EVOLUTION E-BUSINESS Ltd v SMITH NZEmpC AK

 
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[2011] NZEmpC 109

IN THE EMPLOYMENT COURT AUCKLAND

Judge Ford

ARC 15/10

In The Matter Of proceedings removed from the Employment Relations Authority

Between
Evolution E-Business Limited
Plaintiff
and
Benjamin Smith
Defendant
Appearances:

Mr Dean Organ and Mr Michael McFadden, advocates for the plaintiff

Defendant in person assisted by Mr Brian Smith JP

Application seeking damages against the defendant (a former employee) for alleged breaches of good faith and confidentiality — plaintiff in litigation with former joint venture partner concerning software programme — interim injunction issued preventing plaintiff from using or accessing software programme — defendant concerned that plaintiff had caused him to breach the terms of injunction in the course of his employment — on legal advice the defendant provided an affidavit to a third party which was used in litigation against the plaintiff to show breach of injunction — public interest exception to duty of confidentiality.

The issues were: whether S had failed to comply with a fair and reasonable instruction from Evolution to answer questions and provide the further affidavit; whether S had breached his duty of fidelity by providing an affidavit to assist Transactor in litigation; and whether S had breached a contractual term of confidentiality or whether the affidavit contained information of unlawful acts and the principle that there was no confidence in the disclosure of an iniquity applied.

Held: Employees had a duty to obey lawful and reasonable instructions from their employers and S also had a related duty under s4(1A)(b) Employment Relations Act 2000 (good faith — parties to be responsive and communicative). However, an employee had a right to silence when criminal investigations were about to begin or were ongoing. When S had declined to answer questions, and provide the affidavit requested by N, he had done so on legal advice that any further comment could place his indemnification from legal action by Transactor in question. It was also relevant that the High Court had inherent contempt powers in relation to the enforcement of injunctions. Although these matters were not criminal proceedings, S could reasonably believe and did believe that he was in legal jeopardy and that the most prudent course of action was to refrain from comment. In those circumstances he had not breached his duty to obey reasonable instructions or his duty of good faith.

A court would not restrain the disclosure of otherwise confidential information if that disclosure revealed illegal acts or other misconduct of such a nature that it ought, in the public interest, to be disclosed to one who had a proper interest in receiving the information (R v X). Disclosure in the form of a sworn affidavit, of actions contravening a court injunction and therefore amounting to a contempt of court, clearly met the public interest requirement and came within the exception to the obligation of an employee not to disclose confidential information. For the defence of iniquity to apply, it was sufficient that the court be satisfied that the publication of the confidential information was in the public interest and that the recipient had a proper interest in receiving the information (In re A company's Application (UK)). The information disclosed by S was intended to reveal conduct relevant to a consideration by the High Court that Evolution had acted in breach of the injunction.

Application dismissed.

JUDGMENT OF JUDGE A D Ford

A D Ford
Introduction
1

In this proceeding, the plaintiff (Evolution) seeks an award of damages and other relief against its former employee, Mr Benjamin Smith, for alleged breaches of his employment agreement, in particular, alleged breaches of his duties of good faith and confidentiality. The principal allegation made against Mr Smith is that during the course of his employment he provided Evolution?s former joint-venture partner, Transactor Technologies Ltd (TTL), with an affidavit which was used by TTL in litigation against Evolution. There were other allegations also which I will need to deal with in the body of this judgment. Mr Smith denies all the allegations made against him and claims that he provided the affidavit in January 2009 after becoming aware that he had been required to perform work in contravention of the terms of a High Court injunction which TTL had obtained against Evolution on 22 December 2008.

2

The plaintiff initially commenced this proceeding in the Employment Relations Authority (the Authority) but on 16 February 2010, before the Authority had commenced its investigation, Judge Travis granted an application by Mr Smith to have the matter removed in its entirety to this Court. 1 The application was granted pursuant to s 178(3) of the Employment Relations Act 2000 (the Act) on the grounds that the Court was satisfied that an important question of law was likely to arise in the case other than incidentally and that it was appropriate to order the removal of the entire matter to the Court. Essentially, Judge Travis defined that question of law as whether the duty of confidentiality extended to information about unlawful acts and whether there was any confidence in the disclosure of an iniquity. Judge Travis referred at [16] to the equitable defence that there is “no confidence in the disclosure of an [iniquity] ( Gartside v Outram2)”, noting that the principle had been recognised by the High Court in European Pacific Banking Corporation v Fourth Estate Publications3 and the Court of Appeal in European Pacific Banking Corporation v Television New Zealand Ltd.4

3

At the time of the removal, and indeed right up until 23 February 2011, Mr Smith was represented in this litigation by Mr Anthony Drake, Mr Michael O?Brien and Ms Nura Taefi of Kensington Swan but on that date I granted an application for Kensington Swan to withdraw from the proceedings as the solicitors on the record. The application was based upon the grounds that Mr Smith then owed Kensington Swan a significant sum on account of outstanding legal fees and disbursements for services rendered in connection with the litigation. From that point on Mr Smith has acted in person assisted by his father, Mr Brian Smith.

Background
4

Evolution was established in 2000 as an electronic business services provider. The managing director and majority shareholder is Mr Henry Norcross who has been

with the company since its inception. The chairman of Evolution since November 2007 has been Mr Christopher Johnson who is also a director of a number of other technology companies. Another witness for the plaintiff was Mr Benjamin Fellowes, who up until March 2009, was Evolution?s global implementation manager, responsible for managing projects for the company?s international customers.
5

TTL was formed in November 2002 as a specialist business software support provider. The managing director is Mr John Norrie. Another company that featured prominently in the case was MarketSmart International (NZ) Ltd (MarketSmart). MarketSmart was a software company formed by Mr Norrie in 1991. In 2002, Mr Norrie sold MarketSmart to an Australian public-listed company. At all material times, MarketSmart?s general manager was Mr Paul Harper.

6

TTL developed a new software system which it branded “Thor Transactor” (Thor). Thor was described as a core data processing engine and a suite of integrated modules that enable the retrieval of data from a variety of sources such as EFTPOS terminals, point-of-sale systems and web environments. The Thor system can be used for processing shopping data so as to add rewards under a loyalty program or to allow rewards to be redeemed at the point-of-sale. The system can also be used in the management of prepay or stored value payment card programs such as gift cards. At all material times TTL was, and still is, the licensee and owner of the Thor software system.

7

Benjamin Smith, the 25-year-old defendant was employed by Evolution as its technical manager between 5 May 2008 and 13 February 2009. His terms and conditions of employment were set out in an individual employment agreement dated 21 April 2008. Prior to being employed by the plaintiff, Mr Smith had worked for TTL between January 2007 and May 2008.

8

Another individual whose name figured prominently throughout the hearing was Mr Andrew Macleod. Mr Macleod had also worked for TTL and in May 2008 he left and took up full-time employment with Evolution. It is not clear exactly when Mr Macleod ceased working for Evolution but the evidence was that for a few months around the time of the litigation between Evolution and TTL, Mr Macleod was engaged by TTL on a contract basis to assist that company.

The joint-venture
9

In June 2004, Evolution and TTL became partners in a joint-venture. The purpose of the joint-venture was to market and distribute the Thor software system to retailers to enable them to develop unique loyalty and gift programs. The agreement was that TTL would allow the joint-venture the use of its proprietary software, namely the Thor software system, along with technical and marketing support, while Evolution was to be principally responsible for managing the retail customers through marketing, sales, billing and administration. Under the agreement, Evolution was required to maintain confidentiality in relation to the Thor system and was precluded from allowing any other party access to the system.

10

Sometime in March or April 2008, Mr Smith submitted a resignation letter to TTL informing Mr Norrie that he had been offered another position with a web sales...

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