Facts: Digital Pulse, an IT and web design business, employed Harris in marketing and Eden in web design. Their contracts of employment expressly stated employees would not compete with their employer. While working at Digital Pulse, the employees started their own business and engaged in projects for existing and potential clients of Digital Pulse. This was done secretly and in competition to their employer. When discovered, Harris was dismissed and Eden resigned. Digital Pulse commenced proceedings, against both men for breach of contract and fiduciary duties, seeking compensation, account of profits, and exemplary damages.
Note: The traditional rule in equity is that exemplary damages are not available for breaches of equitable obligations.
Issue: Whether a court exercising equitable jurisdiction for breach of fiduciary duty (an equitable obligation) could award exemplary damages?
Held (NSWCA majority – Spigelman CJ & Heydon JA; Mason P dissenting): The NSWCA had no jurisdiction to order a punitive money award for breach of fiduciary duty arising from contract.
Held (Heydon JA): Only the HCA could change the law so as to allow for the recovery of exemplary damages for breaches of fiduciary obligations.
Held (Spigelman CJ): The separation of CL and equity is more pronounced in Australia (vs Canada and NZ which have similar legal frameworks). Given the commonality of this kind of case, and that equity has, in the past, never saw fit to administer punitive damage, then the development of the law in this way is inappropriate.
Held (Mason P): The fusion fallacy itself is false; both equity and CL had adequate powers to adopt and adapt concepts from each other’s system before the passing of the Judicature Act.