The overarching purpose – misuse of confidential information, copyright infringement and the power of section 37M of the Federal Court of Australia Act
Earlier this week, Justice Moshinsky handed down judgment in SAI Global Property Division Pty Ltd v Johnstone  FCA 1333, a confidential information and copyright infringement case involving a former employee of SAI, which is an important reminder in relation to the conduct of litigation generally.
SAI is a leading provider in Australia of integrated search, settlement and conveyancing software and services. The Respondent is SAI’s former business development manager. It was not in dispute that three days before his resignation on 29 October 2015, he copied two computer files containing confidential client information onto a USB device.
During his fortnight of paid ‘gardening’ leave, the Respondent commenced work with SAI’s competitor. It was also not in dispute that during this time, the Respondent made a copy of and accessed the SAI files on the USB device on a number of occasions, including creating his own spreadsheets to identify customers who worked with both SAI and his new employer.
On 7 December 2015, SAI obtained ex parte orders requiring the delivery up of any external storage devices used in relation to the Respondent’s employment with SAI, in addition to any computers to which the device had been connected, and any documents (electronic or hard copy) in his possession, custody or control containing SAI’s confidential information. The Respondent was also ordered to make an affidavit outlining the extent of his conduct.
The Respondent complied with all orders by 11 December 2015, including delivering up of the USB device and a laptop to the Court. He also filed an affidavit admitting all material facts and subsequently, a defence admitting to all the primary issues in dispute, including that he had:
- breached the terms of his employment contract (including terms relating to confidentiality and conflict of interests);
- breached the fiduciary duties he owed to SAI;
- infringed SAI’s copyright in the computer files copied to his USB device; and
- contravened sections 182 and 183 of the Corporations Act in relation to improper use of SAI’s information by an employee (including former employees).
Further evidence was filed, followed by a one day trial in June with respect to remedies and costs.
Remedies – declarations and injunctions
Despite the fact that the Respondent had already delivered up the USB and laptop devices, and the forensic analyst’s evidence was that SAI’s confidential information was no longer at risk, his Honour held that, in light of the Respondent’s initial conduct, SAI was entitled to specific declarations and a final order for injunctive relief restraining the Respondent’s use of SAI confidential information.
As there was no evidence of loss or damage arising from the conduct itself, SAI’s damage was limited to the salary paid to the Respondent during his gardening leave period, being $4,230. In any event, SAI had only sought this one amount of compensation as damages for breach of contract, compensation under the Corporations Act or equitable compensation for breach of confidence, given these remedies all related to essentially the same conduct.
Although slightly unusual under the circumstances, His Honour awarded nominal damages of $1 for copyright infringement, and additional damages in the amount of $5,000 pursuant to section 115(4) of the Copyright Act.
His Honour acknowledged that by the Respondent’s own admission, he had surreptitiously copied the computer files from SAI onto his own USB device. He had not sought permission to do so, knowing that it would have been refused. He also did not disclose the conduct during his exit interview, and then attempted to use the copy to assist him in his new employment. His Honour noted that there was also a need to deter similar conduct by others.
Although acknowledging that the Respondent had co-operated fully in the litigation, including not contesting copyright subsistence or infringement in the compilations of spreadsheets as original literary works, his Honour’s view was that the Respondent’s infringement of copyright was flagrant and justified an award of additional damages.
A successful party to litigation (such as SAI) could ordinarily expect the other party to be ordered to pay its costs in the proceeding, taxed on a party-party basis unless agreed.
However, the Respondent submitted that SAI substantially obtained what it needed by 11 December 2015. It carried out further forensic analysis and ultimately pursued the case to trial, despite the Respondent’s admissions and cooperation, and despite the forensic evidence indicating that SAI’s confidential information was contained and no longer at risk.
His Honour requested evidence pertaining to SAI’s actual costs of the proceeding, both before 11 December 2015 and after. Subsequently, SAI filed a solicitor’s affidavit with an explanation of the work performed and an opinion as to the reasonableness of the costs.
His Honour accepted that it was reasonable and prudent to engage in forensic analysis of the USB device and computer delivered up by the Respondent. However, the other costs incurred following 12 December 2015, were considered to be disproportionate. The issues in dispute by this time were minor, and the resulting one day trial produced a damages award of only $4,231 and additional damages of $5,000.
‘Whatever their subjective motivations, SAI’s pursuit of this matter after 11 December 2015, when it recovered its confidential information and received Mr Johnstone’s affidavit, was objectively unnecessary.’
His Honour held that the costs incurred by SAI (totaling $275,469) were disproportionate to the importance and complexity of the matters in dispute, and that this should be reflected in the costs order, pursuant to sections 37M and 37N of the Federal Court of Australia Act.
The Respondent was therefore ordered to pay SAI’s costs on the following basis only:
- SAI’s party-party costs (as taxed) up to 11 December 2015;
- the costs associated with the forensic analysis of the devices delivered up; and
- half of SAI’s party-party costs (as taxed) from 12 December 2015 onwards, including the costs of the trial.
His Honour delivers a timely reminder of the Court’s powerful procedural mechanisms for encouraging parties to conduct proceedings in a manner that is consistent with the overarching purpose of the Federal Court of Australia Act, being to facilitate the just resolution of disputes quickly, inexpensively and as efficiently as possible.