going on. Q. So you were actually based in Parramatta before the demotion? A. Yes. Q. And as soon as it occurred you came to where? A. Back to the Yennora office. Q. Yes, fair enough? A. And that was one of the things I was - that was playing on my mind, how would people react to me coming back if they knew what it was for. I was pleasantly surprised with the team that I came back to, including Peter and the business teams that I was involved with in the perishable area. They basically said to me, look we don't care what the reasons are, we are very glad to have you back. There is lots of challenges in the operation and felt that from my experience point of view I could help them in a number of areas, so the office environment as such in terms of my peers and the people I was working with was really no problem at all. It was quite good. Nobody made any sort of relation to what had occurred. Nobody pressed me by saying what did you exactly do or anything like that. I had certainly had some discussions with a couple of the other people who had been demoted, to get a feeling on how they were going but generally no-one knew about it. 74 This subject is dealt with in the judgment below where, together with a number of other topics gathered together for examination, detailed findings are given concerning what in fact had been a very real and continuing grievance of Mr Olson. Discussions with Woolworths concerning return to pre-demotion activities or similar 75 At the end of April 2004, Mr Olson had discussions with Mr Brookes about Mr Olson returning to a role in the Project. Mr Olson is approached by McKenzie Consulting Mid May 2004 - initial approach 76 It is clear that Mr Olson commenced his discussions with McKenzie Consulting in about mid May when they approached him. He dealt with Ms MacDonald. On his evidence the initial conversation involved conversation to the following effect: "Ms MacDonald: "One of the roles is in DC (Distribution Centre) management focussing on the effective liaison of the retailer's business which is managed via a third party logistics provider. This requires a level of experience in the Supply Chain area and also contractual arrangements. The other role is setting up a replenishment team, process and systems to oversee and manage stock into and out of the DCs of the third party logistic provider. The timeframe for the completion of these activities is very tight. I feel that your skill set is a good match for this role. Mr Olson: "Who is the retailer?" Ms MacDonald: "It is Franklins. The job will be based at Rockdale near the airport. The package is around $150 K per annum but negotiable for the right person. I am interested in you meeting with some senior management from Franklins." Mr Olson: "I need to think about if I would be interested or not. Travel to Rockdale day in day out is something that I am concerned about and the potential impact on my family and myself. Woolworths' move to Norwest is planned for about one year's time and that will be only five minutes from home."" 77 He had understood that he was being interviewed potentially about both of the roles being offered. [Transcript 298] Detail included in Mr Olson's CV submitted to Ms MacDonald and on to Franklins 78 This CV had described Mr Olson's experience from July 2003 up to February 2004 with Woolworths in the following terms: "Replenishment Program Manager – Mercury Program · Initiated Tactical and Strategic Replenishment projects across total Supermarket business units · Main liaison point for Buying and Marketing, Supply Chain, IT and Store Operations for all Replenishment activities. · Set up initial Project Team structure to commence priority Replenishment projects to gain early valuable benefits and learning's." [MFI P2 tab 16] Notice of intention to exercise 60,000 options - 21 June 2004 79 On 21 June 2004 Mr Olson gave notice of his intention to exercise 60,000 options ("the third and fourth tranches") of his option entitlement. They were exercisable (subject to vesting conditions being satisfied) on 1 July 2004 provided he remained an employee of Woolworths to that date and provided that the Board had not determined to lapse the options by reason of clause 5.11. 80 Prior to 1 July 2004 Mr Olson communicated with Macquarie by email in respect of the options and the cap and collar arrangements on 13 May 2004: PX3 pp AO1484-01487 (tab 144); 17 May 2004 PX4 pp A01559-01562 (tab 152); 21 June 2004 PX4 pp A01559-01562 (tab 152); 21 June 2004 PX4 pp A01567-1560 (tab 155); 22 June 2004 PX4 pp A01567-1560 (tab 155); 25 June 2004 PX4 pp A01571-01574; he also received communications from Woolworths on 8 June 2003: PX4 pp A01551-01553 (tab 149); 9 June 2004: PX4 pp A01554-01557 22 June 2004 - introductory meeting with Franklins 81 His evidence was that on about 22 June 2004 he met with Mr Perlov (Franklins' Finance Director) and Mr Morgan (Franklins' General Manager IT) in the city. This was an introductory meeting. His evidence had been that during the course of the meeting, in response to Mr Perlov asking what he had done at Woolworths, he proceeded to go through his CV positions and explain them. When he came to the role of Manager Replenishment, Perishables and Fresh, a discussion took place in words to the following effect: "Mr Olson: "That's a demoted role. I am not sure if Charlie has given you the background but I'll give it to you anyway. I had breached the company policy about email use. I had been sent some inappropriate emails and instead of following the policy I didn't delete some of the emails. An audit was done and a number of people including me were counselled and demoted." Mr Perlov: " What sort of emails were they?" Mr Olson: "Nudie emails."" The conversation continued to the following effect: "Mr Perlov: "Why do you want to leave Woolworths"? Mr Olson: "I'm not sure that I do. I have got a role that is keeping me busy and I have a meeting with Bernie Brookes coming up and hopefully out of that meeting I am going to find out where my future is at Woolworths. " Later in the meeting, the discussion continued in words to the following effect: "Mr Olson: "Can you give me some details around what you were hoping to achieve with the move away from a wholesaling operation into one that you manage yourself." Mr Perlov : "It all comes down to a commercial decision. We believe that we can do it better and cheaper than the current arrangement." Mr Morgan: "We are trying to set up a simple supply chain to get us out of the current Metcash wholesaling arrangements. At the moment, as you probably know, Metcash do everything for us, they get in the stock to the DCs, they manage the DCs and they arrange the stock to get to the stores. We believe we can manage it better ourselves. We will still have third parties operating DCs and carriers, but we will co-ordinate them ourselves. I expect that it will take some 18 – 24 months to get it settled and working efficiently."" Later in the meeting a discussion took place in words to the following effect: "Mr Perlov: "We will need some details of what you are on and what you will be expecting." Mr Olson : "My current salary is $130,000 plus bonus, car and super. My expectations are certainly more than what I'm on." Mr Perlov: "Franklins looks after its employees well and if you are the right person you would be well remunerated. This is a senior position in the organisation and Aubrey Zelinsky (whom I knew to be the CEO of Franklins) will need to have the final say in who would be the successful applicant." Mr Olson: "You need to determine if I am the right person and if you say yes then I have to determine what is right for me – stay with Woolworths or try something else."" 82 Here again the courts detailed findings as to what had actually occurred in the course of the meetings with Franklins and the calls to and from McKenzie Consulting are dealt with in the judgment below where, together with a number of other topics gathered together for examination, detailed findings are given. Further meetings with Woolworths – 23 and 30 June 83 On or about 23 and 30 June 2004 Mr Olson had discussions with Mr Brookes and Ms Singh, about further roles in the Mercury Program and on 30 June with Mr Evenden about the same topic. The meeting of 23 June 2004 84 Mr Olson gave the following evidence with respect to this meeting: "In or about the third week of June 2004, I had a further "catch up" meeting with Mr Brookes, which had been planned many weeks earlier. I assumed that the meeting would again involve a review of my performance and how I was going. The meeting took place in Mr Brookes' office at Yennora with Mr Brookes and Ms Singh in attendance. We had a conversation to the following effect: Me: "Bernie, I am applying myself but to be honest the role I am doing is not as rewarding as I would like. I feel I can offer much more to the company in a strategic role than a day to day role". Mr Brookes: "I'm sure that your penance will be coming to an end at some stage soon. I want to outline to you opportunities that we need to look at in the near future and see is some of these interest you". " Mr Brookes and Ms Singh then outlined a number of possibilities to me including roles in: · trading; · electronic commerce; · Mercury NDC program; · Mercury replenishment; or · Senior Business Manager (SBM) replenishment potentially in the future. As each of these opportunities was discussed I had some questions or queries about them. In respect of the trading role, I said: "Trading is something I have never done before and while it's interesting, I feel that it was not really where I want to be. In respect of the electronic commerce role, I said: "This would be a fairly technical role and I am not really keen on this one anyway." The Mercury NDC (National Distribution Centre) program was broadly discussed as the current project manager on this project was about to go on maternity leave. In respect of that role, I said: "I am interested if the role is going to be more than an administrative records management role." A role in the replenishment division within Mercury was discussed. In respect of that role a conversation to the following effect occurred: Mr Brookes: "We need some support and resources in the replenishment area. Replenishment is a major component of Mercury moving forward and we are going to need a lot of help especially in the strategic projects about to come on line." Me: "I know that resources are needed for this aspect of the project, but I also know that I won't be going back to my previous role, so I need to get more information regarding exactly what I would be doing." Mr Brookes: "I will get job descriptions and more details outlining some specifics of what will be involved". We then discussed a potential SBM (Senior Business Manager) replenishment role in words to the following effect. Me: "I believe I would struggle working in a line management position under Peter." Mr Brookes: "I can understand what you mean. Some people relate well to Peter's style of Management and others don't". Ms Singh: "Are you saying that you would not want the role or you would not want it working for Peter?" Me: "I would love the role"." 85 Mr Brookes accepts (with minor differences) the substance of Olson's account [Exhibit P 10 A paras 16 – 19]. The 30 June meeting 86 It should be noted that the NDC project involved reorganizing products into particular distribution centres and managing the administration and relocation of records relating to that redistribution in Woolworths' computer systems [transcript 216/47 – 54]. Identifying the products to be located in particular DCs had already been done [transcript 217/20]. 87 It should also be noted that dock scheduling involved building a new dock scheduling system which would manage stock in and out of existing DCs so as to act as a link between the TMS, the vehicles the system is managing and the WMS [transcript 218/4 – 16]. Dock scheduling was in very early concepts stage [transcript 219/32]. In late 2003 Olson had participated in meetings about the NDC and the distribution centre and was very familiar with the concept [transcript 218/30 – 49]. 88 The evidence given by Mr Olson as to what occurred during his conversation of 30 June with Mr Evenden was as follows: Mr Evenden: "Bernie told me about your chat with him. There are three main areas where you could fit back into Mercury. They are in e-commerce (electronic commerce), the NDC (National Distribution Centre) program and the replenishment area. The e-commerce role will come into the Yennora Buying office and more than likely fall under my control." Mr Olson: "I am not really interested in working in this field, because it's a technical role and not senior enough." Mr Evenden: "Then there is the Mercury NDC program." Mr Olson: "If that is just managing the administration of the records then I am not really all that interested in it." Mr Evenden: "The role would be more than that. The current NDC Program Manager – Geoff Thomas is currently doing 3 jobs and I am sure that he could do with some help in the NDC role. He is currently filling in for Peter Ramsay (Mercury Program Manager Supply Chain) as well as managing his own team (the Network design team) and trying to oversee the NDC program as well." Mr Olson: "Where would I fit in the NDC program?" Mr Evenden: "You would be involved in managing a number of aspects of the NDC role. Potentially two or three project managers would report to you. They would need to oversee the administration of the records, ensure that the construction component of the DC fitout program stayed on track and also ensure that the co-ordination and implementation of the NDC program was closely managed." Mr Olson: "That sounds good because it branches into a number of areas. Where will the role would be based?" Mr Evenden: "It will be in our Strathfield office. There are also still some opportunities in the Replenishment areas." Mr Olson: "I can't ask to go back into the Replenishment role in my previous capacity as it would not be fair to the two people who have filled my role. If I am to go back into the replenishment area, I'd need to understand in what capacity". Mr Evenden: "Richard Plunkett (Replenishment program manger – Strategic development) will need some support to get some of the strategic projects off the ground. One key project we need to get under way soon will be the dock scheduling project." I thought that this meant I would be assisting Mr Plunkett at a project manager level for some of the up and coming projects and report through to him – that is, that the role would be at a lower level of responsibility than I had been given prior to the demotion. Mr Olson: "I'll use the time off over the holidays and have a think about what I want to do. I have also been approached by an outside party that is interested in me. I have not actively gone after anything, however I have listened to what they have had to say." 89 The evidence of Mr Evenden was: · that the conversation was to the following effect: Mr Evenden: "There are a couple of opportunities in the Mercury Program. One of them would be a Project Management role on the NDC project. The other was a Project management role on a project called Dock Scheduling that was soon to be started" Mr Olson: "I'd like to give them some thought." Mr Evenden: "How have you been feeling since you've been demoted? Have you given thought to going back to Melbourne or looking outside the company?" Mr Olson: "No. I have not been actively looking for a job but I have been contacted by (he used the expression either someone or a head-hunter or words to that effect)." · that at the time that he spoke to Mr Olson on 30 June 2004: · the NDC role was then available, although the precise job specification had not been determined. It, like other jobs on new projects, was one that would develop as time went on; · the dock scheduling project had not yet commenced and no firm date had been set for its commencement. Accordingly, no role in respect of dock scheduling was then available. · that in respect of the conversation recounted in paragraph 101 of Mr Olson's affidavit: · he had no recollection of discussing any e-commerce position with Mr Olson. At that time he is understanding was that the e-commerce role was not within Mr Olson's expertise, and not a role that he would have seen as a fit for Mr Olson. If there was any mention of e-commerce in the conversation (he did not recall there was), it would have only been by reference to some of the projects coming up for Woolworths, and not by reference to a position that Mr Olson may have found of interest. 90 In terms of paragraph 45 of his own First Statement, which recorded his recollection of the discussion concerning the NDC and Dock Scheduling projects he accepted that there was some further discussion about the NDC project. He did not recall any discussion with Mr Olson about the detail of the Dock Scheduling project. 30 June 2004 - meeting with the Managing Director of Franklins 91 Mr Olson's evidence was that on Wednesday 30 June 2004 at about 5:30pm he met with Mr Zelinsky (Managing Director – Franklins) at Franklins' offices in Rockdale. The meeting was an introductory meeting. On his evidence: · He had proceeded to go through his CV and explain his work history as he had done with Mr Perlov and Mr Morgan. He also explained to Mr Zelinsky his demotion in the same terms as he had to Mr Perlov and Mr Morgan. · He then asked Mr Zelinsky about the role in terms of its place in the structure, the accountability of the role, growth of the business and the potential opportunity for advancement. The conversation continued to the following effect: "Mr Zelinsky: "Currently, we are a business with 78 stores. We expect to be opening 2 to 3 supermarkets every year. Pick and Pay (the parent company based in South Africa) are committed to the Australian operation." · Later in the course of the meeting they had a conversation in words to the following effect: "Mr Zelinsky: "Why do you want to leave Woolworths?" Mr Olson: "I'm not sure that I do. I have recently spoken to Bernie [Brookes] and as early as this morning with Rod my former boss about some opportunities and getting me back to where I was before I was demoted. "" · Later in the meeting he said words to the following effect: "Aubrey, I may come with some baggage if I am successful, because I have got a restraint clause in my contract. I've got no idea if Woolworths will enact it or not, I couldn't tell you." Mr Zelinsky: "Well if this goes any further we may need to think about that a bit more." " · There was some further discussion and then Mr Zelinsky said words to the following effect: "What are you after in terms of total package?" Mr Olson: "$180,000". Mr Zelinsky: "We've had six applicants for the role, you are the last one interviewed, we need to make a decision fairly quickly. I need to talk with McKenzie and some one from McKenzie will let you know shortly one way or the other."" [Mr Zelinsky's evidence is detailed later in the judgment.] 92 Shortly after that meeting Mr Olson made two telephone calls to his wife at 6.19pm and 6.40pm. [Ex p 17 page 3]. It is convenient to interpolate that it was Mrs. Olson's evidence that on 2 July she received news of the $200,000.00 offer from her husband by way of a telephone call on his mobile telephone whilst he was driving home [transcript 432/47 – 51] [transcript 433/33 – 52]. Whilst her evidence was that she thought it was on that Friday, she simply could not be certain [transcript 433.38]. Thursday 1 July 2004 - 8 pm - call from Ms MacDonald 93 Mr Olson's evidence was that on Thursday 1 July 2004, at around 8pm, he received a call on his mobile phone from Ms MacDonald. They had a conversation to the following effect: "Ms MacDonald: "Franklins are interested in offering you the role, however before making a decision they want to have a look at your contract to see what complications may arise from it. Aubrey has indicated that you have the skill sets they're looking for, but the restraint is a concern to them due to their timelines." Mr Olson: "I will fax you a copy of the contract. Can you get some details from them about things such as training programs, car parking and laptop?" Ms MacDonald: "Is there anything else you want to query about the role?" Me: "Let me think about it. I will add some comments onto the fax."" 94 His evidence was that after his conversation with Ms MacDonald, he wrote down some questions regarding the Franklins job on a piece of paper which he later used as a fax cover sheet to Ms MacDonald. Offer of employment by Franklins - 2July 2004 at 5.30pm 95 Mr Olson had given evidence that on 2 July 2004 at around 5.30pm, he telephoned Ms MacDonald as he was driving home from Big W's offices at Pennant Hills. They had a conversation to the following effect: "Mr Olson: "Have Franklins had a look at my contract?" Ms MacDonald: "They have and there's not much they can do to assist. Franklins wants to offer you the role. They are keen to employ you at a package of $200,000. They can't afford to wait for an extended period of time if the restraint clause is actioned. I have got answers to the questions you raised with me this morning. I've emailed them to you."" 96 The issue is returned to in the judgment below. Exercise of options 97 Mr Olson having exercised the Options on 1 July 2004, on this day Woolworths issued 60,000 shares in Woolworths to him pursuant to that option exercise. The mechanics of the issue on the day are dealt with below. Mr Olson's last day in his office - 2 July 2004 98 2 July 2004 was Mr Olson's last day in his office at Woolworths having arranged to go on one week's annual leave on 5 July 2004. Mr Olson faxes a copy of his service agreement to McKenzie Consulting and emails the process maps to his wife's e-mail address - 2 July 2004 99 The uncontested evidence as to this early morning is that:- · at 7.23am, Mr Olson forwarded by facsimile to the Franklins Representatives, a copy of the Service Agreement; · at 7.37am, Mr Olson sent, from the laptop computer provided to him by Woolworths under the Service Agreement ("Mr Olson's Work Computer") using the email account molson@woolworths.com.au, an email to the personal email address of the Second Defendant ("Mrs Olson"), diolson@tpg.com.au, which email attached a copy of the following electronic data files: "Standard DSD 1.3.jpg"; "Standard XD V1.3.jpg"; "Standard Stocked V1.5.jpg"; "Vendor Managed V1.0.jpg"; "Standard DCM 1.5.jpg"; and "equisites V1.0.jpg", or, alternatively, "Requisites V1.0.jpg". · at 7.42am, Mr Olson sent, from Mr Olson's Work Computer and using the email account molson@woolworths.com.au, an email to Mrs Olson's personal email address, diolson@tpg.com.au, which email attached a copy of the document which is a Microsoft PowerPoint Presentation entitled "Rod Presentation - Replenishment" and bears the file name "Rod Presentation.ppt". · the two emails in question were downloaded automatically into the Home Computer's inbox, when Mrs Olson checked the Home Computer for incoming emails; · Mr Olson did not at anytime after sending the emails, view them, print them, save them, or forward them, nor did he open any of the attachments to the emails; · Mrs Olson saw the emails, saw that they were work related did nothing with the emails had no interest in the emails, did not open any of the attachments or do anything with them. 100 Mr Olson's contention is that he emailed the process plans to his wife's email address, so that he might be able to consider (using those plans) the job descriptions which he discussed with as to Mr Evenden on 30 June 2004 (chronology item 86). His case is that: · he did so to assist him in forming an opinion as to which area in Mercury, if any, he would like to go, he not having been directly involved with the project since his demotion; · at this stage he was still undecided about leaving Woolworths or going to Franklins; · as it happened Mr Olson's holiday preparations took over and he cannot recall reading the emails or reading any of the attachments and says it is highly unlikely that he did so. Mrs Olson did not open the attachments to the emails because she saw they were work related and had no interest in them nor did she do anything with or to them – they remained in the inbox unread while the family was on holiday in Victoria; · the documents were never supplied or offered to anyone by Mr or Mrs Olson. 101 The material 4 e-mails sent in order were: (a) at 7:37 am the email titled "FW: Supply Chain Generic Replenishment Model": PX4 pp A01614-001621 (tab 166) (confidential); (b) 7:42 am the email titled "FW: Rod Presentation – Replenishment": PX4 pp A01593-01613 (tab 165) (confidential); (c) 9:40 am email titled "FW: WOW collar details": Ex DJ1A; (d) 9:40 am untitled email with 4 email attachments: Ex DJ1A. Mr Olson accepts an offer of employment with Franklins and gives notice of intention to resign 102 At lunchtime on 5 July 2004 (whilst in Victoria) Mr Olson received formal confirmation of employment with Franklins in the role of 'Replenishment Buyer' at a remuneration package of $200,000.00, and notified Woolworths of his intention to resign giving written notice that day. At the time of his resignation Mr Olson informed his superiors that he would be taking up employment at Franklins. Evidence given by Mr Olson concerning the resignation 103 Mr Olson gave the following evidence [in his affidavit]: "131 On 5 July 2004 at approximately 2:30pm after I had accepted the Franklins offer , I called Amanda Schumacher, Mr Pokorny's Assistant, to ask her to call Michael Stiffle, Senior Business Manager Replenishment of Woolworths, out of the weekly video conference. Ms Schumacher chastised me for calling during my holidays, but I told her it was important and I needed to talk to Michael so she organised for him to come out of the video conference and take the call. I had a conversation with Mr Stiffle to the following effect: Me: "Michael, I am handing in my resignation. It has been the hardest decision of my life." Mr Stiffle: "You have to do what you have to do. Who are you going to work with?" Me: "I am going to work with Franklins." Mr Stiffle: "Was this organised through McKenzie". Me: "Yes, how did you know?" Mr Stiffle: "I was approached by McKenzie for a role in Replenishment with another retailer who I thought would be Franklins as well. I told them I was not interested at all. Can you confirm your resignation in writing?" Me: "I will send you an email via my father in law's computer because I don't have the laptop with me, I only have the mobile phone." 132 I then sent my letter of resignation dated 5 July 2004 through to Mr Stiffle at his Woolworths e-mail address as an attachment. Now exhibited to me and marked "MKO10" is a copy of that attachment. 133 At all times I was happy to hand over to Woolworths all of its property in my possession. It never entered my mind that I would keep any Woolworths' property. 134 On Monday, 5 July 2004 between 4:30 pm and 5:00 pm, Mr Pokorny called me on the mobile phone. We had a conversation in words to the following effect: Mr Pokorny: "I have heard some news that you are planning to resign." Me: "Yes Peter I've told Michael [Stiffle] that I'm resigning." Mr Pokorny: "I'm shocked. I'm disappointed. Is it worth me talking with Tom [Tom Flood, Director Supermarkets] and getting you in here for a chat?" Me: "Peter I have committed to Franklins and that's where I wish to go." Mr Pokorny: "I will need something officially in writing." Me: "Peter, I have already emailed through my resignation notice to Michael Stiffle. All Woolworths' possessions are at home in Sydney, the company car is in the garage, the laptop is at home. All I have with me is the mobile phone. I need to know whether or not you need me to come in and work out my notice, which I'm more than happy to do or do you need me to come in and return all of Woolworths' possessions ." Mr Pokorny: "I need to talk to Tom and I will get back to you hopefully tomorrow to inform you. Hopefully it is going to be worked out amicably."" Evidence given by Mr Pokorny 104 Mr Pokorny gave evidence that in respect of that part of the conversation deposed to at paragraph 134 of Mr Olson's Affidavit relating to the return of Company possessions, Mr Olson did not say words to the effect "all Woolworths' possessions are at home in Sydney" or "do you need me to come in and return all of Woolworths' possessions". Instead, on his evidence: · Mr Olson said words to the following effect: Mr Olson: "I need to know whether I will be required to work out my notice, and I will need to bring in my car, laptop, phone and credit cards." Me: "I will need to speak to Tom about the appropriate disengagement procedure. I will get back to you tomorrow." · Mr Pokorny had nominated those items because they are items which were, to his knowledge, always required to be returned by departing executives. · Mr Olson did not inform him that he had any documents which he intended to return to Woolworths. · He also recalled that in the course of that conversation, and in response to his questions, words were said to the following effect: Mr Olson: "I have accepted a position with Franklins in a supply chain role..." 105 Under cross-examination Mr Pokorny's evidence included: "Q. And Mr Olson told you that all his Woolworths possessions were at home in Sydney? A. I do not recall the words "all his Woolworths possessions"… Q. You don't deny he said that? A. I do not recall those words being used. A. I do not recall that in the Monday conversation. Q. So that is the conversation on 5 July? A. 5 July, yes. Q. And he said words to the effect that "The company car is in the garage. The laptop is at home. All I have with me is the mobile phone", he said those words the? A. I do not remember those words being used. I remember the words being used in discussion about the intent to return car, laptop, mobile phone. Q. So he certainly indicated to you on 5 July that he was going to bring those things in? A. Yes. Q. And he said to you words to the effect of, "I need to know whether or not you need me to come in and work out my notice, which I am more than happy to do or do you need me to come in and return all of Woolworths' possessions", words to that effect? A. There was a discussion about the terms of working out notice, to which I responded, "I would have to refer those to Tom Flood in Bernie Brookes' absence". [Transcript 116-117] 106 Mr Pokorny's evidence is accepted as the more reliable. 7 July 2004 107 On 7 July 2004 Olson signed a contract of employment with Franklins [Exhibit PX 4 pages 1668 – 1671]. Conversation between Mr Pokorny and Mr Olson during the afternoon of 8 July 2004 108 There is a conflict of evidence as to this conversation. Mr Olson gave evidence that Mr Pokorny had telephoned him and said: "Put your feet up, you don't need to come in on Monday. Bernie Brookes is returning from holidays on Tuesday morning. I want you to meet Bernie at 8 o'clock Tuesday morning." 109 Mr Pokorny denies the first and second sentences as having been said and contends that the conversation included words to the following effect: Mr Pokorny: "In addition your car, laptop, mobile and credit cards, arrangements will also need to be made for the return of your security pass and discount cards." Mr Olson: "I will also need to bring in the Perpetual Business Manager of the Year award." Mr Olson: "What's the situation with the Restraint Clause? What do you think is going to happen there?". 110 Mr Pokorny's evidence was that because of the speed in which he was raising these questions and Mr Olson's tone of voice, he had the perception that Mr Olson was quite agitated at the time of asking these questions. He then said to him: Mr Pokorny: "Relax. Bernie [Brookes] is away at the moment, returning from holidays on Tuesday morning. You will need to come in and talk to Bernie as head of the Division. Take the day off on Monday and come in and see Bernie on Tuesday morning". 111 His evidence is that Mr Olson did not inform him that he had documents which he wanted to return to Woolworths. Anton Pillar order executed - 12 July 2004 112 On 9 July 2004, Woolworths obtained the Anton Pillar order from Conti J in the Federal Court. 113 On 12 July 2004 Woolworths executed the Anton Pillar order at Mr Olson's premises and recovered the Process Models. 114 During the execution of the Anton Pillar order, Mr Olson was given an envelope by Woolworths' solicitors, containing three letters and a Notice. Each of the letters and Notice was dated 9 July 2004 and was signed by Roger Corbett Woolworths' Chief Executive Officer. 115 There was a small conflict of evidence as between the recollections of a Mr Schaffer, Woolworths' solicitor and that of Mr Gardner, the solicitor for Mr Olson as to what precisely had passed between them on the occasion when the order was executed. Each of them accept that Mr Schaffer had asked what it was that Mr Olson had to say about why he had the two e-mails. The recollection of Mr Schaffer was that Mr Gardner replied: "He says he just sent them to himself so that he could remember them" The recollection of Mr Gardner was that in fact his reply had been: "He has told me that he sent them to himself so that he could remember them to decide whether to leave his job or stay" 116 Neither solicitor had kept a record of what was said. The proceedings do not turn on precisely what was said and I am unable to prefer the recollection of either solicitor to that of the other in terms of credit, there being no attack on the credit of either and each appearing to me to have carried out his best endeavour to fully and truthfully recollect what it was that had been said. The findings of the judgment are consistent with whichever version be correct. The lesson for both solicitors is that the occasion for the execution of an Anton Pillar is of such seriousness that careful note should be taken of any conversations taking place and especially of conversations which may later be sought to be relied upon, as here, in terms of a waiver of legal professional privilege. The letters of termination 117 Two of the letters purported to summarily terminate Mark Olson's employment -one expressed to be effective 30 June 2004 and the other expressed to be effective immediately. 118 The letter of termination expressed to be effective 30 June 2004, which is no longer relied upon by Woolworths, stated, inter alia:- "It came to Woolworths' attention on 6 July 2004 that on Friday 2 July 2004 between 7:37am and 7:42 am you sent several highly confidential and Woolworths' proprietary documents regarding Project Mercury by email to your wife's email address. This was only a matter of days before you tendered a letter of resignation dated 6 July 2004 indicating that you had accepted a position with a competitor of Woolworths, Franklins. It was also the day after you had exercised 60,000 options to purchase Woolworths shares. The proximity of these events indicates that at the time you exercised these options you had the intention to steal confidential information from Woolworths, resign and commence employment with a competitor. Your conduct referred to in the abovementioned paragraphs, constitutes wilful misconduct and wilful breach of duty, being both a blatant breach of your confidentiality obligations as contained within the Agreement, and a breach of your fiduciary duties to Woolworths. Accordingly, your employment with Woolworths is terminated pursuant to clause 7(b) of the Agreement effective 30 June 2004." 119 The letter of termination expressed to be "effective immediately" relevantly provided as follows:- "It came to Woolworths' attention on 6 July 2004 that on Friday 2 July 2004 between 7:37 am and 7:42 am you sent several highly confidential and Woolworths' proprietary documents regarding Project Mercury by email to your wife's email address. This was only a matter of days before you tendered a letter of resignation dated 6 July 2004. Your conduct referred to in the abovementioned paragraph, constitutes wilful misconduct and wilful breach of duty, being both a blatant breach of your confidentiality obligations as contained within the Agreement, and a breach of your fiduciary duties to Woolworths. Accordingly, your employment with Woolworths is terminated pursuant to clause 7(b) of the Agreement effective immediately." The clause 10 (a)(i) Notice 120 With the 2 termination letters, Mr Olson was given another letter enclosing a Notice pursuant to clause 10(a)(i) of his Service Agreement ('Notice') restraining him for a period of 6 months "in Australia and New Zealand from carrying on or being engaged, involved or otherwise interested in, or concerned with …a Competitive Business…" The Notice confirmed that Franklins was a Competitive Business. Mr Olson was also given a cheque for $60,650.00. 121 The letter enclosing the Notice stated, inter alia: "Given the basis for your summary dismissal, it is even more significant that we remind you of your obligations regarding disclosure, use and production of Confidential Information of Woolworths." No explanation called for 122 It is common ground that at no time before Mr Olson was summarily dismissed or subsequently was Mr Olson asked by Woolworths for any explanation in respect of any of the conduct upon which Woolworths relied and continues to rely. The Franklins position 123 Mr Olson has not started working for Franklins. He has given an undertaking in terms of the restraint contained in the Notice until 10 September 2004. 124 Franklins' position regarding Mr Olson's employment is contained in a letter dated 17 August 2004 that it was only able to hold the position open until 30 August 2004, and that after that date if the proceedings are resolved in such a way that Mr Olson is able to make himself available for employment at Franklins, then without providing any guarantees, Franklins will try to accommodate him as an employee. This remains the position as Mr Perlov made clear. Dealing with the case Structure 125 It seems convenient: · to commence with the primary issue of fact concerning the allegations of fraudulent intent; · to then turn to matters of general principle which inform the proper approach to the causes of action which are pressed; · to then deal with each of the causes of action seriatim in order to examine whether they have or have not been made out; · to finally treat particularly with what relief may be appropriate. Fraudulent conduct – the principles 126 There is a plethora of authority in support of the proposition that the Court is bound to see that a case of fraud is clearly proved. An allegation of fraudulent intent is one of the most serious allegations capable of being made. Actual dishonesty is said to be "the hallmark of fraud". The gravity of the allegation has been said to be such that whereas section 140(1) of the Evidence Act 1995 (NSW) stipulates a single standard of proof for all civil cases, namely the balance of probabilities, Section 140(2) preserves the doctrine in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362; Pedler v Richardson (unreported, Supreme Court of NSW, 16 October 1997, Young J) at 10-11. See also McLelland CJ in Eq in Watson v Foxman (2000) 49 NSWLR 315, 319. More recently in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170 the High Court has put the matter in the following terms: "The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary "where so serious a matter as fraud is to be found". Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct." 127 The High Court has pointed out that the evidence given by a man of his intention and state of mind, must be tested: "Most closely and received with the greatest caution." [ Pascoe v Commissioner of Taxation (Cth) (1956) 30 ALR 402] 128 Courts have emphasized that the best evidence of a man's purpose is to look at what was actually done: ASX Operations Pty Limited v Pont Data Australia Pty Limited (No 1) (1990) 27 FCR 460 at 482 - 483. 129 Notwithstanding the extremely high bar facing Woolworths in seeking to make good its case of fraudulent intent, I am entirely satisfied that the case has been well and truly proven on the evidence before the court. It is to be recalled that this litigation includes a rather unusual feature in that it has been brought on so very speedily for final hearing. Mention is made below of the fact that Mr Olson had commenced to make notes for the purpose of preparing his affidavit within a few days of the execution of the Anton Pillar order. Hence there is really very little room for the suggestion that a genuine mistake of recollection on very important parameters has been made. This consideration does assist in the decision as to credit and reliability concerning the evidence given by Mr Olson. 130 Mr Olson's evidence cannot be accepted as reliable in many of the areas where critical parameters of his case were involved. It was on a number of occasions clearly inconsistent with contemporaneous documentary material and with the evidence given by other witnesses who gave reliable evidence. His evidence on the critical timing issue as to when he had been informed of the $200,000 package was fabricated. 131 It is convenient to very shortly deal with the evidence given by Mrs Olson. This evidence also cannot be accepted as reliable on a few topics where the critical dates and times were concerned. Most particularly her evidence that she received news of the $200,000 offer from her husband on 2 July is rejected. As one would expect, Mrs Olson appeared to have been profoundly affected by the whole of the recent events - doubtless the huge significance of a claim of fraudulent intent by her husband would have affected her very deeply indeed. In a number of areas her recollection was very poor. In one area her evidence can be clearly accepted and that is where her evidence was as follows: "Q. And did it come to your friends' attention that your husband had been demoted to your knowledge for being involved in pornographic e-mails? A. It was well known in Woolworths, yes. Q. And amongst your circle of friends? A. There were a few in our circle that were in the same circumstances." [Transcript 430] 132 As will appear from what follows there are very many clear indicators requiring a rejection of the fundamental tenet put forward by Mr Olson, which is that he acted entirely innocently in downloading the critical emails to the home computer on the morning of 2 July 2004. These indicators are to be found in a number of areas which add up to satisfy the requisite clear or cogent or strict proof necessary [cf Neat Holdings supra]. 133 I am satisfied that: · Mr Olson was very much affected by his demotion, then forming a strong belief - which in the event came to be a continuing belief, that he had been very poorly treated by Woolworths in the circumstances [cf the evidence given by Mr Perlov (at transcript 343.24) which is accepted as reliable]. It was put to Mr Olson that he had told Mr Perlov and Mr Morgan on 22 June that he was upset and had been harshly treated by the demotion - he was not able to deny this but his evidence was that he could not recall saying this; [transcript 420] · this finding is clearly confirmed by the evidence concerning his wife's anger at the demotion and her anger and concern with the severity of the punishment for the unauthorised e-mail use. The Court's finding is that Mr Olson shared this anger and concern at all material times; · that same matter was fuelled and exacerbated by the equally clear evidence that Mr Olson had not thereafter been happy working under Mr Pokorny. [cf the evidence given by Mr Olson at transcript 294.7] 134 Of extreme importance is the particular chronology where, from the perspective of Mr Olson, the overriding parameter was always the importance of securing the proper exercise of the options on 1 July 2004, with an anticipated commercial benefit of in excess of $200,000. That his eye and focus was squarely fixed upon that objective screams out from all of the evidence [cf Mr Olson's own evidence given at transcript 291.46-293]. Nor could he deny (although his evidence was that he could not recall) the proposition that he had informed Ms MacDonald that if he was to move employment, he could not move before 1 July [transcript 299.12]. 135 The other indicators are to be found in a minute examination of the whole of the events which unfolded concerning: · the commencement of his negotiations with Franklins and what he was told by Franklins as to their interest in him; · when and in what circumstances he was given by Franklins to believe that he would receive a salary package at a particular level and the point in time when he regarded the particular offer [albeit not yet formalised in writing and still subject to the working out of the 'restraint' issue] as more than interesting -indeed as absolutely acceptable; an offer which he intended to accept; · the timing and content of his discussions with Woolworths as to the possibilities available for his post demotion further employment by it; · the Court's finding that his belief was that were he to resign in order to work with a competitor, the high probabilities were that Woolworths would not permit him to work out his notice period and that he would no longer have access to the Woolworths computer system; · the timing of his sending the subject e-mails to the home computer; · the content of the subject e-mails and the finding of unreliability of his evidence that the e-mails were transmitted in order to permit him to better gain an assessment of what it was that Woolworths was suggesting would be available to him in his post demotion employment ["how Project Mercury restructured and how the roles which Mr Evenden had mentioned on 30 June would be positioned"]; · his failure to inform anyone that he now held on the home computer, confidential materials of Woolworths which he had sent on the Friday by e-mail. 136 Clearly the whole of the cross-examination of Mr Olson (weighed in the light of all of the evidence, documentary as well as provided by witnesses) is of extreme importance in assessing his credit and in weighing up the substance of his so-called "innocent explanation" of his purpose in sending the subject e-mails to the home computer. 137 A deal of the evidence before the court has already been identified earlier in this judgment. The appropriate course is to proceed by examining the more particular evidence justifying the above findings [in the light of all of the evidence]. Rejection of particular evidence 138 Under cross-examination [transcript 411-412] Mr Olson conceded that to have access to the information recorded in the subject six plans concerning forecasting would at least be of interest to a person who was taking up a role with Franklins as replenishment buyer [assuming a responsibility for accurate forecasting to ensure that stock levels were to be maximised]. 139 His evidence [transcript 376.9] that he was simply sending the e-mails the subject of these proceedings to the home computer "as part of a cleanup process" is rejected. It has to be appreciated that, as he accepted, as long as his laptop was with him and he had remote access functionality to the Woolworths server, he did not need to send the e-mails to the home computer in order to have access to them while he was at home. [Transcript 376.11] 140 His evidence that he was very undecided right across the weekend and only made up his mind to leave Woolworths and go to Franklins on Monday 5 July is rejected. The finding is that this decision was made on 1 July prior to the 2 July sending of the emails to the home computer. His evidence [transcript 397.12] that the first moment in his life when he decided that it was unnecessary to look for any reason at the e-mails which had been sent to the home computer was on that Monday morning after he had decided that he was going to accept the job with Franklins is rejected. Had he been genuinely interested in accessing various e-mails, flowcharts and the like to determine some question as to the detail of the matters which Woolworths had discussed with him, he could have taken his laptop with him to decide at leisure over the weekend or during the following week by reference to all manner of extremely detailed information. 141 His evidence that the reason why he sent the e-mails to the home computer was because he had had doubts about particular matters in relation to the potential jobs which he had discussed with Mr Evenden on 30 June is rejected. Those suggested doubts concerning: (1) where dock scheduling would reside within the process model, [that is to say whether the system would be developed in a TMS environment; in the replenishment arena; would have to be integrated into WMS]; (2) who would be accountable in respect of the requirement to determine what needed to be done; (3) who would end up designing and developing the system; (4) what planning would be undertaken in terms of IT development could to a considerable extent have been clarified by Mr Evenden. No questions of the type were put to Mr Evenden on 1 or 2 July or over the weekend. Mr Olson's evidence was that he had determined to source the answer to these questions himself by reference to the materials which he had downloaded to the home computer which materials he felt "would help me form some sort of more qualified decision" [Transcript 396.4]. 142 The proposition that Mr Olson had some doubts as to what the NDC program role would envisage in general terms was treated with in the cross-examination as follows: "Q. If you go please to tab 83 in the folder, you have, don't you, a subfolder headed NDC information? A. I do. Q. Which contains a deal of information, does it not, relating to the NDC project? A. Yes, it does. Q. Now, was the information recorded… in the screen that you are looking at now in some way to your mind deficient? A. I don't know what is involved in all the e-mails that are stated there. Some of them appear to be based around the ranging side of things. In terms of any other information that may be available I am not too sure. Q. But did you, when you wanted to seek out this further information on 30 June about where the project was up to, think, "Well, I will have a look at the NDC screen that I have on my computer"? A. I can't recall if I specifically went into that screen to look at it at all. Q. It would be the first place you would go, wouldn't it, if you had a desire, as you say you had, after this discussion with Mr Evenden, to obtain further information, do you agree? A. I certainly had a desire to get some more information. I still recall that the plans from previous viewings some time ago held the view of this is how you get stock across the receipt dock, pass it through the systems and get it out to the dispatch dock and onto stores. Whether it is an RDC or a NDC, some of those processes are going to be involved in that and I still felt that that would provide a reasonable view of how the processes would need to work in the NDC as well. [Transcript 393-394] The date of the $200,000 package offer 143 The evidence in this regard came forward in an extremely unfortunate manner where, following the closing of cases by both parties and following final addresses and the court reserving judgment, an application was made to permit the defendant to reopen its case by calling Ms McDonald. The application was successful and her evidence was then taken. The interlocutory judgment [2004] NSWSC 871 granting that leave is self-explanatory. 144 Woolworths counsel was entitled to further cross-examine Mr Olson and in shortly exercising this right, the further evidence comprised Mr Olson's continued adherence to not having learnt until 5:30pm on 2 July about the $200,000 package. In response to the question as to what it was about his recollection which enabled him to confidently swear that this was the case, he answered that his belief was that he had made a call on the way home from his mobile telephone in respect of which it is common ground that there was no telephone record. 145 The difficulties which these events caused may be summarised as follows: · Mr Olson had in the first tranche hearing given his evidence as to when the $200,000 offer had been made to him and had then been extensively cross-examined on that topic, this being arguably the most significant factual issue in the whole of the litigation; · during final addresses the Court had engaged in reasonably extensive exchanges with both counsel concerning many parameters of this issue at a time when Mr Olson had been present in court and would therefore have likely come to appreciate a number of points of view including possibly logical inferences capable of being drawn from the evidence which must now be taken into account in assessing his state of mind at the time when he gave his short further evidence following the adducing of evidence from Ms MacDonald; · there are obvious difficulties for the Court in seeking to 'unwind the clock' as it were, in order to comprehend the further evidence. 146 Notwithstanding these difficulties the task of the Court is obviously to proceed upon the basis of making findings on the totality of the evidence which now of course requires to be assessed in the light of the evidence called in the second tranche. I shall proceed accordingly but identifying where appropriate what had been the position during the first tranche evidence and then what became the position following the second tranche evidence. 147 Mr Olson early in his first tranche cross-examination [transcript 279] gave the following evidence: "Q. Prior to sending the two emails, had you been offered, whether conditionally or otherwise, a job with Franklins at a remuneration package of $200,000? A. No. Q. Had the figure of $200,000 been mentioned to you as a possible package from Franklins prior to you sending those emails on the morning of 2 July ? A. No . Q. You are quite clear about that, are you ? A. Yes . Q. You are as clear about that as anything else that you have given evidence about in this case, is that right? A. Yes. Q. There would be no doubts, no ifs, no buts, no maybes about your recollection on this point, correct? A. No. Q. You agree with my proposition? By saying "no" to that last question, were you agreeing with the proposition that you have no doubts, ifs, buts or maybes about the accuracy of your recollection? A. With regard to when the $200,000 was announced to me, is that the question? Q. Yes. A. It didn't happen before the 2nd . Q. Right. When was it that you were first told that conditionally or otherwise Franklins would offer you a remuneration package of $200,000? A. That occurred on the 2nd in the afternoon. Q. And when precisely in the afternoon? A. It was around about 5.30 pm that afternoon." 148 Mr Olson gave the following evidence: "Q. You met Mr Zelinsky because as you understood it you had made a favourable impression on Messrs Perlov and Morgan on 22 June, correct? A. I guess they must have thought that the interview went reasonably well. Q. And at the meeting with Mr Zelinsky on the evening of 30 June he indicated to you that Franklins would be prepared to meet your expectations of a package of at least $180,000, didn't he? A. He didn't state what the remuneration package would be. He asked me what I would be contemplating and I told him a $180,000 package but I can't recall if he indicated anything back to me. Q. Sorry, he told you that Franklins were prepared to, for an individual with your skill set, contemplate offering you a $180,000 package, didn't he? A. My recollection was if I was going to be a successful applicant that I would be well remunerated. Q. And you formed the view, didn't you, after discussions with Mr Zelinsky on 30 June, that an offer in excess of $180,000 was likely to come from Franklins almost immediately, do you agree? A. No, I don't." [Transcript 306] 149 His first tranche evidence was that the $200,000 offer, when it was first put to him, was "attractive, absolutely" [transcript 281]. His evidence was that he had immediately on his arrival home [at about 6.00pm on Friday 2 July] told his wife about the $200,000 remuneration package. 150 During the first tranche evidence Mr Olson was confronted in cross-examination with the telephone records of McKenzie Consulting recording a telephone call on 1 July 2004 at 10.28am to his mobile telephone, the duration of the call being two minutes. At the same time he was shown the McKenzie Consulting "Candidate Referrals Report" which included the entry: "01/07/2004, 10:32:40 - Job Offered $200k package (base + car + super)" 151 Notwithstanding those records he, during the first tranche evidence, continued to deny that he had had a conversation at 10.28 am on the morning of 1 July in which Ms MacDonald had informed him that Franklins would offer him a package of $200,000. [Transcript 307et seq]. He simply could not recall the conversation but denied that there was any mention of any package of $200,000. 152 It is to be recalled that Mr Olson had given evidence that within a matter of days after the execution of the Anton Pillar order he had started to make notes for the purposes of preparing his affidavit. Hence he accepted [transcript 309] that if he had been offered the package of $200,000 on the morning of 1 July, it was unlikely that he would have forgotten about those events at the time when he swore his affidavit. As mentioned earlier the unusual feature of this litigation is the recency of the events. Explanations of a failure to recall events happening years prior to the making of a statement have no place here. 153 His affidavit evidence had been that it was at about 5:30 pm on 2 July that he was informed that Franklins were keen to employ him at a package of $200,000. Under cross-examination during the first tranche taking of evidence he adhered to the proposition that he believed that this was the first time that the $200,000 was offered. [Transcript 310.2]. Yet the cross examiner put to him that the Woolworths records of phone calls on his mobile on 2 July did not record any phone call at 5:30 pm made by him, the only phone call made to McKenzie Consulting on that date according to those records being a call at 11.12 am made for two minutes. 154 Mr Olson was then during the first tranche taking of evidence, confronted with the telephone records of a call of 1 July at 7.59pm to his mobile from McKenzie Consulting with a duration of 15.30 minutes. He did not dispute that such a telephone conversation had taken place but could not recall how long the conversation took nor whether there had been any conversation on the day about a package. Mr Olson was pressed with the proposition that if the McKenzie records were correct, then his evidence of there having been no discussion about the $200,000 until the evening of 2 July had to be more than mistaken but was deliberately false. Ultimately he was asked and answered as follows: "Q. If the correct conclusion is this record is correct, then the consequence that your evidence is incorrect is not a result of any mistake by you, would you agree? A. Yes." [Transcript 314.1] 155 The Court then explained the position to Mr Olson: "Q. And you are being asked a lot of questions about a record which it is being put to you suggests it was on 1 July. Question after question puts to you that there is an inconsistency and a conflict…if the record is correct. Mr Smith is wanting, has not yet heard from you nor have I at any stage the words, "well look, my recollection is it was on 2 July. It is possible that I am wrong" and he is now seeking to put to you that if the record is correct, then you have deliberately stated something which is incorrect, which means your evidence is not anything like or remotely like, "Look, I could be mistaken". Your evidence is flat, dead, certain. Now, that is what it is about and I will let him ask you the questions as long as you understand what he is putting." [Transcript 314] 156 Mr Olson then still during the first tranche taking of evidence, proceeded to give evidence that based upon what had just been indicated to him: "clarifying the context, I could be wrong in terms of the 1 July statement but I strongly believe it occurred on 2 July". [Transcript 315]. Hence having been shown the contemporaneous records, his evidence was: "I had the belief before that it was definitely the 2 July. Now that I have seen that, if that is correct, well, I have got to assume that that may have occurred. It is a possibility." [Transcript 315.53] 157 The first tranche cross-examination included the following: "Q. Do you agree or disagree with the proposition that in this affidavit you have set about to deliberately and falsely suggest that the first occasion on which the $200,000 offer was made was in a telephone call by you from your mobile to Ms MacDonald at 5.30 pm on 2 July. Do you agree? A. No, I disagree." [Transcript 318] 158 Some concessions were to be found in the following further but still first tranche evidence: "Q. What I suggest to you occurred was that you having received this offer at 10.30 in the morning or thereabouts on 1 July you had a 15 minute phone call with Ms MacDonald in the evening of 1 July at about 7.59 pm. Do you dispute that? A. I don't dispute the fact that I had a phone call at about 8 o'clock that night. Q. And you and she discussed not the fact of the $200,000 offer, because that had earlier been made, but rather subsidiary details in your mind concerning matters such as training programs, induction programs, job title, carparking, laptop and mobile phone? A. We certainly discussed those components at that 8 o'clock conversation but I still disagree with the $200,000 offer. Q. And on the morning of 2 July the first thing you did when you got to work was to fax off your service contract to Ms MacDonald together with a list of questions. Do you agree with that? A. Yes, that was faxed." [Transcript 319] 159 The 7.23am 2 July facsimile from Mr Olson to McKenzie reads: "Charlie, As discussed, info re contracts. Addendum to service agreement was to clarify concerns in general by a number of people on this contract. * A couple of other clarification points to please. - training programs – in house/external? - induction program – how will this be done? - job title – what exactly is it? - car parking – where available? - laptop use for mobility to work offsite eg @DC's? - mobile phone with role if i will be travelling around? (Just some basic admin stuff)" [MFI P2] 160 The cross-examination but still during the first tranche evidence, included the following: "Q. … Prior to you sending off this fax at 7.23 am on the morning of 2 July, you tell his Honour - is this your evidence - that you had not been told of a remuneration package of $200,000? A. That's correct. Q. So if that evidence is correct, do you agree, it involves the proposition that you were asking about what you described in your list as some basic admin stuff, when you had not been told what the package was or any figure, is that right ? A. That's true, because there was still some concerns about restraint. Q. Would you regard yourself as a competent businessman? A. I believe I am competent in certain components of what I do. Q. So is this right: You are telling his Honour that as a businessman of competence, you were on the morning of 2 July inquiring about administrative matters, when the major matter, namely what your package would or might be, had not even been mentioned. Is that it? A. Yes." [Transcript 321] 161 His evidence continued to be that it was on 30 June that following Mr Zelinsky having inquired as to what his expectations were, Mr Olson had said "$180,000" when the comment from Mr Zelinsky had been that if he was the right person, he would be well remunerated [transcript 322-323]. His evidence was that he had gained the impression from the discussion with Mr Zelinsky that the $180,000 as a package did not appear to be a problem [transcript 324]. However he continued to deny the proposition that his thinking on the evening of 30 June was that if he received an offer of $180,000 or more from Franklins then he was leaving Woolworths [transcript 325.1]. He was quite firm in his evidence that Mr Zelinsky had not stated what the remuneration package would be [transcript 369.46]. As is made clear below Mr Zelinsky gave evidence to the contrary. Interpolating to refer to some evidence given by Mr Perlov and Mr Zelinsky 162 It is appropriate to interpolate that during the course of his cross-examination Mr Perlov gave evidence that on the morning of 1 July [following the interview between Mr Zelinsky and Mr Olson which took place on the evening of 30 June], Mr Perlov had a discussion with Mr Morgan and Mr Zelinsky, regarding the candidates for both the replenishment buyer role as well as the supply chain manager role to determine who the preferred candidates were so that they could instruct McKenzies to offer them positions. Mr Perlov's evidence included: "Q. Could you just tell us what Mr Zelinsky told you was the offer he had made to Mr Olson? A. My recollection is an offer of $200,000 as a total remuneration package. Q. So he told he that he had offered Mr Olson the $200,000 figure; correct? A. Correct." 163 It is convenient to note that Mr Perlov was told, apparently by Mr Smith of McKenzie that Mr Olson expected Woolworths to terminate his employment forthwith once he advised that he was going to Franklins [transcript 356/36 – 44; Ex P 15]. Evidence given by Mr Zelinsky 164 Mr Zelinsky gave evidence concerning his meeting of 30 June with Mr Olson. Prior to the meeting he had been informed either by Mr Perlov or by Mr Olson that Mr Olson's total package with Woolworths was about $160,000. Based upon what he had been earning at Woolworths Mr Zelinsky thought that $180,000 would be a fair package. 165 Mr Zelinsky's evidence was that he had said to Mr Olson that if he was offered the job, Franklins would have employed him at $180,000. 166 Mr Zelinsky also gave evidence that fairly early on the morning of 1 July he had had a meeting at which the probable persons present were himself and Mr Perlov, during the course of which meeting he informed Mr Perlov that in his view Mr Olson was the preferred candidate for the management buyout position. His recollection was that he told Mr Perlov that he had discussed with Mr Olson [at the meeting on 30 June] that if Franklins employed him, $180,000 would be his package. He had not said to Mr Olson on the evening of 30 June that Franklins would offer him $200,000 as a total remuneration package but on the following morning, when discussing the matter with Mr Perlov, had said that as he had been very impressed with Mr Olson, Franklins should increase the offer and make it $200,000. He instructed Mr Perlov on that occasion to approach the McKenzie company and to convey that offer. 167 To my mind the evidence given by Mr Zelinsky should be accepted as entirely reliable so that Mr Perlov's recollection must have been faulty where Mr Perlov had recalled having been informed [on the morning of 1 July] by Mr Zelinsky that he had, on the previous evening, offered $200,000 as a total remuneration package. That is the only area in respect of which the evidence given by Mr Perlov should not be accepted as reliable and there is of course, no question but that Mr Perlov was giving the best of his recollection as to what had happened and when. 168 Mr Olson's evidence was that he did not form the view after discussions with Mr Zelinsky on 30 June that an offer in excess of $180,000.00 was likely to come from Franklins almost immediately [transcript 306/29]. It is unnecessary for the Court to decide this precise issue. 169 During the submissions taken in final address before the second tranche evidence had been given as follows Woolworths had contended: "The evidence overwhelmingly demonstrates that the $200,000.00 package was offered at 10.32 a.m. on 1 July. Woolworths seeks a finding to this effect. Such a finding is supported by the evidence given by each of Perlov and Zelinsky that on the morning of 1 July those gentlemen met and decided to offer Olson the job at a package of $200,000.00 [D 11 para 8; Perlov T 345/9 – 346/1]. Perlov then rang McKenzies at 9.28 a.m. [Exhibit P 15 the first tab behind the 1 July divider; T 346/19 – 347/17]. At Exhibit P 15, the Candidate Referrals Report which is behind the Tab for 1 July records a job offered of a $200,000.00 package at 10.32 a.m. This is consistent with the telephone record from McKenzie to Olson's mobile number (0404 829 165) on 1 July at 10.28 a.m. McKenzie's telephone records record a call at 7.59 p.m. to Olson's mobile by MacDonald on the evening of 1 July. The call is for 15½ minutes. Olson's account of that call is at [D 5 para 107]. That account makes no mention of any $200,000.00 figure. " The second tranche evidence 170 It is convenient to next treat with the evidence called from Ms MacDonald during the second tranche. 171 Ms MacDonald gave evidence in relation to a number of matters but critically as to the following: · that although there was a record of the telephone call from McKenzie to Mr Olson's mobile phone at 10.28 am on 1 July 2004, she was not sure whether or not she had in fact spoken to him on that occasion or had simply left a message on his answering service; and if she had spoken with him, she could not recall what she would have said. However she was quite certain that whatever it was that she would have said, if she had in fact spoken to him, she would not have communicated the $200,000 package offer in that call; · that she had a clear recollection of making a telephone call on her mobile phone to Mr Olson and about 8.00pm on 1 July 2004 in which conversation she, for the first time, told him that Franklins were offering him the job on a package of $200,000 172 The Court is able to deal with her evidence fairly shortly although she was cross-examined for a considerable time in relation to each of these matters. 173 The finding is that her evidence is unreliable. The reasons are set out below. 174 Importantly, as she conceded and as the contemporaneous documentary material made plain, her recollection had changed with the passage of time from the time when she was first asked to give her account of when she had first communicated the $200,000 job package. 175 It became clear through her cross-examination that her invariable practice was that once she received instructions to communicate a job offer to a particular client, she would do so as soon as possible. 176 She began by saying [transcript 554.37] that it was possible that she had a recollection that she had departed from her invariable practice on that morning. She then seemed to say that she in fact had departed from that practice in relation to what had happened on the morning of 1 July. 177 Her then evidence was that her recollection of only having imparted the relevant $200,000 package detail to Mr Olson on the evening of 1 July was because and only because of her recollection of his reaction when she offered him the $200,000: that reaction being an expression of surprise and pleasant interest [he was 'taken aback'] that the figure had been offered. 178 She had attended a conference with junior counsel and Mr Olson's solicitor on 12 August 2004 where she had been asked extensive questions about her dealings with and communications with Mr Olson and had been asked when she first informed Mr Olson of the Franklins $200,000 total package offer. She had stated at this conference [in respect of which there was a documentary record of notes taken by Mr Olson's solicitor] that it was either on 1 July or the morning of 2 July. Her evidence was that having thought about the matter over a period of time and particularly having been asked the question on a number of occasions by different lawyers, she eventually formed the view that what was decisive in her thinking [as to why the offer was first communicated was during the evening telephone call on 1 July] was no more and no less than her recollection of Mr Olson's apparent excitement with the offer. 179 She also gave the following answer: "Q. And have you accepted in answer to his Honour's proposition that because you have no recollection as to what was said, if anything, in the conversation at 10.28 am, that you can't deny that you offered $200,000 in that conversation to Mr Olson, correct? A. I can't deny. I have no recollection." [Transcript 580.40] 180 The finding is not that Ms MacDonald knowingly gave evidence which was untrue. The finding is simply that in the circumstances, for whatever reason, the evidence cannot be regarded as reliable. My own assessment is that Ms MacDonald may have been placed in a quandary following the repeated attempts to have her return to re-examine what her true recollection is and it seems to me that it is now shown to likely be no more and no less than a reconstruction. Where a witness varies his or her recollection over a relatively short period of time it is extremely difficult for the Court to accept the final recollection as necessarily reliable. Of course each circumstance requires to be looked at in terms of the particular witness, in terms of the contemporaneous materials available and in terms of the precise reasons put forward by the witness for giving their so-called 'final best' recollection. 181 The position with respect to Ms MacDonald is however that she is certainly accepted as giving reliable evidence where she said that as soon as she herself learned that Franklins had made the offer, her immediate reaction was that this was a 'pretty good offer' and that she thought the $200,000 figure would be a figure which Mr Olson would find attractive and would likely accept. This evidence is confirmatory of the Courts assessment that Mr Olson immediately on hearing the figure determined to accept the offer, trusting that the restraint situation would not prove to be a problem. 182 It should be noted that Ms MacDonald did give evidence that it was possible, although she did not recall this, that she may have actually spoken to Mr Olson at about 10.28am on 1 July saying to him something like "Look, a really good offer has come in. I will speak to you about it tonight", without mentioning the figure. Such a conversation would apparently not have involved her departing from what she put as her general practice, which was only to mention the details of an offer when the person to whom she was communicating had sufficient time to carefully listen to the detail and when any negotiation which might require to follow could commence. 183 Amongst the circumstances which require to be taken into account in assessing her evidence is that she had an extremely busy job, serviced a number of clients, had no secretary and was on the phone fairly constantly. 184 In any event as will appear from what follows, whether or not Ms MacDonald's recollection [of having had the critical conversation with Mr Olson on the evening of 1 July and only then mentioned the $200,000 package], be correct or incorrect ultimately proves immaterial to the Court's findings of fraudulent intent. 185 In relation to the proposition put forward by senior counsel for Mr Olson that there could be no reason why Mr Olson would use his own e-mail account to transfer documents to the home computer as opposed to downloading them to the hard drive of his laptop computer [which he could take home and copy], he being aware of Woolworths' ability to monitor e-mail traffic, there are a number of answers. By far the most significant concerns the fact that Mr Olson having determined to fabricate his evidence concerning the precise time when the $200,000 package offer was communicated to him in circumstances where this issue is and was perceived by him to be a critical issue, the Court simply cannot give credence to what, had this fabrication not occurred, may have been a consideration of some weight. In those circumstances and as Woolworths submitted, the reasons why Mr Olson chose the particular method which he did of sending the e-mails to the home computer could have been quite simply that he did not think that he would be caught. Woolworths no doubt had very many employees and there would be innumerable e-mails created on a minute by minute basis. The notion that Woolworths would be regularly and without particular cause monitoring those e-mails off the server would seem misplaced. In the case of the pornographic e-mails which had been discovered, Woolworths had only proceeded in their detective work following a 'tip off'. The Court is really about inquiring into Mr Olson's mental processes. That becomes a relatively arid task where the above described fabrication is all pervasive and where it is necessary to attribute a motive to that fabrication. The motive was to avoid in terms of the timing, the extremely powerful reasoning process rejecting the suggestion that the e-mails were sent to permit him to contemplate his possible future with Woolworths and instead, identifying the motive for sending the e-mails as an intent to put himself in a position to use the materials if and when he needed to in working for Franklins. To adopt the precise words of Woolworths' submission, "it was because he appreciated that if he knew about the $200,000.00 offer before he sent the emails on the morning of 2 July, it would be more readily inferred that he had decided to leave Woolworths prior to sending the email[s]". Belief as to what would likely occur if he gave notice of having accepted an offer with Franklins 186 Mr Olson gave the following evidence: "Q. Did you on or after 13 May and up to 5 July, understand that if you accepted a job offer with Franklins, gave notice of that fact to Woolworths, that any notice period that you had given would not be worked out, your employment would be terminated, you would be required to return company property and you would no longer have access to the Woolworths computer system? A. My understanding of what you have just asked me then is irrespective of the timeframe, if I had resigned to go to a competitor, there was a fairly good chance that the company would say we are not going to allow you to work out your notice period, return all company property . As for the specifics of all the details after that, I'm assuming that that would be discussed as part when you have handed in your resignation. Q. So you accept that such an eventuality would more probably occur than not if you told Woolworths that you were going to take a job with Franklins, correct? A. If I was to go to a competitor I expect that there was a reasonable probability that they would ask me not to bother with working out notice . Q. And you told McKenzie's that is what you would expect to happen, didn't you? A. I can't recall if I said that. Q. Was it not your state of mind that that's what you thought was likely to happen when you handed in your resignation on 5 July? A. I thought it was a possibility. Q. A probability? A. Probability or possibility. I have never done anything like that before so I wasn't too sure what the state of mind would be when I handed in my resignation. I didn't know if it was going to be a case or not." [Transcript 300 - 303] 187 During the course of his cross examination the following matter was put to him: "Q. What I am suggesting to you is the reason you sent these particular e-mails home, together with the two e-mails that Woolworths is complaining about, was because you wanted those e-mails on a system which you could have access to because you knew your remote access would be cut and you would not be able to use the Woolworths system at any point in time after you gave notice of termination and indicated you were working with Franklins and you knew and intended to do that on 5 July. Do you agree? A. No, I don't." [Transcript 374] "Q. So there was no pressing urgency to have these particular records at home on the evening of 2 July, was there? A. The only reason they were sent was part of the clean up process when I was doing my work in the morning. Q. What I want to suggest to you, if I haven't already, is that you sent them there because you knew you wanted them at home and you wouldn't be able to have access to them after the morning of 5 July because you had made up your mind that you were leaving Woolworths and going to Franklins prior to 2 July, hadn't you? A. No, I hadn't." [Transcript 376] Reason for selection of the particular e-mails 188 Mr Olson was closely examined as to the reasons why he had selected the particular material to be downloaded to the home computer. 189 The evidence covered a careful examination of a hardcopy folder of materials which had been in his inbox in order to make good, as the cross examiner did, a number of propositions including the proposition that there were many many items far more current than the diagrams, plans and materials which had been sent to the home computer on 2 July. The cross-examination also exposed the fact that whilst working for Woolworths, Mr Olson had methodically and carefully set up many sub-folders according to categories so that he might from time to time, in effect file in electronic form, material which was relevant to each of these sub-folders or to the topics described by the particular sub-folder. 190 It became clear during the cross examination that Mr Olson had had available to him in his outlook folder on 2 July, papers which had been presented to the Mercury Steering Committee for April 2004 containing detailed and up-to-date information as to the status of each of the projects, either on foot or proposed, in connection with Project Mercury [MFI P5]. The cross-examination included: "Q…. Then one can look through this document and would you agree obtain information of an up to date kind as to the status of all of the subprojects either planned or proposed concerning project Mercury, correct? A. At a high level I would suggest yes. Q. And that document was available to you on 2 July, do you agree? A. It was certainly in my outlook folder, yes. Q. And therefore available to you? A. Yes. Q. And was something that of all the records that were available to you which described project Mercury, it was the most up to date and comprehensive as at 2 July, do you agree? A. Depends on what you wanted to use the information for, but it was certainly the most up to date piece of information there. Q. Yes. And you didn't send that to your wife's e-mail address, did you? A. No, I didn't send that to the home address. Q. Was that a deliberate and conscious decision which you made? A. I didn't think it would be any use for what I sent the other ones home for. Q. Why didn't you think it would be any use for what you sent the other ones home for? A. I sent the other ones home with a view to reviewing those documents as I mentioned in my affidavit about trying to understand where I may want to go in Mercury and I didn't think that these sort of documents would assist that. Q. These documents describe the projects which have been approved and are to be approved, don't they? A. They do. Q. So if your purpose was, as you have just describe, to find out where you might want to go in Mercury, that's the very document you might want to send home, do you agree? A. No. Q. Why not? A. I don't think that gives the detail that I was after. Q. What was the detail that you were after which this document doesn't give? A. The detail that I was after was a more detailed view of, if you take into consideration dock scheduling, where the development work may need to be done from a dock scheduling point of view, whether it was going to be in the transport management area of the business or in the WMS area of the business or in the replenishment side. I didn't believe from my recollection of what these packs were, that that sort of information was in those packs. Q. Do you say that what you have just said would be discernible from one or other of the two e-mails that you sent to yourself? A. I'm sorry? Q. Do you say that what you have just described as what you were after would be more discernible from one or other of the two e-mails that you sent to the home computer on that Friday morning? A. I felt that the e-mails that I sent home were the relevant e-mails that I needed to try and form an opinion of regarding the Mercury project. I don't believe from what I can recollect these packs to be would give that sort of information, so yes, the other e-mails were more relevant in my mind." [Transcript 386-37] 191 Other evidence included: "Q. …were you intending to suggest that you selected those two emails because those two emails contained information which to your way of thinking would assist you in considering what you understood was the Woolworths offer better than any other information available to you would? A. I felt they would assist me in trying to come up with some sort of idea on the discussions I had had with Rod about the propositions we had talked about. Were they going to be any better than others, I couldn't tell you. There is a mass of information that is out there on Mercury but they were two that I felt would help. Q. When you just answered "there is a mass of information out there about Mercury", there was a mass of information available to you on the morning of 2 July about Mercury which, as you understood it, might help you consider, if you wanted to consider, these job offers. Do you agree? A. There was a lot of information I had on Outlook that was related to Mercury, yes. … Q. And within that mass, there was information available to you relevant to a NDC project and a replenishment position much more current than these process plans which were drawn in 2002. Do you agree? A. I can't recall specifically what information I had available to me on 2 July for the Mercury NDC program or the replenishment program. The two that I can recall was the presentation that Rod gave as part of a series of buying and marketing workshop meetings as a general overview, and the other ones the plans I felt best represented broadly speaking what Mercury was about in terms of flow paths. … Q. But I just want you to understand, in circumstances where there is, as you have agreed, a mass of information available to you which is more recurrent in relation to the NDC and replenishment positions, why you selected these two emails on the morning of 2 July? A. My selection of those particular emails was that the email that had the six plans attached to them I felt best represented a number of activities across a flow path model if you like, how you get stock from point A to point B, and I felt that that would be a very good representation to try to get me to understand some of the activities Rod was talking about, and with respect to the Rod presentation one I felt that that gave a very good overview of what Mercury was about to refresh my memory. I hadn't been in the project for some months. Q. So did your thinking involve a process of thinking to yourself, "Amongst this mass of information which would be relevant to the NDC and/or replenishment potential positions" as you understood it "I will take these two emails rather than any other information to enable me to consider those roles"? A. I felt they would best represent - trying to assist me in getting some sort of idea of the discussions we had had." 192 He accepted that there was a mass of information available to him on the computer system relating to Mercury, relating to the NDC component of Mercury and relating to the replenishment aspects of Mercury. He also accepted that much of that information, as he understood it, was much more current in terms of it being 2004 information as distinct from 2002 information. 193 His following evidence included: "Q. And you made a conscious decision, is this right, after thinking to yourself "Which of the documents out of all this information will I select to consider the job offer. I will take these two emails", is that right? A. Yes, if I could just qualify… Q. What is the qualification? A. Well, I would like to expand on the - yes, if I could. The plans as I could recall them, if you like, were designed to early on understand what the hierarchy was going to be in terms of how we would get products from point A to point B by certain methods and my understanding was that there had been some updates certainly in terms of how much those plans had been updated. I thought they were still the current versions, if you like, of ideally what the hierarchy was planned to be. So I felt they were still relevant for the discussions at that point. Q. So may we take it, having regard to the answer you just gave to his Honour, your process of reasoning involved a consideration of all of the material available to you on your computer system, is that right? A. I had a consideration. I didn't review all of the information that was there. Q. No, but you thought to yourself, "Having regard to all of this information that is available to me, this mass", as you have described it, "I will take these two emails in preference to any of the other material on that computer system so that I might consider what Mr Evenden discussed with me on 30 June", is that right? A. I felt they were best, so yes. Q. So that process of reasoning involved a conscious selection of these two emails in preference to any of the other material available to you, correct? A. Yes. Q. And you made that, is this right, conscious selection appreciating that the other material was much more current and relevant, is this right, to the job offers that had been discussed between you and Mr Evenden, or the potential offers more accurately, on 30 June, is that right? A. As I mentioned before, I felt that the plans were still relevant… so-- Q. You tell his Honour that out of this mass of material you consciously considered which pieces of paper would best assist you in understanding the NDC and replenishment offers, potential offers, discussed with Mr Evenden, and you selected these two emails and rejected the rest, is that right? A. By saying rejected, did I send any of the others home? No, I didn't. I didn't view every single email that was available to me. Q. I am not suggesting you did but in the mental process you asked yourself, "Out of this mass of detail these are the two emails that I think would best assist me understand these job offers and none of the other material available to me would assist as much as these". Is that your process of reasoning? A. I felt those two emails I sent home were the most relevant. Q. Yes, so the answer to my question is yes, is that right? A. Yes, in terms of I thought they were the most relevant." Utility of analysis of plans 194 Returning to the particular doubts which Mr Olson had indicated as to the reason why he had sent the e-mails to the home computer, his cross-examination included: "Q. Yes, but you don't know where the particular dock scheduling work that was spoken of by Mr Evenden as at 30 June would fit, having regard to these plans, do you? A. No, I don't. Q. And an analysis of these plans would not enable you to resolve any doubt you had as to where the system would precisely reside, do you agree? A. From viewing the plans you could not come up and say well this is where it has got to reside. Q. Nor would it allow you, do you agree, to determine what particular project as depicted in these plans would be accountable for the proposed dock scheduling which was discussed with Mr Evenden as at 30 June, do you agree? A. Based on the previous question you would have to say you couldn't say where it would reside. Q. Nor would it enable you to resolve the third of your doubts as to what plans were necessary to move forward with the content of the project which Mr Evenden had discussed, do you agree? A. The only outcome that you could potentially have with that one was get an understanding of what component or facets of the role would need to be done first, second or third. Q. It would not, do you agree, enable you to resolve the doubt that you say that you had in your mind as at 30 June, as to what plans were necessary to be put in place to move forward with this dock scheduling project, do you agree? A. Yes, there would certainly still need to be further discussion on it." [Transcript 406] "Q. You believed that the dock scheduling project, after you spoke to Mr Evenden was complex, correct? A. Yes. Q. The extent of that complexity depended upon what the plans were, correct? A. From what I understood the plans to be at that stage. Q. And the plans hadn't been agreed at that stage; correct? A. No, they hadn't been. Q. Therefore the extent of the complexity in your mind depended critically upon precisely what plans were agreed at some future point in time; correct? A. At some future point in time we would have a better opinion of how complex it was going to be. Q. Do you agree that being your state of mind that a document prepared more than two years before the discussion with Mr Evenden would not be able to clarify any doubt that you had in your mind as to the extent of complexity, correct? A. Not having seen the plans for some time I felt they may help. Q. When you look at them now you can see that they do not help, don't you? A. Well, I believe they help in some fashion, because it has helped from what I could previously recall, it has helped that there is a number of components I believe on these flow charts that would relate to dock scheduling." [Transcript 407] Concession as to exposure to confidential information 195 Mr Olson gave the following evidence: "Q. Were you in court when Mr Corbettt gave his evidence? A. Yes, I was, your Honour. Q. Do you recall him saying - I am just reading you something from the transcript here - "the whole of the area in which Mark Olson worked was one of intense confidentiality. On many occasions at our steering committee I remind the executives" - that may have meant "I reminded" - "of which Mark Olson sat of the confidential nature of the work we were doing, that this was a strategic intellectual property, that Woolworths was spending tens of millions of dollars to create and the confidential nature of this business of what we were doing was ahead of the market and had significant value to our competitors." Do you recall him saying that? A. I sat on a couple of his meetings and words to that effect were said, your Honour. Q. And that is what I was going to ask you. Do you have any dispute with his proposition that he reminded executives on many occasions of those things? A. I can't recall how many I sat on. It was two or three I am assuming, from my time in the role, but I can certainly recall that he said words to that effect. How often I am not too sure. Q. He also said later on when being asked about this question of confidentiality and so on, "The question of confidentiality of absolutely critical information, as this information was clearly and undeniably taken from the company's information bank and communicated to a personal computer in the home". Then he said, "Every person involved in this part of Woolworths' life would know that that was inappropriate, a violation of the obligations of confidentiality as clearly written in people's employment contract." As to that last proposition, his proposition - he gave this evidence, it must be his opinion - "every person involved in this part of Woolworths' life would know that that was inappropriate", do you agree or disagree? Is he over-stating it in your opinion or is it something that he did regularly emphasise so that you accept the general proposition? A. I knew, your Honour, that to give the information or pass it about where it would become available to a competitor or someone that shouldn't have it, I knew that that is absolutely something that you should not do. By me sending it home for my own review, to try and understand where I wanted to go in the future, I didn't believe that that was providing a conflict of interest." [Transcript 401-402] 196 Mr Olson conceded the following: "Q. Would you agree that in the period July 2003 to February 2004 you gained substantial knowledge as to Woolworths' confidential plans concerning project Mercury? A. I would say that I certainly got exposure to a great deal of information on project Mercury. Q. Confidential information? A. Yes. Q. Confidential information relating to Woolworths' strategic initiatives? A. I certainly had a broad overview of what the initiatives were, yes." [Transcript 296] "Q. … You agree that this information in these plans is confidential intellectual property of Woolworths, correct? A. I do. Q. And you agree that it involves and records in the flow plans the steps at a detailed level proposed to be implemented in Project Mercury, correct? A. Yes. Q. And you agree, don't you, that you had an obligation, as you understood it, not to deal with confidential information belonging to Woolworths for your own benefit, correct? A. Agreed. Q. And you had an obligation as you understood it to disclose to Woolworths any conflict of interest that you might have, correct? A. Yes." [Transcript 400] Beliefs as to contractual obligations 197 Under cross-examination Mr Olson gave the following evidence: "Q. You executed, did you not, on or about 1 February 2003, a document described as an executive service agreement? A. If by executing you mean signing, yes. Q. As at 2 July and in particular the morning of that day when you sent off the two emails, did you understand that your obligations to Woolworths were as recorded in that document? A. My understanding on 2 July was I was still party to that document. Q. Yes, so your understanding was that you were bound by the terms of that document? A. I understood that to be the case. Q. And if we go back to that question, at that time, that is to say the morning of 2 July when you sent these emails off, had you sent them off with the intention of using the information recorded in the emails, do you agree that according to your understanding such conduct would have breached your obligations as you understood them under that service agreement? A. If I had sent those emails with the intent which you are proposing, which I deny, I would assume that that would be classed as a breach, yes. Q. And a gross breach, would you agree? A. I would suggest that you could term it gross, yes. Q. Because if you had done what the question asked you assume, namely sent the emails with the intense to use the information in it, that conduct as you understood it could only be described as dishonest, do you agree? A. If that was the intent for using those emails, yes. … Q. Do you agree that if you sent those emails and had the intention I have asked to you assume, namely an intention to use the information for Franklins, that such conduct would be, putting it simply, dishonest, correct? A. I agree with that. Q. It would involve, would it not, as you understood it, just simply a theft of important confidential information from Woolworths, correct? A. Yes." [Transcript 278-279] Ultimate finding 198 In the result the finding is that prior to the sending of the subject emails to the home computer, Mr Olson had decided to resign his employment with Woolworths, to take up the employment offer of Franklins and to keep the subject email attachments in the home computer, being materials he thought might, albeit privately, assist him in the performance of his duties at Franklins. He believed that the Franklins offer would be confirmed in writing and that the restraint clause issue would not provide a real hurdle to consummation of the job offer, albeit that Franklins would be looking at the restraint provision. 199 However as will appear from what follows below, a critical timing issue still arises. Analysis of relevant principles 200 There are a number of areas where the relevant principles require careful consideration. It is convenient to next treat with those matters. Contractual construction 201 This is not an occasion for the recitation of the well-known principles concerning contractual construction. However of particular significance is the termination provision [Clause 7 (b)]. In that regard the concepts of dishonesty, wilful misconduct, wilful breach of duty, serious and wilful negligence or incompetence in the performance of duties all play a part in identifying sometimes overlapping and sometimes disparate forms of conduct, each entitling summary dismissal. 202 Some analysis of the position at common law was recently given [Desmond Henry Randall v Aristocrat Leisure Limited [2004] NSWSC 411 at 447 et seq] and may bear repeating: "In North v Television Corporation Ltd (1976) 11 ALR 599 at 608 - 9 Smithers and Evatt JJ of the Australian Industrial Court held: "It is of assistance to consider the expression "misconduct" by reference to subject matter to which it is related and the context in which it appears. The subject matter is the termination by one party against the will of another of a continuing contract of employment on the ground of breach of one of the terms of the contract. And the context is such as to indicate that certain breaches of a non-serious nature, some of which would be within the connotation of misconduct, are not regarded as grounds for termination. In such a situation it is reasonable to interpret the expression "misconduct" as referring to conduct so seriously in breach of the contract that by standards of fairness and justice the employer should not be bound to continue the employment ." (Emphasis added) [This passage was cited with approval by the Full Industrial Court in Brackenridge v Toyota Motor Corporation Australia Ltd (1996) 142 ALR 99 at 107, Wilcox CJ in Gooley v Westpac Banking Corp (1995) 129 ALR 628 and Young J in Galipienzo v Solution 6 Holdings Limited (1998) 28 ACSR 139. Also see Einfeld J in Sheldrick v WT Partnership (Aust) Pty Ltd (1998) 89 IR 206] Revisiting the common law situation is of utility, remembering always that the Court is of course presently dealing with a question of contract construction. It is trite law to state that, since the early nineteenth century, a defined spectrum of classes of conduct have developed within the common law of employment which justify the summary dismissal of an employee. Such behaviours include: - 'Misconduct', being a general term encompassing (without restriction) insolence ( Vardy v Cuthbert (1872) 3 AJR 25), abusive language ( Farley v Lums (1917) 19 WALR 117), drunkenness ( Meyrick v Stirling Bros Ltd (1899) 1 WALR 51), physical assault ( Brackenridge v Toyota Motor Corp Australia Ltd (1996) 142 ALR 99) and sexual impropriety ( Orr v University of Tasmania (1957) 100 CLR 526). - 'Disobedience', being the wilful disregard of instructions lawfully and reasonably made: Turner v Mason (1845) 14 M & W 112; Adami v Maison de Luxe Ltd (1924) 35 CLR 143. - 'Incompetence', being the failure by an employee to afford an employer of the degree of skill expressly or impliedly warranted: Harmer v Cornelius (1858) 5 CBNS 236. Notwithstanding the plethora of authorities bearing upon the question of the circumstances in which a summary dismissal will be justified, there are no rules of law which dictate either, first, the precise nature of the manifold behaviours that potentially give rise to a right of summary dismissal or, second, the degree of such conduct required before that right is enlivened. That is to say, as put by Lord James of Hereford, speaking for the Privy Council on appeal from the New Zealand Court of Appeal in Clouston & Co Limited v Corry [1906] AC 122 at 129, the resolution of this question is a matter of fact alone in that "[t]here is no fixed rule of law defining the degree of misconduct which will justify dismissal ." Alternatively expressed by Starke and Evatt JJ in Blyth Chemicals Limited v Bushnell (1933) 49 CLR 66 at 73, "[t]he degree of misconduct that will justify dismissal is usually a question of fact." Since the progressive repeal of the cognate Masters and Servants Acts in the late nineteenth century, the common law has posited the employment relationship as, at least in form, merely a species of commercial exchange governed by general principles of contract law. Consistency with this conception demands that the question of whether conduct justifying summary dismissal has occurred be determined by reference to the ordinary principles regarding the repudiation of contracts. In an early exposition of such an approach, Blackburn J in Bettini v Gye (1876) 1 QBD 183 at 188 posited as concerning whether the breach in question was of a term: "going to the root of the matter, so that a failure to perform it would render the performance of the rest of the contract by the plaintiff a thing different from what the defendant has stipulated for." As explained by M.R. Freeland in his 1976 work The Contract of Employment (Clarendon Press, Oxford), to approach summary dismissal from a general contractual rather than sui generis employment perspective is significant, given that the former eschews a myopic focus on the precise nature of the conduct in question in favour of consideration being given to the totality of the relationship between the parties. Of the above Bettini test, the author states at 215-216 that it: "enabled the courts to consider the importance of the breach of contract in the context of the relationship as a whole. It was thus less harsh towards the employee than the rules concerned with 'misconduct, disobedience or neglect'; and it was much closer to the general contract principles concerning recission [in terms of a prospective termination] for breach of contract or in response to repudiation- so much closer indeed that Lord James in Clouston & Co Ltd v Corry was able [at 129] to combine the test of 'incompatibility' with that of breach of condition and to state that 'misconduct inconsistent with the fulfilment of the express or implied conditions of service will justify dismissal." Commensurate with this reasoning, Freeland concludes (at 219) that it would be "retrograde" to confine the analysis to those accepted grounds of summary dismissal detailed above without further asking whether, in substance, the employee has repudiated his or her obligations under his or her specific contract of employment. The above test propounded in Bettini and favoured by Freeland is presently the correct approach, in that to stand as a justifiable ground of summary dismissal the conduct of the employee must "constitute a repudiation of the contract or one of its essential conditions": Bruce v AWB Ltd (2000) 100 IR 129 (FCA) at 140, per Sundberg J. Similarly for Harman LJ in Pepper v Webb [1969] 1 WLR 514 at 517: "Now what will justify an instant dismissal?- something done by the employee which impliedly or expressly is a repudiation of the fundamental terms of the contract." In Laws v London Chronicle (Indicator Newspapers) Ltd [1959] 2 All ER 285, the appellant was summarily dismissed after she left the office of the managing director against the latter's express instructions. In a passage critical for the purposes of present discussion, Lord Evershed MR said (at 287): "Since a contract of service is but an example of contracts in general, so that the general law of contract will be applicable , it follows that, if summary dismissal is claimed to be justifiable, the question must be whether the conduct complained of is such as to show the servant to have disregarded the essential conditions of the contract of service." [Emphasis added] Accordingly, it was held that the single instance of disobedience alleged fell well short of conduct repudiatory of such essential conditions of service. Hence at common law a right of summary dismissal will only accrue to an employer in situations wherein the conduct of the employee has been so inconsistent with his or her specific conditions of service that it has become impossible for the relationship to continue upon its former bases. Such impossibility would arise if the employee's conduct has destroyed all the necessary confidence subsisting between the parties to an employment relationship, where the essential conditions of service have been disregarded or where an intention no longer to be bound has been objectively evinced. To my mind both in terms of determining at common law whether or not the conduct of an employee is to be regarded as repudiatory or not such as to justify summary dismissal, as well as in terms of endeavouring to assess whether or not misbehaviour or breach of duty as used in clause 5.1 (a) which here requires construction and application, the following considerations remain of particular significance: Emphasis on the whole of the relationship : As noted above, the most important consequence of the modern shift towards the application of general principles of contract law to the summary dismissal context is that the conduct of the employee must be viewed in the context of the employment relationship as a whole. Rather than merely quantify the 'seriousness' or otherwise of the misconduct, the question must be considered in light of the employee's length of service, their demonstrated ability and their standards of prior conduct. Thus in Sheldrick v WT Partnership (Aust) Pty Limited & Ors (1998) 89 IR 206 (FCA), an engineer employed by the respondent broke into a colleagues office by removing a pane of glass and inspected confidential memoranda in the course of an ongoing dispute as to management structures. While Einfeld J was of no compunction (at 235) in deeming such behaviour "thoughtless, immature and unwise", it was "certainly not grounds for the summary dismissal of a dedicated, loyal and longstanding employee who had proved his commitment to his employer by relocating to Asia from Australia with his entire family and agreeing to remain there for a significant period." Approach when misconduct isolated : There are authorities suggesting that the "contract of employment cannot be brought to an end by a single act of misconduct unless such single act of misconduct is of such aggravated character that it strikes the employment contract down immediately, completely and permanently": Elcom v Electrical Trades Union of Australia, New South Wales Branch (1983) 5 IR 267 (NSW Industrial Commission) at 270, per Macken J. My own view is that no such rule of thumb exists. I note however that in Jupiter General Insurance Co Ltd v Ardeshir Bomanji Shroff [1937] 3 All ER 67, and in consideration of the fact that "the immediate dismissal of an employee was seen as a strong measure", Lord Maugham stated (at 73-4) that: "it can be in exceptional circumstances only that an employer is acting properly in summarily dismissing an employee on his committing a single act of negligence." Motives of the employee relevant : Commensurate with the position that it will ordinarily be necessary to demonstrate that the employee has intended to repudiate his or her obligations under the contract of employment, the motives laying behind the conduct in question will be of relevance. Thus in Blyth Chemicals , it was stated by Dixon and McTiernan JJ (at 82) that "the effect to be given to all the acts combined, which have been established against the respondent, must in the end be governed by an estimate of his honesty and motives." (See also Boston Deep Sea Fishing and Ice Company v Ansell (1888) 39 Ch D 339 at 358, per Cotton LJ. Specifically, it will ordinarily be fatal for an employee to have acted contrary to the interests of the employer for his or her own personal pecuniary gain, given that such actions are inherently repugnant to the former remaining in a relationship of personal service with the latter." Dixon and McTiernan JJ in Blyth at 81 spoke of: "conduct which in respect of important matters is incompatible with the fulfilment of an employee's duty, or involves an opposition, or conflict between his interest and his duty to his employer, or impedes the faithful performance of his obligations, or is destructive of the necessary confidence between employer and employee." as being a ground of dismissal and at p 83 held that: "In the view we take of the circumstances of the case, the motives and intentions of the respondent [employee] become all-important; for the significance and sufficiency as a justification of the other items of misconduct relied upon appear to us to depend upon the truth of his explanation or the bona fides of his acts. Further, the effect to be given to all the acts combined, which have been established against the respondent, must in the end be governed by an estimate of his honesty and motives." Significantly, the High Court held in that case that the burden of justifying the basis for a summary dismissal rests with the employer." Questions of more general contractual construction 203 Returning to questions of more general contractual construction, most recently, the High Court has observed in Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 at 292-293 that: "In Codelfa , Mason J (with whose judgment Stephen J and Wilson J agreed) referred to authorities which indicated that, even in respect of agreements under seal, it is appropriate to have regard to more than internal linguistic considerations and to consider the circumstances with reference to which the words in question were used and, from those circumstances, to discern the objective which the parties had in view. In particular, an appreciation of the commercial purpose of a contract: "presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating". Such statements exemplify the point made by Brennan J in his judgment in Codelfa : "The meaning of a written contract may be illuminated by evidence of facts to which the writing refers, for the symbols of language convey meaning according to the circumstances in which they are used."" 204 To similar effect is the observation of Gleeson CJ, Gummow and Hayne JJ in Maggbury Pty Limited v Hafele Australia Pty Limited (2001) 76 ALJR 246 at 248 (para 11), quoting with approval Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-913 to the effect that interpretation of a written contract involves the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of contracting. 205 In Investors Compensation Scheme at 912 – 913, it was said that: "The background knowledge which a reasonable person in the position of the parties will be regarded as having, for the purposes of the construction of contracts, includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man with the proviso that it should have been reasonably available to the parties". "There is of course no doubt but that the court is entitled to inquire beyond the language and to "see what the circumstances were with reference to which the words were used, and the object appearing from those circumstances, which the person using them had in view": Prenn v Simmonds [1971] WLR 1381 at 1384 per Lord Wilberforce : Lakatoi Universal Pty Ltd & Walker [2000] NSWSC 113 at par [1039]." The Service Agreement 206 It is convenient to next turn to an examination of certain provisions of the Service Agreement: Obligation to well and faithfully serve Woolworths, to use best endeavours to promote its interests; not to place himself in any situations of conflict of interest Clause 4 (a) reads as follows: "DUTIES During the Term: (a) (i) The Executive shall exercise and perform the function, duties and responsibilities as the CEO or his delegate shall during the Term reasonably designate and shall well and faithfully serve the Company and its subsidiaries and use his/her best endeavours to promote their interests and shall not place himself/herself in any situation which will or is likely to involve a conflict of interest on the part of the Executive. (ii) The Executive shall inform himself/herself of and shall comply in all material respects with, all laws as they affect the Company and with all Company Policies and Procedures, as they apply to him/her in the performance of his/her duties." Obligation not to disclose any Confidential Information or trade secrets or intellectual property to any third party Clause 5 is to be found later in the judgment. Obligation not to be engaged in competitive business " 10. RESTRAINT (a) (i) Within 14 Business Days of the termination (whether by breach of this Agreement or not) or expiry of this Agreement the Company may, in its sole and absolute discretion, by written notice to the Executive, elect that the restraint provided for by this clause shall apply to the Executive. (ii) The Executive acknowledges that these restraints are reasonable in terms of their geographic scope, duration and the activities restricted and having regard to the duties performed. The Executive also acknowledges that: 1. These restraints go no further than is necessary to protect the legitimate business interests of the Company; 2. These restraints do not unreasonably restrict the Executive's rights or otherwise work harshly; and (b) The written notice referred to in paragraph (a) must be followed by a cheque drawn in favour of the Executive for each month of the Restraint Period, for the amount as determined in accordance with paragraph (d). (c) Where written notice incorporating reference to the Restraint Payment in accordance with paragraphs (a) and (b) are given to the Executive, the Executive agrees to be bound by the Restraint. (d) For the purposes of this clause 9: (i) "Restraint" means during the Restraint Period and in the Geographical Area not carrying on or being engaged, involved or otherwise interested in, or concerned with (whether directly or indirectly or alone or in partnership or joint venture and whether as trustee, principal, agent, shareholder, director, unitholder, consultant to or in any other capacity), a Competitive Business (other than as the holder of less than a 5% legal, beneficial or economic interest in shares or other securities which are issued in the capital of a public company whose shares are quoted on a stock exchange). (ii) "Competitive Business" means any business with which the Company competes in the Geographic Area. (iii) "Restraint Period" means the number of months, as determined by the Board or CEO, at their/his absolute discretion and notified to the Executive, not exceeding 12 months, commencing from the date this Agreement terminates or expires, as determined by the following formula after rounding down fractions to the nearest whole number: X 12 where: A means the amount of the Restraint Payment net of income tax; and B means the aggregate of the amounts paid or payable to the Executive under clauses 3.1(a), 3.2(a), 3.4 and 3.5 in respect of the 12 month period immediately preceding the date of termination or expiry of this Agreement, net of income tax. In the event that the formula produces a number in excess of 12 then the Restraint Period is 12 months. (iv) "Geographical Area" means Australia and New Zealand or such location as the Company operates or has competitors. (v) "Restraint Payment" means such amount determined by the Board of the Company or the CEO in its/his absolute discretion. (e) For the avoidance of doubt, a payment of the Restraint Payment is in addition to any other payment which the Company is required to pay the Executive in accordance with this Agreement." Obligation to return materials Clause 11 (c) reads as follows: "On termination of this Agreement, the Executive, unless the CEO agrees to the contrary, must return to the Company all documents and other tangible property of the Company or any Related Body Corporate of the Company including, but not limited to, all books, papers, materials, credit cards, office equipment including phones, cars and keys held by the Executive or under his control." Obligations concerning intellectual property rights Clause 13 (g) reads as follows: " Intellectual Property Rights (i) All intellectual property rights of any nature in any intellectual property developed or created by the Executive in the course of the Executive 's employment, whether such intellectual property was created during business hours or not, will vest in the Company upon creation, and the Executive will have no claim to or interest of any nature in such intellectual property. (ii) Notwithstanding paragraph (i), to the extent necessary the Executive assigns to the Company all present and future intellectual property rights in all intellectually property developed or created by the Executive in the course of the Executive's employment. (iii) The assignment in paragraph (ii) is: · without restriction as to use or territory; · in perpetuity; and · effective without any further payment to the Executive, whether by way of royalty or otherwise, in consideration of the assignment. (iv) The Executive must do all things necessary to give effect to this assignment, including executing any further document required by the Company." 207 The Service Agreement also included terms to the following general effect: · for the term of his employment, Mr Olson was entitled to participate in short term and long term incentive schemes conducted by Woolworths, including the Executive Option Plan 1999 (as amended by Woolworths from time to time); [clause 3.2 of the Service Agreement and in the Executive Option Plan 1999 (as amended by Woolworths from time to time).] · the employment of Mr Olson could be terminated immediately, by the Board of Woolworths or by the Chief Executive Officer of Woolworths, by notice in writing to Mr Olson if Mr Olson has committed (or it is evident he intends to commit), any act (whether by omission or commission) which amounts or would amount to dishonesty, fraud, wilful misconduct, wilful breach of duty, serious and wilful negligence or incompetence in the performance of his duties; [clause 7(b) of the Service Agreement.] The 7 February 2003 letter 208 The letter of 7 February 2003 signed by Mr Corbett as Chief Executive Officer of Woolworths first explained certain amendments to the Service Agreement and in particular stated the following: "Many people raised issues around "reasonableness", particularly in relation to the taking of leave (Clause 3.6), company directorships (Clause 4(f)) and termination on bankruptcy (Clause 7(d)). I confirm that the Company will only exercise its rights where it is reasonable to do so. The Restraint Clause (Clause 10) was also raised by many of you. The purpose of this Clause is to ensure the Company adequately protects the confidentiality of its business strategies, information and intellectual property. We would only invoke this to the extent necessary to protect the interests of the Company. Should this happen, we will pay your then current remuneration for any period up to a maximum of 12 months, for which it is considered by the Company reasonable for us to apply the restraint." 209 Plainly the contract constituted by the Service Agreement and the 7 February 2003 letter was varied by the Demotion letter. That varied contract represented the contract in its form as at the material date when the contract of employment was terminated by Woolworths. The way forward 210 At one level it may be thought appropriate to commence by dealing with Mr Olson's section 106 claim. That claim is to be dismissed for reasons which will appear below. Hence although the structure of the judgment is to treat with that matter below, each of the findings is reached in light of the central finding that the parties contracts and contractual arrangements are not to be varied or otherwise dealt with by any relief as sought in the section 106 claim. 211 It seems appropriate to now turn to the claim for breach of fiduciary obligation as this is the essential vehicle by which Woolworths seeks to strip Mr Olson of profits/gain constituted by the share issue. Fiduciary duties – when, to what extent and why may an employee owe fiduciary obligations to his/her employer 212 The parties have taken the court to careful analyses of the manner in which the established principles treat with whether, and if so when, and to what extent, and why, an employee may owe fiduciary obligations to his/her employer. That analysis makes the points that: · fiduciary duties arise not as result of the mere fact that there is an employment relationship, but rather from the fact that within a particular contractual relationship there are specific contractual obligations which the employee has undertaken which have placed him/her in a situation where equity imposes fiduciary duties in addition to the contractual obligations · an implied contractual term is not to be equated with a fiduciary obligation, · the critical feature of fiduciary relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect in a legal or practical sense the interests of that other person: [Concut Pty Limited v Worrell (2000) 176 ALR 693 at [17] per Gleeson CJ, Gaudron and Gummow JJ; Pilmer v The Duke Group Ltd (in liq) (2001) 207 CLR 165 at [70] per McHugh, Gummow, Hayne and Callinan JJ] · it is necessary to consider with precision the precise activity agreed to be undertaken by a particular employee and to ask if that employee had agreed to perform that activity solely in the interests of the employer to the exclusion of his/her own interests. 213 In Youyang Pty Limited v Minter Ellison Morris Fletcher [2003] HCA 15, the Court [Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ at [40]] approved the statement of principle of McLachlin J in Canson Enterprises Limited v Boughton & Co [1991] 3 SCR 534 at 543 that "The essence of a fiduciary relationship, by contrast, is that one party pledges itself to act in the best interest of the other. The fiduciary relationship has trust, not self-interest, at its core, and when breach occurs, the balance favours the person wronged." 214 Elias J in Nottingham University v Fishel [2000] IRLR 471 [followed in Comax Secure Business Services Limited v Wilson (unrep, QBD, Richard Seymour QC, 21.6.2001); PMC Holdings v Smith [2002] EWHC 1575 (QB) per Burton J; see also Macken & Ors, Law of Employment (5th ed) at pp 139-143]] accurately summarised the position: "Establishing fiduciary obligations: the legal principles What then are the underlying principles which enable the court to determine whether or not fiduciary obligations arise? Lord Millett, writing extra-judicially has identified three distinct categories of relationship (see his article 'Equity's Place in the Law of Commerce' [1998] Vol 114 LQR 214). Two of them have no application in this case. These are first, where the obligations arise out of the fact that one party is in a position of influence over another; and second, where they arise from the fact that one is in receipt of information imparted in confidence by the other. Employees frequently fall into this latter category, because their work will often involve their being made privy to trade or business secrets of their employer. But although the existence of the employment relationship explains why the employee comes to be in possession of such information, and the contract of employment will define the purposes for which such information may be used, the employment relationship itself in such cases is really only incidental to the imposition of the fiduciary duties. As the Court of Appeal noted in Attorney General v Blake [1998] Ch 439, this fiduciary obligation of confidence often arises in the course of another fiduciary relationship but it is not derived from it. It is for this reason that the obligation of confidence can continue to subsist even when the employment relationship, and any fiduciary duties arising out of it, has terminated. The third category identified by Lord Millett, and described by him as the most important, is as follows: '[it] is the relationship of trust and confidence. Such a relationship arises whenever one party undertakes to act in the interests of another, or where he places himself in a position where he is obliged to act in the interests of another. The core obligation of a fiduciary of this kind is the obligation of loyalty.' In Bristol and West Building Society v Mothew [1998] Ch 1 at 18, he elaborated on this analysis, and identified the duties which classically arise from such a fiduciary relationship: 'A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary.' It is vital to recognise that although the key feature identified is the obligation of loyalty, that has a precise meaning, namely the duty to act in the interests of another. This is the fundamental feature which, in this category of relationship at least, marks out the relationship as a fiduciary one… Employees as fiduciaries … As these examples all illustrate, simply labelling the relationship as fiduciary tell us nothing about which particular fiduciary duties will arise. As Lord Browne-Wilkinson has recently observed: '. . . the phrase "fiduciary duties" is a dangerous one, giving rise to a mistaken assumption that all fiduciaries owe the same duties in all circumstances. This is not the case' ( Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at 206). This is particularly true in the employment context. The employment relationship is obviously not a fiduciary relationship in the classic sense. It is to be contrasted with a number of other relationships which can readily and universally be recognised as 'fiduciary relationships' because the very essence of the relationship is that one party must exercise his powers for the benefit of another. Trustees, company directors and liquidators classically fall into this category which Dr Finn, in his seminal work on fiduciaries, has termed 'fiduciary offices'. (See PD Finn, Fiduciary Obligations (1977)). As he has pointed out, typically there are two characteristics of these relationships, apart from duty on the office holder to act in the interests of another. The first is that the powers are conferred by someone other than the beneficiaries in whose interests the fiduciary must act; and the second is that these fiduciaries have considerable autonomy over decision making and are not subject to the control of those beneficiaries. By contrast, the essence employment relationship is not typically fiduciary at all. Its purpose is not to place the employee in a position where he is obliged to pursue his employer's interests at the expense of his own. The relationship is a contractual one and the powers imposed on the employee are conferred by the employer himself. The employee's freedom of action is regulated by the contract, the scope of his powers is determined by the terms (express or implied) of the contract, and as a consequence the employer can exercise (or at least he can place himself in a position where he has the opportunity to exercise) considerable control over the employee's decision-making powers. This is not to say that fiduciary duties cannot arise out of the employment relationship itself. But they arise not as a result of the mere fact that there is an employment relationship. Rather they result from the fact that within a particular contractual relationship there are specific contractual obligations which the employee has undertaken which have placed him in a situation where equity imposes these rigorous duties in addition to the contractual obligations. Where this occurs, the scope of the fiduciary obligations both arises out of; and is circumscribed by, the contractual terms; it is circumscribed because equity cannot alter the terms of the contract validly undertaken. The position was succinctly expressed by Mason J in the High Court of Australia in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR as follows: 'That contractual and fiduciary relationships may coexist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all-important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.'… … in analysing the employment cases in this field, care must be taken not automatically to equate the duties of good faith and loyalty or trust and confidence, with fiduciary obligations. Very often in such cases the court has simply been concerned with the question whether the employee's conduct has been such as to justify summary dismissal, and there has been no need to decide whether the duties infringed, properly analysed, are contractual or fiduciary obligations. As a consequence, the two are sometimes wrongly treated as identical: see eg Neary v Dean of Westminster [1999] MLR 288 at 290 where the mutual duty of trust and confidence was described as constituting a 'fiduciary relationship'. Accordingly, in determining whether a fiduciary relationship arises in the context of an employment relationship, it is necessary to identify with care the particular duties undertaken by the employee, and to ask whether in all the circumstances he has placed himself in a position where he must act solely in the interests of his employer. It is only once those duties have been identified that it is possible to determine whether any fiduciary duty has been breached, as Lord Upjohn commented in Phipps v Boardman [1967] 2 AC 46 at 127: 'Having defined the scope of [the] duties one must see whether he has committed some breach thereof and by placing himself within the scope and ambit of those duties in a position where his duty and interest may possibly conflict. It is only at this stage that any question of accountability arises.' It follows that fiduciary duties may be engaged in respect of only part of the employment relationship, as was recognised by Lord Wilberforce, giving judgment for the Privy Council in New Zealand Netherlands Society v Kuys [1973] 1 WLR 1126 at 1130: 'A person . . . may be in a fiduciary position quoad a part of his activities but not quoad other parts: each transaction, or group of transactions, must be looked at.'" 215 In Victoria University of Technology v Wilson and Ors [2004] VSC 33, Nettle J applied Nottingham University in the following passage: "[145] The same is true of fiduciary duties [ Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 97, per Mason J], although it is necessary to distinguish between an employee's contractual duty of good faith and loyalty and such if any fiduciary duty as he or she may owe to their employer [ Nottingham University v Fishel (QBD) [2000] ICR 1462 at 1490, per Elias J]. Some employees, particularly senior employees, do owe fiduciary duties to their employers [see, for example, Reading v Attorney General [1951] AC 507 at 517 per Lord Normand; Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443; Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488; Angus & Coote Pty Ltd v Render (1989) 16 IPR 387; State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (unreported, Supreme Court of NSW, O'Keefe CJ in Comm D, 14 September 1994); Colour Control Centre Pty Ltd v Ty (1996) 39 AILR §5–058 (Santow J) at 4,318–4,320; EFG Australia Ltd v Kennedy [1999] NSWSC 922 (Hodgson CJ)); Francis v South Sydney District Rugby League Football Club Ltd [2002] FCA 1306 [265]; Canadian Aero Services Ltd v O'Malley (1973) 40 DLR 3d 371 at 391; Guth v Loft, Inc 23 Del Ch 255, 5 A2d 503 (1939)]. But others do not. The scope of an employee's fiduciary duties to the employer depends as much as anything upon the nature and terms of the employment. "The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with and conforms to them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction". [ Hospital Products Ltd v United States Surgical Corporation above at 97, per Mason J; Nottingham University v Fishel (QBD) [2000] ICR 1462 at 1491–2, per Elias J]" 216 In Francis v South Sydney District Rugby League Football Club Ltd [2002] FCA 1306, Lindgren J also accepted the analysis of Elias J in Nottingham University, although did not find a relevant fiduciary duty existed (that case being one where there was an attempt to impose such a duty upon the employer). His Honour said: "[267] In support of the existence of the pleaded fiduciary duty Francis relies on Hollingsworth v Commissioner of Police ( No 2) (1999) 47 NSWLR 151 and Burazin v Blacktown City Guardian Pty Ltd (1996) 142 ALR 144 in which it was accepted that there is implied in every employment contract a term that the employer will not, without reasonable and proper cause, act so as to destroy or seriously damage "the relationship of confidence and trust" that exists between employer and employee, and that the employee has a corresponding duty to act with fidelity and good faith (cf Hollingworth at 190; Burazin at 146-147, 151). But an implied contractual term of that kind is not to be equated with a fiduciary obligation: see Nottingham University v Fishel [2000] ICR 1462 at 1492-1493. Mutual trust and confidence may characterize a fiduciary relationship, but are not sufficient, without more, to give rise to one. In News Ltd v Australian Rugby League Football Ltd (1996) 64 FCR 410 at 539-540, this Court noted that the notion of mutual trust and confidence may be more significant in establishing a fiduciary relationship between "collaborative" parties who are related to one another "horizontally", such as joint venturers or partners, than between parties who are related to one another "vertically", such as employer and employee. [268] As Mason J pointed out in Hospital Products (at 96-97): "[t]he critical feature of [fiduciary] relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person" (referred to with apparent approval in Pilmer at [70]; and cf Meagher, Gummow and Lehane, Equity: Doctrines and Remedies (3rd ed, 1992) at 130). It is the lack of this "critical" undertaking by Souths to act "for or on behalf of or in the interests of" Francis with respect to the matters pleaded that signifies that Souths was not a fiduciary in its relationship with Francis. [269] … "That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction."" 217 I accept that Mr Olson may not have been a fiduciary in respect of each and every activity undertaken by him in the course of his employment. It is necessary to consider with precision the precise activity agreed to be undertaken by Mr Olson and to ask if he had agreed to perform that activity solely in the interests of Woolworths (to the exclusion of his own interests). If that is the case then the obligation is fiduciary in character. 218 Clearly it is well recognized [State Rail Authority v Earthline Constructions Pty Limited (Supreme Court of New South Wales, O'Keefe CJ CommD, 14 September 1994, unreported,); Colour Control Centre Pty Limited v Ty (1996) 39 AILR 5-085 at 4,318-4,320; EFG Australia Limited v Kennedy [1999] NSWSC 922] that the duties of an employee which are normally categorized as fiduciary relevantly include: · to act honestly in the service of the employer; · not to benefit him or herself to the detriment of the employer; · to treat confidential information as such and not disclose it to competitors. 219 Woolworths accept that there is no implied contractual obligation to volunteer information in relation to one's own misconduct [Concut Pty Limited v Worrell (2000) 176 ALR 693 at 703 per Gleeson CJ, Gaudron and Gummow JJ, quoting BCCI v Ali [1999] 2 All ER 1005 at 1015; Hollingsworth v Commissioner of Police (No 2) (1999) 47 NSWLR 151 at 190 - 193; Bell v Lever Brothers Limited [1932] AC 161 at 227-228], and that therefore there could be no general fiduciary duty to make such disclosure without more. 220 Whilst that may be the general position, Woolworths draw attention to recognized exceptions, for example: · where the employer directly questions the employee. In Bell v Lever Brothers Limited, Lord Atkin said [[1932] AC 161 at 227-228]]: "If a man agrees to raise a butler's wages, must the butler disclose that two years ago he received a secret commission form a wine merchant; and if the master discovers it, can he, without dismissal or after the servant has left, avoid the argument for the increase in salary and recover back the extra wages paid? If he gives his cook a month's wages in lieu of notice can he, on discovering that the cook has been pilfering the tea and sugar, claim the return of the month's wages? I think not. He takes the risk; if he wishes to protect himself he can question his servant, and will then be protected by the truth or otherwise of the answers ." (emphasis added) · if there is a statutory obligation to disclose, such as under the Trade Practices Act [Concut at [37]] or the Corporations Act; · if informed consent is required to otherwise avoid a breach of duty [Concut at [37]]. Woolworths steps to contending that a notional 'standing question' from Woolworths was in place 221 Woolworths contends, and the Court accepts, that: · In the present case Olson agreed to be bound by the Woolworths Code of Conduct by signing a declaration of agreement on 15 October 2003. The Code of Conduct relevantly included the following: "Conflict of Interest All employees of Woolworths are expected to declare any interest they might have that could adversely affect the company. …… Over time personal situations can change. Conflict of interest documents are to be completed annually by every salaried employee and by any employee who believes they are in a situation that may be a potential conflict with Woolworths. These forms can, at a manager's discretion, be sent to employees where a conflict of interest is believed to exist. Failure to disclose a conflict of interest is a serious issue. If employees are concerned about their own situation it is recommended they talk to their manager so the issue can be clarified and resolved." · Mr Olson declared: "I Mark Olson agree in accordance with my contract of employment that I have read and clearly understood my obligations as an employee of Woolworths Limited as outlined in the policies of this Code of Conduct. By signing my name I agree that in the day to day performance of my job I will: · always act with the highest level of integrity; · abide by the policies and practices outlined in this Code; · seek to understand any policy changes that may affect me; · accept that if I break company policy my employment with the company could be terminated." · Mr Olson thereby agreed to, inter alia, declare any conflicts of interest to Woolworths. The effect of that undertaking was that he, in effect, was the subject of a standing question from Woolworths, to declare such conflicts. · There was a conflict between duty and interest on two levels: - the first existing from the moment when Mr Olson formed the intention to dishonestly take and use Woolworths' confidential information for his own benefit, contrary to his fiduciary and contractual obligations; - the second being the preferring [following that moment] by Mr Olson of his own interests in saying nothing when he had an obligation to disclose the conflict. · Both of those conflicts ought to have been disclosed. Neither was. Relief claimed - account of profits 222 Woolworths claims that Mr Olson breached his fiduciary duties in failing on 1 July to disclose those conflicts to Woolworths, and that had those conflicts been disclosed, and had the shares not yet been issued, it would, [pursuant to the Executive Option Plan], not have issued the shares in response to the defendant's purported exercise of his options. 223 In these circumstances Woolworths claims relief by way of an account of profits in relation to the sum of $378,600 it says the defendant obtained as a consequence of exercising the options (being the difference between the market price of $11.42 per share and the exercise price of $5.11 per share). 224 It is not presently necessary to recite in detail the principles relating to relief by way of an account of profits. It is sufficient, for present purposes to note that: · a fiduciary is not entitled to make a profit out a fiduciary position without the knowledge and assent of the person to whom the fiduciary duty is owed [Boardman v Phipps [1967] 2 AC 46 at 105, 109; Regal (Hastings) Limited v Gulliver [1967] 2 AC 134 at 139, 154; Consul Development Pty Limited v DPC Estates Pty Limited (1975) 132 CLR 373 at 393; Warman International Limited v Dwyer (1995) 182 CLR 544 at 563]. · the extent of the remedy depends upon the extent to which the fiduciary is unjustly enriched, no element of punishment being involved [Hospital Products supra at 107; Dart Industries Inc v Décor Corporation Pty Limited & Anor (1993) 179 CLR 101 at 111, 114-115; Warman supra at 557; Harris v Digital Pulse Pty Limited (2003) 44 ACSR 390 at [307]-[310]]. Dealing with the claim for breach of fiduciary duty in terms of the material findings and proper analysis 225 In relation to the finding which is that the decision to leave Woolworths and to go to Franklins was made on 1 July, it is appropriate to note the compelling evidence that by the time the e-mails were sent Mr Olson had clearly determined that his future was with Franklins, albeit that the working out of the restraint situation had not yet been resolved. If the $200,000 offer had been communicated to him on the morning of 1 July he would have had approximately 20 hours in which to make that decision. If the offer had been communicated to him on the evening of 1 July he would have had approximately 11 hours in which to make that decision. It is not necessary to make a finding as to the precise moment within that period that he made the decision. Whilst it seems to me that there is a reasonably strong case that the offer was first, but only briefly, communicated during the 2 minute telephone call from Ms McDonald during the morning, it is not possible to be certain in terms of the appropriate finding. It is possible that the communication took place in the late afternoon on that same day in the 15 minute telephone call. 226 The finding is that as soon as Mr Olson heard of the $200,000 package offer, he had no particular concern about the as yet unresolved restraint situation. His state of mind was that 'come what may' the Franklins offer meant that he likely would never return to Woolworths after his holiday. He was interested in ascertaining the answers to questions such as how his induction program with Franklins would be carried out and where car parking would be available. He was interested in what he described in his facsimile to Ms MacDonald as "basic admin stuff". He did not in that facsimile ask what was the amount of the package. He was not on the morning of 2 July or during the balance of that day or over the weekend, contemplating whether or not to stay with Woolworths in some capacity or on the other hand to move to Franklins if he could. He had determined that notwithstanding what he regarded as the unlikely possibility that there may turn out to be a problem with the restraint provision, he was accepting the Franklins offer. On the morning of 2 July he was about making quite certain that he would have on the home computer, the materials which had been attached to the subject e-mails for use by him as necessary into the future, his belief being that the extremely high probability was that that future would be with Franklins and that the information may assist him in his position with Franklins. 227 As earlier indicated there is a critical timing issue which arises in this case. For reasons explained below Woolworths, in order to obtain substantive relief for breach of fiduciary duties, must affirmatively establish that on or before approximately 1.00pm on 1 July 2004 Mr Olson had not only determined to resign his employment with Woolworths and to take up the employment offer of Franklins, but had also determined that he would send the subject e-mail attachments to the home computer for the purpose of assisting him in the performance of his duties at Franklins. In terms of the necessary timing, the coincidence of those two parameters has not been established in these proceedings. The result is to place the shares outside the reach of relief for breach of fiduciary obligation - a failure to prove that there was any breach of duty or conflict-of-interest which existed prior to the share issue. 228 The issue as to precisely when the $200,000 offer was communicated to Mr Olson is certainly the subject of a finding that the communication took place on 1 July. The communication clearly took place either when the offer had come in from Franklins during the morning, or on that same evening. Mr Olson's evidence that the communication took place on 2 July in the late afternoon was clearly fabricated and is rejected. 229 However even if the Court had been in a position to positively find that the communication did take place during the morning 2 minute call, it would not have been possible to hold that Mr Olson had between that call and approximately 1 pm formed the intention to send the subject e-mail attachments to the home computer [which he believed, albeit privately, may assist in the performance of his duties at Franklins]. Even given such a finding there would still be a very real possibility that Mr Olson, although determining [when the $200,000 package offer would have come in from Franklins] to accept the offer, would only have formed the intention to send the subject e-mail attachments to the home computer at some time between 1pm on 1 July and 7:23am on 2 July. Woolworths would have failed to prove that there was any breach of duty or conflict-of-interest which existed prior to the share issue. I do not accept that this would constitute a circumstance in which it would be appropriate for the Court to rely upon the maxim 'nullus commodum capere potest de injuria sua propria' - 'no man can take advantage of his own wrong' to reach the inference for which Woolworths contends. 230 If the first communication to Mr Olson of the $200,000 Franklins package took place during the evening of 1 July, then the only material relevance of the particular point in time goes to negating Mr Olson's evidence that the communication took place on the following afternoon. 231 It is also necessary to make the point that at the same time as he had sent the subject e-mails to the home computer he had also sent to the same computer further emails relating to his arrangements with Macquarie Bank. The explanation that he gave about the Macquarie Bank emails that he needed to do something about his tax, is rejected [transcript 375/3 – 24]. He only needed to have access to that information which he could get through his laptop. An explanation of the minutiae of the steps to be taken in order for the share option exercise to result in the issue of shares 232 The Executive Option Plan was approved by the shareholders of Woolworths at the Annual General Meeting in November 1999 [Affidavit of Mr Jeffs, para 3]. 233 The Options issued to Mr Olson were subject to vesting and lapsing conditions which are recorded in the invitation document. An overview explanation of the substance of the relevant conditions is as follows: (a) the Board is given an entitlement to lapse options if in the opinion of the Board the employee: (i) acts fraudulently or dishonestly; or (ii) acts in breach of duty; or (iii) is convicted or charged with a criminal offence; or (vi) otherwise brings Woolworths or any of its subsidiaries into disrepute. (b) if the options are lapsed, they will not be capable of being exercised; (c) tranche 1 (12.5%) is subject to an Earnings Per Share ("EPS") performance hurdle. The EPS hurdle is based upon EPS growth for the relevant year the option becomes a vesting option exceeding at least 8% (or if on a cumulative basis there is a compounded 8% increase in the relevant year and those that precede it). If immediately following the expiry of three complete financial years from the effective date, EPS growth over those three financial years is at least 8% compounded over 5 years, all unvested options in tranches 1, 2 and 3 immediately vest, although exercise of them remains in accordance with the exercise conditions; (d) tranche 2 (12.5%) is subject to the same EPS hurdle; (e) tranche 3 (25%) is subject to the same EPS hurdle; (f) tranche 4 (12.5%-50%) is subject to the Total Shareholder Return ("TSR") performance hurdle. The TSR hurdle is based on the relative growth in Woolworths' Accumulative Index measured over the period of sixty months from the effective date, equaling or exceeding the nominated percentile ranking of the TSR of the constituent companies Accumulation Index. The percentage of the total number of options comprised in tranche 4 that vest depends upon Woolworths' TSR figure relative to the percentile performance of the companies against whom comparison is made: Woolworths TSR equals or exceeds the following percentile of the Comparator Companies Percentage of Options in total grant that may be exercised 60th percentile 12.5% 65th percentile 25% 70th percentile 37.5% 75th percentile 50% On 1 July 2004 Deloitte Touche Tohmatsu produced a report [Ex RKSJ9] which provided an opinion to the effect that Woolworths Limited's TSR rank was above the 75th percentile band, meaning that the TSR condition precedent applicable to the 50% of options had been met. 234 The Plan Rules provide for the Exercise of Options in section 5: (a) rule 5.1 provides that "unless otherwise prohibited from doing so under Rule 5, or unless the Option has lapsed" an option may be exercised in accordance with the terms and conditions of the Grant and by paying the Exercise Price. The quoted section therefore acts as a limitation of the circumstances in which the grantee is able to exercise the option; (b) rule 5.2 provides that an option may not be exercised unless all vesting conditions and exercise conditions are satisfied. By placing the negative stipulation in the rule, the satisfaction of the "vesting conditions" and "exercise conditions" are a condition precedent to exercise; (c) rule 5.3 relevantly states that an option may only be exercised on or after the Prescribed Exercise Date (being defined as the first date on which the option is exercisable, subject to the Terms and Conditions of Grant) for the option. The plan therefore makes clear that an option is incapable of being exercised prior to the nominated date; (d) rule 5.7 provides that if, before exercising an option, the employee ceases to be employed by a Group Company, other than for reasons provided for in rule 5.11, then: (i) if the cessation of employment arises as a result of any of the reasons identified in rule 5.7(a), which include Separation (defined as termination at the employee's volition with the written consent of the Board expressly given for the purposes of the Plan) the employee may: (A) exercise a Vested Option at any time from the date of cessation of employment until it lapses, except where the Board reasonably determines and advises the employee in writing that the Vested Option has lapsed; (B) if permitted by the Board in writing, exercise an Option that is not a Vested Option from the date of cessation of employment until it lapses; (ii) if the cessation is not one identified in rule 5.7(a), the employee may only exercise an unexercised Option at the date of cessation if permitted by the Board in writing; In this case there has been no written consent of the Board so as to enliven the condition precedent (i) above. It follows that Mr Olson would only be entitled to exercise after cessation of employment upon receipt of written permission from the Board; (e) rule 5.11 provides: If, in the opinion of the Board, a Participant (or, where the Participant is an Associate of an Eligible Executive, either the Participant or the Eligible Executive) acts fraudulently or dishonestly in regard to, or is in breach of duty (under a contract or otherwise) or any material obligations to, a Group Company, is convicted of or charged with a criminal offence, or otherwise brings a Group Company into disrepute, the Board may declare that any unexercised Option has lapsed , and the Option lapses accordingly. The provision is therefore related to (a) above. If the Board makes the relevant declaration prior to exercise, the right to exercise is lost. 235 The effect of the above is that: (a) the grantee cannot exercise the option prior to the exercise date. That means that even though Mr Olson sent in a notice by way of facsimile on 22 June [See the transmission line in PX4 p A01563 (tab 153)], the provision of the notice, at that time, did not amount to an exercise; (b) the exercise could not take place until the "exercise conditions" and the "vesting conditions" had been met. In respect of tranche 4, the vesting conditions did not occur until 1 July (Deliotte opinion dated 1 July). The exercise conditions include payment of the exercise price (referred to in the invitation). That did not occur until later on 1 July (see below); (c) the entitlement to exercise is lost if exercise is prohibited or the option has lapsed. Necessarily the circumstances are to be considered as at the date the options are sought to be exercised. 236 Having regard to the content of confidential exhibit P25 which refers to the schedule for exercise of options (email sent on 1/7/04 at 10:53 am) and exhibit P26 referring to the schedule having been processed and apologizing for delay (email sent on 1/7/04 at 1:21 pm), it is apparent that the options were exercised at a time close to 1:00 pm on 1/7/04. That is the relevant time for determining if the entitlement to exercise had lapsed. 237 At that point in time all of the conditions precedent must have been met for there to be a valid exercise. In the case of a condition precedent to exercise, there is no equity (or alternatively there is no equity save in very exceptional circumstances) to perfect the exercise of an option. That is because a failure of a condition precedent results in the contractual obligation never coming into being and, therefore, there never being a contract [Gilbert J McCaul (Aust) Pty Limited v Pitt Club Limited (1957) 59 SR (NSW) 122; Webb v Ryleen Pty Limited (unrep, SCNSW, Young J, 8 November 1994)]. 238 Provision is made in section 9 for amendments to the Plan: (a) rule 9.1 provides that subject to rules 9.2 and 9.3 and the Listing Rules, the Board may by resolution amend, add to, revoke or replace ("amend") the Plan Rules; (b) rule 9.2 provides limitations upon amendment if the proposed amendment would materially reduce the rights of a participant in respect of an option granted before the date of amendment; (c) rule 9.3 provides that as soon as reasonably practicable after an amendment is made, the Board will, by written notice, inform each participant affected. 239 Rule 11.1 allows the Board to delegate to any one or more persons the exercise of its powers and discretions under the plan. Further, in rule 11.4: If there is any dispute or disagreement as to interpretation of the Rules or as to any right or discretion or the exercise of any right or discretion under or in relation to the Plan or any Option or any restricted Share, the decision of the Board is final and binding on all persons. 240 On 27 May 2004 the Personnel Policy Committee of the Board of Woolworths, being a committee the subject of delegation from the Board [the functions of the personnel policy committee are described in the Woolworths 2003 Report to Shareholders, PX2 pp A00651-00754, at page 41 (A00691)], resolved [Ex P12] to: Approve a variation of the LTIP Separation Guidelines to provide that in the event of termination for cause of a Plan participant, the number of Options which are vested and exercisable, which may be available to the participant will be that number to be determined by the CEO, acting on behalf of the Committee and Board. 241 The LTIP Separation Guidelines referred to in that resolution [Ex RKSJ7] record that in respect of termination for cause: (a) the position prior to the resolution was that no options, whether EPS-vested, EPS-unvested or TSR were available to be exercised if the employee had been terminated for cause; (b) the position after the resolution was that the position remained the same in respect of EPS-unvested and TSR options (they were unavailable to be exercised if the employee had been terminated for cause), but that in respect of EPS-vested, the number of options that had both vested and were exercisable may be exercised with the discretion of the CEO. 242 The evidence of Mr Jeffs [Affidavit of Mr Jeffs, para 24], which was not the subject of challenge was that when the notice of exercise of options were received by Woolworths, he had assumed and believed that the options granted to each of the Woolworths employees (including Mr Olson) were not liable to lapse by operation of clause 5.11 of the Option Plan Rules. On that basis he authorised the issue of fully paid ordinary Woolworths shares in respect of all notices of exercise of options, including the notice submitted by Mr Olson. 243 Mr Jeffs also swore [Affidavit of Mr Jeffs, para 26], which was not the subject of challenge, that had he been aware of the allegations contained in paragraphs 16 and 17 of the statement of claim [Ex P9A] ("the allegations") then he would not have authorised the issue of shares to Mr Olson. His evidence was that he would have immediately consulted with Ms Coates and, with her agreement, approached Mr Corbett and asked him to decide whether or not Woolworths should determine that the options granted to Mr Olson should lapse. Albeit that Ms Coates was not called to give evidence the proper inference is that in the circumstances posited she would probably have agreed with an extremely urgent approach to Mr Corbett. 244 Mr Corbett swore [Ex P9 para 3,4], and it was not the subject of challenge, that had Mr Jeffs approached him on that basis, he would have instructed Mr Jeffs to take all steps necessary to prevent the issue of shares to Mr Olson, and determine the number of shares to be issued to Mr Olson to be nil. 245 Mr Jeffs swore [Affidavit of Mr Jeffs, para 27], and it was not the subject of challenge, that if he had received such instructions from Mr Corbett, then he would not have authorised the issue of the shares to Mr Olson. Breach of confidence General principles 246 Woolworths' claim for breach of confidence rests upon the contention that, by his conduct in sending the emails of 7.37 am and 7.42 am on 1 July 2004 attaching the six Process Models and the 'Rod presentation' ('the Information'), Mr Olson breached his obligations under cl 5.1 of the Service Agreement. In addition to its claims of fraudulent intent and for breach of fiduciary duty, and regardless of the state of mind of Mr Olson at the time, Woolworths asserts that this very act constituted a proscribed 'use' or 'disclosure' of the Information within the meaning of cl 5.1. 247 It is convenient to set out the specific provisions of the Service Agreement here in issue: "5.1 Confidentiality during agreement The Executive during the term of this Agreement must: (a) not disclose to any third party any Confidential Information or trade secrets or intellectual property relating to the Company [the plaintiff] or a related body corporate; (b) not use or attempt to use any such Confidential Information or trade secrets or intellectual property in any manner which is not in the proper course of his/her duties and for the sole benefit of the Company or a Related Body Corporate; and (c) use his/her best endeavours to maintain the secrecy of and prevent the disclosure of any such Confidential Information or trade secrets or intellectual property to third parties. 5.2 Confidentiality After Termination of Agreement The Executive's obligations referred to in clause 5.2 will continue to apply after the termination of this Agreement but will cease to apply to Information which and only to the extent it is required by law to be disclosed or comes into the public domain, otherwise than as a result of a breach by the Executive of the provisions of clause 5.1. 5.3 Confidential Information Defined In this Agreement, "Confidential Information" means any of the trade secrets or confidential information, relating to the operations, processes, strategies or dealings of the Company or any of its Related Bodies Corporate or any other information concerning the organisation, business, finances, transactions or affairs of the Company or any of its Related Bodies Corporate which the Executive knows, or which a reasonable person ought to know, is confidential. Information ceases to be Confidential Information if and only to the extent it, becomes information in the public domain, other than as a result of a breach of this Agreement or is required by law to be disclosed." 248 Thus on the terms of the Service Agreement, to succeed in its claim Woolworths must demonstrate that the Information was 'Confidential Information' or a 'trade secret' [as defined], that Mr Olson knew or ought to have known that the Information was of such a quality and that the Information was 'used' or 'disclosed' in a manner contrary to cl 5.1. These elements generally resemble the oft-cited dicta of Megarry J in Coco v A N Clark (Engineers) Ltd [1969] RPC 41 at 47, praying in aid Lord Greene MR in Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203 at 215, to the effect that equity will intervene to restrain an actual or threatened breach of confidence when the information the subject of the proceedings: (a) has the requisite "quality of confidence" about it; (b) was imparted in "circumstances importing an obligation of confidence"; and (c) has been or is threatened to be used in an unauthorised manner to the detriment of the plaintiff. Recently in Australian Broadcasting Corp v Lenah Game Meats Pty Ltd (2001) CLR 199 at 222, this test was said by Gleeson CJ to comprise the "usual elements" required to establish an equitable remedy for breach of confidence. 249 However it must be emphasised that it is not doctrinally permissible to conflate principles of equity with rules of common law when the duty of confidence is said to arise from contract. For one, when the parties have voluntarily entered into contractual relations "the primary question is no doubt that of construing the contract and any terms implied in it" (Coco v AN Clark (Engineers) Ltd at 47). After distinguishing between confidential information protected by contract and by equity, in Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 at 190 Fullagar J said: "All the obligations in the first broad class depend for their existence and their attributes solely upon the law of contract. They are obligations at common law, although of course equity may act in their enforcement if the ordinary conditions for equity's intervention are met. " And for another, the confusion between duties of confidence arising from contract and equity has a tendency to commingle the necessarily distinct standards of conduct required by those respective branches of the law; see, for example, the discussion in Meagher, Gummow and Lehane (4th Edition) at [41-020] concerning the imposition of the 'reasonable man' into an area more properly concerned with conscience and fidelity. 250 A fortiori the two 'classes' of duties of confidence must be segregated in instances where the parties to an employment contract have made express provision as to the permissible and non-permissible uses by the employee, of the employer's confidential information. As stated by Neill LJ in Faccenda Chicken Ltd v Fowler & Ors [1987] 1 Ch 117 at 135, a case concerning the post-employment use of information pertaining to the customers of the appellant company, "[w]here the parties are, or have been, linked by a contract of employment, the obligations of the employee are to be determined by the contract between him and his employer." Element one: quality of confidence 251 To ensure that this element is made out the plaintiff must demonstrate that the Information, pursuant to cl 5.3, comprised trade secrets or confidential information "relating to [its] operations, processes, strategies or dealings" or otherwise concerning its "organisation, business, finances, transactions or affairs." 252 While the question of whether the Information bore such a quality was ultimately the subject of a formal concession by Mr Olson, it is nonetheless instructive for other purposes in these reasons [specifically the restraint issue] to set out both the general principles in this area and some detail with respect to the nature of the Information. 253 In Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37, a case concerning an employee's breach of his contractual duty of confidence by utilising information acquired by reason of his employment in the course of establishing an enterprise in competition with his employer, Gowans J set out the following indicia as relevant to the question of whether information possesses the requisite quality of confidence: "(1) the extent to which the information is known outside of his [the employer's] business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to him competitors; (5) the amount of effort or money expended by him in developing the information; (6) the ease or difficulty with which the information could properly be acquired or duplicated by others." 254 Similarly in Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 334, Kirby P (as his Honour then was) detailed the following considerations: "(a) The fact that skill and effort was expended to acquire the information ... (b) The fact that the information is jealously guarded by the employer, is not readily made available to employees and could not, without considerable effort and/or risk, be acquired by others ... (c) The fact that it was plainly made known to the employee that the material was regarded by the employer as confidential ... (d) The fact that the usages and practices of the industry support the assertion of confidentiality ... ; (e) The fact that the employee in question has been permitted to share the information only by reason of his or her seniority or high responsibility within the employer's organisation." 255 And, finally, as a rule of general application the plaintiff must be able to identify specifically the confidential information said to be the subject of the duty; as stated by Mason J (with whom Murphy, Aickin, Wilson and Brennan JJ agreed) in O'Brien v Komesaroff (1982) 150 CLR 310 at 327, the Court "needs to know not only what was the information conveyed but also what part of that information was not common knowledge." 256 The aspect of Woolworths' operations, processes and strategies with which the Information deals is set out in the evidence given by the witnesses called by Woolworths, described as the 'inventory replenishment' sub-project of the broader 'Project Mercury.' At the most abstract of levels, this element of Project Mercury involves the development of computer databases and applications [known as 'AutostockR' and 'Stocksmart'] which collectively have the capacity to automatically predict the supply requirements of any given supermarket within the plaintiff's operations in respect of any given 'line' of goods. Assuming its successful implementation, the competitive advantage which Woolworths will acquire by virtue of such new replenishment processes is axiomatic, reducing costs associated with (inter alia) storage, product wastage and in-store labour. In turn, it is expected that such savings at the level of supply will enable the plaintiff to deliver identical products to those stocked at rival supermarkets at significantly cheaper prices. 257 According to the evidence of Mr Larkin [and other of Woolworth's witnesses], the traditional supply chain model utilised by supermarket retailers such as Woolworths is an amalgam of a number of disparate components. Some product lines are ordered directly by individual stores and delivered to the particular ordering store by their vendor. Others are ordered through and delivered to various 'distribution centres', whereupon the product is unloaded, sorted, warehoused and then shipped as per supply requirements. Critically, each component is or may be operating in a logistically segregated manner from any other; for instance, responsibility for 'primary transport' [from the vendor to the distribution centres] may lie with the vendor, whereas that for 'secondary transport' [from the distribution centre to the supermarket] may lie with the retailer. 258 The underlying feature of all such supply chain models is their absolute reliance on human judgment as to the product requirements, and therefore purchase and replenishment quantities, of both individual supermarkets and distribution centres servicing a number of retail outlets. When the exercise of this judgment results in the supply of too little stock, customer dissatisfaction results; when too much, costs associated with warehousing and wastage are incurred. 259 In contrast, the lodestar of the inventory replenishment sub-project is the attainment of a 'fully integrated', computerised supermarket supply chain, wherein the plaintiff exercises control over each individual step in the process of delivering goods from the point of vendor sale to the point of retail sale. At the basic level, data collected at the point of sale, rather than human judgment, is utilised to predict supermarket product requirements and thereby govern purchasing and replenishment decisions. At a higher level, the Project Mercury software is capable of accommodating seasonal fluctuations and 'minimum presentation levels' of product [that is, the undesirability of having completely empty shelves at the close of a day's trading]. Higher still is the concept of 'promotional planning', which involves a supermarket ordering certain quantities of a product and placing them in a certain store location for use in a consumer promotion or marketing campaign. To be capable of accurately predicting supply requirements in this context, the replenishment software must be adapted in view of minutiae such as shelf size and the possibility that competitors will be running similar promotions. 260 It is anticipated by Woolworths that the successful implementation of Project Mercury, including the replenishment sub-project, will enable it to eliminate substantially its need to hold inventory stock and instead move to supply chain processes based upon a technique known as 'cross-docking' or [with minor technical differences] 'flow through.' Fundamentally, the operations of a distribution centre operating on cross dock or flow through principles are as follows: (a) goods are delivered to one docking side of the Centre and immediately unloaded; (b) consignments are then broken up and sorted; and (c) the goods are then immediately loaded on the other docking side of the Centre and transported directly to a supermarket. This process differs from the traditional supply chain approach described by Mr Larkin in that at no time after delivery are goods warehoused and inventoried for later transport to supermarkets. Rather, only so much product as is actually required, or forecasted to be required, for a particular period are ordered from the vendor. 261 For cross docking or flow through to be an effective procedure the retailer must be in possession, at the time of vendor purchase, of exceedingly precise forecasts of supermarket requirements over the coming days and weeks. Moreover, attention must be paid to the extent to which actual retail sales depart from those forecasts so as to ensure that shortages or gluts do not occur, [Confidential section of judgment. Not to be disclosed – see Court Order 22 September 2004 ] [ ]. 262 In this context, therefore, the Project Mercury software [described in the Information] can properly be understood as the sine qua non of Woolworths' goal of a fully integrated supply chain. Absent its ability [at least insofar as it appears on the evidence] to generate information cognisant of the manifold variables described above, it would not be possible for Woolworths to co-ordinate its purchasing and replenishment activities in such a way as to have the necessary quantities of stock delivered to supermarkets 'just in time' and without the build up of inventory [and, more importantly, its associated costs]. 263 At a greater level of detail with respect to the content of the Information, the six Process Models attached to the 7.37 am email deal with the following aspects of Project Mercury and the replenishment sub-project described above. (a) 'Standard DSD 1.3.jpg': This model depicts the replenishment processes to be applied to the few remaining product lines which will be delivered direct from vendor to supermarket, focussing on perishable items such as bread, milk and smallgoods. (b) 'Standard XD V 1.3.jpg': This model depicts the plaintiff's cross-docking methods and the goods to which they are to be applied, focussing on high-volume product lines such as soft drink. (c) 'Standard Stocked V 1.5.jpg': This model depicts the supply processes to be applied to those few product lines to which the cross docking method is not to be applied but which are, rather, intended to be warehoused before delivery to supermarkets. (d) 'Vendor Managed V 1.0.jpg': This model depicts the processes applicable to goods whose supply volume and timing is managed by the vendor, focussing on non-grocery items such as CDs and greeting cards. (e) 'Standard DCM 1.5.jpg': This model depicts a now superseded warehouse organisation process known as 'Distributed Case Management' which, while involving similar concepts to cross docking, concerns boxed rather than palleted goods. While this supply process is still presently being implemented by the plaintiff, it is now designated as 'flow through' rather than 'Distributed Case Management' [this being the technical distinction between cross docking and flow through described above]. (f) 'Requisites V 1.0.jpg': This model depicts the supply processes applicable to items utilised by the plaintiff in the course of its business rather than sold direct to consumers, such as wrapping and flour used in in-store bakeries. 264 In turn, and as detailed earlier in these reasons, the document attached to the 7.42am email and entitled 'Rod presentation- replenishment' can best be described as a plain English explanation of the supply processes depicted in the various Process Models described above. On the evidence given by Ms Winn and Mr Pokorny, this document consisted of a series of 'Microsoft PowerPoint' slides that were used in presentations given between December 2003 and April 2004 to those of Woolworths' Buying and Marketing Managers involved with Project Mercury. Inter alia, the slides were designed to demonstrate to the presentees how the flow through replenishment system would operate, provide an illustration of this process by following the track of one particular item through the supply chain from 'end to end' and detail how ordering volume targets were to be calculated. Additionally, the slides contained background information as to the reasons why Woolworths was undertaking Project Mercury, including detail of the limitations of its present supply chain processes and the future losses it expected to be incurred were change not implemented. 265 In these circumstances, and turning to the factors identified in Ansell Rubber and Wright, it is clear that the defendant's concessions as to the confidentiality of the Information was appropriate. The concession went the distance of accepting that the flow charts formed the basis of Project Mercury [transcript 275.25]. (a) The evidence clearly establishes, and it was not disputed by the defendant, that the plaintiff regards all information concerning Project Mercury to be of a highly sensitive and confidential nature. On numerous occasions during the hearing the proceedings were conducted in closed court, and many exhibits to the affidavits and statements of the plaintiff's witnesses were marked confidential. The need for such secrecy arises from the fact that the Project Mercury software is unique and proprietary to Woolworths, capable of being distinguished from more generic supply chain software packages on the basis of its accommodation of the intended 'fully integrated' nature of the plaintiff's operations in this respect. (b) Access to the Information was restricted within Woolworths' business to those employees, and in particular those executives and managers, directly involved with Project Mercury. On the evidence of Mr Brookes, at the present moment a mere 170 of Woolworths' 145,000 total employees are working on the Project, each seconded from various other parts of its business. On the evidence of Ms Winn, the slides of the 'Rod presentation' were not distributed to attendees in paper format, and was available in electronic format only to certain designated individuals [including Mr Olson] with access to a restricted share drive. Moreover, the presentation was given only to employees involved with Project Mercury in one particular area- Buying and Marketing- of a job description of 'assistant business manager' and above. Similarly, on the evidence of Mr Larkin the Process Slides were authored by Messes Maier, Hoare and Thomas [as members of the Project's "Supply Chain Replenishment Capability Team"] and distributed for comment only to those employees responsible for the areas of business to which the models related [including Mr Olson]. (c) On the evidence of Mr Larkin, Woolworths commenced work on Project Mercury in late 2000 and early 2001. Development of the Project has involved the engagement of external consultants in addition to the time of the 170 dedicated employees, and over the course of the next five years Woolworths expects to invest some $1 billion in information technology and other infrastructure relating to the Project. On the evidence of Mr Pokorny, Woolworths expects to save some $6.9 billion by 2008 from the implementation of the broader 'Project Refresh', two-thirds of which is attributed to Project Mercury. (d) There was an issue between the parties as to the potential value of the Information to a competitor of the plaintiff in the Australian or New Zealand supermarket industry. Specifically, Mr Olson submitted that the information was of worth only to the plaintiff specifically given that: (i) there a number of supply chain software packages available for general sale that are capable of performing functions similar to that of the Project Mercury software [cross examination of Ms Winn]; (ii) the processes described in the Information would be relevant only to an enterprise which exercised total control of the supply chain from 'end to end', whereas Franklins is intending to disintegrate its supply chain operations [cross examination of Mr Larkin]; and (iii) a competitor would necessarily have to make a 'massive capital undertaking' to emulate Woolworths' flow through model [cross examination of Mr Thomas]. 266 By way of response Woolworths maintained that: (a) the Project Mercury software is of far greater capacity than any commercially available package as it is specifically adapted to unique conditions prevailing in the Australian supermarket industry [such as retailers regularly contracting with producers or growers of fresh produce directly rather than through third parties, which is apparently the position in Europe and the United States] [evidence of Mr Brookes]; (b) even though no competitor of Woolworths has a fully integrated supply chain, the Process Models would nonetheless be of utility as they analyse a number of different systems at a micro level that are coherent in their won right [such that a competitor may be able to emulate specific aspects of the Project, such as transport management] [cross examination of Ms Winn]; and (c) access to the 'Rod presentation' slides would enable a competitor, if it did indeed elect to emulate Woolworths' end to end supply chain model, to avoid expenditure on developing the systems there depicted [evidence of Ms Winn]. 267 In my opinion Woolworths has clearly established that access to the Information would be of value to a competitor, notwithstanding that some of the elements of the Information relate to Woolworths' operations specifically. Element two: received in circumstances of confidence 268 To ensure that this element is made out Woolworths must demonstrate that Mr Olson either received the Information knowing that it was confidential in nature, or that a reasonable person so receiving the Information ought to have known that it was confidential in nature. 269 There can be no dispute that this element has been satisfied. For example, the evidence of Mr Corbett in cross examination, which was not subsequently challenged by the defendant, establishes that it was emphasised during numerous Project Mercury meetings which the defendant attended that all information relating to Project Mercury was strictly confidential. Element Three: unauthorised use 270 To ensure that this element is made out Woolworths must demonstrate that Mr Olson 'used' or 'disclosed' the Information within the meaning of cls 5.1(a) and (b) of the Service Agreement, or failed to use his 'best endevours' to maintain the secrecy of and prevent the disclosure of the Information within the meaning of cl 5.1(c). 271 In cross examination Mr Olson conceded that if he had sent the two emails attaching the Information with the fraudulent intent to disclose the Information to Franklins and use it in the course of his employment with that company, then he would have been acting in breach of cl 5.1. 272 In view of the finding, as set out earlier in these reasons, that Mr Olson was acting with fraudulent intent in sending the emails, Woolworths has clearly established that Mr Olson breached his obligations under cl 5.1(b). Even, absent such a finding, I would still find a breach of cl 5.1(a) as, by sending the Information to his wife's email account, Mr Olson disclosed the Information to a third party within the meaning of cl 5.1(a) and failed to use his best endeavours to maintain the secrecy of the Information and prevent its disclosure within the meaning of cl 5.1(c). Dealing with the matter 273 While Woolworths has succeeded in establishing a breach of the Service Agreement by Mr Olson, in the circumstances the question of remedy is one of considerable difficulty. 274 No evidence has been led as to any pecuniary loss that has been suffered by the plaintiff as a result of the defendant's breach. In the absence of such evidence, the Court cannot order more than nominal damages: Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286. Moreover, it is similarly trite to state that the fraudulent [or other] intent of the defendant is irrelevant for the purposes of the assessment of damages and that exemplary damages are unavailable in contract: Butler v Fairclough (1917) 23 CLR 78 at 89, per Griffith CJ; Gray v Motor Accident Commission (formerly State Government Insurance Commission) (1998) 196 CLR 1 at 6, per Gleeson CJ, McHugh, Gummow and Hayne JJ). 275 Nonetheless, the Court will readily grant an injunction to enjoin a former employee who surreptitiously obtains confidential information during the course of his or her employment from using or disclosing that information: see, for example, Robb v Green [1895] 2 QB 1; Wright v Gasweld Pty Ltd. 276 All Woolworths employees who gave evidence about the importance of the Information to Woolworths spoke of the substantial commercial importance of it. Mr Corbett went as far as to draw an analogy with the plans for the atom bomb, he considered it of such significance. Mr Olson ultimately has agreed to the substantial importance the Information has to Woolworths. The fact that Woolworths considers the Information of such significance is evidenced by the fact that it took immediate action upon becoming aware of the breach of confidence by Mr Olson, through the institution of Anton Pillar proceedings in the Federal Court. 277 Mr Olson proposes, as soon as allowed, to take up a position with one of Woolworths' major competitors, in an area where the Information is likely to be of considerable utility in his liaison with the senior supply chain specialist. He has already been less than frank about the reasons for taking the Information in the first place. Woolworths is entitled, as it does, to hold a substantial concern about the prospect that the Information may be used directly or indirectly by Mr Olson in the future. The Court is in no position to be satisfied that there is no risk of disclosure in the future. 278 To my mind the appropriate and only relief in terms of the confidential information cause of action is to order that Mr Olson whether by himself, his agent or otherwise, be restrained from disclosing to any person or organisation or company or from making use of or copying or reproducing in any form any of the attachments to the subject e-mails ["the conduct the subject of the restraint"] without first giving four weeks notice to Woolworths of an intent to engage in the conduct the subject of the restraint. Restraint of trade – general principles 279 In Petrofina (Great Britain) Ltd v Martin [1966] Ch 146 at 180, Diplock LJ defined a contract in restraint of trade as: "one in which a party (the covenantor) agrees with any other party (the covenantee) to restrict his liberty in the future to carry on trade with other persons not parties to the contract in such manner as he chooses." 280 Consideration needs be given to the common law position pertaining to the enforceability of restraints of trade and the statutory overlay arising through the operation of s 4(1) of the Restraints of Trade Act 1976 (NSW). 281 The general principles were conveniently summarized by Palmer J in Idameneo (No 123) Pty Limited v Angel-Honnibal [2002] NSWSC 1214 at [43]-[48]: "[43] In Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co, Ltd [1894] AC 535, Lord Macnaghten restated the common law principles applicable to a restraint of trade in the following frequently-cited passage: "The true view at the present time I think, is this: The public have an interest in every person's carrying on his trade freely: so has the individual. All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions: restraints of trade and interference with individual liberty of action may be justified by the special circumstances of a particular case. It is a sufficient justification, and indeed it is the only justification, if the restriction is reasonable - reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public." That passage was expressly approved as stating the common law in Australia in Buckley v Tutty (1971) 125 CLR 353, at 376. [44] As was recognized in Lord Macnaghten's speech, the common law has developed the principle that in determining whether a restraint of trade is void as a matter of public policy, the Court has to consider two questions: first, is the restraint reasonable as between the parties and, second, is the restraint contrary to the public interest? [45] In Herbert Morris Ltd v Saxelby [1916] 1 AC 688, it was held by Lord Atkinson (at 700) and by Lord Parker (at 707-708) that the onus of establishing that the restraint is reasonable as between the parties lies on the person seeking to enforce the restraint, while the onus of establishing that the restraint is contrary to the public interest lies on the person seeking to invalidate the restraint. That proposition has been widely accepted although it has been observed that the reason for apportioning onus in this way is somewhat obscure: see per Lord Hodson in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269, at 319E. The proposition seems to have been accepted without the necessity for comment by the High Court in Buckley v Tutty at 337. [46] These cases, however, were concerned with common law principles, unaffected by statute. In New South Wales, whether or not a restraint of trade is valid in any particular case is now determined by reference to the common law principles as modified by the operation of s4(1) of the Restraints of Trade Act, 1976 (NSW). That subsection is in the following terms: "4(1) A restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable terms or not." [47] Formerly, the common law required that the questions whether the restraint of trade was reasonable as between the parties and whether it was contrary to the public interest be determined by reference to all possible breaches of the restraint which could occur. Often, where the restraint was not divisible into severable components, it was held invalid although the particular breach by the defendant deprived the plaintiff of a protection which was reasonable in the circumstances. S4(1) of the Restraints of Trade Act had the effect of requiring the Court to consider the two tests of validity posed by the common law, not by reference to all possible breaches which could occur, but only by reference to the particular breach complained of in the case before it: see Orton v Melman [1981] 1 NSWLR 583, at 586-587; IRAF Pty Ltd v Graham [1982] 1 NSWLR 419, at 425; Kone Elevators Pty Ltd v McNay (1997) ATPR 41-564, at 43,833. [48] Other than to enable the Court to "read down" the restraint of trade covenant to the particular breach alleged, s4(1) adds nothing to the common law rules as to the validity of a restraint of trade clause. In particular, the section says nothing about who is to bear the onus of establishing reasonableness as between the parties and as to whether the restraint is in the public interest. I can see no reason why the apportionment of the onus of proof on these two issues, as laid down in Herbert Morris Ltd v Saxelby , should be regarded as altered in any way by the Restraints of Trade Act . This seems to have been accepted by the majority of the Full Court in Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157, at 181, where the majority acted on a concession from Counsel to this effect; it seems also to have been accepted by the Court of Appeal in Curro and Anor v Beyond Productions Pty Ltd (1993) 30 NSWLR 337, at 344C." 282 The whole of the subject has been carefully analysed in a valuable article by A Stewart, Drafting and Enforcing Post-Employment Restraints (1997) 10 AJLL 181 throwing up in stark form many of the particularly difficult issues raised, explaining the manner in which the case law had developed and most particularly pointing out the critical need to appreciate the facts 'upon which' each decision was based. As the author points out Bryson J in Brown v Cunich [1994] ATPR 46-117 at 53,548, having quoted Lord Macnaghten's famous passage in Nordenfelt, continued: "That passage states the position in principle; it does not deal exhaustively with detail, and the two tests of reasonableness in the interest of the parties and in the interest of the public are not concrete and leave each case for decision in the context of time, place and circumstances (including economic circumstances) in which each particular restraint operates…" 283 The determinate of whether the covenants are no more than are reasonably necessary for the legitimate protection of the covenantee's interests is to be tested: (a) at the time that the covenants were entered into; (b) by reference to what the covenants require or entitle the covenantor to do rather than by what they intend to do or have actually done [ Curro v Beyond Productions Pty Limited (1993) 30 NSWLR 337 at 344C]. 284 Again, in Idameneo [at [51] – [52]]: "[51] A factor to which the Court has regard is whether the parties have, as a result of negotiation on equal terms, freely made a bargain in which the particular restraint has been sought by one and given by the other. It is often said that in such a case the parties must be taken to know what is in their interests and what is reasonable: see eg per Lord Pearce in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd at 323. But although the Court will give considerable weight to the fact that the parties have negotiated and agreed upon the covenant, it cannot regard that fact as conclusive: see eg Queensland Co-operative Milling Association v Pamag Pty Ltd (1973) 133 CLR 260, at 268, per Walsh J. In this regard, the position of the covenantee is not improved even if, as here, the contract contains an express acknowledgment by the covenantor that the restraint is reasonable: Sale of Practice Contract, cl10.1. This must be so because the ultimate consideration for the Court is whether public policy has been served in striking down restraints of trade which go further than is reasonably necessary to protect the legitimate interests of those seeking to benefit from them or which are otherwise contrary to the public interest. [52] Accordingly, while the Court gives weight to the fact that the parties have agreed upon the terms of a restraint, the party seeking to enforce the restraint still bears the onus of showing, by sufficiently persuasive evidence, that the protection of the covenant is no greater than is reasonably necessary between the parties. In discharging that onus, that party must do more than merely point to the existence of a bargain; it must justify the restraint by reference to the circumstances of the particular case." Section 4 of the Restraints of Trade Act 285 Section 4 provides: "(1) A restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable terms or not. (2) Subsection (1) does not affect the invalidity of a restraint of trade by reason of any matter other than public policy. (3) Where, on application by a person subject to the restraint, it appears to the Supreme Court that a restraint of trade is, as regards its application to the applicant, against public policy to any extent by reason of, or partly by reason of, a manifest failure by a person who created or joined in creating the restraint to attempt to make the restraint a reasonable restraint, the Court, having regard to the circumstances in which the restraint was created, may, on such terms as the Court thinks fit, order that the restraint be, as regards its application to the applicant, altogether invalid or valid to such extent only (not exceeding the extent to which the restraint is not against public policy) as the Court thinks fit and any such order shall, notwithstanding sub-section (1), have effect on and from such date (not being a date earlier than the date on which the order was made) as is specified in the order. (4) ... (5) An order under subsection (3) does not affect any right (including any right to damages) accrued before the date the order takes effect . " 286 In Ryan v Rouen [2000] NSWSC 468 at [55]-[56], Young J (as his Honour then was), described the approach to be taken to the section in the following terms: "[55] As I understand the law, the basal approach to s4(1) of the Restraints of Trade Act 1976 is as follows: (i) look at the particular breach of the covenant about which the plaintiff complains; (ii) determine whether that breach is of an act forbidden by the covenant, that is, that it is within the ambit of the covenant; (iii) disregard the fact that the total ambit of the covenant may be too wide and so unreasonably in restraint of trade and ask whether the covenant so far as it would work a breach in the particular circumstances under complaint would be an unreasonable restriction; (iv) if the answer to the previous question is that the restriction would not be an unreasonable restriction it is enforceable; (v) the Court should consider the circumstances of the particular case and determine the validity of the restraint to the extent that it purports to operate in those circumstances: it is unnecessary to consider its purported operation in other conceivable sets of circumstances; (vi) the Court cannot redraft the covenant. [56] These propositions follow from the cases commencing with Orton v Melman [1981] 1 NSWLR 583, 587 (from which proposition (v) is directly derived) up to the Kone case referred to earlier. I digested the relevant decisions in the Kone case at first instance reported in (1997) 19 ATPR 41-563 at p43,827." And further [at [61] – [63]]: "[61] The real problem is with the rule that the Court cannot rewrite the covenant. Although one could actually score through words and so produce a set of words which would amount to such a covenant, that would not be a proper application of the blue pencil rule: it would be like striking out the word "not" in the commandment "Thou shalt not commit adultery". [62] In A Buckle & Son Pty Ltd v McAllister (1986) 4 NSWLR 426, 434, Needham J said of s4(1) that it did not operate to allow "the court to create a valid restraint out of an invalid one unless it can be done by a reading down process." However, as Kearney J said in Knogo Corporation v Halligan (1984) ATPR 40-460, the statute can be used to read down the area and time of the restriction and the Court can also read down the extent of the restriction. I discussed the various cases in this connection in Kone at first instance at 43,828. The Court of Appeal in Kone at 43,833, said that: "It is well recognized that the subsection does not allow the Court to remake the contract or a covenant in it." It is clear from that case that the Court could read down a covenant which prevented a person from trading in milk or dairy produce by confining the covenant to milk produce, such as in Home Counties Dairies Ltd v Skilton [1970] 1 All ER 1227. [63] Particularly bearing in mind that on one scenario the defendants wish me to assess damages for breach, it seems to me that I must be able to read down rather than redraft the covenant to the extent to which it would be valid in restraint of trade bearing in mind the acts which the plaintiff has now committed. I cannot see how I can do this." 287 The Court of Appeal considered that statement and provided the following additional comments [Rouen v Ryan [2001] NSWCA 230 at [3] per Beazley JA]: "[3] It is correct to say, as Young J said and Davies AJA has endorsed, that s4(1) of the Act "does not allow the Court to remake the contract or a covenant in it": see Kone Elevators Pty Ltd v McNay & Anor (1997) ATPR 41-564. However, as Sheller JA pointed out at 43,833: "If the Court can read down a covenant in restraint of trade, otherwise void as against public policy, to an extent that makes its enforcement not against public policy, the Court may restrain a breach of the covenant so read down ... By this means a party may be able to restrain a particular breach of covenant even though the covenant is expressed in terms so wide as to be void as against public policy at common law. S4(1) of the Act has confirmed and enlarged the capacity of the Court to enforce just and reasonable covenants which may on their face be too widely expressed."" Davies AJA (with whom Beazley JA and Rolfe AJA otherwise agreed) read the clause in a way that differed to the construction determined by Young J. Relevant factors 288 In order to determine whether a restraint clause is valid a number of matters may be taken into account, including the: (a) covenantee's protectable interests; (b) scope and duration of the restraint; (c) benefits derived by the covenantor and the covenantee; (d) commercial setting of the contract; and (e) bargaining position of the covenantor and the covenantee. 289 Carter and Harland suggest that, in an employment contract context, the proper approach to determine the validity of a restraint clause is as follows: "First, the properly protectable interests of the employer must be identified. The nature and geographical spread of the employer's operations, the location of clients and the goodwill of the business, are relevant. Second, the status, functions and duties of the particular employee must be determined. The degree of contact between the particular employee and the clients, the level of seniority and responsibility within the structure of the employer's operations and possession of (or access to) trade secrets and confidential information belonging to the employer are all relevant factors. Third, a decision must be made as to whether, in the light of these matters, the particular restraint imposed goes no further than to safeguard the employer's protectable interest." [ J W Carter and D J Harland, Contract Law in Australia, fourth edition, Butterworths, 2002 at [1648]]. Dealing with the matter 290 Applying the above principles to the present case and taking into account the parties respective submissions, I consider that the restraint clause in clause 10 of the defendant's Service Agreement is invalid. 291 The effect of clause 10, read together with the notice pursuant to clause 10(a)(i) referred to earlier in these reasons, is that the defendant is restrained for a period of 6 months "in Australia and New Zealand from carrying on or being engaged, involved or otherwise interested in, or concerned with…a Competitive Business…" 292 The critical issue to my mind is the scope of the term "Competitive Business" and in particular the words "any business" and "competes". 293 The term "Competitive Business" is defined in clause 10(d)(ii) to mean: "…any business with which the Company competes in the Geographic Area." 294 The term "Geographic Area" is defined in clause 10(d)(iv) to mean: "…Australia and New Zealand or such location as the Company operates or has competitors" 295 In the present case, the relevant Geographic Area nominated by the plaintiff was Australia and New Zealand. 296 The effect of clause 10, therefore, is to restrict the defendant for a period of 6 months in Australia and New Zealand from carrying on or being engaged, involved or otherwise interested in or concerned with any business with which the plaintiff competes. 297 The sheer breadth of this restriction cannot be understated. As noted earlier in these reasons, Mr Brookes gave evidence that the plaintiff not only operates in the supermarket industry but also beyond that industry to the electronics industry and that it has a number of competitors in both of those industries [Statement of Mr Brookes 4 August 2004 paragraphs 54-58]. 298 Clause 10 operates as a blanket prohibition on the defendant being engaged in any competitive business, in any capacity, within Australia and New Zealand. Given the extent of the plaintiff's operations, the number of industries in which it operates and the number of businesses with which it competes, clause 10 restricts the defendant from being engaged in a vast range of activities and therefore in my view goes further than is reasonably necessary. 299 In final address, the plaintiff's counsel submitted that the definition of "Competitive Business" can be read down to any competitor operating a supermarket business. I do not accept that proposition. Such a construction only begs the question: what is a supermarket business? Such a construction seeks to defeat the plain [albeit general] words of the clause and to require the court not only to re-write the clause, but to do so in an ambiguous way. [See generally JD Heydon, The Restraint of Trade Doctrine, second edition, Butterworths, 1999 at p 111]. 300 Stewart (supra) draws attention to the decision of Pincus J in Talk of the Town Pty Ltd v Hagstrom (1990) 99 ALR 130. Notwithstanding that this was an interlocutory judgment, it is to be noted that the case concerned the sale to the applicant of a business which made extruded PVC (ie polyvinyl chloride) sections for use in the building industry, in making aluminium windows and aluminium-framed glass doors. 301 The relevant provision was in the following terms: "The vendors agree that they will not exercise or carry on or be in any manner whatsoever either directly or indirectly as principal or agent concerned or interested either by themselves or in partnership or as a manager, servant, agent of any person or company in the trade or business of plastics manufacture or extrusion or in any trade or business similar to or in competition to that business during the period of…" 302 There followed a list of five periods of time and of three geographical areas which were, under cl 11(b), to be construed as creating all possible combinations, ie 15 different combinations of time and area, all severable from one another. 303 Pincus J put the matter as follows: "It is unnecessary to go into the time and area limits, for the point taken against the validity of the clause depends on the part which has been quoted. Mr Dutney, for the first respondent, argued that it is plainly invalid to restrain the vendors in respect of the "trade or business of plastics manufacture or extrusion" because there are many spheres of such activity which are very different from the type of business sold. While not disputing the latter part of the proposition, Mr Gotterson contended that the words just quoted should be read down so as to confine them to a business of the kind sold. In my opinion, if the restraint is to be read literally and without implicit qualification, it cannot stand, for it would then prevent business activities of many varieties, some of which could not possibly be regarded as competing with that sold. Examples are the manufacture of hoses, pipes, electrical cable housing and parts of motor vehicles such as bumper bars. [at 132]. The question is on which side of the line, drawn in such cases as Butt v Long , the present question falls…" 304 Dealing with 'beneficial construction' Stewart makes the following observations: "In Littlewoods Organisation Ltd v Harris (`Littlewoods ') (1978) 1 All ER 1036, a restraint on employment with a particular competitor was limited neither by area nor by reference to the nature of the employment. Nevertheless, the majority of the English Court of Appeal upheld it on the basis that it must be taken to be limited to employment in the United Kingdom, and to one aspect only of the competitor's business activities. Lord Denning MR spoke of using `a process of interpretation so as to cut down wide words to words of more limited scope', as a way of `upholding a covenant which is intrinsically just and reasonable' (at 135). Arguably this goes beyond merely giving effect to the parties' true intent and effectively involves `reading down' a restraint so as to enforce it to the extent that it is reasonable, irrespective of how widely it is drawn – a process which, as will Denning's judgment) has indeed been doubted or distinguished by Australian courts. In Lloyd's Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 72 ALR 643 Spender J refused to apply it, holding that the words `the business of shipbuilding of any description' were too clear to admit of any interpretation which might narrow their application to the particular type of shipbuilding carried on the parties at the time of the agreement. In Rentokil Pty Ltd v Lee (1995) 183 LSJS 444 at 488 Debelle J described Littlewoods as an `extreme example' of the principle that restraints should be interpreted by reference to what the parties intended to achieve, and indicated (without deciding the matter) that it might well `extend the principle too far'. [emphasis added] 305 Having referred to Talk of the Town Stewart continues: "The better view then is that the process of `beneficial construction' should be limited to situations in which common sense suggests that the parties intended to give the words of their covenant a more limited meaning than they would otherwise appear to bear. This should not be turned into a process of `re-writing [the contract] so as to make enforceable that which would otherwise be unenforceable ', as Browne LJ put it in his dissenting judgment in Littlewoods [at 1046]. The same point underlies a caution expressed by Walsh J in Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 300 - 301: There may be cases in which it is very clear that a provision would never be enforced according to its strict terms and I do not question the propriety of disregarding in such cases some theoretical possibility. But I am of the opinion that, except within very narrow limits, the court must have regard to the rights and obligations created by the agreement rather than to the manner in which it thinks it is likely that the agreement will operate in fact. In other words, a restraint is to be tested `by reference to what the restraint entitles or requires the parties to do rather than what they intend to do or have actually done': Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 at 344, citing Adamson v NSW Rugby League Ltd (1991) 31 FCR 242 at 285; and see also Canberra Bushrangers Baseball Team Pty Ltd v Byrne (ACTSC), Higgins J, No SC707 of 1994, 21 December 1994, unreported). [emphasis added] 306 I am unable to read down clause 10(d)(ii) so as to give it a reasonable operation. The words "any business" and "competes" are simply not susceptible to being read down without the Court re-writing the clause. I am unable to see how I can read down words of such general meaning. 307 Notwithstanding the restraint payment made by Woolworths I do not consider that payment to rebut the proposition that the subject restraint goes further than is reasonably necessary. The matter requires to be determined objectively by the Court and the restraint payment is only one of the circumstances relevant to the finding. 308 It does not appear to me that the Restraint Period or Geographic Area can be read down to give the restraint a reasonable operation. Breach of Copyright Overview of the parties' submissions 309 By its further amended statement of claim Woolworths contends that each of the confidential documents attached to the emails of the morning of 2 July 2004 constituted original literary and/or artistic works protected under Pt III of the Copyright Act 1968 (Cth). Further, Woolworths claims ownership of the copyright in the Works on the basis that they represent industrious compilations created by Woolworths' employees or engaged consultants. Finally, Woolworths claims that by the act of sending the Works to his wife's email address Mr Olson infringed Woolworths' exclusive rights to: (a) reproduce the works in a material form; and (b) communicate the works to the public. 310 Mr Olson resists Woolworths' claims on the basis that: (a) Woolworths was not, at the material time, the owner of copyright in the six Process Models [although ownership of copyright in the Rod presentation was conceded]; and (b) in any event, that Mr Olson possessed an implied licence to reproduce or communicate the works [if such reproduction or communication did in fact occur] as it was an act done for "work related purposes." 311 In light of the findings, expressed earlier in these reasons, that in appropriating the works Mr Olson was acting with a fraudulent intent to utilise the information for his own benefit rather than that of Woolworths [as he was obliged in contract and in equity to do], it is clear that the implied licence defence expressed in (b) above must fall away. The defence relating to Woolworths' ownership of the works, however, remains in issue. 312 The nature of Woolworths' claims requires the Court to first determine whether copyright subsisted in the works and, assuming that this question is answered in the affirmative, the ownership of that copyright, whether it was infringed by Mr Olson and, if relevant, the question of remedies. Subsistence 313 Relevantly, s 32(1) of the Copyright Act provides that "copyright subsists in an original literary ... or artistic work." In turn, s 10(1) defines the concept of 'literary works' as follows: literary work includes: (a) a table, or compilation expressed in words, figures or symbols; and (b) ... Given such an inclusive definition, it is clear that writing is not a pre-condition to the classification of subject-matter as a 'literary work'; rather, the fundamental test is whether the work somehow conveys information, instruction or, perhaps, pleasure in the form of literary enjoyment: Exxon Corp v Exxon Insurance Consultants International Ltd [1981] 2 All ER 495. 314 Section 10(1) further defines the concept of 'artistic works' as follows: artistic work means: (a) a painting, sculpture, drawing, engraving or photograph, whether the work is of artistic quality or not; (b) ... ; or (c) ... As indicated by the fact that 'artistic quality' is not a consideration, it is well established that merely functional or utilitarian subject-matter is open to characterisation as an artistic work: Amalgamated Mining Services Pty Ltd v Warman International Ltd (1992) 24 IPR 461. 315 Accordingly, there appears scant capacity to dispute that both the six Process Models and the Rod presentation are works in which copyright subsists. More specifically: (a) the Rod presentation document comprises a series of Microsoft PowerPoint slides containing writing which conveys information to the reader concerning Project Mercury; and (b) the six Process Models are a compilation of words, writing and figures which conveys information to the reader pertaining to the supply chain aspects of Project Mercury [both as detailed earlier in these reasons]. Alternatively, they can be characterised as drawings of a functional quality. 316 The finding is that copyright subsists in the Rod presentation as a literary work and the Process Models as literary and artistic works. Ownership 317 Section 35 of the Copyright Act relevantly provides for ownership of copyright in applicable works as follows: (2) [The author] Subject to this section, the author of a literary, dramatic, musical or artistic work is the owner of any copyright subsisting in the work by virtue of this part. ... (6) [Contract of service] Where a literary ... or artistic work ... is made by the author in pursuance of the terms of his or her employment by another person under a contract of service or apprenticeship, that other person is the owner of any copyright subsisting in the work by virtue of this Part. Section 35(3) provides that, inter alia, the operation of s 35(6) may be "excluded or modified by agreement." 318 The defendant adduced evidence of a letter of 7 September 2004 from Accenture Australia Ltd to Woolworths assigning copyright of certain material produced under the Supply chain Development Program under section 196 to Woolworths. 319 Accenture was the supply chain consultant that employed Mr Thomas. Mr Thomas, for a period, wrote certain prose descriptions. Mr Maier's evidence, uncontradicted, was that he wrote the flow charts. 320 Relying on this purported assignment of rights, Mr Olson submitted that Woolworths's claims were unsustainable in respect of the six Process Models on the basis that Accenture, not Woolworths, was the owner of the copyright subsisting in them at the material time. 321 Woolworths does not claim any contravention of copyright in relation to the prose works which were not taken or used by Mr Olson. Hence there is no substance in the proposition seeking to suggest that Woolworths was not the owner of copyright subsisting in the materials e-mailed to the home computer as the attachments. 322 The evidence of Ms Winn and Messes Larkin, Thomas, Evenden, Lind and Maier, uncontested by the defendant save as to the contents of the Accenture letter, was that: (a) the Rod presentation was written by numerous of Woolworth's employees, albeit with input from external consultants; and (b) the Process Models were authored by Mr Maier. There was no evidence that the contracts of service of any of the relevant employees contained provisions modifying or excluding s 35(6) of the Copyright Act. 323 I am satisfied on the balance of probabilities that Woolworths has established that it was the owner of copyright in the Works at the time the defendant sent the email of 2 July 2004. 324 The whole of the copyright interest in the work was owned by Woolworths, that is to say the flow diagrams, because it was the employees, namely Mr Maier, who undertook the bulk of the creative effort in preparing them. Woolworths is entitled to enforce this copyright interest in its own name as the copyright owner and if Accenture had any independent copyright interest, the agreement between the parties gives Woolworths the exclusive licence to exploit those works for its own internal business purposes, including the ability to enforce that interest as an exclusive licensee. Infringement 325 Section 31 of the Copyright Act relevantly provides the following rights to owners of works under Part III of that Act: "31(1) [Exclusive rights] For the purposes of this Act, unless the contrary intention appears, copyright, in relation to a work, is the exclusive right: (a) in the case of a literary, dramatic or musical work, to do all or any of the following acts: (i) to reproduce the work in a material form; (ii) ... (iii) ... (iv) to communicate the work to the public; (v) ... (vi) ... (vii) ... (b) in the case of an artistic work, to do all or any of the following acts: (i) to reproduce the work in a material form; (ii) ... (iii) to communicate the work to the public." Infringement of the right of reproduction 326 While the Copyright Act does not define the concept of 'reproduction', it is nonetheless evident that it comprehends the duplication of a document in an electronic, digital or machine-readable form, whether that duplication is into another such intangible form or otherwise. This follows from, first, the definition of 'material form' in s 10(1) as including: "any form (whether visible or not) of storage from which the work or adaptation, or a substantial part of the work or adaptation, can be reproduced." And, second, s 21(1A) dictates that: "For the purposes of this Act, a work is taken to have been reproduced if it is converted into or from a digital or other electronic machine-readable form, and any article embodying the work in such a form is taken to be a reproduction of the work." 327 This is not to say that, on the facts of the present proceedings, s 21(1A) applies so as to deem a reproduction of the Works to have occurred. Rather the salient point is that when s 21(1A) is read in conjunction with the definition of 'material form' in s 10(1), it can be concluded that a breach of ss 31(1)(a)(i) and (b)(i) can arise when a literary or artistic work in (relevantly) digital form is copied electronically into a digital form of storage from which that work can be reproduced: Kabushiki Kaisha Sony Computer Entertainment v Stevens & Ors (2003) 200 ALR 96 (FCAFC). 328 By its further amended statement of claim Woolworths asserts that the act of Mr Olson [or his wife] of 'downloading' the emails to which the Works were attached, constituted a reproduction of the Works in a material form. In the event this claim, as submitted by Mr Olson in his final submissions, was erroneous; the evidence of Woolworths's own witnesses established that, at the time of the execution of the Anton Piller order, the emails had not been opened and thereby downloaded onto the personal computer. 329 Due to the technical processes involved in the sending and receiving of email communications, however, this fact alone does not absolve Mr Olson from potential liability for breach of Woolworths's right of reproduction. In noting these processes I recognise that the Court must proceed with caution as no evidence was adduced by Woolworths as to the nature of the reproduction alleged to have occurred. But given that the substance of Mr Olson's resistance to Woolworths's copyright claims related to his implied licence argument, it is open for the Court to deal with this issue. 330 Woolworths submitted that an infringement of its copyright in the Works had occurred as a digital transmission- such as the sending of the 2 July 2004 emails by Mr Olson - involves reproduction or reproductions of the subject-matter transmitted, however brief. This submission is of substance; while Mr Olson did not download the emails such as to reproduce them in the inbox, his act of sending the emails caused a reproduction of the Works on his e-mail server that remained in existence until such time as they were downloaded or [as occurred in fact] deleted. Alternatively expressed, Mr Olson caused copyright material in digital form [the Works] to be transmitted by e-mail and thereby reproduced in a digital form of storage [the mail server] from which the Works were capable of further reproduction [by the act of downloading]. [See generally: Richard Pascoe and Mia Garlick, "Is forwarding an email an infringement of copyright? Impact of the Digital Agenda Act on email" (2001) 13(1) Australian Intellectual Property Law Bulletin 136.] 331 I am satisfied that Mr Olson has infringed Woolworths's right of reproduction in respect of the Works. Infringement of the right of communication 332 It is manifest that the sending of an e-mail containing copyright works constitutes a 'communication' of those works for the purposes of ss 31(1)(a)(iv) and (b)(iii), given that 'communicate' is defined in s 10(1) as meaning to: "make available online or electronically transmit (whether over a path, or a combination of paths, provided by a material substance or otherwise) a work or subject-matter." The central issue in respect of Woolworths's claims of infringement of this right is thus whether the act of Mr Olson sending the e-mails of 2 July 2004 constituted a communication of the works "to the public." 333 In Telstra Corporation Ltd v Australasian Performing Right Association Ltd (1997) 191 CLR 140, the High Court was concerned (inter alia) with the now repealed right of copyright owners in literary and musical works to "broadcast" such works "by wireless telegraphy to the public." In finding that that right had been infringed by the appellant's 'call waiting' service- even though the musical works played by that service were only heard by the individual caller- the Court defined the concept of a transmission 'to the public' in exceedingly broad terms. At 156, for example, Dawson and Gaudron JJ said: "The distinction between what is "in public" and what is "in private" is of little assistance in determining what is meant by transmission "to the public." The transmission may be to individuals in private circumstances but nevertheless be to the public. Moreover, the fact that at any one time the number of persons to whom the transmission is made may be small does not mean that the transmission is not to the public." 334 Adopting a similar construction of the expression, for Kirby J (at 197-200) the determination of whether a broadcast was 'to the public' required analysis of the following three principles. 1. That a broadcast can be "to the public" notwithstanding that it is received in "private and domestic" circumstances, in the manner of a radio programme broadcast on the airwaves at large but received in individual households: Chappell & Co Ltd v Associated Radio Co of Australia Ltd [1925] VLR 350; Mellor v Australia Broadcasting Commission [1940] AC 491. Nonetheless for Dawson and Gaudron JJ (at 156), while the broadcast may be received in private "it is no doubt necessary that the facility be available to those members of the public who choose to avail themselves of it." 2. That a broadcast is more likely to have been to the public when it occurred "as an adjunct to a commercial activity" [praying in aid Gummow J in Australasian Performing Right Association Ltd v Commonwealth Bank of Australia (1992) 40 FCR 59 at 74] such that it inflicted economic harm on the copyright owner. 3. That whether a broadcast was to the public is contingent on whether that broadcast was to the 'copyright owner's public', being "the group which the copyright owner would otherwise contemplate as its public for the performance of its work" [citing Jennings v Stephens [1936] Ch 469 and Ernest Turner Electrical Instruments Ltd v Performing Right Society Ltd [1943] Ch 167]. This concept was also discussed by Dawson and Gaudron JJ at 154-156. 335 In 2000 the right of broadcast to the public was repealed as part of the sweeping reforms effected to this area by the Copyright Amendment (Digital Agenda) Act 2000 (Cth) and replaced with the medium-neutral right of 'communication' set out above. For present purposes, however, as the requirement that the communication be 'to the public' was retained it is clear that the dicta of the High Court in Telstra v APRA remains relevant [given that the statutory context and purpose is identical in all pertinent respects: Ogden Industries Pty Ltd v Lucas (1968) 118 CLR 32 (PC) at 38-9, per Lord Upjohn for the Board (Lords Reid, Hobson, Upjohn, Donovan and Pearson); Interpretation Act 1987 (NSW) s 10]. 336 In my view the assessment of whether a communication is made to the public is very much a matter of fact and degree, requiring the Court to consider the identity and purpose of the sender, the general accessibility and intended audience of the communication and the identity of the recipient. With cognisance of these matters and the dicta of the High Court in Telstra v APRA, for the following reasons I have concluded that Mr Olson did not communicate the works to the public by his act of sending the emails of 2 July 2004. (a) The communications in issue were two e-mails sent to a single e-mail address, being a facility accessible only to a very limited number of individuals [in contrast to any member of the public utilising a call-waiting service]. The relevant breadth of accessibility is to that of the communication specifically. (b) Again, while the dissemination of the Works contained within the communications certainly would have been capable of inflicting loss to Woolworth, of relevance is the economic effect of the communications in themselves rather than any further dealings with the Works subsequent to those communications. (c) As the Works were not intended by Woolworths to be communicated to members of the public outside its own organisation, whether the communications were made to the 'copyright owner's public' does not appear to be of relevance. 337 At a more general level, it appears to me that to deem two e-mail communications made to a single e-mail address as being a communication 'to the public' would be to impermissibly expand the right conferred by ss 31(1)(a)(iv) and (b)(iii). As stated by the authors of Intellectual Property in Australia (LexisNexis Butterworths, 3rd edition, para 8.18), "there must be limitations as to what constitutes an infringement of the new right ... [such that the] forwarding by email of someone else's text or other copyright work to a single recipient would not, for example, seem to involve communication to the public." Of course, a different conclusion might be reached if the e-mail were sent to multiple recipients or posted to an electronic bulletin board; but with such instances we are not here concerned. 338 I am satisfied that Mr Olson has not infringed Woolworths's right of communication to the public in respect of the Works. Remedies 339 Section 115 of the Copyright Act relevantly provides as follows: "(1) [The owner] Subject to this Act, the owner of a copyright may bring an action for an infringement of the copyright. (2) [Relief] Subject to this Act, the relief that a court may grant in an action for an infringement of copyright includes an injunction (subject to such terms, if any, as the court thinks fit) and either damages or an account of profits. (3) ... (4) [Additional damages] Where, in an action under this section: (a) an infringement of copyright is established; and (b) the court is satisfied that it is proper to do so, having regard to: (i) the flagrancy of the infringement; and (ia) the need to deter similar infringements of copyright; and (ib) the conduct of the defendant after the act constituting the infringement or, if relevant, after the defendant was informed that the defendant had allegedly infringed the plaintiff's copyright; and (ii) whether the infringement involved the conversion of a work or other subject-matter from hardcopy or analog form into a digital or other electronic machine-readable form; and (iii) any benefit shown to have accrued to the defendant by reason of the infringement; and (iv) all other relevant matters; the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances." 340 While conceding in its final submissions that it has suffered no loss as a result of Mr Olson's breach of copyright, Woolworths claims nominal damages pursuant to s 115(2). In view of the Court's finding that Mr Olson has breached Woolworths's right of reproduction in respect of the Works, Woolworths is clearly entitled to an award of such damages. 341 Woolworths further claims an award of 'additional damages' pursuant to s 115(4), a submission principally framed by reference to the highly sensitive nature of the commercial information contained in the Works and what the Court has found to be Mr Olson's deliberate attempt to appropriate that information for his own benefit. On Woolworths' submission, such conduct was a 'flagrant' breach of its copyright justifying the imposition of damages of a punitive nature both for its own sake and in view of the need to deter similar infringements by others. 342 In my view the raison d'etre of Woolworths's claim for additional damages fundamentally misconceives the nature of copyright protection. The claim is predicated on the erroneous assumption that copyright is at all concerned with protecting the confidential quality of the information contained in the Works. 343 It is convenient to begin by setting out the principles relevant to the exercise of the Court's power under s 115(4). (a) If the Court considers it appropriate, an award of additional damages may involve a punitive element assessed "upon principles corresponding to those governing awards of aggravated and also exemplary damages at common law": Autodesk Inc & Ors v Yee & Anor (1996) 35 IPR 415 at 419, per Burchett J [and the authorities cited therein]. (b) Exemplary damages will ordinarily be awarded at common law when the defendant has engaged in "conscious wrongdoing in contumelious disregard of another's rights": Gray v Motor Accident Commission (1998) 196 CLR 1 at [14], citing Knox CJ in Whitfeld v De Lauret & Co Ltd (1920) 29 CLR 71 at 77. (c) While exemplary damages are awarded for breach of contract only in the most extraordinary of circumstances ( Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 at [28], per Spigelman CJ; at [294], per Heydon JA), it does not follow that "additional damages can never be awarded under subs 115(4) if the owner of the copyright and the infringing party were contracting parties": FNH Investments Pty Ltd v Sullivan [2003] FCAFC 246 at [26], per Whitlam, Moore and Kiefel JJ. (d) The factors in s 115(4) to which the Court must have regard when considering a claim for additional damages are not cumulative in the sense that "[i]f the court is satisfied that one or more of the circumstances set out in subs (4)(b) are present, it has a discretion to award such damages as it considers appropriate": Raben Footwear Pty Ltd v Polygram Records Inc & Anor (1997) 75 FCR 88 at 103, per Tamberlin J. (e) The assessment of additional damages pursuant to s 115(4) is at large and the discretion of the Court is not fettered in any arithmetic or mathematical way: Sullivan & Anor v FNH Investments Pty Ltd t/as Palm Bay Hideaway (2003) 57 IPR 63 at [101], per Jacobson J [not subject to adverse comment on appeal: FNH Investments Pty Ltd v Sullivan [2003] FCAFC 246]. (f) A summary of the principles relating to conduct in 'flagrant' breach of a copyright owner's rights was provided by Sundberg J in MJA Scientifics International Pty Ltd & Anor v SC Johnson & Son Pty Ltd (1998) 43 IPR 275 at 282, where His Honour said: It has been said that "flagrancy" involves "calculated disregard of the plaintiff's rights, or cynical pursuit of benefit": Prior v Lansdowne Press Pty Ltd [1977] VR 65 at 70; "scandalous conduct, deceit including deliberate and calculated infringement where a defendant reaps a pecuniary advantage in excess of the damages he would otherwise have to pay": Copinger and Skone James on Copyright , 13th ed, 1991, p 344; "the existence of scandalous conduct, deceit and such like; it includes deliberate and calculated copyright infringement": Ravenscroft v Herbert & New English Library Ltd [1980] RPC 193 at 208; Autodesk Australia Pty Ltd v Cheung (1990) 17 IPR 69; 94 ALR 472 at 478. References to 'deliberate' and 'calculated' conduct notwithstanding, the presence of such elements in and of themselves do not justify an award of additional damages; as stated by Lockhart J in International Writing Institute Inc v Rimila Pty Ltd (1994) 30 IPR 250 at 255, "[p]lainly, flagrancy is not established by proof of mere knowledge of copying." 344 Consistent with the above general principles, specific instances in which additional damages have been awarded include: (a) where the defendant was in the business of retailing computer hardware upon which software, deliberately pirated by him and with full knowledge of the illegality of that act, in breach of copyright was installed [ Autodesk Australia Pty Ltd v Cheung (1990) 17 IPR 69]; (b) where the defendant, a former employee of the plaintiff, stole "hundreds" of confidential engineering plans over a period of 10 years, copied them and manufactured duplicate items [ Amalgamated Mining Services Pty Ltd v Warman International Ltd & Ors (1992) 24 IPR 461 (FCA): although note that in this case, additional damages were not awarded due to the hardship they would cause in view of a compensatory damages award in the order of $3 million; were such a compensatory figure not available, however, Wilcox J would have awarded additional damages of this sum]; (c) where the defendant copied the plaintiff's plans for unique and extraordinarily technical gold window frames, thus allowing it to succeed ahead of the defendant on a tender worth in the order of $3 million [ Bailey v Namol Pty Ltd (1994) 53 FCR 102]; and (d) where the defendant imported US laser discs into Australia, for three years and in full knowledge that his activities were an infringement of copyright, for retail sale at the same time that the cinematograph films on the discs were showing at cinemas [ Columbia Pictures Industries Inc v Luckins (1996) 34 IPR 506 (FCA)]. 345 On the facts of these proceedings, the Court has found that Mr Olson has engaged in conduct which might be designated as "flagrant" [within the meaning of the authorities above] in respect of his breach of Woolworths's rights over the confidential information contained in the Works. However, notwithstanding this conduct, it is conduct of such an exceptional nature in respect of the plaintiff's proprietary right to reproduce the Works in material form which must be shown in order for an entitlement to additional damages to arise. Axiomatically, it is only the latter right which is contained within the bundle of rights granted copyright owners by virtue of the Copyright Act, and therefore susceptible to an award of damages pursuant so s 115 [whether compensatory or additional] upon a breach being proved. 346 Far from being flagrant or exceptional in view of the other factors listed in s 115(4), however, Mr Olson's breach of Woolworths's right of reproduction is minor. Focussing on the copy delivered to the mail server of his wife's email address, only one reproduction of the Works was made by Mr Olson. Moreover, that one reproduction was not further disseminated in any manner and no benefit was obtained from that act. 347 Woolworths's final submissions included the following: "for the purposes of sub-paragraph (4)(b)(i), "flagrancy" connotes, inter alia, glaring or blatant conduct, which includes calculated disregard of the copyright owner's rights or cynical pursuit of benefits . In the present case Mr. Olson was well aware of the commercial significance of the documents to Woolworths, particularly the process plans. He agreed that if he sent the emails with the intention of using the information in them to assist him as an employee of Franklins, that his conduct would be dishonest, involving theft and a gross breach of his obligations under his service agreement [T 278/25 – T 279/9]. He accepted that it had been stressed to him by Mr. Corbett how commercially sensitive the documentation concerning Project Mercury was to Woolworths. He conceded the information in the emails was confidential which should not be disclosed to any competitor [T 274/40 – T 276/24]. There was no inadvertence in his conduct. The sending of the documents to the home computer was a deliberate act which he agreed was theft if done for the intention alleged by Woolworths . The conduct clearly constitutes "flagrant" breach of Woolworths' copyright." [Emphasis added.] The emphasised passages illustrate the flaw in Woolworths's claim for additional damages. While Woolworths is able to point to Mr Olson's knowledge of the commercial significance of the Works, notwithstanding his concession that in the circumstances as found by the Court his conduct would be dishonest and a gross breach of confidence and, indeed, theft, it simply does not follow that, as submitted, such conduct amounts to a flagrant breach of Woolworths's right to reproduce the Works in a material form. There has been no large-scale reproduction and sale of infringing copies to the economic detriment of Woolworths such as in Autodesk Australia or Amalgamated Mining Services ; nor an appropriation of any infringing copies for the purposes of competition with the copyright owner as in Columbia Pictures. As stated by Foster J in Polygram Records Inc & Anor v Raben Footwear Pty Ltd (1996) 35 IPR 426 at 444, "[d]amages under s 115 of the Act are for a wrong done to an incorporeal right", and on the facts of these proceedings the only flagrant wrong committed by Mr Olson was to a contractual and equitable rather than copyright right. 348 In reaching this conclusion I am well aware that Mr Olson's conduct had the potential to seriously undermine the substantial time and expenditure invested by Woolworths in the development of Project Mercury. But while any deliberate breach of copyright warrants the Court's opprobrium, the making of one reproduction of copyright material - from which no benefit was gained and in respect of which no precise intention to further reproduce has been established- cannot by any measure be said to constitute such a contumelious disregard of Woolworths's copyright rights such as to justify the imposition of punitive damages, whether corresponding to the particular breach in issue or as a means of deterring similar conduct by others. At the risk of repetition, the intractable difficulty for Woolworths is that the greater part of its claim to additional damages is founded on an egregious breach of a right that copyright does not protect. 349 The Court awards nominal damages to Woolworths in the sum of $1.00. The claims for additional damages are dismissed. The section 106 case The Jurisdictional Question 350 Section 106 of the Act provides: "The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract. " 351 The term 'unfair contract' is subject to further definition in s 105 of the Act, which dictates that a contract may be unfair in the relevant sense when it is one: (a) that is unfair, harsh or unconscionable, or (b) that is against the public interest, or (c) that provides a total remuneration that is less than a person performing the work would receive as an employee performing the work, or (d) that is designed to, or does, avoid the provisions of an industrial instrument. 352 In addition, s 105 further provides that 'contract' for present purposes means "any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument." Positing that the Court has section 106 jurisdiction 353 Notwithstanding the concerted attempt by Woolworths to persuade the court that in the particular circumstances, section 108A of the Act has the result that the Court has no jurisdiction pursuant to section 106 – I am clearly of the view, [assuming for the moment that such jurisdiction is held], that Mr Olson has not made out a case for the exercise of that jurisdiction on any parameter. 354 I accept that unfairness under the section may arise either from the terms of the contract itself, the surrounding circumstances and/or from the manner of performance or operation of the contract: Barry v Incitec Ltd & Greenleaf Pty Ltd (1991) 45 IR 143 at 146; Incitec Ltd v Industrial Court of New South Wales (1992) 45 IR 155 at 157 (CA); Walker v Industrial Court of New South Wales and Anor (1994) 53 IR 121 at 133 – 134. 355 I further accept that the approach to unfairness is to be determined according to the commonsense approach of a juryman: Davies v General Transport Development Pty Ltd [1967] AR (NSW) 371 at 373-4 per Sheldon J. 356 The finding is that Mr Olson has not shown any form of unfairness under the section arising from the terms of the contract itself, the surrounding circumstances or from the manner of performance or operation of the contract. The contention that Woolworths totally ignored its own termination policy which required procedural fairness to be accorded to Mr Olson is rejected in the particular circumstances which here obtained. The need for an Anton Pillar order and the circumstances in which such an order is conventionally made and was here forthcoming, displaces entirely any requirement for conventional procedural fairness. Woolworths was entirely within its rights in seeking to protect the critical confidential information sent to the home computer by acting without any notification whatever to Mr Olson. Where an employee has acted in a fashion which, to the justifiable perception of the employer, gives rise to the reasonable suspicion of the taking by the employee of extremely valuable confidential information, the employer is not obliged to ask questions but is entitled to first and foremost, act to secure that information. That is all that occurred here. 357 To the extent that the demotion resulted in a temporary alteration of Mr Olson's duties, there is nothing inherently unfair about that fact, provided that Woolworths acted reasonably in determining the alteration: R v Darling Island Stevedoring & Lighterage Co Ltd; Ex parte Halliday & Sullivan (1938) 60 CLR 601 at 621–2. 358 In light of the circumstances in which the demotion arose, and the serious nature of the breaches committed by Mr Olson, it could not be seriously suggested that such alteration was not reasonable. Mr Olson agreed to the demotion. The nature of the duties then performed by him remained in the range of duties for which Mr Olson was retained to perform at Woolworths. 359 Nor was the contract unfair in the manner in it in which it was terminated. 360 The finding in that regard is that the employment with Woolworths was terminated by the letter of 12 July 2004 purporting to terminate that employment pursuant to clause 7 (b) of the Agreement effective immediately. That termination was valid Woolworths being entitled pursuant to that clause to give the notice and in those terms. The conduct was wilful misconduct. It was also wilful breach of duty. It was also in breach of Mr Olson's fiduciary duties owed to Woolworths. It is unnecessary to repeat that for the reasons given in this judgment the conduct was fraudulent. 361 For those reasons it does not seem essential that the Court proceed to deal with the very closely litigated contest as to jurisdiction. However in deference to the care with which the issue was litigated I propose to outline the relevant parameters and tentative conclusions. The jurisdictional question 362 Specifically, the issue concerns the granting of declaratory relief to the effect that the following are unfair within the meaning of s 105 of the Act: (a) the Service Agreement (including the representations contained in the letter from Mr Corbett to the defendant dated 7 February 2003) [importing by reference Woolworth's Short Term Incentive Plan and Long Term Incentive Plan] (b) the variation contained in the document dated 26 February 2004 363 On the face of the matter, as there is no dispute that the Service Agreement as varied by the 7 February 2003 letter and as further varied by the Demotion letter [importing the incentive plans] is a 'contract' whereby the defendant has directly 'performed work in an industry' [Stevenson v Barham (1977) 136 CLR 190 at 201, per Mason and Jacobs JJ; Mitchforce Pty Ltd v Industrial Relations Commission of New South Wales (2003) 57 NSWLR 212 at [4] – [14], per Spigelman CJ], the primary jurisdictional hurdles in respect of access to relief under s 106 have been satisfied. However, the plaintiff has questioned as a preliminary matter whether the defendant's total remuneration for the twelve months prior to his leaving the plaintiff's employ was of such an amount as to deny the Court jurisdiction. 364 This submission is based on s 108A(1)(a) of the Act, the terms of which dictate that an application pursuant to s 106 cannot be made if the application relates to a contract (within the meaning of ss 105 and 106) under which: "a remuneration package that exceeds the remuneration cap is paid or received (or is payable or receivable) during the period of 12 months immediately before the application is made (or, if the application concerned relates to a contract that has been terminated, immediately before the termination)." 365 It is the plaintiff's submission that the defendant's 'remuneration package' for the twelve months prior to the termination of the relevant contract exceeds the 'remuneration cap', the latter being a concept that is defined in s 108A(3) to mean (relevantly) the sum of $200,000. Of critical importance, therefore, is the meaning of this expression 'remuneration package.' 366 This expression is defined in s 108A(3) to mean: "the total value of monetary remuneration and employment benefits payable or receivable under a contract of employment ." [Emphasis added] 367 That same subsection defines the italicised portions of the above as follows: (a) 'monetary remuneration': "includes any performance-related bonus or incentive payment"; (b) 'employment benefit' means: "a benefit provided to an employee at the cost of his or her employer (being a benefit of a private nature) and, without limitation, includes: (a) contributions payable to a superannuation scheme by an employer in respect of the employee, including any liability of that employer to make any such contributions or to pay costs associated with that scheme, or (b) the provision by an employer of a motor vehicle for private use by the employee, or (c) any other benefit prescribed by the regulations for the purposes of this definition. (c) 'contract of employment': means "any contract or arrangement under which work is done by a person in the capacity of an employee, and includes a related condition or collateral arrangement with respect to such a contract." 368 It is agreed between the parties that in the twelve months prior to the termination of the defendant's employment he received the following 'monetary remuneration' from the plaintiff (the agreed remuneration): (a) Gross salary from July 2003 to 28 February 2004 (pursuant to the Service Agreement) of $130,000.000 per annum; and $120,000.00 per annum from March 2004 to July 2004 (pursuant to the Service Agreement as varied by the Demotion Contract): $119,685.82 (b) Superannuation at 10% of his gross salary in (a): $12,597.49 (c) A motor vehicle having a private usage value of: $17,000.00 $149,283.31 369 Additionally, the plaintiff submits that the following payments relevant to the remuneration cap in s 108A(3) were paid to the defendant: (a) a bonus of $33,535.60 in September 2003, paid pursuant to the plaintiff's Short Term Incentive Plan and said to fall within the definition of 'monetary remuneration' as a performance-related bonus (the bonus payment); and (b) the issue on 10 August 2003 of 10,000 shares in the plaintiff pursuant to its Long Term Incentive Plan, said to have a value of $66,500.00 (market price of $11.76 per share less a strike price of $5.11) and to fall within the definition of an 'employment benefit' (the share issue). 370 Thus it is evident that if the agreed figure of $149,283.31, the bonus payment of $33,535.60 and the share issue value of $66,500.00 are all considered part of the defendant's 'remuneration package' for the twelve months ending July 2004, the remuneration cap has plainly been exceeded and access to relief under s 106 must be denied on jurisdictional grounds. 371 For his part, the defendant: (a) denies that he ever in fact received the bonus payment; and (b) submits that the share issue does not as a matter of law constitute an 'employment benefit' within the meaning of s 108A(3), variously being a benefit neither paid or received by him under his contract of employment, paid in the twelve months preceding July 2004 or provided to him at the 'cost' of the plaintiff. 372 For reasons which will become apparent from what follows, the Court does have jurisdiction to entertain the defendant's unfair contract claim. However, as noted above, regardless of the way this question is resolved, such claim would fail on its merits. The Contract of Employment 373 To disqualify the defendant from access to s 106 on the basis of the sum total of the agreed remuneration, the bonus payment and the share issue presumes that all such payments can be matched to the one contract. 374 The Court has held that the contractual relationship between the parties is constituted by the Service Agreement and the 7 February letter as varied by the Demotion letter [all importing the incentive plans]. Therefore the agreed remuneration of $149,283.31 referred to above comprises monetary remuneration paid to the defendant in the twelve months prior to his termination. The Bonus Payment 375 Given that the Short Term Incentive Plan was a bonus scheme providing payments additional to an employee's salary by reference to, inter alia, his or her sales, earnings or gross profit performance, there appears little room for doubt that the payment of such a bonus would fall within the definition of 'monetary remuneration.' 376 The plaintiff adduced evidence of a letter dated 1 September 2003 and addressed to the defendant from Mr Flood, then the plaintiff's Director of Supermarkets, informing the defendant of a payment of $33,536 intended to be made on 10 September of that year. This payment was expressed to be pursuant to the Short Term Incentive Plan [TB A00977]. 377 When this figure is aggregated to the agreed remuneration of $149,283.31, it is plain that, setting aside for the moment the share issue, the defendant has received monetary remuneration of $182,818.91 in the relevant 12 month period. Was the share issue paid or received 'under a contract of employment'? 378 It is then necessary for me to deal with the parties submissions concerning the alleged status of the share issue as an 'employment benefit' within the meaning of s 18A(3). 379 The basal issue in this regard is whether the Long Term Incentive Plan, pursuant to which the share issue was made, can be characterised as a 'related condition or collateral arrangement' with respect to the defendant's contract of employment. If the answer to this question is in the affirmative, then the share issue would plainly represent the provision of a benefit 'payable or receivable under a contract of employment' and thus form part of the defendant's remuneration package for the purposes of s 108A(3). While it is a matter of dispute discussed further below, for present purposes it will be assumed that the share issue was an 'employment benefit' within the meaning of that subsection. 380 In submitting that the share issue was not made pursuant to a related condition or collateral arrangement with respect to his contract of employment with the plaintiff, the defendant seeks to rely on the decisions in Solution 6 Holdings Ltd and Ors v Industrial Relations Commission of New South Wales and Ors (2004) 208 ALR 328 and Fiduciary Ltd v Morningstar Research Pty Ltd [2004] NSWSC 664. While neither of these authorities appear to be directly on point, they nonetheless warrant analysis. 381 In Solution 6 Holdings, the applicants in Industrial Relations Commission proceedings contracted to sell the entire share capital in one FishTech Pty Ltd, a company controlled by the second applicant in its capacity as trustee of the first applicant's family trust, to Solution 6 for approximately $19 million. Pertinent conditions of the share sale agreement were to the effect that, first, the first applicant would use his best endeavours to ensure that certain key FishTech employees took up positions with Solution 6 and, second, that the first applicant himself would remain in the employ of Solution 6 for a period of at least three years following the sale. To this latter effect, the first applicant and Solution 6 entered into a contract of employment separate from the share sale agreement. In the subsequent proceedings, the applicants sought to have both the share sale agreement and the employment contract reviewed under s 106 on the basis that the former was a 'related condition or collateral arrangement' of the latter such as to bring it within the definition of 'contract' in s 105. No issue of s 180A was raised, and thus this case is not directly relevant to the present. 382 In the event, however, the Court of Appeal held that the share sale agreement was not reviewable on the basis that the jurisdictional hurdle in s 106 that the contract be one 'whereby a person performs work in any industry' applies equally to related conditions or collateral arrangements to such contracts as it does to the primary contract (at [68] – [69, per Spigelman CJ (with whom Mason P generally agreed; at [166], per Handley JA). Accordingly, the extent to which the share sale agreement required the first applicant to 'perform work in an industry'- namely by using his best endeavours to have certain FishTech personnel transfer to Solution 6- was considered to be too indirect and consequential to satisfy the requirement that it be a condition or arrangement whereby work was performed in an industry. Clearly this reasoning cannot be applied mutatis mutandis to the expressions 'related condition' and 'collateral arrangement' in s 108A(3) as: (a) those expressions are contained within the specific definition of 'contract of employment' as that expression is utilised in the definition of 'remuneration package' in that same subsection; and (b) the introductory words to s 108A(3) dictate that the definition contained therein are for the purposes of s 108A alone. Nonetheless, with the level of linguistic generality required by this conclusion kept in mind, of relevance is the dicta of Spigelman CJ (at [41]) to the effect that the "words "collateral arrangement", as with the words "related condition", are intended to bear their natural and ordinary meaning, rather than any technical meaning." 383 Next, in Morningstar Research the applicant Fiduciary and its sole principal contracted to supply management services to the respondent Morningstar at a base rate of $180,000 per annum plus an 'risk element' calculated by reference to budget performance. Payment of the fees was effected by Morningstar depositing monthly sums into a loan account in its own name whose balance, from time to time and less monies drawn in cash by the applicants, represented a loan from the applicants to Morningstar. At the conclusion of the relevant twelve month period some $120,000 was owed the applicants under the loan account, and the balance of the annual fees were paid in the form of shares in Morningstar to the value of $180,000 (some $120,000 of which was intended to discharge the balance of the loan account). While it was contended in subsequent s 106 proceedings that this debt to equity conversion ensured that the management agreement was not a reviewable contract- given that the debt of $120,000 was 'payable' within the twelve month period and the 180,000 in fact paid- it was held by Austin J that the loan account balance was not an employment benefit payable under a contract of employment for the purposes of s 108A(3). Specifically, while the $120,000 may have originally represented monetary remuneration or an employment benefit payable under an applicable contract, when deposited into the loan account it became, rather, payable to the applicants pursuant to that loan agreement. At [164], His Honour said: "The important point is that, by the time the share issue, the nature of the choses in action totalling $120,859 had been changed from their initial character as monies owing by the Company [Morningstar] to Mr Rich and Fiduciary Consultants for monthly instalments of base management fees, to loans made by Fiduciary (perhaps as agent to Rich and Fiduciary Consultants) to the Company on the terms of the Fiduciary Loan Account. When, therefore, Fiduciary received "payment" from the Company by the issue of shares, for a value representing an amount which included those loans, it did not receive payment of the balance of base management fees, but rather it received payment of loan monies payable under the terms of the Fiduciary Loan Account. " Therefore while this case is perhaps illustrative of the strictness with which the Court will approach any agreement for the payment of monetary remuneration or employment benefits (in terms of whether they constitute payment 'under a contract of employment'), its facts are clearly inapplicable to the present proceedings. There is and can be no dispute, that is to say, that the monetary value of the share issue was paid directly to, and received directly by, the defendant. 384 Nonetheless the defendant has advanced a submission of greater substance based upon the terms of the Long Term Incentive Plan. Broadly speaking, paragraph 3.2(b) of the Service Agreement rendered the defendant "eligible to participate" in that plan, whose purposes are expressed to be the advancement of the plaintiff's interests: (a) by providing incentives to attract executives ... and to retain and reward them; and (b) by motivating executives to contribute to the growth and profitability of the Company through superior performance. 385 The Plan provided that the plaintiff's Board may issue invitations to eligible executives (including the defendant) to apply for share options (par 2.1), to which an executive might respond by so applying by such options (par 2.3). At the discretion of the Board, options may then be granted (par 3.1) and exercised in accordance with the terms and conditions of grant and the Plan itself. It is therefore evident that the share issue was made pursuant to the terms of the Plan itself rather than those of the contract of employment, and thus the central nature of the question as to whether the Plan is a related condition or collateral arrangement with respect to that contract is shown in stark relief. 386 Determinative of this issue is the terms of paragraph 10.1 of the Plan: "These Rules do not form part of any contract of employment or appointment, or any arrangement in respect of any such employment or appointment, between an Eligible Executive and a Group Company, nor do they constitute a related condition or collateral arrangement to any such contract or arrangement. Participation in the Plan will not in any way affect the rights and obligations of an Eligible Executive under the terms under which he or she is employed or appointed . The terms of an Eligible Executive's employment or appointment with a Group Company will not in any way affect the rights and obligations of the Participant under this Plan. " [Emphasis added] 387 It can be concluded from this passage that it was the objectively ascertainable intention of the parties to quarantine the benefits provided 'Eligible Executives' such as the defendant from their rights and obligations (including remuneration) under their contracts of employment proper. Evidently, by adopting the language 'related condition or collateral arrangement' the effect is to exclude the Plan from the definition of 'contract' in s 105 of the Act and thus render it beyond review under s 106, given that it can hardly be said that the Plan is itself a contract whereby a person directly performs work in an industry (Stevenson v Barham; Mitchforce Pty Ltd). Moreover, a subsidiary effect of this intention is to ensure that: (a) regardless of whether it is an 'employment benefit' for the purposes of s 108A(3), the share issue was not made pursuant to a related condition or collateral arrangement with respect to the defendant's contract of employment; and (b) the Plan does not form part of the defendant's contract of employment for the purposes of s 108A(3), and therefore the issue cannot be considered to have been paid or received under that contract such as to fall within the definition of 'remuneration package.' 388 Rather, the share issue was paid by the plaintiff and received by the defendant pursuant to an arrangement which, however classified in technical legal terms, falls beyond the ambit of s 108A(3). By analogy with Morningstar Research, if the conversion of monetary remuneration into debt was sufficient to take the subsequent share issue beyond the scope of s 108A(3), then there can be little doubt that a share issue made pursuant to a Plan directly expressed to be separate from a contract of employment can be similarly characterised. 389 The Court's finding is that the $66,500.00 received by the defendant in August 2003 does not form part of his 'remuneration package' in the twelve months prior to July 2004 for the purposes of s 108A(3). Was the share issue provided at the 'cost' of the plaintiff and/or within 12 months of July 2004? 390 This issue was the subject of voluminous expert financial evidence from both parties, focussing on: (a) whether the monetary value of the options was 'paid' or 'received' by the defendant within twelve months of the termination of the arrangement for the purposes of s 108A(1); and (b) whether a company's issue of shares in itself can be said to be an action undertaken at its 'cost', being relevant to whether the share issue was an 'employment benefit' for the purposes of s 108A(3). 391 In view of the Court's finding above in respect of the share issue, an exhaustive analysis of these questions is not necessary. Nonetheless, in the event that I am wrong on those matters a degree of analysis is necessary. 392 In respect of issue (a) above, Mr Ford for the defendants concludes that the $66,500.00 worth of shares issued to the defendant on 29 August 2003 [upon the exercise of tranche 2] was not in fact a benefit paid or received within the twelve months preceding 1 July 2004. Rather, he expresses the opinion that the value of the shares was paid or received on 1 July 1999- being the grant date expressed on the option certificate- on the basis that it was on that day that the defendant was "issued with instruments pursuant to which a later (and in this case contingent) stream of economic benefits (the differential between the strike price and the market exercise price) would accrue." Alternatively expressed, given that the capacity of the defendant to exercise his options entitlements was wholly contingent on the fact of their earlier grant, then it must follow that the options were of value at that earlier time [albeit an uncertain value due to fluctuations in market price]. 393 In respect of issue (b), Mr Ford concludes that the share issue was not a benefit provided the defendant at the cost of the plaintiff as the latter's 2003 Annual Report does not record any options granted to employees, or exercised by employees, during that year as an expense. While he notes that the question of whether employee options schemes should be brought to account as an expense is one of substantial contention within his field, Mr Ford nonetheless submits that: (a) consistency with the plaintiff's accounting methods demands that the share issue not be considered as a benefit provided at the plaintiff's cost; and (b) even if the opposite conclusion was reached, the relevant economic event to which any such cost should be attached was the grant date of 1 July 1999. Additionally, Mr Ford challenges the relevance to the instant question of evidence given by Mr Blackshall, the plaintiff's General Manager of Human Resources, concerning various administrative expenses, ASX listing fees and legal costs incurred by the plaintiff in the management of the Long Term Incentive Plan. Principally, for Mr Ford the existence of such outgoings does not bear upon whether the share issue was at the cost of the plaintiff as there is no evidence as to what extent they are capable of apportionment to the benefit provided the defendant specifically. The mere fact of costs writ large, it can be deduced from Mr Ford's evidence, is not the concern of the definition of 'employment benefit' in s 108A(3). 394 In contrast to the approach of Mr Ford, Mr Lonergan for the plaintiff addresses issue (a) above in terms of the monetary value of tranches 3 and 4 of the share issue [exercised by the defendant on 1 July 2004] rather than when the value of tranche 2 was paid or received by the defendant. Upon the assumption that the value of the shares was indeed paid to or received by the defendant on 1 July 1999, notwithstanding that the quantum of such value would at that time be uncertain, the plaintiff submits that "it logically follows that Mr Olson is progressively the recipient of employment benefits as the options increase in economic vale as time goes on." To this end Mr Lonergan estimates the worth of the tranche 3 and 4 options at 1 July 2003 at $319,906.00 and at 1 July 2004 at $381,000.00, representing an appreciation of $61,094.00. Were this figure added to the agreed remuneration of $149,283.31 aggregated with the bonus payment of $33,535.60, it is self-evident that the remuneration cap will have been exceeded. 395 In respect of issue (b) above, Mr Lonergan disputes that the mere non-recording of the grant and exercise of employee options on the plaintiff's annual accounts is a sufficient basis upon which to conclude that such options are not provided at the cost of the plaintiff. In particular, Mr Lonergan argues that of primary concern must be the opportunity cost to the plaintiff of employee share options; namely, the amount of cash forgone by granting options to employees rather than selling them to external investors at market value. 396 Even from the cursory examination of the expert evidence above it is apparent that, especially when aggregated with the evidence of Mr Blackshall and the plaintiff's further submissions concerning the defendant's exercise of the tranche 3 and 4 options on 1 July 2004, the Court has before it a substantial volume of technical, conflicting views concerning the share issue. None of Messes Ford, Lonergan or Blackshall gave viva voce evidence or were subject to cross-examination. As is apparent from antecedent paragraphs, a determination of issues under this heading is unnecessary for the disposal of the matter. The reasons for my declining to determine issues (a) and (b) above are legion; the reasons against few. 397 It seems unnecessary to delve further into the issues of when the value of the share options was paid or received by the defendant and whether they were provided at the cost of the plaintiff. Evidentiary Rulings 398 A number of objections were advanced by both parties to the admissibility of the evidence put forward by the others expert. All objections are disallowed. The reports have been admitted in full. Each expert is shown to have satisfied the section 79 Evidence Act criteria. Mr Olson's Cross Claim 399 By way of cross claim Mr Olson seeks damages and ancillary relief in respect of Woolworth's conduct on 12 July 2004 of purporting to terminate his employment, purporting to restrain him for a period of six months pursuant to cl 10 of the Service Agreement and executing the Anton Pillar order at his home residence. Mr Olson claims that such conduct represents: (a) a termination of his contract of employment without the provision by Woolworths of the requisite period of notice [or pay in lieu of same]; and (b) a breach of the employer's implied duty of mutual trust and confidence that subsists as a matter of law in all contracts of employment. Mr Olson seeks damages equal to his remuneration for the requisite notice period, damages for hurt, distress and humiliation and, in the alternative, declarations to the effect that Woolworths must indemnify him, pursuant to cl 12 of the Service Agreement, against all claims in these proceedings. 400 In my view these claims are not of substance. 401 In respect of issue (a) above, the Court's finding, expressed earlier in these reasons, that Mr Olson was acting fraudulently in sending the emails of 2 July 2004 is sufficient to overcome Mr Olson's submission that Woolworths was required to provide a period of notice [or pay in lieu of same] when terminating his employment on 12 July. That such fraudulent conduct triggered Woolworth's right of summary dismissal pursuant to cl 7(b) of the Service Agreement, or indeed at common law in the absence of that provision, requires no explanation. 402 In respect of issue (b) above, the implied duty of mutual trust and confidence was first expressed in its present form by Arnold J in Courtaulds Northern Textiles Ltd v Andrews [1979] IRLR 84 at 85, where His Honour said that the duty obliged employers to not: "without reasonable and proper cause, conduct themselves in a manner calculated or likely to destroy or seriously damage the relationship of trust and confidence between the parties." While the implied duty is now well-established in the United Kingdom ( Malik v Bank of Credit and Commerce International SA (in liq) [1997] 3 WLR 95; Johnson v Unisys Ltd [2003] 1 AC 518), it remains protean in Australia and does not appear to have been subject to any direct consideration as to its form, scope and/or consequences of breach (although semble, inter alia, Burazin v Blacktown City Guardian Pty Ltd (1996) 142 ALR 144; Perkins v Grace Worldwide (Aust) Pty Ltd (1997) 72 IR 186; Sea Acres Rainforest Centre Pty Ltd v State of New South Wales (2001) 109 IR 56; Heptonstall v Gaskin and Ors [2004] NSWSC 80). In my view the instant proceedings do not warrant such an analysis as, even assuming that such a duty forms part of Australian employment law, it is evident that Mr Olson has been unable to establish breach. 403 In summarily terminating Mr Olson's employment, purporting to restrain him for six months and executing the Anton Pillar order on 12 July 2004, Woolworths was acting reasonably to prevent further disclosure of the confidential information attached to the emails sent by Mr Olson on 2 July. In this respect the same reasoning applies, mutatis mutandis, as that which led the Court earlier in these reasons to dismiss the merits of Mr Olson's unfair contract claim. Adopting the language of Courtaulds above, not only was Woolworths acting in support of a reasonable and proper cause, but the mutual trust and confidence which ought to exist in the employment relationship had, prior to 12 July, been inexorably shattered by Mr Olson himself. 404 The cross claims are dismissed. Non contentious detail of attachments to 7.37am e-mail 405 During the hearing some questions of detail arose concerning the precise identification of the footers to the 7.37am e-mail attachments. The matter was clarified by agreement in terms of exhibit P22 which is self-explanatory. Short Minutes 406 The parties are to bring in short minutes when costs may be argued. I certify that paragraphs 1 - 406 and the Appendix are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 22 September 2004 ___________________ Susan Piggott Associate 22 September 2004 Confidentiality Order: made 10 am on 22 September 2004 · The Court orders that subject to any order which may later be made this judgment be made available only to the parties and their legal representatives. Confidentiality Order: made 24 September 2004 The Court discharges the order made at 10 am on 22 September 2004 and in its place orders as follows: Order that subject to any order which may later be made the following passages of the judgment of Einstein J handed down in Court on 22 September 2004 not be available other than to parties and their legal representatives: 1. Paragraph 10, page 4, the following sections in the first paragraph: (a) the eighth line, after the word "chain", up to and including the "." in the ninth line; and (b) the penultimate line, after the word "requirements" and all of the final line; 2. Paragraph 41: (a) page 16, the last two words on the last line appearing on that page; and (b) page 17, the first seven words appearing in the first paragraph on that page (up to and including the "."); 3. Paragraph 261, page 130, all of the words appearing after the word "occur" on the sixth line of that paragraph. 4. The Appendix: (a) Paragraph 3 on pages 4 to 8; and (b) Paragraphs 12 and 13 on pages 25 to 27. Appendix Evidence of Mr Pokorny 1 Mr Pokorny's evidence included the following: "Project Refresh is a three phase project which commenced in 1999 and incorporates: Phase I - Reorganisation, including significant business restructuring and cost reduction programs; this phase involved the centralisation of our Buying Division and the regionalisation of our Supermarket Operations both were previously state based. It also involved a review of all aspects of cost of doing business. Phase II - End to End Supply Chain Improvement, known as Project Mercury (described in more detail at paragraph 6 of this Affidavit); and Phase III - which is currently under development. Woolworths has over the past 4- 5 years implemented a significant number of the initiatives comprising Phase I of Project Refresh and has now shifted its major focus to Phase II. As stated in the Wooloworths Annual Report for the financial year ending 30 June 2003, the cumulative savings from Project Refresh are estimated to rise to $6.9 billion by 2008. Already Project Refresh has generated cost savings amounting to 2.4 per cent of sales, worth a cumulative $1.7 billion. This has allowed Woolworths to deliver lower prices to its customers and as such has provided significant competitive advantage. The end to end supply chain improvements which comprise Phase II of Project Refresh are collectively referred to as Project Mercury and represent a complete transformation of Woolworths' supply chain and logistics functions in order to get products from the manufacturer into store for sale to consumers at a reduced cost. These lower costs will allow Woolworths to deliver even lower sell prices to customers in the years ahead, and so it is hoped enhance the competitive advantages already achieved under Project Refresh. Project Mercury embraces processes, systems and procedures specifically designed and devised within Woolworths to enhance the supply logistics side of the business and reduce the associated costs, it addresses the following key design considerations: Store Supply Chain Costs (from the supermarket back dock to the shelf). This includes the implementation of Perpetual Inventory stock management systems and Automated Store reordering (AutostockR) and the introduction of "One Touch" stock movement initiatives such as Roll cages family grouped by store layout, store ready Unit Load Devices for selected products and store ready tray filling; Distribution Centre location and numbers. This includes a reduction in the number of distribution centres into a combination of regional (for fast moving and local lines) and national (for slow moving lines) sites which will reduce Distribution Centre Operating costs and increase volumes handled by Distribution Centres. A number of the future Distribution Centres will be greenfield sites which will allow for future expansion as well as co-location with key vendors; Distribution Centre Functioning (cross-docking and flow through). The distribution centres will be supported by systems such as Stocksmart and AutostockR which will allow Woolworths to reduce the number of times that stock is handled and will also reduce the amount of inventory required; Composite Supply Chain (integrating cold and ambient). The Regional Distribution Centres will be a single point of supply for a group of stores and as such they will process all merchandise categories including merchandise shipped and cross docked from the National Distribution Centre as well as items picked in or flowing through the Regional Distribution Centre from its varied temperature controlled or ambient sections; Transport Management (Primary and Secondary Freight). Primary Freight is the movement of goods from our suppliers factory to the nearest Woolworths Distribution Centre. The large inbound volumes combined with large internal volume allows Woolworths to negotiate lower freight rates. Woolworths will reduce freight cost to stores with the introduction of the new transportation network (that will result in better process control, reduction in distances travelled due to Distribution Centre locations and by taking control of stock that was previously delivered Direct to Store), and also with the introduction of a new transport management system; and Process Improvements Across the Network. Detailed process planning at the micro level as well as end to end allows Woolworths to leverage its significant investment in systems and Distribution Centre infrastructure and to ensure that cost savings are realised. Project Mercury also incorporates an inventory replenishment program which involves: - reducing the volume of direct store deliveries and ensuring that electronic store orders are based on a store specific sales forecast; - phased replenishment store restocking capabilities. The specific details of Project Mercury are not in the public domain, are proprietary to Woolworths and have been developed through extensive and detailed planning over the past three and a half years. Project Mercury is being implemented at a cost of $1 billion to Woolworths and is expected to represent at least 2/3 of the cumulative savings expected from Project Refresh." 2 His evidence dealing with Confidential Exhibits DJ 1 and DJ 2 was as follows: "The documents which constitute the Confidential Exhibits DJ1 and DJ2 are respectively: A series of presentations slides regarding the reasons for undertaking Project Mercury and details of a number of the specific elements of Project Mercury. These slides were developed as training and communications materials and have been presented to employees within the Supermarket Buying and Marketing Division. Hard copies of this presentations were not circulated. 6 Diagrams, each showing a different aspect of the Generic Replenishment Model designed by the Supply Chain Replenishment Capability Team, which together show the processes and steps for the enabling system of Project Mercury. These flow path models are Woolworths' intellectual property and are a representation of much planning design work to give Woolworths a competitive advantage through lower end to end cost base for the efficient replenishment/stock movement from vendor to store. The documents which comprise Confidential Exhibits DJ1 and DJ2 were sent by email from Mr Olson's work laptop computer to Dianne Olson's email address on 2 July 2004 at 7:42 am and 7:37 am respectively Woolworths is concerned that if it does not move quickly to recover the confidential information and documents emailed to Mr Olson's wife on 2 July 2004, that information and those documents may be disseminated by Mr Olson to employees of Franklins. Furthermore, Woolworths is concerned to safeguard the information contained on Mr Olson's work laptop. He caused to be prepared confidential documents [Exhibit PP6] setting out: - a description and explanation of the processes which are incorporated in the diagrams and the presentations; - the reasons for the diagrams and the presentations being confidential and proprietary to Woolworths; - how such documents or their contents could be used by him to benefit Mr Olson and a competitor such as Franklins; and - the damage to Woolworths of such documents or their contents being made available to a competitor such as Franklins." 3 [Confidential section of judgment. Not to be disclosed – see Court Order 22 September 2004 ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Evidence given by Mr Brookes 4 Mr Brooke's evidence included the following: "The uniqueness of Project Mercury · I have worked in the Australian supermarket industry for 26 years. Of that period I have held senior positions in Woolworths for 16 of those years as recorded in my curriculum vitae, when I commenced in 1988 in the position of Merchandise Manager for Woolworths in Queensland. · I have examined and given consideration to the logistics and supply chain systems used by supermarket operators, comparable to Woolworths in other countries, including Walmart in the United States of American and Tesco in the United Kingdom. I have also examined the store distribution mechanisms implemented in Giant in the USA and the store distribution mechanisms implemented in a number of European supermarket chains including Carefour in France (the second largest retailer in the world, after Walmart in the USA), Albert Hein in Holland and Aldi in Germany. · The visits I made to the Walmart and Tesco DC's and stores were specifically to examine aspects of the operations of their logistic and supply chain to see whether I could learn from the systems those organizations were using. · The Project to my knowledge attempts to take a number of features of supply chain procedures employed by Walmart, Tesco and others and to apply them together with other Woolworths' procedures to the conditions in which Woolworths conducts business in Australia. · The supermarket industry in Australia is quite different from the markets in which Walmart and/or Tesco operate their businesses. The major differences are the distances which product has to travel. Another is what I would describe as the "dynamics of the fresh food market". By that I mean that in a number of areas including, cattle, seafood and produce, Woolworths often contracts directly with the producer or grower, in many cases. In many instances, it does not acquire those products from a market or third party. · No supermarket operator in the US or the UK has a supply chain comparable to that which is sought to be achieved in Project Mercury. · The successful implementation of the Project is Woolworths' major strategy to improve its competitive advantage in the Australian market. Achieving and successfully implementing the supply chain contemplated by the Project is critical to achieving a potentially significant advantage in the market place over competitors. · In the next five years, Woolworths is investing approximately $1 billion in acquiring IT and redeveloping and re-engineering the DC infrastructure in connection with the implementation of the Project. Establishment of the Project Mercury Team · In early 2003, staff within Woolworths were seconded to the Project. Mr Olson was seconded to the position of Program Manager Replenishment, Mercury. The idea was to second the most knowledgeable Woolworths' employees from parts of the business which were relevant to the improvements to the supply chain sought to be achieved by the Project. Mr Olson was appointed because he was regarded as having expertise in replenishment, forecasting and stock flow. Each of these areas of the business was to be effected by the Project. · When the Project was established, the position of General Manager of the Project was initially held by Mr Grant Clark and subsequently Ms Penny Winn. Some of the mercury team have multiple roles and responsibilities but there are currently in excess of 170 people working on the Project. Included in the management structure are 4 Program Managers. Those 4 managers have overall responsibility for each of the Project Managers. The Projects are divided into the four areas of IT, Operations, Buying and Marketing and Supply Chain. The Project Manager responsible for Buying and Marketing also reports to me. Mr Evenden performs that role and reported to me. " [Statement of Mr Brookes 4 August 2004 paragraphs 17 – 26] Evidence given by Mr Thomas 5 Mr Thomas is an expert in the area of supply chain strategy and development which field of expertise is not limited to supply chains involving supermarket operators. It extends to any manufacturer and retailer. His particular area of expertise is food and packaged goods supply chains used by manufacturers and retailers. His evidence included the following: · "In about May 2001, I commenced consulting work for Woolworths as a member of a consulting team provided by Accenture. The Accenture Consulting team worked with employees of Woolworths in the development of the supply chain transformation which subsequently became known as Project Mercury ("the Project"). Over the next 14 months the number of Accenture consultants providing services to Woolworths in respect of the Project grew from initially 2 (including me) to over 9 people… · The Six Plans represent the final form of the replenishment model. By that I mean the project that I was working on had by March or April 2002 completed what I would describe as the feasibility stage of the Project. Part of the work involved in the Project was to prepare models recording the replenishment processes. These Six Plans recorded the final thinking as at March and April 2002 of those models. · From about October or November 2001, I undertook work in relation to what ultimately became the replenishment modules depicted in the Six Plans. That work may be described generally as developing a replenishment model for Woolworths. The Six Plans depict that replenishment model as it applies to particular forms of replenishment. · Before the Six Plans reached their final form Mr Dieter Maier, of Woolworths, and I undertook a substantial amount of work. · Before undertaking the work with me which led to the development of the Six Plans, Mr. Maier had been involved in a project to develop procedures for improving distribution centre ("DC") replenishment forecasting. The project was known as StockSmart. The First Defendant ("Mr. Olson") had also worked on the StockSmart project. It used software provided by the organization known as i2 Technologies. · The work which Mr. Maier and I undertook involved detailed meetings with officers of Woolworths with knowledge of the areas which were relevant to the supply chain procedures and processes. It included meeting with a number of individuals who operated aspects of that process. It also involved discussing the requirements of the Woolworths business, both now and in the future, and discussing potential improvements with those officers, and technology consultants and other consultants. At some point my understanding of the planning models enabled me to draw versions of what ultimately became the Six Plans on white boards. I was then able to discuss these white board drawings of draft models with persons who were working, or providing input on the Project. That process led ultimately to drafts of the models being developed on a computer using the software program known as Visio. That is software which permits the ready construction of planning drawings of the kind which the Six Plans are examples. · It was Mr. Maier who was principally involved in drawing what is depicted on each of the Six Plans. He drew substantially all of what is depicted on the Six Plans. I would estimate that I drew not more than 10%. I cannot now say precisely what I drew on each of the Six Plans or whether I drew anything on any one of those plans. I can say that the only persons who drew what is recorded on the Six Plans were either Mr. Maier or myself. Each of us did so, on behalf of Woolworths, in connection with the feasibility of the Project. · Each of the Six Plans can be accurately described as a replenishment scenario. I use the noun, scenario, in that expression because the plans record the replenishment processes applicable in a given set of circumstances, namely those identified in the heading of each of the Six Plans. The unique features of the Six Plans · I have seen what I would describe as plans or diagrams depicting flow through replenishment process models when working overseas. I have not seen models depicting the subject matters recorded on the Six Plans in Australia. I can say that there is no supermarket operator in Australia which has executed (by which I mean put into business operation) the planning and processes recorded in the Six Plans. It may be that other operators have plans to do so. My expectation is that they probably do. Of the Six Plans, the two which are most significant are those entitled "DCM" and "XD". · Each of those plans is unique in my experience. Confidential Exhibit GDT2 records my reasoning for this conclusion. I have given these reasons in a Confidential Exhibit because my explanation will discuss the detail of the six plans. · I have some knowledge of the supply chain model implemented in practice by the UK supermarket operator, Tesco. In late 1999/early 2000 I visited several of Tesco's UK distribution centres and had discussions with a number of their officers responsible for distribution aspects of the business. · Having observed the operation of the Tesco DCs I am aware that Tesco was achieving to some extent a supply chain model similar to that recorded in the DCM and XD plans forming part of the Six Plans. However I have not seen any plans similar to the Six Plans recording the Tesco supply chain model. The utility of the Six Plans to a competitor of Woolworths · I have been asked to comment on whether the contents of any of the Six Plans would be of any advantage to a competitor of Woolworths, and if so what that advantage would be. · If the competitor wished to implement an integrated supply chain, particularly one which used point of sales ("POS") sales forecasting, then my answer is clearly yes. That is because apart from a relatively minor part of the Six Plans which are peculiar to Woolworths' business, the processes and models depicted in the Six Plans record a series of steps which any competitor wishing to achieve a supply chain model using POS sales forecasting could seek to adopt and implement; without the significant effort and expenditure which was involved in the work I undertook. Mr Olson's involvement in the development of the models depicted in the six plans · In the work I did on the Project, I attended 4 or 5 meetings in which I discussed aspects of what is now recorded in the Six Plans with Mr. Olson. These discussions occurred in the context of meetings at which a number of persons were present, including myself and Mr Olson. The meetings discussed the planning for what is now recorded in the Six Plans. · When these communications occurred, Mr Olson was Manager of the StockSmart project. StockSmart was the name given to the DC forecasting module which was being implemented. It was some time after I completed the work which I did with Mr. Maier, which led to the development of the Six Plans, that a decision was made to integrate the StockSmart project work with what became known as AutostockR. AutostockR is the name of the store forecasting and replenishment system which took, as its starting point, "real time" sales information generated by each POS within each supermarket. Information revealed to Mr. Olson in Project Mercury · In the communications which took place with Mr. Olson, he received documents which recorded what Woolworths was attempting to achieve in the Project, and described the integrated functions which are depicted in the Six Plans. · Participation in, and access to, those communications would reveal what Woolworths planned to achieve an integrated supply chain model as depicted in the Six Plans. A number of features of what is depicted in the Six Plans are features which Mr. Olson would not have learnt of but for his participation in the planning which resulted in the Six Plans. I have described those features in Confidential Exhibit GDT3. " [Statement of Mr Thomas sworn 30 July 2004 paragraphs 7-26] 6 Mr Thomas accepted under cross-examination that in order for someone to try and emulate the Woolworths supply chain in Project Mercury it would involve a massive capital undertaking. [Transcript 133] Evidence given by Mr Maier 7 Mr Maier is a senior business analyst who in August 2001 worked on the project then known as the Supply Chain Management Capability Project [which later became known as Project Mercury]. It was he who drew the six plans recording various replenishment models. 8 He gave evidence that the plans recorded a model describing the flow of processes necessary to implement a generic forecasting, inventory planning and replenishment planning system across Woolworths' business and of the work and consultations which he had had to carry out before being in a position to draw what is recorded on each of those plans. His evidence was that at the time of developing the plans, knowledge of the detail of each of them was restricted to a limited category of Woolworths employees then working on the Project. That access was later extended to certain other Woolworths employees for comment and feedback. 9 There was an attempt to persuade him during his cross-examination to accept that there was little material detail on the subject plans- such that reading the plans would be of no use or interest to a competitor such as Franklins. Whilst he accepted that there was a limit to the extent of detail in relation to the particular topics he was taken to, his re-examination included the following: "Q. Mr Maier, I would like you to assume the following facts: First, that Mr Olson was engaged as a senior supply chain specialist with Franklins. Second, that one of his responsibilities in that role was to assume the role of the supply chain specialist within the entire business. Third, that included in that general responsibility was a particular responsibility for designing and monitoring all logistical processes and building partnerships, both internally and externally. Just make those assumptions. Would the plans that you were asked about be of interest to such a person having those responsibilities, in your view? A. Yes. Q. Why is that? A. Because they describe the concept of how Woolworths has developed or is intending to develop the replenishment in a future network that consists of RDCs and NDCs, all new concepts, so anyone understanding these plans would certainly have an advantage of that. Q. What is the nature of that advantage in your opinion? A. Well, certainly the amount of time invested in drawing up these plans, producing these plans, the ideas behind them." [Transcript 146] Evidence given by Mr Stuart Larkin 10 Mr Larkin is a Business Systems Manager with more than 20 years experience on computer systems familiar with the business plan, plan and exercise known as Project Mercury who gave detailed evidence as to the origin and object of the Project, as to the significant features of Woolworths business, as to the work involved in the Project at various stages, as to relevant detail on particular documents, as to work involved in producing the six plans or diagrams, as to the significance of the six diagrams for Woolworths business, as to the importance of those diagrams and as to the advantages available to a competitor from access to those diagrams. This evidence included the following: " The origin and objective of the Project · The origin of the Project was the decision to develop a supply chain strategy for Woolworths' future requirements. By "a supply chain strategy" I mean the combined processes and procedures which are employed by the Woolworths' business to acquire stock from suppliers, efficiently distribute the stock through Woolworths' Distribution Centre ("DC") and making that stock available on shelves for sale to consumers in Woolworths' stores. · The supply chain involves a complex and sophisticated relationship between: (a) Warehouse capacity, procedures and management and organisation; (b) Purchase arrangements between Woolworths and its suppliers; (c) Transport arrangements employed to take product from suppliers either from suppliers' premises to Woolworths' warehouses (known within Woolworths as Distribution Centres or DC's); or alternatively involving supply direct from suppliers to Woolworths stores (known within Woolworths as Direct Store Delivery or DSD's); (d) Replenishment procedures for both DC's and Woolworths' stores; (e) Sales forecasting both for stores and also forecasting supplies required for DC's; forecasting involves mechanisms to predict for each of the products sold in a Woolworths' store, the level of future demand in that store; (f) Procedures for movement of stock within Woolworths' DC's including requirements for Warehouse Management Systems; (g) Procedures for movement of stock within Woolworths' stores to facilitate ease of stocking shelves, improving inventory management, including reliability; (h) Ordering systems between Woolworths and its suppliers by developing existing electronic systems to provide further functionality to assist the business. · The Project may be described in general terms as seeking to develop systems and procedures which would efficiently integrate the means by which Woolworths forecasts, orders, warehouses, transports and handles product from the point of supply into Woolworths' stores. The object of the Project was to modernize, integrate and make more efficient Woolworths' supply chain process so as to reduce the cost of supply related services to Woolworths' business, resulting in lower prices and achieving a competitive advantage in the market place. · The complexities and importance of the Project needs to be understood in light of the Woolworths' business. Significant features of Woolworths' business · At the present time, Woolworths: (a) operates approximately 700 supermarkets throughout Australia; (b) depending on their size, each store stocks between 27,000 to 30,000 product lines; (c) employs about 145,000 people; (d) has annual turnover (gross revenues) of supermarkets over $22 B; (e) operates 31 DC's supermarkets throughout Australia. There are publicly announced diagramsplans to reduce that number to 11 over the next six years. These diagramsplans involve the construction of new DC's in Perth, Wyong, Wodonga and Brisbane. In addition to the construction of new DC's substantial works are to be done in redeveloping and refurbishing existing DC's. The Brisbane DC will service the whole of Queensland. When constructed, it will be Woolworths' largest DC with a planned capacity to distribute 3.2 million cartons each week. (f) Incurs costs associated with the supply chain represent between 12% - 14% of supermarkets sales revenue. · A reduction in costs associated with the proposed Woolworths' supply chain will increase profitability. I am aware of estimated saving of $400 M annually. Work involved in the Project · Work on the Project commenced in the latter part of 2000 and the early part of 2001. At that time Mr. Michael Luscombe who held the position, the General Manager Supply Chain for Australia, was responsible for the Project. Mr. Peter Ramsay reported to Mr. Luscombe. Mr. Ramsay held the position of Program Manager. Mr. Ramsay was engaged on a fulltime basis in developing the Project. · When I first became involved in the planning of the Project, the plan was to identify Woolworths' supply chain in the period 2004 – 2010. This included forecasting and examining Woolworths' warehouse requirements, transport, and the procedures generally involved in replenishing product in stores. · The initial stages of the development of the Project (that is the period early 2001 to September of that year) involved the establishment of a dedicated team of 20 Woolworths employees together with consulting staff provided by Accenture. The consulting services provided by the Accenture staff were services involving experts in aspects of supply chain consulting and program management. Because the planning work undertaken by this fulltime team involved planning of IT requirements, I was constantly in communication with members of the team. · The planning undertaken by those employees at this stage involved consideration of Woolworths' future DC requirements, warehousing procedures, including computer functionality to be used in the warehouse management systems (known as WMS), transport management systems together with related computer systems, conceptualizing the supply chain model. This involved defining (and recording in diagrammatic form) the order in which various events would occur and the particular processes which Woolworths would use in its supply chain. · In September 2001, the planning had reached the stage where approval was granted by Woolworths' board to commence detailed work on a number of specific projects associated with the planning of the future supply chains. These involved projects associated with: (a) Improving delivery capability known as Delivery Flexibility into stores; (b) The concept known as "one touch". This involved procedures to reduce handling of products within stores, that is, handling from the point at which product is delivered to a store to when it is placed on shelves. (c) Warehouse Management System ("WMS"). This involves defining systems to support proposed warehouse processes. There existed in 2001 various software systems of a proprietary kind supplied by US software suppliers. Work was undertaken on identifying the available software systems and planning modifications to those systems in light of Woolworths' requirements. (d) Warehouse capability. This involved consideration of the manner in which and processes adopted for moving product through DC's. (e) Transport Capability. This involves procedures to manage the transport of products from the suppliers to the DC's and from the DC's to the stores. (f) Vendor capability. This involved a consideration of how Woolworths' future planning would impact on its then arrangements with suppliers and any changes which needed to be made in that relationship and processes to give effect to Woolworths' future planning. (g) DC network strategy. This involved planning associated with the construction of DC's. It involved planning as to matters such as how many stores should a DC service, where should the DC be located, what size should it be, what transport arrangements would be associated with the DC and supply to it. (h) Replenishment and devising the supply chain model. This involved the procedures proposed to replenish stock to DC's and stores to support the proposed DC's' capabilities. This method used is called process modeling. There needed to be a model, or plan, which identified how each of the steps in the supply chain for particular types of classes of product would relate to each other. · Annexed and marked "A" is an email dated 2 July 2004 from Mr. Mark Olson to the email address "DianneOlson (e-mail)" dated 2 July 2004. Included in that email is an email from a Mr. Jonathan Green dated 26 April 2002 to a variety of persons including me. Its subject matter is "Supply Chain Generic Replenishment Model". Accompanying that email were six attachments… · I am familiar with each of those attachments, and will refer to them as the six documents. · I refer to Confidential Exhibit 1 to this statement. Exhibit SJL 1 includes the six diagramsplans, which were attached to the 2 July 2004 email, subject to, in the case of the Exhibit, for DCM the Exhibit contains what is recorded as version 1.4, whereas the email refers to version 1.5 and in the case of DSD, it is 1.3 in the email and in the Exhibit, it is 1.2. In the case of XD, the email refers to v 1.3 whereas the Exhibit refers to v 1.2. · The six documents record the final models… resulting from work undertaken in the Project. Each document records the application of the model to a particular class or method of supply. It is necessary to explain the following terms identified in each document as follows: Standard DSD · DSD means direct store delivery. Within Woolworths approximately 15% of products sold in its stores are delivered by suppliers direct to stores. Those products do not go through and are not delivered to, Woolworths DC. Illustrations of such products include proprietary bread, milk, flowers and some fresh delicatessen items, including poultry, a major item. The attachment "Standard DSD" depicts the supply chain processes which will apply to those products which will continue to be supplied direct to store after the Project changes are implemented. Standard XD · XD means cross-dock. The expression "cross-dock" has its origins in warehousing. The concept is that a supplier will deliver stock to a warehouse. The stock, once delivered, will not be placed in reserve racks. It will be immediately incorporated in outgoing orders from the warehouse. The stock which will be supplied using the procedures identified in "Standard XD" is stock which Woolworths will not hold in inventory. It will be moved in full pallet quantities. Coca-Cola is an example of product which is subject to these processes. Cross-docking significantly increased the efficiency of a warehouse. The extent to which product is cross-docked (both by XD and DCM as later described) has a significant impact on the size of the DC. Stock which is cross docked is not stored in the warehouse. A significant increase in the volume of cross-docked stock will reduce the size (and cost) of the DC's. Standard Stocked · The document identified as "Standard Stocked" depicts the supply chain processes applicable to those products which Woolworths holds inventory in its warehouses, in reserve stock locations. Vendor managed · This document records the processes applicable to the relatively small number of products which are managed by the vendors. Items such as greeting cards and CD's that are managed by vendor representatives. Those representatives monitor sales within the store and replenish direct. They are "vendor managed" in the sense that it is the vendor's representative who controls the quantities of product available for sale within each Woolworths' store. Standard DCM · The acronym "DCM" means distributed case movement. The document in Confidential Exhibit SJL 1 headed "DCM" records the supply chain processes which apply to products which, when delivered to a Woolworths' DC, are dealt with in accordance with a warehousing technique described as "Distributed Case Management". The term "DCM" is no longer used. It is now called "Flow Through". The document headed "DCM" recorded the supply chain procedures planned as at the date of the document to be implemented in respect of those products which, when delivered to a DC, would be delivered from the DC on the same day as they were delivered. That is, the product would not be moved into reserve stock locations within the DC. It would be delivered and then moved within the warehouse, and delivered from the warehouse on the date it was delivered. DCM is similar to XD except that XD involves whole pallets. DCM (when the plan was drawn up) did not involve whole pallets, but carton quantities of various multiples. Requisites · These are items which Woolworths do not sell on their own. A large component of this class is packaging and ingredients. For example, wrapping and flour used in in-store bakeries are illustrations of these products. Work involved in producing the Six DiagramsPlans · Part of Confidential Exhibit SJL 1, record the final results of the modeling which records the sequence of procedures applied to particular categories of product referred to in paragraph 16 above. · Each of the six diagramsdocuments was drawn by either Mr. Noel Hoare or Mr. Dieter Maier, each of whom were employees of Woolworths. Accenture provided the services of Mr. Geoff Thomas, who is now an employee of Woolworths, but who, at the time, was a consultant. The processes and inter-relationship between processes described in the six diagramsdocuments, represent the final process flows agreed as a result of the work undertaken in the Project. · The work involved in preparing the models recorded in the six diagramsplans was undertaken in the period from approximately September 2001, through to March or April 2002. · Included in Confidential Exhibit SJL 1 is a document entitled "Deliverable 2.1 Generic Replenishment Model Supply Chain Replenishment Capability Project". That document was written by Messrs. Thomas and Maier. The document describes the various processes depicted on each of the six diagramsplans. · In the period September 2001 through to March/April 2002. Messrs. Hoare, Thomas and Maier reported to me. I saw drafts of these six diagramsplans over the period they were working on them. I was in communication with each of these gentlemen about aspects of the diagramsplans. · By March or April the diagramsplans had been circulated to a variety of people who were responsible for areas of the business to which the diagramsplans related. Their comments were sought in relation to the diagramsplans. The email in the bottom section refers to the "Supply Chain Replenishment Capability Team". In April 2002 that team comprised Mr. Jonathan Green, together with myself, and Messrs. Hoare, Maier and Thomas. Prior to them working on the preparation of the models, Messrs. Hoare and Maier had extensive experience in aspects of the Woolworths' supply chain. The preparation of the six diagramsdocuments involved them using their experience and knowledge of existing supply chain arrangements and consulting with other persons within the Woolworths' business and also consulting with Mr. Thomas, who was an expert consultant. · During the development of the models, the six diagramsplans in draft form were accessible only to members of the Project. · After April 2002, when the models were agreed, access to the six diagramsplans remains restricted, to my knowledge, within Woolworths. They were not shown and distributed to persons other than Woolworths' employees or an Accenture consultant or to 12 technologiesi2 Technologies to which the model was provided to develop IT systems contemplated in the model. The significance of the six diagramsplans for Woolworths' business · Not all of the steps recorded in the six diagramsplans are currently implemented in Woolworths' business. The diagramsplans record in part changes which have been implemented to the operation of Woolworths' business and in part changes proposed to be implemented to the business. · The importance of the diagramsplans is that they record the sequence in which Woolworths proposes to integrate forecasting, inventory planning, transport, warehouse, vendor communication in the implementation of its business. Each of the six diagramsplans records information which was the product of significant analysis, consultation, planning and investigation by members of the Project. The importance of the Six DiagramsPlans · What is recorded in the diagramsplans is probably unique in the Australian supermarket industry. I say probably, because, while I have no knowledge of what diagramsplans Woolworths' major competitors have, such as Coles for example, taking the plan headed "Stocked Items" as an illustration, I say that plan is probably unique because I doubt that any competitor of Woolworths has achieved the level of planning which is depicted in the Stocked Items plan. What the Stocked Items plan and the other five diagramsplans record is the detailed processes and the relationship between each of those processes which will be implemented in Woolworths' business with the object of achieving what are hoped a significant reduction in costs associated with the implementation of Woolworths' supply chain. The diagramsplans record the model to which integrates a number of steps which had previously not been integrated in Woolworths' business. · I am able to describe the significant changes which the diagramsplans depict in the manner in which Woolworths conducts its business, and explain why those changes are significant. In some respects, what are recorded in this plan are procedures which do not exist anywhere in the world, when these plans were prepared. I can explain those aspects of the plans. · I have no doubt that each of the six diagramsplans are unique in the sense that they are the only detailed diagramsplans which record the manner in which Woolworths proposes to implement its supply chain. Advantage available to a competitor from access to these diagramsplans · I have been asked to comment on the question whether, if the six diagramsplans were available to a competitor of Woolworths, would the availability of that information provide a competitor with any, and if so, what, advantage. · If a competitor was wishing or seeking to implement an integrated supply chain, then access to the information recorded in the diagramsplans would significantly benefit that competitor. That is because, to my knowledge, the process of planning and identifying what steps will be undertaken as part of the supply chain, and the relationship between each of the steps and the order in which they occur, requires considerable assessment and consultation with persons knowledgeable in the business and the application of expertise. That process to my knowledge, involved a period of three employees working fulltime for nearly six months. · In addition to that advantage, the competitor would know what Woolworths' diagramsplans were. Knowledge of those diagramsplans would itself, be an advantage to a competitor, because the competitor may not have thought about implementing a particular aspect as planned by Woolworths. To know what Woolworths was planning would assist a competitor to plan a response. " [Statement of Mr Larkin of 28 July 2004 paragraphs 5-41] 11 Whilst under cross-examination he was asked questions concerning a supermarket operator which did not control primary or secondary transport or control any distribution centres, but wished nevertheless to have a supply chain system, and as to his understanding that such an operator could obtain a supply chain system-a software system-on the market from a number of sources in the market. He accepted this proposition. 12 [Confidential section of judgment. Not to be disclosed – see Court Order 22 September 2004 ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] 13 [Confidential section of judgment. Not to be disclosed – see Court Order 22 September 2004 ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Last Modified: 09/28/2004 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.