Primacy Underwriting Agency Pty Ltd (formerly Landmark Underwriting Agency Pty Ltd) v Kilborn [2007] NSWSC 158 (2 March 2007)

Last Updated: 6 March 2007

NEW SOUTH WALES SUPREME COURT

CITATION: Primacy Underwriting Agency Pty Ltd (formerly Landmark Underwriting Agency Pty Ltd) v Kilborn [2007] NSWSC 158


JURISDICTION: Equity Division

FILE NUMBER(S): 2942/06

HEARING DATE{S): 31 October 2006

JUDGMENT DATE: 2 March 2007

PARTIES:
Primacy Underwriting Agency Pty Ltd (formerly Landmark Underwriting Agency Pty Ltd) (P)
Michael Kilborn (D1)
James Hooper (D2)

JUDGMENT OF: Young CJ in Eq

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable



COUNSEL:
J Hewitt (P)
G A Sirtes (D)

SOLICITORS:
DLA Phillips Fox (P)
Eakin McCaffery Cox (D)


CATCHWORDS:
CORPORATIONS [105]- Officers' duties- Defendants held to be in breach of ss 182 and 183 of Corporations Act- Declaration of contravention sought under s 1317E- Declaration can only be sought by ASIC.
INTELLECTUAL PROPERTY [112]- Confidential information- Whether information on "the plaintiff's clients" too broad to be considered confidential- Need for definition of what "the plaintiff's clients" covers.

LEGISLATION CITED:
Corporations Act 2001 (Cth), ss 182(1), 182(2), 183(1), 183(2) , 1317E, 1317J
Director of Public Prosecutions Act 1983 (Cth)


CASES CITED:
Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717
Foyster v Foyster Holdings Pty Ltd [2002] NSWSC 768
Freedom Motors Australia Pty Ltd v Vaupotic [2003] NSWSC 579
One.Tel Ltd v Rich [2005] NSWSC 226; (2005) 190 FLR 443; (2005) 53 ACSR 623

DECISION:
Court not able to make declaration pursuant to s 1317E of Corporations Act as ASIC not a plaintiff. Orders proposed by plaintiff's solicitors to prevent defendants divulging confidential information made in amended form.


JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION


YOUNG CJ in EQ


Friday 2 March 2007


2942/06 – PRIMACY UNDERWRITING AGENCY PTY LTD (formerly LANDMARK UNDERWRITING AGENCY PTY LTD) v KILBORN (NO 2)

JUDGMENT

1 HIS HONOUR: On 23 October 2006, I delivered my reasons for judgment in this case. I held that the defendants who were former employees and directors of the plaintiff, breached their fiduciary and statutory obligations.

2 At para 81 of the judgment I said:

"... I think it must follow that there has also been a breach by each of the defendants of ss 182(1) and 183(1) of the Corporations Act. I say 'unfortunately', because I believe that under s 1317E(1) it is mandatory for me to make a declaration of contravention in the form of s 1317E(2). However, I have not heard counsel on that matter and I am willing for the argument to be reopened to persuade me that this is not a correct approach."

3 On 31 October 2006, I made certain final orders and noted:

"The remaining questions are:

(1) Whether it is necessary or appropriate in this case to consider whether there has been a contravention of ss 182 and 183 of the Corporations Act;

(2) If the answer to question (1) is 'yes', whether an order should be made under s 1317S(2) of the Corporations Act;

(3) Whether an order to be framed by the plaintiff's lawyers should be made preventing the divulging of confidential information."

4 I stood the matter over for further written submissions and formally reserved my decision. This is that reserved decision. I will deal with the questions in turn.

5 (1) Section 1317E(1) says that if a court is satisfied that a person has contravened certain provisions of the Corporations Act including ss 182(1) and (2) and 183(1) and (2) then the court must make a declaration of contravention.

6 Mr Sirtes, counsel for the defendants, says that whilst there is authority the other way (see Freedom Motors Australia Pty Ltd v Vaupotic [2003] NSWSC 579 per Davies AJ), s 1317E of the Corporations Act 2001 only applies to proceedings in which the relief is sought by ASIC. Barrett J so held in Foyster v Foyster Holdings Pty Ltd [2002] NSWSC 768 at [9] and Bergin J similarly in One.Tel Ltd v Rich [2005] NSWSC 226; (2005) 190 FLR 443, 462-3; [2005] NSWSC 226; (2005) 53 ACSR 623, 641 at [69]-[70].

7 Bergin J said in the latter case:

"[69] There are other aspects of Pt 9.4B that support this interpretation of the Act. If the corporation decides to apply and is allowed to intervene in the ASIC proceedings in which declarations of contravention are sought, it is precluded from addressing on the appropriateness of the making of a declaration of contravention. That supports the finding that declarations are only made when sought by ASIC. Additionally it would seem absurd for a Court in proceedings for compensation brought by a corporation, separate from any ASIC proceedings, to be required to make a declaration under s 1317E in those proceedings in which the party (the corporation) seeking the relief (the compensation order) is not only precluded from seeking such a declaration but is also, by inference, precluded from making any submission about that very step.

[70] I am of the view that s 1317E only applies to proceedings in which that 'relief', as the High Court described it (at [16]), is sought by ASIC. There is therefore no requirement for a Court to make a declaration of contravention under s 1317E in proceedings for an order for compensation brought by a corporation under s 1317H or s 1317HA. I am of the view that proceedings for a compensation order under s 1317H or s 1317HA are not proceedings for the imposition of a penalty."

8 I respectfully agree.

9 The reasoning behind the decisions of Bergin and Barrett JJ is that s 1317J(4) of the Corporations Act 2001 prohibits any person applying for a declaration of contravention other than ASIC or a person acting under the provisions of the Director of Public Prosecutions Act 1983 (Cth).

10 I must confess when one just reads the section one gets the strong impression that I mentioned in my earlier judgment. However, as I hinted in that judgment, it would seem draconian that a small corporate dispute which really only affects a small group of people must have the result that severe public sanctions can be imposed on those involved.

11 In comity I should follow the decisions of Barrett and Bergin JJ. My view in this regard is strengthened by the factor I have recently mentioned about draconian remedies and also the fact that the decision of Davies AJ in Freedom Motors appears to have been decided without the point being argued.

12 It follows that I have now reached the view that I am not able to make a declaration under s 1317E of the Corporations Act in this matter.

13 (2) My finding on question (1) means that question (2) does not arise.

14 (3) I was reluctant to make an order protecting the plaintiff's confidential information as sought by the plaintiff and asked for a formal order to be provided. In his written submissions, Mr Justin Hewitt, for the plaintiff, put that the following order should be made:

"That the defendants and each of them be restrained from, by themselves, their servants and agents, directly or indirectly, disclosing to any other person the plaintiff's confidential information described in the Schedule, except as may be required by law.

Schedule

(a) Information on the plaintiff's clients (ie, insured farmers) including location of property, brokers involved, premium and commissions paid.

(b) The claims history of the plaintiff's clients including the frequency and severity of claims.

(c) Information on geographical areas the plaintiff considers to be of low risk.

(d) The plaintiff's zone ratings data which groups together insured risk based on frequency and severity.

(e) The pricing structure for the plaintiff's clients including the critical components of the price namely, geographical location, crop type, value per hectare and deductibles.

(f) Information relevant to portfolio management and the assessment of the risk of insuring Landmark's clients including information on actual farm management practices of cotton farmers and forestry managers.

(g) The plaintiff's gross margins for the 2005/06 renewal.

(h) The plaintiff's budgeted premium income levels for 2005/06."

15 Mr Sirtes says that his clients do not oppose (c), (d), (g) and (h) which are completely in conformity with the reasons for judgment. However, he says the balance is an attempt to overreach the boundaries of the judgment and ought to be rejected. The principal reason for taking this stance is that the judgment held that the clients of the plaintiff were brokers, not farmers, see [52] of the earlier judgment.

16 Mr Hewitt's riposte is that that argument proceeds on the false premise that the basis of an order protecting the plaintiff's confidential information rests on the defendants' employment agreements. He submits that on the contrary, the plaintiff's entitlement to a remedy is based on the findings that the defendants used the plaintiff's confidential information and that the defendants breached their fiduciary duties. The interpretation of the word "client" in the employment agreement is irrelevant to the framing of a remedy for these acts.

17 Mr Hewitt says that the form of order submitted is in similar terms to that made by Brereton J in Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717 at [64].

18 Both submissions, as one would expect, have a degree of merit in them. It is true that one's fiduciary obligation in equity not to disclose confidential information does not operate in the same area exactly as any contractual duty one may have to keep information confidential. However, in para 58 of the former judgment I noted that Mr P Wood, who then appeared for the plaintiff, put that the plaintiff's confidential information included who are the insured farmers, the location of their property, the brokers involved, the premium and commissions paid, the claims history of those persons, information on geographical areas that are low risk, together with zone ratings data, the price structure and information relevant to the management and assessment of risks, amongst other things.

19 At para 60 I accepted that such information was within the concept of confidential information. Accordingly, in my view I should generally make the orders sought by the plaintiff.

20 However, I consider that reference to "Landmark's clients" is not appropriate. I consider that the schedule must contain some definition of what, in the existing document, is covered by the words "plaintiff's clients". Using a neutral word, "propositus", the definition might go something like this, "Propositus" means any person who at any time between 26 August 2005 and 5 May 2006 in respect of a farming property submitted through a broker to the plaintiff a proposal for insurance.

21 Even with that definition, I consider the existing paragraph (a) too wide, and it should read:

(a) Information with respect to any propositus as to the premium charged and commissions paid in respect of any such insurance;

(b) delete "the plaintiff's clients" and substitute "any propositus";

(e) delete "the plaintiff's clients" and substitute "any propositus";

(f) delete "Landmark's clients" and substitute "any propositus".

22 As to the costs incurred since 31 October 2006, with respect to the three questions, the plaintiff did not wish to be heard on the first, and the defendants succeeded on their argument; the second did not arise, but was opposed by the plaintiff; the third, the plaintiff was partly successful. It seems to me that the defendants should pay 30% of the plaintiff's costs incurred since 31 October 2006.

23 The final orders should now be able to be put in proper form and they can be brought in before me on 20 March at 9.30 am, or, if that date is inconvenient to counsel, at such other time as may be arranged with my Associate.





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LAST UPDATED: 6 March 2007