H. Polesy & Co Pty Limited -v- Peter Wayne Cherry [2011] NSWSC 1334

Supreme Court New South Wales

Medium Neutral Citation: H. Polesy & Co Pty Limited -v- Peter Wayne Cherry [2011] NSWSC 1334 Hearing dates: 9 & 14 March 2011 Decision date: 14 March 2011 Jurisdiction: Equity Division - Commercial List Before: Hammerschlag J Decision: Judgment for the plaintiff against the first defendant in the amount of $6,560.10 plus $241.38. Declarations of breach of duty by the first defendant and orders for an inquiry and the taking of accounts. Catchwords: EQUITY - CORPORATIONS - Corporations Act 2001 ss 182(1), 183 - Senior employee establishes competing business with that of his employer during his employment - also fails to inform his employer of his traffic infringements and that it was obliged to nominate a driver resulting in the employer having to pay penalties - held first defendant breached his duties to the plaintiff Legislation Cited: Corporations Act 2001 (Cth) Category: Principal judgment Parties: H. Polesy & Co Pty Limited - Plaintiff Peter W. Cherry - First Defendant Kon Bochrinis - Second Defendant Representation: Counsel: C. Lambert - Plaintiff Solicitor: O'Brien Lawyers - Plaintiff File Number(s): 2010/318449

EX TEMPORE Judgment 1HIS HONOUR: The plaintiff is an importer and distributor of commercial and industrial textiles. Its head office is in Sydney and it has branch offices in Melbourne, Brisbane and Perth. 2The first defendant was employed by the plaintiff as National Product Manager from about August 2004 until his employed was terminated on 9 July 2010. The first defendant operated out of the plaintiff's Victorian office at Yarraville. 3From August 2006, the first defendant had the additional role as the plaintiff's State Manager of Victoria, the previous State Manager having resigned. In that capacity he was responsible for hiring and directing staff working in the plaintiff's Victorian operations. He terminated the employment of a number of administrative and warehouse employees and took over their duties himself. 4He was responsible for ordering commercial textiles on a national basis. He liaised with the plaintiff's overseas suppliers. He undertook overseas trips to visit them, to organise manufacture of products, to negotiate prices and to ensure supply chain continuity. He was responsible for conducting stock-takes. 5On 27 August 2007 the plaintiff issued to all its employees, including the first defendant, an instrument entitled "Deed for the Protection of Confidential Information and Intellectual Property" ("the Deed"). According to Mr Neil Moreton, the plaintiff's General Manager and Financial Controller, he communicated to all employees that the Deed would bind them with respect to confidential information and intellectual property and requested their signature to it and that it be returned. The Deed defines confidential information to include customer lists and customer details, customer files, customer supplied data and documentation, financial information, terms and conditions of business, and quotations and proposals. The Deed was issued to the first defendant, but he did not return it. 6Shortly after the first defendant left the plaintiff's employment, Mr Moreton conducted a stock-take in Victoria. Stock totalling $80,000 was determined to be missing or unaccounted for. This figure exceeded amounts for missing or unaccounted stock in previous years by a significant margin. 7On 9 July 2010, the plaintiff's newly appointed State Manager for Victoria, Justin Bragg (who had previously reported to the first defendant) reported to Mr Moreton that a customer of the plaintiff, Mr Jovan of a business trading as Murf's, had told him that the first defendant had sold to Murf's exactly the same products which the plaintiff had supplied and had offered to sell Murf's, but at cheaper prices on the basis that Murf's agreed to purchase directly from the first defendant's own business, Compete Textiles. 8This resulted in a search of the notebook computer which the first defendant had used during his employment with the plaintiff which in turn led to the discovery that the first defendant had been involved in setting up an enterprise, using the name Compete Textiles, which was doing business with the plaintiff's suppliers and customers. 9Material in evidence establishes that Compete Textiles had been supplied by one of the plaintiff's suppliers, International Textile Distributors, with products of the type it usually sold by the plaintiff. The evidence also establishes that Compete Textiles sold products usually sold by the plaintiff, to other customers of the plaintiff namely, Elite Supplies, Crown Merchandising, Everton Grange, Careco Australia, Polar Linen, Custom Curtains and Mainlinen. There is material which shows that Compete Textiles received commission in respect of this business. 10By Statement of Claim sued out of the Court on 24 September 2010, the plaintiff sued the first defendant for breaches of duty and the second defendant for knowingly participating in the first defendant's breaches. 11The first defendant did not appear to defend the proceedings. The plaintiff now moves for judgment against him. 12The proceedings against the second defendant will continue in the ordinary course. Findings against the first defendant will, of course, not bind the second defendant. 13The first defendant was employed by and occupied a senior executive position with the plaintiff. He owed it equitable duties of fidelity and good faith. 14Section 182(1) of the Corporations Act 2001 (Cth) ("the Act") provides relevantly that an employee of a corporation must not improperly use his position to gain an advantage for himself or someone else or to cause detriment to the corporation. Section 183 provides relevantly that a person who obtains information because he is or has been an employee of a corporation must not improperly use the information to gain an advantage for himself or someone else or to cause detriment to the corporation. 15The first defendant has breached both his equitable obligations of fidelity and good faith and also his statutory obligations, by using both his position and information which he obtained in the course of his employment to channel business on both sides (that is, both with the plaintiff's suppliers and its customers) away from the plaintiff to Compete Textiles. 16The plaintiff is entitled to be compensated for the loss it has suffered as a consequence of this conduct in respect of which I will order an inquiry and a taking of accounts. 17It is not necessary to determine whether the first defendant is bound by the Deed. The plaintiff's customer lists, prices and terms and conditions of business, which came into the first defendant's possession in the course of his employment, together with other information which the evidence establishes he received (and which is the subject of the orders I intend to make and which will be set out below) are undoubtedly confidential to the plaintiff. The first defendant has made use of this information to benefit himself or to cause detriment to the plaintiff and he should be restrained from using it any further. 18As a separate matter, during the course of his employment with the plaintiff, the plaintiff received at its Yarraville premises a number of traffic infringement notices arising out of the driving of a vehicle which the first defendant had for his use in the course of his employment. 19These notices came to the first defendant's notice, as he paid the fines. However, the plaintiff as registered owner was required under the laws of Victoria to nominate a driver. The first defendant's obligations of fidelity and good faith required him to make that nomination or, at least to inform the plaintiff that this was required to be done in respect of his own infringements. He did neither. In the result the plaintiff became liable for additional fines and penalties in the amount of $8,249.50, which it paid on 7 October 2010. An amount of $1,689.40 was refunded by the Victorian authorities leaving a balance paid by the plaintiff of $6,560.10. The first defendant is liable to compensate the plaintiff accordingly. 20By letters dated 30 July 2010 and 27 August 2010 the Plaintiff made offers to the first defendant to settle the proceedings entailing the first defendant executing a Deed of Restraint and Release. There is no evidence of any response. These letters embodied what I consider to be a genuine offer of compromise. This, together with the nature of the first defendant's conduct, warrants an order for indemnity costs from 27 August 2010. 21Declarations in respect of the first defendant's conduct are warranted. 22I make the following orders: 1. Judgment for the plaintiff against the first defendant in the amount of $6,560.10 plus $241.38 representing interest at the court rate from 7 October 2011 to today. 2. The first defendant is ordered to deliver up to the plaintiff any of the following information which remains in his possession whether in hard or electronic form. The plaintiff's: (a) purchase orders containing its customer specifications and pricing, (b) customer purchase orders containing customers' specifications and prices, (c) customer transaction histories derived from its inventory management and accounting software (d) quotations to its customers, (e) customer lists, (f) customer credit applications and approvals, (g) customer credit reference check records, (h) supplier product specifications issued by suppliers to the plaintiff, (i) supplier transaction histories, (j) supplier lists, (k) financial statements of earnings, performance and budget reports and key performance indicators for its Victorian operation, and (n) minutes of management review meetings. 3. The first defendant is restrained from using any of the information of the plaintiff described in order 2 above. 4. The Court declares that the first defendant has breached his contractual, equitable and statutory duties to the plaintiff by improperly using his position and information obtained by him because he was an employee to gain an advantage for himself or someone else or to cause detriment to the plaintiff. 5. The Court declares that any benefits obtained by the first defendant in breach of his duties are held by him on constructive trust for and to the benefit of the plaintiff. 6. The Court orders that an inquiry be held and that an account be taken of all monies received by the first defendant or any other person on his behalf in breach of his duties aforesaid and that the first defendant pay to the plaintiff the amount which shall be found to be due to it upon the taking of such account, together with interest thereon. 7. The first defendant is to pay the plaintiff's costs of the proceedings against him on an indemnity basis from 27 August 2010, excluding the costs of the appearances on 4 March 2011 and 9 March 2011 and excluding the costs of preparation of the affidavit of Mr O'Brien sworn 8 March 2011.