A recent decision by the Federal Court comes amidst the start of the festive season but has left neither party with any holiday cheer.
SAI Global Property Division Pty Ltd (SAI) brought an action against Mr Liam Johnstone, alleging that prior to his resignation he had copied two computer files to a USB containing information about customers which was confidential to SAI. SAI further alleged that Mr Johnstone copied the files to another laptop which he used in the following weeks with his new employer (who was a competitor of SAI).
On the basis of these allegations, SAI asserted that Mr Johnstone had breached his employment contract with SAI, breached his obligations under sections 182 and 183 of the Corporations Act 2001 (Cth), breached his fiduciary duties owed to SAI, and infringed SAI's copyright in the files. SAI also alleged that Mr Johnstone had breached his employment contract by working for a competitor during the two week period after his resignation.
By the end of the hearing, Mr Johnstone had admitted all of the allegations above and had delivered up the laptop and USB. Mr Johnstone asserted that the reason for using the information was to see whether the customers of SAI Global were existing customers with his new employer.
The hearing itself concerned whether there should be an injunction, the availability of damages under Mr Johnstone's employment contract and under section 115(4) of the Copyright Act 1968 (Cth) (Copyright Act), and whether SAI incurred costs disproportionate to the importance and complexity of the matters in dispute.
SAI sought an injunction to prevent Mr Johnstone from disclosing to any person, or making any use of, any 'SAI Confidential Information' except to the extent required by law or permitted by prior written consent of SAI.
Mr Johnstone opposed the injunction on the basis that there was no evidence of any risk of infringing copyright or breaching confidence. In addition, he argued that he had not made any threats to disclose the information and did not have any capacity to disclose the information.
Despite these arguments, Justice Moshinksy held that it was appropriate to grant injunctive relief in circumstances where Mr Johnstone copied confidential information before he resigned from SAI, subsequently copied those files onto his new laptop, and accessed those files on numerous occasions. Moreover, his Honour held it was appropriate for the injunction to extend to 'SAI Confidential Information' more broadly, particularly because Mr Johnstone had copied and used such information.
SAI argued that it was entitled to damages under its employment contract with Mr Johnstone, given that it paid Mr Johnstone for his services but did not receive the benefit that it should have received.
The Court held that SAI was entitled to compensation for the two week period in return for the benefit that it did not receive because of Mr Johnstone's breach of his employment contract. His Honour found it particularly relevant that the employment contract had an express obligation not to work for a competitor. As a result, Mr Johnstone was ordered to pay $4,230 for breach of his employment contract.
SAI only argued for nominal damages of $1 by way of compensation for Mr Johnstone's infringement of copyright. However, it also sought additional damages of $5,000 under section 115(4) of the Copyright Act.
Additional damages can be claimed under the Copyright Act where the plaintiff has established an infringement of copyright and the court is satisfied that it is proper to do so, having regard to the factors set out in section 115(4)(b) (including whether the infringement was flagrant and the need to deter similar infringements of copyright).
Although there were a number of mitigating factors, including the fact that Mr Johnstone had fully cooperated in the litigation by immediately delivering up the USB and making and affidavit and by not contesting subsistence or infringement, the Court held that the infringement was properly categorised as flagrant.
In particular, His Honour found that Mr Johnstone 'surreptitiously' copied the computer files to the USB and did not seek permission from SAI because he knew that SAI would not approve of his actions (for example, he failed to disclose the fact that he had the information during his exit meeting). In addition, his Honour found that there was a need for general deterrence. Therefore, an award of additional damages was appropriate in the circumstances.
The final issue was whether SAI had incurred costs which were disproportionate to the importance and complexity of the matters in dispute, having regard to sections 37M and 37N of the Federal Court of Australia Act 1975 (Cth).
Those sections effectively require the court to take into account the obligation to conduct proceedings in a way that is consistent with the overarching purpose when making a costs order in a civil proceeding. The overarching purpose includes the objective to resolve disputes at a cost that is 'proportionate to the importance and complexity of the matters in dispute'.
The evidence demonstrated that SAI had incurred $275,469 in legal costs. Justice Moshinsky found that this figure was disproportionate to the importance and complexity of the matters in dispute because:
- the important relief had been obtained by SAI by 11 December 2015 (shortly before all the documents and devices had been delivered up);
- the statement of claim was concise, there were no discovery or interlocutory fights and the affidavits filed since 12 December 2015 were very brief; and
- the remaining disputes were relatively minor.
Justice Moshinsky held that the dispute was not conducted in a way that was consistent with the overarching purpose, and this should be reflected in the costs order. As a result, Mr Johnstone was ordered to pay all of SAI's party-party costs in respect of the period up until 11 December 2015, but only 50% of SAI's party-party costs after this period (excluding costs for a forensic expert which were to be paid in full by Mr Johnstone).
Points of interest
Claims for additional damages are becoming increasingly popular, as it is often difficult for plaintiffs to demonstrate that they have suffered loss for which they should be compensated under section 115(2) of the Copyright Act. For instance, evidence concerning loss of revenue as a result of the defendant's conduct is not often easy to prepare or calculate. In cases of obvious infringement, the plaintiff can avoid this difficulty by claiming additional damages and pointing to the 'flagrancy' of the infringement or the need to deter such other obvious infringements.
This decision is also relevant to general practice in the Federal Court. From the costs orders made in this proceeding, it is clear that the Court considers it unacceptable to pursue all remedies at any expense. Further, the Court continues to emphasise that the pursuit of proper case-management and enforcement of the overarching purpose are obligations and not just guiding principles.