New South Wales Supreme Court CITATION : Canterbury-Hurlstone Park RSL Club Ltd v Roberts [2008] NSWSC 845 HEARING DATE(S) : 13 August 2008 JUDGMENT DATE : 13 August 2008 JURISDICTION : Equity Division JUDGMENT OF : Palmer J EX TEMPORE JUDGMENT DATE : 13 August 2008 DECISION : Undertakings accepted in lieu of injunctions; defendant to pay plaintiff's costs. CATCHWORDS : CONFIDENTIAL INFORMATION – DIRECTORS' DUTY – INJUNCTION – COSTS – Whether former director had disclosed confidential information about Board room deliberations – whether director refused to give undertakings not to disclose further – whether proceedings for injunction justified. LEGISLATION CITED : Corporations Act 2001 (Cth) – s 183 CATEGORY : Principal judgment CASES CITED : - Bennetts v Board of Fire Commissioners of New South Wales (1967) 87 WN (Pt 1) (NSW) 307 - Hospital Products Limited v United States Surgical Corporation (1984) 55 ALR 417 PARTIES : Canterbury-Hurlstone Park RSL Club Ltd (Plaintiff) Kenneth Roberts (Defendant) FILE NUMBER(S) : SC 3478/08 COUNSEL : Ms E. Raper (Plaintiff) F.G. Lever SC, G.A.F. Connolly (Defendant) SOLICITORS : Thomson Playford (Plaintiff) Goldsmiths (Defendant) 3478/08 Canterbury-Hurlstone Park RSL Club Ltd v Roberts JUDGMENT – Ex tempore 13 August, 2008 Introduction 1 This unfortunate dispute should not have been litigated at all. It arises from ill feeling between certain directors of a social club. Worse, a compromise which accommodated the interests of both sides was openly put in Court when the matter was called on this morning, but foundered only because the Defendant would not agree that each party should bear its own costs. The issue for trial has thus become, fundamental, whether the Plaintiff was justified in commencing proceedings the result of which was now no longer in dispute. The facts 2 The Plaintiff is an incorporated club ("the Club"). The Defendant, Mr Roberts, was appointed as a director of the Club in 2004. He resigned as a director by letter dated 29 May 2008. His letter of resignation stated at length criticisms of the Board which had led to his resignation. 3 Mr Roberts sent a copy of his resignation letter to Mr Lloyd Birdsall, President of the Canterbury-Hurlstone Park RSL Sub-Branch ("the Sub-Branch"). The Sub-Branch is a legal entity separate from the Club. Mr Birdsall and the members of the Executive Committee of the Sub-Branch (other than a Mr White) are not members of the Board of the Club and they are not authorised to receive confidential information as to the affairs of the Club. 4 Mr Roberts' resignation letter was subsequently sent to members of the Executive Committee of the Sub-Branch. The Club claims that Mr Roberts' resignation letter contains confidential information relating to the Club and, in particular, relating to discussions in the Board room while Mr Roberts was a director. 5 On 30 May 2008, the Club's Chief Executive Officer, Mr Thomas, wrote to Mr Roberts responding to the criticisms in the resignation letter. Mr Thomas reminded Mr Roberts that he had obligations under s 183 of the Corporations Act 2001 (Cth) not to use improperly information which he had obtained as a former director of the Club so as to cause detriment to the Club. The letter stated: "Given your letter of 29 May 2008, I and the Board of Directors are concerned that you may further divulge confidential information obtained by you in your capacity as a director of the Club. The Club demands that you maintain the confidentiality of all information received by you in your capacity as a director of the Club, including but not limited to its financial affairs, policy and business plans. If you continue to disclose any such confidential information to parties who are not entitled to it, the Club will have no option but to take proceedings against you for any damage caused to it and prevent further disclosure. In those circumstances, the Club will also seek the recovery from you of all legal costs incurred by it. The Club reserves its rights against you in relation to confidential information already disclosed to parties who are not entitled to it. The Club requires your undertaking by return that you will not improperly use or disclose to any person any confidential information you have obtained whilst as a director of the Club." 6 Mr Roberts responded to the 30 May letter by e-mail on 5 June 2008 as follows: "I am advising you of my acknowledgement of receipt of your letter dated 30 May 2008 and confirm that I intend to comply with any legal obligations that may exist upon me." 7 As I have noted, copies of Mr Roberts' resignation letter were sent to members of the Executive Committee of the Sub-Branch together with Minutes of a meeting of the committee which was held on 10 June 2008. Mr Thomas says that he was told by a member of the Executive Committee, Mr Holder, that Mr Holder had asked Mr Roberts if the letter should be sent out to Executive Committee members and had been told that it should. Mr Roberts denies giving this instruction to Mr Holder. 8 On 12 June 2008 the Club's solicitors wrote to Mr Robert's solicitor saying: "We are instructed that your client caused the further publication of his letter of 29 May 2008 to the Executive Committee of Canterbury Hurlstone Park RSL Sub-Branch. This is most concerning given our letter to your client dated 5 June 2008 and you now advising your client. This further publication demonstrates a complete disregard and contempt for the reputation of our client. We require by return confirmation from you that your client will immediately cease and desist from publishing his letter of 29 May 2008 or any content of that letter to any third party. We continue to expressly reserve our client's rights to sue for compensatory damages for defamation. In the absence of a reply from you by 4.00pm 13 June 2008 or confirmation that your client expressly denies the publication of false and defamatory imputations regarding our client, we confirm that we are instructed to commence proceedings against your client." 9 On 13 June 2008 the Club's solicitors again wrote to Mr Roberts' solicitors as follows: "We note that we are still not in receipt of the undertaking that your client will not further publish the Letter ( the Undertaking ). We put you on notice that if we do not receive the Undertaking from either you or your client by 10am Monday 16 June 2008 , we reserve our clients' rights to commence injunctive proceedings to prevent the anticipated further publication of the Letter and will rely on this correspondence in respect of costs." 10 On 20 June 2008 the Club's solicitors wrote to Mr Robert's solicitors referring to particular categories of documents in the possession of Mr Roberts and requiring their delivery up on the basis that they contained confidential information of the Club. The letter continued: "For clarity, the Club requires the return of all of the above documents and any others that were provided to your client in his role as director of the Club. We are instructed that our client is gravely concerned about the use or publication of these confidential financial documents and requires the return of these documents as a matter of urgency. We are instructed that the use or publication of these financial documents outside of the Board of the Club could cause the Club significant harm and unquantified loss. By virtue of your client's failure to provide the undertakings referred to in Our Letters, there is a reasonable apprehension that your client may use or disclose the contents of the above confidential financial documents. We are instructed to require the return by your client of the financial documents to our Sydney office by 4pm, Monday 23 June 2008 . In the absence of production of these documents (and all copies of such documents), we will obtain our client's instructions to commence proceedings in the Supreme Court for the delivery up of these documents and any other appropriate orders of restraint." 11 On 23 June 2008 Mr Roberts' solicitor responded by e-mail to the 20 June letter as follows: On 5 June 2008, our client sent an e-mail to Dean Thomas confirming that our client intends to comply with his legal obligations. He still proposes to do so. Given that our client was a director of the company, and given the obligations that he had, please confirm upon what authority your clients rely in asserting, as they appear to do, that our client has a legal obligation to return to the company those documents that were properly provided to him in his role as a Director of the company." 12 By letter dated 24 June 2008 the Club's solicitors allowed an extension of time until 26 July 2008 for Mr Roberts to deliver up the documents specified, failing which they advised that proceedings would be commenced. 13 On 24 June 2008, Mr Roberts' solicitors responded by e-mail saying that the Club should "take such action as it sees fit" . The e-mail concluded: "We do not hold instructions to reply to any more correspondence from you." 14 It could not have been made plainer in this e-mail that Mr Roberts would enter into no further discussion or compromise and it was for the Club to take proceedings if it believed that it had any legal right to do so. 15 On 26 June 2008, the Club's solicitors wrote to Mr Roberts' solicitors as follows: "We refer to your client's letter to Canterbury Hurlstone Park RSL Club Pty Ltd dated 29 May 2008. We also refer to our client's reply dated 30 May 2008. In that letter, our client demanded that your client 'maintain the confidentiality of all information received by [him] in [his] capacity as a director of the Club, including but not limited to its financial affairs, policy and business plans'. Further, an undertaking was required from your client that he 'will not improperly use or disclose any confidential information [he] obtained whilst as a director of the Club'. On 5 June 2008, your client responded by email stating that he 'intend[s] to comply with any legal obligations that may exist upon [him]'. Also on 5 June 2008, we sent a letter to your client advising him of the defamatory imputations contained in his letter of 29 May 2008. Our client became aware this week that at some time after 10 June 2008, your client again published his letter of 29 May 2008 by sending it to the Executive Committee of Canterbury Hurlstone Park RSL Sub-Branch. This is despite your letter, five days earlier, saying that your client intended to comply with his legal obligations. In our letters dated 11 June and 12 June 2008 we sought from you confirmation that your client 'immediately cease and desist from publishing his letter of 29 may 2008'. To clarify our letter to you dated 20 June 2008, we reiterate that: (a) upon demanding that your client not disclose the information received by him whilst a director of the Club (our client's letter of 30 may 2008), and advising him of the defamatory imputations contained in his letter of 29 May 2008 (our letter of 5 June 2008), at some time after 10 June 2008 your client republished his letter of 29 May 2008; (b) notwithstanding your client's intention to comply with his legal obligations (his email of 5 June 2008), he did in fact further disclose information, he obtained whilst a director of the Club where the disclosure has caused detriment of the Club; (c) despite our client's reasonable request your client has failed to provide any undertaking not to further use and/or disclose information obtained by him whilst he was a director; (d) further, despite our client's reasonable request, your client has not returned the confidential documents and other information of our client (obtained by him whilst he was a Director) that are in his possession, as sought in our letter of 20 June 2008; (e) your client has breached his continuing obligations of confidentiality and good faith under s.183 of the Corporations Act by disclosing confidential information to the Canterbury Hurlstone Park RSL Sub-Branch; (f) in light of his conduct, being: breaching s.183 of the Corporations Act ; republishing the defamatory letter of 29 May 2008; not responding to our client's demand that he give an undertaking to keep confidential the documents in his possession; and not returning those documents in his possession, our client is apprehensive that he will further breach s.183 of the Corporations Act thereby causing further detriment to our client. Consequently, unless your client gives the requested undertakings and delivers up the documents requested, the Club will tomorrow commence proceedings in the Supreme Court of New South Wales seeking, inter alia, orders that:– a. Your client give an undertaking that he will not disclose the contents of the confidential documents listed in our letter to you dated 20 June 2008; and b. Your client deliver up the documents listed in our letter to you dated 20 June 2008." 16 On the same day, Mr Roberts' solicitors responded by e-mail asking when and to whom Mr Roberts had sent copies of the resignation letter. It advised that any proceedings instituted by the Club would be defended and that Mr Roberts would seek an indemnity costs order. 17 The following day, 28 June 2008, the Club commenced these proceedings. The issues 18 When the matter was called on for hearing this morning and after some discussion between Counsel and the Bench, a proposal was put by Mr Lever SC, who appears with Mr Connolly for Mr Roberts, that Mr Roberts would undertake to deliver to the Club all Board papers in his possession if the Club undertook to give him access to the papers if any proceedings were commenced against him in which such papers might be relevant. Ms Raper of Counsel, who appears for the Club, said that the Club was prepared to give such an undertaking. 19 It was then suggested by Mr Lever that Mr Roberts would give an express undertaking to the Club that he would not divulge any confidential information obtained by him. Ms Raper said the Club was willing to accept that undertaking and that the two undertakings proffered by Mr Roberts would satisfy all claims for relief by the Club in these proceedings. 20 Ms Raper then proposed an order that each party pay its own costs of the proceedings. Mr Lever informed the Court that Mr Roberts would not consent to such an order and would now decline to give the undertaking not to disclose confidential information, although he would deliver up documents in return for the proffered undertaking of the Club to allow future access. 21 Mr Lever says the Club's application should be dismissed on the following grounds: – none of the information contained in the resignation letter was confidential so that, in delivering the letter to a non-Board member, i.e. Mr Birdsall, Mr Roberts did not disclose confidential information and so did not breach any statutory or fiduciary obligation of confidence. – even if information in the resignation letter was confidential, Mr Roberts' disclosure of that letter to Mr Birdsall was not a breach of any obligation of confidence; – even if the disclosure of the information to Mr Birdsall was a breach of an obligation of confidence, Mr Roberts did not breach s 183 of the Corporations Act because that disclosure could not be to the detriment of the Club; – the Club commenced proceedings for an injunction without any justifiable apprehension that Mr Roberts would continue to publish confidential information unless restrained, because Mr Roberts had given satisfactory undertakings to the Club on 5 and 23 June 2008. Whether the letter contained confidential information 22 Mr Roberts does not dispute that his position as a Board member imposed upon him a duty of confidence, which included an obligation not to disclose the deliberations of the Board room unless they were otherwise published to members of the Club with the authority of the Board. Indeed, when Mr Roberts became a Board member he signed, by way of acknowledgement, a Board Code of Conduct which referred, among other things, to keeping what was discussed in the Board room within the Board room. 23 Mr Lever, rightly, does not dispute that deliberations within the Board room of a corporation concerning the affairs of the corporation are, by their very nature, confidential, except to the extent they may contain trivial matters or matters of common or public knowledge. 24 The first question is whether or not Mr Roberts' resignation letter contained confidential information. The letter has been treated as confidential by the parties in this trial so that it is not appropriate to recite its content with specificity. The letter refers to a figure for trading results of the Club in the first four months of 2008. This information was published to members by the time the letter was written and, therefore, could not be confidential information at the time that the letter was sent. 25 However, the last paragraph on the first page of the letter refers to particular discussions of the Club's accounts at two Board meetings. The first paragraph on page 2 refers to discussions at Board meetings concerning the sale of a particular asset and the views of Board members about that matter. 26 The third paragraph on page 2 refers to a particular topic discussed by the Board "in numerous sessions over the past three years" and to what has been the result of those discussions. The second paragraph on page 3 refers to a recent review at Board level of the performance of the Chief Executive Officer and refers as well to the views expressed by Board members in discussion. 27 A great deal of the resignation letter is devoted to complaint and accusation about the Board's conduct expressed in terms which are, while general, nevertheless unapologetically trenchant. 28 There is no evidence that the particular Board discussions that I have referred to above had been made public by the time that Mr Roberts sent the letter to Mr Birdsall, apart, of course, from the Club's trading results for the first quarter. 29 The topics of the Board's discussion and the results of that discussion referred to in the letter were certainly not trivial matters and nor were they matters of public knowledge. I am satisfied that the resignation letter disclosed a substantial amount of information concerning Board discussions which was confidential. The duty of confidence 30 The next question is whether Mr Roberts' disclosure of the resignation letter to Mr Birdsall breached any obligation of confidence imposed upon him. It is well recognized that appointment as a director of a corporation imposes on the appointee a fiduciary duty to use confidential information coming into his or her hands by virtue of the directorship only for the purposes of the corporation: see Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41. The fiduciary obligation imposed by the general law is mirrored in s 183 of the Corporations Act . 31 I am unable to accept that Mr Roberts' disclosure to Mr Birdsall of the confidential information in the resignation letter could fairly be described as a disclosure for the purposes of the Club itself. The purpose of the letter was to justify Mr Roberts' decision to resign as a director of the club and, in doing so, to criticise the other members of the Board. 32 Mr Roberts' reason for sending the letter to Mr Birdsall may have been to put the Sub-­Branch in possession of information which Mr Roberts thought it should know for its own good. However, the Sub­­­-Branch is a separate entity from the Club and its interests may not coincide in all respects with those of the Club. If Mr Roberts, as a member of the Sub-Branch Executive Committee, believed it was in the interests of the Sub-Branch to know of the deliberations of the Club's Board so that the Executive Committee could take protective measures, that in itself demonstrates that Mr Roberts was in a position of conflict of duties: a duty of confidence to the Club and a duty to the Sub-Branch to protect its interests. Such a conflict does not justify Mr Roberts in breaching his duty of confidence to the Club: Bennetts v Board of Fire Commissioners of New South Wales (1967) 87 WN (Pt 1) (NSW) 307, at 310 per Street J (as his Honour then was). Whether breach of CA s 183 33 The next question is whether disclosure of the confidential information in the resignation letter could cause detriment to the Club within the meaning of, and for the purposes of, s 183 of the Corporations Act . 34 I accept the unchallenged evidence of the Plaintiff that the Club operates in a highly competitive environment and that disclosure of the deliberations of the Board as to the Club's trading results and, in particular, of the courses of action that should be pursued by the Board, could damage the Club's trading goodwill to its detriment. I am satisfied that Mr Roberts' disclosure of the contents of the letter to Mr Birdsall was a breach of his duty under s 183, as well as a breach of his fiduciary duty of confidence. Whether proceedings justified 35 This brings me to the hotly debated issue in the trial: whether the Club was justified in bringing these proceedings in the reasonable belief that Mr Roberts would, unless restrained, continue to disclose confidential information. 36 There can be no doubt that Mr Roberts had in his possession confidential information, not only in terms of the contents of Board papers in his possession, but also in terms of his own recollection of the matters discussed in the privacy of the Board room. However, Mr Lever strongly submits that there was no reasonable basis for a belief on the Club's part that Mr Roberts would breach his acknowledged duty of confidence in light of the two "undertakings" that were given by him. 37 Mr Lever submits that, although the terms of the "undertakings" were cryptic, they should have satisfied the Club that Mr Roberts would not disclose further any confidential information. I am unable to accept that submission. 38 In Mr Thomas' letter of 30 May, a clear breach of the duty of non-disclosure had been alleged against Mr Roberts in precise terms, and he had been expressly invited to give an undertaking to meet the Club's concerns regarding further disclosures. It was reasonable for the Club to expect that Mr Roberts would give a clear and explicit undertaking in response, if he genuinely intended to observe the duties of confidence which he acknowledged. 39 A frank and reassuring response on the part of Mr Roberts would have been to give the undertaking in the terms requested or else to propose a specific form of undertaking to address the issue of confidence and disclosure. The response that he gave did not use the word "undertaking" at all. Mr Roberts merely said that he "intend[ed] to comply" with any legal obligations that he may have had. That is what I would term a "clever lawyer's response". I mean that phrase in the disparaging sense that it bears. By saying that he intends to comply with his legal obligations, Mr Roberts does not concede, firstly, that he is in possession of any confidential information, secondly, that he has any duty to comply with a duty of confidence to the Club, thirdly, that the Club is justified in seeking an undertaking and, fourthly, that he is prepared to give any undertaking. 40 Mr Roberts is in effect saying: "I will decide for myself what my legal obligations are and I will tell you what I think they are. You may take your own course. I concede nothing." This is not frankly dealing with the issue with which Mr Roberts had been confronted. If Mr Roberts had intended to give the undertaking sought, he could easily have said so. Instead, he gave a coy response. When a breach of the law is alleged and the plaintiff expressly requests the defendant to give an undertaking not to repeat the breach, failing which an injunction will be sought, a Court of Equity expects the defendant to give an unequivocal response. Coyness and equivocation receive no premium in this Court. 41 Mr Roberts' response, given on two occasions in the face of repeated requests by the Club's solicitors for an explicit undertaking, could reasonably have been seen as demonstrating an intention on Mr Roberts' part not to admit frankly to any wrongdoing, and not to give an undertaking that he would not transgress in future. 42 The circumstance that the letter of resignation was released to committee members of the Sub-Branch after Mr Roberts had given the first "undertaking" on 5 June was a further and justifiable cause for disquiet on the part of the Club as to Mr Roberts' future intentions. I do not need to find whether or not Mr Roberts himself instructed or authorised Mr Holder to disseminate the resignation letter together with Board Minutes of the Executive Committee. What is a clear enough, on Mr Roberts' own concession, is that he did not tell Mr Birdsall, either before or after giving the 5 June "undertaking", that the resignation letter should be kept confidential to Mr Birdsall and was not for circulation to anyone else. 43 Mr Roberts' attitude seems to have been that it was a matter for Mr Birdsall himself to decide how much publicity the letter of resignation would ultimately achieve. This is not at all consistent with a consciousness on the part of Mr Roberts of his duty of confidentiality. If Mr Roberts had genuinely intended to honour his "undertaking" of 5 June he would have contacted Mr Birdsall immediately thereafter, and prior to the Sub-Branch Committee meeting on 10 June, and instructed him not to disclose the resignation letter. 44 Mr Roberts was given a direct and clear warning that proceedings would be commenced unless a satisfactory undertaking specifically dealing with the confidentiality issue was proffered by him. No such undertaking was given. Mr Roberts' refusal to give such an undertaking was a reasonable cause for disquiet on the part of the Club. In my view, the commencement of the proceedings by the Club for the purpose of obtaining an injunction restraining further publication of confidential information was justified. 45 However, I am not satisfied that the Club was justified in requiring immediate return of confidential documents in the possession of Mr Roberts. Mr Roberts had a right to retain those documents as a former Board member unless it was clearly demonstrated that he was threatening to misuse them in some particular way. No evidence has been put forward to suggest that Mr Roberts was in the process of using any information contained in the Board papers for improper purposes or in order to publish to the detriment of the Club. Orders 46 For these reasons, I am prepared to grant an injunction restraining Mr Roberts from divulging any further confidential material as to the Board's affairs or deliberations. I am not prepared to make a mandatory order requiring him to deliver up possession of the Board's papers. 47 Mr Lever submits that it is a serious matter for the Court to grant an injunction in the terms I have foreshadowed. That is, indeed, true. The granting of an injunction may be avoided if, in substitution, Mr Roberts were prepared to proffer to the Court an undertaking in the terms originally proposed this morning. 48 The delivery up of the documents has been achieved by a matter of agreement and I do not think I need to make any further order about that. I am prepared to grant an injunction and make declarations as sought unless the parties can agree on suitable undertakings which will be substituted for orders of the Court. Costs 49 Although the Plaintiff has not succeeded in its claim for delivery up of documents, it has succeeded in its claim for an injunction, and that was the claim most hotly debated in the case. In my view, the Defendant should pay the costs of Plaintiff's proceedings. I so order. – oOo – 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.