Ipsofactoj.com: International Cases  Part 10 Case 10 [NZCA]
COURT OF APPEAL, NEW ZEALAND
- vs -
8 AUGUST 2001
(delivered the judgment of the court)
The appellant Mr Young was employed by the respondent partners who practised as chartered accountants in Te Awamutu under the name "de Latour Partners". In 1988 the partners summarily dismissed him. Mr Young sued the partners for wrongful dismissal and injurious falsehood. After a Judge-alone trial Smellie J dismissed both Mr Young’s causes of action. He awarded the de Latour partners $5000 and costs on a counterclaim for breach of copyright by Mr Young. From that outcome Mr Young has appealed.
In 1982 Mr Young began employment with de Latour Partners with prospects of a partnership when he ultimately qualified. After several years he completed his Bachelor of Business Studies, became an associate chartered accountant, and was looking forward to eligibility for public practice as a chartered accountant in September 1988.
On 13 April 1988 Mr Young’s plans suffered a setback when the partners told him that due to incompatibility they would not be offering him a partnership after all. In response he requested a meeting with the partners which took place on 20 April 1988. Unfortunately the meeting became acrimonious which only made matters worse. The partners suggested that it would be better if Mr Young terminated his employment with them altogether. Mr Young said that in that case he would probably stay on in Te Awamutu; that he had already discussed it with about ten clients all of whom said that they would stay with him; that he would like to remain as an employee until September 1988 when he could get his practising certificate; and that he would be prepared to pay the partnership goodwill for the clients he took over.
The partners conferred and then had another meeting with Mr Young on 26 April 1988. At the meeting they told Mr Young that he should leave and that one issue that had influenced their decision was his statement that he had been talking to their clients about going with him when he left. They accepted that some clients had come to Mr Young direct and that these could go with him but they would be disturbed if other clients of the practice were involved.
Mr Young replied that the partners might be surprised to know that he got on well with his clients and that if he had done their work that year he considered them to be his clients and that they would want to continue with him. The partners offered Mr Young two weeks pay in lieu of notice, holiday pay, and an ex gratia payment of $10,000, if Mr Young would leave immediately. Mr Young countered with the suggestion that he forego the ex gratia payment, that he stay to the end of that month, and that he then take the files and disks of clients that were going with him. He advised that he was commencing practice in Te Awamutu, that he had organised his premises, a computer and staff. He declined a request to provide a list of those clients who would go with him.
The partners again conferred. They decided that given the threat to their client base Mr Young would have to leave immediately. They told him this when he arrived for work the following day. They gave him a cheque for two weeks’ pay in lieu of notice and holiday pay. That was Wednesday, 27 April 1988.
Three days later, on Saturday 30 April 1988, de Latour Partners received from Mr Young 71 letters in common form, each authorising the transfer of a de Latour client’s work and seeking the "papers, computer disks and files" of the client named. The partners declined to hand these over, citing professional reasons why Mr Young should not take over accounting functions for those clients. Mr Young did not pursue the request, recognising that it would involve a breach of the rules of the NZ Accountants Society. He did, however, set up a new company, NZ Rural Business and Taxation Consultants Limited, in Te Awamutu and commenced practice under that name. Within a month of his leaving, NZ Rural had acquired premises, furnished them, purchased and set up a computer, engaged staff, and commenced trading. A number of de Latour clients uplifted their files and moved their work to NZ Rural.
Disciplinary charges were pursued against Mr Young by the NZ Society of Accountants. They culminated in his suspension for a year and an order for him to pay $4,000 plus costs.
HIGH COURT PROCEEDINGS
In 1989 Mr Young issued his first set of proceedings against the de Latour partners claiming damages for wrongful dismissal and injurious falsehood. We are not now concerned with the long and tortuous course followed in those proceedings. They ended when Mr Young elected to be nonsuited. It is sufficient to note that in the course of giving evidence in those proceedings he made a number of admissions which were to assume some significance in the later trial before Smellie J.
Mr Young started again with fresh proceedings. They ultimately came to trial before Smellie J. The hearing occupied three weeks. Mr Young represented himself. Nineteen witnesses were called and many documentary exhibits produced. In a reserved decision Smellie J dismissed Mr Young’s claim for injurious falsehood for reasons with which we are not concerned. He also dismissed the partners’ counterclaims for breach of Mr Young’s employment contract by soliciting clients and unlawfully using confidential information. On those claims the Judge held that the correct defendant would have been NZ Rural. No appeal is brought in respect of those matters.
Mr Young’s first cause of action was for wrongful dismissal at common law. On that subject the Judge found that the partners had not given sufficient notice for dismissal without cause but went on to hold that Mr Young’s misconduct during the last two weeks of his employment justified summary dismissal in any event. The two forms of misconduct were the soliciting of the partners’ clients and the wrongful taking of confidential information. In the circumstances the conduct was sufficiently serious to justify summary dismissal.
As to procedural fairness, the Judge did not consider that there was any implied term in employment contracts in general requiring an opportunity to refute allegations of serious misconduct. However, he went on to find that on any view procedural fairness had been observed in the present case. As to soliciting, he held that "if he was entitled to notice, what was raised with him at the meetings on 20 and 26 April 1998 was sufficient." As to taking confidential information, he held that the breach of the employment contract was not discovered by the partners until after dismissal and therefore could not have been the subject of notice of the allegations and an opportunity to refute them. In that respect he relied upon the judgment of this Court in North Island Wholesale Groceries v Hewin  2 NZLR 176 at p 183. In that case the Court followed English authorities to the effect that misconduct can justify summary dismissal even if not discovered until after the dismissal and its obvious corollary that in such cases there could be no question of an opportunity to refute the allegations.
In this Court Mr Young advanced essentially five grounds –
that serious misconduct in the form of soliciting clients while still employed by the partnership could not be sustained on the evidence,
that serious misconduct in the form of taking confidential information was similarly not established,
that the dismissal was invalidated by procedural unfairness,
that breach of copyright had not been established and
that the Judge was biased.
The Judge made a factual finding that while still employed by de Latour Partners Mr Young had asked 13 or 14 of the partnership’s clients to transfer their business to him when he left and set up his own practice. The Judge rested that finding on a number of different sources–
a background showing that during the last two weeks of his employment Mr Young had been actively preparing for his own impending practice (witnesses Earwaker, Darlington, Liddington, Morgan and Hallett),
the evidence of a particular client, Mr Darlington, that on 22 April 1988 Mr Young had asked Mr Darlington to keep it to himself but that he was going out on his own and wanted to know whether Mr Darlington would be interested in having Mr Young do his work which would be a lot cheaper because of his lower overheads;
the evidence of one of the partners, Mr Spiers, that before the dismissal three of his clients had independently told him that they had been similarly solicited by Mr Young and
certain admissions by Mr Young himself.
As to admissions, Mr Young had remarked at the meeting of 20 April 1988 that he had "already discussed it with it about ten clients and they had all said they would like to stay with him". At the meeting of 26 April 1988 he revealed a belief that if he had done work for clients in the 1988 year they were his clients. In evidence before the Judge he accepted that he had had discussions with various clients about his likely departure and had received expressions of support from them but denied that that constituted soliciting. As to cross-examination of Mr Young on this subject, the Judge said that he had "formed the clear view that Mr Young was prevaricating, and from the totality of the above evidence I am satisfied that he did solicit at least 13 or 14 of de Lautours clients before he was dismissed" (para 70).
In this Court Mr Young accepted that he had started to make preparations for an independent practice during the two weeks preceding his dismissal but described these as contingency plans only. He pointed out that he had expressed a preference for continuing until September 1988 when he would be eligible for an independent practising certificate. He characterised his pre-dismissal discussions with clients as effectively neutral soundings rather than attempts to persuade.
We accept that Mr Young would have preferred to remain until September but would not see that as inconsistent with soliciting in the meantime. Nor do we think that inquiries of de Latour clients could be realistically dismissed as neutral information-gathering. It would be naïve to think that inquiries of that kind can be made without consequences for the future work of the clients - quite apart from the evidence of active attempts to persuade.
Mr Young submitted that Mr Darlington’s evidence was unreliable. He pointed to possible confusion over the stage at which he showed Mr Darlington the building he intended to occupy in his new practice. Mr Young may well be right on that detail. However, the real point of Mr Darlington’s evidence was not the stage at which he was shown the building but the discussion which he had with Mr Young on 22 April 1988. Mr Young does not dispute that the two had a conversation on that date in the course of which reference was made to Mr Young’s intention to set up a new practice. The only difference between the two concerned Mr Darlington’s evidence that Mr Young actively tried to induce him to change firms. Clearly the Judge was entitled to prefer the evidence of Mr Darlington on that topic.
Mr Spiers gave evidence as to what three of his clients had said to him. Mr Young rightly characterised this as hearsay. However the hearsay rule is no longer the technical and rigid rule that it once was. The Judge could well have taken the view that in all the circumstances – relatively unequivocal question whether Mr Young spoke to them about his new practice, no incentive for clients to lie about that, coincidence that three volunteered it to Mr Spiers, little danger of misreporting by Mr Spiers – there was little risk of unreliability. We would not disqualify the evidence on the ground that it was hearsay.
The Judge’s conclusion that Mr Young had been soliciting before he left rested on an accumulation of evidence from a variety of unrelated sources. The Judge was careful to avoid jumping to conclusions, declining to draw an adverse inference from the 71 client transfer letters received within three days of Mr Young’s departure. As to the remaining clients, the Judge was entitled to draw his own conclusions from the sources to which he referred and to reject Mr Young’s evidence to the contrary. This ground of appeal fails.
B. Taking confidential information
The Judge found that Mr Young had surreptitiously copied confidential partnership information prior to his dismissal. This included individual client computer records, a client list, a client questionnaire form, Flexol computer record format instructions, other Flexol computer records, and a computer master chart of accounts. For this he relied upon
the evidence of a fellow-employee, Mrs Johnson, that she saw him using the partnership computer in suspicious circumstances and found client diskettes in the drawer of his desk;
the evidence of a Mrs Looman, employed by Mr Young immediately after his dismissal, to the effect that he had given her a partnership client list, questionnaire and Flexol computer record to load into his own computer,
evidence from a partner, Mr Toomath, that Mr Young’s post-dismissal accounting records were recognisable as a partnership adaptation of a Paxus computer programme in its Flexol instructions;
the evidence of an independent expert, Mr Norrie, that the post-dismissal Paxus computer programme used by Mr Young was not simply the standard Paxus programme available for purchase on the market but one which showed specific Flexol adaptations traceable to de Latour; and
admissions by Mr Young.
As to admissions, the Judge pointed out that at the original trial Mr Young had admitted
that he had taken a de Latour Flexol and used it as the basis of his own Flexol;
that there was considerable time and effort that went into compiling the de Latour Flexol;
that he had said "I wanted that particular format so I needed this Flexol and I was under pressure of time anyway so I did remove from de Lautours' offices prior to the 27th a copy of this Flexol in this form. That was then loaded into our computer by Mrs Loomans at my request";
that he had not told the partners that he was taking a copy of that Flexol;
that it had saved him a considerable amount of work; and
that he took from de Lautour a "master chart of accounts, questionnaires, the Flexols and the second part, the listing of the flexible page layouts".
The Judge specifically rejected a series of explanations given in evidence at the current trial by Mr Young. These included the claims that the computer procedures observed by Mrs Johnson represented nothing more than a second back-up procedure by Mr Young in case her own back-ups proved insufficient; his explanation that he had been given some Flexol instructions by Mr Spiers about two years before and "accidentally discovered them" at his farm in about June 1988; and that some of the confidential information was contained on computer diskettes sent to him by the partners after the dismissal, which the Judge categorised as an "elaborate charade".
In this Court Mr Young challenged many of the details supporting those conclusions. We do not find it necessary to traverse them. On any approach to the matter, there remained solid evidence to support the Judge’s overall conclusion. Key evidence in that respect came from Mr Young’s own employee, Mrs Loomans. She said that Mr Young gave her diskettes containing de Latour client questionnaires and Flexols to insert in his new computer; that the formats known as Flexols had de Lautour’s name at the top and were copied into his computer system; that he asked her to move some numbers round so that they looked different; and that at his request she altered some of the client account codes so that they would not look the same as the de Lautour statements.
In this Court Mr Young was unable to advance any real answer to that evidence. Nor was there any evidence from him, or from anyone else, to support his submission from the bar that the Flexol adaptations to the basic Paxus programme were those of another firm of chartered accountants and that they had been accidentally left on the hard drive of the second hand computer he purchased. This ground of appeal fails.
C. Unfair dismissal procedure
Where an employer contemplates summary dismissal for serious misconduct which has come to the employer’s attention, the employee must normally be given notice of the allegation and an opportunity to refute it. The cases are conveniently collected in Stuart v Armourguard Security Ltd  1 NZLR 484 at 490-494. Whether the same procedural obligation applies where the employee is also given reasonable notice of termination (Andrews v Parceline Express Ltd  2 ERNZ 385, 392) does not arise in this case. The dismissal being a summary one for cause, the de Latour partners were obliged to disclose to Mr Young what matters they knew of, and relied upon, to justify dismissal. They also had to allow him a reasonable opportunity to respond to those allegations.
The Judge held that the way in which the question of soliciting arose at the meetings on 20 and 26 April 1988 complied with implied procedural obligations. We agree. Mr Young’s discussions with clients, and the likelihood that they would go with him, were raised by Mr Young himself at the meeting of 20 April 1988. There is an air of unreality in any suggestion that he should have been given the opportunity of refuting his own factual disclosures. As to their implications for future employment, the partners advised Mr Young at the meeting of 26 April 1988 that they wanted him to go and that "one issue that had influenced the decision was Mr Young’s statement that he had been talking to clients about going with him when he left." That was Mr Young’s opportunity to comment upon the partners’ adverse reaction if he had been so minded.
Mr Young submitted that by the meeting of 26 April 1988 the partners had already decided that he should go. We accept that. However, the original reason for discussing Mr Young’s departure was general incompatibility. At that stage the questions when he would go, and on what terms, remained open. It was only later that soliciting began to play a part. Even at that stage if Mr Young had advanced some explanation reasonably capable of allaying the partners’ concerns, he could have mentioned it at the meetings of 20 or 26 February. It would then have been open to all concerned to negotiate his departure on a basis which gave him a reasonable period of notice. It was not until 27 February that the dismissal turned into a summary one for cause. In our view the opportunity to be heard before that date satisfied procedural obligations with respect to soliciting.
The position over the taking of confidential information is different. Mr Young accepted that if the partners did not find out about that allegation until after the dismissal they could scarcely have been under an obligation to give prior notice about it. His submission was that they did in fact know about it before-hand. He contended that his fellow-employee, Mrs Johnson, had relayed to a partner, Mr Oliver, her concerns about Mr Young’s copying and secreting of disks before the dismissal.
The evidence of prior notice to Mr Oliver is tenuous. In her evidence Mrs Johnson answered Mr Young’s questions about her observations of his own conduct and then went on to say (p 345)
it was after I looked in your office and you’d been in my office (Monday?) morning I went and saw Alan Oliver and you were still in the employ at that time.
Unfortunately there is no evidence as to what she told Mr Oliver. Neither she nor Mr Oliver were asked about it in cross-examination. The closest Mr Oliver’s evidence came to the point was this exchange between him and Mr Young (p 248):
Apparently the brief of Mrs Johnson who used to be Mrs Proude says that she became suspicious of me collecting disks and she went to my room and saw them in my drawers .... I remember that.
Did you check my drawers after my dismissal .... I did not.
There is no evidence that the taking of confidential information played a part in the partners’ decision to dismiss. There is some evidence that one aspect of it was mentioned to Mr Oliver but to what extent, and in what terms, is unknown. Other matters which concerned the partners were raised at the meetings they had with Mr Young. It seems reasonable to expect that this one would have been included if it had played any significant part in the minds of the partners.
No breach of procedural obligations has been established. This ground of appeal fails.
D. Breach of copyright
The partners counterclaimed for breach of copyright by Mr Young. The copyright was said to reside in the adaptations made by two of the de Latour partners, Mr Toomath and Mr Oliver, to the suite of software modules (collectively known as Hapas) marketed in its original and basic form by Paxus. Purchasers of the Paxus package were licensed to use, adapt, refine and recreate Hapas as they thought fit. Standard reports and other documents were normally altered and recreated by individual chartered accountancy firms. The de Latour adaptations were alleged to have been taken by Mr Young and subsequently used by him and his employer, NZ Rural, after 1 May 1988.
The Judge recognised the de Latour adaptations as literary works capable of attracting copyright protection under to s 7(1) of the Copyright Act 1962. He accepted the evidence that the adaptations had required approximately 400 hours on the part of Messrs Toomath and Oliver, the value of which the partners estimated at $28,000. On the strength of the evidence already discussed in connection with confidential information, he found that Mr Young had infringed the copyright by using the work without authority. Although NZ Rural was the principal, Mr Young was also personally liable due to his own actions in facilitating the infringement. The Judge declined exemplary damages but assessed compensatory damages at $5,000. He declined interest.
In this Court Mr Young pointed out that Paxus was the owner of the copyright in the basic software as marketed. That is undisputed. However it was the bundle of adaptations effected by de Latour which attracted the partners’ copyright. There is nothing inconsistent between Paxus copyright in the basic programme and de Latour copyright in the adaptations.
Secondly, Mr Young argued that the Judge had failed to identify the alterations and additions which attracted copyright. The details were identified with precision in the evidence of Mr Toomath. It is true that they are dealt with in more general language in the judgment but greater precision was not necessary for that purpose. In a judgment which was already 81 pages long, we see no obligation on the Judge to repeat all the details of the copyright work.
Mr Young’s third argument was that the Judge was wrong to find that the alterations and additions were sufficiently original to attract copyright. Of course the Judge did not say that the partners had any role in the creation of the original Hapas/Paxus programme. The originality to which he was referring related to the efforts of Mr Toomath and Mr Oliver in expending approximately 400 hours in developing adaptations. The Judge rightly adopted the principle that the extent of skill and labour required for copyright in a compilation is low. All that is required is that the original contribution be more than minimal. There is no basis for questioning the Judge’s conclusion that the adaptations satisfied that test. Nor was prior publication of some aspects by Mr Toomath in an accountancy journal inconsistent with the retention of copyright.
This ground of appeal fails.
At the conclusion of his judgment the Judge added the following addendum (para 215):
The result of this litigation will, I have no doubt, be a great disappointment to the plaintiff. And it may come as a shock to members of his family. It has been apparent to me ever since I became responsible for the case, that it has been a major factor in the plaintiff's life for the last twelve years, and as often happens in such circumstances, he appears to have become more and more convinced of the rightness of his cause as time has gone on. Any experienced lawyer or Judge knows, however, that a litigant acting for himself and developing that kind of approach will, more often than not, lose the objectivity that is necessary to enable him to make the right decisions. I want to say within this addendum, to the plaintiff, that I have listened carefully to his evidence and arguments, and brought to bear upon them as fairly as I am able, all my forty five or more years of experience as a lawyer, Queen's Counsel and Judge. Whether he accepts the judgment or not is of course entirely his business. But I genuinely hope for his sake, and for the sake of his wife, children, and extended family, that he will now close this chapter, put the dispute behind him, and get on with his life and the practice of his profession, which is accountancy. If he does not, it could overwhelm him.
Mr Young alleged that the addendum showed that the Judge was biased. He referred also to an earlier paragraph dealing with costs where the Judge had remarked that "the plaintiff has expended enormous energy and substance on the pursuit of a futile claim". Mr Young compared those remarks with advice which he said he had received from senior counsel that his chances of success in the case were good. He referred also to decisions he had received in an earlier interlocutory context. In granting leave to continue proceedings under R 426A other judges had recognised that there appeared to be an arguable case on the merits.
We see no incongruity between the views expressed by the Judge on the one hand and the encouragement Mr Young saw in the advice of counsel, and interlocutory successes, on the other. Counsels’ impressions are largely confined to the instructions provided to them by their clients. Interlocutory decisions of the kind referred to by Mr Young do not involve any attempt to arrive at substantive conclusions nor do they attempt to resolve questions of credibility. The interlocutory threshold for allowing this case to go further was a low one. Smellie J had the advantage of hearing both sides of the story investigated in depth. After a three week trial he was in a position to express a final view on the merits. Those advantages were denied to senior counsel and judges hearing interlocutory applications.
Mr Young took it from the addendum to which we referred that the Judge had decided that the case was a futile one before the trial commenced. That is not the way in which we read the addendum at all. What the Judge was saying was that even before the trial started it became clear to him that the proceedings had become a major factor in the plaintiff’s life. The Judge’s reserved decision was based upon the evidence and argument presented at the trial. It was entirely proper that at the end of that exercise he should express his view on the merits.
Mr Young also contrasted the Judge’s remarks with references he obtained from acquaintances as to his character and integrity in general. We see no inconsistency between the two. The Judge’s remarks are appropriately confined to this particular dispute and its effect on Mr Young.
Mr Young objected to the Judge’s reference to "admissions" by Mr Young that he was responsible for soliciting and taking of confidential information. Mr Young did not regard the various statements he made as admissions. There is clearly a misunderstanding here. The Judge did not say that Mr Young saw himself as responsible for soliciting or taking confidential information. Mr Young’s admissions were confined to statements of fact. Whether those facts amounted to, or provided support for, soliciting or taking of confidential information was a matter of judgment. We agree with the Judge’s conclusions on those subjects.
Finally, Mr Young objected to the Judge’s "extraordinary finding in relation to costs .... whereby if I appealed his decision then a further award of costs would be awarded against me." The facts were quite different. Having pointed out that the partners were entitled to costs according to scale, the Judge went on to express the hope that they would refrain from asking for them unless Mr Young appealed. A suggestion of that nature was unusual and generous.
We are satisfied that Mr Young has misinterpreted the Judge’s remarks, quite apart from the stringent tests by which judicial bias is to be measured. This ground of appeal fails as well.
The appeal is dismissed. The appellant must pay the respondents’ costs in the sum of $5,000 plus disbursements to be fixed by the Registrar, these to include the reasonable travel and accommodation expenses of counsel.
North Island Wholesale Groceries v Hewin  2 NZLR 176; Stuart v Armourguard Security Ltd  1 NZLR 484; Andrews v Parceline Express Ltd  2 ERNZ 385
Copyright Act 1962: s.7(1)
Appellant in person
C T Gudsell & L C Meredith for Respondents (Brent Kelly Law Office, Te Awamutu)
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