Blue Sky Alternative Investments has secured a federal court order in Australia that bars three of its former directors – as well as Pinnacle Investment Management and its newly-established affiliate Riparian Capital Partners – from using proprietary information that it alleges was taken in a breach of confidence.
The order prevents former Blue Sky directors Michael Blakeney, Nick Waters and Patrick Hayden, as well as Pinnacle Investment Management chief financial officer and chief operating officer Alex Ihlenfeldt, from using several documents that Blue Sky alleges were downloaded using Waters’ computer while he was employed by the firm.
The documents, mostly spreadsheets, appear to contain proprietary and confidential information on investment mandates, modeling and water markets. They were allegedly downloaded from Blue Sky’s ‘O-drive,’ the database on which the company stores its confidential information.
The order also applies to Pinnacle and RCP; the latter was recently established by Waters and Hayden with backing from Pinnacle. Ihlenfeldt was named as a director of RCP in the court judgment.
The court heard evidence from Kim Morison, managing director of Blue Sky’s real assets business, that said he became aware of the establishment of RCP by Waters and Hayden on April 5 and April 9. Agri Investor reported the establishment of RCP on April 3.
Following this, Blue Sky engaged KordaMentha to undertake a forensic review of the work computer, mobile phone and email accounts of Blakeney, and the work computer and email accounts of Waters. This review allegedly found that an as-yet unidentified person used Waters’ computer to access Blue Sky’s ‘O-drive’ on the weekend of July 28-29, 2018, and downloaded approximately 2.2 gigabytes of data.
“The applicants submit, and I am prepared to accept, having regard to Mr Waters’ involvement with Riparian Capital, that, prima facie, an inference arises that it was Mr Waters who undertook that downloading,” Justice John Logan said in his judgment.
None of the applicants – Blakeney, Waters, Hayden, Ihlenfeldt, Pinnacle or RCP – have had a chance to defend the allegations in court. All declined to comment for this story beyond official statements or did not respond to a request for comment.
Mandate data
The court heard evidence from Morison that there was no logical need to download the data for employment reasons, as employees who wished to access the drive would be able to do so at any time.
Several of the documents that related to an investment mandate for First State Super, as well as Blue Sky’s new code term sheet, were also allegedly deleted.
“As to that, an inference arises, on the evidence to hand, that Messrs Waters, Hayden and Blakeney were contemplating some type of divergence from Blue Sky Water Partners, taking with them the terms of various mandates,” Justice Logan said.
Those mandates include A$90 million ($63.5 million; €56.6 million) on behalf of LGIAsuper and others on behalf of Rabo Investments, Texas Municipal Retirement System and First State Super. This also may have included the Strategic Australian Agriculture Fund, which Blue Sky manages.
Riparian Capital Partners does not currently have any investment mandates or any assets under management.
On the Strategic Australian Agriculture Fund, Blue Sky’s evidence disclosed that TMRS sent a letter dated December 21, 2018, in which it sought to convene a meeting to remove Blue Sky Water Partners as trustee of the fund. Blue Sky declined to comment on whether this meeting took place or as to whether it still manages the fund.
Prior to this, in August 2018, the court heard that Blakeney and Waters had proposed a management buy-out of Blue Sky’s real assets division with backing from Pinnacle, which was rejected by Blue Sky shortly afterwards.
Documents relating to Pinnacle and the proposed MBO were allegedly accessed on December 29, which led Justice Logan to agree with Morison’s evidence that this event and the TMRS letter “may not be coincidental.”
In his judgment, Justice Logan said: “The long and the short of it is that Mr Morison’s concern on behalf of the applicants is that the individual former employees and, also, as the case may be, directors together with Riparian Capital have accessed proprietary and confidential information of the applicants and are using this as a springboard for the establishment of a new investment fund.
“His further concern is that the confidential information looks likely to have been used to attract the investment of Pinnacle.
“As the evidence stands to date, there is a reasonable basis for that concern.”
As such, Justice Logan granted a temporary restraint on using or deleting the downloaded information until after May 7, 2019, when a case management hearing is set to be held.
Court order
Blue Sky has requested that the restraint be made permanent and the data deleted should it be held by the applicants, as well as a declaration that Blakeney, Waters and Hayden breached their employment contracts, a declaration that each of the three had contravened the Corporations Act and an undisclosed amount of compensation.
As well as the temporary restraint, Blue Sky also asked that Blakeney, Waters, Hayden, Ihlenfeldt, Riparian and Pinnacle be temporarily restrained from dealing with LGIAsuper, Rabo Investments, First State Super and TMRS until the data was deleted. This was rejected by Justice Logan as the law does not restrain legitimate competition in the absence of some restraint in a contract of employment.
The court heard that Blakeney is subject to a competition restraint, but also that he does not appear to have any involvement with RCP – something that has itself been questioned by Blue Sky in evidence to the court.
Blue Sky declined to comment on the status of the Strategic Australian Agriculture Fund or any other details of the case.
In a statement to the Australian Securities Exchange from chairman Andrew Day, Blue Sky said: “The board determined that on the basis of what we have identified, it was necessary to initiate this action to protect valuable intellectual property on behalf of the company, its shareholders and our investment clients. We are seeking a swift resolution to the matter.”
The court ruled that Morison’s evidence should be kept confidential.
Pinnacle Investment Partners managing director Ian Macoun did not respond to a request for comment. In a statement, the firm said: “Pinnacle confirms that assertions have been made by Blue Sky Alternative Investments against certain former Blue Sky employees and that Pinnacle and Riparian Capital Partners have been joined to proceedings as respondents.
“Pinnacle and Riparian will each defend their positions when the opportunity is afforded them and will update shareholders on any material developments in due course.
“It is noted that Riparian currently has no assets under management.”
Riparian Capital Partners and its directors declined to comment and directed Agri Investor to Pinnacle’s statement. Michael Blakeney could not be reached for comment.
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