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Federal Court of Australia |
Last Updated: 16 January 2007
FEDERAL COURT OF AUSTRALIA
Australian Administration Services Pty Ltd v Korchinski [2007] FCA 12
AUSTRALIAN
ADMINISTRATION SERVICES PTY LTD AND AAS SUPERANNUATION SERVICES PTY LTD v STUART
KORCHINSKI AND KAZ GROUP PTY LIMITED
NSD 2543 OF
2006
STONE J
15 JANUARY
2007
SYDNEY
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AND:
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THE COURT ORDERS THAT:
1. The applicants’ amended notice of motion filed on 29 December 2006 be dismissed with costs.
Note: Settlement
and entry of orders is dealt with in Order 36 of the Federal Court
Rules.
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BETWEEN:
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AUSTRALIAN ADMINISTRATION SERVICES PTY LTD
First Applicant AAS SUPERANNUATION SERVICES PTY LTD Second Applicant |
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AND:
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STUART KORCHINSKI
First Respondent KAZ GROUP PTY LIMITED Second Respondent |
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JUDGE:
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STONE J
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DATE:
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15 JANUARY 2007
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PLACE:
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SYDNEY
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REASONS FOR JUDGMENT
Introduction
1 This proceeding concerns confidential information of the first and second applicants to which the first respondent had access in his capacity as an employee of the second respondent. Although employed by the second respondent, at all material times, the first respondent, Mr Korchinski was deployed to provide services for the applicants.
2 In brief the applicants claim that shortly before leaving their service to commence employment with CitiStreet Pty Ltd, a major competitor of the applicants, Mr Korchinski, downloaded confidential information belonging to the applicants onto a portable hard drive (PHD) owned by the first applicant, but of which the senior executives of the applicants were unaware. They say that, after they became aware of the existence of the PHD and asked Mr Korchinski to return it to them he failed to do so by the date specified. Eventually he did return it but not before deleting the information, downloading music and video files to the PHD and then reformatting it. They say that Mr Korchinski has failed to disclose to the applicants why he required the PHD and the work he had undertaken with the device. This failure and the circumstances surrounding Mr Korchinski’s dealings with the applicants since he has committed to a position with CitiStreet have raised their concern that Mr Korchinski has transferred the information to a computer and still has access to it and that it could be used to their detriment and to the advantage of a competitor. The applicants claim that Mr Korchinski has acted in breach of his duty of confidentiality, his fiduciary duties and in breach of copyright.
3 The second respondent, KAZ Group Pty Limited (‘KAZ’) was joined to the proceedings solely to protect the confidentiality of some of its information held on Mr Korchinski’s laptop. This need was met by undertakings given by the other parties and KAZ otherwise took no part in the interlocutory proceeding.
4 By notice of motion the applicants now seek interlocutory orders which include restraining the respondent from performing services "directly or indirectly" for CitiStreet Australia Pty Ltd or any of its related bodies corporate in Australia. They also seek to restrain the respondent from performing services directly or indirectly for a direct competitor of the businesses of the applicants in Australia.
Interlocutory injunctions
5 In Australian Broadcasting Corporation v O’Neill [2006] HCA 46; (2006) 229 ALR 457, the High Court had occasion to review the principles governing the grant of interlocutory injunctions. Gummow and Hayne JJ, at 478, affirmed as the relevant principles those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618; Gleeson CJ and Crennan J at 466 expressly agreed with Gummow and Hayne JJ and their ‘reiteration that the doctrine of the Court established in [Beecham] should be followed’. The comments from Beecham quoted by Gummow and Hayne JJ, and their Honours’ observations on those comments, bear repetition:
‘This court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries, and continued:
The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief ... The second inquiry is ... whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted.
By using the phrase "prima facie case" their Honours did not mean that the plaintiff must show that it is more probable than not that at a trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument. With reference to the first inquiry, the court continued, in a statement of central importance for this appeal:
How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks.’
6 The appeal in O’Neill concerned the law of defamation where there are special considerations pertaining to freedom of speech and the prior restraint of publication. The issues here are quite different nevertheless the latter of the comments quoted from Beecham (which concerned a patent claim) is also very significant for the present proceeding. It is clear from the High Court’s comments that it is necessary to consider carefully the evidence presented on the interlocutory hearing so as to ascertain whether a prima facie case (in the sense referred to above) has been made out.
The evidence
7 At the hearing of the motion I was presented with considerable affidavit evidence although there were some gaps that may have been able to have been filled had relevant persons been available. Being an urgent interlocutory hearing, and given the time of the year, it is not surprising that a number of persons whose evidence may have filled some of those gaps were not available. These issues are of considerable importance because they go to whether the applicants are able to establish a prima facie case for relief.
8 Much of the evidence was not in contention and none of the deponents was cross-examined. I shall therefore outline the facts indicating the source only where there is inconsistency between the accounts given by the parties.
9 Mr Korchinski was born in Canada and came to Australia in 1989. His mother, who is seriously ill, still lives in Canada. At all material times Mr Korchinski was an employee of KAZ, which owned all the shares in the first applicant, Australian Administration Services Pty Limited (‘AAS’) which, in turn, owned all the shares in the second applicant, AAS Superannuation Services Pty Limited (‘AASSS’). In August 2006 a share sale agreement was entered into by which KAZ sold its shares in AAS to Link Administration (‘Link’). Prior to the share sale Mr Korchinski was the chief executive officer of AAS and a director of both applicants. Although Mr Korchinski was employed by KAZ he was actually doing work for the applicants. On 31 August 2006 Mr Korchinski resigned from the boards of AAS and AASSS. He continued to act as managing director of AAS until 25 September 2006.
Position with CitiStreet
10 In early September 2006 Mr Korchinski approached Mr Jim Crowe, of Palmer Holt, a recruitment firm, to investigate a vacancy that had arisen at CitiStreet. Later Mr Korchinski discussed the CitiStreet position with Mr Dave Tolve, an executive vice president of CitiStreet. Following negotiations with Mr Tolve, Mr Korchinski approved the proposed remuneration package and sign-on bonus on 14 September 2006 and on the 18 September 2006 he received a written offer of employment from CitiStreet. On the same day Mr Korchinski requested an information technology consultant at KAZ, Mr James Parker, to purchase a portable hard drive (PHD) for him to use. Mr Parker procured the portable hard drive and handed it to Mr Korchinski at a dinner on 21 September 2006 which was attended by senior executives of KAZ and/or AAS.
11 On 24 September 2006 Mr Korchinski, following further negotiations with CitiStreet, received an amended offer of employment and the next day, 25 September, he informed Link that he did not wish to accept employment as the CEO of the AAS group business. The amended contract with CitiStreet contained significant financial incentives for new business however it also included a term that Mr Korchinski not breach any restraint or confidentiality provision binding on him. In particular the contract included an additional term that stated that for at least six months, or longer if required by CitiStreet, Mr Korchinski not deal with any client of the KAZ Group that he had dealt with in the twelve months prior to the termination of his employment with KAZ. An earlier draft of this clause had referred to clients of AAS rather than KAZ. Presumably it was changed to reflect the fact that KAZ was Mr Korchinski’s employer. This change, however accurately it reflected the legal employment arrangements, did not go to the heart of Mr Korchinski’s obligations in relation to previous clients as, presumably, they are largely (if not all) clients of ASS.
12 Mr Korchinski signed the contract of employment with CitiStreet on 5 October 2006 however he did not tell the applicants of this until 22 November 2006. The circumstances leading up to Mr Korchinski telling the applicants of his new position are discussed below at [19] and following.
13 Under the terms of the contract between them, both KAZ and Mr Korchinski were obliged to give 12 months notice of termination of employment. There was some discussion with KAZ as to whether Mr Korchinski would be required to serve out this period but eventually this idea was rejected. By letter dated 4 October 2006 KAZ gave Mr Korchinski notice that his position had been made redundant and that his employment would terminate on 31 December 2006. The letter, which was signed by KAZ’s chief executive officer, Mike Foster, advised that all termination entitlements would be paid within 7 days from 31 December and added:
‘Notwithstanding the sale of AAS, we regard the restraints under clause 11 of your ESA [Executive Services Agreement] as applying in respect of all AAS customers and employees for the maximum period following termination of your employment. KAZ’s legal obligations to the purchaser of the business are such that KAZ has a residual interest in that business which needs to be protected.’
14 Clause 11 of the ESA between Mr Korchinski and KAZ imposed certain restraints on Mr Korchinski in respect of his taking or attempting to take clients or employees from KAZ after termination of his employment with KAZ. Clause 9 of the ESA required Mr Korchinski to keep confidential certain information acquired in the course of his employment with KAZ.
Transition arrangements
15 There is some dispute about exactly when Mr Korchinski ceased performing any work for the applicants. Evidence on this point came from Mr Korchinski and Mr Andrew Alcock, who was Mr Korchinski’s deputy and was appointed Chief Operating Officer of AAS from 26 September 2006. Following his refusal of employment with Link, Mr Korchinski discussed transition arrangements with Mr John McMurtrie, the managing director of Link who was also a director of the applicants. Mr McMurtrie told Mr Korchinski that he would be required to assist with these arrangements. Mr Korchinski records several conversations with Mr Marcus Bartram from KAZ concerning transition arrangements. He says that he was told he needed to be available to assist in transition and that he could provide that assistance from Canada as long as he had network access. Mr Korchinski also stated that the need to assist with transition had been ‘emphasised repeatedly’ to him during the period from 25 September to 4 October and that this included assistance with ‘AASSS strategies, LUCRF [a superannuation fund] history, Money Solutions and strategic pricing and marketing’ as well as with ‘potential litigation involving AASSS and the prior owner of AASSS’. Mr Korchinski stated:
‘This meant to me that I would continue to need my laptop and my PDA and access to information to be able to deliver on this requirement.
The way I thought about it was that these things were going to come up and as they came up they were going to ask me for assistance. I needed the information on the basis that they were going to require my assistance. KAZ made it very clear to me that I had to provide transition assistance up to 31 December 2006, otherwise I would forfeit the agreed separation payments. The payment of separation benefits was subject to me providing positive and supportive assistance during the transition.’
16 Mr Korchinski also reported that on 4 October Marcus Bartram had said to him that there was not much point in him coming in to the office ‘as long as you are available via the network and Lotus Notes’. He said for that reason he started working from his home.
17 Mr Alcock gave a somewhat different account. He stated that as far he knew, Mr Korchinski did no work for the applicants after 25 September 2006. Mr Alcock supported this proposition by reference to the following:
• The termination letter from Mike Foster referred to in [13] above, in which Mr Foster says: ‘As you know we are still working through the scope of your transition activities with the purchaser. The detail will be communicated to you as soon as possible.’
• An email dated 20 October 2006 from Mr John Morris, Chief Legal Counsel of KAZ in which Mr Morris says: ‘In the meantime you should continue to co-operate with AAS on transition issues as outlined to you. I understand Andrew Alcock will be in touch with you shortly regarding some immediate matters.’
• An email dated 20 October from Mr Korchinski to Mr Morris in which Mr Korchinski states: ‘As for transition issues, as you know, I remain willing and able to comply. It should though be noted that KAZ has not required me to perform any such duties.’
18 These two accounts are not necessarily inconsistent. It could be that KAZ required Mr Korchinski to be available to help; he made sure he was available; but, in fact, nothing was asked of him. In response to Mr Alcock’s evidence, however, Mr Korchinski made the following statements the first of which seems to suggest that he actually did some transition work although no details were provided:
• ‘I was required to be available to perform work in the period between 26 September 2006 and 31 December 2006 and did such work as was needed and required of me.’
• In relation to the email of 20 October (see last point in [17] above, ‘I was there referring to the fact that, up to that date, I was still waiting to be provided with the tasks that had already been foreshadowed to me to perform to assist with the transition’.
Applicants’ knowledge of arrangement with CitiStreet
19 Another episode which gave the applicants some concern and about which Mr Alcock’s and Mr Korchinski’s evidence differed related to the circumstances in which the applicants came to know of the negotiations Mr Korchinski had with CitiStreet and that he had accepted the position of CEO of CitiStreet. Mr Korchinski signed the contract with CitiStreet on 5 October 2006. On 20 October Mr Morris emailed Mr Korchinski in the following terms:
‘We have become aware of rumours that you may be about to accept a role with a competitor of AAS. These may of course be untrue and we would be grateful for your confirmation that the rumours are not true. In the meantime, I should point out that you remain an employee of KAZ, and amongst other things are under an obligation not to "be engaged, concerned or interested in any other business without the prior written consent of the CEO of KAZ". If you do wish to accept a position with another organisation we would expect you to resign your position with KAZ (and indeed would regard acceptance of a role as a deemed resignation). In those circumstances you would not be entitled to the severance entitlements previously communicated (except of course your leave accruals).
As previously communicated we do regard the restraints under clause 11 of your employment contract to continue to apply in respect of AAS staff and customers, notwithstanding the sale of that business.’
20 Mr Korchinski’s response sent the same day was less than candid:
‘I do not know what rumours you are referring to. It would assist if you could explain precisely what you are referring to.
In terms of alternative employment next year, as you would appreciate, I am entitled to seek and obtain alternative employment. Presumably you are not seriously contending that:
1. to seek/obtain alternative employment is a breach of clause 12.1 of the contract which relates to my being employed with KAZ (I should say that I am employed by KAZ, am not working for any other entity and consistent with my agreement with KAZ intend to remain employed by KAZ until 31 December 2006); and
2. KAZ is seeking to avoid paying me the amounts which it has agreed to pay ...’
21 On 14 November an article was published in IT News announcing that Mr Korchinski was to commence with CitiStreet in January 2007. On 15 November Mr McMurtrie wrote to Mr Korchinski referring to his proposed employment with CitiStreet and reminding him of his obligations not to misuse information obtained during the term of his appointments as director of both applicants ‘to gain an advantage for yourself or someone else, or to cause detriment to AAS or AASSS’. Mr McMurtrie asked Mr Korchinski to return any such information ‘whether in electronic form or hard copy’ immediately. Mr McMurtrie also referred to information that might not be in written or electronic form as, for instance, ‘details of the commercial arrangements between AAS, AASSS and their customers and potential customers which is confidential to AAS and AASSS and the use of which could assist a competitor such as CitiStreet’ and warned that it must be kept confidential. Mr Korchinski’s response to this letter, on 22 November, was curt:
‘As a former director of AAS and AASSS, I confirm that I will continue to comply with such obligations as exist.’
22 Mr Morris also wrote on 15 November to Mr Korchinski about the article in IT News expressing disappointment that KAZ had not been informed before the information was published, ‘especially given we asked you to respond to rumours of this appointment some weeks ago. In his response on 22 November Mr Korchinski confirmed that he had accepted an appointment at Citistreet ‘next year’ and repeated that he would ‘continue to comply with my legal obligations, if any’.
23 On 27 November AAS discovered that the CitiStreet website was listing Mr Korchinski as the Managing Director of CitiStreet. The site contained a statement attributed to him and gave contact details. KAZ immediately suspended payment of Mr Korchinski’s salary and IT and security access pending investigation of the matter and, by email sent on 28 November, required Mr Korchinski to attend a meeting at their offices on 4 December 2006 ‘to discuss the situation’. Mr Korchinski responded by email on 29 November saying that until notified by Mr Morris he was unaware of the entry on the CitiStreet website, that it was clearly an error on the part of CitiStreet and that it had been corrected by removing the reference to Mr Korchinski from the website. In a letter dated 4 December Mr Mike Henwood, chief operations officer of CitiStreet confirmed that the entry had been made in error but did not deny the truth of the facts asserted in the entry. In a letter dated 18 December from Mr K’s solicitors to KAZ’s solicitors the statement is made that there is no ‘current relationship’ with CitiStreet other than the fact that Mr Korchinski was to commence employment with CitiStreet in 2007. The letter also states that Mr Korchinski ‘has not received any money from CitiStreet’ and has not ‘undertaken any work for CitiStreet directly or indirectly’.
Return of company property
24 It appears that Mr Korchinski and his solicitor, Ms Judith Healy attended the meeting on 4 December 2006 as did Mr Morris and Allen Stewart head of Human Resources at KAZ. At that meeting Mr Korchinski apparently agreed to the request to return all property of the applicants within 24 hours subject to his removal of personal information from the equipment. In an email to Mr Korchinski dated 5 December, Mr Morris enquired about the return of property and said that he had people available to come to Mr Korchinski’s home to collect it if that would be more convenient. He stated:
‘Items to be collected are all property of KAZ and AAS and their related parties, and include:
- computers (desktop computers, laptops, peripheral devices, printers, cords etc)
- mobile telephones and PDAs
- corporate credit cards
- security access cards
- documents and records, files etc’
25 Mr Morris made a further enquiry of Mr Korchinski’s solicitor on the same day. In an exchange of emails there was some discussion of the need to remove Mr Korchinski’s personal information from the equipment. At 4.51pm Mr Morris sent an email to Ms Healy saying, ‘I am assuming Stuart has now had sufficient time to remove any personal information’ and mentioning again that he could arrange for the equipment to be collected. Ms Healy responded, ‘I assume that KAZ will not then take any action to seek to recover or retrieve Stuart’s personal information’. Mr Morris replied that KAZ had no interest in the personal information and that the deadline for return of the property had passed. He added ‘We do require return of all KAZ and AAS company property without further delay’. In an email to Mr Morris at 10.08 on 6 December, Mr Korchinski confirmed that the property was ready for collection and listed the items he had. There was no mention of the PHD in this list. Mr Morris sent an email to Ms Healy at 12.05 pm on the same day advising that arrangements had been made to collect the property at 3 pm. He added, ‘If Stuart fails to comply with our lawful direction to hand over company property by 3 pm today, KAZ will treat that failure as serious misconduct and, without prejudice to any other rights, terminate his employment immediately.’
26 At 3 pm Mr Phil McDonald from KAZ Human Resources, Mr James Parker from KAZ IT and Mr Mark Garnett, Director of the Forensic Technology Practice at McGrathNicol+Partners, forensic accountants, arrived at Mr K’s home to collect the equipment. Mr Korchinski says that he was very concerned that forensic accountants were involved and, because he was preoccupied with this, he forgot to get the PHD which was in another part of the house.
27 On 7 December Mr Morris again wrote to Mr Korchinski seeking more information about his relationship with CitiStreet. The questions were plainly directed toward ascertaining whether Mr Korchinski had been doing any work or receiving any reward from CitiStreet. The letter also raises questions about the PHD which, at that time, had not been returned. Mr Morris alleged that Mr Korchinski had not disclosed that he had the PHD during the meeting on 4 December ‘in answer to a direct question (asked more than once) namely, whether you had any property of AAS’. The letter asked what work he had required the PHD for and what application it had been ‘subjected to’. The letter also directed Mr Korchinski to return the PHD by close of business on 8 December 2006. Mr Korchinski returned the PHD to KAZ by courier on that day.
Use of PHD
28 As previously mentioned, Mr Korchinski was given the PHD, acquired by AAS, on 21 September 2006. He accepted that he probably first used it on 27 September 2006. This was after his remuneration and sign-on package had been agreed with CitiStreet, although the contract had not yet been signed. Mr Korchinski said he wanted the PHD so he could back up the files on his laptop which included both business and personal files. He believed he was entitled to make the backup and that access to the AAS network was ‘not sufficient for me to provide assistance during the transition should there have been a discussion about any item for which I had information on my laptop that was not on the network’.
29 He said that he later deleted all the files from the PHD because distinguishing between the business and personal files was time-consuming and that he assumed this would be acceptable since the information could still be found on his laptop. According to Mr Korchinski the deteriorating relations between him and KAZ made him concerned about the personal information he had on the laptop and the PHD. He stated:
‘I was very concerned that all my deleted personal information, particularly personal communications with CitiStreet that I had inadvertently saved onto my laptop may be examined in an attempt to try to find some reason not to pay my termination benefits’.
30 He said that on 6 December shortly before the KAZ people came to collect the equipment he was deleting files from the PHD which he had upstairs in his home. He said that he ‘copied a couple of video files onto the PHD in order to overwrite the deleted files’. After the KAZ people had gone and after receiving Mr Morris’ letter of 7 December referred to above at [27] he ‘decided to completely overwrite the PHD with a couple of large video files to minimise the likelihood that KAZ and AAS would retrieve my personal information’. For ‘an extra level of comfort’ he also reformatted the PHD before he returned it to the company.
Information on PHD
31 The PHD and the laptop returned by Mr Korchinski were both examined by McGrathNicol+Partners and Mr Mark Garnett prepared an expert report describing the process used to recover information from these items and the conclusions he was able to draw from their examination. In his report Mr Garnett stated that on the laptop he was able to identify Microsoft Word and Excel documents, Adobe PDF documents, Lotus Notes electronic datatbases, PowerPoint presentations and ZIP archives. He extracted all except the ZIP archives and copied them to a DVD.
32 Mr Garnett similarly examined the PHD. He said that it appeared to have been formatted at 00:49 hours on 8 December. Mr Garnett gave the following explanation about formatting a disk:
‘The process of formatting a disk does not actually delete any information contained on the disk itself. The process simply recreates a series of system files and discards the old system [files] that were present before the formatting took place. All of the data that existed on the disk would now reside in the unallocated area of the disk ...
I located data on the portable disk drive that consisted of system files that existed on the portable disk drive prior to the disk being formatted on 8 December 2006.’
33 Mr Garnett ’s conclusions following his examination of the PHD were as follows:
‘I The portable hard disk was provided to Mr Korchinski on 21 September 2006;
ii At some point after the disk drive was provided to Mr Korchinski, files, such as, but not limited to Microsoft Word, Excel and PowerPoint documents were copied to the portable disk drive;
iii At some later time these files were then deleted from the portable hard disk drive;
iv After this had taken place, other files such as music and video files were copied onto the portable disk drive and have "over-written" data previously contained on the disk drive;
v After this had occurred and at some time prior to 8 December 2006, the music and video files, as well as files of other types, were deleted from the portable hard disk drive by placing them into the Windows recycle bin; and
vi On 8 December 2006 at 00:49 hours, the portable hard disk drive was re-formatted.’
34 Mr Garnett copied the files he had located on the PHD to a DVD and arranged for this DVD and the DVD containing material from the laptop to be delivered to Mr Paul Almond of Clayton Utz who act for the applicants. In an affidavit sworn on 28 December 2006, Mr Almond states that he examined both these DVDs. That taken from the PHD contained 15,000 entries and, when printed, the list of files ran for approximately 700 pages.
Objections to evidence
35 Before moving to consider the evidence presented by the parties I must deal with some objections that Mr Goot SC, counsel for the applicants, had to parts of the affidavit evidence of Mr Korchinski. One objection was to the lack of relevance of some of Mr Korchinski’s comments. This evidence related to Mr Korchinski’s previous work experience, including during the sale of an HIH business to Allianz following which he was made redundant. I agree that this material is not relevant to the present application. Whilst Mr Korchinski’s previous experiences and the context of Link’s acquisition of AAS may go some way to explaining Mr Korchinski’s actions, they are not able to excuse any breach of Mr Korchinski’s duties to the applicants.
36 Counsel for the applicants further objected to several paragraphs in Mr Korchniski’s affidavit that purported to give evidence as to what aspects of the transition Mr Korchniski was required to assist with and as to his obligations to return property. The applicants submitted that this evidence was secondary and/or conclusory. Whilst I think that the objection to the secondary nature of this evidence is, in respect of some of the paragraphs, valid, all of the evidence is admissible as evidence of Mr Korchinski’s understanding, at the relevant time. I have dealt with this evidence on this basis. As I indicated at the hearing of this application, I am not minded to exclude evidence at this interlocutory stage on the basis that it is bad in form.
Reasoning and conclusion
37 Counsel for Mr Korchinski made much of the fact that, at all relevant times, he was employed by KAZ and not by the applicants. I attach little if any significance to this fact. The obligations of an employee do not arise from the contract of employment but from the fact of employment and the resulting relationship of trust and confidence between the parties. For all practical purposes this was the relationship that existed (or should have existed) not only between Mr Korchinski and KAZ but also, at the very least, between Mr Korchinski and AAS. In addition to being a former director of each of the applicants, the fact that he had confidential information of the applicants imposed its own obligations.
38 On the evidence presented at the interlocutory hearing I am satisfied that Mr Korchinski has been less than candid with the applicants in circumstances where his obligations required him to be open and direct. There can be no criticism of Mr Korchinski in seeking a new position even with a competitor of the applicants, however, while he was continuing in their service (even if formally employed by KAZ) he continued to owe fiduciary obligations to them. In the circumstances where he was expected to assist in the transition of the business from AAS to Link (irrespective of whether he was ever required to do anything) AAS was entitled to know that he had already accepted employment with a major competitor. This information could have been highly relevant to what, if anything, they asked him to do during the transition period.
39 Not only did Mr Korchinski not advise the applicants of his appointment by CitiStreet once it was settled but when asked about the rumours that he was about to accept a role with a competitor, he responded that he didn’t know what rumours ‘you are referring to’. As by then he had actually signed the contract with CitiStreet the response was disingenuous, to say the least.
40 I do not find his explanation of why it was necessary to download such an astonishing volume of material onto the PHD convincing. At that stage he had been working for the applicants for some years; it is not credible that at such a late stage the need for this degree of backup should have asserted itself – especially at a time when one might expect the intensity of his work to diminish. This make the timing of his acquisition and use of the PHD more difficult to explain especially when this occurred immediately after CitiStreet had made a formal offer in the same terms as were accepted on 5 October 2006.
41 It is also difficult to see why such extensive backup would be necessary when, on his own evidence, he was told that he could work from home, or indeed from Canada, as long as he had access to the network and Lotus Notes. While it is tolerably clear that during the transition period Mr Korchinski was expected to be available to assist with transition, he was not in fact required to do any work, his own account seems to suggest that he did do some work. It is difficult to understand why this should have been such an issue unless Mr Korchinski wanted to bolster his account of why it was necessary to use the PHD as he did.
42 Similarly Mr Korchinski’s professed concern to protect his personal information is not persuasive. KAZ had repeatedly said that it was not interested in his personal information and it is difficult to see why they would be interested. Nevertheless I understand the privacy urges that might make one try to delete personal information before returning equipment. Mr Korchinski did this with the laptop (apparently to his satisfaction) but it was not until Mr Morris indicated that he knew of the PHD's existence that Mr Korchinski made strenuous efforts not only to delete the information on the PHD but also to ensure that it could not could not be retrieved by experts. There is an inconsistency in Mr Korchinski’s approach to personal information on the laptop and on the PHD which suggests that, in relation to the PHD, his concern might have extended beyond personal information.
43 It is not surprising that the applicants’ suspicions were aroused. Not only did Mr Korchinski's behaviour suggest that he had some hidden agenda but his statements in evincing skepticism about whether he had any obligations to the applicants (see[21]- [22] above) would reasonably have exacerbated those suspicions. In the circumstances it is not unreasonable for the applicants to be apprehensive about his intentions with regard to the information he had downloaded to the PHD.
44 Had Mr Korchinski not returned the PHD the evidence of the applicants would have been sufficient to make a prima-facie case for the grant of an injunction and, possibly, the relief they seek. Mr Goot submitted that Mr Korchinski took the confidential information of the applicants ‘with the intention of using it in his employment with a competitor, CitiStreet’. On the evidence before me I think this is probably correct however the fact remains that the PHD and the laptop had been returned to the applicants and there is no evidence to support their suspicions that Mr Korchinski has retained the relevant information in some form or other.
45 Mr Goot submitted that I could take judicial notice of the fact that the PHD must be used in conjunction with a computer. He pointed out that on Mr Korchinski's evidence when the KAZ personnel and Mr Garnett came to collect the applicants’ equipment, the laptop was downstairs in Mr Korchinski's kitchen while the PHD was upstairs where Mr Korchinski had been deleting files from it. Mr Goot submitted that it followed from this that Mr Korchinski had a computer upstairs and it was likely that information was transferred to that computer. Certainly this is possible but the only evidence as to the use of the PHD at that time is that Mr Korchinski was deleting files from it not transferring information from it to another repository. The only evidence relevant to this point is the sworn statement of Mr Korchinski who, in paragraph 130 of his affidavit sworn on 5 January 2007 states:
‘Apart from backing up my laptop computer on to the PHD I have not used, transferred, transmitted, disclosed or divulged the contents of the laptop or PHD or the files thereon to anyone other than discussing it with my legal advisers for the purposes of defending this action brought against me. I have not had the information ... since I returned to the laptop and deleted the files from the PHD.’
46 In the absence of any evidence that
Mr Korchinski retains some or all of the confidential information of the
applicants, the applicants
have not succeeded in presenting a prima facie case
in support of the relief they seek. For this reason the orders sought in the
applicants amended notice of motion must be refused and for that reason it is
not necessary for me to consider the balance of convenience.
As the applicants
have not been able to mount a prima facie case for the relief they seek, there
is no reason why the normal order
as to costs should not apply.
Associate:
Dated: 15
January 2007
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Solicitor for the Applicant:
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Counsel for the First Respondent:
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Solicitor for the First Respondent:
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Counsel for the Second Respondent:
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K Richardson
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Solicitor for the Second Respondent:
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Blake Dawson Waldron
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Date of Hearing:
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Date of Judgment:
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URL: http://www.austlii.edu.au/au/cases/cth/FCA/2007/12.html