I.

MEMORANDUM-OF-ADVICE

The-memorandum-is-prepared-to-advise two clients: (1) Aureliano on the claim for breach of

confidence; and--(2)—Pillar-on-the-claim-for-breach-of-fiduciary-obligation. Following-the-analysis
for Pillar, the memorandum identifies any available defence and remedies for her.

A. Summary-of-Advice

To: yy

From: xx
Date: 21-August-2022

SUB:-Advice-on-the-equitable-cause-of-action-for-Aureliano-and-Pillar

1. A-claim-in-breach-of-confidentiality-is-likely-to-be-successful-for-Aureliano.
2. A-claim-in-breach-of-fiduciary-obligation-is-likely-to-be-successful-for-Pillar.

B. Analysis-of-Advice

1. Advice-on-breach-of-confidentiality-claim-by-Aureliano

Equity has jurisdiction to protect confidential information independent of a contract. 1The following
necessary ‘elements’2 must be satisfied without the need for Aureliano to prove a detriment. 3

a) Specificity

1
Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 [437]– [438].
2
Smith Kline & French Laboratories (Aust) Ltd v Secretary, Department of Community Services and Health
(1990) 22 FCR 73 (‘Gummow J’) (‘Smith Kline & French Laboratories (Aust) Ltd’).
3
Coco v A N Clark (Engineers) Ltd [1969] RPC 41 [47] (‘Coco’); Smith Kline & French Laboratories (Aust)
Ltd (n 2).
Aureliano documented information about the making of the battery and encrypted it using Nordlocker
encryption software. This action indicates that he would be able to identify the specific information
about the battery that needs to remain a secret and is not common knowledge. 4

Based on the identification, the court would be able to assess what information is confidential and
determine appropriate remedies to prevent or compensate for the misuse of that specific information. 5

b) Aureliano’s-specified-information-must-have-a-quality-of-confidence

(i) The-information-is-likely-to-be-commercial-and-confidential

It is assumed that Aureliano has a company for innovating rechargeable lithium-ion batteries
(‘battery’) with long-lasting battery life. Potentially, the battery may have been developed for his
business. In this case, the information regarding the creation of the battery is likely to be considered
commercial-information.6

Equity can protect confidential commercial information referred to as ‘trade secrets’. 7

(ii) Trade secret

Not all commercial information is regarded as a trade secret unless certain factors are satisfied. 8

Aureliano mentioned that only he knows the steps to develop the battery. The information was not
known to any of his employees or partners, nor was it publicly available. He protected the information
by encrypting it using software and burned any hard copies of this information to keep it a secret. He
also considered protecting the information as it was revolutionary. Hence, the information about the
making of the battery would be categorised as a trade secret (i.e. commercial information) 9.10

In contrast, if the protected information is not detailed and acquired with no effort, skill, or ingenuity
of the brain, then it is unlikely to be regarded as a trade secret. 11

4
O’Brien v Komesaroff (1982) 150 CLR 310 [32] (‘O’Brien’).
5
Ibid.
6
Coco (n 3) [47].
7
Michael Bryan, V J Vann and S Barkehall Thomas, Equity and Trust (Cambridge University Press, 2nd ed,
2017) 158 (‘Bryan’).
8
Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37 [50] (‘Ansell Rubber’).
9
Ibid [50].
10
Coco (n 3) [47].
11
Ibid; Ocular Sciences Ltd v Aspect Vision Care Ltd [1997] RPC 289 [374].
c) The duty-or-obligation-of-confidence

Assuming Aureliano’s information is a trade secret, the next step is to objectively determine whether
he communicated the information to Pillar under an obligation of confidence: 12

(i) Reasonable-Person-Test

Applying this test, a reasonable person standing in Pillar’s shoes (as a recipient of information) would
have realised upon reasonable grounds that the information was being given in confidence because
Aureliano was reluctant to share his secret. He told Pillar that no one else knew this information. As a
result, Pillar is now imposed by the equitable obligation of confidence. 13

(iii) Limited-Purpose-Test

Applying this test as an alternative, Aureliano only shared his secret because he trusted Pillar to
genuinely tell his future. Aureliano did not reveal this information until for this particular purpose. 14

d) Actual-or-threatened-misuse-of-the-information-without-consent

(i) Liability for Pillar

As the information exchanged is confidential, liability is attached to Pillar even if she states the
misuse was accidental or unintentional. 15The misuse in this context extends not just to her (as a
confidant) on unauthorised disclosure but also prevents her from using information for her own
purpose. Since Pillar benefited from being employed as the Vice President of Macondo with a 40%
stake in the company, she is liable for the misuse. 16

(i) Liability-extends-to-third-party

The threat of misuse of Aureliano’s confidential information can be identified because Macondo’s
office has started making batteries that use WD-40.

12
Ibid [41]; Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 [224]–
[225].
13
Ibid [48]; Australian Medic-Care Co Ltd v Hamilton Pharmaceutical Pty Ltd [2009] FCA 1220.
14
Ibid.
15
Prince Jefri Bolkiah v KPMG [1999] 2 AC 222 [235].
16
Cadbury Schweppes Inc v FBI Foods Ltd (1999) 167 DLR (4th) 577; British American Tobacco Australia Ltd
v Gordon [2007] NSWSC 230 [28].
In this case, the court would determine how the information was made available to Macondo if he
received the information on developing new batteries from Pillar based on an unauthorised disclosure.
Then, Macondo is likely to be liable for a breach of confidence. Nevertheless, even if Macondo is a
bona fide competitor who developed the batteries on their own skill and expertise, Macondo is still
likely to be liable for the breach.17

2. Advice-on-breach-of-fiduciary-obligation-by-Petra

Pillar may bring a claim of breach of fiduciary-obligation against Petra, her financial advisor, for
divulging financial information provided by her. However, Pillar must prove their relationship is
fiduciary, and Petra breached that fiduciary-duty to be entitled to any remedies.

a) Fiduciary-obligations-outside-presumed-relationship

Facts indicate that Petra and Pillar have a commercial relationship that is not presumed to have
fiduciary-obligations.18 However, depending on the factual circumstances of their relationship (such
as any undertaking, vulnerability and dependence) 19 may give rise to a finding of a fiduciary
relationship.20

Financial advisors usually, but not always, owe fiduciary-obligations.21And, fiduciary-obligations do

not automatically arise just because Pillar relied on Petra’s skills. 22

(i) Vertical-relationship

17
Wheatley v Bell [1982] 2 NSWLR 544 [549]– [550].
18
Commonwealth Bank of Australia v Smith (1991) 42 FCR 390 (‘Commonwealth Bank of Australia v Smith’).
19
Hodgson v Amcor Ltd [2012] VSC 94 [1343].
20
Chirnside v Fay [2007] 1 NZLR 433 [458]– [459]; Stacey v Watson [2017] NZCA 542 [36]–[38].
21
Daly v The Sydney Stock Exchange Limited (1986) 160 CLR 371 [377].
22
Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; Townsend v Roussety Co (WA) Pty Ltd (2007) 33
WAR 321; Sliteris v Ljubic [2014] NSWSC 1632.
Petra and Pillar have a vertical commercial relationship, in which Petra has greater access to resources
and information than Pillar.23Once the relationship is established, the next step is to determine whether
this relationship gives rise to fiduciary-obligations by applying the ‘undertaking test’24.

(ii) Undertaking-Test

According to this test, Petra, on behalf of Pillar, acted as a representative character in exercising her
unilateral discretion by telling Pillar how to invest in FlexTime, Amazon and Explorit. Hence,
potentially, Petra exploited Pillar’s vulnerability and trust. 25

In contrast, Petra may argue that she acted in an advisory capacity and did not make decisions
regarding Pillar’s investments. Hence, it is unlikely that Petra had acted in a representative capacity to
exploit Pillar’s vulnerability.26

(iii) Multifactor-approach-test

Similarly, this alternative test also suggests that Pillar may be vulnerable to following Petra’s advice
since she did not know much about investing. Hence, Pillar may have established trust in Petra. 27

b) Petra breached her fiduciary relationship

In-Australia,-fiduciary-duties-are-proscriptive-to-prevent-Petra-from-engaging-in-a-no-conflict-and-
no-profit-rule.28

(i) ‘No-conflict’-Rule

Petra failed to uphold her primary obligation to prevent breaching the no-conflict rule by suggesting
Pillar buy Amazon shares.29 By doing so, Petra:

23
News Ltd v Australian Rugby League Ltd (1996) 64 FCR 410 (Gummow J).
24
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 [142] (Dawson J) (‘Hospital
Products Ltd’).
25
Ibid [96]-[97].
26
See Ibid.
27
Breen v Williams (1996) 186 CLR 71 (Gaudron and McHugh JJ) (‘Breen’).
28
Ibid [113].
29
Chan v Zacharia (1984) 154 CLR 178 [178] (Dean J) (‘Chan’).
  placed herself in a conflict between her duty and her interest of increasing the share value in
which she is a major shareholder;30 and
 failed to disclose to Pillar to whom the obligation is owed for any benefit. 31

(ii) ‘No-Profit’-Rule

Petra is not permitted to profit from a position of trust beyond the terms of the agreed remuneration. 32
Facts do not suggest if Petra received the kickback she was promised. In either case, the liability is
strict regardless of her not receiving a kickback. 33

(iii) Court-may-consider-positive obligation

Subject to judicial view, Petra’s conduct of recommending the purchase of Amazon shares, knowing
that the company was being investigated for its labour practices, may be considered a failure to act in
the best interest of Pillar as a client. 34 Such conduct may also be regarded as a breach of fiduciary-
duty.

c) Potential-third-party-liability-for-Melquiades

Third-party liability only applies to Melquiades if he has received any financial benefit from Petra due
to directing Pillar to her. This benefit would be obtained due to Petra’s breach of fiduciary -duty.
Hence, Pillar may make a personal or proprietary claim (depending on facts) against Melquiades.
However, to be successful in this claim, it must be established that either Melquiades knowingly: 35
 received the property (first limb);36 or
 assisted Petra in committing the breach of fiduciary-obligation (second limb).37

30
Commonwealth Bank of Australia v Smith (n 18); Boardman v Phipps [1967] 2 AC 46 (‘Boardman’).
31
Chan (n 29) [199] (Dean J).
32
Ibid; Boardman (n 30); Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134.
33
Ibid; Keech v Sandford (1726) Sel Cas t King 61 (25 ER 223).
34
Westpac Banking Corporation v Bell Group Ltd (in Liq) (No 3) (2012) 44 WAR 1 [1962]-[1969], [1978]
[2720] (Lee AJA, Drummond AJA, Carr AJA) considering Breen (n 27).
35
Barnes v Addy (1874) LRD 9 Ch App 244 [251]-[252] (Lord Selborne LC) (‘Barnes’).
36
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22 (‘Farah’); Stephens Travel Service
International v Qantas Airways Ltd (1988) 13 NSWLR 331; Port of Brisbane Corporation v ANZ Securities Ltd
[2003] 2 Qd R 661 [17].
37
Ibid.
d) Defences

(i) No-Authorisation-or-Ratification

Petra could escape liability for breach of fiduciary-obligation if her conduct was undertaken with
Pillar’s informed consent. And that Petra fully and frankly disclosed all ‘material facts’ 38.39 The
material facts here may be that Petra is a large shareholder of Amazon and is aware of a potential
investigation against the company. However, the onus of proving rests on Petra. 40

Additionally, neither facts indicate that Pillar knew about the conflict with Explorit, nor was her
consent implied to knowingly proceed in investing with Explorit. 41

Further, facts do not indicate if Pillar has ratified Petra receiving a kickback for her investments. 42

Based on the analysis, it is unlikely for Petra to rely on any defence in the absence of authorisation
and ratification.

(ii) Contractual-exclusion-or-limitation

Fiduciary obligations may be modified or excluded in their contract. 43 Petra may rely on this defence
if she and Pillar have agreed to act expressly by excluding the existence of fiduciary-obligations.44

However, Petra’s reliance on such an exclusion clause may not be successful because she has
breached the no-conflict and no-profit rule.45

e) Remedies
38
Diamond Hill Mining Pty Ltd v Huang Jin Mining Pty Ltd [2011] VSC 288 [95].
39
Farah (n 36) [139] ( Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ); Maguire v Makaronis (1997)
188 CLR 449; Commonwealth Bank of Australia v Smith (n 18) [455]-[466].
40
Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384 [398]; Ibid [466].
41
Queensland Mines Ltd v Hudson (1978) 52 ALJR 399.
42
Armitage v Nurse [1998] Ch 241 [253]-[254] (Millett LJ).
43
Hospital Products Ltd (n 24) [97] (Mason J).
44
ASIC v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963 [335] (Frankfurter J).
45
Farrington v Rowe McBride & Partners [1985] 1 NZLR 83.
(i) Monetary remedies-for-breach-of-no-profit-rule

 Account-of-profits

As Explorit’s shares doubled in value, Petra may have received the kickback she was promised.
Hence, Pillar is entitled to claim an account-of-profit (person remedy). However, only the ‘net
profit’46 obtained from the causative link between the breach-of-fiduciary (i.e. the time of breach) 47
and the profit made from the breach is calculated. 48 Then, equity can disgorge those profits to Pillar. 49

 Allowance

Previously, a dishonest fiduciary would not be given an allowance at all or only given a reduced
allowance. However, the current notion is that Petra may be able to get an allowance for her time
taken to invest in Explorit.50 Although, this might not succeed as the facts indicate she made no effort
or used her skills to research this company.

(ii) Equitable-compensation for-breach-of-no-conflict-rule

Equitable compensation is likely to be available for breach-of-fiduciary-obligations.51

 Common-sense-test

Petra recommended Pillar invest $150,000 in Amazon shares without disclosing that she was a major
shareholder in Amazon. Additionally, Petra also failed to inform the current investigation faced by
Amazon.

Applying the ‘but-for’52 test, common sense serves that Pillar may not have suffered a loss in value of
shares ‘but for’ Petra breaching the conflict rule by not disclosing her stands as a major shareholder

46
Bluescope Steel Ltd v Kelly (2007) 72 IPR 289; Ancient Order of Foresters in Victoria Friendly Society Ltd v
Lifeplan Australia Friendly Society Ltd (2018) 256 CLR 1 [9] [88].
47
Boardman (n 30) (Lord Hodson).
48
Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018)
256 CLR 1.
49
Warman International Ltd v Dwyer (1995) 182 CLR 544; Bryan (n 7) 29 [2.12].
50
Ibid.
51
Nocton v Lord Ashburton [1914] AC 932; Commonwealth Bank of Australia v Smith (n 18).
52
Canson Enterprise Ltd v Boughton & Co (1191) 85 DLR (4th) 129; Maguire v Makaronis (1997) 188 CLR
449.
and covering up the news on the investigations against Amazon. The causative link can be
established, and Petra is liable for these losses.

Further, Petra may not be responsible for losses related to FlexTime. Applying the ‘but-for’ test, it is
unlikely for Petra to know that FlexTime’s shares would drop because of its poor performance.
Hence, the causative link cannot be established. 53

 Exemplary damages

It may be awarded in a small amount but is likely to be overturned on appeal in Victoria. 54

C. Next-Steps

1. For Aureliano

Additional information is required to understand Aureliano’s purpose for designing the battery. This
would assist in determining whether the information is commercial.

2. For Petra

Clarification is required to understand whether:

 Petra received a kickback to explore constructive trust as a remedy. 55
 Melquiades received any financial benefit from Petra to determine liability as a third-party
and personal remedy of equitable compensation. 56

Please-contact-me-if-you-have-any-further-questions.
Kind-Regards,

II. BIBLIOGRAPHY

53
Stewart v Layton (1992) 111 ALR 687.
54
Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298.
55
Bryan (n 7) 369 [23.1].
56
Ibid 178; Barnes (n 35); Farah (n 36).
 A. Books

Bryan, Michael, V J Vann and S Barkehall Thomas, Equity and Trust (Cambridge University
Press, 2nd ed, 2017)
B. Cases

Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly
Society Ltd (2018) 256 CLR 1
Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37
Armitage v Nurse [1998] Ch 241
ASIC v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963
Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199
Australian Medic-Care Co Ltd v Hamilton Pharmaceutical Pty Ltd [2009] FCA 1220
Barnes v Addy (1874) LRD 9 Ch App 244
Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384
Bluescope Steel Ltd v Kelly (2007) 72 IPR 289
Boardman v Phipps [1967] 2 AC 46
Breen v Williams (1996) 186 CLR 71
British American Tobacco Australia Ltd v Gordon [2007] NSWSC 230
Cadbury Schweppes Inc v FBI Foods Ltd (1999) 167 DLR (4th) 577
Canson Enterprise Ltd v Boughton & Co (1191) 85 DLR (4th) 129
Chan v Zacharia (1984) 154 CLR 178
Chirnside v Fay [2007] 1 NZLR 433
Coco v A N Clark (Engineers) Ltd [1969] RPC 41
Commonwealth Bank of Australia v Smith (1991) 42 FCR 390
Daly v The Sydney Stock Exchange Limited (1986) 160 CLR 371
Diamond Hill Mining Pty Ltd v Huang Jin Mining Pty Ltd [2011] VSC 288
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22
Farrington v Rowe McBride & Partners [1985] 1 NZLR 83
Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6
Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298
Hodgson v Amcor Ltd [2012] VSC 94
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Keech v Sandford (1726) Sel Cas t King 61 (25 ER 223)
Maguire v Makaronis (1997) 188 CLR 449
Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414
News Ltd v Australian Rugby League Ltd (1996) 64 FCR 410
Nocton v Lord Ashburton [1914] AC 932
O’Brien v Komesaroff (1982) 150 CLR 310
Ocular Sciences Ltd v Aspect Vision Care Ltd [1997] RPC 289
Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165
Port of Brisbane Corporation v ANZ Securities Ltd [2003] 2 Qd R 661
Queensland Mines Ltd v Hudson (1978) 52 ALJR 399
Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134
Sliteris v Ljubic [2014] NSWSC 1632
Smith Kline & French Laboratories (Aust) Ltd v Secretary, Department of Community
Services and Health (1990) 22 FCR 73
Stacey v Watson [2017] NZCA 542
Stephens Travel Service International v Qantas Airways Ltd (1988) 13 NSWLR 331
Stewart v Layton (1992) 111 ALR 687
Townsend v Roussety Co (WA) Pty Ltd (2007) 33 WAR 321
Warman International Ltd v Dwyer (1995) 182 CLR 544
Westpac Banking Corporation v Bell Group Ltd (in Liq) (No 3) (2012) 44 WAR 1
Wheatley v Bell [1982] 2 NSWLR 544