Showcase Realty Pty Ltd v Nathan Circosta

1. [1]

   HER HONOUR: This is an application by the defendants, Nathan Circosta and his employer Oproperty Pty Ltd trading as “Ray White (Carlingford)”, to set aside Anton Piller orders made ex parte by Rein J on 6 October 2020, together with an order that items seized pursuant to execution of those orders be returned.

2. [2]

   The application is opposed by the plaintiff, Showcase Realty Pty Ltd, being Mr Circosta’s former employer. In the substantive proceedings – also commenced on 6 October 2020 – Showcase seeks damages for breach of its employment contract with Mr Circosta.

3. [3]

   On this application, the defendants read affidavits by Mr Circosta and his friends, Andy Rod and Hayden Muscat. The plaintiff read affidavits by its director and real estate licencee, Immacolata (Margot) Brattoli, her son and sales director Michael Brattoli, office manager Christa Jong and client, Naomi Noakes. There was no cross-examination.

PRINCIPLES

1. [4]

   The principles were not in dispute. On an ex parte application, the applicant has a duty of candour as described by Allsop P in Walter Rau Neusser Oel Und Fett AG v Cross Pacific Trading Ltd [2005] FCA 955 at [38]:

2. [5]

   Where search orders have already been executed, the Court may set aside the orders ab initio if there has been a material non-disclosure: Brags Electrics Ltd v Gregory [2010] NSWSC 1205 at [17] per Brereton J. A respondent who applies to set aside an ex parte order on this basis bears the onus of showing that there has been such a non-disclosure: Brags Electrics at [10]. The test for determining whether a non-disclosure is “material” was explained by Ball J in Principal Financial Group Pty Ltd v Vella [2011] NSWSC 327 at [17] (cited with approval in Singtel Optus Pty Ltd v Almad Pty Ltd [2011] NSWSC 492 at [53] per Bergin CJ in Eq):

3. [6]

   In Savcor Pty Ltd v Cathodic Protection International APS (2005) 12 VR 639; [2005] VSCA 213 at [35], Gillard AJA (with whom Ormiston and Buchanan JJA agreed) described it thus, at [35]:

4. [7]

   If there has been a material non-disclosure, the Court has a general discretion whether to discharge an Anton Piller order ab initio. As to how the discretion is to be exercised, Gillard AJA explained in Savcor at [33]:

5. [8]

   Further, the question is not whether a search order would have been made, or should be made, on the evidence, but whether there has been material non-disclosure. In Savcor Gillard AJA explained at [22]:

6. [9]

   If the Court is not minded to set the Anton Piller aside ab initio, the order will operate in futuro only; the respondent may be entitled to compensation under the usual undertaking as to damages: Brags Electrics at [17].

FACTS

1. [10]

   Showcase Realty conducts a real estate business in Carlingford, selling properties and managing rental properties. Ray White Carlingford is located just five doors down.

2. [11]

   In 2011, Mr Circosta began working for Showcase; he was then aged 18. He was promoted to Property Management Representative and then Property Management Supervisor. Mr Circosta became responsible for managing all of Showcase’s rental properties. Showcase used a customer relationship management system known as “REST” to store information about properties under management, including telephone numbers and email addresses of landlord clients. The REST system was used by Mr Circosta when he worked for Showcase and was not accessible remotely outside the office. There was some conflicting evidence as to whether it could be, or was, downloaded by Mr Circosta onto his mobile phone, which it is not presently necessary to resolve. Mr Circosta’s employment contract contained restrictions on the use of Showcase’s confidential information (clause 13) and restraints in the event that Mr Circosta left Showcase’s employ; a nine month restraint period applied: clause 18.3(a).

3. [12]

   Over the years, Mr Circosta brought various family members to Showcase as landlord clients, including his grandparents and cousins, as well as friends including Mr Rod and Mr Muscat.

4. [13]

   In July 2018, Mr Circosta wished to move from property management into sales and asked Mrs Brattoli to be given more sales-based activities. This happened – to some extent – but it appears that Mr Circosta began looking to move on from Showcase to Ray White Carlingford to further his ambition. On 15 October 2018, Mr Circosta tendered his resignation, giving four weeks’ notice and thanking Mrs Brattoli for giving him the opportunity to start his career at Showcase. Mr Circosta’s last day of employment at Showcase was 12 November 2018.

5. [14]

   On 11 December 2018, Mr Circosta visited Showcase and told Mrs Brattoli that he had taken up a role with Ray White Carlingford. Mr Circosta handed over pro forma letters signed by family and friends (2018 Clients) which terminated Showcase’s management of nine properties, requested that documentation and keys be made available for collection by Ray White Carlingford, and thanked Showcase for its service. According to Mr Circosta, he told the Brattolis that the letters related to properties that were owned by his family and friends. Mrs Brattoli and Mr Brattoli deny this, but Showcase does not dispute that the 2018 Clients were friends or family of Mr Circosta. It is apparent that this fact was known to Showcase, either when the letters were handed over or soon afterwards. Either way, Mr Circosta’s news was not warmly received. Mr Brattoli said, “I can’t sit here and listen to this scum. I cannot believe this. I’ve got to leave.” Mrs Brattoli asked Mr Circosta to go.

6. [15]

   On 14 December 2018, Showcase’s solicitors sent Mr Circosta a ‘cease and desist’ letter suggesting that he was in breach of his obligations to Showcase by reason of having taken a position with Ray White Carlingford. The letter continued: (emphasis added)

7. [16]

   Seven properties were then set out, all being 2018 Clients. The letter continued: (emphasis added)

8. [17]

   The defendants submitted that the suggestion that Mr Circosta had used Showcase’s confidential information to contact his own friends and relatives to entice them to move to Ray White Carlingford was a nonsense. That is a fair statement. Showcase submitted that the letter was sent in the context of Mr Circosta having contravened his post-employment contractual obligations in relation to non-compete and non-solicitation. The concern in relation to misuse of confidential information was not confined to the confidential client list, but also referred to pricing structures and margins. That may be so, but the letter fairly read suggested that Mr Circosta had taken the 2018 Clients to his new employer by reason of developing a relationship with the client through his employment at Showcase, which was not the case.

9. [18]

   Mrs Brattoli contacted at least some of the 2018 Clients in respect of their decision to move to Ray White Carlingford. In respect of Mr Muscat, Mrs Brattoli’s file note of the conversation recorded, “He advised that Nathan Circosta asked him to terminate & give him a go!” In her affidavit relied upon before Rein J, Mrs Brattoli deposed that Mr Muscat said, “Look I’ve got no problems with you & Showcase. Nathan had asked me to give him a go at Ray White and that we should terminate with Showcase.”

10. [19]

    Mr Muscat said he received a telephone call from Mrs Brattoli asking whether Mr Circosta was “pushing you to go over there”, which Mr Muscat denied and said, “Nathan is a mate of mine. The only reason I came to you in the first place is because of Nathan. Obviously, if Nathan is going to go, then I’m going to go with him, because I know that he’ll do the right thing by me”. Mrs Brattoli then said that Mr Circosta was not doing the right thing by Showcase and Mr Muscat replied, “At the end of the day, Nathan is a mate of mine and I’m going to stick by him”. Mrs Brattoli gave a different version of the conversation with Mr Muscat in her affidavit relied upon on this application, but did depose that Mr Muscat said, “Nathan has begged me to move over to Ray White and he’s my friend so that’s why”.

11. [20]

    Mr Rod also received a call from Mrs Brattoli wanting to know why he was transferring management of his property to Ray White Carlingford. Mr Rod told Mrs Brattoli, “Obviously, Nathan is a very good friend of mine. When I found out that he was going to Ray White, it was really a no-brainer that I would go with him …”. Mrs Brattoli did not refer to this conversation in her affidavit read before Rein J, nor respond to the conversation as described by Mr Rod in her affidavit read on this application.

12. [21]

    Months passed. In July 2019, some landlord clients of Showcase, who had earlier terminated their property management arrangements, listed their properties for sale with Mr Circosta. In September 2019, some of Showcase’s clients began to receive email “mailouts” in respect of “latest property listings to have hit the market!” In October 2019, a Showcase client contacted Mrs Brattoli asking why Mr Circosta had “access to our contact details for advertising purpose”. Perhaps unfortunately, a senior property manager at Showcase replied:

13. [22]

    In February 2020, further landlord clients changed their business to Ray White Carlingford, although their emails did not mention Mr Circosta nor was he copied into their emails. On being contacted by another Showcase client, Ms Qin, who advised that Mr Circosta had been calling her mobile and sending weekly emails, Mrs Brattoli enquired, also in somewhat unfortunate terms: (emphasis added)

14. [23]

    In September 2020, Showcase’s client, Ms Noakes, received a series of emails from Mr Circosta to her personal email address. A voicemail was also left on Ms Noakes mobile phone,

15. [24]

    On 22 September 2020, Showcase’s solicitor approached Suzanne Barnes to act as an independent solicitor. On 6 October 2020, two years after Mr Circosta left Showcase’s employ, Showcase commenced these proceedings before Rein J as Duty Judge. An Anton Piller order was sought ex parte. The transcript reveals that his Honour had received two affidavits of Mrs Brattoli and an affidavit by Ms Noakes. In addition, his Honour had received written submissions, which stated:

16. [25]

    At the commencement of the hearing, Rein J observed:

17. [26]

    To this, Showcase’s counsel pointed to Ms Noakes affidavit as “effectively the smoking gun” as her email address was private and the emails received from Mr Circosta were addressed to “Dear Ken”, being the salutation listed in Showcase’s contact list of its landlord clients: (emphasis added)

18. [27]

    The paragraphs of Mrs Brattoli’s confidential affidavit referred to by Showcase’s counsel detailed clients which Showcase had lost since Mr Circosta’s departure including (in paragraph 21(a)) the 2018 Clients, which Mrs Brattoli referred to in her affidavit as “lost clients”. Mrs Brattoli did not mention that she knew these landlords to be Mr Circosta’s friends and family. Nor did Mrs Brattoli refer to her conversation with Mr Rod after Mr Circosta’s departure, in which Mr Rod told her that he went to Ray White Carlingford to follow his friend: see [19]. Mrs Brattoli did refer to her conversation with Mr Muscat, but not in terms which revealed that he had told her that the reason why he left was, at least in part, by reason of his friendship with Mr Circosta: see [17]-[18]. Whilst Showcase submitted that Mrs Brattoli’s affidavits were put together in a short period of time, I note that Showcase approached the independent solicitor a fortnight beforehand and, thus, presumably had adequate time to prepare Mrs Brattoli’s affidavit.

19. [28]

    The transcript continued: (emphasis added)

20. [29]

    His Honour’s attention then moved to the form of the orders sought. Other matters were canvassed, which are not relevant for present purposes. The orders were made. The Anton Piller order was executed on 7 October 2020. On 21 October 2020, the defendants filed the motion presently before the Court.

CONSIDERATION

1. [30]

   Showcase submitted that at no stage did Showcase lead evidence nor make submissions that Mr Circosta had used Showcase’s confidential client list to contact the 2018 Clients; its case before Rein J was said to have been incorrectly characterised and misconstrued. Rather, it was Ms Noakes’ evidence that had led to the concern that the list had been taken by Mr Circosta. I agree that Showcase relied heavily on Ms Noakes’ evidence as “crystallising” its concerns, but Showcase’s evidence went beyond that matter to the 2018 Clients.

2. [31]

   Showcase submitted that the reference to the “shot across the bows” was in response to an invitation by his Honour for Showcase to provide a hypothesis as to why the defendants had waited so long to use the confidential client list. It was said to be implicit in his Honour’s question that Rein J had determined on the basis of the evidence and submissions that neither of the defendants had used the confidential client list to contact the 2018 Clients. Further, Showcase pointed out that Mrs Brattoli’s affidavit evidence also referred to five other clients lost more recently, albeit Mrs Brattoli fairly disclosed that the contact details of two of these clients could have been ascertained without recourse to the confidential client list. Showcase submitted that, as the plaintiff’s case was not that the 2018 clients indicated a misuse of the confidential client list, it was not misleading, nor was there material non-disclosure when referring to the 2018 clients, to not tell Rein J that those clients were actually Mr Circosta’s friends and family. The fact that they were referred to at all was said to be just background.

3. [32]

   I do not agree. It was never drawn to Rein J’s attention that his Honour should not draw any inference from what had happened in 2018 to conclude that there was a risk that, in 2020, Mr Circosta had availed himself of the confidential client list. Without that clarification, his Honour was entitled to assume that the evidence in relation to the 2018 Clients was relied upon by Showcase, together with other evidence, as pointing to the relevant risks of dissipation and destruction of information such that an Anton Piller order should be made on an ex parte basis.

4. [33]

   As Mr Circosta submitted, Showcase’s application for an ex parte Anton Piller order suffered from an important temporal problem as, aside from the 2018 Clients, the earliest date on which the other “lost clients” terminated their arrangements with Showcase was 1 June 2019, whilst the bulk did not leave Showcase until late 2019 and 2020. The amount of time that had passed between Mr Circosta’s departure from Showcase and the movement of “lost clients” to Ray White undermined the proposition that Mr Circosta had used Showcase’s confidential information to secure for himself and his new employer a competitive advantage. It also meant the Court could infer that, in the time between Mr Circosta leaving Showcase and later selling the “lost clients’” properties through Ray White, it was equally likely that Mr Circosta and/or Ray White had obtained those clients’ contact details through legitimate means. Showcase’s reliance on the 2018 Clients assisted Showcase to overcome the temporal problem as it appeared to indicate that Mr Circosta may have used Showcase’s confidential information to secure the transfer of a non-trivial number of clients within a matter of weeks after his resignation.

5. [34]

   It is clear from the transcript that the transfer of the 2018 Clients to Ray White Carlingford shortly after Mr Circosta ceased working for Showcase was relied upon by Showcase’s counsel as evidence suggesting that Mr Circosta had already used Showcase’s confidential information: “it is possible, that he has used it already.” That is, the letters transferring the nine properties may be the product of Mr Circosta’s misuse of Showcase’s confidential information. No mention was made to his Honour that the nine properties were owned by Mr Circosta’s friends and family, that is, the reason why the 2018 Clients moved with Mr Circosta could readily be explained as entirely unconnected with any misuse of Showcase’s confidential information. This was a significant piece of information. Showcase’s reliance on the ‘cease and desist’ letter – the terms of which were equally problematic as considered at [16] – compounded the problem.

6. [35]

   I am satisfied that Showcase did not bring material facts to Rein J’s attention, being facts which the defendants would have brought forward in opposing the application for an Anton Piller order if the application had been heard inter partes. It was incumbent upon Showcase to squarely put before his Honour the fact that the 2018 Clients were friends and family of Mr Circosta and thus their departure to Ray White Carlingford was likely unrelated to any misuse of Showcase’s confidential information. Such a matter would have been relevant to the Court’s determination.

7. [36]

   No explanation has been proffered by Mrs Brattoli as to why this information was not disclosed in her affidavits. I am satisfied that it is appropriate in the circumstances of this case to discharge the Anton Piller order ab initio. The execution of a search order is a serious invasion of people’s privacy. Whilst it is an important tool in ensuring that evidence is preserved so that justice may be done, such orders ought only be made on an ex parte basis if the applicant discharges their duty of candour so that the Court is fully appraised of all relevant matters to the exercise of its discretion in such an important decision. The need for candour is particularly acute on Duty Judge applications, where judges often have insufficient time to review affidavits and documentary evidence in detail.

ORDERS

1. [37]

   For these reasons, I make the following orders:

   1. (1)

      Order pursuant to rule 36.16(2)(b) of the Uniform Civil Procedure Rules 2005 (NSW) that the orders made by Rein J on 6 October 2020 (search orders) be set aside ab initio.

   2. (2)

      Order that the items removed from the first defendant and from the second defendant’s premises on 7 October 2020 pursuant to the search orders, including any storage devices containing information that was copied from the items removed from the first defendant and the second defendant’s premises, be returned to the defendants forthwith.

   3. (3)

      Order that the plaintiff is to pay the defendants’ costs of their notice of motion filed 21 October 2020.

   4. (4)

      In respect of the defendants’ application that their costs of the motion be payable forthwith: