BGC Securities (Australia) Pty Limited v Shillington

Supreme Court of NSW|2021-10-07|Before: Henry J

Judgment

In these proceedings, the plaintiff, BGC Securities (Australia) Pty Limited (BGC Securities), seeks an order pursuant to r 5.3(1) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) for discovery from the prospective defendant, James Shillington, a former employee.
The discovery is sought in the context where Mr Shillington purported to terminate his employment with BGC Securities with immediate effect and subsequently commenced working at Cashwerkz Limited (Cashwerkz), a recently established competitor of BGC Securities.
Mr Shillington opposes the application other than in respect of one category of documents. He claims that BGC Securities has not established an entitlement to discovery of any of the other categories.
BGC Securities relied upon affidavits of Timothy Mallott, the Chief Operating Officer for the BGC group of companies (BGC) in the Asia Pacific Region, affirmed 30 September 2020, 20 November 2020 and 26 February 2021, and parts of an affidavit of Jonathon Nguyen (a solicitor at HWL Ebsworth) affirmed 4 November 2020 that had been served in the proceedings by HWL Ebsworth, Mr Shillington's former solicitors. Mr Shillington did not read any affidavits but relied on correspondence contained in the court book. There was no cross-examination. Both parties relied on written submissions that were supplemented by oral submissions at the hearing.

Events since BGC Securities commenced these proceedings

On 8 February 2021, Mr Mallott discovered that Mr Shillington had updated his LinkedIn profile to state that he had commenced employment in February 2021 in the position of Director Fixed Income at BondIncome. A few days earlier, Mr Mallott had noted that Mr Lambert's LinkedIn profile had been updated to state that he had commenced employment at BondIncome in January 2021 in the position of Head of Fixed Income Trading.
BondIncome is a division of Cashwerkz. According to media reports and announcements made by Cashwerkz in August and December 2020, BondIncome had been established by Cashwerkz to provide bond and fixed income solutions to wholesale investors and financial advisors, all of Cashwerkz's initially required staff had been hired by late August and Cashwerkz had approved the grant of unlisted options to various employees.
On 9 February 2021, Hall & Wilcox wrote to HWL Ebsworth and sought information as to when Mr Shillington first discussed becoming employed by Cashwerkz, the date on which he accepted an offer to work for Cashwerkz and the date on which he commenced working for Cashwerkz. A response was sought by 12 February 2021 but does not appear to have been received until 20 May 2021, as referred to at [32] below.
Later in February 2021, Mr Mallott discovered that the LinkedIn profiles of Mr Window and Mr Smith had been updated to state that they had commenced employment at BondIncome in the Fixed Income area in February 2021.
On 26 March 2021, the hearing of BGC Securities' application for preliminary discovery, which had listed before Rees J on 30 March 2021, was adjourned for reasons that appear to relate to Mr Shillington having changed his lawyers to Gilbert + Tobin and a delay in consenting to an Amended Summons.
On 30 March 2021, BGC Securities filed an Amended Summons seeking discovery of eleven categories of documents. In addition to updating the existing categories to reflect that Mr Shillington was working at Cashwerkz, the Amended Summons include two new categories of documents seeking discovery of communications between Mr Shillington and any Client or Counterparty (as defined) of BGC Securities (category 10) and documents relating to the payment for work performed at Cashwerkz (category 11).
On 20 May 2021, Gilbert + Tobin wrote to Hall & Wilcox in response to the request for information in the 9 February letter and advised that: 1. Mr Shillington was first approached about taking up employment with Cashwerkz in or about June or July 2020, prior to ceasing his employment with BGC Securities; 2. Mr Shillington did not disclose that approach to his Departmental Manager. The approach was oral and there are no documents to produce; 3. Mr Shillington was offered and accepted employment with Cashwerkz on 1 October 2020, and commenced his employment agreement on about that date; 4. to resolve the proceedings, Mr Shillington was prepared to produce documents in a category that were responsive to categories 6 and 7 of the Amended Summons with some revisions (namely, communications between Mr Shillington and current or former employees of BGC Securities regarding leaving BGC Securities' or an Associated Company's employment; any invitations, approaches, enquiries and offers of employment to an employee of BGC Securities by a competitor and any responses; or any claims or concerns that BGC Securities had misled a BGC employee or had repudiated an employment contract), which offer would lapse on 3 June 2021.
In August and October, further correspondence was exchanged between the parties' lawyers. It is not necessary to detail those communications other than to note that the offer made on 20 May 2021 was not accepted and further offers were made by each party to produce and/or accept discovery of a subset of the categories sought in BGC's Amended Summons.

Legal principles

Rule 5.3 of the UCPR provides: 5.3 Discovery of documents from prospective defendant (1) If it appears to the court that: (a) the applicant may be entitled to make a claim for relief from the court against a person (the prospective defendant) but, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant, and (b) the prospective defendant may have or have had possession of a document or thing that can assist in determining whether or not the applicant is entitled to make such a claim for relief, and (c) inspection of such a document would assist the applicant to make the decision concerned, the court may order that the prospective defendant must give discovery to the applicant of all documents that are or have been in the person's possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief. ….. (3) Unless the court orders otherwise, an application for an order under this rule - (a) must be supported by an affidavit stating the facts on which the applicant relies and specifying the kinds of documents in respect of which the order is sought, and (b) must, together with a copy of the supporting affidavit, be served personally on the person to whom it is addressed.
The principles applicable to the exercise of the power to grant preliminary discovery under UCPR r 5.3 are referred to in O'Connor v O'Connor [2018] NSWCA 214 (O'Connor).
An order for preliminary discovery may be made if it appears to the court that all of the factors referred to in UPCR r 5.3 exist, which were identified by Simpson AJA in O'Connor (at [21]) as: "(i) … the applicant may be entitled to make a claim for relief against the prospective defendant; (ii) … the applicant has made reasonable enquiries to obtain sufficient information to decide whether or not to commence proceedings; (iii) … having made those enquiries, the applicant is unable to obtain sufficient information to make that decision; (iv) … the prospective defendant may have or have had possession of a document or thing that could assist in determining whether the applicant is entitled to make a claim for relief; (vi) … inspection of such a document would assist the applicant to make the decision (that is, the decision whether or not to commence proceedings)"
Once satisfied of those matters, the court may order discovery of all documents that relate to the question of whether or not the applicant is entitled to make a claim for relief.
The threshold set by UCPR r 5.3(1) is lower than the (now repealed) Federal Court counterpart, which required there to be a "reasonable cause to believe" that the applicant has or may have the right to obtain relief. Although a mere assertion of a claim for relief is not sufficient, UCPR r 5.3 does not require an applicant to establish there is a reasonable cause to believe that the applicant has or may have a cause of action, a prima facie case for relief, nor that the prospective defendant has or is likely to have or have had relevant documents: O'Connor at [23], [25], [27], [28] and [30].
Under r 5.3(1), all that is required is that it appears to the Court that an applicant may be entitled to make a claim for relief, that a prospective defendant may have or have had possession of relevant documents or things, and that an inspection would assist the applicant to decide whether to commence proceedings. The court does not need to reach a view that a right to relief exists and should not seek to engage in a determination of the merits of any claim that an applicant may propound: O'Connor at [23], [30], [76] and [86].
While there no need to specify with precision the cause of action proposed, some particularisation of the nature of relief contemplated is required to enable the court to form a view about whether the applicant may be entitled to make a claim for relief and to determine which, if any, documents are to be discovered: O'Connor at [30].
The evaluation of whether it appears that the applicant may have a claim for relief is different to the question of whether the applicant is unable to obtain sufficient information to decide whether or not to commence proceedings. The consideration of whether the applicant has "sufficient information" contemplates that an applicant lacks a piece of information which is "reasonably necessary" to decide whether to commence proceedings: O'Connor at [24] and [29], citing St George Bank Ltd v Rabo Australia Ltd [2004] FCA 1360 at [26] (St George Bank v Rabo). Information bearing upon that practical decision may include questions such as whether defences exist, the strength of any such defences and the quantum of a claim: O'Connor at [27], [88] - [90].
Whether it appears that an applicant has made reasonable enquiries to obtain sufficient information to decide whether or not to commence proceedings and is unable to obtain it requires an objective assessment to be made of the information already held by the applicant and what enquiries have or could have been made: O'Connor at [24] and [29].
Preliminary discovery cannot be used to build up a case which an applicant has already decided or could decide to bring: Morton v Nylex Ltd [2007] NSWSC 562 at [33]; Wang v Cai [2021] NSWSC 1162 at [374] (Ward CJ in Eq, as Her Honour then was) (Wang v Cai) citing St George Bank Ltd v Rabo and Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (2008) 169 FCR 435; [2008] FCAFC 133 at [36].
While rule 5.3 of the UCPR is to be beneficially construed and given the fullest scope that its language will reasonably allow, the court retains a discretion whether to make the order, which is to be exercised judicially and having regard to the case management provisions of the Civil Procedure Act 2005 (NSW) and UCPR. The Court's discretion is "the proper brake on any excesses" such that the Court may refuse to grant an order even where all the factors referred to in UCPR r 5.3 are satisfied: O'Connor [21], [22], [27], [29] and [90]; Arnaout v Arnaout [2019] NSWSC 565 at [32] (Arnaout).

BGC Securities' application

BGC Securities seeks preliminary discovery under UCPR r 5.3 of nine categories of documents which are identified in Annexure A to an email from Hall & Wilcox dated 12 October 2021. [1]
The categories that are pressed reflect concessions made prior to and during the course of hearing in relation to the categories referred to in the Amended Summons. BGC Securities agreed to reduce the scope of categories 2, 3 and 4 (by including date ranges and other drafting), accepted an open offer by Mr Shillington to provide discovery of documents in accordance with revised category 6 (T68.42-T68.46) and did not press category 11.
BGC Securities contends that that it may be entitled to make claims for relief against Mr Shillington on various bases referring to: 1. not giving 12 months written notice to terminate the Employment Contract in accordance with cl 1(d) of the Employment Agreement; 2. liquidated damage under cl 12 of the Terms for leaving his employment in the circumstances that he did; 3. breaching his post-employment restraints contained in cl 15 of the Terms; 4. breaching a fiduciary duty owed to BGC Securities; 5. the use of any confidential information in breach of cl 14 of the Terms or any fiduciary duty owed to BGC Securities; 6. failing to disclose any approach by Cashwerkz to employ Mr Shillington, or knowledge of any approach by Cashwerkz to employ other BGC employees, in accordance with cl 8 of the Terms; and 7. offering or inducing or attempting to induce employees of BGC to leave their employment with BGC in breach of cl 15.1 of the Terms, which may also give rise to a claim for relief for the tort of inducing a breach of contract.
The categories of documents sought are said by BGC Securities to relate to different claims for relief. Categories 1 to 3, which concerns documents relating to the allegations raised by Mr Shillington in his 17 July letter, are said to relate to the claims for relief based on breaches of the notice requirements and employment restraint and a claim for liquidated damages. Categories 4 and 5, which concern Mr Shillington's approaches, offers and employment by Cashwerkz, including his employment contract, are said to relate to claims for relief of breaches of the cll 8, 15.1 and 15.2.3 of the Terms, inducing breach of contract or breach of fiduciary duty. Revised category 6, which seeks communications between Mr Shillington and former and existing employees of BGC Securities regarding, amongst other things, leaving BGC Securities' employment and approaches relating to employment by Cashwerkz, is said to relate to a claim for relief for breach of cl 15.1 of the Terms and inducing breach of contract. Category 8 concerns information regarding whether Mr Shillington has any relevant interest in Cashwerkz and is said to relate to a claim under cl 15.2.3 of the Terms. Category 9 seeks discovery of "Confidential Information" (as defined) and is said to relate to a claim for breach of cl 14 of the Terms and fiduciary duty. Category 10, which concerns records of solicitation and dealings with any client or counterparty of BGC Securities is said to relates to a claim for relief for breach of cl 15.2. of the Terms
BGC Securities submits that it has insufficient information to decide whether or not to commence proceedings against Mr Shillington in respect of the various claims for relief notwithstanding that it knows that Mr Shillington started work at BondIncome (a division of Cashwerkz, see above at [27]) during his six-month post-employment restraint period and did not disclose the approach by Cashwerkz while still employed by BGC Securities, and has information available to it that raises doubts about the allegations of repudiation made in Mr Shillington's 17 July letter.
On this last point, Mr Mallott's evidence sets out the detail of enquiries made by BGC Securities in relation to Mr Shillington's repudiation allegations, including in response to evidence from Mr Nguyen to the effect that Mr Shillington had raised Mr Mallott and senior managers of BGC Securities concerns about the way BGC Securities calculated Mr Shillington's bonuses, the adverse impact of the ASIC investigation on his dealings with clients and his earning capacity, that Mr Shillington had been contacted by Farnham in response to the ASIC investigation, had spent time salvaging the relationship, and there had been a reduction in business from Farnham of about 20%. Those enquiries involved searches and reviews of Mr Shillington's emails with senior managers and telephone records of calls with Farnham, and enquiries with BGC Securities' Head of Human Resources. According to Mr Mallott, the enquiries did not disclose any evidence that Mr Shillington had discussions or raised concerns regarding his bonus, earning capacity, the ASIC investigation with BGC Securities or any communications with Farnham regarding the ASIC investigation of the nature alleged in the 17 July letter and Mr Nguyen's evidence. Mr Mallott also deposes that Mr Shillington did not raise any concern with him about ASIC having identified Mr Shillington as a key person prior to the 17 July letter.
BGC Securities also submits that the documents are relevant to different aspects of its decision whether to commence proceedings against Mr Shillington. Some of the categories of documents are said to be needed to assist in making the decision whether to commence proceedings in circumstances where BGC Securities does not know, for example, whether and to what extent Mr Shillington has sought to solicit and deal with clients or counterparties of BGC Securities during his six-month restraint period, retained or used its confidential information, does not know the terms on which Mr Shillington is employed by Cashwerkz, does not know whether he induced any employees to breach their employment contract and whether his conduct has caused loss and damage to BGC Securities' business. Other categories of documents are sought as relevant to assessing the strength of any defence of Mr Shillington, the extent of damages to which it may be entitled and whether it ought to claim damages and/or liquidated damages in any proceedings.
In support of its application, BGC Securities placed emphasis on the principles from O'Connor, including that the threshold under UCPR 5.3 is low and the rule is to be beneficially construed and given the fullest scope that its language will reasonably allow.
As already noted, Mr Shillington does not object to giving discovery of revised category 6 (T40.48-T41.23).
However, Mr Shillington submits that BGC Securities has not satisfied each of the pre-conditions which must be satisfied before UCPR r 5.3 is engaged in respect of the other eight categories. He contends that there is no evidence to suggest that BGC Securities has any claim for relief in respect of the claims for relief based on breaches of the non-solicitation and dealing restraint or a fiduciary duty and the obligation not to use BGC Securities' confidential information. He argues that there is an insufficiency of evidence that "inclines the mind" that these actions exist and BGC Securities has failed to make reasonable enquiries of their own records, such that preliminary discovery of categories 9 and 10 should be refused.
Mr Shillington's submissions also take issue with the contention that BGC Securities has insufficient information to commence proceedings for the claims for relief that support other categories of documents (such as categories 1 to 5 and 8). He submits that BGC Securities had formed the view that it has an entitlement to claim relief by way of liquidated damages for breach of Mr Shillington's Employment Contract, referring to the letter of demand to Mr Shillington dated 21 August 2020 (above at [22]). Reference was made to Contour Building & Construction Pty Ltd v Kerr [2008] NSWSC 883 (Contour Building & Construction), a case in which Barrett J (as His Honour then was) refused to order preliminary discovery where the interparty correspondence suggested that the applicant had already formed the view that it had sufficient information to decide whether to commence substantive proceedings: at [8]-[14].
Mr Shillington also points to the information provided by Gilbert + Tobin on 20 May 2021 (referred to at [32]). He says that as BGC Securities knows when Mr Shillington was approached, offered, accepted and started work with Cashwerkz and has made its own enquiries in relation to Mr Shillington's repudiation defence, BGC Securities' claim for discovery of some of the documents is more about giving absolute assurance of its claims, or verification of Mr Shillington's denials and building up a case rather than obtaining the information necessary to decide whether to commence proceedings. Reliance was placed on the principle from Morton v Nylex (referred to above at [43]) and Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd [1996] FCA 1500, a case in which Lindgren J did not order preliminary discovery as he found that the applicant was seeking to eliminate a possibility and obtain comfort in making the decision to commence proceedings which it already had sufficient information to make, rather than obtaining key information without which it is not able to decide to commence proceedings (at [50]).
Mr Shillington's submissions also takes issue with the breadth of some of the categories. Some of these criticisms were considered during the course of the hearing and incorporated into the categories the subject of the application.

Consideration and determination

There was no dispute, and I am satisfied based on the material before the court that it appears BGC Securities may be entitled to make claims for relief against Mr Shillington based on a failure to give 12 months' notice of termination (in accordance with cl 1(c) of the Contract), a failure to notify BGC Securities of the approach by Cashwerkz to employ him (in breach of cl 8.1 of the Terms) and his employment by a competitor during the period of his six-month post-employment restraint (in breach of cl 15.2.3 of the Terms). It is also common ground that BGC Securities may be entitled to make a claim for liquidated damages calculated in accordance with cl 12 of the Terms. The success of those claims are subject to Mr Shillington's assertion that the Contract was terminated by him for cause (namely, BGC Securities repudiation) and any other defences, such as whether the six-month restraint and liquidated damage provisions are enforceable.
I am also satisfied that it appears that BGC Securities may be entitled to bring other claims for relief of the nature outlined by BGC Securities.
In my view, the evidence gives rise to an inference that Mr Shillington formulated a plan, alone or with other BGC employees (such as Mr Lambert), to resign from BGC Securities without notice and start working with Cashwerkz in defiance of his contractual obligations including, in particular, the six-month post-termination restraints. This inference arises from the following matters: 1. the 16 December 2019 email referred to at [15]; 2. the terms of the 17 July letter and letters from HWL Ebsworth (at [17], [18], [21] and [24]) in which it was asserted that the Employment Contract had been terminated and Mr Shillington was not bound by its terms (which included the six-month post-termination restraints) and refused to provide the undertaking and documents requested; 3. the similarity in the timing and circumstances of the departure and employment by Cashwerkz of the other BGC Securities employees, as referred to at [23] and [26], which appears to be more than a coincidence; 4. the secrecy which surrounded Mr Shillington's employment with Cashwerkz, which employment commenced on 1 October 2020 but was not made public (by the update of his LinkedIn profile) until shortly after his 6 months' post-employment restraint had ended (based on his termination being effective on 3 August 2020); and 5. the nature of Mr Shillington's role at BGC Securities (as outlined at [9]), the nature of Cashwerkz's business, the issue of options to various employees (at [27]) and Mr Shillington's role at Cashwerkz (at [26]).
These matters satisfy me that BGC Securities may be entitled to make claims for relief against Mr Shillington based on breaches of his obligations under cll 15.2.1, 15.2.2 and 15.3.3 of the Terms, which included the six-month restraint relating to non-solicitation and non-dealing with clients and counterparties of BGC FIS and the restraint on having an interest in a business activity in competition with a Restricted Business (as defined) as, for example, a stockholder as well as an employee.
I do not accept Mr Shillington's submission that, absent any evidence from BGC Securities of a negative impact on its relationships with or revenue from clients that had been allocated to Mr Shillington, there is no evidence that inclines the mind towards any breaches of those terms. Nor do I accept Mr Shillington's submission that UCPR r 5.3(1)(a) requires evidence which "inclines the mind" towards the applicant having the identified right of action: cf Pacific Equity Partners Pty Ltd v Kerwick [2017] NSWSC 1302 at [53] (Pacific Equity Partners).
The reference to "inclines the mind" is based on the test under the old Federal Court Rules O 15A r 6 as formulated by Hely J in St George Bank v Rabo, which was cited with approval by McColl JA in Hatfield v TCN Channel Nine Pty Limited [2010] NSWCA 69 at [49] (Hatfield v TCN). That test was not adopted by the Court of Appeal in O'Connor, as the principles referred to earlier (at [38] - [40]) make clear. As observed by Parker J in Levi v Swaab [2020] NSWSC 1119 at [73], following the decision in O'Connor: … a judge sitting at first instance in this Court must now be very cautious about applying the test formulated by Hely J due to the risk that mechanical application of that test will result in the Court taking too narrow a view of what is required under the terms of its own rules. The simple fact is that under UCPR r 5.3 all that is required is a possibility, namely, that the applicant "may" have a claim.
Whether it appears to the court that an applicant "may" have a claim for relief will depend on the evidence before the court. But all that must emerge from the evidence is an appearance of the possibility of an entitlement on the part of BGC Securities to make a claim for relief against Mr Shillington, not that there is evidence which inclines the mind towards a reasonable belief that all of the elements of the cause of action exists, or that BGC Securities has the identified rights of action. Consistent with the purpose of preliminary discovery under UCPR r 5.3 being to obtain information for the purpose of enabling a decision to be made as to whether there is a cause of action (Wang v Cai at [373]), there is no need for an applicant to demonstrate the likelihood of the claim for relief, a prima facie case or that there is a serious question to be tried that the claim for relief exists.
In particular, Mr Shillington's repeated assertions that he was not bound by any obligations under the Employment Contract and the secrecy surrounding his employment with Cashwerkz for at least four months of the six-month restraint period satisfy me that there is a sufficient factual foundation for BGC Securities' contention that the possibility of a claim (or claims) for relief based on breaches of cl 15.2 rises above mere assertion. As BGC Securities contended at the hearing, in the circumstances of this case, it would seem to be almost unbelievable that Mr Shillington would not have engaged with clients with whom he had close relationships at BGC Securities and sought to solicit their business and procure orders from 1 October (T62.24-T62.28) having been employed by a newly established competitor in the market and to BGC FIS. While not determinative, I also note that at no time has Mr Shillington denied engaging in any such dealings with a BGC Client or Counterparty or suggested that he has acted in compliance with his post-termination restraints.
In my view, evidence based on BGC Securities' own records, such as whether revenue from clients who were allocated to Mr Shillington has or has not reduced since his departure, does not determine the question of whether or not BGC Securities is entitled to make a claim for relief based on breach of the non-solicitation restraint. The resolution of that question depends on information about which BGC Securities has no direct knowledge, namely Mr Shillington's interactions during the six-month restraint period with any client or counterparty of BGC Securities.
It also appears to me that BGC Securities may be entitled to make a claim or claims for relief based on breaches of cll 8.3 and 15.1 of the Terms and his fiduciary duties owed to BGC Securities and inducing a breach of contract.
I accept, as Mr Shillington submits, that there may be other reasons why the other employees left BGC Securities and commenced work with Cashwerkz. While I also accept that Mr Mallott's evidence and BGC Securities' written submissions refer to the breach of fiduciary duty claim in very general terms, it is not necessary to identify with precision how such a claim would be argued and pleaded for the purposes of r 5.3(1) of the UCPR. If, as the evidence suggests, it is open to infer that Mr Shillington formulated a plan of the type referred to at [60] together with other BGC employees while he was a senior employee of BGC Securities, then BGC Securities may be entitled to make claims for relief under the Contract for breach of cll 15.1 or 8.3, that he had identified a breach of contract and that Mr Shillington was advancing his own interests and that of a competitor (Cashwerkz) in conflict with his duties to BGC Securities, rather than simply making arrangements during his employment to compete with BGC Securities post-termination as Mr Shillington submitted, referring to Blackmagic Design Pty Ltd v Overliese [2011] 191 FCR 1; [2011] FCAFC 24 at [102].
The position in relation to a claim for relief that Mr Shillington has used BGC Securities' Confidential Information in breach of cl 14 of the Contract is, in my view, different. There was some force to BGC Securities' submission that the circumstances in this case might give rise to concerns that Mr Shillington might use, while at a new competitor, material that is relevant and confidential to BGC Securities' business to which Mr Shillington had access while employed by BGC Securities. However, notwithstanding Mr Shillington's assertion in the 17 July letter that he was not bound by the Employment Contract, he offered to deliver up Confidential Information to BGC Securities as part of the Company property on his purported termination.
Further, and in contrast to his other contractual restraint obligations, there is evidence from Mr Nguyen that Mr Shillington denies any unlawful use of BGC Securities' Confidential Information and says that he does not have any such information in his possession, custody or power. I make no finding about the evidence given by Mr Nguyen (which may be contentious) and accept that the threshold under UCPR r 5.3. is low. However, it seems to me that the material before the court, which includes evidence from Mr Mallott to the effect that he does not know whether Mr Shillington has misused Confidential Information provided to him during the course of his employment and is concerned with the possibility he might do so, lacks any real factual foundation and rises no higher than an assertion of a concern about the possibility of misuse, rather than an appearance that BGC Securities may be entitled to make a claim for relief, whether based on a breach of cl 14 of the Terms or fiduciary duty.
For that reason, I will not grant preliminary discovery in relation to category 9. I should also record that, if I am wrong to refuse on that basis, I would have refused to order preliminary discovery of that category for discretionary reasons in circumstances where Mr Mallott's evidence did not address Mr Shillington's offer to return Company property (and Confidential Information) and there was a concession made at the hearing that BGC Securities had not made any demand for the return of its Confidential Information pursuant to the Employment Contract. To my mind, the court should not be entertaining preliminary discovery applications in relation to documents that had, according to the unchallenged evidence, been offered to be returned and could (and should have in my view) been the subject of an inter partes request.
As to whether reasonable enquiries have been made, I have already referred to details of the enquiries undertaken on behalf of BGC Securities (at [50]), which were directed to testing the alleged bases of repudiation made by Mr Shillington in his 17 July letter. I am satisfied that those were reasonable enquiries to obtain information, as were the enquiries made of Mr Shillington prior to and in the course of the proceedings, which put him on notice of the reasons for the information sought by the other categories of documents.
The issue raised by Mr Shillington's submissions is whether BGC Securities has failed to make reasonable enquiries of its own records and clients with whom Mr Shillington dealt to ascertain whether he had solicited business and had dealings with clients or a counterparty during the six-month restraint period in breach of cll 15.2.1 and 15.2.2 of the Terms.
I do not accept Mr Shillington's submission that enquiries should have been made by approaching clients. I am persuaded by BGC Securities' submission that it would not be reasonable to expect that BGC would make enquiries with its clients (with whom BGC Securities has an ongoing commercial relationship) about what dealings they were having with a Mr Shillington, who worked for a competitor (T63.10-T63.17).
I accept that a potential line of enquiry may have been for BGC Securities to interrogate its own records to try and identify whether it had lost any business or income from any of Mr Shillington's allocated clients and counterparty with whom he had dealt with prior to his departure. The evidence on the application indicates that BGC Securities is able to identify income and revenue attributable to Mr Shillington in the context of its consideration of his complaints about the award of his bonus.
Mr Mallott's evidence did not address this potential line of enquiry. Rather, he asserts that BGC Securities does not know whether Mr Shillington contacted BGC Securities' clients during his restraint period or caused it loss and damage, which is the basis for the claim for discovery of documents relating to those matters.
Although Mr Mallott's evidence is not entirely satisfactory, I am not persuaded that BGC Securities' failure to interrogate and give evidence about its own records is fatal to its application for preliminary discovery in relation to the documents sought under category 10. As already observed at [66], irrespective of what information is available to BGC Securities from its own records (such as whether BGC Securities' revenue from clients with whom Mr Shillington dealt "dried up" or not following his move to Cashwerkz: cf McCarthy v Dolpag Pty Ltd [2000] WASCA 106, cited in Pacific Equity Partners at [50]), the resolution of the question of whether or not BGC Securities is entitled to make a claim for relief based on breaches of the non-solicitation restraint, the extent of any breaches and the quantum of any damages (which could be based on a loss of incremental business only) will depend on information known to Mr Shillington about the nature of any interactions with a Client or Counterparty of BGC Securities during the six-month restraint period.
In other words, the discovery sought from Mr Shillington should inevitably add something to the limited information that may, or may not, be available to BGC Securities from its own records. That is why the critical enquiry is for information from Mr Shillington relating to his dealings with any Client or Counterparty during the Restraint Period, which enquiry was made after the proceedings had been commenced and BGC Securities became aware of Mr Shillington's new role with Cashwerkz by the inclusion of category 10 in the Amended Summons.
The next requirement is that it must appear to the Court that having made reasonable enquiries, BGC Securities has been unable to obtain sufficient information to decide whether to commence proceedings against Mr Shillington.
I have already addressed this to some extent at [66], [77] and [78]. I am satisfied that BGC Securities does not have sufficient information to make the necessary decision to commence proceedings in respect of a claim for relief based on breach of cl 15.2 of the Terms. Information from Mr Shillington is necessary to enable a decision to be made as to whether there is a cause of action and the quantum of loss and damage (if any).
Other information that is not presently available to BGC Securities and which I consider to be reasonably necessary for BGC Securities to decide to commence proceedings concerns the extent and nature of the approaches to Mr Shillington by Cashwerkz in relation to employment, Mr Shillington's responses to those approaches, and the terms of his offer and response (as sought by categories 4 and 5). The information outlined at [32] made BGC Securities aware of the date of the first approach, offer and acceptance of employment giving rise to claims for relief under cll 8.1 and 15.2.3. However, BGC Securities does not know if multiple approaches were made to Mr Shillington by Cashwerkz, the terms discussed when he was approached (such as about other BGC employees, clients or counterparties or Mr Shillington's contract with BGC Securities) and the terms of Mr Shillington's employment with Cashwerkz. In my view, that information is reasonably necessary to determine the extent of any breach of cl 8.1, the existence of claims for relief for breaches of cll 8.2, 8.3 and 15.1 and breach of fiduciary duty, and the quantum of loss and damage (if any). I do not accept Mr Shillington's submission that the documents sought by categories 4 and 5 are about the assurance of a claim and verification of Mr Shillington's defence, rather they go to establishing the existence of other claims for relief and the nature and extent of breach.
In addition, I am satisfied that information as to the extent of any interest Mr Shillington has in Cashwerkz other than as an employee (as sought by category 8) is reasonably necessary for BGC Securities to decide whether to commence proceedings as it is information relevant to the nature and extent of a breach of cl 15.2.3, rather than being sought for the purpose of building up a case that BGC Securities has already decided to commence.
The main issue raised by Mr Shillington's submissions concerned the necessity for documents within categories 1 to 3.
I accept Mr Shillington's submission that the material before the court indicates that BGC Securities undertook an assessment as to whether it had repudiated the Contract and formed a view that it had not and was entitled to make a demand for liquidated damages from Mr Shillington on the basis that he was in breach of cl 1(c) of the Contract by failing to give 12 months' notice. The letter at [22] makes that plain. But I do not accept his submission that the terms of the correspondence indicate that BGC Securities has, akin to the position in Contour Building, formed a clear and unequivocal view that it had sufficient information to commence substantive proceedings against Mr Shillington for breach of the Contract or other claims for relief (despite the assertion of repudiation).
Leaving to one side the absence of any threat or intention to commence substantive proceedings against Mr Shillington in the letter demanding payment of liquidated damages (or any other letter), that letter was promptly followed by a request for disclosure of information and the threat of an application for preliminary discovery in the context where BGC Securities did not know but considered that it may have other potential claims available to it, including a claim based on a breach of cl 8 of the Terms (see [23]). In my view, an objective reading of the correspondence demonstrates that BGC Securities has not yet decided to bring proceedings against Mr Shillington, with the additional and revised categories in the Amended Summons reflecting the information obtained about Mr Shillington's employment, rather than an attempt to build up a case it had already decided to bring.
Mr Shillington submits that the documents sought are unnecessary as they merely seek to build up and provide absolute assurance of a case that can already be made by BGC Securities and merely seek to verify Mr Shillington's defence through the invasive process of preliminary discovery. He also argues that seeking documents to assess the strength of a denial or verification of an opponent's case invites the prospect of an applicant commencing a preliminary discovery "fishing" exercise.
The authorities recognise that preliminary discovery is available to determine what defences are available as well as their possible strength and that it is no answer to say that a preliminary discovery proceeding is in the nature of a "fishing expedition": O'Connor at [24] and [28]-[29], citing with approval St George Bank v Rabo at [26].
That said, on this aspect I agree with Mr Shillington. It is true that the documents sought in categories 1 to 3 relate to aspects of Mr Shillington's possible defence based on the allegation of repudiation, as was emphasised by Senior Counsel for BGC Securities in oral submissions. But, in my view, an objective assessment of the evidence overall indicates that BGC Securities has sufficient information available to it from its own records to assess the strength of Mr Shillington's defence for the purposes of making the decision whether to commence proceedings in respect of its claim for relief based on breaches of the notice requirements and the restraint under cl 15.2.3 and liquidated damages.
Mr Mallott's evidence makes clear that BGC Securities has already been able to test the strength of Mr Shillington's defence based on its own records, in relation to the various assertions, including that the ASIC investigation had an adverse effect on his reputation and earning capacity. BGC Securities reviewed Mr Shillington's revenue in the relevant period and identified that it rose, contrary to Mr Shillington's assertions. It also identified that no concerns were raised by Mr Shillington internally about the impact of the ASIC investigation, his bonus, his designation as Key Person on the AFSL or concerns raised by Farnham, contrary to the assertions in the 17 July letter and Mr Nguyen's evidence.
As Mr Shillington submitted, it is also to be expected that documents responsive to categories 1 to 3 would be in BGC Securities' possession given the nature of the documents sought and the records relating to Mr Shillington that it maintains, which include Mr Shillington's emails and recordings of his work mobile and landline and the policy that only the broking desk telephone line be used to contact clients in relation to BGC Securities business. Unlike other documents sought on this application (which relate to matters within the knowledge of Mr Shillington, rather than of BGC Securities), the likelihood that Mr Shillington would have many (or any) documents relevant to the claims for relief referred to in support of categories 1 to 3 and Mr Shillington's defence of repudiation in addition to those held by BGC Securities must be low.
At the hearing, Senior Counsel for BGC Securities contended that the documents sought may not be on "the BGC system" but may be on "something different" (T65.21). He also contended that if there is nothing to produce, that itself is a factor that is influential in whether or not to commence proceedings and "It's not just a production of a document" (T65.24-26).
There was some logic to that submission and I accept that it is possible that Mr Shillington may have a document (or documents) that falls within categories 1 to 3 which BGC Securities does not possess. However, preliminary discovery may only be ordered in respect of documents which are reasonably necessary to decide whether to litigate a claim, not every single document that may be available to assist with that decision. The purpose of UCPR r 5.3 is not to give a plaintiff a head-start advantage in prospective proceedings by arming an applicant for preliminary discovery with trial-standard evidence before substantive proceedings have been commenced: Arnaout at [49].
Ultimately, the court needs to be satisfied that BGC Securities, having made its own reasonable enquiries, is unable to obtain sufficient information to make the decision whether or not to commence proceedings, that Mr Shillington may have or have had possession of relevant documents and that inspection of such a document would assist the applicant to make the decision concerned. Based on the material before the court, which includes a general assertion by Mr Mallott of the need for documents without any articulation as to why what BGC Securities has is insufficient, I am not persuaded of those matters in relation to documents going to the claims for relief for breach of the notice requirements and restraints under the Contract and liquidated damages and the credibility of Mr Shillington's defence of repudiation.
For these reasons, I refuse to grant preliminary discovery in relation to categories 1 to 3.
The next issue is whether it appears to the court that Mr Shillington is in possession of relevant documents and that inspection of such a document would assist the applicant to make the decision concerned. Other than in relation to categories 1 to 3, there was no debate about this issue. Based on the description of the remaining categories (4, 5, 6 (as revised), 8 and 10), the documents are of a nature that, to my mind, may be expected to be or may have been in Mr Shillington's possession, custody or power.
For the reasons already outlined, I am also satisfied that the documents sought by categories 4, 5, 6 (as revised), 8 and 10 are relevant to the question of whether or not BGC Securities is entitled to make such claims for relief as I have identified. Accordingly, I am satisfied that the conditions in UCPR r 5.3(1) have been met in respect of those categories and claims for relief.
There were no submissions advanced that preliminary discovery should be refused on discretionary grounds. Nor was it suggested by Mr Shillington that compliance with the request was so broad that it would amount to oppression.
That said, in my view, category 10 as currently drafted is too broad, seeking as it does any communications between Mr Shillington and any Client or Counterparty, irrespective of whether the communications relate activities of the type contemplated by cll 15.2.1 and 15.2.2 of the Terms to which that category is directed. For this reason, I will order preliminary discovery under category 10 but of a more limited nature.
In conclusion, I am satisfied that BGC Securities is entitled to an order for preliminary discovery but only in respect of categories 4, 5, 6 (as revised), 8 and 10 (as revised) and will so order.

Orders and costs

I have deferred making any costs order at this stage as the parties requested an opportunity to make submissions as to costs after judgment in light of the offers that had been made. However, to assist the parties I have set out my tentative views on that issue.
In relation to the costs of the application for preliminary discovery, it was contested in an adversarial fashion and, in my view, the ordinary costs consequences should apply: UCPR, r 42.1. That said, each party obtained some success. BGC Securities succeeded in obtaining an order for preliminary discovery and Mr Shillington was successful in limiting the categories to be provided. I also consider that Mr Shillington did not act unreasonably in contesting the application, noting that he offered to give discovery in accordance with revised category 6.
In those circumstances, I would be inclined to make an order that BGC Securities pay Mr Shillington's costs of the preliminary discovery application on an ordinary basis, as well as his costs of making and serving the list of documents: UCPR, rule 5.8; Ainsworth & Anor v Stapleton Johnson & Partners [2020] NSWSC 252 at [21]; Airways Corp of New Zealand v Present Partners of Price Waterhouse Coopers Legal [2002] NSWSC 521. That order would, however, be subject to the qualification that, should BGC Securities commence substantive proceedings against Mr Shillington, it would be open to BGC Securities in those proceedings to apply to the Court (to the extent that any application is necessary) for orders recognising that the costs payable in these preliminary discovery proceedings should be dealt with as costs incurred in pursuit of the substantive proceedings and possibly follow the outcome of them.
I will direct the parties to notify my Chambers within 14 days of whether the parties have reached agreement on costs. If no agreement has been reached the parties are to provide short written submission on costs (of no more than 3 pages), within that time period, with the intent that the issues of costs be dealt with on the papers.
For these reasons, I make the following orders: 1. Pursuant to rule 5.3 of the Uniform Civil Procedure Rules 2005 (NSW), the Prospective Defendant is to give discovery to the Applicant of all documents or things which are or have been in the Prospective Defendant's possession, custody or power within the categories of documents at Annexure A to these orders. 2. The Prospective Defendant, within 28 days, serve on the Applicant in accordance with rule 21.3 of the Uniform Civil Procedure Rules 2005 (NSW) a verified list of all documents or things which are or have been in the Prospective Defendant's possession, custody or power in respect of discovery and inspection of documents and things the subject of order 1. 3. The Prospective Defendant, within 28 days, make available to the Applicant for inspection and copying the documents and things in respect of discovery and inspection of documents and things the subject of order 1. 4. The Applicant be at liberty to use the documents disclosed by the Prospective Defendant, in compliance with order 1 of these orders, for the purposes of commencing proceedings against the Prospective Defendant in the Supreme Court of New South Wales or any other Court. 5. In the event that there is no agreement on costs, direct the parties to file and serve brief written submissions (of no more than three pages) as to costs within fourteen days of these orders, together with any affidavit evidence relied on in support of those submissions, and that the question of costs be dealt with on the papers.

Annexure A 1. Any document created, sent or received in the period 1 December 2019 to 31 October 2020 recording or relating to any communication concerning Employment (whether possible, prospective or actual) by Cashwerkz, being: 1. any approach or enquiry regarding, or invitation for, the Employment of Mr Shillington by Cashwerkz; 2. any response to any approach or enquiry regarding, or invitation for, Employment of Mr Shillington by Cashwerkz; 3. any offer of Employment made to Mr Shillington by Cashwerkz; and 4. any response to any offer of Employment made to Mr Shillington by Cashwerkz. 1. To the extent not caught by 1 above, the employment agreement referred to in the letter of Gilbert + Tobin dated 20 May 2021. 2. Any document created, sent or received in the period 1 December 2019 to 3 August 2021, recording or relating to communications between Mr Shillington and any current or former employee (including the "Former Employees" as defined in the Amended Summons) of BGC Securities or an Associated Company regarding: 1. leaving the employment of BGC Securities or an Associated Company; 2. any approach or enquiry regarding, or invitation for, the employment of an employee of BGC Securities or an Associated Company (including any of the Former Employees) by Cashwerkz; 3. any response to an approach or enquiry regarding, or invitation for, employment of an employee of BGC Securities or an Associated Company (including any of the Former Employees) by Cashwerkz; 4. any offer of employment made to an employee of BGC Securities or Associated Company (including any of the Former Employees) by Cashwerkz; 5. any response to any offer of employment made to an employee of BGC Securities or an Associated Entity (including any of the Former Employees) by Cashwerkz; 6. any claims or concerns that BGC has misled a BGC employee (including Mr Shillington or a Former Employee) in relation to entering into, or during the course of, their employment with BGC; 7. a BGC employee (including Mr Shillington or a Former Employee) leaving his or her employment with or terminating his or her employment with BGC Securities or an Associated Entity; or 8. BGC having repudiated or potentially repudiated its employment contract with a BGC employee (including Mr Shillington or a Former Employee). 1. Any document recording or relating to any interest (whether option, share or otherwise) held by Mr Shillington in Cashwerkz in the period 1 December 2019 to 3 February 2021. 2. Any document created, sent, or received in the period 17 July 2020 to 3 February 2021 recording or relating to any communication between Mr Shillington and any Client or Counterparty regarding: 1. the solicitation or enticement away of a Client or Counterparty; or 2. the procurement of orders from, dealing with or carrying on or transacting business with any Client or Counterparty. For the purpose of the above: 1. 17 July Letter means the letter from Ms Shillington to BGC Securities dated 17 July 2020; 2. Associated Company is as defined in the Employment Contract; 3. BGC means the BGC group of companies, which includes BGC Securities; 4. BGC Securities means BGC Securities (Australia) Pty Ltd; 5. Confidential Information is as defined in the Employment Contract; 6. Employment Contract means the document titled THIS BROKER'S CONTRACT is made the 24 November 2015' and the document titled TERMS AND CONDITIONS OF BGC SECURITIES (AUSTRALIA) PTY LIMITED' between Mr Shillington and BGC Securities; 7. ASIC Investigation is the investigation by ASIC into BGC Securities referred to in the letter of 17 July 2020; 8. Former BGC Employees means any current or former employee of BGC Securities or an Associated Company (including, but not limited to Kyle Lambert, Cameron Window, Tim Smith, Peter Curtin and Justin McCarthy); 9. Cashwerkz means Cashwerkz Limited (ACN 010 653 862), Cashwerkz Fl Ltd (ACN 111 273 048), Cashwerkz Technologies Pty Ltd (ACN 164 806 357), Trustees Australia Limited (ACN 010 579 058), Fundlncome Pty Ltd (ACN 643 600 088) and/or Bondlncome; 10. Client means any client of BGC with which or whom Mr Shillington had material and/or regular dealings at any time in the period 3 August 2019 to 3 August 2020 (inclusive); 11. Counterparty means any counterparty of BGC with which or whom Mr Shillington had material and/or regular dealings at any time in the period 3 August 2019 to 3 August 2020 (inclusive); 12. Bondlncome means the joint venture vehicle between Cashwerkz Limited (ACN 010 653 862) and Cashwerkz Fl Ltd (ACN 111 273 048); 13. a reference to Employment is a reference to employment or other engagement for the performance of work or the rendering of services; and 14. a 'document' has the same meaning as the Evidence Act 1995 (NSW). For the avoidance of doubt, this includes but is not limited to any emails, contracts, letters of offer, notes, phone records, text messages, WhatsApp messages, Facebook messages and Linkedln messages.

Endnote

Email sent to chambers after the hearing. I note that there is no category 7 (category 6 is a combination of previous categories 6 and 7).

Amendments 18 May 2022 - 18/5/2022 - delete "Further" from [68] and move remainder of that sentence to [69]; delete final sentence from [98]; in Annexure A (2), change "4" to "2" DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 May 2022

At a glance

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Cases Cited (16)

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