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Spotless Group Limited v Blanco Catering Pty Ltd [2011] FCA 979 (24 August 2011)
Last Updated: 6 September 2011
FEDERAL COURT OF AUSTRALIA
Spotless Group Limited v Blanco Catering
Pty Ltd [2011] FCA 979
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Citation:
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Parties:
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SPOTLESS GROUP LIMITED ACN 004 376 514,
SPOTLESS SERVICES AUSTRALIA LIMITED ACN 005 309 320 and SPOTLESS MANAGEMENT
SERVICES ACN 099
129 790 v BLANCO CATERING PTY LTD ACN 007 977 497 and PAUL
REYNOLDS
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File number:
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VID 70 of 2010
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Judge:
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MANSFIELD J
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Date of judgment:
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Catchwords:
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INTELLECTUAL PROPERTY – copyright
– original works in which copyright subsists – where infringement of
that copyright occurred by reproduction
of the form and presentation of certain
template documents used for financial modelling
INDUSTRIAL LAW – duty of good faith owed by an employee
– whether defendant disclosed confidential information of the employer to
a
competitor in which he had an interest
EQUITY – remedies – misuse of confidential information
– avoiding duplication of damages where breach of duties owed as
employee
found, as well as breach of copyright
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Legislation:
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Cases cited:
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1, 2 November 2010 and 10 December 2010 |
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Place:
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Adelaide
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Division:
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GENERAL DIVISION
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Category:
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Catchwords
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Number of paragraphs:
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150
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Counsel for the Applicants: |
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Solicitor for the Applicants:
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Clayton Utz
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Counsel for the Second Respondent:
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N Strawbridge
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IN THE FEDERAL COURT OF AUSTRALIA
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SOUTH AUSTRALIA DISTRICT REGISTRY
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SPOTLESS GROUP LIMITED ACN 004 376
514First Applicant
SPOTLESS SERVICES AUSTRALIA LIMITED ACN 005 309 320
Second
Applicant
SPOTLESS MANAGEMENT SERVICES ACN 099 129 790
Third
Applicant
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AND:
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BLANCO CATERING PTY LTD ACN 007 977
497First Respondent
PAUL REYNOLDS
Second Respondent
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DATE OF ORDER:
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WHERE MADE:
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THE COURT ORDERS THAT:
- The
second respondent, whether by himself, his servants or agents or any companies
controlled by him, be restrained for a period of
three years from the date of
these orders from using or disclosing the financial model templates of the
applicants in the form used
and attached to any of:
(a) the email of
22 August 2009 from Paul Reynolds Alliance Catering email account to
christopher.horner@blancofood.com.au which attached
an Excel spreadsheet with
enclosed financial information;
(b) the two emails of 30 July 2009 and an email of 1 August 2009 from the
said account to Mr Blanco: steve@italiancentre.com.au which
attached financial
models that set out financial information in relation to the Zoo project;
(c) the two emails of 27 and 28 August 2009 from the said account to Mr
Blanco: steve@blancofood.com.au which attached a financial
model that set out
financial information in relation to the Zoo project.
- The
second respondent, whether by himself, his servants or agents or any companies
controlled by him, be restrained for a period of
three years from the date of
these orders from approaching or causing to be approached any of the customers
(or former customers)
of any of the applicants with the intention of inducing
such customers (or former customers) to deal with him (whether by himself,
his
servants or agents, or any companies controlled by him or in which he has an
interest, or otherwise howsoever) in any way which
involves use or disclosure of
either of the financial model templates referred to in Order 1 hereof or the
information contained
in either of the said financial model templates.
- Within
seven days, the second respondent deliver up to the applicants all documents and
every other recording under his possession,
power or control containing the
information the subject of Order 1 hereof or any part of it.
- Within
seven days, the second respondent serve an affidavit on the applicants which
confirms that he has delivered up to the applicants
all documents and every
other recording under his possession, power or control containing the
information the subject of Order 1
hereof.
- The
second respondent pay to the third applicant damages of $100,000.
- The
applicants and the second respondent have liberty to file and serve such written
submissions as to costs as they may be advised:
(a) the applicants
within 14 days of the date of these orders;
(b) the second respondent within 14 days of the service of the
applicants’ submissions;
(c) the applicants reply within a further seven days of the date of service
of the second respondent’s submissions to the intent
that the Court will
make an order for costs of the proceedings after consideration of the written
submissions as to costs.
Note: Entry of orders is dealt with in Order 36 of the Federal Court Rules
2011.
IN THE FEDERAL COURT OF AUSTRALIA
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SOUTH AUSTRALIA DISTRICT REGISTRY
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GENERAL DIVISION
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VID 70 of 2010
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BETWEEN:
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SPOTLESS GROUP LIMITED ACN 004 376 514
First
Applicant
SPOTLESS SERVICES AUSTRALIA LIMITED ACN 005 309 320
Second
Applicant
SPOTLESS MANAGEMENT SERVICES ACN 099 129 790
Third
Applicant
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AND:
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BLANCO CATERING PTY LTD ACN 007 977 497
First
Respondent
PAUL REYNOLDS
Second Respondent
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JUDGE:
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MANSFIELD J
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DATE:
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24 AUGUST 2011
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PLACE:
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ADELAIDE
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REASONS FOR JUDGMENT
INTRODUCTION
- Much
of the factual background to this claim is uncontentious.
- Paul
Reynolds was, until 21 October 2009, employed by Spotless Management Services
Pty Ltd (Spotless Management). He had, prior
to 25 February 2008, been employed
by Spotless Services Australia Limited (Spotless Services) for some time. Both
Spotless Management
and Spotless Services are wholly owned subsidiaries of
Spotless Group Limited (Spotless Group). Where it is convenient to do so,
I
shall refer to the applicants together as Spotless. It may be necessary to
differentiate between them only in relation to the
quantification of the loss of
the claim against Mr Reynolds, if that claim succeeds to any significant
extent.
- Between
26 February 2008 and the termination of his employment on 21 October 2009, Mr
Reynolds was the State Operations Manager South
Australia and Western Australia
in the Alliance Catering business of Spotless.
- Alliance
Catering is one of the two business units in the Food Division of Spotless. The
other business unit is the Hospitality
and Retail Catering business unit. The
Alliance Catering business unit provides for catering primarily to institutional
clients
such as schools, universities, colleges and aged care facilities. The
Hospitality and Retail Catering business unit focuses primarily
on events and
function catering. The Hospitality and Retail Catering business operates under
various specialist sub-brand names
including, in South Australia, Epicure
Catering.
- As
the State Operations Manager South Australia and Western Australia of the
Alliance Catering business, Mr Reynolds was responsible
for managing retail
managers and operations managers in South Australia and in Western Australia as
well as dealing with clients,
financial reporting, business development and
asset management in those States. He was the highest ranking employee in the
Alliance
Catering business unit in South Australia and Western Australia. He
reported to Hamish Cook, who was then the General Manager of
the Alliance
Catering business unit, located in Melbourne. In South Australia, the Alliance
Catering business unit generated revenue
of over $M30 per annum and employed
approximately 300-400 employees in the period of 2009.
- Mr
Reynolds’ prior position was as Regional Operations Manager South
Australia in the then Business Education and Aged Care
business unit of
Spotless. He had held that position since or around January 2007. That
business unit was the precursor to the
Alliance Catering business unit. In that
earlier position, his responsibilities were similar to those he had as the State
Operations
Manager South Australia and Western Australia for the Alliance
Catering business unit, but were confined to South Australia.
- At
some time during his employment, Mr Reynolds began to plan, or explore the
prospect of, a future either in different employment
or working on his own
behalf. There is, of course, no reason why he should not do that. In the
course of doing so, he came into
contact with Steve Blanco, one of the directors
and an operator of Blanco Catering Pty Ltd (Blanco Catering). It is Mr
Reynolds’
dealings with Mr Blanco and Blanco Catering in the period from
about July 2007 until October 2009 which gives rise to this claim.
It will be
necessary to refer to those dealings later in these reasons.
- Spotless
came to learn something about those dealings in late September 2009. On
25 September 2009, Frank Kite, the Spotless principal
representative in
South Australia, informed Mr Cook that someone had raised concerns that either
Mr Reynolds or his wife Jane Reynolds
may have an interest in a rival catering
company, Blanco Catering. Mr Cook promptly obtained a company search for Blanco
Catering
which revealed that Ms Reynolds was a director of that company. He
organised a meeting with Mr Reynolds on that date and put that
information to
him.
- Mr
Kite was particularly concerned on behalf of Spotless about what he had heard,
because the Hospitality and Retail Catering business
unit of Spotless was,
through its business Epicure Catering, then in the process of bidding for a
significant long term catering
contract to support conference facilities being
developed at the Adelaide Zoo (the Zoo project), and that Blanco Catering was
also
a tenderer for the Zoo project.
- At
the meeting on 25 September 2009, Mr Cook twice asked Mr Reynolds whether he had
been involved in Blanco Catering’s bid
for the Zoo project and whether he
had helped with the Blanco catering bid. Mr Reynolds was somewhat ambivalent.
He said he did
not know a lot about it. He said that he had not been involved
in meetings or correspondence specifically in relation to the Zoo
project. He
said that he had some conversations with Mr Blanco over a beer about how
those contracts work. It is plain, as he acknowledged
in evidence, that his
responses were somewhat disingenuous.
- Subsequent
investigation by Spotless of Mr Reynolds’ work computer and emails records
indicated to Spotless that Mr Reynolds’
involvement with Blanco Catering
was more significant than he had indicated at that meeting. That too was
acknowledged by Mr Reynolds
in the course of the evidence.
- Consequently,
on 21 October 2009 following further meetings with Mr Reynolds on 6 and 19
October 2009, Spotless terminated Mr Reynolds’
employment.
- Further
detailed analysis of Mr Reynolds’ laptop computer and electronic storage
device revealed that Mr Reynolds:
(a) through a trustee company
Chresby Nominees Pty Ltd owned 33.3% of Blanco Catering, and had acquired that
interest about 1 July
2009;
(b) had, since about November 2007, been actively communicating with Mr
Blanco and, as the evidence showed, had assisted in getting
business for Blanco
Catering. From Spotless’ viewpoint, the most significant of those matters
was his assistance to Blanco
Catering in direct competition in relation to the
Zoo project. Those activities had been undertaken whilst Mr Reynolds was
employed
by Spotless.
(c) had been providing Blanco Catering with a substantial amount of
information concerning the way the Spotless business operated,
including
confidential customer and supplier information, some proprietary financial
models and (as I find below) some sensitive
financial information concerning
Spotless’ bid for the Zoo project.
- This
proceeding was then commenced against both Blanco Catering and Mr Reynolds in
February 2010. Spotless has since settled its
claim against Blanco Catering.
The order reflecting that settlement involved the proceeding against Blanco
Catering being dismissed,
subject to Blanco Catering submitting to an injunction
restraining it from using any confidential information of Spotless (defined
by
reference to paragraph 9 of the Statement of Claim of 9 February 2010) to
approach any customer of Spotless, and requiring it
to deliver up all documents
containing any Spotless confidential information. Blanco Catering also agreed
to pay Spotless $75,000
on account of its costs. Those orders were made by
consent on 28 October 2010. I assume they have been complied
with.
THE CLAIM
- Spotless
claims against Mr Reynolds are based upon
(a) breach of his
employment obligations, namely his obligations under ss 182(1) and 183(1) of the
Corporations Act 2001 (Cth) (the Corporations Act), by reason of
his fiduciary duties owed to Spotless or by reason of the implied terms of his
contract of employment as well as the
express terms of his contract of
employment; and
(b) breach of Spotless’ copyright under the Copyright Act 1969
(Cth) (the Copyright Act).
- There
is no real dispute about the applicable legal principles. The dispute lies in
their application to the facts as ultimately
found to be.
- The
Spotless claims against Mr Reynolds on the grounds or causes of action referred
to in (a) of [15] specified above substantially
overlap: see Griffiths &
Beerens Pty Ltd v Duggan [2008] VSC 201; (2008) 66 ACSR 472 at [53] per Pagone J. Sections
182(1) and 183(1) of the Corporations Act respectively prohibit employees
from improperly using their positions, or from using information obtained
because they were employees,
to gain an advantage for themselves or others or to
cause a detriment to the employer. Those statutory obligations have been said
to reflect the fiduciary duty of loyalty, fidelity and good faith, extending to
an obligation to treat confidential information as
such and not to disclose it
to competitors: see Woolworths Ltd v Olson [2004] NSWSC 849; (2004) 184 FLR 121 at [218]
per Einstein J. That is consistent with an employee’s obligations to
avoid conflicts of interest and to act in the best interests
of the employer.
Accordingly, and consistent with the submissions made in this matter, it is
appropriate for the Court to examine
the breaches of the statutory and fiduciary
duties without any refined distinction between those duties or their
jurisprudential
sources. The same approach applies to the claim for breach of
the implied terms of Mr Reynolds’ employment, which relevantly
do no more
than reflect the fiduciary duties to which all employees are subject.
- The
express terms of Mr Reynolds’ contract of employment are recorded in an
employment agreement that he signed on 1 March
2008. That agreement, too,
expressly preserves the implied obligations of good faith and fidelity. It also
contains an express
provision preventing the disclosure of confidential
information in the following terms:
It is agreed that, without limiting any express or implied obligation of
confidentiality upon which you under any statute (including
the Corporation Law)
you undertake that you will not divulge to any person or use any trade secrets
or confidential information concerning
the business, financial arrangements or
any financial information, which is not publicly available, except with the
written consent
of [Spotless]. This obligation extends beyond your employment
with Spotless. In particular circumstances, you may be required to
enter into a
specific confidentiality agreement with Spotless or a customer of
Spotless.
Spotless took the position, in my view appropriately, that the express
contractual obligations do not extend the implied common law/equitable
obligations imposed upon an employee in any meaningful way so far as the facts
in this matter are concerned, and that the express
statutory obligations have a
similar co-extensive scope. Accordingly, it is not necessary, at least to the
point of making any orders
which are determined to be appropriate, to further
address the several specified causes of action discretely. Clearly, the
critical
steps are to identify what Mr Reynolds has done of which Spotless
complains, and to measure that conduct against the obligations
referred to. It
is helpful to make some further general observations before addressing those
steps.
- In
the High Court in Doyle v Australian Securities and Investments Commission
[2005] HCA 78; (2005) 227 CLR 18 at [35] per Gleeson CJ, Gummow, Kirby, Hayne and Callinan
JJ, it was said that impropriety:
... consist in a breach of the standards of conduct that would be expected of a
person in his position by reasonable persons with
knowledge of the duties,
powers and authority of his position ... and the circumstances of the case,
including the commercial context.
- It
is obvious, therefore, that Mr Reynolds’ status as a senior employee of
Spotless is significant because the duties which
are imposed upon such employees
are more exacting than would be expected of more junior employees: Deeson
Heavy Haulage Pty Ltd v Cox [2009] QSC 277; (2009) 82 IPR 521; Canadian Aero Service Ltd
v O’Malley (1973) 40 DLR (3d) 371 at 382.
- Mr
Reynolds, as a senior employee of Spotless, clearly owed Spotless a duty not to
put himself in the position where his personal
interests conflicted with his
duty to his employer, and not to take advantage of opportunities or knowledge
derived from his position
as an employee for his own benefit or for the benefit
of those whom he knew were competing with Spotless: Warman International Ltd
v Dwyer [1995] HCA 18; (1995) 182 CLR 544 at 557. The scope of those duties is
illustrated, for example, by Sanders v Parry [1967] 1 WLR 753 at 765, in
the context of analysis of the scope of a fiduciary relationship.
- On
the other hand, an employee is entitled to make some preparation for the conduct
of a new business of that employee in competition
with the employer, even whilst
still employed. Such preparations should not be made in the employer’s
time, and should not
interfere with the employee’s duties to the employer.
McClelland J in United States Surgical Corp v Hospital Products International
Pty Ltd [1982] 2 NSWLR 766 recognised the line to be drawn in a discussion
in that case where his Honour said at 807:
... the key to this proposition lies in the word “merely” ... [and]
the failure by an employee to disclose to his employer
his preparations to
compete may constitute a breach of the employment contract ... depending upon
... the nature of the acts of preparation,
the effect of non-disclosure ... and
the motive of the employee.
- Clearly
enough, the removal of information from an employer’s computers prior to
leaving may also be a breach of good faith:
Freedom Motors Australia Pty Ltd
v Vaupotic [2003] NSWSC 506 at [65]. That may depend upon the nature of the
information. Where such documents are obtained surreptitiously, the employee
should not
be able to obtain an advantage from the use of that information: see
Print Investments Pty Ltd v Art-Vue Printing Ltd (1983) 1 IPR 149. The
circumstances in which the documents are taken may indicate something about the
significance of their content or that their
intended use is improper.
- In
the present case, the particular allegations concerning Mr Reynolds’
actions are that he:
(a) used the employer’s time at Spotless
to advance his own interests because he was planning to become involved in the
Blanco
Catering business, including by directing business opportunities to
Blanco Catering when (Spotless says) that was an area of business
it was
interested in;
(b) took and used confidential business templates of Spotless to assist him
in soliciting business opportunities for Blanco Catering;
and
(c) directed business opportunities to Blanco Catering when (Spotless says)
that was an area of business it was interested in.
Spotless contends that, at the time of that alleged conduct, Mr Reynolds
intended to terminate his employment with Spotless and then
to compete with
Spotless. It is appropriate then that his activities be closely scrutinised
prior to the termination of employment.
That focus will extend to any activity
by Mr Reynolds involved in canvassing the customers of Spotless on behalf of
Blanco Catering.
It is no excuse in such circumstances to respond that it was
the third party who initiated the proposal to transfer the business,
or to take
the business. In such circumstances, the employee should simply cease the
conversation and seek the customer for his
then current employer: Sanders v
Parry [1967] 1 WLR 753 at 765.
- It
is plain that an employee is not entitled to use knowledge of opportunities or
other advantages arising out of their employment
to make personal gain: Robb
v Green [1895] 2 QB 1, certainly without the informed consent of the
employer. That extends to the use of trade secrets or other less confidential
information
obtained during employment for personal advantage, provided the
information was not routinely available in the market place. In
Esme Pty Ltd
v Parker [1972] WAR 52, an employee used his knowledge of his
employer’s quotation techniques to tender for a contract in competition
with his employer.
His conduct was found to be in breach of duty even though
his employer’s quotation was unlikely to have been accepted in any
event,
regardless of the tendering by the employee. In Coordinated Industries v
Elliott (1998) 43 NSWLR 282 at 287, it was said that where knowledge of a
business opportunity was acquired in the course of employment, which opportunity
may
never have been pursued by the employer, it is enough to show that such
knowledge was gained in the course of the employment to prevent
the employee,
without proper disclosure, from using it. It is enough that it was knowledge of
an opportunity which could have been
used “in the sense that it was
relevant to the acquisition or profit or benefit in fact acquired”:
Green Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1.
- An
employee may not use the time for which he is paid by the employer in furthering
his own interests. Lord Green in Hivac Ltd v Park Royal Scientific
Instruments Ltd [1946] Ch 169 at 175 (Hivac) emphasised that an
employee, in such circumstances, would be in breach of the ordinary obligations
owed by an employee to employer
to act in the employer’s interests and not
use the time for which he is paid by the employer in furthering his own
interests.
Counsel for Spotless argued, following from that proposition, and
relying upon it, that the employee’s obligation of fidelity
extends even
to his spare time. I think that proposition is stated too widely, if it was
intended to convey that (for instance)
Mr Reynolds in his own time could
not have developed a business model and documentation, including proposed tender
documentation,
to conduct a business in competition with Spotless. That conduct
might involve a breach of duty if it involved improper use of records
or
documents of Spotless. I do not think it would do so if Mr Reynolds used only
resources which he himself created or which were
publicly available. However,
confidential information cannot be used for such a purpose, even if taking
advantage of the employer’s
confidential information was done in the
employee’s own time. Each case must be determined in its own particular
circumstances.
In Hivac, the Court found on the facts that the
activities of the employees would inevitably result in damage to the employer if
an entity
for which the employees worked for in their spare time was successful
in its attempt to compete with the employer. The Court weighed
up the probable
consequence of building up a rival business to the prejudice of the goodwill of
the employer’s business, against
the right of an employee to make use of
his leisure for his profit.
- The
entitlement of an employee to use information obtained in the course of
employment after leaving that employment will depend
upon the nature of the
information, and the manner in which it is obtained by the employee. The
general rule is that, after the
employment relationship has ended, a former
employee may use know-how obtained in the course of the prior employment. He
may not,
however, use information of a confidential nature. The situation is
different if the information in question, even though it is
not strictly
speaking confidential information of the employer, is deliberately taken or
copied by the employee while the employment
relationship persists for use after
the employment relationship ceased: Faccenda Chicken Ltd v Fowler [1987]
Ch 117 at 136. In that case, a former employee was prevented from using the
employer’s know-how or non-confidential information that
might otherwise
have been available for use after termination of the employment relationship,
because the information and the advantage
that flowed from it was obtained
through dishonesty. In such a case, the wide duty of fidelity was said to
survive the termination
of the contract of employment so that equity will
prevent the employee from enjoying the fruits of such conduct.
- The
particular conduct of Mr Reynolds of which Spotless complains is detailed in
[22] of the Statement of Claim. That conduct may
conveniently be broken up into
several categories, some generic and some concerning particular transactions.
The categories are
as follows:
(1) The general plan to become
involved in Blanco Catering and the conduct leading to that involvement.
(2) The diversion of business opportunities from Spotless to Blanco Catering,
including concerning:
(a) the University of Adelaide;
(b) the “Eagle Tour 09”;
(c) the coffee shop at 25 Grenfell Street, Adelaide;
(d) the Johnson’s Control tender;
(e) the Botanic Gardens tender; and
(f) the Zoo project.
(3) The provision of confidential information of Spotless to Blanco Catering,
including:
(a) Spotless price lists, and client contact lists and client
information;
(b) Spotless letters of appointment and position descriptions.
(4) The misuse of his employment time to carry out the activities referred to
above.
- I
shall deal separately with the Breach of Copyright
claim.
EVIDENCE AND FINDINGS
- It
is first necessary to make some observations about the witnesses.
- I
accept that each of the Spotless witnesses was truthful and generally reliable.
In one or two relatively minor respects, I considered
that the Spotless case was
a little overstated, perhaps prompted by the understandable perception that Mr
Reynolds had been seriously
in breach of his obligations to Spotless over the
last two years of his employment.
- Spotless
submitted that the Court should be cautious about accepting Mr Reynolds’
evidence where it is uncorroborated by other
evidence, and that he was prepared
to provide false justification for his conduct. I accept that much of Mr
Reynolds’ evidence
in cross-examination was guarded, but I did not
conclude from that that he was deliberately misleading the Court. In my view,
Mr
Reynolds’ evidence reflected the fact that he was aware of his duties
to Spotless when he first started to plan a career away
from Spotless (as he was
entitled to do), but that over time and more particularly as the time for his
intended resignation became
closer he had a diminished perception of the extent
of those responsibilities and so acquired an impaired judgment about what he
should or should not have done to satisfy those responsibilities. That is
particularly so in the last six months of his employment
by Spotless, when (as
he acknowledged) he was stringing out his employment in part to tie in with the
potential awarding of the contract
for the Zoo Project and in part to qualify
for pro rata long service leave. With the wisdom of hindsight, as his
cross-examination
showed, over that last six months or so, he was forced to
acknowledge that he had to some degree crossed the line of propriety.
Particularly in relation to his evidence dealing with that period of time, I am
cautious about relying on his uncorroborated testimony.
I nevertheless do not
think he was deliberately untruthful. I consider that his evidence reflects the
fact that he was not, at
the time of the impugned conduct, deliberately
transgressing the line of propriety but that before or during his evidence he
realised
that he may have done so and was therefore endeavouring to explain why
he did not earlier have that view. In respect of the earlier
period of some 18
months or so, I was not struck in the same way by his evidence having a
significant element of defensiveness.
Consistent with my view, I have placed
greater weight on his evidence about events during that time. In the event, I
do not think
that, with one qualification, Mr Reynolds’ evidence about
what he did and why he did it requires me to accept his uncontroverted
evidence
or alternatively find that he was deliberately untruthful. The conduct speaks
for itself, and it is in the Court’s
assessment of that conduct which
informs the conclusion on the Spotless claims and the consequences of the
successful claims.
- The
one qualification referred to in the preceding paragraph concerns the claim that
Mr Reynolds used work time or after hours to
further the interests of himself or
Blanco Catering, when that time should have been spent on fulfilling his
employment responsibilities
with Spotless. Necessarily, such a claim is hard to
establish without time sheets or other documentary material. It largely turns
on my assessment of Mr Reynolds’ evidence. In my view, Mr Reynolds
at all times was conscious of his obligation to spend his
employment time
fulfilling his employment responsibilities to Spotless. His working hours were
not fixed. He often worked outside
of normal hours. There is nothing to
suggest that he did not work long hours for Spotless or that he compromised the
performance
of any of his responsibilities to Spotless by spending time in his
own interests. That is consistent with the evidence of Mr Cook,
and that
of Aaron Bond, who said Mr Reynolds was usually in the office before him and
usually left after him. I am not satisfied
that, even in relation to his
activities or to the conduct concerning the matters referred to in [28(4)]
above, he allowed his personal
interests to compromise the time he spent or
should have spent otherwise on serving Spotless’ interests. It is shown
that
on a few occasions in relation to the Botanic Gardens tender referred to at
[28(2)], those activities occurred during normal working
hours. But I accept
Mr Reynolds’ evidence that when he spent such time during normal
working hours, he was very conscious
of ensuring that he did not thereby
compromise in any way any of the work that he did for Spotless. I accept he
worked long hours,
often until late at night, and that the nature of his duties
with Spotless enabled him to do so effectively. Even in the last six
months or
so of his employment, whilst his judgment about what was proper in relation to
the matters referred to in [28] above might
have been compromised, I was
persuaded by his evidence that, in terms of the time commitments necessary to
otherwise perform his
duties effectively, he did not compromise them.
- Accordingly,
I am not persuaded that the matter set out in [24(a)] and [28(4)] above is made
out, or that any claim for damages based
upon Mr Reynolds failing to work the
hours required of him, or during the hours required of him, should succeed.
- I
accept the evidence of Mr Cook who was from June 2008 the General Manager of
Alliance Catering and from July 2010 the Group General
Manager International
Services of Spotless. Much of the uncontentious findings above are based on his
evidence, including the events
from 25 September 2009 leading to Mr
Reynolds’ purported resignation on 2 October 2009 on one month’s
notice and then
the termination of his employment by letter of 21 October
2009.
- Understandably,
Mr Cook was concerned that the investigations of material from Mr Reynolds
work hard drive, his laptop and his emails,
showed that Mr Reynolds had used, or
more correctly, had provided to Blanco Catering, financial modelling belonging
to Spotless as
the basis for the modelling of financial information from Blanco
Catering, that Spotless documents had been provided to Blanco Catering,
and then
had been re-badged but otherwise copied as Blanco Catering’s documents,
including some work sheets of the financial
modelling referred to, and that Mr
Reynolds had been engaged in discussions with Blanco Catering to acquire an
interest in its business
for some extended period of time. There is little
doubt that the following is demonstrated by the documents to which he
referred:
(1) on 24 November 2008, Steve Blanco provided to Franco
Boscaini of Boscaini Commercial Property Consultants Pty Ltd in relation
to
Blanco Catering’s expression of interest in relation to the Zoo project a
profile of Mr Reynolds as a person involved with
Blanco Catering;
(2) Mr Reynolds had stored the letter of 3 August 2009 from Blanco Catering
to Mr Boscaini expressing interest in the Zoo project,
and including
revenue forecasts for the conference/function centre at the Adelaide Zoo and, a
rent proposal, and details of its three
partners including Jane Reynolds (no
specific mention is made of Mr Reynolds);
(3) a further email from Mr Blanco to Mr Reynolds of 27 November 2008
reporting on discussions apparently with Mr Boscaini, and indicating
that Blanco
Catering was aware of the Spotless interest in the Zoo project and itself wanted
to participate in it;
(4) the Blanco Catering proposal for the Botanic Gardens tender dated April
2009 in which included in the annexures or appendices,
under the heading
“Profiles – Key Personal”, and made mention of Mr Reynolds
with a brief CV (with no reference
to his current employment with Spotless) (NB:
it is not suggested that that document is derived from any document of
Spotless);
(5) an email from Ms Kate Punshon apparently of the Botanic Gardens to Mr
Reynolds at an email address “paul.reynolds@blancofood.com.au”
seeking information in relation to the Botanic Gardens tender in response to a
brief email from Mr Reynolds to Ms Punshon on 14 September
2009 suggesting
a further discussion and that he was finalising some changes to the proposed
documents;
(6) a document entitled “Botanic Gardens & Blanco Catering –
review meeting” concerning a meeting of 18 September
2009 at which Mr
Reynolds was one of the attendees from Blanco Catering, and a series of items
were discussed and forward planned
for follow-up partly through Mr Reynolds.
- Mr
Cook makes the point that it appeared from those documents that Mr Reynolds had
used Spotless documents and information, some
of which he considered to be
confidential, for the benefit of Blanco Catering; that he had been in
negotiations to acquire an interest
in Blanco Catering when it was a key
competitor of Spotless; and that such conduct took place during the time that he
was working
theoretically exclusively for Spotless. It will be necessary to
look at those documents in more detail in relation to the first
of those
allegations. I do not think that the arrangement between Mr Reynolds and
Spotless under the terms of his employment necessarily
precluded him from
discussing with another competitor of Spotless in the catering supply business
in South Australia to undertake
employment with that competitor, although of
course it may have precluded him from undertaking certain activities in relation
to
that activity. I have also already rejected the proposition that
Mr Reynolds did not fulfil his work obligations fully in terms of
the hours
and times he worked for Spotless.
- The
document referred to in [36(1)] above had been copied to Mr Reynolds. It
referred to enclosed documents including the profile
of Mr Reynolds, clearly to
add to the experience of Blanco Catering. The email also
commented:
I would also like to request the commercial confidence between yourself and the
Zoo’s administration of Paul’s involvement
at this
stage.
The enclosures included an eight page summary proposal concerning the Zoo
project, a lengthy capability statement provided by Blanco
Catering with a
series of referrals and descriptions as to its role, a lengthy presentation on
the Italian Centre which, apparently,
was at the time operated by Blanco
Catering, and the one page profile of Mr Reynolds’ skills and
qualifications, including
his role as currently managing commercial catering
operations across South Australia and Western Australia for Alliance Catering.
Lest it be thought that Blanco Catering was a minor business, that other
documentation, describes Blanco Catering as a significant
caterer in the South
Australian catering market, having won the 2008 National Event Caterer of the
Year, Caterer of the Year 2003,
Event Caterer of the Year 2003, 2004, 2005 and
2007, and the Hall of Fame 2006 Restaurant and Catering SA Awards for
Excellence.
It is clearly a significant enterprise.
- Financial
modelling was routinely used by Spotless, and completed by Mr Reynolds as part
of his role, to seek approval to undertake
particular business proposals. It
was part of the routine management structure of Spotless. Mr Cook was entitled
to reject a proposal
based upon financial modelling. For instance, he rejected
Spotless’ proposed running of a coffee shop at 25 Grenfell Street,
Adelaide notwithstanding that, apparently, financial modelling suggested that it
would be profitable. He did point out that Spotless
did run some retail
businesses, including coffee outlets, either by direct ownership or by
management for the owner.
- Mr
Cook referred to financial modelling documentation of Spotless by a template
used until about June 2009 and a new template thereafter.
It is a “living
document” regularly updated over time. It is used by Spotless employees
to cost business opportunities
and to develop quotations on behalf of Spotless.
It contains, through the model, a range of information which includes
Spotless’
profit margins and costs/revenue assumptions, and other key data
which (Mr Cook said), if used by competitors of Spotless, it would
enable them
to understand Spotless’ pricing mechanics and thereby ensure that they
were cheaper based on costs or the best
tender based on rental paid. He
describes them as confidential documents which should not be provided to a
competitor of Spotless.
He was not challenged as to that evidence.
- A
further concern of Mr Cook was the fact that Mr Reynolds sent to Ms Reynolds by
email contact lists containing details of the customers
of Spotless. He did so
by emails dated 10 and 20 August 2009 and 1, 4 and 14 December 2009. At about
August 2009, the Spotless
computer system changed so that customer contact
details located on an employee’s computer could not be synchronised to
their
mobile phones. That was to improve the security of the Spotless computer
system and to control the flow of that information. The
details of Spotless
customers are, understandably, regarded as confidential to Spotless. In a
competitive Australian market, those
details if available to a competitor would
enable a competitor to identify the correct person within each organisation to
contact
to discuss potential contractual relationships, and (it is said) give
those competitors a greater understanding of the whole market
within which
Spotless operates. Mr Cook said that “newer entrants” into the
Australian catering market would not have
ready access to that information.
There is a dispute between Mr Reynolds and Mr Cook as to whether
Mr Reynolds at about that time
told Mr Cook that he would forward those
lists to his wife by email as his Spotless phone could not synchronise with the
Spotless
systems and it was necessary for him to have the customer lists at home
to be able to synchronise with his home computer. I do not
think it is
necessary to go into those allegations in any detail. Mr Cook acknowledged
that, since Mr Reynolds left Spotless’
employment on 21 October 2009,
Spotless was not aware that Mr Reynolds had got any business from any of those
listed customers of
Spotless in any event. Nor was there any suggestion that he
had approached any of them. Whilst the conduct may or may not be significant,
it did not produce any loss to Spotless. On the other hand, it is too long a
stretch to conclude that Mr Reynolds intended to make
use of that list of
customers in any improper way. As I have found, he was aware of his
responsibilities to Spotless and generally
sensitive to them albeit, over the
last several months leading up to the termination of his employment, he had a
somewhat elastic
view as to the nature of those responsibilities for the reasons
which I have given. Mr Cook was not re-examined on that part of
his evidence.
- Mr
Cook also referred to price lists of Spotless. In particular, he referred to an
email from Mr Reynolds to Christopher Horner
at Blanco Catering of 11 August
2009 which included five price lists. They were the Coca Cola Amatil (Aust) Pty
Ltd standard wholesale
price list dated 3 August 2009 and the EBS Supplier price
lists of 11 August 2009 which set out the invoice prices at which Spotless
purchased the goods listed in those documents from Bunzl Outsourcing, Nelson
Peters Icecream, Coca Cola Amatil (Aust) Pty Ltd and
Frucor Beverages Pty Ltd.
The expression “EBS” refers to an electronic buying system database
recording prices negotiated
and agreed between Spotless and each of its
suppliers in respect of each product that Spotless purchases. It is a database
established
by Spotless. Mr Cook acknowledged that Spotless sometimes
receives rebates or discounts from those prices in respect of volume purchases.
He said (although there is no other evidence of it) that in most cases the
contracts which Spotless has with its suppliers specify
that the prices agreed
are confidential. He described the EBS database as highly sensitive
information, accessible only to senior
members of Spotless, governed by
passwords and acceptance of the terms of the Spotless IT policy.
- The
cross-examination threw some further light on those matters. Mr Cook was unable
to say whether, in fact, those price lists contained
data about prices which was
different from that available from those suppliers to other wholesale providers
of such products, including
other large caterers. He did not know whether the
wholesale price lists of the suppliers themselves to large caterers contained
different prices. He acknowledged that the prices in those documents did not
take account of any negotiated rebate or commission
for volume or otherwise
provided to Spotless. He indicated that the Spotless system was to be invoiced
at the wholesale price, and
subsequently received a negotiated rebate or
commission from the supplier depending upon reaching certain threshold levels of
acquisition.
That information, I infer, was available to some in Spotless but
it is not clear at what level or whether it was known by Mr Reynolds.
Based on
Mr Cook’s evidence, it is not clear to me that the information on those
price lists recorded information different
from that which was available upon
enquiry by any large caterer to any of these suppliers as wholesale price lists.
They did not
record the rebate or commission arrangements negotiated by
Spotless. The EBS price was the data price which was put into the Spotless
financial models, rather than adjusted to reflect the rebate or commissioned
price. Despite Mr Cook’s description of their
confidential character, I
do not find that they contained information other than routine wholesale price
lists available to any large
caterer.
- A
further category of document to which Mr Cook referred was what is called the
ACES document. It was sent by Mr Reynolds to Ms
Reynolds by email of 3
September 2009, the day after he received it. The ACES document is a document
generated by Spotless which
contains details of its annual customer survey in
respect of all sites at which Alliance Catering provides catering services in
South
Australia. It is accessible only to area managers, regional and state
operations managers and senior site managers. Mr Cook said
that if
Mr Reynolds had wished to view the ACES document at home, he could have
taken his laptop home to view it rather than to send
it to Ms Reynolds to view
at home, as he had been provided with a wireless card by Spotless to access his
work emails whilst not
physically in the office. It is clearly a confidential
document containing sensitive commercial information, valuable to any
competitors
of Spotless. It could be used in the hands of competitors to target
Spotless high value contacts. He accepted, however, that Mr
Reynolds may have
required that document to work late at home on Spotless work rather than for any
improper purpose. It was sent
by Mr Reynolds to his home at 12.45 am. Mr
Reynolds said he was working on that document at home at that time in
preparation for
a series of meetings with the South Australian sales managers
later than morning, and wished to get a hard copy of it to use for
the meeting.
He sent it to his wife’s computer to enable it to be printed at home. I
accept that evidence. In those circumstances,
I make no adverse inference
against Mr Reynolds from the fact of the supply of that document at home to his
wife at home.
- Another
category of document referred to by Mr Cook was what are described as template
letters of appointment and position descriptions.
On 11 August 2009, Mr
Reynolds sent to Mr Horner, copied to Mr Blanco, an email which apparently
enclosed three template letters
of appointment containing Blanco
Catering’s logo, and a position description for an operations manager
apparently for the Botanic
Gardens tender. Mr Cook pointed out that there are
minimal differences between those documents and templates belonging to Spotless,
prepared by Spotless employees for use only by Spotless. The four documents
are: Letter of Appointment – Award or Agreement
– New Employees Full
Time or Permanent Part-time (Weekly); Letter of Appointment – New Employee
Casual (Weekly); and
Letter of Appointment – Salary Award or Agreement /
Above Award (Weekly); and Position Description for Operations Manager.
The
first three of those documents are templates, and the fourth is a position
description relating to an operations manager at
a different institution. The
email from Mr Reynolds of 11 August 2009 also included under the Blanco Catering
logo a position description
for a Kitchen Operations Manager/Executive Chef for
a Blanco Catering production facility. There is no suggested close analogue
suggested by Mr Cook from Spotless records for that document.
- To
the extent to which there is a claim of breach of copyright, it will be
necessary to consider the differences between those documents.
To the extent to
which otherwise the content of those documents may have been taken from Spotless
documents, their content is relatively
routine: appointment and position;
employment status; responsibilities; location and travel; award/agreement; rate
of pay; hours
of work; general conditions; leave; absence; probationary period
and such matters. The operations manager position description to
a degree is
site specific, and contains headings including responsibility statement; key
result areas/tasks; and under that a series
of sub-headings and topics including
performance standards; work environment; supervisory authority; indicative
hours; physical demand;
unique features of position; and a special note.
- I
am not sure that, in terms of misuse of confidential information, much turns on
the above. I suspect it is relatively standard.
- Finally,
Mr Cook referred in his evidence under the heading “opportunities”
to the attitude of Spotless to certain business
opportunities which Mr Reynolds
apparently made available to Blanco Catering.
- The
first of those “opportunities” derives from an email of 30 November
2007 from Mr Reynolds to Judy Szekeres of the
University of Adelaide suggesting
that Star Anise Catering (a part of Blanco Catering) was interested in providing
various services
at the University. Mr Reynolds’ email commences with the
following:
Firstly, I need to request that these discussions are kept very confidential
regarding my involvement. Obviously some people can
get it construed as a
conflict of interest, however I feel that you need to get a decent resolution
asap and the options seem to
be drying up for you. I would hate to seen [sic]
the base F&B business at the Uni destroyed as this would effect future
opportunities
and devalue the Uni and services.
- He
then refers to seeking alternative solutions for her request and that Star Anise
seems to be the only interested entity capable
of delivering the service in the
circumstances. Earlier in that month, Mr Cook and Mr Reynolds had discussed the
prospect of Alliance
Catering providing services at the University of Adelaide,
and Mr Cook had indicated that Alliance would only be interested if the
contract
was for a period of not less than 12 months. He accepts that, ultimately,
Alliance Catering was not interested in pursuing
that avenue.
- I
accept Mr Reynolds’ evidence that, as far back as 2003, he was able to
suggest to an existing or potential Spotless client
the name of another caterer
if Spotless was not interested in, or able to provide, the services that client
or potential client sought.
That was a means of Spotless keeping good relations
with its clientele. In relation to the contact with the University of Adelaide,
I accept that Mr Reynolds pursued that opportunity on behalf of Spotless
diligently. When it became apparent that, at that time,
the opportunity was for
a short term contract only, consistent with Mr Cook’s instructions, Mr
Reynolds did not pursue it.
I also accept that the person from the University
of Adelaide with whom he was dealing then asked him if he could suggest another
potential caterer. It is in that context that he suggested Star Anise Catering.
In my view, Mr Reynolds in doing so had no conflict
of interest and was acting
in accordance with what he saw as the best interests of Spotless. He had no
formal relationship with
Mr Blanco, and had met him only a few months before. I
attribute the quoted remarks in the email of 30 November 2007 to some hyperbole
on the part of Mr Reynolds.
- In
fact, Mr Reynolds had met Mr Blanco in earlier 2007 at a social function. They
had learned they were each in the catering business.
Later that year Mr Blanco
had, in a very informal way, sounded out Mr Reynolds to see if he was interested
in working for Blanco
Catering, but at the time nothing came of that. I do not
consider that the email of 30 November 2007 was an attempt by Mr Reynolds
to re-enliven those discussions.
- From
about late 2007 to about mid 2008, at the instigation of Mr Blanco, there were
further general discussions between Mr Reynolds
and Mr Blanco pertaining to
plans of a joint catering business venture. The discussions led to Mr Reynolds
preparing a “Business
Plan” for the possible joint venture towards
the end of 2008. It is not suggested that, of themselves, those discussions
were
improper or that the Business Plan itself was prepared by adapting or
copying any Spotless documents or data. Spotless submitted
that the evolution
of those discussions led to Mr Reynolds’ financial involvement with Blanco
Catering, in particular in relation
to the Zoo project. Whilst I accept that
that was the sequence of events, I think the opportunity for Blanco Catering to
participate
in the Zoo project was an independent and significant stimulus to Mr
Reynolds becoming more closely involved with Mr Blanco in Blanco
Catering.
Until that progression of events occurred, in my view the other
“opportunities” raised by Mr Cook in his evidence
or in the
pleadings or in cross-examination of Mr Reynolds did not involve him acting
improperly in relation to Spotless.
- I
shall address them at this point in these reasons.
- On
29 October 2008, Mr Reynolds received an email from a friend enquiring if he
would be interested in working on a tour with the
Eagles, the “Eagles Tour
09”. That proposal would have required him to travel with the touring
group, arranging catering
for the travelling group. The concert venues would
have their own catering contractors. Mr Reynolds declined the proposal,
but
suggested the friend contact Mr Blanco to gauge his interest. He did not
refer the proposal to Spotless, as it was a personal invitation
and was not the
type of catering contract which Spotless had previously pursued. In
cross-examination, he did not divert from that
evidence. In my view, Mr
Reynolds did conscientiously consider the possibility of Spotless being
interested in that type of contract
and reasonably decided that Spotless would
not be interested. He then simply suggested that Mr Blanco might be interested.
That
is consistent with his unchallenged evidence that, on a social occasion, he
mentioned to Mr Cook that he had been offered the opportunity.
- Another
“opportunity” concerns a proposed coffee shop at 25 Grenfell Street,
Adelaide. On 21 November 2008, Mr Reynolds
sent to a letting agent Jones
Lang LaSalle an email suggesting that Blanco Catering might be interested. Mr
Reynolds had been approached
by the letting agent to see if Spotless was
interested, and Mr Reynolds and Mr Cook had discussed the possibility of
Alliance taking
up that opportunity. The opportunity was quite fully
investigated. Mr Cook then told Mr Reynolds that Alliance should not submit
a
proposal for the contract due to the cost of fitout, the financial risk and the
limited potential return. That is, Spotless was
not interested in the
opportunity. Mr Reynolds was then asked whether he could suggest another
potential operator, and as noted
he suggested Mr Blanco. In my view, in the
circumstances, he had no conflict of interest when responding to that request
and acted
properly when doing so. It appears that the proposed coffee shop did
not eventuate.
- A
further “opportunity” said to be offered to Spotless but not
properly pursued is said to arise from an email from Mr
Reynolds to Mr Broderick
relating to an opportunity to provide catering services to Johnson Control. It
was sent from the Business
Development Manager of Spotless Services (NZ) Ltd,
another entity in the Spotless group, to Mr Reynolds on 9 January 2009
headed
“EDS Adelaide Opportunity”. Mr Reynolds on 10 January 2009
forwarded the email to Ms Reynolds. The Spotless concerns
about that conduct
are misconceived. The unchallenged evidence is that, because Mr Reynolds was on
leave, he forwarded the email
dated 9 January 2009 to his wife so he could print
out a hard copy at home. The originating email related to part of a much larger
catering opportunity for Alliance Catering in the Asia Pacific region, which
included the EDS Adelaide facility. The opportunity
was duly reported, and
followed up by others within Alliance Catering. Mr Reynolds was not
directly involved in that process, and
does not know its outcome. There is
nothing to suggest that he acted improperly in relation to it in any way.
- One
other matter referred to by Mr Cook should be mentioned. On about
9 September 2009, Mr Reynolds sent to Mr Horner of Blanco
Catering an email
attaching a PowerPoint presentation prepared by Douwe Egberts about UTZ Coffee.
He says that UTZ Coffee is not
a proprietary brand of Douwe Egberts. He notes
that the covering email from Mr Cook said that it could be sent around, and that
he did not consider it to be a confidential document because it was prepared by
Douwe Egberts and there was nothing which was confidential
to Spotless within
the chain of emails. He thought the document from Douwe Egberts would be widely
viewed within the industry.
I accept that evidence. Mr Cook said that his
email of 8 September 2009 also discussed the strategy that Alliance Catering
should
be adopting when “moving forward for the supply of coffee and
equipment” and about his discussion with Douwe Egberts,
so that it was
clear that the attached document could be sent to other employees of Spotless
but not to its competitors. I accept
that may have been Mr Cook’s
intention, but given that no specific contents of either the PowerPoint
presentation or of the
email of 8 September 2009 have been identified as
confidential in fact, I am prepared to accept that Mr Reynolds’ evidence
that he did not understand it, and reasonably did not understand it, as being of
significance. No consequence of its release to
Blanco Catering is
suggested.
- Consequently,
I do not find that Mr Reynolds breached any duty owed to Spotless by his conduct
in relation to any of the University
of Adelaide, the Eagle Tour 2009, the
coffee shop at 25 Grenfell Street Adelaide, the Johnson’s Control tender
(referred to
at [28(2)(a)-(d)] above) or in relation to the email of 9 September
2009 containing the Douwe Egberts PowerPoint presentation. Nor
do I find, even
if such conduct involved a breach of duty, that it caused Spotless any
loss.
- In
addition, I do not find that Spotless suffered any loss by the provision of
Spotless price lists, letters of appointment and position
descriptions to Blanco
Catering. Indeed, I am not persuaded that those documents contained any
confidential information for the
reasons already given. Subject to the breach
of copyright claim considered later in these reasons, I also do not accept the
Spotless
complaints referred to in [28(3)] above. To the extent to which Mr
Reynolds had access to confidential information, except to the
extent considered
below in relation to the Botanic Gardens tender and to the Zoo project, I am not
persuaded that he misused such
information.
- The
more significant transactions to address in the present context are those
involving the Botanic Gardens tender and the Zoo project.
The Zoo project is
the only business opportunity which Spotless claims to have lost, or possibly to
have lost, as a result of improper
conduct on the part of Mr Reynolds. Spotless
through either Alliance Catering or Epicure Catering does not assert that it
would
have submitted a proposal in respect of the Botanic Gardens tender. The
significance of the Botanic Gardens tender, in the sense
that Spotless claims to
have suffered a loss caused by Mr Reynolds’ activities in relation to it,
is firstly that Mr Reynolds
improperly expended time on the Botanic Gardens
tender for Blanco Catering which should have been spent performing his duties
for
Spotless, and secondly that Spotless’ copyright in the
“old” Alliance Financial Model Template was breached by
its use by
Blanco Catering, particularly by Mr Reynolds in the Blanco Catering proposal for
the Botanic Gardens tender. I have already
rejected the first of those
claims.
- Little
evidence was adduced by Spotless in relation to the Botanic Gardens proposal.
Understandably, its evidence other than that
of Mr Cook was mainly focused on
the Zoo project. It is convenient to refer to that evidence before further
considering Mr Reynolds’
evidence and the documentary evidence to
ultimately make findings about those two transactions and matters related to the
claims
of Spotless more generally.
- Robert
Rutter is the Commercial Manager of the Hospitality and Retail Catering business
unit of Spotless. His role includes developing
the financial analysis for
business opportunities for that division. He was involved in the Spotless
tender, through Epicure Catering
for the Zoo project, involving the tender for
the Adelaide Zoo Convention/Function Centre catering contract.
- Spotless
put in an Expression of Interest dated 30 July 2009 and a Revised Proposal by
letter of 21 August 2009 following a meeting
on 19 August 2009 at which certain
matters were discussed. Underlying those documents included two “revenue
profiles”
developed from a budget template, and a “corporate
model” developed from a corporate template with a summary of the key
financial data and assumptions from the “revenue profile” and
estimated corporate administration costs. The data outcomes
included
anticipated total revenue/sales for year 1 of the Zoo project. The second
revenue profile had a considerably lower figure,
as the anticipated revenue for
the first six months of Zoo project from January to June 2010 was much reduced,
on the basis that
it was a “greenfield site”. The revenue
projections for years 2-10 of the Zoo project were the same in each
document.
- The
revenue projections are, according to Mr Rutter, the most important aspect of
the financial part of any proposal. It informs
the profit that is anticipated
from the proposed project, which in turn informs the amount of rental which
Spotless is prepared to
offer pursuant to its tender. He said that Spotless had
a significant advantage over smaller caterers when assessing anticipated
revenue
for the Zoo project because it was a “greenfield site” and Spotless,
unlike other smaller caterers, had comparable
data to draw from. He did not say
whether Blanco Catering fell into that category. Nevertheless, he said he also
considered the
likely amount a competitor might be prepared to bid for a
particular job, including the Zoo project, when formulating the expression
of
interest or tender. He did not further explain that. I infer that he meant
that there would be scope, within reason, to increase
the revenue estimate to
justify a higher rental offer to successfully tender. Consequently, that causes
me to be a little cautious
about the reliability of the anticipated revenue, the
rental offered, and the anticipated earnings to Spotless over the proposed
period of the Zoo project.
- Mr
Rutter said that, on the basis of the Revised Proposal, the net present value to
Epicure Catering over the 10 year period of the
Zoo project, excluding corporate
administration, of anticipated profit is $996,556. He says the expected profit
over 10 years (excluding
corporate administration) would be:
- before interest
and tax $M4.175
- after tax
$M2.922
and including the costs for corporate
administration:
- before interest
and tax $M2.621
- after
tax $M1.834
- He
also anticipated efficiency gains for Spotless if it had secured the Zoo
project, as it could have used its staff utilised in
that project also for the
Clipsal 500 Adelaide Carnival in March 2010 (for which it catered) and
potentially future years instead
of flying to Adelaide its Victorian staff and
providing for their accommodation. He quantifies that value at $50,000 to
$100,000
per annum. There is little specific information underlying that
figure. It may be correct as a matter of arithmetic, but I am not
persuaded
that the staff used for the Zoo project would have been free to work at the
other venue to produce such savings, and I
am not persuaded on the limited
information available why, if it is necessary for costs of up to some $100,000
per annum to be expended
to use Victorian based staff for the Clipsal 500 event,
that the asserted efficiency gains would have resulted. It was not explained
whether that expenditure was for senior management or otherwise. It was not
explained why Spotless, which has very significant operations
in South Australia
(according to Mr Cook, with some 300-400 local staff), needs to incur that cost
in any event. Spotless increases
its staff by some 1200 in March each year for
that venue, presently largely locally. The fact that the range, even with
obviously
“ball park” figures, was so wide also leads me to approach
that assessment with caution.
- In
the figures provided, Mr Rutter has estimated corporate administration costs of
5% of sales per annum through the life of the
contract. The figures referred to
above have been calculated on that basis. The difference in the projected
profit, and so its
capitalised value, is quite significant. The administration
expense is $95,110 per annum. On the Profit and Loss Statement for
the 10 year
period, the profit after tax and notional interest reduces from $2,734,550 to
$1,578,584. Of course, there may be other
variables to be adjusted. The net
present value reduces to $475,962. It is also apparent, no doubt consistent
with the practice
for long term contracts in the catering industry, that the
anticipated profits are back-ended so that the profit (or loss for the
first
year) increases progressively over the term of the contract. That reflects the
anticipated sales progressively increasing
over the period of the contract,
whilst the percentage of operating cost expenditure to sales remains more or
less the same. It
may be necessary to revisit those claims later in these
reasons.
- There
is no doubt that Mr Reynolds’ hard drive contained the following
documents:
(a) document named “Zoo by Epicure (sic) Rev Build
Up”, which contains contents identical to the information provided
by Mr
Bond of Spotless to Mr Rutter of Spotless by an email of 22 July 2009 entitled
“Zoo revenue projections.xls”;
(b) document named “Zoo by Epicure (sic) Full FM”, the contents
of which are identical to the source model which included
the first revenue
profile prepared by Mr Rutter for the Zoo project for Year 1 of that project;
and
(c) document named “Zoo by Epicure (sic) FM”, the contents of
which are identical to the corporate document which contained
the first revenue
profile, which included the model revenue that Epicure Catering expected to earn
for each year over a 10 year period
of the Zoo project.
- It
is also clear that Mr Reynolds by various emails to Mr Blanco dated 30 July
2009, 1 August 2009, 27 August 2009 and 28 August
2009 provided Excel
spreadsheets to Mr Blanco which included work sheets headed “Revenue
Summary” containing a Revenue
Summary table. In each of the emails, the
enclosed document included the identical Revenue Summary table. The contents of
the Revenue
Summary table is, in turn, identical to the table headed
“Sales” in the corporate model revenue profile referred to above,
save that the table in the revenue profile commences in July and ends in June of
each year (that is financial years rather than calendar
years), and the table
“Sales” starts from the month of January and ends with the month of
December.
- Mr
Rutter has also compared a document entitled “Blanco at Adelaide
Zoo” which is described as “Financial Overview
of Years 1 and
2” in the discovered documents. The total revenue figure set out in that
document in respect of the full year
July to June is marginally more, by $6,231
than the first revenue profile of Epicure Catering. There was no
cross-examination of
Mr Rutter to suggest that Mr Reynolds had not taken those
figures from Spotless documents, as is readily inferred from the material.
Nor
is there any basis for thinking that that information was not then conveyed to
Blanco Catering for the purpose of assisting
it in its tender for the Zoo
project.
- Mr
Rutter’s estimates, apart from not including the corporate administration
expense, also did not make allowance for rebates
received from suppliers. That
is a matter discussed above. There is no information upon which the amount of
that rebate can readily
be calculated, assuming the Zoo project had been
allocated to Spotless. He said that he had removed the corporate administration
expense, because in his view it was relatively negligible. He said that with a
venue the size of the Adelaide Zoo project, the incremental
cost in corporate
administration would be negligible and so its impact minimal. I am not
persuaded that is a correct approach.
It may be that the marginal cost of
indirect administration by the grant of the Zoo project would be relatively
insignificant. On
the other hand, I am not persuaded, if that is correct, that
it is then appropriate simply to allocate no administrative cost to
the Zoo
project. The more realistic analysis, practically, would be to allocate the
total administration costs pro rata across all
of the projects of Spotless or
the relevant Business Division. If that were done, there would obviously be a
significant administrative
cost attributable to the Zoo project (as indeed would
have been the fact) and each of the other projects of Spotless may have become
marginally more profitable. I do not accept that it is appropriate, in the
circumstances, for the purpose of calculating an appropriate
loss to Spotless to
assume that there was no administrative cost from its principal office in the
administration of that project.
I am cautious about accepting his evidence, in
addition, because of the evidence as to the cost of transferring Victorian staff
to South Australia for the purpose of operating the Clipsal 500 Adelaide venue
over a period of days. I find it difficult to conceive
that staff transferred
were merely waiting and serving staff, or at least did not include some senior
management.
- Ian
Delmenico, the General Manager of the Hospitality and Retail Catering business
unit of Spotless oversaw the Epicure Catering
tender for the Zoo project. He
signed the Expression of Interest dated 31 July 2009, and had one meeting with
Mr Boscaini on 19
August 2009. Otherwise, he left the dealings between
Epicure Catering and Mr Boscaini to Aaron Bond. He was eager for Spotless
to
secure the Zoo project to increase Epicure Catering’s share of, and
presence in, the Adelaide market and to increase its
base infrastructure in
Adelaide, and so (he thought) Spotless would be better able to compete for other
larger projects in South
Australia. Epicure Catering presently has some three
of the eight such larger projects in South Australia. He was therefore
disappointed
not to succeed in the tender. Those views were shared by Mr
Bond.
- Mr
Bond is the South Australian Regional Operations Manager of Spotless. He was
the primary contact of Epicure Catering for the
Zoo project. He spent some
weeks developing the proposal. He submitted the Expression of Interest of 30
July 2009 and supervised
its preparation, including through Mr Rutter, following
an invitation to do so received from Mr Boscaini dated 17 July 2009. He
and Mr Delmenico met with Mr Boscaini and John Grenfell from the Adelaide Zoo on
19 August 2009. He then oversaw the preparation
of the Revised Proposal in the
letter of 21 August 2009. He acknowledged that the meeting of 19 August
2009 raised some significant
matters for Epicure Catering to address. It must
therefore have been apparent to him that that there was a real risk that Epicure
Catering might not be awarded the Zoo project. The Revised Proposal, addressed
the apparent concern about catering quality, and
the financial offer of
Spotless. The proposed 10% turnover fee on gross revenue exceeding $M3 per
annum was not changed, but in
the Revised Proposal the $M3 per annum gross
revenue cut-in point was to be indexed at 4%.
- The
Expression of Interest proposed a base rent of $180,000 in year 1, $300,000 in
year 2, and $300,000 for year 3 and then indexed
at 4% per annum for each
succeeding year. The Revised Proposal changed the indexed rental to commence
from year 3. An alternative
base rental was for year 3 and subsequent years to
be indexed at the CPI rate rather than 4%. It also offered the Adelaide Zoo a
discount of up to $50,000 annually on its expenditure on its own events in each
year on the basis of the first $25,000 spent would
be free and the next $25,000
would be applied pro rata as the Adelaide Zoo spent up to $100,000 on its own
events.
- On
22 September 2009, Mr Bond followed up the progress by telephone to
Mr Boscaini. He was told that Epicure was one of the two
shortlisted
applicants. On 1 October 2009, he was contacted by Mr Boscaini and informed
that Blanco Catering had been awarded the
Zoo project and that Epicure had not.
Mr Bond accepted that he had expected Blanco Catering to tender for the Zoo
project, as it
provides similar catering services as Epicure in the Adelaide
catering market and is a competitor of Epicure.
- Mr
Bond had drawn to Mr Reynolds’ attention, in a routine way, that the Zoo
project had been advertised in The Advertiser on
14 July 2009. He had been told
by Mr Reynolds in mid 2008 that Mr Reynolds and Mr Blanco were longstanding
friends. He had no reason
to suspect Mr Reynolds, at July 2009, would be
interested in the Zoo project. Mr Reynolds’ side of the Spotless business
was
in the Alliance business division. Mr Reynolds at no time suggested that,
in any way, was he interested in the Zoo project.
- As
things do, somehow in about early September 2009 Mr Bond heard “on the
grapevine” that Mr Reynolds intended to resign
from Spotless in October
2009 to work for Blanco Catering after he had completed seven years of service.
He then kept material relating
to Epicure Catering’s tender for the Zoo
project secure.
- The
final two witnesses for Spotless were Sally Shepherd, a lawyer acting for
Spotless in this proceeding, and James Muller. Mr
Muller worked for Spotless
between 1998 and February 2008, and then as the National Account and Project
Manager of its Alliance Catering
business until between February 2009 and
February 2010. He confirmed the development and use of the financial model
template to
June 2009. From April 2009 he worked on redeveloping that template.
His evidence shows that the template in use to June 2009 “formed
the basis
of the financial model” sent by Mr Reynolds to Blanco Catering on 23
August 2009. The redeveloped template and a
Re-Tender Model were internally
circulated for comment on 25 May 2009, including to Mr Reynolds. On 12 June
2009, he sent to Mr
Reynolds a revision of the redeveloped financial model
template and a document entitled “Alliance Catering BIS Costing Model
Guidelines”, which were also generally circulated internally within
Spotless around that time.
- Mr
Muller has also examined Mr Reynolds’ emails and the attachments to them
referred to in [69] above. He said, and was not
challenged, that each of the
spreadsheets attached to Mr Reynolds’ emails was a slightly modified
version of the new template.
The modifications are:
(a) on some
worksheets, Alliance Catering’s logo had been replaced with Blanco
Catering’s logo;
(b) various figures had been inserted into the new template;
(c) a worksheet headed “Revenue Summary” had been added; and
(d) a worksheet headed “Lease” had been added.
- In
addition, each of the spreadsheets attached to Mr Reynolds’ emails was a
slightly modified version of the new template.
The modifications
are:
(a) a worksheet on which appears the words “Scenario
1” at the top left hand corner had been added; and
(b) a worksheet on which the names of months appear from “July”
to “June” at the top had been added.
- Most,
if not all, of the evidence of the witnesses called by Spotless related to its
general processes, the investigations relating
to Mr Reynolds when in early
September 2009 it was suspected that he had an involvement with Blanco Catering,
leading to the termination
of his employment and to the Zoo project.
- I
have made some observations about Mr Reynolds’ evidence at [32] above. It
follows that in many respects I have accepted
his evidence. For instance, I
have rejected the claim that for the last two years or so of his employment by
Spotless he did not
work the hours which he should have worked or with the
commitment and diligence expected from his employment with Spotless, based
largely upon his evidence. I have also accepted his evidence about how and why
he came to refer catering opportunities to other
caterers in relation to the
catering contracts potentially available to Spotless in relation to premises at
the University of Adelaide,
the proposed coffee shop at 25 Grenfell Street
Adelaide, for EDS Adelaide, and the “Eagles Tour 09”. It is not
necessary
to refer to those matters further.
- Mr
Reynolds had extensive experience in the hospitality industry, including working
as a catering manager and as a food and beverage
manager, before he commenced
working for Spotless in 2002. It is not necessary to trace his career path
within Spotless. In my
view, his relationship with Mr Blanco and Blanco
Catering commenced innocently, and was conducted consistently with Mr
Reynolds’
obligations to Spotless until almost mid 2009.
- As
already stated, Mr Reynolds met Mr Blanco on a social occasion in 2007, and
there they learnt that they were both in the catering
industry. A few months
later, no doubt prompted by what Mr Reynolds had told Mr Blanco about his work
experience, Mr Blanco contacted
Mr Reynolds about working together. Over the
next several months, Mr Reynolds contributed to the shared development of the
“Heaps
Good Food” concept, with the vague plan to go into business
together under that label. The concept was to make and supply
pre-prepared
sandwiches and convenience foods. Ultimately nothing came of it. However, that
led to closer involvement of Mr Reynolds
and Mr Blanco with each
other.
- In
late 2008, Mr Blanco had been invited by Mr Boscaini, on behalf of the Adelaide
Zoo, to give some input into the layout and plans
for the new Adelaide Zoo
Conference facilities. Mr Blanco in turn sought from Mr Reynolds his input,
leading to Mr Reynolds attending
a meeting with Mr Boscaini and Mr Blanco
to discuss the layout and plans. Mr Reynolds at that meeting told Mr
Boscaini of his role
with Spotless. Mr Boscaini was an external consultant to
the Adelaide Zoo. Mr Boscaini, for his part, indicated that the meeting
was not
the first step in the calling for expressions of interest for the Zoo
project.
- Nevertheless,
I infer that Mr Blanco saw the occasion as an opportunity to get his (or Blanco
Catering’s) foot in the door
when expressions of interest were called for.
His “pitch”, I infer, included retaining Mr Reynolds’
involvement
as I am sure he was impressed with Mr Reynolds’ style and
knowledge. Mr Reynolds, I find, realised that he was therefore part
of the
“pitch” to Mr Bosciani at that preliminary stage. Moreover, given
the discussions between Mr Blanco and Mr Reynolds
about the Heaps Good Food
concept, I also accept that there was a generally shared view between them that
at some stage, if a suitable
business option were selected, they could work
together more formally in the future. However, I do not accept that Mr Reynolds
at
that stage was deliberately seeking to advance the interests of Blanco
Catering at the expense of Spotless. Mr Reynolds did attend
that meeting
knowing Spotless may well be interested in the Zoo project, and that his
superiors would be concerned about his attendance
at that meeting. I find that
his attendance was, in the circumstances, ingenuous and inappropriate in fact.
Spotless contends that
his attendance helped Blanco Catering get its foot in the
door. The evidence, in my view, shows that the discussion was not at such
a
level that Spotless was in fact disadvantaged in any way in relation to the Zoo
project tender process at that time. The fact
is that Mr Boscaini had chosen to
involve Mr Blanco at that early point. There is nothing to suggest that,
other than Mr Boscaini,
anyone else at the Adelaide Zoo knew of Mr
Reynolds’ attendance, or indeed of him, or that Mr Boscaini did
anything other than
take the benefit of whatever layout advice came from that
meeting for his own presentation to the Adelaide Zoo.
- The
next step in the relationship between Mr Reynolds and Mr Blanco arose in
relation to the Botanic Gardens tender. Mr Blanco became
aware in early 2009 of
that potential opportunity, by the public invitation calling for expressions of
interest. I accept that a
few years before Spotless through Epicure Catering
had not been interested in an earlier potential tender for the Botanic Gardens
catering work. Mr Reynolds was aware of that. There is no evidence to suggest
that Epicure Catering responded to the expressions
of interest invitation in
early 2009. Hence, I do not consider that it was in fact financially
disadvantaged in any way by Mr Reynolds’
role in relation to the
Botanic Gardens tender. It did not express its claim in relation to that
tender, or Mr Reynolds’ role
in relation to that tender on that basis,
save for the claim based upon Mr Reynolds’ time spent on that tender. I
have not
accepted that claim.
- Nevertheless,
Mr Reynolds played a significant role in securing the Botanic Gardens tender for
Blanco Catering. His conduct involved
a breach of his duties to Spotless,
because he supplied to Blanco Catering confidential documents of Spotless. It
was at this stage,
too, Mr Blanco and Mr Reynolds developed a more structured
commercial relationship. Those discussions evolved over the period from
March
2009. By July 2009, they had advanced to the point where Mr Reynolds and his
wife through Chresby Nominees Pty Ltd were to
acquire an interest in Blanco
Catering, together with another then external investor. That structure was in
place before the final
Blanco Catering proposal for the Botanic Gardens tender
was made. The proposal was accepted in late July 2009 to commence on about
30 August 2009.
- By
that time, I find Mr Reynolds had formed the firm intention to leave the
employment of Spotless and to commence working with Blanco
Catering. He was
anxious to work for Spotless long enough to secure pro rata long service leave,
but as noted earlier in these reasons
Spotless terminated his employment before
he so qualified.
- Importantly
for present purposes, despite Mr Reynolds initially downplaying in his evidence
the role he played in relation to securing
for Blanco Catering the Botanic
Gardens tender, he accepted that the financial model used for its proposal was a
modified version
of the Spotless financial model template described by Mr Muller
and to a significant extent that he used as a starting point from
data available
to him in his role within Spotless and without which he would have had to expend
time and effort assembling and putting
into the model. The transition plan he
developed was also based upon a Spotless document.
- At
this point, I find that Mr Reynolds was keen to keep concealed from Spotless
what he was doing for the benefit of Blanco Catering
in relation to the Botanic
Gardens tender. He had by then decided to leave the employment of Spotless at
some reasonably proximate
stage in the future. He was remaining there, in part
to qualify for pro rata long service leave, and also to hedge his bets in case
neither the Botanic Gardens tender nor the Zoo project were secured by Blanco
Catering.
- In
short, in my judgment, he was actively working to advance the prospects of
Blanco Catering, which was in general terms a competitor
of Spotless, including
in relation to the Zoo project to the immediate detriment of Spotless.
Furthermore, he was doing so by accessing
and using for the benefit of Blanco
Catering certain documents of Spotless including the model template for
financial modelling.
In the case of the Botanic Gardens project, there was no
Spotless input data to copy or adopt. That position changed in relation
to the
Zoo project. I now turn to that topic in more detail. In the circumstances
already referred to, in my judgment, Mr Reynolds
was in breach of his duties to
Spotless.
- The
Zoo Project was foreshadowed to Blanco Catering through Mr Blanco in the way
referred to above. In July 2009, formal expressions
of interest in relation to
the Zoo project were invited. Blanco Catering decided to respond. I am
confident that, between Mr Blanco
and Mr Reynolds, that decision had been taken
earlier following their November 2008 meeting with Mr Boscaini. However, there
is
nothing to suggest that until July 2009 Mr Reynolds or Mr Blanco had
done anything more to advance the prospects of Blanco Catering
getting the Zoo
project. They had advanced the potential involvement of Mr Reynolds in
Blanco Catering generally in the way described
above in the period leading up to
July 2009.
- Mr
Reynolds’ evidence in chief was that he deliberately refrained from any
action which might assist Blanco Catering in securing
the Zoo project from that
time. It was obvious to him that Spotless would not agree to him doing so. I
find it was equally obvious
to him that, by reason of his employment with
Spotless and his awareness that Spotless through Epicure Catering was likely
itself
to seek the Zoo project, he should not assist a direct competitor for
that project.
- I
accept that the line he drew was twofold. Firstly, he had no direct discussions
with Mr Bond or others who, on behalf of Spotless
through Epicure Catering, were
directly dealing with the particular proposal. Secondly, he had no direct
dealings with Mr Boscaini
(the designated contact for the Zoo project) or any
other officers of Adelaide Zoo.
- That
justification was not sufficient to avoid Mr Reynolds breaching his duties owed
to Spotless. In fact, he worked behind the
scenes for Blanco Catering to
develop its proposal, which was ultimately successful, and in doing so he had
access to and used the
confidential financial model template and the primary
data that Spotless used as an input in its initial proposal for the Zoo project.
In my view, Mr Reynolds significantly understated his use of that data in his
evidence in chief, including by his assertions that
the input data for the
Blanco Catering financial modelling was derived from another business serviced
by Blanco Catering, and that
the Spotless template required to be significantly
modified.
- I
find that Mr Reynolds actively supported the Blanco Catering expression of
interest in the Zoo project. He had by that time taken
up an interest in Blanco
Catering. When expressions of interest were invited, Mr Blanco immediately
involved Mr Reynolds to assist
in developing the Blanco Catering proposal. He
prepared financial modelling for Blanco Catering which was only a slightly
modified
version of the then current model created by Mr Muller for
Spotless. In a series of financial models he then provided to Blanco
Catering
between 30 July 2009 and 28 August 2009 the revenue projections for the Zoo
project formulated by Spotless through Epicure
Catering division. It is clear
that he was using and adopting the expertise of Spotless by that conduct. As I
have found above,
the anticipated revenue flows are an integral and primary step
in the development of the rental proposal – the payment offered
by the
tenderer – by Spotless for the Zoo project. It should also be noted that,
as a “greenfields” site, the
Zoo project presented challenges to
modelling revenue forecasts and that Spotless’ previous experience in that
regard was an
advantage. One of the financial models prepared by Mr Reynolds
for Blanco Catering, also contains or reflects one of the potential
rental
offers of Spotless for the Zoo project. There is no direct evidence that Mr
Reynolds either saw, or passed on, the rental
proposal of Spotless as contained
in the documents it submitted to the Adelaide Zoo. In fact, as noted in a
little more detail below,
the initial Spotless rental proposal was numerically
quite different from the initial Blanco Catering proposal.
- I
accept Mr Reynolds’ evidence that he did not simply replicate all that he
saw in the Spotless financial modelling. It was
part of his experience to
“work up” such documents, and I accept that he applied his own
judgment, using information
in part available to him through Blanco Catering
about another of its catering contracts, and in part via his own judgment about
expenses and the possible rental offers. However, his starting point for
revenue projections was taken from the Spotless financial
modelling to which he
gained access.
- Clearly,
the work done by Mr Reynolds for Blanco Catering as referred to above was
heavily relied upon by Blanco Catering in developing
and presenting its proposal
for the Zoo project.
- On
3 August 2009, Blanco Catering submitted its first proposal. That proposal was
ultimately completed by someone other than Mr
Reynolds. It was probably done by
Mr Blanco, although there is no direct evidence of that. It was a proposal
that had a similar
structure to the first Spotless proposal: a fixed rental for
year 1 and an increased rental for year 2, with CPI increases thereafter.
However, the numbers were significantly different, and the Blanco rental
proposals were lower than those of Spotless. I think the
fact of those
significant differences indicates that Mr Reynolds did seek to maintain a
“cut-out” point for his role.
However, as I have found, his role
generally in relation to the Zoo project from July 2009 was in breach of his
duties to Spotless.
- In
about mid August 2009, Mr Blanco told Mr Reynolds that Blanco Catering was one
of the several shortlisted caterers for the Zoo
project. Subsequently, it
appears that, at the invitation of Mr Boscaini, Mr Blanco and the third investor
in Blanco Catering, Mr
Horner, met with Mr Boscaini on about 20 August 2009. Mr
Reynolds did not attend. Mr Blanco some time later told Mr Reynolds that
Blanco
Catering had been requested to increase its rental offer if it wished to be the
successful tenderer. Mr Reynolds was also
told by Mr Blanco that Blanco
Catering had to meet the rental proposal of Spotless, and by Mr Blanco what
that proposal was. Mr
Blanco said he had been told that figure by
Mr Boscaini.
- Spotless
had put in its final tender proposal for the Zoo project on 21 August 2009. It
did so following a meeting between Mr Boscaini
and Mr Bond on 1 August 2009.
There was then no further contact with Mr Boscaini until just before the
contract was awarded. The
final Blanco Catering proposal matched the rental
proposal of Spotless. Other terms of the proposal were, in some respects,
different.
- Spotless
contends that, through Mr Reynolds, Blanco Catering used both the Spotless
modelling template and the Spotless revenue projections
to assist it in
developing the proposals of Blanco Catering. As indicated above, I accept those
contentions.
- It
also contends that, through Mr Reynolds, Blanco Catering had access to the terms
of the Spotless rental proposal made on 21 August
2009. That final contention
is not accepted.
- Neither
Mr Blanco nor Mr Boscaini were called to give evidence either by
Mr Reynolds or by Spotless. Ultimately in the case of Mr
Boscaini, I have
no reason to think that he was not an available witness to either Spotless or Mr
Reynolds. I am cautious about
what use I may make of Mr Reynolds’
evidence about his conversations with Mr Blanco from about mid August 2009 until
the award
of the Zoo project to Blanco Catering. What he says he was told is
capable of providing an explanation for the largely coincidental
final rental
offers of Spotless and Blanco Catering. It does not, strictly speaking, prove
the accuracy of those stated assertions.
On the other hand, there is no direct
evidence on which Spotless asserts that Mr Reynolds took from Spotless records
pertaining
to its revised proposal of 21 August 2009 to assist Blanco Catering
in making the matching rental offer. The documentary trail referred
to above,
including the search of Mr Reynolds’ computer, does not show that Mr
Reynolds had access to that particular information
of Spotless. There is an
alternative explanation for its source. There is no direct evidence from Mr
Boscaini to confirm or deny
that explanation. However, the course of the
documents leaves me with the firm impression that Mr Boscaini’s
communications
with Blanco Catering were more extensive and more sympathetic to
Blanco Catering than to Spotless. So far as the evidence goes,
after Spotless
made its revised proposal on 21 August 2009, Mr Boscaini initiated no further
communications with Spotless. Blanco
Catering had further communications, and
the opportunity for some time to refine or improve its rental proposal up to its
final proposal
on 22 September 2009. It may well be that what Mr Reynolds was
told by Mr Blanco about Mr Blanco’s communications with Mr
Boscaini
were accurate. It is sufficient for present purposes to say that,
notwithstanding the forceful submissions on behalf of
Spotless that I should
find, contrary to Mr Reynolds’ evidence, that he did have access to the
revised Spotless proposal of
21 August 2009, I do not make that finding. I am
not persuaded, on balance, of that matter.
- It
also follows that I do not make the further finding that Mr Reynolds, by
engaging in such conduct, enabled Blanco Catering to
obtain the Zoo project at
the expense of Spotless. Such evidence as there is tends to suggest that
– for whatever reason –
Mr Boscaini on behalf of the Adelaide Zoo
preferred Blanco Catering to Spotless as the successful tenderer for the Zoo
project, at
least once the tenderers were reduced to only a few, and that he
provided Blanco Catering enough information to ensure that in financial
terms
its rental proposal was an approximately matching one. I do not intend to
suggest that Mr Boscaini’s reasons for so
acting were other than entirely
proper. There is no reason to suspect that he may have had good reasons for his
further approaches
to Blanco Catering. Nor is there any reason to think that he
did not achieve for the Adelaide Zoo what he considered the best outcome
both in
rental terms and in other terms. On balance, in my judgment, the source of
Blanco Catering’s knowledge about the terms
of the final rental offer of
Spotless was Mr Boscaini and not Mr Reynolds.
- In
the light of those findings, it is difficult to quantify the damages suffered by
Spotless by reason of the breaches of duty by
Mr Reynolds. I do not accept
that, but for his breaches of duty as identified, Spotless would have been
awarded the Zoo project.
I accept that, by reason of Mr Reynolds’
breaches of duty, Blanco Catering was more readily able to undertake the
financial
modelling which underlay its decision about the rental payment to be
offered for the Zoo project. Having regard to the final rental
offer it made,
and the extent to which that offer had changed from its initial rental offer, I
suspect that the modelling may have
been used to justify making the offer
necessary to secure the contract rather than as the foundation for the offer.
The modelled
outcomes depend on the assumptions reflected in the inputs.
Nevertheless, I decline to assess the loss and damage claimed by Spotless
on the
basis that, but for his breaches of duty, Spotless would have been awarded the
Zoo project or that its position as a tenderer
was diminished by Mr
Reynolds’ breaches of duty.
BREACH OF COPYRIGHT
- Section
32(1) of the Copyright Act provides that copyright subsists in a work
including an original literary work. A literary work includes “a table,
or compilation,
expressed in words, figures or symbols” (s 10). Where a
literary work is made by an author in pursuance of the terms of his
or her
employment, the employer is the owner of any copyright subsisting in that work
(s 35(6)). Mr Reynolds did not contest the
claim that each of the Spotless
templates constituted a literary work, and a work, for the purposes of the
Copyright Act.
- The
owner of copyright in an original copyright work has the exclusive right to
(among other things) reproduce that work in a material
form (s 31(1)(a)(i)).
The exclusive right to reproduce includes the exclusive right to reproduce
“a substantial part”
of the literary work. The phrase
“material form” includes any form of storage of the work, or a
substantial part of
the work (s 10). The concept of “reproduction”
has been held to mean “the duplication of a document in an electronic,
digital or machine-readable form” and the emailing of a document
constitutes a reproduction: see Woolworths Ltd v Olson [2004] NSWSC 849; (2004) 184 FLR
121.
- In
order to assess whether material copied is a substantial part of an original
literary work, it is necessary to consider not only
the extent of what is
copied. The quality of what is copied is critical. The simpler or more lacking
in substantial originality
of the work, the greater the degree of reproduction
is required before the “substantial part” test is satisfied: see
generally IceTV Pty Ltd v Nine Network Pty Limited [2009] HCA 14; (2009) 239 CLR
458.
- The
notion of reproduction involves two elements – that the infringing work,
judged objectively, sufficiently resembles the
copyright work and that it was
produced by the use of the copyright work: Computer Edge Pty Ltd v Apple
Computer Inc [1986] HCA 19; (1986) 161 CLR 171. In Skybase Nominees Pty Ltd v Fortuity
Pty Ltd (1996) 36 IPR 529 at 533, Hill J noted that the question of whether
a copyright work has been sufficiently reproduced in essence is a jury
question:
... whether the work of the defendant reproduces in a substantial way the work
of the plaintiff. The answer to that question will
not depend upon identicality
of words or expressions, although if such identicality is there the answer may
be self evident. Rather,
it will involve a commonsense appraisal of whether the
second work in all the circumstances can fairly be said to be so sufficiently
similar that the one is but a reproduction of the
other.
- Spotless
claims that Mr Reynolds infringed Spotless’ copyright in its two financial
modelling templates. They are called in
Mr Muller’s evidence, the
“Confidential Old Model Template” and the “Confidential New
Model Template”.
Mr Reynolds accepts that Spotless owns copyright in both
such works.
- Mr
Reynolds is said to have infringed copyright in the Confidential Old Model
Template by using it to create a financial model for
the Botanic Gardens project
and emailing it to Blanco Catering on 23 August 2009. Spotless alleges that Mr
Reynolds infringed copyright
in the Confidential New Model Template by using it
to create financial models for Blanco Catering for the Zoo project and emailing
them to Blanco Catering. Mr Reynolds admits that he emailed those documents to
Blanco and that he lacked any licence to do so.
Mr Reynolds disputes that his
documents constituted a reproduction of a substantial part of the two templates.
In essence, that is
because he added into the two templates significant
additional information to distinguish them from the original documents.
- Spotless
adheres to the view that financial models created by Mr Reynolds and sent to
Blanco Catering reproduce a substantial part
of the two templates
themselves.
- In
each instance, in my view, all, or substantially all, of the Confidential Old
Model Template and the Confidential New Model Template
were reproduced by Mr
Reynolds. He then added some additional information. In the case of the
Botanic Gardens tender, the input
data was really created by him and the
template was used to present the form and structure of the inputs and to
generate the outputs.
In the case of the Zoo project tender, the form and
structure of the template used by Mr Reynolds and in addition the input data
of
the revenue projections was prepared by Spotless. His response in his
cross-examination to these claims was that he understood
that the forms of the
template were commonplace and readily available on any commercial Excel
spreadsheet program, so for the sake
of convenience he simply adopted the use of
those forms. No other evidence was adduced about that matter. If it were
intended to
show there was no originality in either of the Spotless templates,
so it had no copyright in them, I do not accept that. If it was
intended to
explain Mr Reynolds’ breach of copyright, I accept that he did not think
about the question of copyright, but I
consider that his use of the two
templates was a breach of copyright. His defence furthermore asserts that the
documents he prepared
substantially modified the templates, and bore no
similarity to their contents. I have recorded my findings rejecting those
propositions
for the reasons given.
- The
evidence of Spotless was uncontradicted that the two templates were
sophisticated documents, carefully prepared and developed
over time for the
particular purpose of Spotless in determining the potential financial outcome of
undertaking particular catering
opportunities. In those circumstances, the
conclusion can only be that Mr Reynolds reproduced a substantial part of the
Confidential
Old Model Template and the Confidential New Model Template and
therefore breached Spotless’ copyright in those documents.
The nature of
that breach is of course relevant to any damages awarded.
- I
find that Mr Reynolds infringed the copyright of Spotless in the Confidential
Old Model Template and the Confidential New Model
Template in the manner
described.
REMEDIES
- Spotless
seeks orders in the following terms:
(a) Mr Reynolds (whether by
himself, his servants or agents, or any companies controlled by him, or
otherwise howsoever) be restrained
from using or disclosing any of the
Confidential Information (as defined in [20] of the Statement of Claim).
(b) Without limiting the order in paragraph (a) above, Mr Reynolds (whether
by himself, his servants or agents, or any companies controlled
by him or
otherwise howsoever), be restrained from soliciting, approaching, or causing to
be approached any of the customers (or
former customers) of Spotless with the
intention of inducing such customers (or former customers) to deal with him
(whether by himself,
his servants or agents, or any companies controlled by him
or in which he has an interest, or otherwise howsoever) in any way which
involves use of disclosure of the Confidential Information (as defined in [20]
of the Statement of Claim).
(c) Within seven days, Mr Reynolds deliver up upon oath to Spotless all
documents and every other recording under his possession,
power or control
containing the Confidential Information (as defined in [20] of the Statement of
Claim) or any part of it.
(d) Within seven days, Mr Reynolds serve an affidavit which confirms that he
has delivered up to Spotless all documents and every
other recording under his
possession, power or control containing the Confidential Information (as defined
in [20] of the Statement
of Claim) or any part of it.
(e) Mr Reynolds pay Spotless damages and/or equitable compensation for breach
of statutory/fiduciary and/or contractual duty.
(f) Mr Reynolds pay Spotless damages for breach of copyright.
(g) Mr Reynolds pay Spotless additional damages for breach of copyright.
(h) Mr Reynolds pay Spotless statutory interest on the amounts awarded in
sub-paragraphs (e) to (g) above.
(i) Mr Reynolds pay the costs of Spotless of the proceeding.
- The
damages claims were quantified in closing submissions in the following way.
- Damages
claimed for breach of duty/breach of contract were under two
headings:
(1) Zoo Project: net present value of expected profits of
Spotless of $996,556 plus loss of efficiency gains of $50,000-$100,000;
and
(2) Wasted Expenditure: 50% of salary between March 2009 and October 2009 of
$44,784 and 25% of salary between November 2008 and February
2009 of $11,249.
- Damages
claimed for breach of copyright under s 115(2) or s 115(4) of the Copyright
Act were for –
(3) Use of New Template Spotless Financial
Model for Zoo Project – in the same loss as the Zoo Project claim; and
alternatively
for damages at large of $15,000 (s 115(2));
(4) Use of Old Template Spotless Financial Model for Botanic Gardens Project:
damages at large of $15,000 (s 115(2)); and
(5) Additional damages at large of $30,000 (s 115(4)).
- The
amount of equitable compensation to which Spotless will be entitled for breach
of the employment obligations is the amount necessary
to restore Spotless to the
position which it would have enjoyed but for the wrongful conduct. The remedy
of equitable compensation
is more absolute in nature than the common law
obligation to pay damages for tort or breach of contract. It is not necessary
to
consider specifically foreseeability and remoteness. In any event, in the
present circumstances, those concepts would not feature
so as to limit the
recoverable damages. Spotless contends that all it needs to show is “that
the breach of duty was a cause of the loss suffered, not the
cause”. The inquiry is simply whether the loss would have happened if
there had been no breach. This has been described as
a more stringent causal
test than ordinarily applies at common law: see eg O’Halloran v R T
Thomas & Family Pty Ltd [1998] NSWSC 596; (1998) 45 NSWLR 262 at 272-278; Beach
Petroleum NL v Kennedy [1999] NSWCA 408; (1999) 48 NSWLR 1 at 90-94; Maguire v Makaronis
(1997) 188 CLR 449; Southern Real Estate Pty Ltd v Dellow [2003] SASC 318; (2003) 87
SASR 1; AMP Services Ltd v Manning [2006] FCA 256 at [64]- [69].
- The
Court is also entitled, with the full benefit of hindsight, not to speculate
against the interest of the plaintiff. In GM & AM Pearce & Co Pty
Ltd v Australian Tallow Producers & Ors [2005] VSCA 113 at [71] per
Warren CJ (Chernov and Dodd-Streeton JJ
agreeing):
This allows the plaintiff to lead only a minimum of evidence to discharge the
evidentiary burden of causation. Indeed, in this regard
it has been said that
“[e]quity must strive to repair the breach of fiduciary duty lest the
fiduciary in default be exonerated
too easily ... [and] the courts be seen to
wink at wrong-doing.
- Further,
in assessing equitable compensation, the Court may make a determination on the
basis of loss of opportunity. As Finkelstein
J stated in AMP Services Ltd v
Manning at [69]:
When dealing with equitable compensation a court is often faced with the
challenge of placing a monetary value on an elusive loss
such as a “loss
of opportunity”, a loss that defies precise measurement:
O’Halloran v R T Thomas & Family Pty Ltd [1998] NSWSC 596; (1998) 45 NSWLR 262,
273 adopting Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR
(4th) 129, 163. To this end the court is permitted to
use somewhat subjective “tools” in arriving at a valuation; tools
such
as commonsense and general notions of justice and
fairness.
- Ultimately,
the amount of equitable compensation that the Court will order if the applicants
succeed in their claim based on breach
of fiduciary duty/breach of confidence is
a matter of discretion. It will be determined by a process of “judicial
estimation
on the available indications”.
- A
compensation order under s 1317H of the Corporations Act will only be
granted if damage “resulted from” the contravention of ss 182(1) and
183(1). In Adler v Australian Securities and Investments Commission
[2003] NSWCA 131, the New South Wales Court of Appeal held that the meaning of
the words “resulted from” in s 1317H did not import the same
stringent causal enquiry that applied in respect of breach of fiduciary duty.
Rather, the words meant that
“only the damage which as a matter of fact
was caused by the contravention can be the subject of an order for
compensation”
(at [709]). The Court in that case likened the causal
enquiry under s 1317H to that applicable under s 82 of the Trade Practices
Act 1974 (Cth). Section 82 of the Trade Practices Act 1974 (Cth) has
been held to take up the “common law practical or common-sense concept of
causation” discussed in March v Stramare (E & MH) Pty Ltd
[1991] HCA 12; (1991) 171 CLR 506.
- For
breach of contract, the relevant causal enquiry was recently described by
McKeekin J in Deeson Heavy Haulage Pty Ltd v Cox [2009] QSC 277; (2009) 82 IPR 521 at
[111] as follows:
The relevant test in these circumstances, of whether a breach of contract is
causally significant, was described by Thomas JA in
Wylie v ANI
Corporation in the following terms:
In contract cases where competing causes exist it seems to be recognised that
liability will be found only if the defendant’s
acts can be regarded as of
equal or close to equal potency with other
causes.
I note Thomas JA’s reference in Wylie to Devlin J’s comment in
Heskell v Continential Express Limited that “... the cause of loss
has to be ascertained by the standard of commonsense of the ordinary man.
Commonsense is a blunt
instrument not suited for probing into minute points, and
I cannot believe that if the ordinary man thinks that two causes are of
approximately equal efficacy, he cannot say so without being interrogated on
fine distinctions”.
- In
circumstances where the breach of employment obligations has resulted in a
failure on the part of the respondent to property perform
his/her duties to
their employer, damages may also be awarded by reference to either the net value
to the employer of the work the
employee would have done if properly performing
his/her duties or, if it is not possible to assess that value, the employer may
claim
expenditure wasted as a result of the employee’s breach. See
generally Oldcastle v Guinea Airways Ltd [1956] SASR 325. In this
matter, such considerations do not appear to me to be an apt basis to assess
damages payable to Spotless.
- In
the case of claims for breach of copyright, the purpose of an award of damages
for infringement of copyright is to compensate
copyright owners for the loss
which they have suffered as a result of the defendant’s breach: see
Interfirm Comparison (Australia) Pty Ltd v Law Society of NSW (1975) 6
ALR 445 at 466 per Bowen CJ; A/Asian Performing Rights Assn Ltd v Grebo
Trading Co Pty Ltd (1978) 23 ACTR 30 per Blackburn CJ. Accordingly, there
is no one fixed method of assessment which can be applied to all cases, and
damages will therefore
need to be assessed by the Court according to the
circumstances of each case.
- In
some instances, the appropriate measure will be the fee that the copyright owner
might otherwise have fairly charged for the use
of their work by the defendant,
a task that may be relatively straight forward where the applicant has a
practice of licensing its
material or where there are readily available market
comparators. In other situations, where licensing would be highly unlikely
but
the parties are in actual or potential competition, loss of a commercial
opportunity, such as the loss of profit on a potential
contract or potential
sponsorship arrangement may be a more appropriate measure, so long as this is
not purely speculative and can
be attributed to the infringing conduct of the
defendant: see generally Bailey v Namol Pty Ltd [1994] FCA 1401; (1994) 53 FCR 102. The
loss that is recoverable is loss of profit: see TS & B Retail Systems Pty
Ltd v 3Fold Resources Pty Ltd (No 3) [2007] FCA 151; (2007) 158 FCR 444 at 495. It
also includes secondary loss such as the loss of sales of non-copyright work
that is sold with the copyright work. The
issue of whether or not such
secondary loss is recoverable is one of causation.
- Further,
where a claim of copyright infringement in respect of an unpublished work is
made together with a claim for breach of confidence,
the measure of damages will
generally be the same in each case and will not be awarded cumulatively:
Interfirm Comparison (Australia) Pty Ltd v Law Society of NSW (1975) 6
ALR 445; Fortuity Pty Ltd v Barcza (1995) 32 IPR 517 at 532.
- However,
in certain circumstances, the assessment of damages for copyright may simply be
“at large”. That will be the
case where, for example, the applicant
has no previous practice of licensing the copyright material and is unable to
prove any specific
loss of commercial opportunity as a result of the
respondent’s infringement of that copyright. In such cases, the Court
will
seek to give “what amount I think right as if I were a jury”
and the fact that damages cannot be calculated precisely
should not prevent the
Court from making an award of damages, even if some element of speculation and
guesswork is involved: see
generally Fenning Film Service Ltd v
Wolverhampton, Walsall and District Cinemas, Limited [1914] 3 KB 1171 at
1174; Autodesk Australia Pty Ltd v Cheung (1990) 94 ALR 472 at 477 per
Wilcox J; Columbia Picture Industries Inc v Luckins (1996) 34 IPR 504 at
510 per Tamberlin J; Enzed Holdings Ltd v Wynthea Pty Ltd [1984] FCA 373; (1994) 3 IPR
619 at 637 per Sheppard, Morling and Wilcox JJ; Foxtel Management Pty Ltd v
Mod Shop Pty Ltd [2007] FCA 463; (2007) 165 FCR 149 at [315]- [336] per Siopis J.
- Even
if the plaintiff cannot establish that it has suffered any damage as a result of
the infringement of its copyright, it is “entitled
to nominal damages to
vindicate the invasion of its proprietary rights”: MJA Scientifics
International Pty Ltd v S C Johnson & Sons Pty Ltd (1999) 43 IPR 275 at
281 per Sundberg J.
- The
Court also has a statutory discretion to award additional damages under s 115(4)
of the Copyright Act having regard to the flagrancy of the infringement,
the need to deter similar infringements of copyright, the conduct of the
defendant
after the act constituting the infringement, any benefit shown to have
accrued to the defendant by reason of the infringement, and
all other relevant
matters.
- So
far as the origin of s 115(4) is concerned, Legoe J of the Supreme Court of
South Australia has commented that the provision gave
an Australian Court
“the widest possible discretionary power to compensate the plaintiff for
its loss and damage occasioned
by the infringement, whether such loss or damage
is classified as of an exemplary or aggravated or even punitive nature”:
Concrete Systems Pty Ltd v Devon Symonds Holdings Ltd (1978) 20 SASR 79
at 85.
- Infringement
of copyright will be “flagrant” if it is knowing and deliberate. In
Fortuity Pty Ltd v Barcza (1995) 32 IPR 517 at 533, where a disloyal
employee copied her employer’s copyright material in the course of
preparing to launch her own business
and solicited the customers of her employer
while still engaged by the latter, the Court found this to be a flagrant
infringement
of copyright and that “additional damages should be awarded
... as an example to those in the community ... who might be tempted
to make
unfair use of the work of others in similar fashion”.
- As
regards the consideration of “any benefit” shown to have been
accrued to the defendant for the purposes of assessing
additional damages, it
does not import any particular quantitative or qualitative requirement. Even
though there is no precise evidence
as to the profits or income derived by the
defendant as a result of their infringing conduct, courts will readily assume
that their
activities are profitable and that the use of the plaintiff’s
copyright material was not unimportant to its success. There
is here no
evidence upon which I could assess the benefit to Mr Reynolds. His relationship
with Blanco Catering had been more or
less set. The benefits of the Zoo
project, and of the Botanic Gardens tender, to Blanco Catering are not
identified. The claim
against Blanco Catering has been resolved.
- In
Flags 2000 Pty Ltd v Smith [2003] FCA 1067; (2003) 59 IPR 191 at 198, Goldberg J commented
that there was no necessary or proportionate relationship between an award of
compensatory damages under
s 115(2) and an award of additional damages under s
115(4). However, often additional damages will not be awarded where
compensatory
damages are thought sufficiently large and vice versa. That
happened in Amalgamated Mining Services Pty Ltd v Warman International Ltd
[1992] FCA 542; (1992) 111 ALR 269 at 286-287 where Wilcox J
stated:
... had compensatory damages not justified an award as high as $3 million, I
would have imposed additional damages to take the award
to that figure. If
copyright protection is to mean anything, the court must take a severe view in
cases as blatant as this.
- I
have rejected the claim that Spotless should be compensated for Mr
Reynolds’ breaches of duty on the basis that, but for
those breaches, it
would have been awarded the Zoo project. I have reached the opposite conclusion
that, even if Mr Reynolds had
not breached his duties to Spotless, Blanco
Catering nevertheless would have been awarded the Zoo project. I have found
that the
source of the knowledge of Blanco Catering about the revised rental
offer made for the Zoo project on 21 August 2009 was not Mr Reynolds.
The
Spotless revenue projections facilitated Blanco Catering in tendering for the
Zoo project, but I consider that Mr Reynolds could
and would have produced
modelling to support Blanco Catering’s tenders in any event.
- Blanco
Catering, through Mr Reynolds, benefited from being able to use the Spotless
templates first to determine how it would present
its rental proposal for the
Botanic gardens tender. But it did not use Spotless’ confidential
modelling information for that
purpose. The use of that document was as a
“pro forma” with Mr Reynolds himself creating the input data. It
also used
the Spotless templates for that purpose in relation to the Zoo
project. In addition, in relation to the Zoo project, Mr Reynolds
provided the
Spotless revenue projections and at one point its possible the (modelled) rental
proposal to Blanco Catering. The revenue
projections, as distinct from the form
and structure of the document, were used in the modelling done for Blanco
Catering. That
information did not result in Blanco Catering initially making a
rental proposal the same as, or even like, that of Spotless. Subsequently,
when
Blanco Catering did make a rental proposal directly to match (or in effect to
match but be slightly different from) the revised
Spotless proposal, I have
found on balance that neither Mr Reynolds nor Blanco Catering obtained access to
the terms of the revised
Spotless proposal from any Spotless document. The
revenue projections taken from the Spotless template were apparently still
accessed
by Blanco Catering, although in minor respects Mr Reynolds made
some timing and other slight adjustments. For instance, the Blanco
Catering
revenue projections developed for its first rental proposal, as modelled, were
different from the date taken from the Spotless
template. There was a need for
Blanco Catering, for its modelling purposes, to increase those revenue
projections if it were to
justify by its financial modelling the rental proposal
it finally made. It may have been comforted by being aware of the initial
Spotless revenue projections. I have noted above that, as Spotless itself said,
the projections might be altered if it were perceived
necessary to match or
better a competitor’s tender. I consider that, to the extent to which
Blanco Catering through Mr Reynolds,
adjusted the Blanco Catering modelling
using the Spotless revenue projections, it was to justify the Blanco Catering
revised matching
rental proposal. The result dictated the inputs, rather than
the reverse. That is, in my view, consistent with the evidence of
Mr Rutter to
which I have referred.
- The
proposed finding put forward by Spotless in its final submission was that
Mr Reynolds’ “use of Spotless confidential
financial
information as to the revenue it expected to make from the Zoo project and the
rental it was prepared to pay, enabled Blanco
Catering to secure the Zoo Project
and resulted in Spotless losing it”. I do not make that finding.
- I
therefore do not make an award of damages for loss of profits as sought in
[119(1)] above. I have also indicated earlier in these
reasons why I do not
make an award of damages for awarded expenditure as also sought in [119(2)]
above.
- In
my judgment, having regard to the findings, Spotless should recover from
Mr Reynolds an amount of general damages for the breach
of his duties in
the order of $100,000. There is no science to that figure. It reflects, but
only in a very general way, the loss
of opportunity to secure the Zoo project
because the use of the Spotless templates made the task of Mr Reynolds in doing
the financial
modelling for Blanco Catering for its rental proposal easier and
because its revenue projections may have given it some comfort when
it decided
to match the revised Spotless rental offer, as well as the general
considerations relating to the assessment of such damages.
It was not asserted
that, without the use of the template, Mr Reynolds could not have done modelling
of a similar nature –
perhaps not so sophisticated – or that some
form of modelling could not have been done using a commercially available
spreadsheet
and program. The same comments apply in respect of the use of the
first Spotless template in relation to the Botanic Gardens project.
- In
reaching that conclusion, I have had regard also to the damages for breach of
copyright I would have awarded, but for the fact
that it would be doubling up.
Having regard to the matters to which I have referred, I would have assessed the
damages of Spotless
in the particular circumstances:
(a) for breach
of copyright in the first template, in relation to the Botanic Gardens project
at $5,000;
(b) for breach of copyright in the second template and including the revenue
data in relation to the Zoo project at $30,000; and
(c) for the circumstances in which those breaches of copyright occurred,
namely that Mr Reynolds knew it was wrong to do so and used
the templates
“because they were readily available to me and I considered it unnecessary
to reinvent the wheel”, a further
$10,000.
- To
avoid that issue of duplication, especially as the conduct which informs my
assessment of general damages for breaches of duty
takes account of the conduct
which constitutes the breaches of copyright, I will make no separate order for
damages for breach of
copyright. I am conscious that the copyright may not have
vested in Mr Reynolds’ employer Spotless Management Services Pty
Ltd. But
in the course of the hearing and in the final submissions no especial focus was
given to that issue.
- I
will also make injunctive orders, more or less along the lines requested by
Spotless but having regard to the findings made above.
I will hear the parties
as to costs. For that purpose, the parties are given a time within which to
file and serve any submissions
as to costs, and I will determine that issue on
those written submissions. I have anticipated that, in the first instance,
Spotless
will simply seek the costs of the proceedings from Mr Reynolds.
- The
orders of the Court are:
- Mr
Reynolds, whether by himself, his servants or agents or any companies controlled
by him, be restrained for a period of three years
from the date of these orders
from using or disclosing the financial model templates of Spotless in the form
used and attached to
any of:
(d) the email of 22 August
2009 from Paul Reynolds Alliance Catering email account to
christopher.horner@blancofood.com.au which attached
an Excel spreadsheet with
enclosed financial information;
(e) the two emails of 30 July 2009 and an email of 1 August 2009 from the
said account to Mr Blanco: steve@italiancentre.com.au which
attached financial
models that set out financial information in relation to the Zoo project;
(f) the two emails of 27 and 28 August 2009 from the said account to Mr
Blanco: steve@blancofood.com.au which attached a financial
model that set out
financial information in relation to the Zoo project.
- Mr
Reynolds, whether by himself, his servants or agents or any companies controlled
by him, be restrained for a period of three years
from the date of these orders
from approaching or causing to be approached any of the customers (or former
customers) of Spotless
with the intention of inducing such customers (or former
customers) to deal with him (whether by himself, his servants or agents,
or any
companies controlled by him or in which he has an interest, or otherwise
howsoever) in any way which involves use of disclosure
of the financial model
templates referred to above, or the information contained in either of the said
financial model templates.
- Within
seven days, Mr Reynolds deliver up upon oath to Spotless all documents and every
other recording under his possession, power
or control containing the
information the subject of Order 1 hereof or any part of it.
- Within
seven days Mr Reynolds serve an affidavit which confirms that he has delivered
up to Spotless all documents and every other
recording under his possession,
power or control containing the information the subject of Order 1 hereof or any
part of it.
- Mr
Reynolds pay to Spotless Management Services Pty Ltd damages of $100,000 for
breach of duties owed to it.
- Spotless
and Mr Reynolds have liberty to file and serve such written submissions as to
costs as they may be advised:
(a) Spotless within 14 days of the
date of these orders;
(b) Mr Reynolds within 14 days of the service of the Spotless
submissions;
(c) Spotless reply within a further seven days of the date of service of
Mr Reynolds’ submissions to the intent that the Court
will make an
order for costs of the proceedings after consideration of the written
submissions as to costs.
- I
observe that the injunctive orders are more confined than those sought by
Spotless because, in respect of certain matters, I did
not find Mr Reynolds had
breached his duties to Spotless in the way asserted. I have also limited the
period of the injunctions,
because it is generally undesirable to impose
injunctions of indefinite duration and the period of three years, in the light
of the
evidence, is likely to have exhausted any real benefit to Spotless of the
material referred to in those orders.
- I
note that interest at the prescribed rate will accumulate on the judgment sum
from the date of these orders.
I certify that the preceding one hundred and
fifty (150) numbered paragraphs are a true copy of the Reasons for Judgment
herein of
the Honourable Justice Mansfield. |
Associate:
Dated: 24 August 2011
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