Can a respondent claim the Companion Principle? Defending a tech company’s confidential information in court

When a company owns technology that differentiates its product from competitors on the market, confidential information related to that tech and the clients that use it, is invaluable. Technology companies are particularly vulnerable when it comes to the ownership of confidential company information, but there are legal avenues available to protect your business through litigation.

Macpherson Kelley’s Litigation team advised a company that alleged that an employee of theirs had stolen the company’s confidential information (amongst other things). The team obtained a successful outcome for their client in the Court of Appeal, overturning a previous decision that had paused legal proceedings. As a result of that outcome, their client was entitled to progress its application for interlocutory relief to allow it to continue to operate its business.

What legal arguments were at play during the appeal?

In Zuce Tech Pty Ltd -v- Ebert [2024] QCA219, the Court of Appeal considered whether the primary judge erred by having applied the ‘Companion Principle’ in ordering a stay of the proceeding. The Companion Principle is a legal rule that protects individuals from being forced to help the prosecution in a criminal case. Whether the Companion Principle applied was critical in determining whether the primary judge could exercise discretion in granting the stay, and if so, whether the principle could be extended to circumstances where no prosecution was pending.

Litigation proceedings when confidential information is allegedly stolen

Macpherson Kelley acted for the applicant, Zuce Tech Pty Ltd (Zuce Tech), which operated a business of supplying motor vehicle chip tuning services to customers, as well as distributing hardware and software manufactured by an Italian company known as Alientech. The respondent was an employee of Zuce Tech.

The proceedings concerned alleged breaches of duties owed by the respondent to Zuce Tech, those breaches arising out of (among other things) alleged removal of stock, equipment and confidential information from Zuce Tech which prevented it from operating its business.

Zuce Tech commenced proceedings in the Supreme Court of Queensland seeking, among other relief, interlocutory orders requiring the delivery up of stock, equipment and confidential information alleged to have been removed by the respondent, and a restraint from the use of that information.

The respondent filed an urgent application seeking a stay (or pause) of the proceedings, relying upon his right not to incriminate himself, a privilege typically invoked when a person is required to give evidence which has the tendency to incriminate them for a crime.

Relevantly, the respondent had not been charged with any crime, but was the subject of potential criminal proceedings which were relevant to the civil proceeding. Still, the respondent elected to exercise his right to silence.

On 23 September 2024, the primary judge ordered that the proceeding be stayed for a period of 6 months.  In doing so, the primary judge made findings which included that any order for the respondent to deliver up equipment, stock and confidential information would be compelling the respondent to assist the police investigation and prosecution in a discharge of its onus of proof.

Macpherson Kelley’s legal team act fast: Zuce Tech appeals decision

Zuce Tech commenced an appeal of the stay on eight grounds, highlighting the below.

1. The primary judge erred in the assumption that Zuce Tech could be adequately compensated by an award of damages in circumstances where:

• There was evidence that the likely damages approached $240,000 per month.
• There was no evidence of the respondent’s ability to meet any anticipated damages.

2. The primary judge erred by holding that the Companion Principal, which provided that a person charged with a crime cannot be compelled to assist the prosecution, applied in circumstances where the respondent had not, in fact, been charged with any crime.

In response to those grounds, the respondent contented, among other things, that:

1. The primary judge was entitled to consider that a monetary amount was an adequate remedy, absent any evidence to suggest the respondent did not have the financial capacity to meet such an award.
2. The Court is not prevented from considering the Companion Principle or matters relevant to, consistent with, or underpinning, the Companion Principle, in determining whether it is in the interests of justice to stay a civil proceeding before the criminal charges are laid.

Macpherson Kelley achieves positive outcome for Zuce Tech in Court of Appeal

The Court of Appeal allowed the appeal, set aside the stay, and ordered costs in favour of Zuce Tech. In doing so, the Court of Appeal held that the primary judge erred in two main respects.

1. Misuse of the Companion Principle:  
   By exercising the discretion to grant a stay on the basis that the Companion Principle applied in the present case. That is because the Companion Principle is not engaged until an accused has been charged and there is a prosecution pending (which was not the case in Zuce).[2]Citing R v Independent Broad-Based Anti-Corruption Commissioner (IBAC), the Court of Appeal reiterated that the plurality in IBAC specifically rejected any extension of the principle to circumstances where no prosecution was pending.
2. No evidence for damages:
   The discretion miscarried by reason of the primary judge’s finding that any risk of prejudice to Zuce Tech could be adequately compensated by damages, where there was no evidential basis for that finding.

When faced with re-exercising the discretion to say the proceedings, the Court of Appeal made 4 main findings.

1. When considering the factors relevant to the task of exercising the discretion, it is important not to attribute to the person seeking the stay the benefit of the Companion Principle when that principle has not yet been engaged.
2. The respondent’s reliance on the privilege against self-incrimination is an insufficient justification to continue the stay of the proceedings.
3. The argument that the relief sought by the application (including delivery up orders) would infringe the respondent’s privilege is more appropriately to be dealt with on the application for interlocutory relief.
4. There were no other considerations which persuaded the court to grant a stay.

The Court of Appeal clarified that, in circumstances where there were no other considerations in support of a stay, it was unjust to prevent Zuce Tech from seeking to persuade a judge that the nature of its case was sufficient to warrant interlocutory orders.

Zuce Tech was, after delivery of the Court of Appeal’s decision, entitled to pursue its application. On 29 November 2024, the Supreme Court of Queensland granted the interlocutory relief Zuce Tech was seeking.

Key takeaways

The outcome of the appeal illustrates that:

1. The privilege from self-incrimination may not be sufficient to warrant a stay of proceedings. Any party seeking to rely on the privilege should meaningfully consider the nature of relief being sought and the stage of any criminal investigation.
2. The Companion Principle can only be enlivened after a person has been charged with an offence. A party cannot seek to extend the application of the principle by relying on matters underpinning the Companion Principle.

There are many ways for technology companies to ensure their confidential information is protected and, in the instance of an alleged breach, it may warrant litigation.

Though it’s possible for respondents to attempt to halt legal proceedings, an experienced litigation team can successfully contest these efforts through an appeal. Get in touch with Macpherson Kelley’s expert team today.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.