Alanco Australia Pty Ltd v Higgins [2010] FCA 1484; 81 ACSR 234

Areva NC (Australia) Pty Ltd v Summit Resources (Australia) Pty Ltd [No 3] [2009] WASC 67

Cazaly Iron Pty Ltd v Minister for Resources [2007] WASCA 60

Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55

Harman v Secretary of State for the Home Department [1983] 1 AC 280

Mackay Sugar Co-operative Association Ltd v CSR Ltd (1996) 63 FCR 408; 137 ALR 183

Mobil Oil Australia Ltd v Guina Developments Pty Ltd [1996] VicRp 54; [1996] 2 VR 34

Science Research Council v Nasse [1979] UKHL 9; [1980] AC 1028

1 The plaintiff, Minetec Pty Ltd, provides communications equipment and services to the mining industry. The first and second defendants, Mr Frost and Mr Kenney, are former employees of Minetec.

(a) in about July 2007, it entered into a two-year contract with Fortescue Metals Group Ltd (FMG) for the supply of communications equipment and on site support at FMG's Cloudbreak Mine (the FMG Contract);

(b) in breach of obligations of loyalty and honesty, expressly or impliedly imposed by their contracts of employment with Minetec:

(i) in the period late December 2008/January 2009, Mr Kenney downloaded confidential information from Minetec's server to a portable external hard-drive;

(ii) subsequent to the termination of his employment with Minetec, Mr Kenney used the confidential information to entice Mr Frost and others to leave their employment with Minetec and to join Mr Kenney's new employer and a competitor of Minetec, Communications Australia Pty Ltd;

(iii) at times prior to September 2009, Mr Frost and Mr Kenney used the confidential information to assist Communications Australia to tender for a contract with FMG for the supply of communications services at the Cloudbreak Mine to take effect at the expiry of the FMG Contract (the Replacement FMG Contract);

(c) it suffered loss and damage as a consequence of the breaches by Mr Frost and Mr Kenney of their employment contracts in that it lost the opportunity to extend the FMG Contract.

3 Mr Kenney denies that he downloaded confidential information from Minetec's server as alleged. He and Mr Frost deny that they used any confidential information to assist Communications Australia to tender for the FMG Replacement Contract or that they otherwise breached their contracts of employment with Minetec.

4 Discovery has been given by the parties. Mr Frost and Mr Kenney objected to producing for inspection certain documents that they had discovered unless a confidentiality undertaking was given by Minetec and its solicitors. The documents concerned were said to contain information that was 'commercially sensitive'. There was, at least initially, no challenge to the assertion that the documents contained confidential information.

5 Mr Frost and Mr Kenney divided the documents concerned into two categories. The first category comprised documents that they produced for inspection by Minetec and its solicitors, subject to confidentiality undertakings being given (the documents were listed in pt 2 of the first schedule to each list of documents). The second category comprised documents that Mr Frost and Mr Kenney produced for inspection by only Minetec's solicitors, subject to their undertaking to keep the contents of the documents confidential (the documents were listed in pt 3 of the first schedule to each list of documents).

6 The confidentiality undertakings sought by Mr Frost and Mr Kenney were provided by Minetec and its solicitors and the documents discovered by Mr Frost and Mr Kenney were inspected. The parties then conferred over various issues regarding discovery. Most of those issues were resolved but eventually Minetec applied for orders that its solicitors be released from their confidentiality undertakings and that two documents discovered by Mr Kenney (described as documents 19 and 40) be produced for inspection in an unedited form.

7 The parties subsequently agreed that Minetec's solicitors could inspect unedited versions of documents 19 and 40 and that they should be released from their confidentiality undertakings, except to the extent that they applied to those documents. Mr Kenney maintained that documents 19 and 40 should only be produced for inspection by Minetec in their edited form and that Minetec's solicitors should continue to be bound by their confidentiality undertakings in relation to those parts of the documents that had been masked.

8 I have concluded that Mr Kenney should not be obliged to produce unedited versions of documents 19 and 40 for inspection by Minetec and that Minetec's solicitors should not be released from their confidentiality undertakings in relation to the edited parts of those documents.

9 Complete copies of documents 19 and 40 were annexed to the affidavit of Daniel Steven Romano sworn on 25 March 2011 (annexure DSR 2). The edited versions of the documents, as produced by Mr Kenney for inspection by Minetec, were annexed to the affidavit of Natalie Graskoski sworn on 7 April 2011 (annexure NG 2). Mr Romano and Ms Graskoski are solicitors employed by the firm of solicitors who appear for Minetec. They have given confidentiality undertakings to Mr Frost and Mr Kenney.

10 Documents 19 and 40 were said by Mr Kenney to 'belong to' Communications Australia. I infer from their contents that the original of each document was prepared by Mr Kenney in the course of his employment with Communications Australia and that the documents contain information that is relevant to the business of that company (and as to document 40, see par 5 of the affidavit of Sophie Patricia Coleman sworn on 1 April 2011). Minetec did not argue to the contrary.

11 Document 19 was an email dated 18 September 2009 sent by Mr Kenney to the chief executive officer and chief financial officer of Communications Australia. It identified potential customers with whom Communications Australia was negotiating at that time and the expected value of possible contracts with those customers.

12 The edited version of document 19 excluded references to the possible customers of Communications Australia other than FMG. It otherwise disclosed all information relating to the tender for the FMG Replacement Contract.

13 Document 40 was a spreadsheet prepared by Mr Kenney for the purpose of the tender by Communications Australia for the FMG Replacement Contract (see the affidavit of Ms Coleman, par 5). The spreadsheet contained information about Communications Australia's costs (for example, the costs that it incurred in employing a technician), proposed pricing for services to be provided to FMG and expected profit.

14 The edited version of document 40 excluded all of the information that disclosed costs, prices and profits (the actual figures) but retained information that identified the various items that were analysed in the spreadsheet (for example, what matters were included in calculating the cost of supplying a technician to service FMG's requirements).

15 Ms Coleman stated that the word processing properties of the electronic version of document 40 indicated that the document had been created on 7 August 2009; that is, some time after Mr Kenney's employment with Minetec was terminated (see pars 22 and 23 of the statement of claim and pars 24 to 26 of the defence).

16 Minetec submitted that Mr Kenney had not provided any evidence to establish that the documents contained information that was commercially sensitive. An inference that a document contains information that is confidential may, of course, be drawn from the document itself. I am satisfied that documents 19 and 40 contain information that is confidential to Communications Australia having regard to their contents. I also note that the documents contain the same kind of information that Minetec contends was confidential to it - information about prices and customers.

17 There was little in issue between the parties as to the principles relevant to determining Minetec's application. Accordingly, the principles that I have applied to decide the application can be briefly summarised except for one issue that requires some elaboration as a result of a submission made by the defendants. That issue concerns the onus resting on each party to an application of this kind.

18 The editing of a discovered document is now governed by O 26 r 1B of the Rules of the Supreme Court 1971 (WA) (RSC). Rule 1B permits a document to be edited to hide information that is not related to a matter in question or which a party objects to producing. A party is not required to produce the hidden information to another party or to allow another party to inspect or copy the hidden information unless the court orders otherwise. The rule does not prescribe a test to be applied by the court in determining whether hidden information should be produced. In my view, that question falls to be determined by O 26 r 11 RSC.

19 Order 26 r 1B RSC was added after the decisions of Buss JA in Cazaly Iron Pty Ltd v Minister for Resources [2007] WASCA 60 and the Chief Justice in Areva NC (Australia) Pty Ltd v Summit Resources (Australia) Pty Ltd [No 3] [2009] WASC 67. However, the principles identified in those decisions remain relevant for determining an application that a party be required to produce information that has been hidden by editing a discovered document.

20 In Areva, the Chief Justice stated the practice to be adopted in this jurisdiction for producing edited documents for inspection (prior to the insertion of O 26 r 1B RSC). His Honour concluded that it was open to a party providing inspection to edit a document so as to exclude production of an irrelevant part. However, in the event of a dispute, the party masking the document carried the onus of satisfying the court that editing the document was appropriate. An affidavit made by the party or its solicitor was not necessarily conclusive on that question and the court might inspect the entire document in cases of doubt to determine the form in which it should be produced for inspection. The court would not necessarily decide the issue solely by reference to the apparent relevance of that part of the document that had been edited. It might also take into account broader considerations of the kind identified in O 1 r 4A and 4B RSC. The court would adopt the course that was best designed to achieve the objectives identified in those rules.

21 The court has inherent jurisdiction to refuse to make an order for the production of discovered documents if production would be unnecessary or oppressive. That jurisdiction has been exercised to relieve a party from its obligation to produce for inspection a document or part of a document that relates to a matter in question but contains confidential information. O 26 r 1B RSC now permits a party to object to producing a document or part of a document for that reason and to edit the document accordingly.

22 The implied undertaking not to use a discovered document for a collateral or improper purpose is ordinarily sufficient to protect a party's confidences. However, the existence of a trade rivalry between the party giving discovery and the party seeking inspection is a relevant consideration in determining whether the court should impose any restriction upon inspection: Cazaly Iron [7] - [9] (Buss JA) and see generally, Mobil Oil Australia Ltd v Guina Developments Pty Ltd [1996] VicRp 54; [1996] 2 VR 34. Consequently, relevance provides a necessary but not sufficient requirement for ordering production; the document may be relevant in the broad sense ordinarily required for discovery but the court may conclude that disclosure is not necessary for fairly disposing of the proceedings or for saving costs having regard to the confidential information contained in the document: Science Research Council v Nasse [1979] UKHL 9; [1980] AC 1028, 1065.

23 The question of onus on an application under O 26 r 1B and r 11 was not directly contested by the parties. However, the defendants referred to a passage in the decision of McKerracher J in Alanco Australia Pty Ltd v Higgins [2010] FCA 1484; 81 ACSR 234. In that case, the applicant's solicitors sought to be relieved of confidentiality undertakings they had given in relation to documents seized pursuant to an Anton Pillar order. McKerracher J held, after considering Mobil Oil v Guina and Mackay Sugar Co-operative Association Ltd v CSR Ltd (1996) 63 FCR 408; 137 ALR 183 that (at [41]):

The balancing exercise to be undertaken requires that before the court can decide that it is in the interest of justice to impinge upon the defendants' legitimate interest in the maintenance of the confidentiality of their commercially sensitive information, Alanco must show that it is actually necessary for the conduct of the case. This was central to the conclusion by Spender J in Mackay Sugar. (emphasis added)

24 The defendants adopted that part of the reasoning of McKerracher J that I have emphasised as expressing the test that they contended ought to be applied to determine Minetec's application. That test casts the onus on Minetec to establish why the information ought to be disclosed, whereas the Chief Justice in Areva held that it was for the party resisting production to satisfy the court that it was appropriate to hide information by editing the document. At first glance, it might appear that this difference on the question of onus might be explained by the fact that McKerracher J was concerned with granting an application for access to information that was confidential and that a different approach might be taken where a document had been edited merely to exclude information that was said to be irrelevant. However, in Areva the documents had been edited on grounds of confidentiality as well as irrelevance and privilege.

25 Casting matters of practice and procedure in terms of onus is, in my view, rarely helpful. The court is frequently required to balance competing interests (private and public). In this jurisdiction, it does so by reference to the objectives expressed in O 1 r 4A and r 4B RSC. In an application of this kind, the court is required to balance the fact that discovery 'constitutes a very serious invasion of the privacy and confidentiality of a litigant's affairs' (Harman v Secretary of State for the Home Department [1983] 1 AC 280, 308 (Lord Keith of Kinkel)) and the interests of the parties and the public in ensuring justice is done between the parties by permitting each party open access to all material that may be relevant to the matters being litigated. Consequently, an application for production of documents containing confidential information requires both parties to address in their evidence and submissions the various factors that the court must weigh up in striking the appropriate balance in the circumstances of the particular matter. Evidence that does not satisfactorily establish the confidentiality or irrelevance of edited information or an inadequate explanation of how the disclosure of the hidden information is required to do justice between the parties may tip the balance either way.

26 I have no doubt that the approach taken in Areva and Alanco Australia reflected, at least in part, the circumstances of the matter before each court. It is plain, for example, from the Chief Justice's reasons that the evidence relied on by the party resisting production of unedited documents in Areva fell well short of what would be required to displace the other party's legitimate interest in the production for inspection of all information that related to a matter in question and the public interest in ensuring fair pre-trial disclosure. Ultimately, applications for production are to be determined by O 26 r 11, which provides that, '[n]o order for production of any documents for inspection ... shall be made unless the Court is of the opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs' (O 26 r 11 applies when read with r 8 and r 9). In my view, the approach that I have outlined above is consistent with the terms of r 11. The court will, of course, have regard to the objectives contained in O 1 r 4A and r 4B RSC in forming its opinion.

Should document 19 be produced for inspection in an unedited form?

27 Minetec contended that document 19 was relevant to a matter in question as it concerned, 'the conduct of [Mr Kenney] during and post-termination of his employment with [Minetec] and whether [Mr Kenney] used information of past, (then) current or prospective clients or opportunities of [Minetec] which were imparted to him or which he gained from and during his employment with [Minetec]' (plaintiff's submissions dated 7 April 2011, par 22). Put simply, disclosure of the entire document was sought so that Minetec could see whether any of the possible customers of Communications Australia referred to in document 19 were or had been its customers (and see also the affidavit of Minetec's chief financial officer, John Patrick William Folan made on 25 March 2011, pars 9 and 10). The plaintiff was not seeking information relevant to the case it had alleged against Mr Frost and Mr Kenney concerning the FMG Contract and FMG Replacement Contract - all of document 19 that related to the FMG Replacement Contract had been produced for inspection. Rather, it was searching for evidence of any possible further breach by Mr Kenney of his employment contract.

28 Minetec also referred in its submissions to correspondence exchanged with the defendants' solicitors during conferral and in particular, to what was stated in a letter by its solicitors dated 4 October 2010 (attachment DSR 8 to Mr Romano's affidavit). It was contended in that letter that the redacted part of document 19 referring to possible customers of Communications Australia was relevant to the allegations made in pars 11.6(b) and 35 of the statement of claim. Paragraph 11.6(b) pleaded that it was a term of Mr Kenney's employment contract with Minetec that he would not at any time during a period of two years after termination of his employment obtain customers or clients of Minetec for any person carrying on business in competition with Minetec. Paragraph 35 pleaded that Mr Kenney breached that term by assisting Communications Australia to prepare its tender for the FMG Replacement Contract. Those allegations merely confirm that Minetec's case in these proceedings is limited to the use of confidential information in relation to the FMG Contract and FMG Replacement Contract.

29 In my view, the edited part of document 19 is irrelevant to any matter in question in these proceedings. The edited part does not 'fairly lead ... to a train of enquiry' within the proceedings: Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55, 63. Rather, the plaintiff seeks access to the information that has been hidden to fish for possible further allegations of breach by Mr Kenney of his employment contract that lie outside the issues currently raised on the pleadings in the hope of finding new causes of action and claims for loss and damage. Minetec's claims in these proceedings are limited to the use of confidential information in connection with enticing Mr Frost and three others to terminate their employment with Minetec and join Communications Australia (pars 22, 26 and 27 of the statement of claim) and the preparation of Communications Australia's tender for the FMG Replacement Contract (pars 28 and 29 of the statement of claim). That limitation is reflected in par 35 of the statement of claim.

30 Courts take a liberal view of what constitutes a matter in question for the purpose of discovery and the availability of pre-action discovery has significantly altered the rules concerning the extent to which a party may fish among another person's documents in search of a viable cause of action. However, O 26 r 1 still limits discovery to documents relating to a matter in question arising in a cause or matter.

Should document 40 be produced for inspection in an unedited form?

31 Minetec contended that document 40 was relevant to establishing whether Mr Kenney had used information that had been imparted to or obtained by him during his employment with Minetec in preparing Communications Australia's tender for the FMG Replacement Contract. Reference was made to another document discovered by the defendant (document 16) - an email dated 10 August 2009 from Mr Kenney to another employee in Communications Australia which attached a copy of document 40. The email requested comments on the calculations contained in document 40 as part of the process of settling the final form of the tender (the email of 10 August 2009 formed part of attachment DSR 4 to Mr Romano's affidavit).

32 In his affidavit made in support of Minetec's application, Mr Romano stated at par 17 that:

I am of the view that document 40 is highly relevant to the matters in issue in these proceedings and without the opportunity to consider the information the plaintiff has suffered prejudice, and will continue to do so, for the following reasons:

(a) the pricing information is central to the issues in dispute in the proceedings and I am unable to take the plaintiff's instructions in relation to the same; and

(b) I am unable to determine the origin of the 'service costs calculator' and whether the formula therein was created whilst the defendant was in the employ of the plaintiff.

33 The reference to the 'service costs calculator' in Mr Romano's affidavit was to the description given in Mr Kenney's email of 10 August 2009 to the information contained in document 40.

34 Mr Folan stated in his affidavit that he had been advised by Ms Graskoski that the basis for refusing to permit Minetec to inspect document 40 was that it contained pricing information. He also stated that, 'I am of the view that this document may be relevant to the matters in issue in these proceedings given that [Mr Kenney] (during his employment with the plaintiff) assisted the plaintiff with its pricing in relation to the FMG Contract' (par 11).

35 The statements of Mr Romano and Mr Folan that have been reproduced comprised the only evidence provided by Minetec as to why it should be permitted to inspect document 40 in its unedited form. That evidence was, in my view, insufficient to found an opinion that disclosure of the information hidden in the document was necessary for fairly disposing of Minetec's claim.

36 It may be readily appreciated that confidential pricing information concerning the FMG Contract obtained through Mr Kenney might assist Communications Australia to outbid Minetec in tendering for the replacement contract with FMG. However, it was not apparent why Minetec's solicitors were not in the position to ascertain whether Mr Kenney had used Minetec's confidential pricing information in compiling document 40, at least to the point where they could have more fully supported its application for production of the document in an unedited form.

37 Minetec and its solicitors knew what items had been included in the service costs calculator comprising document 40. Presumably, Minetec could have provided its solicitors with the pricing and other information for each of those items that it had used in the FMG Contract. A comparison could then have been made by the solicitors of the information provided by Minetec and the information contained in document 40 to see whether there was a reasonable basis for suspecting that information confidential to Minetec had been used in the preparation of the FMG Replacement Contract. The information contained in document 40 is very basic cost and pricing information and I am unable to see why a comparison of the kind that I have described could not have been undertaken without the need for further instructions from Minetec apart from its corresponding rates, costs and profit margin. The outcome of that comparison would have provided a proper basis for seeking further disclosure of the document if it had revealed that there was a basis for suspecting that document 40 might contain evidence that information that was confidential to Minetec had been improperly used by Mr Kenney.

38 Minetec also contended that the confidentiality undertakings given by its solicitors in relation to document 40 ought to be varied as they impacted unfairly on the ability of the solicitors to engage and instruct possible expert witnesses and to brief counsel. It was not said that the information was required to fully brief an expert or counsel but rather that the undertakings required Minetec to identify its expert advisors 'which may result in the privilege of that engagement being waived' and further that 'the defendants will be aware of the counsel [Minetec] engages to provide advice on the evidence' (Minetec's outline of submissions dated 7 April 2011, par 25).

39 The confidentiality undertakings are annexed to Mr Romano's affidavit (DSR 1). As might be expected, they require further undertakings to be given by any expert and counsel engaged by Minetec's solicitors. However, Minetec did not seek to vary the undertakings because of any dispute over that requirement and it is difficult to apprehend what prejudice Minetec claimed it or its solicitors might suffer as a consequence of the undertakings continuing to apply to document 40. I cannot see how disclosure of the identity of counsel could be prejudicial or unfair and merely indicating the name of an expert that it proposes to engage does not result in the loss of any privilege that might attach to communications with that expert.

40 The parties included arguments concerning the costs of Minetec's application in their written submissions.

(a) subsequent to the application being made, the defendants agreed to release Minetec and its solicitors from their undertakings over all of the documents for which confidentiality had been claimed apart from the solicitors' undertakings on documents 19 and 40;

(b) Mr Kenney did not permit Minetec's solicitors to inspect complete copies of documents 19 and 40 until well after the application had been initiated;

(c) there was no basis on which Mr Kenney could properly maintain his insistence on confidentiality undertakings in respect of document 19 (oddly, Minetec's submissons on costs made no reference to document 40).

42 The defendants contended that costs should be ordered according to the outcome of the application. The purpose of the requirement for conferral was to resolve disputes that arose in the interlocutory phase of a matter. The defendants should not be penalised for concessions made during conferral.

(a) In July 2010, the defendants each made affidavits of discovery in which they stated that they would only produce certain documents for inspection if confidentiality undertakings were given.

(b) Minetec's solicitors gave their confidentiality undertakings in August 2010. However, the solicitors for Minetec disputed the editing of documents produced for inspection at that time (see Ms Graskoski's affidavit made on 16 August 2010). Consequently, I ordered on 17 August 2010 that the parties confer on the issue and that any application for production of the documents be made within a short time after the period allowed for conferral.

(c) Minetec did not make an application within the time specified in the order made on 17 August 2010. However, the parties continued to confer on the issue and concessions were made by the defendants with the result that the primary issue remaining by March 2011 concerned whether representatives of Minetec and its solicitors ought to be released from their confidentiality undertakings. I made directions for a hearing to determine the dispute over that issue on 4 March 2011.

(d) Some time prior to 25 March 2011, the defendants agreed to release Minetec's representatives and solicitors from their confidentiality undertakings except for the undertakings given by the solicitors in relation to documents 19 and 40 (see Mr Romano's affidavit, par 5; the defendants confirmed their position in a letter from their solicitors dated 1 April 2011 - see attachment NG 1 to Ms Graskoski's affidavit made on 7 April 2011). Mr Kenney also maintained his objection to production of unedited versions of documents 19 and 40.

(e) Each of the affidavits in support of Minetec's application was made after the defendants had altered their position on the confidentiality undertakings so that the dispute, in substance, was confined to documents 19 and 40. Similarly, Minetec's written submissions were filed after that time.

44 There is no reason why costs should not follow the event. However, my preliminary view is that the costs should be confined to those costs that were reasonably incurred in connection with arguing the matters that were ultimately put in issue by the defendants. That is, the award of costs should not include costs incurred during the process of conferral up to the point where the matters determined in the application were crystallised. That would suggest that the defendants should be entitled to their costs reasonably incurred in connection with the application on and from 24 March 2011.

45 I would anticipate that an order in those or similar terms could be agreed between the parties following publication of these reasons. However, as the suggested order was not contended for by either party, I will hear short oral submissions on the question of costs at the next case management directions hearing if no order giving effect to these reasons can be made by consent.