Full Court clarifies confidentiality of supplier and contact info

On 10 May 2023, the Full Court of the Federal Court of Australia (Full Court) delivered its judgment in the case of New Aim Pty Ltd v Leung [2023] FCAFC 67 (New Aim v Leung), allowing an appeal concerning alleged misuse of confidential supplier information by a former senior employee.

The decision provides guidance on:

• the identification and characterisation of confidential information;
• the treatment of employee held contact information and personal device data; and
• the relationship between breach equitable and contractual duty of confidence and section 183 of the Corporations Act 2001 (Cth) (Corporations Act).

The Full Court held that the Trial Judge erred when determining whether supplier contact information was confidential and remitted the matter for retrial.

The Judgment is of relevance to businesses that invest significant time and resources in developing supplier networks, especially in import, wholesale, e-commerce, and manufacturing sectors.

Background to New Aim v Leung

The proceeding arose from a dispute between:

• New Aim Pty Ltd ACN 115 804 432 (New Aim), an Australian online retail business which sourced products from Chinese suppliers;
• Mr Man Hung Leung (Leung), a former senior employee of New Aim;
• Broers Group Pty Ltd ACN 647 179 271 (Broers); and
• Sun Yee International Pty Ltd ACN 159 318 224 (Sun Yee).

New Aim alleged that Mr Leung:

• disclosed the identity and contact details of New Aims suppliers to Broers and Sun Yee who were both competitors;
• used that information for the benefit of Broers and Sun Yee; and
• thereby breached his equitable and contractual duties of confidence, statutory duties pursuant to section 183 of the Corporations Act.

At first instance, New Aim’s claims were dismissed by Anderson J in New Aim Pty Ltd v Leung [2022] FCA 722.  New Aim appealed.

Nature of the alleged confidential information

The alleged confidential information included:

• the identity and contact details of some of New Aim’s suppliers; and
• the fact those suppliers had been identified as reliable manufacturers capable of supplying products suitable for the Australian market.

A central issue concerned suppliers contact details recorded by the former employee in his personal WeChat account.  The primary judge treated:

• supplier information held in New Aim’s internal database; and
• contact information held in the employee’s personal messaging account WeChat

as materially different categories of information when assessing confidentiality.

Issues on appeal

The Full Court considered whether the Primary Judge erred in:

1. concluding that the relevant supplier information was not confidential;
2. focusing on the location and storage of information rather than its commercial substance;
3. dismissing breach of contract and statutory claims flowing from the confidentiality findings; and
4. rejecting the entirety of the applicant’s expert evidence.

Approach to confidential information

The Full Court held that the primary Judge erred in assessing whether the information had the necessary obligation of confidence.  In particular, the Court found that the analysis had:

• placed undue emphasis on the location and form of the information; and
• failed to properly consider the substance and commercial value of the supplier information.

The Court emphasised that confidentiality does not depend on whether information is stored:

• in a corporate database;
• in a personal device; or
• within a messaging application.

The relevant inquiry is whether the information itself, including supplier identity and contact details, possesses the necessary quality of confidencehaving regard to all relevant circumstances, including the effort expended to obtain it and its commercial value.

By treating WeChat contact information as distinct from supplier information more broadly, the Primary Judge failed to address the essence of the applicant’s case.

Consequences for contractual and statutory claims

Because the contractual and section 183 claims were dismissed because they depended on the findings regarding quality of confidential information those conclusions could not stand once error was established.

The Full Court therefore set aside the dismissal of:

• breach of confidence claims;
• breach of contract claims; and
• claims based on section 183 of the Act.

The matter was remitted for retrial.

Expert evidence

The Full Court also found that the primary judge erred in rejecting the entirety of the applicant’s expert evidence. 

While concerns existed regarding the preparation of the expert report and the involvement of legal representatives, those concerns did not justify wholesale rejection of the evidence.  The concerns included:

• transparency in expert instructions; and
• maintaining the independence of expert witnesses.

Significance of the decision

The decision provides important clarification for businesses seeking to protect confidential information which is held on employees personal devices.

Confidential information and employee knowledge

The Judgment confirms that information may retain its confidential character even where:

• it is stored on an employee’s personal device or messaging application; or
• aspects of the information may be known outside the organisation.

The relevant inquiry is not confined to the physical location or form of the information.  Rather, the Court emphasised the need to examine the commercial value, character, and context of the information in determining whether it possesses the necessary quality of confidentiality.

Supplier and contact information

The decision also reinforces that supplier identity and contact information may constitute confidential information where:

• significant effort and expense has been invested in identifying reliable suppliers; and
• the information provides a commercial advantage to the business.

This may be so even where contact details are held by employees in personal contact lists or external applications rather than within system owned or controlled by the employer databases.

Interaction with section 183 of the Corporations Act

The judgment highlights the close relationship between equitable confidentiality principles and the statutory prohibition on improper use of information under section 183 of the Act.

Where the assessment of whether information is confidential is affected by error, conclusions regarding whether information has been improperly used for the purposes of section 183 may also be affected.

Key takeaways for businesses

Businesses should:

• clearly identify and classify confidential information, including supplier and customer data;
• implement contractual and policies to protect the use of such lists by employees if using their personal devices;
• address the use of personal devices and messaging platforms in employment arrangements; and
• ensure appropriate exit protocols are implemented when employees depart.

Legislation

Corporations Act 2001 (Cth)

Cases

New Aim Pty Ltd v Leung [2022] FCA 722.

Further information

If you need advice on information confidentiality within your business, contact us for a confidential and obligation‑free discussion.

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances

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