Citation: Woolworths Limited v Mark Konrad Olson & Anor [2004] NSWSC 849
Court: Supreme Court of New South Wales, Equity Division (Commercial List)
Date: 22 September 2004
Judge(s): Einstein J
Background
The plaintiff was a major Australian supermarket operator that had developed a substantial and commercially sensitive supply chain transformation program. The defendant was a senior employee who, while still employed, decided to accept a position with a major competitor. Before departing, he forwarded confidential documents containing detailed supply chain plans to his home computer.
The employer discovered the conduct and summarily dismissed the employee. It then commenced proceedings alleging breaches of fiduciary duty, breach of contract, and breach of copyright. Anton Piller relief (a form of search order allowing inspection and seizure of documents) had already been granted in related Federal Court proceedings. Those proceedings, along with proceedings in the Industrial Relations Commission under section 106 of the Industrial Relations Act 1996 (NSW), were cross-vested and consolidated for a joint hearing before the Supreme Court.
The employee's employment contract incorporated the employer's code of conduct, which required employees to declare any interest that could adversely affect the employer. The employer also sought to enforce a restraint of trade covenant preventing the employee from taking up employment with a competitor.
Legal Issues
- Whether the employee breached his fiduciary duty to the employer by forming an intention to take confidential information and by failing to disclose that intention
- Whether the employee breached his contract of employment, including the code of conduct obligation to declare conflicts of interest
- Whether the employee's conduct in copying and transmitting the documents constituted a breach of copyright under the Copyright Act 1968 (Cth)
- Whether the employer was entitled to exemplary damages
- Whether the restraint of trade covenant was valid and enforceable, and whether it could be read down to give it reasonable operation
- Whether summary dismissal of the employee was justified
Decision
Fiduciary duty and conflict of interest: Einstein J held that the conflict between the employee's duty and personal interest arose at the moment he formed the intention to dishonestly take and use the employer's confidential information for his own benefit. A further conflict arose from his failure to disclose that intention, as required by the code of conduct. The employee's fraudulent intent and active concealment meant the employer's summary dismissal was justified.
Confidential information and copyright: The supply chain plans were found to be genuinely confidential and commercially valuable. Evidence from the employer's witnesses established that the plans were unique and had taken considerable resources to develop. Disclosure to a competitor would have provided a material advantage. The court found that the copying and transmission of documents constituted a breach of copyright.
Damages: Despite findings of wrongdoing, the court awarded only nominal damages. There was no evidence of any actual pecuniary loss suffered by the employer as a result of the employee's conduct, and no evidence of any profit made by the employee from the information taken. The court declined to award exemplary damages in the circumstances.
Restraint of trade: The restraint of trade covenant was held to be invalid. The court found it was not possible to read down either the geographic area or the duration of the restraint to give it a reasonable and enforceable operation under the Restraints of Trade Act 1976 (NSW). The court emphasised that it cannot redraft a restraint provision: if the provision as drafted is unreasonable and cannot be saved by reading it down, it must fail entirely.
Orders Made
- The judgment was made available only to the parties and their legal representatives, subject to any later order.
- A confidentiality order made on 22 September 2004 was subsequently varied on 24 September 2004, with specific identified passages of the judgment restricted from public access.
- Limited relief was granted overall; short minutes of order were to be brought in by the parties.
Key Takeaways
- A fiduciary conflict of duty and interest arises at the moment an employee forms a dishonest intention to misappropriate confidential information, not merely when the misappropriation is executed.
- The further failure by an employee to disclose that conflict, in breach of a contractual obligation to do so, constitutes an independent and compounding breach of both fiduciary and contractual duties.
- Nominal damages only will be awarded where an employer establishes serious wrongdoing but fails to adduce evidence of actual pecuniary loss or profit obtained by the employee.
- Under the Restraints of Trade Act 1976 (NSW), a restraint provision that is unreasonable and cannot be read down in either its geographic scope or duration will be struck down in its entirety; a court will not redraft the clause to save it.
- Cross-vesting mechanisms under the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) can consolidate proceedings across the Federal Court, Supreme Court, and Industrial Relations Commission into a single joint hearing where the factual and legal issues substantially overlap.
Legislation and Cases Referenced
Legislation:
- Copyright Act 1968 (Cth)
- Copyright Amendment (Digital Agenda) Act 2000 (Cth)
- Corporations Act 2001 (Cth)
- Evidence Act 1995 (NSW)
- Industrial Relations Act 1996 (NSW), s 106
- Interpretation Act 1987 (NSW)
- Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth)
- Restraints of Trade Act 1976 (NSW)
- Trade Practices Act 1974 (Cth)
Selected Cases Cited:
- Bell v Lever Brothers Limited [1932] AC 161
- Boardman v Phipps [1967] 2 AC 46
- Boston Deep Sea Fishing & Ice Company v Ansell (1888) 39 Ch D 339
- Bristol & West Building Society v Mothew [1998] Ch 1
- Coco v AN Clark (Engineers) Limited [1969] RPC 41
- Concut Pty Limited v Worrell (2000) 176 ALR 693
- Faccenda Chicken Ltd v Fowler & Ors [1987] Ch 117
- Harris v Digital Pulse Pty Limited (2003) 44 ACSR 390
- Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
- Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535
- Herbert Morris Ltd v Saxelby [1916] 1 AC 688
- Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443