Blue Badge Insurance Australia Pty Ltd v Farnan

The facts

1. Blue Badge was established for the purposes of offering insurance products to a niche market, being persons with limited mobility. At the time of establishing Blue Badge, there were no other insurers specifically targeting the demographic of the market for which Blue Badge was created.
2. One of the founders of Blue Badge, Mr James Cotis, had known Ms Farnan since approximately 2003. Ms Farnan had a demonstrated expertise in relation to regulatory and compliance issues in the insurance industry.
3. Mr Cotis, on behalf of Blue Badge, retained Ms Farnan to provide advice to Blue Badge on regulatory and compliance issues. She was retained by Blue Badge as an independent contractor from April 2013 to November 2014. The conclusion which I have expressed derives from the decision of Judge McNab in proceedings between Ms Farnan, Blue Badge and another company in which Ms Farnan was the unsuccessful plaintiff: Farnan v Insurance Logic Pty Ltd & Blue Badge Insurance Pty Ltd [2017] FCCA 595. His Honour also found, and I respectfully adopt his finding, that Ms Farnan's retainer with Blue Badge came to an end without action on the part of Blue Badge in or about November 2014.
4. When Ms Farnan commenced her retainer with Blue Badge, she executed a Deed of Confidentiality on 19 March 2013 (the "Deed") under which Blue Badge was described as the "Provider" and Ms Farnan was the "Receiver". The Deed included: "RECITALS: A. Blue Badge Insurance has obtained Australia-wide rights to a unique business of providing insurance to disabled persons ("the Business"). B. The Receiver is an entity that carries on business as an Australian Financial Services Licence ("AFSL") Compliance Provider and Advisor ("the Entity") or an employee and/or officer of the Entity. C. Blue Badge Insurance desires to disclose to the Receiver the details of the Business with a view to the Entity providing Blue Badge Insurance with professional advice regarding amendments required to an AFSL held by an Associate of Blue Badge Insurance and other compliance advice. D. To protect the confidentiality of the Business, Blue Badge Insurance requires the Receiver to enter into this Deed and be bound personally to preserve the Confidential Business Information disclosed to her and the Receiver consents so to be bound. OPERATIVE PROVISIONS: 1. DEFINITIONS 1.1 In this Deed, including the recitals, unless the context otherwise requires: … "Confidential Business Information" means in relation to the Provider, information concerning the provision of insurance to disabled persons and in particular the Provider's financial affairs, business presentations, product knowledge, product details, samples, research and analytical reports and results, Intellectual Property of every kind, marketing and business strategies, details of contracts with customers, suppliers and business associates, employee details, business plans, budgets and any other information whether kept or produced in written, printed or electronic form including all copies of and extracts from any of the same and any other information which the Provider may determine is Confidential Business Information or is by its nature confidential; but does not include information (the onus of proof of which shall be upon the Receiver) which: (a) is by reason of general publication or the like part of the public domain or readily available in the public domain otherwise than as a result of a breach of this Deed by the Receiver; (b) was known by the Receiver prior to its disclosure or provision by the Provider; or (c) is made available to the Receiver by a third person who is not under an obligation of confidence to the Provider and who obtained that information other than as a result of a breach of an obligation of confidence owed to the Provider by any person; and "Information provided on a confidential basis" has a corresponding meaning. … 2. CONFIDENTIALITY 2.1 The Receiver undertakes to keep secret and protect and preserve the confidential nature and secrecy of the Provider's Confidential Business Information. In particular, the Receiver shall ensure that third persons do not gain access to the Provider's Confidential Business Information other than as permitted under this Deed. … 2.7 The Receiver acknowledges that a breach of this clause 2 may cause the Provider irreparable damage for which monetary damages would not be an adequate remedy and, in addition to other remedies that may be available, the Provider may seek and obtain injunctive relief against such a breach or threatened breach and the Receiver covenants with the Provider to consent to an Order providing injunctive relief. 2.8 The Receiver's obligations with respect to the Provider's Confidential Business Information survive termination and bind the Receiver until the relevant Confidential Business Information become part of the public domain other than as a result of a breach of this Deed. 3. RETURN OF INFORMATION 3.1 The Receiver undertakes that he will, on request by the Provider at any time, return all documents, electronic storage media and other materials (whether in whole or in part) in the possession of the Receiver relating to or containing the Provider's Confidential Business Information (whether or not such documents, electronic storage media and other materials were created by the Provider); and 3.2 The Receiver undertakes not to retain any copies or replicas of any such documents, electronic storage media and other materials or any working papers or similar documents and electronic storage media that incorporate the Provider's Confidential Business Information after the notification of a request pursuant to this Clause 3. 3.3 The Receiver undertakes that he will, on request by the Provider at any time destroy, permanently delete and electronically shred all electronic copies of Confidential Business Information stored by the Receiver on personal equipment and media of or under the control of the Receiver. The Receiver agrees to provide the Provider with a written statement of the Confidential Business Information so destroyed, deleted and shredded within 3 days of the request date, such statement shall contain program details, file names, relevant dates and data sizes. Where the Receiver cannot destroy, permanently delete and electronically shred all electronic copies of Confidential Business Information stored by the Receiver on personal equipment and media of or under the control of the Receiver then the Receiver shall within 3 days of the request date deliver to the provider all such personal equipment and/or media of or under the control of the Receiver and the Provider shall destroy, permanently delete and electronically shred all Confidential Business Information on such personal equipment and media. The Provider will use qualified persons to perform such tasks but will not be liable to the Receiver for any damage that might be caused to such personal equipment and media."
5. However Ms Farnan's retainer came to an end in November 2014, it does not appear to have been amicable as far as she was concerned. On 21 January 2015, Blue Badge's general counsel wrote to Ms Farnan reminding her of the provisions of the Deed and, in short, making a demand pursuant to clause 3 of the Deed for her to give Blue Badge access to, and to return to Blue Badge, its "Confidential Business Information" within the meaning of the Deed. In these reasons I shall refer to Blue Badge's "Confidential Business Information" as defined in the Deed as the "Information".
6. There then followed some correspondence between the parties. This went on for some time. The ultimate result was that, despite some suggestions that she was going to comply with Blue Badge's request, in the end Ms Farnan did not do so.
7. For the purposes of the indemnity costs order sought by Blue Badge, it is important to note that I am satisfied that Blue Badge did not rush into the commencement of these proceedings. Without purporting to set out all of the pre-action correspondence, I note that a further detailed demand was made by Blue Badge's solicitors to Ms Farnan by letter dated 9 March 2015, enclosing a draft summons.
8. On 27 March 2015, Ms Farnan replied by an email in which she made various assertions in support of a proposition that she was not required to return the Information.
9. On 17 June 2015, Blue Badge's solicitors wrote to Ms Farnan again, refuting the assertions made in her earlier email. That letter also evidences a further attempt by Blue Badge to avoid commencing these proceedings by giving Ms Farnan another opportunity to comply with her obligations under the Deed. That was to no avail.
10. Finally, on 26 June 2015, Blue Badge's solicitors wrote to Ms Farnan setting out this offer: "We refer to the above matter and previous correspondence, including our letters dated 9 March 2015 and 17 June 2015. We adopt herein the terms defined in those letters. As you know, for the reasons outlined in our previous correspondence, Blue Badge is of the view that you remain in breach of the Deed, and we remain instructed to prepare legal proceedings against you and any relevant related entities. Notwithstanding the above, in an effort to resolve these issues without the need to commence proceedings, we are instructed that, conditional upon you delivering up to either Blue Badge or third party forensic information technology personnel in Melbourne acceptable to Blue Badge, within seven days from the date of this letter: 1. all hard copy documents relating to or containing Blue Badge's Confidential Business Information; and 2. all electronically stored documents, howsoever stored, relating to or containing Blue Badge's Confidential Business Information, including but not limited to all material on equipment, media and storage devices of or under your control, Blue Badge will pay all reasonable costs associated with the destruction, permanent deletion and/or shredding (including electronic shredding) of such hard copy or electronically stored documents, along with the forensic examination and assessment of such media, equipment and storage devices and the certification of such destruction, deletion and shredding ("Offer"). Assuming the Offer is accepted, the tasks of forensic examination, assessment and certification, along with the tasks of destroying, permanently deleting and/or shredding (including electronic shredding) such hard copy or electronically stored documents, will be performed by the qualified persons referred to above. However, consistent with Clause 3.3 of the Deed, Blue Badge will not be liable for any loss or damage that may be caused to any media, equipment or storage devices of or under your control in connection with such tasks. This Offer is a genuine offer and made in good faith, particularly in circumstances where Blue Badge is not otherwise liable to cover the costs of such tasks under the Deed, or generally. Nevertheless, in the event the Offer is not accepted, Blue Badge maintains its rights to commence proceedings, without further notice, against you. Blue Badge also reserves all rights to seek such other relief or take such steps as may be advised. Should such proceedings be commenced, Blue Badge also reserves its rights to rely on this letter in such proceedings both as to the question of costs and generally. We therefore look forward to your urgent acceptance of the Offer."
11. Ms Farnan did not take up this final opportunity to avoid these proceedings being commenced. Blue Badge filed its summons on 14 October 2015.
12. Insofar as Blue Badge's rights under the Deed are concerned, Mr Davis read several affidavits describing the work undertaken by Ms Farnan during the course of her retainer by Blue Badge. That evidence also made clear that the majority of Ms Farnan's work for Blue Badge was undertaken on her own laptop computer. The Court is well satisfied that Ms Farnan was provided with and herself generated material which constitutes the Information. In the absence of evidence to the contrary, I am also satisfied that it is likely that, having received or generated the Information in the course of her retainer, she still has that Information in her possession, custody or control.
13. Quite apart from that evidence, the Court was also taken to an email of 23 November 2015, in the context of debate about Ms Farnan delivering up the Information, from a solicitor apparently acting on behalf of Ms Farnan to the solicitor for Blue Badge: "Good morning James As discussed last week, we are working with Ms Farnan to produce 2 lists: - Documents required for her Fair Work trial - Other documents Are you available for a telephone meeting around 12:30 to discuss progress? Please note we are committed to a quick and efficient resolution of this matter."
14. That email makes clear, by the admission of a person apparently retained on her behalf, that in November 2015 Ms Farnan had documents which fell within those demanded by Blue Badge pursuant to cl 3 of the Deed. It fortifies me in my conclusion that Ms Farnan still has Information in her possession, custody or control to which Blue Badge is entitled under the Deed.

Relief

1. I will conclude these reasons by saying something about the orders which I propose to make. Those orders are the product of exchanges between bench and bar table based upon a draft helpfully prepared by Mr Davis.
2. First, the orders provide for the delivery up and inspection of computers or any other electronic storage devices belonging to or used by Ms Farnan which I am satisfied are likely to contain the Information. As I have said, it is clear from the evidence that Ms Farnan did most of her work on her own laptop computer. She was not provided with a computer by Blue Badge. That fact was one of many which were taken into account in the Federal Circuit Court proceedings to inform that Court's conclusion that she was an independent contractor rather than an employee of Blue Badge.
3. There are also references in the evidence to at least one other computer which may have been used by Ms Farnan to store Information. Clause 3 of the Deed clearly entitles Blue Badge to delivery up of computer and other electronic storage devices which contain the Information. I am satisfied that the regime proposed by orders 1 to 7 set out in paragraph [38] below gives effect to Blue Badge's rights while appropriately balancing Ms Farnan's rights insofar as she may be entitled to the return of such computers or other equipment once the Information has been deleted.
4. I also propose to make orders for the delivery up of documents containing the Information. There is ample evidence that, in addition to working electronically, Ms Farnan produced and used hard copy documents in the course of her retainer.
5. Order 10 provides for the provision of an affidavit dealing with Information which Ms Farnan once had in her possession, custody and control but no longer does. Blue Badge has confined the legal basis for its relief to the Deed. It has not invoked the equitable principles in relation to the preservation of confidential information. While the rights which Blue Badge seeks to enforce are therefore confined to those specified in the Deed, I am satisfied that as part of the Court's power to give effective relief, it is within the inherent power of the Court to require the provision of an affidavit of the kind contemplated by order 10. It is not dissimilar to the kind of affidavit which the Court is empowered to, and regularly does, order in connection with asset preservation orders. One source of that power is the inherent jurisdiction of the Court. I do not see why that same inherent jurisdiction should not be invoked so as to provide, as it were by way of further and better assurances, information to be provided by Ms Farnan to ensure that Blue Badge can achieve some level of certainty as to what has happened to its Information.
6. Insofar as the definition of the Information in the orders is concerned, I raised with Mr Davis the Court's desire to ensure that what Ms Farnan was required to produce should be expressed clearly and unambiguously. Furthermore, and obviously enough, it also had to be confined to "Confidential Business Information" as defined in the Deed. There is some degree of specificity in the evidence about particular documents. These have been identified in the proposed definition. Furthermore, insofar as more generic descriptions of documents have been used, I am satisfied that they fall within the definition of "Confidential Business Information" under the Deed and, on the evidence, are documents of the kind almost certainly produced or used by Ms Farnan in the course of her retainer by Blue Badge and which she still has in her possession, custody or control. I am also satisfied that, as far as is practicable, the orders will not catch documents which, by Blue Badge's own proper admission, have lost their confidential quality with the effluxion of time.
7. Given the penal consequences of non-compliance with its orders, the Court has been anxious to ensure that Ms Farnan knows exactly what she has to do to comply with those orders. However, I should note that the Court will not permit Ms Farnan to take advantage of her own non-compliance to stand in the way of Blue Badge's relief. By this I mean that where, as here, a defendant such as Ms Farnan has flagrantly declined to participate in the proceedings and ignored the directions of the Court, the Court will not, in exercising its discretion to grant specific performance, hold Blue Badge to an unreasonable standard of precision about the material which it seeks.
8. If Ms Farnan had chosen to participate actively in the proceedings, evidence may well have emerged that might have enabled more precise identification of the material to which Blue Badge is entitled which remains in her possession, custody or control. She has not done so. In those circumstances it is sufficient for me to record that I am satisfied that the identification of the various categories of documents in the orders is sufficiently clear both to reflect that to which Blue Badge is entitled under the Deed and to ensure that Ms Farnan is on notice of precisely what she must do to comply with the orders.
9. Finally, it is necessary to say something about the costs of these proceedings. Blue Badge applies to have its costs of the proceedings on the indemnity basis. Costs are at the discretion of the Court, provided that discretion is exercised judicially: i.e. rationally, for the purpose for which it was intended and having regard to the evidence. The usual position is that costs follow the event and that those costs are payable on the ordinary basis. However, the Court is entitled to make an order for indemnity costs where it is satisfied, for example, that a defendant has acted unreasonably. In this case the Court is satisfied that Ms Farnan has behaved unreasonably both procedurally and substantively.
10. The procedural history which I have set out above, up to and including Ms Farnan's email of last night and her non-compliance with any of the recent orders made either by Slattery J or me, are the basis for my conclusion that Ms Farnan has behaved unreasonably in relation to her conduct of these proceedings. Turning to the merits, none of the material to which my attention has been drawn suggests that Ms Farnan has ever had an arguable defence to the relief sought by Blue Badge. I have no doubt that, properly advised, she ought not to have maintained her defence of these proceedings. She was given more than enough opportunities to avoid the litigation and unreasonably refused a very sensible pre-action offer made by Blue Badge (see paragraph [23] above). I am satisfied that all she has done (or not done) has been in an attempt to thwart both Blue Badge in the pursuit of its clear rights and the processes of the Court. Both substantively and procedurally, her unreasonable conduct warrants the making of an order that she pay Blue Badge's costs of the proceedings on the indemnity basis.

Orders

1. The orders of the Court are: "Delivery of Computer, etc 1. The Defendant: 1.1 deliver to the Plaintiff (or its agents or representatives) and permit the Plaintiff (or its agents or representatives) to inspect the computer(s) (including any constituent parts) and electronic storage devices (including but not limited to any hard drive) which the Defendant used at any time during the period 1 March 2013 to 31 January 2015 to do anything in the course of carrying out the Defendant's retainer by the Plaintiff or which otherwise contains Confidential Business Information; and 1.2 inform the Plaintiff (or its agents or representatives) of the username(s) and password(s) for any email system(s) which the Defendant used at any time during the period 1 March 2013 to 31 January 2015 to do anything in the course of carrying out the Defendant's retainer by the Plaintiff, by no later than 28 days after the date upon which service of these Orders has been effected upon the Defendant. 2. Compliance with the requirement for delivery of the computer(s) and/or constituent parts and storage devices referred to in Order 1.1 can occur by delivering the computer(s) and/or constituent parts and storage devices to the Plaintiff's solicitors' office located at either: 2.1 Level 21, 140 William Street, Melbourne, Victoria, 3000; or 2.2 Level 22, No.1 Martin Place, 1 Martin Place, Sydney, New South Wales, 2000. 3. Compliance with the requirement for delivery of the information referred to in Order 1.2 can occur by sending an email containing such information to james.morse@dlapiper.com. 4. Upon receipt of the computer(s) and/or constituent parts and storage devices as referred to in Orders 1.1 and 2, the Plaintiff's solicitors be permitted to transfer the said computer(s) and/or constituent parts and storage devices to a suitably qualified independent expert for the sole purpose of forensic examination and removal, deletion and/or permanent destruction of any Confidential Business Information. 5. Upon receipt of the information referred to in Orders 1.2 and 3, the Plaintiff's solicitors be permitted to provide such information to a suitably qualified independent expert for the sole purpose of forensic examination and removal, deletion and/or permanent destruction of any Confidential Business Information. 6. Upon receipt of the computer(s) and/or constituent parts and storage devices referred to in Orders 1.1 and 2, and/or the information referred to in Orders 1.2 and 3, the expert(s) referred to in Orders 4 and 5 be permitted to forensically examine the computer(s) and/or constituent parts and storage devices and email system(s), and: 6.1 remove, delete and/or permanently destroy any Confidential Business Information; and 6.2 provide a copy of such Confidential Business Information to the Plaintiff. 7. Any computer(s) and/or constituent parts and storage devices to be returned to the Defendant within 14 days of completion of the forensic examination. Delivery of Hard Copy Material 8. The Defendant deliver to the Plaintiff (or its agents or representatives), all hard copy documents in the Defendant's care, custody, power or control containing the Confidential Business Information, by no later than 28 days after the date upon which service of these Orders has been effected upon the Defendant. 9. Compliance with the requirement for delivery of the hard copy material referred to in Order 8 can occur by delivering the hard copy material to the Plaintiff's solicitors' office located at either: 9.1 Level 21, 140 William Street, Melbourne, Victoria, 3000; or 9.2 Level 22, No.1 Martin Place, 1 Martin Place, Sydney, New South Wales, 2000. Provision of Affidavit 10. In the event the Defendant asserts that she does not have within her care, custody, power or control, any document containing Confidential Business Information (and is therefore unable to comply with Orders 1 and/or 8 herein), the Defendant is to file with the Court and serve upon the Plaintiff an affidavit setting out and identifying: 10.1 the identity of each such document previously held by the Defendant; 10.2 the manner in which each such document was held and the location in which it was held; 10.3 the date upon which the Defendant ceased to have the care, custody, power or control of each such document; and 10.4 the reason(s) as to why the Defendant no longer has each such document within her care, custody, power or control, and in the event it is said any such document is destroyed, the manner of such destruction, by no later than 28 days after the date upon which service of these Orders has been effected upon the Defendant. In this Order 10 and in Order 11 "document" means any physical or electronic record of information. Definition of Confidential Business Information 11. In these Orders, the phrase Confidential Business Information means any document referring to or evidencing: 11.1 financial statements and information (including financial projections); 11.2 capability statements; 11.3 business plans (including long term business plans and strategies, and business continuity plans); 11.4 budgets; 11.5 premium calculations; 11.6 commission rates/structures; 11.7 profit margins; 11.8 market research; 11.9 analytical reports; 11.10 details of contracts with customers and/or distributors; 11.11 business structures; 11.12 distribution agreements; 11.13 claims handling procedures, protocols or policies; 11.14 submissions and associated material provided to or created for the purpose of obtaining Lloyd's coverholder status (including a document entitled "BBIA Covering Letter for Coverholder Application"); 11.15 submissions and associated material provided to or created for the purpose of obtaining necessary approvals from: 11.15.1 the Australian Prudential Regulation Authority; 11.15.2 the Australian Securities and Investments Commission; and 11.15.3 the Australian Competition and Consumer Commission; 11.16 draft insurance policy wordings, schedules and endorsements; 11.17 correspondence between the Plaintiff and its lawyers, including DLA Piper; and 11.18 drafts, versions or updates of each document falling within the categories set out in paragraphs 11.1 to 11.17 above, of or referring to the Plaintiff. Costs 12. The Defendant pay the Plaintiff's costs of and incidental to the proceedings, such costs to be paid on the indemnity basis. For the avoidance of any doubt, such costs are to include the reserved costs of and incidental to (but not limited to) the adjourned hearing commencing 14 September 2016 and the directions hearing on 15 November 2016. Miscellaneous 13. The Plaintiff serve a copy of the Court's reasons delivered on 30 May 2017 on the Defendant with these orders. 14. The Plaintiff has leave to take out these Orders forthwith. 15. Liberty to restore upon three days' notice by email to the Associate to his Honour Justice Kunc. 16. Direct that the evidence and exhibits will remain with the Court file."

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