The high price of not keeping confidential information secure: SAI Global Property Division Pty Limited v Johnstone [2016]

A recent decision of the Federal Court underlines the problematic nature of relying on legal solutions to human problems. The matter of SAI Global Property Division Pty Limited v Johnstone [2016] FCA 1333 (14 November 2016) resulted from action taken by an employer in response to an employee’s decision, after only three months of employment, to copy his employer’s confidential information, resign from his employment and commence employment with a competitor. Shortly after SAI Global obtained ex parte orders for Mr Johnstone to deliver up computer and storage devices and any hard copy document containing confidential information, Mr Johnstone complied with those orders and admitted all material facts, including that he had breached the employment contract and infringed SAI Global’s copyright. Despite this, SAI Global pursued the matter to hearing; incurring substantial costs in the process. SAI Global sought and was awarded damages in the amount of $4230, representing the salary paid to Mr Johnstone during the two week notice period following his resignation, additional damages in the amount of $5000 pursuant to s.115(4) of the Copyright Act 1968 (Cth) and compensation of just $1 for breach of copyright. They also sought a costs order in the amount of $275,469. Mr Johnstone argued that the costs incurred by SAI Global were disproportionate to the importance and complexity of the matters in dispute, a contention with which the Court agreed. In reaching this conclusion, Moshinsky J had particular regard to the fact that it had secured the most important relief sought by it within days of the proceedings commencing when Mr Johnstone complied with the ex parte orders and admitted essentially all the material facts. While His Honour considered it prudent for SAI Global to have the material delivered up by Mr Johnstone examined by an independent computer expert and to have those costs recovered from Mr Johnstone, he found that the other costs incurred by them was ‘out of all proportion to the work involved’ since that time and that the Company had not complied with the obligation in s.37N(1) of the Federal Court of Australia Act 1976 (Cth) to conduct the proceedings in a way that ensured that the dispute was resolved at a cost proportionate to the importance and complexity of the issues: at paragraph [68]. As a consequence of this finding, His Honour reduced the costs payable by Mr Johnstone for the period after he complied with the ex parte orders by fifty per cent.

This outcome means that as a consequence of his decision to copy confidential information of his then employer, Mr Johnstone has been ordered to pay SAI Global costs in the amount of $196,416.54 and total damages of $9231 while no doubt also incurring his own legal costs. Meanwhile, SAI Global has paid costs in the amount of $275, 469 in return for total damages of $9231. At best, even if $196,416.54 of these costs are paid by Mr Johnstone, SAI Global will still be out of pocket for $79,052.46.

This matter should give employers, employees and advisers pause for thought.   On one view, the expenditure of substantial monetary and human resources in the pursuit of litigation which produced a minimal outcome is not an efficient use of those resources. Further, the outcome begs the question as to whether the litigation itself enhanced the security of the employer’s confidential information. While litigation is no doubt a necessary option in certain circumstances, it is best viewed as a last resort. Employers need to be mindful that there may be far more constructive ways than litigation to address the human problem of disclosure or theft of confidential information.