The non-contractual ties that bind

6 September, 2018

In the recent (22 November 2016) decision of Link 2 Pty Ltd v Ezystay Systems Pty Ltd [2016] NSWCA 317, the NSW Court of Appeal had cause to re-visit the test of whether information is confidential and the meaning of a restraint against using certain confidential documents.

Link 2 Pty Ltd (Link 2), the first appellant, owns and operates a student accommodation business. Mr Greg Riches, the third appellant, is the sole director and secretary of the company.

Ezystay Systems Pty Ltd (Ezystay), the first respondent, also provides student accommodation services. Prior to the establishment of Link 2, Mr Riches was a director and shareholder of Ezystay and various other companies in the Ezystay group.

Ezystay commenced proceedings in the Supreme Court of NSW alleging, amongst other things, that Mr Riches had used and/or copied Ezystay’s confidential information for the benefit of Link 2. The confidential information identified including documents referred to in the proceedings as the ‘Business Manual’ and ‘Systems Manual’ (Manuals). The evidence established that Mr Riches had retained copies of the Manuals (he said “inadvertently”) subsequent to execution of the Deed of Settlement governing his exit from the Ezystay group.

Ezystay was largely successful at first instance before Bergin CJ in Eq. Pursuant to the orders made by her Honour, the appellants were prohibited from directly or indirectly using or copying the Manuals or documents derived therefrom (Permanent Injunction).

The appellants sought the leave of the NSW Court of Appeal to challenge the making of the Permanent Injunction. They contended that the primary judge erred on various grounds, including in finding that the Manuals were confidential.

Effect of the Permanent Injunction

The relevant question as to whether the appellants required leave to bring the appeal was whether there was a realistic prospect that the appeal would change their wealth by more than the monetary threshold ($100,000). If not, leave was required.

The appellants submitted that that this question should be answered in the affirmative on the basis that if the Permanent Injunction precluded them from using any of the practices or procedures described in the Manuals, then there was a “real and substantial risk” that Link 2 would not be able to operate its student accommodation business at all (which generated revenue of around $1 million and made a profit of around $90,000 in the past financial year) and would be insolvent.

The Court of Appeal (Ward JA; with whom Bathurst CJ and Leeming JA agreed) rejected this submission as follows (at [97]-[98]):

“… the difficulty I have with the appellants’ submission as to the realistic worth or value of the issue raised in their challenge to the terms of [the Permanent Injunction] is that nothing in that order is addressed to the question of what practices or procedures may be adopted in the provision of student accommodation by Link 2 in the future. Rather, it is addressed to the use or copying of certain business documents or documents (derived) from them.

To take a simple example, it cannot seriously be suggested (nor do I understand the respondents to be suggesting) that if Link 2 provides weekly cleaning of the accommodation premises this would be a use or copying of the Manuals …”

The Permanent Injunction would, for example, restrain the appellants from having “physical reference” to Ezystay’s confidential documents when compiling their own documents (at [146]).

In the circumstances, the Court of Appeal was not persuaded that the commercial effect of leaving the Permanent Injunction as presently framed “would be the potential loss of an income producing business (let alone the inevitable loss of such a business)”. Accordingly, leave to appeal was required.

The Court of Appeal decided that leave to appeal should not be granted – including for the reason that the Permanent Injunction as it stood did not give rise to a substantial injustice to the appellants. It went on to express its views on the various grounds of appeal, including on the question of whether the Manuals contained confidential information.

Did the information have the necessary quality of confidentiality?

In Wright v Gasweld (1991) 22 NSWLR 317, Kirby P referred to “the spectrum which runs between information which is:

(i)         Publicly available or trivial;
(ii)        Common to a particular trade or calling even if not publicly known;
(iii)       Confidential information properly so called;
(iv)       Secrets that attract equitable protection whether or not there is a contractual agreement”.

At first instance, Bergin CJ in Eq noted that the Business Manual “contains the model (processes and steps) pursuant to which Ezystay operates its business. … It is a gathering together of steps to be taken within the business process which (it would be hoped) if followed would give Ezystay a competitive edge over other businesses in the same market.” Her Honour also noted that “there are some aspects of the contents of the Business Manual, for instance, the Welcome Letter and the Departure Letter that cannot on their own be confidential information because they are provided to the students on arrival and on departure respectively … However that does not mean that the Business Manual cannot be said to be confidential”. In all the circumstances, including that access to the document was restricted to certain senior persons within the group and that Ezystay had expended time and cost in putting together the detail of the document, her Honour concluded that the Business Manual was confidential.

As for the Systems Manual, Bergin CJ in Eq noted that this had been prepared by Mr Riches with the assistance of others for submission to the Sydney College of English. It had four sections entitled “Introduction to Ezystay”, “Accommodation”, “Terms and Conditions” and “Operations and Procedures”. The appellants submitted that the document simply provided a broad overview of the services provided by Ezystay, and that it was designed to be in the nature of advertising. The appellants further submitted that the information in the Systems Manual fell into categories (i) and (ii) in Wright v Gasweld. Her Honour stated: “There is no doubt that the Systems Manual includes material referring to attributes of Ezystay’s business of which a person could become aware upon staying in Ezystay’s accommodation. Although it includes reference to these attributes, skill and work has obviously gone into compiling it and it appears to have been in preparation for a tender for the business of a prospective client”. Her Honour concluded that the Systems Manual also contained confidential information.

Views of the Court of Appeal on confidentiality of Manuals

After reviewing the reasoning of the primary judge as summarised above, the Court of Appeal stated at [113] that (emphasis added):

“The appellants employed a veritable thesaurus of terms to describe what they contend was the banality of the information claimed by the respondents to be confidential. However, the real issue … is whether skill and ingenuity were used in the compilation of the Manuals so as to confer confidentiality on the finished product notwithstanding the commonplace nature of much of their contents.”

The Court of Appeal referred at [124] to the following statements of Campbell JA in Del Casale v Artodemus (2007) 73 IPR 326 (emphasis added):

“… information is “of a confidential nature” if it is not “public property and public knowledge”, or if it is “constructed solely from materials in the public domain”, to which “the skill and ingenuity of the human brain” has been applied. This is a fairly undemanding test”.

The Court of Appeal concluded at [130] that had it been necessary to determine, the primary judge did not err in concluding that the compilation of information embodied in the Manuals “involved a sufficient degree of skill and ingenuity to meet the (fairly undemanding, according to Del Casale) test required in order to make the Manuals confidential”. The Manuals were found to be confidential “as a compilation of the information, not because much of them was confidential if taken alone” (at [143]).

Take-home points

The confidential quality of information does not depend on its being in the nature of a trade secret. The test is less demanding than that.
The fact that much of the information in a document is publicly available or common knowledge is no impediment to a document being confidential, provided it can be said that the maker has used “skill and ingenuity” in bringing the document into being.
A restraint against using and/or copying certain confidential documents is not the same as a restraint against using the ideas and information contained with the documents. The former will not prohibit the creation of future documents ‘from scratch” that incorporate the same or similar ideas to those contained in confidential documents.

published by

Andrew Lacey

Managing Principal

contributors

Guy Lewis

Senior Associate

Recent Insights

View all

Litigation and Dispute Resolution

Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract. Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed. Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)." Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter. Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship. Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the dictionary.com definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest. What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan

29 August, 2023

Government

Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane [2023] NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty. The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.

Published by Leighton Hawkes

18 August, 2023