Australian Competition and Consumer Commission v Smart Corporation Pty Ltd

JACKSON J: 1 In these proceedings, the Australian Competition and Consumer Commission (ACCC) seeks remedies in relation to a number of matters concerning the first respondent Smart Corporation Pty Ltd. The ACCC alleges that Smart Corporation engaged in misleading or deceptive conduct. It claims that standard form contracts between Smart Corporation and its customers contain unfair contract terms within the meaning of s 24 of the Australian Consumer Law. It also claims that Smart Corporation engaged in conduct that was, in all the circumstances, unconscionable, in contravention of s 21 of the Australian Consumer Law. These reasons concern an application in relation to discovery of documents that are relevant to the last of these claims. 2 The business of Smart Corporation involves the hire of four-wheel drive vehicles throughout Australia for off-road use under the name 'Australian 4WD Hire'. The allegations of unconscionable conduct concern events after customers returned the vehicles. The ACCC alleges that Smart Corporation emailed customers saying that they had breached the terms of their hire contract on the basis of a 'Driver Behaviour Report' obtained by downloading information from a GPS data provider. The emails claimed that the vehicles had been speeding or that the customer had otherwise engaged in 'Prohibited Operations' as defined in the contracts. The ACCC alleges that the emails contained intemperate language which was intimidating and threatening. It is said that when customers tried to contact Smart Corporation to dispute the claims made in the emails, Smart Corporation either refused to speak to them or sent further aggressive and threatening correspondence. The ACCC alleges that Smart Corporation would then deduct an amount from a security bond provided by the customer and return the balance, if any, to the customer. 3 This alleged conduct is said to have been unconscionable. The second respondent, Mr Roesch, and the third respondent, Ms Kosukhina, are alleged to have been responsible for and have had knowledge of all, aspects of Smart Corporation's business and were thus directly or indirectly knowingly concerned in Smart Corporation's contraventions. 4 These claims appear in a concise statement of the ACCC filed in the proceedings. Smart Corporation's concise statement does not deny (or admit) the allegations in terms. The tenor of the response is that the allegations are unparticularised and Smart Corporation reserves the right to respond once particularised allegations are delivered. In other words, the allegations are, at least, not admitted. So for present purposes it may be taken that Smart Corporation joins issue with the claims that the ACCC makes about the unconscionable conduct involving emails. Any emails confirming or disproving that Smart Corporation did engage in conduct of the sort alleged would be directly relevant to the issues in the proceedings. Smart Corporation does not contend to the contrary. 5 On 5 July 2019, the court ordered Smart Corporation to provide standard discovery of a category of documents which encompassed any emails of the sort described in the ACCC's claim for the period 1 January 2016 to 30 April 2019. On 23 July 2019, Mr Roesch swore an affidavit verifying a list of documents which described emails in that category in Part 3, that is, the part containing documents that have been but are no longer in the control of the respondents. The affidavit said: 3. It is the practice of Aust 4WD Hire to not retain client files shortly after the hire has finished and any communication with the customer over any issues in dispute has been finalised. I know this because I carry out this practice in the day-to-day management of the business and have instructed Aust 4WD staff to do the same. 4. The reason for this practice is because Aust 4WD Hire receives hundreds of emails from customers or potential customers day [sic] and our email servers would be full within a short period and we wouldn't be able to keep all of the emails we receive. We don't have the capacity to store the emails. Also, these emails are riddled with a lot of sensitive and personal information of the customers like credit card and driver licence details and we do not want to risk inadvertently disclosing that information. So, once the matter raised by the email has been addressed we do not retain the records. 5. I have made reasonable enquiries as to the existence and location of the documents specified in the order. 6 The ACCC was not satisfied with that explanation. It moved for orders which would have effectively required Smart Corporation to give a more detailed explanation of what happened to the records referred to in Mr Roesch's affidavit and what searches Smart Corporation had conducted. Shortly before the hearing set down to deal with the application, the respondents consented to orders including the following: The respondents, within 7 days, file and serve an affidavit in compliance with rules 20.14, 20.16 and 20.17 of the Federal Court Rules 2011 (Cth) and Central Practice Note CPN-1 paragraph 10.10, addressing the following matters: a. A description of the records referred to in paragraph 4 of the second respondent's affidavit sworn 23 July 2019 that are not retained, and what has happened to those records; b. When and how such records (being emails and documents attached to those emails) were disposed of, deleted or otherwise destroyed, and why they are not now retrievable or accessible; c. what searches the respondents have conducted for such records including, in particular, what steps the respondents took, if any, to recover deleted emails; and d. what searches the respondents have conducted for non-electronic documents and any other documents that do not fall within the records described in paragraph 4 of the second respondent's affidavit sworn 23 July 2019. 7 On 15 August 2019, Smart Corporation filed affidavits of each of Ms Kosukhina and Mr Roesch in purported compliance with that order. The affidavits were in all but identical terms, save for the names being changed. That does not instil confidence in the evidence they contain, as it indicates that for one of the deponents at least and possibly both, the affidavits are not in their own words and may not indicate the knowledge of the individual deponent, as distinct from evidence or instructions provided by the other deponent. That is unsatisfactory. In providing affidavits on what is clearly a contentious issue, Mr Roesch and Ms Kosukhina should have given their own evidence as far as possible in their own words. 8 Each of the affidavits said that the deponent did not search for the relevant records 'because they were but are no longer in the possession, power or control of the First Respondent. There were no records to check.' That was said to be because Smart Corporation 'does not retain those records due to its business practice relating to the creation, retention and disposal of records'. 9 In relation to records of any disputes with customers, the evidence as contained in Mr Roesch's affidavit is as follows: 14. Usually, customers take responsibility for their actions and do not disagree with the deduction of money from their security bond. If that is the case, then all of the documents described in paragraphs 2 and 6-14 herein, except for invoices for the service or repair of hired vehicles, are destroyed usually within a few days of: (a) the customer either agreeing with the decision of the First Respondent; or (b) the customer not responding to attempts to communicate with them. 15. If those documents were stored on emails then those emails are deleted within a few days of (a) or (b) of paragraph 14 herein. 16. If those documents were stored physically then those documents are shredded and thrown out within a few days of (a) or (b) of paragraph 14 herein. 17. If those documents were stored on a computer then those documents are deleted within a few days of (a) or (b) of paragraph 14 herein. … 22. Rarely a customer disputes the First Respondent deducting an amount of money from their security bond. 23. In that case the documents described in paragraph 2 and 6-14 herein are retained until a few days after: (a) the customer agrees with the First Respondent; or (b) the documents are sent to a lawyer who acts for the First Respondent in that matter. 24. Within a few days of (a) or (b), as the case may be, then the First Respondent repeats the actions set out in paragraph 14-21 herein. 25. Therefore, knowing the matters deposed to above, I was able to and did in fact conclude that the First Respondent does not have the documents categorised in paragraphs 2 and 6-13 herein in its possession, power or control with the exception of invoices for the servicing or repair of hired vehicles. Therefore, there were no records to check. 10 The documents that are destroyed according to this practice include speeding infringement notices that are received as a result of customers' use of the vehicles provided by Smart Corporation. 11 Under a heading as to why Smart Corporation has the business practice it has described, each of the deponents says that Smart Corporation receives 'confidential, sensitive and private information of people' including credit card numbers and a copy of passports or other forms of ID. It is said that 'there is a real risk of people gaining access to the records of the First Respondent and obtaining this information and misusing it for things like fraud'. Thus Ms Kosukhina and Mr Roesch 'agreed at the start of the business that the best way to safeguard a customer's information is to delete or destroy it as soon as we do not need it for the purposes of hiring a vehicle to someone or being paid for hiring a vehicle to someone or matter [sic] related either of those two things'. 12 The affidavits also each say (at paragraph 32 of each affidavit): Up until recently, I did not know that you could retrieve emails once they are deleted, disposed of or otherwise destroyed. I do not know how to retrieve deleted emails. I have not taken any steps to recover deleted emails because I do not have experience working in IT and do not know where to begin to or the first thing about retrieving anything deleted from emails or off of a computer. 13 So the evidence of the respondents as to the relevant emails and other computer files was that they deleted them a few days after any issues with customers were resolved, and they had not tried to retrieve them because they did not know how. 14 That was unsatisfactory too. Rule 20.14 of the Federal Court Rules 2011 (Cth) requires a party giving standard discovery to conduct a reasonable search. Rule 20.14(3) provides that in making a reasonable search: a party may take into account the following: (a) the nature and complexity of the proceeding; (b) the number of documents involved; (c) the ease and cost of retrieving a document; (d) the significance of any document likely to be found; (e) any other relevant matter. 15 These proceedings involve a claim, made by a regulator, of conduct involving consumers that breached the Australian Consumer Law. The remedies sought include pecuniary penalties. If made out, these are serious matters. The emails are directly relevant and significant to the claim. There is nothing to indicate that Smart Corporation is without sufficient resources to commission a person with suitable expertise in information technology to search for the emails and investigate whether they can be retrieved. In my view, the two affidavits establish that, as at 15 August 2019, the respondents had not conducted reasonable searches for the emails and computer files. The affidavits also failed to address why those records are not now retrievable or accessible, as required by the orders of 8 August 2019. 16 On 27 August 2019, the ACCC's solicitors wrote to the respondents' solicitors alleging that the respondents were in default of their discovery obligations, including the orders of 8 August 2019. The letter pointed out what are said to be inconsistencies between the latest affidavits and various matters, including the fact that, despite the respondents' apparent practice of destruction of records, they had produced some relevant emails in response to an information request from the ACCC. 17 That correspondence appears to have prompted further affidavits of Ms Kosukhina, Mr Roesch and the solicitor acting for them, Mr O'Brien. Ms Kosukhina's affidavit merely authorises Mr Roesch to swear to matters on behalf of Smart Corporation. Although Ms Kosukhina is the sole director of Smart Corporation, it is not clear that her affidavit was necessary. 18 Mr Roesch's affidavit sworn on 30 September 2019 relevantly says that on 12 September 2019, he spoke to a Richard Fitzgerald, said to be the proprietor of an IT business called 2Gen, and asked him whether it was possible to recover deleted emails and if so, how. He told Mr Fitzgerald that the email system was 'Microsoft and that all of the computers were linked together so that they all received or had access to the same email inboxes'. Mr Roesch recounts Mr Fitzgerald's reply as being to the effect that if that is so, 'then if an email is deleted off of one computer than [sic] unless it is retrieved within 14 days it is irretrievable'. Mr Fitzgerald sent an email to Mr Roesch on the same day saying: Your email services are hosted with Microsoft Exchange Online. When an email is deleted from your local computer or mobile device, it then synchronizes these changes with the Exchange Online email server. Permanently deleted emails are stored in the Microsoft Exchange server for 14 days only. After this short period of time, permanently deleted emails are irretrievable. 19 Mr Roesch says that Smart Corporation 'does not keep a back up of its emails anywhere'. He expresses the view that 'the correspondence that the Applicant has requested the Respondents retrieve are [sic] now not retrievable'. 20 Mr O'Brien's affidavit annexes an email exchange he had with a person from a company called Document Solutions in which Mr O'Brien said: We are instructed that their [Smart Corporation's] computers are not on a network, that their information and data is on the cloud and so are their emails. We are instructed that they use Microsoft Office and Microsoft Outlook. Are you able to retrieve those emails? 21 The response from someone called Zach at Document Solutions was: If the e-mail's [sic] have been deleted from the deleted Items. [sic] We may be able to retrieve within a 2 week period if the client uses Office 365. After that period, it wouldn't be possible to retrieve any deleted e-mails without an Office 365 backup. 22 The ACCC has filed an affidavit from an solicitor representing it, Mr Holmes, in which (at paragraph 16) he deposes to a conversation he had with an in-house IT specialist at Norton Rose Fulbright, the solicitors for the ACCC. In that conversation, the specialist advised him that in relation to deleted emails: (a) whether an email is 'deleted' typically depends on two factors, being: (i) how the relevant email service, account and/or domain is set up, including any retention policy settings; and (ii) the specific steps a user takes to 'delete' an email using their email application, including whether the emails have been deleted from a 'deleted items; folder; (b) typically, when an email is sent to an email address, it is first sent to the relevant email server, and a copy of the email is then relayed to the user's email application (for example, Microsoft Outlook, mobile email applications, web email applications); (c) unless the particular email application and settings are set up to synchronise deletions with the email server itself, clicking 'delete' usually only deletes the copy of the email that has been relayed, but does not delete the copy of the email that is stored on the server; and (d) in any event, 'deleted' emails, depending on the circumstances, including the above matters, are usually recoverable or retrievable by making a request to the relevant email service provider, including enquiries as to whether there are any back-ups of such 'deleted' emails, or alternatively by recovering the emails from the local hard drive where the email application is used. 23 I consider that certain features of emails and computers are sufficiently notorious that I may take judicial notice of them. Cases where courts have taken notice of similar matters include: DZE17 v Minister for Immigration and Border Protection [2018] FCA 1521; (2018) 162 ALD 147 at [23] (Allsop CJ); Harris v Knell [2016] WASCA 11 at [10] (Buss and Murphy JJA); and Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd (No 2) [2015] VSC 500 at [120] (Vickery J). 24 Those features are: (1) when an email is deleted, it goes into a deleted items or trash folder from which it can easily be retrieved; (2) it is possible to go into that folder and delete the email there (that is what Zach is referring to as deleting 'from the deleted Items'); (3) when an email is sent a copy is commonly stored in a 'Sent Items' folder. If that copy is to be deleted it is necessary to go into that folder, delete the email and then follow it to the trash and delete it there; (4) similarly, if a file on a computer is deleted, it goes into a trash, deleted items or bin folder, from which it can easily be retrieved unless it is then deleted from that folder; (5) emails are commonly received and sent in chains, in which an email on a particular subject is grouped with or replies and forwarding emails on the same subject. These groups of emails are often called 'conversations'; (6) email is a ubiquitous form of business communication and it is commonplace for individuals in businesses to receive many hundreds of emails per day; and (7) it is common but not necessarily universal that businesses and those providing email service to them will keep backups of computer systems including email service. 25 Against the background of those matters, there is much that remains unexplained or unsatisfactory about the evidence the respondents have given as to their searches to date for the apparently deleted emails. In order to carry out the seemingly assiduous practice of destruction of documents to which they depose, the respondents would need to go into their email and document folders regularly and not only delete the emails and files, but follow them into the deleted items/trash folders and delete them there. They would also need to go into the sent items, delete those and similarly follow those into the trash to delete them there. They would need to be sure that all chains or conversations had been identified and deleted. Mr Roesch's affidavit does not provide any detail of such practices. No explanation is given as to how the emails that are deleted are identified and isolated from emails that are not deleted, if any. 26 Nor are the reasons given for regularly following such a thorough practice of deletion of records persuasive. Many businesses receive hundreds of emails a day without having to purge them on an almost daily basis. That reason, while given in Mr Roesch's affidavit of 23 July 2019, is not repeated in his affidavit of 15 August 2019. As for customer privacy, businesses commonly handle private information of individuals without having to destroy it regularly and with such alacrity. 27 Other questions that arise are why the practice was continued, if it was, after Smart Corporation received a request for information from the ACCC on 30 May 2018, at least one notice to provide information under s 155 of the Competition and Consumer Act 2010 (Cth) in 2018, and after these proceedings were commenced on 12 April 2019 (noting that the orders of 5 July 2019 required discovery through the period to 30 April 2019). 28 I also do not accept that the conversation and email exchanges which Mr Roesch and Mr O'Brien had with IT specialists establish that the emails are necessarily irretrievable. The specialists were relying on brief and vague descriptions of Smart Corporation's IT setup that were given to them. At least one of those descriptions came from Mr Roesch, who, in a paragraph from his affidavit of 15 August 2019 which I have set out, professes to lack knowledge of such matters. As the advice given to Mr Holmes by Norton Rose Fulbright's IT specialist indicates, it all depends on the precise setup of the respondents' email, both on its computers and with the Microsoft Exchange service provider. There is no clear evidence about the former and no inquiries have been made of the service provider as to whether, for example, backups are available. It remains the case that no searches of Smart Corporation's computers have been conducted in order to identify and possibly retrieve the material said to have been deleted. 29 The specific inconsistencies which counsel for the ACCC drew to my attention also decrease the level of confidence the court feels as to whether the respondents have complied with their discovery obligations. The nub of the ACCC's submission was that despite the respondents' avowedly thorough and frequent deletion of emails, Smart Corporation was able to produce to the ACCC two emails with customers that are in the category of which discovery is now sought. Mr Holmes's recent affidavit annexes an email dated 24 July 2017 from Smart Corporation to a customer alleging a 'shocking DBR [Driver Behaviour Report]'. Smart Corporation forwarded this email to the ACCC on 11 June 2018 so it had been retained for almost a year. It was forwarded with 'all correspondence between us and the customer, the DBR and all the invoices, which were supplied to the customer'. Smart Corporation did not indicate to the ACCC they had had any difficulty in retrieving such comprehensive information, nor that it was merely fortuitous that the relevant documents had not been destroyed. On 12 June 2018, Smart Corporation forwarded to the ACCC another email to a customer claiming that she had engaged in speeding while using Smart Corporation's vehicle. The email to the customer was dated 3 October 2017, so it had been retained for over eight months. Once again, it was forwarded with the DBR and all invoices with no difficulty having been indicated in retrieving them. 30 Mr Roesch's affidavit of 30 September 2019 sought to explain this by saying that the emails were likely part of a chain of emails that included more recent and older correspondence. In relation to the email to a customer dated 24 July 2017, he gives as 'a possible explanation' that it was part of a chain including more recent emails pertaining to other matters and those later emails were removed before it was sent to the ACCC. Or he said, 'perhaps this is just one email that the Respondents and the staff of the First Respondent missed in the deletion of emails that forms part of its normal email practice'. 31 These attempted explanations do not improve the respondents' position. They indicate that even if the respondents' evidence about their document destruction practices is accepted, there may well be relevant emails that have not been deleted, possibly forming part of email chains. 32 Counsel for the ACCC also drew my attention to a written response to a notice that the ACCC had issued to Smart Corporation under s 155 of the Competition and Consumer Act. The response provided: a few examples of the speeding infringement notices we have received, showing a number of different speeds that have attracted fines. These notices are just a select few, chosen to highlight the different levels of speeding offences customers have incurred, and are not representative of the number we receive. On its face, Smart Corporation's ability to provide the ACCC with a 'select few' examples of speeding fines is inconsistent with Mr Roesch's evidence in his affidavit of 15 August 2019 that such documents are destroyed within a few days of finalisation of the matter. 33 Once again, the attempted explanation for this given in Mr Roesch's affidavit of 30 September 2019 does not advance the respondents' position. He gives 'a number of probable explanations' including the possibility that 'the staff of the First Respondent did not strictly follow its business practice and the fines were kept longer than they normally would have'. This is confirmation that when, in their affidavits of 15 August 2019, Ms Kosukhina and Mr Roesch expressed such confidence that all relevant documents had been deleted that they did not even need to search for them, that confidence was misplaced. 34 Rule 20.14(1) of the Federal Court Rules requires the respondents to conduct a reasonable search. The nature and scope of what is a reasonable search is informed by r 20.14(3), which I have set out. I will not repeat the features of these proceedings I have described above which, in my view, are relevant to what is required by a reasonable search. In the context of those features and in the absence of any evidence to the effect that it would be onerous or impracticable, I consider that a reasonable search in the present circumstances involves, at a minimum, contacting Smart Corporation's email service providers to establish what the relevant settings of the email service have been, including whether backups have been received and how many have been kept and how far back they go. I also consider that it requires the respondents to retain a suitably qualified IT professional, armed with that knowledge, to inspect the respondents' computers and advise them as to whether any relevant emails or other computer files can be located on the computers and retrieved. It may be that even if a file has been deleted from the deleted items or trash folder it can still be recovered. 35 In my view, the searches conducted by the respondents for relevant emails and other files have been deficient and do not constitute compliance with their obligation to make reasonable searches. They have been ordered to give standard discovery and to explain on affidavit the steps they have taken, and both the explanations and the steps have been unsatisfactory. It is appropriate in the interests of a just and efficient resolution of the issues in these proceedings that the respondents now be ordered to take specific steps to search for and retrieve any emails and other computer files to which they have access. The court has power to make such an order under (at least) s 37P of the Federal Court of Australia Act 1976 (Cth), which permits it to give directions about the practice and procedure to be followed in relation to a civil proceeding or any part of the proceeding, including a direction requiring things to be done. Counsel for the respondents accepted that orders of the kind the ACCC seeks are within the discretion of the court, albeit he opposed the making of those orders in the exercise of that discretion. 36 I note that the court has power to go further, including by the making of an order under r 14.01 of the Federal Court Rules for the ACCC to be able to inspect computers, or the referral of the question of compliance with discovery obligations to a referee under s 54A of the Federal Court Act or r 28.61 of the Rules. In saying the court has power to do those things, I merely indicate that they are courses which, in appropriate circumstances, it would be open for the court to take. In any event, the ACCC does not seek such orders at present. 37 I will, therefore, make orders substantially in the form of the orders for which the ACCC pressed at the hearing. These will require discovery of any further documents recovered or identified as a result of the further searches. It is possible that this will require discovery of emails or other files held by Smart Corporation's email service providers, as those emails may be in Smart Corporation's control, even though they are held by a third party. However, whether that is so may depend on the result of the inquiries that the respondents will make, as well as the terms of the legal relationship between Smart Corporation and the service providers. 38 There was also evidence that the relevant documents may have been provided to Smart Corporation's former solicitors, for example, as instructions in recovery proceedings against customers. There is evidence that one of those firms has not responded to inquiries and another has claimed a lien over the documents on account of unpaid fees. Mr Roesch's most recent affidavit says that Smart Corporation has instructed its current solicitors to make an application for non-party discovery against the first of those firms, but no application has been made. Counsel for the respondents said that this is because the respondents did not want to waste costs while there was still a mediation on foot. While resolution of a matter at a mediation, leading to costs savings, is always to be encouraged, the mediation is presently listed for a telephone mention only before the Registrar on 17 October 2019. I do not consider that should delay other steps to be taken to have the matter ready for trial. 39 I will make orders requiring the first respondent to make any application for non-party discovery within 14 days. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jackson.