AustCorp Consulting Pty Limited v Callaghan

Federal Court of Australia|2023-10-16|Before: Mr P, Yates J

Within 10 days, the parties bring in agreed orders giving effect to these reasons.
If agreement on the form of the orders to be made cannot be reached, the parties are to inform the Associate to Yates J of that fact, whereupon the matter will be listed for further hearing on that question. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 On 25 May 2023, a Registrar of the Court made an order on the application of the prospective applicant, AustCorp Consulting Pty Ltd (AustCorp), that the prospective respondents, Megan Callaghan and Lead Group Consulting Pty Ltd (Lead Group), give discovery of certain categories of documents, pursuant to r 7.23 of the Federal Court Rules 2011 (Cth) (the Rules). At that time, the Registrar also granted liberty to the prospective respondents to apply for orders providing confidentiality in respect of any documents produced in response to the preliminary discovery order. 2 In making these orders, the Registrar was exercising the power delegated to Registrars of the Court by s 35A(1)(c) of the Federal Court of Australia Act 1976 (the Act). By s 35A(5) of the Act, a party to proceedings in which a Registrar has exercised any of the powers conferred under s 35A(1) may apply to the Court to review the exercise of the power. 3 On 15 June 2023, the prospective respondents filed an interlocutory application seeking such review. In essence, they contend that the preconditions for exercising the power under r 7.23(1) of the Rules have not been satisfied by AustCorp. They contend, further, that, if the preconditions are satisfied, certain categories of documents sought by AustCorp travel beyond what is properly required to enable it to assess whether it has rights to obtain relief against Ms Callaghan. The prospective respondents also contend that some of the categories of documents contain information that is confidential to Lead Group and that, for that reason, any order for preliminary discovery in respect of those documents should be attended by a restriction on production and inspection by AustCorp. They also contend that AustCorp's lawyers should only be permitted to inspect the documents on certain conditions.

Relevant principles 4 Rule 7.23 provides: 7.23 Discovery from prospective respondent (1) A prospective applicant may apply to the Court for an order under subrule (2) if the prospective applicant: (a) reasonably believes that the prospective applicant may have the right to obtain relief in the Court from a prospective respondent whose description has been ascertained; and (b) after making reasonable inquiries, does not have sufficient information to decide whether to start a proceeding in the Court to obtain that relief; and (c) reasonably believes that: (i) the prospective respondent has or is likely to have or has had or is likely to have had in the prospective respondent's control documents directly relevant to the question whether the prospective applicant has a right to obtain the relief; and (ii) inspection of the documents by the prospective applicant would assist in making the decision. (2) If the Court is satisfied about matters mentioned in subrule (1), the Court may order the prospective respondent to give discovery to the prospective applicant of the documents of the kind mentioned in subparagraph (1)(c)(i). 5 In their respective written submissions, the parties discussed the principles on which the Court should approach the application of this rule. It is not necessary for me to rehearse their submissions in that regard. I will refer to the relevant principles only where it is necessary for me to do so in order to determine this application. 6 It is not in dispute that this review is a hearing de novo. As prospective applicant, AustCorp bears the onus of establishing that an order should be made pursuant to r 7.23.

The evidence 7 AustCorp relies on two affidavits made by its Managing Director, David Harrison, on 5 December 2022 and on 24 July 2023. AustCorp tendered two bundles of documents (referred to as exhibits in Mr Harrison's first affidavit) and a copy of a letter dated 24 July 2023 from Mr Harrison's solicitors to Ms Callaghan's solicitors inviting agreement to discovery per a proposed amended Originating Application. 8 The prospective defendants rely on two affidavits made by Adrian Byra (who is described as a principal of Lead Group) on 27 April 2023 and 21 August 2023 (16 paragraphs), and one affidavit made by Ms Callaghan on 26 April 2023.

Background 9 AustCorp is a specialist recruitment business which services its clients by sourcing and providing candidates for recruitment, whether by way of permanent employment or under "labour hire", in different industry sectors. Its business is divided into specialist recruitment divisions, one of which is Nursing and Aged Care. This division is AustCorp's largest portfolio based on revenue and profit. 10 AustCorp employs recruitment consultants who act as intermediaries between AustCorp's clients and the candidates seeking placement with those clients. AustCorp employs (what Mr Harrison called) "360 recruitment consultants", meaning consultants that have knowledge of the full "briefing lifecyle" with respect to the engagement of appropriate candidates for a particular client. Mr Harrison's evidence is that recruitment consultants with experience in a particular industry can provide a competitive advantage to their employer where they have client relationships and knowledge of clients' business requirements. 11 Ms Callaghan commenced employment with AustCorp under an Employment Agreement in the form of a letter dated 2 September 2019. She was employed in the position of Senior Consultant in AustCorp's Nursing and Aged Care Division. Ms Callaghan had no prior experience working in the Australian aged care sector prior to commencing this employment. 12 The Employment Agreement stated: … In carrying out your duties under this agreement, you are expected to develop good professional relationships with clients, potential clients and candidates. In developing close contacts with clients and potential clients, you will have an intimate knowledge of the business affairs and interests of those clients. The Firm is entitled to the benefit of such contacts, relationships and knowledge. The terms of this agreement provide that you may not exploit them for the benefit of any other person or company or for your benefit during and after the employment. You will also be expected to appreciate the skills and knowledge of candidates, whether for on-hire or for specific positions. … 13 In relation to the performance of her duties and obligations of good faith, the Employment Agreement provided (amongst other things) that Ms Callaghan must not: … during or after [her] employment divulge any information about the business affairs or trade secrets of the Firm in circumstances in which it could be expected to harm the interests of the Firm. 14 In relation to confidentiality, the Employment Agreement provided: You will understand the Firm is concerned to protect its sensitive and confidential information, its property and reputation. The Firm also has professional responsibilities and obligations owed to its clients. In order to ensure the Firm correctly protects these, the Firm asks you to sign the attached Confidentiality Undertaking in Annexure A. 15 Annexure A to the Employment Agreement is a document titled "Confidentiality Agreement". The document defines "Confidential Information" as "all confidential information and trade secrets of the Firm". It then lists various items of information. The information includes: (b) any information relating to the business affairs, accounts, marketing plans, prospects, research, management or finances of the Firm and any databases, data surveys, customer lists, specifications, drawings, records, reports, software, any source information obtained or paid for by the Firm or other documents, material or other information whether in writing or otherwise concerning the Firm; and … (d) any information whether in writing or otherwise relating to Candidates for employment positions with Clients of the Firm and any documents or material concerning such candidates including, but not limited to, application forms, resumes, contact records, addresses and contact numbers. … 16 The Employment Agreement also contained the following restraint: During your employment with the Firm, you will have access to the clients of the Firm. It is expected that you will develop a close professional relationship with many clients of the Firm and have information about their business affairs and that you will assist in marketing the services of the Firm and expanding its client base. The professional relationship between you and the clients of the Firm is therefore a result of your employment with the Firm. You will also know of aspects of the business affairs of the Firm which are not generally known by the public. As a result, on leaving the employment of the Firm you may be in a position to cause harm to the legitimate business interests of the Firm. Accordingly, in entering into this agreement for your employment with the Firm you covenant and agree that on the termination of your employment for any reason whatsoever you will not approach or solicit the business of any person who or which has been a client of the Firm during the last 2 years of your employment with the Firm for any purpose whatsoever which competes with the business of the Firm. These restrictions will continue for a period of 12 months from the date of the termination of your employment with the Firm; and In entering into this agreement you agree that these restrictions are reasonable and that damages alone would be an insufficient remedy for any breach by you of these restrictions and you agree that the Firm will be entitled to obtain interim and final orders restraining you from any breach of these obligations in addition to any orders which any court may make for any other remedy including payment of damages. 17 AustCorp draws attention to that part of the restraint that records the covenant that Ms Callaghan not approach or solicit the business of those who have been clients of AustCorp for the last two years of her employment. This covenant is expressed to operate for a period of 12 months from the date of termination of Ms Callaghan's employment. 18 According to Mr Harrison, Ms Callaghan knew how to develop client relationships. He says that Ms Callaghan performed well in her role and that, due to her strong performance as a recruitment consultant, she was promoted to the position of Team (or Division) Manager in the Nursing Aged Care sector with effect from 15 May 2021. In this position, Ms Callaghan was the most senior team member in the Aged Care sector of the business. Mr Harrison observed her to be proactive in terms of contacting clients, identifying and analysing market pay rates and conditions, marketing candidates to clients, and building AustCorp's database of candidates for the Nursing and Aged Care Division. 19 Mr Harrison's says that, during her employment, Ms Callaghan had access to AustCorp's confidential information relating to: (a) AustCorp's business affairs, accounts, marketing plans, training material of clients, training information on roles, training material for recruitment within the Nursing and Aged Care Division; (b) material concerning candidates or potential candidates for employment, including databases and candidate lists; (c) material concerning clients or potential clients, including client lists, directories, pay rates for clients' job vacancies, and position descriptions; (d) the identity of candidates or potential candidates, and material concerning candidates or potential candidates including application forms, resumes, contact records, addresses and contact numbers, and compliance documents (for example, driver's licences and qualifications); and (e) tenders or proposals made or to be made by AustCorp to its clients or potential clients. 20 Mr Harrison's says that Ms Callaghan was authorised to use AustCorp's confidential information in connection with her employment. She was not authorised, however, to use that information in any other manner. 21 Prior to the commencement of Ms Callaghan's employment, AustCorp had a number of clients in its Nursing and Aged Care Division, including Royal Freemasons' Benevolent Institution (RFBI); Bupa Aged Care Australia Pty Ltd (Bupa); St Andrews Village Ballina Ltd (St Andrews Village); and Uniting (NSW/ACT) (Uniting). According to Mr Harrison, these are AustCorp's key clients in the Aged Care sector. 22 In the period November 2019 to November 2021 (the last two years of her employment with AustCorp), Ms Callaghan had dealings with these key clients. She was AustCorp's "key contact" for them. According to Mr Harrison, Ms Callaghan had a high degree of responsibility and autonomy in her role during this period and was "largely unsupervised" in her dealings with them. 23 Mr Harrison says that the confidential material to which I have referred is critical to AustCorp's business. Mr Harrison believes that this material, if disclosed to a competitor, could be used, for example, to undercut AustCorp's fee proposals, or to use AustCorp's information on candidates to be used for a competitor's clients. 24 On 15 November 2021, Ms Callaghan resigned from her employment with AustCorp. She gave two weeks' written notice. Her employment finished on 26 November 2021. On that day, Mr Harrison arranged for correspondence to be sent to Ms Callaghan reminding her of her post-employment obligations under the Employment Agreement. 25 Mr Harrison's evidence is that on 30 November 2021 he became aware that Lead Group was advertising positions in the Aged Care sector on seek.com.au. He observed that 18 advertisements had been placed on that day for various nursing positions in the sector. Mr Harrison believes that all the advertised roles were for Bupa. 26 Mr Harrison says that, up to this time, Lead Group did not have an Aged Care business division. According to Mr Harrison, two weeks prior to Ms Callaghan ceasing employment, and after she had given her written resignation, Lead Group updated its website to include a new Nursing and Aged Care division. Mr Harrison also points to the fact that the placement of the advertisements coincided with the commencement of Ms Callaghan's employment with Lead Group. 27 Mr Harrison says that, after becoming aware of the advertisements, he conducted a search for other advertisements posted by Lead Group at the time. He says that it is his usual practice to carry out Google searches of competitor recruitment agencies and former employees to "keep abreast of the industry". 28 Mr Harrison's searches informed him of two job advertisements placed on seek.com.au by a "private advertiser". The advertisements listed Ms Callaghan as the "contact" with what appears to be a Lead Group email address. 29 Mr Harrison's evidence is that the jobs advertised in these advertisements were for the same roles that AustCorp was advertising for its own Aged Care clients in respect of whom Ms Callaghan had been the key contact at AustCorp. Having regard to the position titles, locations of employment, and salary packages advertised, Mr Harrison concludes that the employment advertised was for the same roles that AustCorp was working on for Bupa at its Pottsville and Central Coast facilities. 30 In correspondence passing between AustCorp's former solicitors and Ms Callaghan's solicitors, AustCorp's solicitors informed Ms Callaghan's solicitors that it had come to AustCorp's attention that Ms Callaghan had: (a) made contact with the New South Wales General Manager of Recruitment for Bupa in relation to their staffing requirements; (b) advertised employment opportunities with "Lead Group Healthcare" for a role within a residential aged care facility; and (c) offered candidates on behalf of Lead Group to Bupa for this residential aged care facility. 31 In response, Ms Callaghan's solicitors confirmed that there had been contact between Ms Callaghan and Bupa, but said that it was Bupa that had approached Ms Callaghan with a request that she perform work on the basis that AustCorp had been unable to provide services to Bupa. 32 Following further correspondence between the solicitors, Mr Harrison became aware that Ms Callaghan was in possession of documents relating to AustCorp. Specifically, Mr Harrison became aware that, on 8 December 2021, Ms Callaghan had emailed a document entitled "Contractor Agreement" and a copy of AustCorp's work, health and safety induction agreement (signed by the candidate and a member of Ms Callaghan's team while at AustCorp on 11 March 2021) to a director of Lead Group. 33 Having received this information, Mr Harrison arranged for AustCorp's IT contractor to review Ms Callaghan's IT activity during her employment with AustCorp. On reviewing Ms Callaghan's "desktop" it was discovered that a number of documents in her "recycle bin" had been saved on an "E" drive or "F" drive. These are typically used for USB drives. The documents in Ms Callaghan's "recycle bin" were restored and revealed approximately 2000 folders, subfolders and files on matters such as: (a) resourcing; (b) advertisements; (c) resumes of AustCorp's candidates in the Nursing and Aged Care Division; (d) reference templates and forms; and (e) terms of business between AustCorp and its clients in the Nursing and Aged Care Division. 34 Mr Harrison says that there was no reason for Ms Callaghan to have saved these documents onto a USB device during her employment. He is concerned that she did so in order to copy the documents onto a personal device for her own use outside the scope of her employment with AustCorp. 35 Further, a search of Ms Callaghan's work emails shows that she had sent (in Mr Harrison's words) "AustCorp's information and documents" to her personal Hotmail address. According to Mr Harrison, these documents included: (a) terms and conditions of business between AustCorp and its clients; (b) client and candidate lists; (c) candidate information including resumes, personal information such as email addresses, addresses and telephone numbers; and (d) training documents for recruitment training in the Aged Care sector. 36 Following the cessation of Ms Callaghan's employment with AustCorp, AustCorp received email correspondence between Ms Callaghan (as an employee of Lead Group) and AustCorp's clients and candidates. This correspondence appears to have been sent or copied to AustCorp in error. 37 It is convenient to note, at this point, that Ms Callaghan made a statutory declaration which she provided to AustCorp. In that declaration she refers to a number of files and documents that she saved to her personal computer, and provides an explanation for her possession of these documents. 38 It is not in dispute that AustCorp and Lead Group are competitors. 39 Mr Harrison believes that AustCorp may have a right to obtain pecuniary relief against Ms Callaghan by way of damages, an account of profits, equitable compensation, or statutory compensation based on causes of action for: (a) breach of contract, specifically the restraint to which I have referred; (b) breach of fiduciary duty, specifically on the basis that Ms Callaghan may have used information she obtained while preparing tenders on behalf of AustCorp for its clients, or used other confidential information to advance her own interests as a prospective employee of Lead Group; (c) breach of the duty imposed by s 183 of the Corporations Act 2001 (Cth) (the Corporations Act) by using AustCorp's information to gain an advantage for herself or Lead Group or to cause detriment to AustCorp. 40 Mr Harrison believes that Lead Group may have used confidential information provided to it by Ms Callaghan to obtain clients from AustCorp. He believes that he may have a right to obtain pecuniary relief against Lead Group by way of damages, an account of profits, equitable compensation, or statutory compensation based on causes of action for: (a) tortious inducement of breach of contract by Ms Callaghan, in particular in relation to her post-employment restraint obligations; (b) knowing participation in Ms Callaghan's breaches of fiduciary duty; and (c) involvement in Ms Callaghan's breach of the duty imposed by s 183 of the Corporations Act. 41 Mr Harrison's evidence is that he has made inquiries in relation to whether AustCorp does have these causes of action. In this regard he refers, in particular, to the course of correspondence passing between his solicitors and Ms Callaghan's solicitors in the period 3 December 2021 and 7 August 2022 and to the review that has been undertaken concerning Ms Callaghan's IT activity during her employment with AustCorp. He says, however, that despite these inquiries he does not have sufficient information in order to decide whether or not to commence proceedings against Ms Callaghan and Lead Group. In particular, he says that he does not know: (a) the extent to which Ms Callaghan has retained, disclosed and used information that she obtained during her employment with AustCorp from the time she has been employed by Lead Group; (b) whether, and the extent to which, Ms Callaghan may have used and disclosed AustCorp's confidential information to Lead Group as a means of enticing Lead Group to offer her employment; (c) the extent to which Ms Callaghan has solicited business from AustCorp clients with whom she had dealings during the last two years of her employment with AustCorp; (d) the extent to which Lead Group has been knowingly involved in Ms Callaghan's conduct since she commenced employment with Lead Group; (e) whether Lead Group induced Ms Callaghan to engage in the conduct in breach of her obligations to AustCorp; and (f) the potential loss of revenue to AustCorp as a consequence of Ms Callaghan's conduct, and the potential profit that has been derived by Lead Group from her conduct. 42 Mr Harrison believes that the prospective respondents have in their possession or control information that will assist him in deciding whether or not AustCorp should commence proceedings against them. 43 I note the following matters. 44 First, Ms Callaghan does not deny that she copied AustCorp documents onto a USB device during her employment with AustCorp or that she sent AustCorp documents to her personal email account. However, she says that she did this because, "during Covid", she was required to work remotely and: … AustCorp refused to provide me with a computer or other tools of trade (aside from the phone I had been provided when I started) to permit me to do my work remotely. As a result, I (and so far as I am aware, all other recruitment consultants employed by AustCorp) was required and expected to use our own personal devices for work. … 45 Ms Callaghan says that most of her work remained on a desktop computer in the AustCorp office. Ms Callaghan also says that she used a USB device to copy files from her desktop that she needed to perform her work, and that she sent emails to and from her personal Hotmail address as she had limited access to her work email on her laptop and phone. She says that all these steps were done to facilitate and permit her to work away from the office. 46 Mr Harrison takes issue with Ms Callaghan's explanation. He says that, during the Covid 19 pandemic, AustCorp's employees, including Ms Callaghan, were permitted to remove their desktop computers from the office and to take them home to enable them to work from home. He says that there was no need for employees to save documents to a USB device or to email documents to their personal email addresses in order to work from home. 47 Secondly, Ms Callaghan does not deny performing work for RFBI, Bupa, St Andrews Village, and Uniting. However, she says that this work was done following an approach by those entities. She says that she did not initiate contact with these organisations and that she took steps not to do anything that could be said to be in breach of any obligation she owed to AustCorp. 48 Thirdly, Ms Callaghan says that the "Contractor Agreement" and a copy of AustCorp's work, health and safety induction agreement to which I have referred were sent to her after she started at Lead Group. Mr Byra has provided AustCorp with a statutory declaration in which he acknowledges receiving an email from Ms Callaghan on 8 December 2021 attaching these documents. 49 However, conspicuously, Ms Callaghan does not identify the person who sent her these documents; does not explain the circumstance(s) in which the documents came to be sent to, and received by, her; and does not explain why she sent these documents to Mr Byra shortly after she commenced employment with Lead Group. Mr Byra's statutory declaration treats his receipt of Ms Callaghan's email as an adventitious event of which he had little interest. But, in the absence of some further explanation, I can only conclude that Ms Callaghan must have had reason to think that Mr Byra had a business interest in seeing these documents.

The categories of documents sought 50 I have granted leave to AustCorp (to the extent that leave is necessary) to file an amended originating application which restricts the categories for which preliminary discovery is now sought. These categories do not travel beyond the categories that were originally sought. 51 AustCorp seeks discovery from Ms Callaghan by reference to the following categories: 1. … 2. … 3. Any communication between the First Prospective Respondent and any officer or employee of the 'Clients', on or after 27 November 2021, evidencing work performed by the First Prospective Respondent in the 12 months after the termination of her employment with AustCorp, involving the placing of job candidates with the Client, for which fees were payable to the Second Prospective Respondent. 4. A document or documents evidencing or recording the fees paid by each of the Clients to the Second Prospective Respondent for work performed by the First Prospective Respondent, or any other employee of the Second Prospective Respondent involving the placing of job candidates with the Clients, in the 12 months after the termination of the First Respondent's employment with AustCorp. 5. Any tender response or other proposal wholly or partly prepared by the First Prospective Respondent for a Client, on or after 27 November 2021, for the placement of job candidates. 52 The reference to "Clients" in these categories is to five nominated clients. 53 AustCorp no longer seeks preliminary discovery from Ms Callaghan in respect of Categories 1 and 2 referred to in the originating application. 54 AustCorp seeks discovery from Lead Group by reference to the following categories: 1. A document or documents evidencing communications on or after 27 November 2021, between any officer or employee of the Second Prospective Respondent on the one hand, and the First Prospective Respondent on the other hand, in which reference is made to the provision of services by the Second Prospective Respondent to any of the Clients. 2. A document or documents evidencing or recording the fees paid by each or any of the Clients to the Second Prospective Respondent for services provided in respect of the placing of job candidates to Clients on or after 27 November 2021. 3. A document or documents evidencing or recording any profit derived by the Second Prospective Respondent for services performed in the placing of job candidates to Clients on or after 27 November 2021. 4. Any tender response or other proposal wholly or partly prepared by the First Prospective Respondent for a Client, on or after 27 November 2021, for the placement of job candidates. 5. A document or documents evidencing communications between any officer or employee of the Second Prospective Respondent on the one hand, and the First Prospective Respondent on the other hand, in which reference is made to: a. the First Prospective Respondent's employment contract with the Prospective Applicant; or b. the letter dated 3 December 2021 from PCC Employment Lawyers to the First Prospective Respondent (or any part thereof).

Reasonable belief in the right to obtain relief: r 7.23(1)(a)

Introduction 55 The belief element in r 7.23(1)(a) has two aspects - a subjective aspect and an objective aspect. A prospective applicant must actually hold the belief and the belief must be reasonably held. The belief is that the prospective applicant may have (not that it does have) the right to obtain relief. The rule is concerned with possibilities: Pfizer Ireland Pharmaceuticals v Samsung Bioepis Au Pty Ltd [2017] FCAFC 193; 257 FCR 62 (Pfizer) at [17] and [69] - [70] (Allsop CJ) and [101] - [121] (Perram J). 56 In that case, Perram J said (at [120] - [121]): 120 The following propositions about preliminary discovery applications should be accepted: (i) the prospective applicant must prove that it has a belief that it may (not does) have a right to relief; (ii) it must demonstrate that the belief is reasonable, either by reference to material known to the person holding the belief or by other material subsequently placed before the Court; (iii) the person deposing to the belief need not give evidence of the belief a second time to the extent that additional material is placed before the Court on the issue of the reasonableness of the belief. That belief may be inferred; (iv) the question of whether the belief is reasonable requires one to ask whether a person apprised of all of the material before the person holding the belief (or subsequently the Court) could reasonably believe that they may have a right to obtain relief; and (v) it is useful to ask whether the material inclines the mind to that proposition but very important to keep at the forefront of the inclining mind the subjunctive nature of the proposition. One may believe that a person may have a case on certain material without one's mind being in any way inclined to the notion that they do have such a case. 121 In practice, to defeat a claim for preliminary discovery it will be necessary either to show that the subjectively held belief does not exist or, if it does, that there is no reasonable basis for thinking that there may be (not is) such a case. Showing that some aspect of the material on which the belief is based is contestable, or even arguably wrong, will rarely come close to making good such a contention. Many views may be held with which one disagrees, perhaps even strongly, but this does not make such a view one which is necessarily unreasonably held. Nor will it be an answer to an application for preliminary discovery to say that the belief relied upon may involve a degree of speculation. Where the language of FCR 7.23 relates to a belief that a claim may exist, a degree of speculation is unavoidable. The question is not whether the belief involves some degree of speculation (how could it not?); it is whether the belief resulting from that speculation is a reasonable one. Debate on an application will rarely be advanced, therefore, by observing that speculation is involved. 57 In this context, belief is more than mere suspicion. As explained in George v Rockett [1990] HCA 26; (1990) 170 CLR 104 at 115 - 116: Suspicion, as Lord Devlin said in Hussien v Chong Fook Kam [1970] AC 942 at 948, "in its ordinary meaning is a state of conjecture or surmise where proof is lacking: 'I suspect but I cannot prove.'" The facts which can reasonably ground a suspicion may be quite insufficient reasonably to ground a belief, yet some factual basis for the suspicion must be shown. In Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266, a question was raised as to whether a payee had reason to suspect that the payer, a debtor, "was unable to pay [its] debts as they became due" as that phrase was used in s 95(4) of the Bankruptcy Act 1924 (Cth). Kitto J said (at 303): A suspicion that something exists is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust, amounting to 'a slight opinion, but without sufficient evidence', as Chambers' Dictionary expresses it. Consequently, a reason to suspect that a fact exists is more than a reason to consider or look into the possibility of its existence. The notion which 'reason to suspect' expresses in sub-s (4) is, I think, of something which in all the circumstances would create in the mind of a reasonable person in the position of the payee an actual apprehension or fear that the situation of the payer is in actual fact that which the sub-section describes - a mistrust of the payer's ability to pay his debts as they become due and of the effect which acceptance of the payment would have as between the payee and the other creditors. The objective circumstances sufficient to show a reason to believe something need to point more clearly to the subject matter of the belief, but that is not to say that the objective circumstances must establish on the balance of probabilities that the subject matter in fact occurred or exists: the assent of belief is given on more slender evidence than proof. Belief is an inclination of the mind towards assenting to, rather than rejecting, a proposition and the grounds which can reasonably induce that inclination of the mind may, depending on the circumstances, leave something to surmise or conjecture. 58 It is important to bear in mind that an application for preliminary discovery is not the trial of the action itself: Pfizer at [2]. Further, an applicant for preliminary discovery does not have to make out a prima facie case for relief: St George Bank Ltd v Rabo Australia Ltd [2004] FCA 1360; 211 ALR 147 at [26(c)], citing Quanta Software International Pty Ltd v Computer Management Services Pty Ltd [2000] FCA 969; (2000) 175 ALR 536 at [24] and Paxus Services Ltd v People Bank Pty Ltd [1990] FCA 500; (1990) 99 ALR 728 at 733. This suggests that the requirement of r 7.23(1)(a) can be made out even if there is uncertainty as to the existence of an element of a cause of action on which the belief in the right to obtain relief is based. However, uncertainty as to a number of such elements may undermine the reasonableness of the belief that is subjectively held: Glowatzky v Insultech Group Pty Ltd (1997) 39 IPR 215 at 224. A belief will be reasonable if it is founded on considerations or views that are reasonably open, even if they are considered incorrect by others: Pfizer at [69]. 59 Mr Harrison, as the Managing Director of AustCorp, has deposed to his belief that AustCorp may have the right to obtain relief against both Ms Callaghan and Lead Group, based on the matters I have summarised above. The prospective respondents do not challenge Mr Harrison's subjective belief. They do, however, contend that his belief is not reasonable in all the circumstances.

Relief against Ms Callaghan 60 The prospective respondents challenge the reasonableness of Mr Harrison's belief that AustCorp may have the right to obtain relief against Ms Callaghan for breach of contract by contesting various facts which form part of the basis for that belief. 61 First, the prospective respondents contend that Mr Harrison could not have seen the two "private advertiser" advertisements for roles at Bupa, discussed at [28] above, on or about 30 November 2021. They refer to the fact that the copies of the advertisements in Mr Harrison's first affidavit bear a date stamp of 9 February 2022. 62 The prospective respondents also point to the fact that, in a letter written by AustCorp's solicitors to Ms Callaghan on 3 December 2021, no reference is made to these advertisements, whereas reference is made to the 18 advertisements discussed at [25] above. The prospective respondents contend that, if Mr Harrison had seen the two advertisements on or around 30 November 2021, as he has deposed, then it could be expected that reference would have been made to the two advertisements in the solicitors' letter of 3 December 2021. The fact that the two advertisements were not referred to in the letter indicates that Mr Harrison could only have seen them much later than 30 November 2021. 63 Secondly, the prospective respondents contend that it is not reasonable for Mr Harrison to believe that the 18 advertisements he saw on 30 November 2021 were also for roles at Bupa. They submit that, on a proper reading of his affidavit, Mr Harrison's deduction is referable only to the two "private advertiser" advertisements. 64 Thirdly, based on Ms Callaghan's evidence, the prospective respondents contend that Ms Callaghan only came into possession of the copies of AustCorp's "Contractor Agreement" and AustCorp's work, health and safety induction agreement after she had started work at Lead Group. The prospective respondents also argue that these documents were, in any event, "generic" employment documents that do not have anything to do with the four key clients mentioned in Mr Harrison's first affidavit. 65 Fourthly, the prospective respondents contend that Ms Callaghan has explained her need to copy AustCorp's documents to a USB device and to send AustCorp's documents to her personal email account. 66 Fifthly, the respondents contend that the engagement between Ms Callaghan and the four key clients after she left her employment with AustCorp cannot assist AustCorp because (a) Ms Callaghan did not solicit that business, and (b) the circumstances of that engagement did not involve any competition with AustCorp. 67 The prospective respondents submit that, by reason of these matters, there is no reasonable basis for the belief that Ms Callaghan breached the restraint in her employment contract. The prospective respondents add that the restraint on which AustCorp relies is "likely not to be valid, at least in respect to its temporal scope". 68 I am not persuaded that these considerations lead to the conclusion that Mr Harrison's belief that AustCorp may have the right to obtain relief against Ms Callaghan for breach of contract is not objectively reasonable. It is not enough for the prospective respondents to point to contestable facts. And, as I have remarked, an application for preliminary discovery is not the trial of the action itself. 69 As to the two "private advertiser" advertisements, Mr Harrison explains in his second affidavit that 9 February 2022 is the date on which his then solicitors downloaded the advertisements from the Seek website so that they could be attached to a letter to Ms Callaghan's solicitors. This occurred during the course of the correspondence to which I have referred. Further, Mr Harrison explains that, in his experience using the seek.com.au platform, job advertisements can be posted more than once and, once posted, remain active for a period of 30 days. 70 The prospective respondents respond by contending that, if that is so, the advertisements that Mr Harrison says he observed on or about 30 November 2021 cannot be the advertisements that his former solicitors downloaded. Taken literally, this might be so. But this does not deny the possibility that the advertisements downloaded on 9 February 2022 were the same as the advertisements that Mr Harrison says he observed on or about 30 November 2021. 71 Further, whilst it is true that the solicitors' letter of 3 December 2021 does not make reference to the two advertisements, it was apparently written within three days after 30 November 2021. Mr Harrison's evidence is not more precise than that he saw the two advertisements "on or around" 30 November 2021. This leaves open the possibility that Mr Harrison did not see the two advertisements before 3 December 2021, but did see them at a time that was, nevertheless, proximate to 30 November 2021. 72 As to the 18 advertisements that Mr Harrison saw on 30 November 2021, Mr Harrison's evidence is specific as to his reason for deducing that those advertisements were for positions at Bupa. At paragraph 75 of his first affidavit, Mr Harrison says that he had knowledge of the advertised roles. I accept that, in paragraph 75, Mr Harrison also refers to earlier paragraphs of his affidavit which, in turn, include reference to the reasons why Mr Harrison concluded that the two "private advertiser" advertisements were for roles at Bupa. However, I do not read paragraph 75 as being qualified by the inclusive reference to the two "private advertiser" advertisements. It would have been better if Mr Harrison had expanded on the reasons for his deduction in respect of the 18 advertisements. I am persuaded, however, that Mr Harrison's general statement about his knowledge of the roles is sufficient to establish the reasonableness of his belief. 73 As to Ms Callaghan's possession of AustCorp's "Contractor Agreement" and work, health and safety induction agreement, neither Mr Harrison nor the Court is bound to accept, for the purposes of the present application, Ms Callaghan's explanation of how the documents came into her possession. Still less is Mr Harrison and the Court bound to accept that Ms Callaghan's possession was innocent. As I have remarked, Ms Callaghan's explanation is conspicuous for what it does not say. Further, the prospective respondents' argument that the documents are "generic" is beside the point. 74 Similar observations can be made about Ms Callaghan's explanation of her need to copy AustCorp's documents to a USB device and to send AustCorp's documents to her personal email account, and her engagement with the four key clients after she left AustCorp's employment. On the evidence before me, the first of these matters is clearly disputed. As to the second matter, even if it be accepted that Ms Callaghan did not make the "first approach", that fact is hardly decisive of whether she breached the restraint provision of her contract with AustCorp: Barrett v Ecco Personnel Pty Ltd [1998] NSWCA 30 at [20] and [35]; Stacks Taree v Marshall (No 2) [2010] NSWSC 77 at [122]. Except in one case, I am not persuaded by the submission that the circumstances of these engagements did not involve competition with AustCorp. 75 Finally, the validity of the restraint is not something about which I should speculate, other than to say that it does not appear to me that the restraint, on its face, is obviously invalid. Absent some glaring circumstance pointing to invalidity, I am satisfied that I should approach the determination of the present application on the basis that the restraint is enforceable according to its terms. 76 As to AustCorp's belief that it has the right to relief on the basis of a breach of fiduciary duty by Ms Callaghan, the prospective respondents contend that AustCorp's claim is "legally misguided". The prospective respondents contend that Ms Callaghan's proscriptive fiduciary obligations were co-extensive with her employment and that, on termination of her employment, she ceased to owe any such duties. On that basis, the prospective respondents contend that Mr Harrison's belief as to relief on this basis cannot be reasonably held. The prospective respondents say that AustCorp fails to appreciate the distinction between a breach of fiduciary duty and a breach of confidence - the latter arguably subsisting following the termination of the former. 77 I am not persuaded that these considerations lead to the conclusion that Mr Harrison's belief that AustCorp may have the right to obtain relief against Ms Callaghan for breach of fiduciary duty is not objectively reasonable. To start with, AustCorp puts Ms Callaghan's possible misuse of confidential information at the forefront of its concern that, by such misuse, Ms Callaghan may have breached the duty she owed AustCorp as a fiduciary. Further, AustCorp does not limit its concern about Ms Callaghan's possible misuse of confidential information to the period after the cessation of her employment with it. 78 For example, AustCorp contends, and I accept, that it is reasonable to infer that, while Ms Callaghan remained an employee of AustCorp, she may have misused its confidential information by giving Lead Group the details of the vacant positions that Lead Group advertised on or about 30 November 2021. This is especially so when the evidence is that two weeks prior to Ms Callaghan ceasing employment, and after she had given her written resignation, Lead Group updated its website to include a new Nursing and Aged Care division. In other words, the placement of the advertisements coincided with the time around which Ms Callaghan commenced her employment with Lead Group, and around the time that Lead Group commenced its new Nursing and Aged Care division. I hasten to emphasise that my acceptance of the reasonableness of Mr Harrison's belief that Ms Callaghan may have misused AustCorp's confidential information does not carry with it a finding that Ms Callaghan did, in fact, misuse AustCorp's confidential information. 79 As to AustCorp's belief that it has the right to relief based on a breach of the duty imposed by s 183 of the Corporations Act, the prospective respondents submit that it is not clear what information is said to have been used improperly by Ms Callaghan. They also submit that there is no reasonable basis for any such belief identified in the evidence. 80 These submissions do not gainsay the reasonableness of Mr Harrison's belief that AustCorp may have the right to relief on the basis of a breach of the duty imposed by s 183. The example given immediately above provides one possible instance of misuse which is reasonably open on the evidence.

Relief against Lead Group 81 In relation to relief against Lead Group on an accessorial basis, the prospective respondents contend, correctly, that if primary liability against Ms Callaghan cannot be established, accessorial liability against Lead Group cannot be established. 82 Here, the prospective respondents point out that an essential element in the tort of inducing breach of contract is the suffering of loss or damage by reason of the tortious conduct. They submit that there is no assertion or evidence of any loss or damage, and thus no reasonable basis for any belief by AustCorp that it might have a right to relief for this tort. 83 I do not accept that submission. It is reasonable to infer that Ms Callaghan may have misused AustCorp's confidential information to assist Lead Group as AustCorp's competitor and thereby diverted AustCorp's business opportunities to Lead Group. If so, AustCorp will have been disadvantaged and suffered damage, at least in that sense. Further, the suffering of damage by diversion of business may well be difficult to detect. As Mr Harrison makes clear in his first affidavit, he does not know the potential loss that AustCorp may have suffered from the prospective respondents' activities that he has addressed or, indeed, the profit they may have derived. This is one of the reasons he is seeking preliminary discovery from the prospective respondents. 84 Importantly, however, AustCorp has not limited its claim to possible relief against Lead Manager based on a cause of action in tort. AustCorp also believes that it may have a right to obtain relief against Lead Manager based on a knowing involvement in Ms Callaghan's possible breach of the duty imposed by s 183 of the Corporations Act and knowing participation in Ms Callaghan's possible breach of fiduciary duty. I am satisfied that the evidence supports the reasonableness of that belief. The fact that Ms Callaghan was passing on AustCorp documents to Mr Byra leads me to conclude, as I have said, that Ms Callaghan must have had reason to think that Mr Byra had a business interest in seeing these documents. This, in turn, suggests the real possibility that Lead Group may well have had some involvement in obtaining such documents through Ms Callaghan.

Conclusion on reasonable belief 85 I am persuaded that AustCorp has satisfied the requirement of r 7.23(1)(a) in respect of the possible right to obtain relief against Ms Callaghan and Lead Manager.

Reasonable inquiries: r 7.23(1)(b) 86 The prospective respondents submit that this requirement is not met in two "basic" respects. 87 First, the prospective respondents contend that there is no evidence that AustCorp has consulted its books and records to make its own assessment as to whether, in respect of its four key clients, it has lost work following Ms Callaghan's employment with Lead Group. Secondly, the prospective respondents contend that there is no evidence that AustCorp made any inquiry of those clients to ascertain the circumstances of their engagement with the prospective respondents. For these reasons, the prospective respondents submit that the Court cannot be satisfied that r 7.23(1)(b) "has been surmounted". 88 I do not accept that submission. As to the first matter, it is not clear to me - and the prospective respondents do not explain - how, by consulting its own books and records, AustCorp could determine that it has lost business to Lead Manager following Ms Callaghan's employment with it. As to the second matter, the requirement of r 7.23(1)(b) is conditioned on "reasonable" inquiries. It is not reasonable to expect, as a condition of granting relief under s 7.23, that AustCorp should interrogate its four key clients as to the circumstances of their apparently willing engagements with Lead Manager and Ms Callaghan. I can well understand any reluctance on the part of AustCorp to initiate communications with its clients - particularly its key clients in a particular sector - which might appear to those clients to be in any way threatening or which might be understood by them as questioning the propriety of their business decisions to engage with Lead Manager and Ms Callaghan. 89 I accept AustCorp's submission that the notion of reasonable inquiries does not mean exhaustive inquiries. Further, the fact that AustCorp could have made further inquiries does not mean that it has not already made reasonable inquiries. 90 I am satisfied that AustCorp has undertaken reasonable inquiries and that, having made the inquiries referred to in Mr Harrison's evidence, there remain numerous matters about which AustCorp needs information to decide whether to start a proceeding claiming the relief it has foreshadowed. I refer in particular to the matters I have summarised at [41] above. 91 I am persuaded, therefore, that AustCorp has satisfied the requirements of r 7.23(1)(b).

Reasonable belief in respect of documents: r 7.23(1)(c) 92 The prospective respondents point out that Mr Harrison has not deposed to his state of mind that the prospective respondents have or have had documents in their control that are directly relevant to the question whether AustCorp has a right to obtain relief, or that inspection of such documents would assist AustCorp in making a decision. 93 This contention is based on the form of paragraph 81 of Mr Harrison's first affidavit in which he deposes: I believe that the Prospective Respondents have in their possession or control information that will assist me in deciding whether or not AustCorp should commence proceedings against them. 94 The prospective respondents focus on Mr Harrison's use of the word "information" (and not "documents") in this paragraph. They argue that this is "not a pendant's quibble" and that the criteria stipulated in the Rules for granting preliminary discovery are tightly structured and must be established by evidence. 95 While I accept the latter part of this submission, I do not accept that AustCorp's application fails because of Mr Harrison's use of "information" in paragraph 81 of his affidavit. I accept AustCorp's submission that, generally speaking, "information" can include "documents". More important to my mind is the context in which Mr Harrison uses the word "information" in paragraph 81 of his affidavit (including his reference to "documents" in paragraph 79 thereof). The context rises up to characterise his use of "information" in paragraph 81 as referring to information that includes documents. 96 The prospective respondents raise further arguments of form. They contend that Mr Harrison has not deposed, in terms, that he believes that the prospective respondents have documents that are "directly relevant" to whether AustCorp has a right to obtain relief or that inspection of such documents would assist AustCorp in making the decision whether to start a proceeding to obtain that relief. 97 In that connection, the prospective respondents rely on GDP Group Pty Ltd v Saye [2022] FCA 688 (GDP) where Downes J (at [94]) found that the failure to depose as to the belief referred to in r 7.23(1)(c) provided a basis for rejecting the application for preliminary discovery in respect of certain categories of documents. I observe, however, that the orders for preliminary discovery that were sought at the hearing in that case were not the form of the orders that were sought in the originating application. It was to the categories of documents not sourced in the originating application that her Honour's comments concerning compliance with r 7.23(1)(c) were directed. 98 In the present case, the categories of documents for which preliminary discovery is sought are, now, a subset of those identified in the originating application. Unlike the position in GDP, the categories do not travel beyond those sought in the originating application. 99 In his first affidavit, Mr Harrison makes clear that his affidavit is made in support of AustCorp's originating application and is based on his knowledge and belief. His statement in paragraph 81 of that affidavit - that he believes that the prospective respondents have information (i.e., documents) that will assist him in deciding whether or not AustCorp should commence proceedings against the prospective respondents - must be read in that light. Mr Harrison's belief in that regard is to be understood as a belief in respect of the categories of documents identified in the originating application. 100 I am persuaded, therefore, that AustCorp has satisfied the requirements of r 7.23(1)(c).

Should an order for preliminary discovery be made? 101 I am persuaded that an order for preliminary discovery should be made against Ms Callaghan and Lead Group. The question is the extent to which such discovery should be given? The measure of any preliminary discovery is the extent of the information that is necessary, but no more than is necessary, to overcome the insufficiency of information already possessed by the prospective applicant, after making reasonable inquiries, to enable a decision to be made whether to commence a proceeding: Reeve v Aqualast Pty Ltd [2012] FCA 679 at [65]. 102 In respect of Ms Callaghan, the prospective respondents accept that, if preliminary discovery is to be given, Category 3 is "within the discretion conferred by r 7.23(2)". I am persuaded that discovery in terms of this category should be ordered. 103 However, the prospective respondents contend that Category 4 is too broad in requiring discovery in respect of the fees paid for work performed by any employee of Lead Group other than Ms Callaghan. The prospective respondents say that fees paid for work performed by any employee other than Ms Callaghan is not directly relevant to whether AustCorp may have a right to relief against Ms Callaghan. I do not accept that submission. The relief that might be claimed against Ms Callaghan does not depend on her personal performance of work for the identified "Clients". I am persuaded that discovery in terms of Category 4 should be ordered. 104 The prospective respondents contend that Category 5 is too broad in that it is unlimited as to time beyond the stipulation that the tender response be prepared on or after 27 November 2021. The prospective respondents contend that Category 5 should be limited to the same extent as Categories 3 and 4, namely for the period 12 months after the termination of Ms Callaghan's employment with AustCorp. They accept that if Category 5 is so limited then, once again, it would be "within the discretion conferred by r 7.23(2)". 105 AustCorp resists that amendment on the basis that this category relates not only to a potential claim in contract for breach of the post-employment restraint but also to a claim for misuse of information, whether as a breach of fiduciary duty or a breach of the duty under s 183 of the Corporations Act. The latter breach is not limited to the misuse of information occurring within a specified period. 106 Notwithstanding AustCorp's submissions, I accept that the limitation that the prospective respondents seek is appropriate and that discovery should be ordered accordingly. Category 5, so limited, should provide adequate information to AustCorp to enable it to make a decision whether to commence a proceeding. 107 In respect of Lead Group, the prospective respondents accept that, if preliminary discovery is to be given, Categories 4 and 5 would be "within the discretion conferred by r 7.23(2)" provided Category 4 is subject to a time limitation of 12 months after the termination of Ms Callaghan's employment with AustCorp. Conformably with the view I have expressed above, I accept that the limitation sought with respect to Category 4 is appropriate. Discovery in terms of Categories 4 (as amended) and 5 should be ordered. 108 The prospective respondents contend that Category 2 is too broad for the same reason that Category 4 in respect of Ms Callaghan is too broad. I do not accept that submission. The relief that might be claimed against Lead Group does not depend on Ms Callaghan's personal performance of work for the identified "Clients". 109 The prospective respondents also contend that, as with Category 4, Category 2 should be limited to the period 12 months after the termination of Ms Callaghan's employment with AustCorp. I accept that this limitation is appropriate and that discovery should be ordered accordingly. Category 4, so limited, should provide adequate information to AustCorp to enable it to make a decision whether to commence a proceeding. 110 The prospective respondents contend that Category 3 is ambiguous and oppressive. They submit that the word "evidencing" as used in this category is broad and unrestrained. Further, Lead Group does not prepare documents that set out the profit derived from a specific client. According to Mr Byra, Lead Group has documents that record the fees paid by each client. However, Lead Group's costs of providing services, including employee costs, are not accounted for at the client level and Lead Group does not have documents that record the profit derived from a specific client. 111 AustCorp presses this category. It points to the fact that if it were to commence a proceeding against Lead Group, part of the relief it might seek is an account of profits. I accept that to be the case. But I also accept Mr Byra's evidence that Lead Group does not account for profit on a client basis. Further, I accept the prospective respondents' submission that the word "evidencing" as used in this category is too broad. In my view, it renders the category embarrassing and would impose a disproportionate burden on Lead Group even if it did record profit on a client basis. Overall, I am not persuaded that discovery in terms of this category should be ordered. 112 The prospective respondents contend that Category 1 is oppressive given the likely cost of producing the responding documents (which would be numerous) and given, also, the discovery that would be provided by Categories 2 and 4. 113 I accept that Category 1 is extremely broad. In my view it lacks focus on the facts that might inform AustCorp as to whether to commence a proceeding based on the potential causes of action addressed in the evidence and in submissions. I accept that preliminary discovery of this breadth would be oppressive. Overall, I am not persuaded that discovery in terms of this category should be ordered.

Confidentiality 114 The prospective respondents contend that the documents sought by AustCorp are, in large part, "highly confidential to Lead Group" and that their production to AustCorp for inspection would be, in practical effect, the provision of confidential information to a trade rival. They seek an order limiting access to any documents that are ordered to be discovered. The prospective respondents proposed the form of such an order. AustCorp did not address the form of the proposed order or whether such an order should be made. I take its silence to be that it does not oppose an order being made along the lines of the proposed order. 115 I am prepared to consider making an appropriate order. However, the proposed order lacks precision and is expressed in somewhat infelicitous language. The prospective respondents should give further thought to the precise terms of the order they seek.

Disposition 116 I will order that the prospective respondents give discovery as discussed above. The parties should now confer with a view to providing an agreed form of the orders to be made. If agreement cannot be reached within 10 days of the delivery of these reasons, I will relist the matter for further hearing on that question. 117 As to the question of costs, the prospective respondents have had a degree of success in limiting the scope of the categories of documents that are to be discovered. However, the substantial part of the present application has been whether an order for preliminary discovery should be made at all. On that question, AustCorp has succeeded. The appropriate order for costs is that the prospective respondents pay AustCorp's costs of its application for preliminary discovery including in relation to the costs of the proceeding before the Registrar. 118 The parties have not addressed me on the costs of giving preliminary discovery. I certify that the preceding one hundred and eighteen (118) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Yates.

At a glance

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Judgment (16 paragraphs)

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Cases Cited (16)

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