By James Tobin, Partner and Stuart Jessup, Senior Associate

In an important decision arising out of the ongoing class action against Crown Resorts, a Full Court of the Federal Court of Australia has clarified the scope of judicial power to relieve parties from contractual obligations of confidentiality.  In doing so it held that such a power was not wide enough to allow former employees of Crown, before trial, to provide information to the solicitors for the lead applicant in breach of confidentiality clauses in their employment contracts.

The ruling re-affirms the principle, thrown into doubt by the decision at first instance and the recent Victorian authority of AS v Minister for Immigration and Border Protection and Others (Ruling No 6) (2016) 53 VR 631 (AS), that a contractual obligation of confidence will only be overcome where the agreement itself is “incontestably and on any view inimical to the public interest”.  It should provide some comfort to those seeking to protect confidential information that the courts’ discretionary power to override the parties’ express intentions, as embodied in the terms of an agreement, remains relatively limited.

Background

The class action was announced by Maurice Blackburn in February 2017 and commenced in the Federal Court by Zantran Pty Ltd (Zantran), a shareholder of Crown, in December 2017.  It arose as a consequence of the arrest and subsequent conviction and imprisonment in mainland China of a number of Crown employees for engaging in promotional activities directed at recruiting Chinese “high roller” gamblers to gamble at Crown’s casinos.  The claim in essence is that because that conduct was criminal under Chinese law, there had from the time it commenced been a risk that (1) Crown employees would face criminal charges; (2) Crown would as a result be forced to close its Chinese operations; and (3) there would, in turn, be a significant drop in the revenue and share price of its Australian holding company (as indeed transpired).  Crown’s failure to notify ASIC of this risk is alleged to have breached the continuous disclosure regime in the Corporations Act 2001 and involved misleading or deceptive conduct.

In late August 2017 the husband of Ms Jenny Jiang, one of the Crown employees who had been imprisoned, informed Maurice Blackburn that Ms Jiang and various other former employees would be willing to give evidence in the class action.  The difficulty for Maurice Blackburn was that all of the employees in question had entered into some form of agreement with Crown containing a confidentiality clause – either their employment contract or a deed terminating their employment.  On their face these clauses prevented Maurice Blackburn from engaging with the witnesses in any meaningful way before the trial.  (It was not in dispute that they could later be compelled to give evidence at trial in relation to matters covered by the confidentiality clauses.)

Zantran therefore applied for orders that the former employees be relieved of their obligations of confidence for limited purposes related to the litigation, namely conferring with Maurice Blackburn and Counsel, providing outlines of evidence or affidavits, and providing Maurice Blackburn with documents produced in the Chinese criminal proceedings.

Decision at first instance

At first instance the application was successful.  After reviewing various cases dealing with the courts’ power in this area, Murphy J chose to adopt the summary of the law given by J Forrest J in AS, which held that an obligation of confidentiality would not be enforced by a court, or would be treated by a court as void, if it had an adverse effect on some ‘public element’ relevant to the administration of justice.

In Murphy J’s view the terms of the confidentiality clause itself did not need to be contrary to public policy; it was enough that their enforcement would have an adverse effect on the administration of justice which outweighed the public interest in protecting the confidence.  This was described as a “balancing exercise”.

It was held that allowing Crown to rely on the clauses in question would likely have such an adverse effect, by undermining the Court’s overarching purpose, prescribed by statute, of facilitating the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible.  A number of factors were said to support that conclusion in the circumstances of Zantran’s case, including the fact that the case was a large and complex class action fixed for a six-week trial, which would likely have to be adjourned if the former employees were required to give evidence “cold”.

Appeal

The Full Court disagreed.  In the view of Allsop CJ and Lee J, who gave separate reasons with which White J agreed, J Forrest J in AS (and after him Murphy J) had misinterpreted the existing case law.  The Court would not engage in any balancing exercise unless the confidentiality clause had first been found to be void or unenforceable on specific public policy grounds.  An example of that would be where the purpose of the contract was to conceal a widespread and serious fraud.

However, while there could be no doubt as to the importance of the overarching purpose and effective case management, there was no basis for deeming a clause unenforceable merely because to enforce it would impede or interfere with the preparation of civil proceedings by preventing pre-trial examination of witnesses otherwise compellable at trial.  Or put another way, “the community had [not] adopted by law a policy that a former employee who has promised not to disclose information was free to tell someone who bona fide believed that the information would advance civil litigation.”  (Allsop CJ at [43].)

To find otherwise could, in the opinion of the Chief Justice, undermine the courts’ very legitimacy:

“Any proposition that, in aid of a more efficient exercise of such power, a court has authority to set to one side, revoke or suspend a party’s legitimate right to call for confidence or silence in another so as to “relieve” that other from the burden of the obligation calls into question the legitimacy of such authority, and whether it could properly be seen as an incident of judicial power.”

Lessons for clients and practitioners

Allsop CJ said that Zantran could not be criticised for taking the approach it had given the judgment in AS.  However he and Lee J helpfully suggested other ways they might have sought the information, including:

• requiring Crown to answer interrogatories;
• seeking an order for pre-trial oral discovery against third parties (the former employees) pursuant to the Court’s general power to make orders under ss 37ZF or 37P(2) of the Federal Court of Australia Act 1976 (Cth);
• informing Crown’s solicitors of their intention to discuss Crown’s Chinese operations with the former employees after a specified date unless prevented from doing so by court order, thereby compelling Crown to seek an injunction for which it would bear the burden of proof; or
• issuing separate proceedings seeking a declaration as to the validity or enforceability of the contractual restraint and, if necessary, preliminary discovery in support of those proceedings.

What cannot now be done is to ask the Court to create an exception to the confidentiality clause for the purposes of the litigation, in the interests of effective case management.