In the recent decision of Dargan Financial Pty Ltd ATF the Dargan Financial Discretionary Trust (trading under "Home Loan Experts") v Nassif Issac [2017] NSWSC 1077, the Supreme Court of New South Wales found that a contractor breached his post-engagement confidentiality obligations by taking and using a client list from his former firm, in circumstances where the client names were accessible on the former firm's Facebook page. The Court also found that the contractor had breached his post-engagement obligations, by soliciting and accepting approaches from clients of his former firm. In this article, we focus on the Court's findings on the confidentiality claims and the lessons for employers.

Background

Mr Isaac, the contractor, was engaged as a mortgage broker of Home Loan Experts from 8 August 2012 to 30 November 2016 pursuant to a contractor agreement (Agreement). On 30 November 2016, Mr Isaac terminated his Agreement with Home Loan Experts and commenced work as a mortgage broker with its competitor, RAMS Financial Group Pty Ltd (RAMS), in December 2016.

At the time of Mr Isaac's departure, he was directly managing 25% of Home Loan Experts' clients. Mr Isaacs also had access to client lists, which contained sensitive financial information of Home Loan Experts' clients. Mr Isaacs acknowledged that he retained, used and disclosed these lists to RAMS. After termination of the Agreement with Home Loan Experts, Mr Isaacs continued to provide services to Home Loan Experts' clients at RAMS. Mr Isaac argued that Home Loan Expert's client list was no longer confidential, because some of its clients were identifiable from postings on Home Loan Experts' Facebook page.

Home Loan Experts commenced proceedings against Mr Isaacs, claiming that Mr Isaacs breached the Agreement and, among other things, was in breach of the equitable duty of confidence by reason of Mr Isaacs retaining and continuing to use Home Loan Experts' client list at RAMS (Confidentiality Claim).

Contractor Agreement

Relevant to the Confidentiality Claim, the Agreement specified that:

  1. "the customer and lead database...[was] the property of [Home Loan Experts]"; and
  2. Mr Isaacs was required to:
    1. "return or destroy [Home Loan Experts'] Intellectual Property"; and
    2. "during the Agreement and for a period of not less than 10 years after the termination of this Agreement, keep secret and confidential all Confidential and Proprietary Information and not use, publish, discuss or disclose any confidential information regarding [Home Loan Experts'] business, including..., among other things, details of clients (including without limitation, client lists and client details)...".

The confidentiality claim

In his decision, Sackar J had to consider whether the information which Home Loan Experts argued to be confidential had a quality of confidence, and whether, by any public disclosure of that information, it had lost its quality of confidence.

The principles

In making his decision, Sackar J referred to the following established principles on confidential information and the equitable duty of confidence:

  1. In order to bring an action for breach of the equitable duty of confidence, information which is alleged to be confidential:
    1. must have the necessary quality of confidence
    2. must be imparted in circumstances importing an obligation of confidence; and
    3. there must be unauthorised use of that information. 1
  1. Inherent in these requirements is need for specificity and confidentiality, that is:
    1. material that is asserted to be confidential must be capable of being specifically identified, so that the court can make an assessment of its confidentiality. This will be particularly relevant in circumstances where the whole or part of the information which is claimed to be confidential is in the public domain; and
    2. Information will held to be confidential where it is not 'public property and public knowledge', or it is constructed from information which, while in the public domain, has some 'skill and ingenuity of the human brain' applied. 2
  1. The quality of confidence of certain information may be lost once it enters the public domain.3

The decision

Sackar J rejected Mr Isaac's argument that the client list had lost its 'quality of confidence', because some of its clients were identifiable from postings on Home Loan Experts' Facebook page. Rather, Sackar J found that the clients' postings on Facebook did not diminish the quality of confidence of the client list, in circumstances where:

  1. not all of the Home Loan Expert's client's had posted publically on Home Loan Experts' account
  2. details beyond the names of the clients could not have been derived from the Facebook posts; and
  3. due to privacy settings, it may not have been possible to access any further information, beyond their name, or making contact with the clients, and furthermore, that the client list contained not only the contract details of the client.

Specifically, Sackar J found that the client list contained not only the identity and contact details of the client, but also more intimate information concerning the clients' assets and liabilities and their ability to service loans - the latter of which was of the greatest commercial value to Home Loan Experts. Sackar J found that this information 'plainly has the necessary quality of confidence and [was] imparted in circumstances importing an obligation of confidence given its commercial value and the degree of detail and intimacy concerning the financial profile of its clients' at [224].

Sackar J held on this basis that Mr Isaacs had breached his contractual and equitable duties of confidence by retaining and using Home Loan Experts' client list.

On this basis, in respect of the Confidentiality Claim, Sackar J ordered injunctions, which restrained Mr Isaac from using or disclosing Home Loan Experts' client list and ordered damages for the loss incurred from the breach of Mr Isaac's contractual obligations.

Lessons for employers

The decision in Dargan Financial Pty Ltd ATF the Dargan Financial Discretionary Trust (trading under "Home Loan Experts") v Nassif Issac [2017] NSWSC 1077 highlights the need for employers to ensure that:

  1. your business deals with confidential information in a way that ensures that it may be characterised as confidential. In particular, consider how confidential information is shared with employees or contractors, and whether that information is clearly imparted to them in confidence;
  2. your business controls how confidential information is shared within the business – for example, restricting access to confidential information to key staff, and ensuring information is not broadly published within your business or outside your business; and
  3. your business protects confidential information which is disclosed during the employment relationship. In particular, ensure that your employment contracts and contractor arrangements specify information which is confidential to your business and how workers are to deal with any confidential information they have access to, both during and after employment.

Footnotes

1Coco v A N Clark (Engineers) Ltd[1969] 65 RPC 41, per Megarry J.

2 In Streetscape Projects (Australia) Pty Ltd v City of Sydney [2013] NSWCA 2, per Barrett JA at [158].

3 Ibid, at [162].

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.