C.T. Sheet Metal Works Pty Ltd v Hutchinson [2012] FCA 17 | Case summary

Factual context 2 C.T. Sheet Metal Works Pty Ltd is a manufacturer and supplier of various forms of switchboards and related equipment. In late 2009, its General Manager, Mr Norman Hutchinson, resigned from that position and, shortly thereafter, he set up his own company in competition with C.T. Sheet Metal. At the same time, Mrs Hutchinson was also employed by C.T. Sheet Metal as its Accounts Manager and she also resigned and joined her husband's newly established business. 3 In its amended statement of claim in these proceedings, C.T. Sheet Metal alleged, amongst many other things, that in the period leading up to their resignations, Mr and Mrs Hutchinson, and a number of other persons, misappropriated assets belonging to C.T. Sheet Metal. Included in the alleged misappropriated assets were documents containing information that was claimed to be commercially confidential to C.T. Sheet Metal. C.T. Sheet Metal alleged that this information was being used by Mr and Mrs Hutchinson to conduct their new business in competition with that of C.T. Sheet Metal. 4 In order to commence these proceedings, C.T. Sheet Metal instructed the legal firm of McInnes Wilson to act for it. Mr Glenn Allen Caligaris was the principal solicitor in that firm who became responsible for the conduct of these proceedings. Until May 2010, Mr Dale Patrick Brown was the solicitor with the day-to-day management of the proceedings. 5 At the outset of the proceedings, C.T. Sheet Metal took the somewhat unusual step of applying for the issue of a search order, or Anton Piller order, under O 25B of the former Federal Court Rules. The search order sought to allow persons on behalf of C.T. Sheet Metal to enter and search two premises in south east Queensland owned or occupied by the respondents and to inspect, copy, and remove documents from those premises, including electronic data stored on computer hard disks. Under the procedure set out in the former Practice Note relating to the issue of a search order under O 25B, Mr Caligaris, as C.T. Sheet Metal's principal solicitor, was required to give an undertaking: "Not to disclose to the applicant any information that [he had] acquired during or as a result of execution of the search order, without the leave of the Court …": see Practice Note 24 Search Orders, since replaced by Practice Note CM11. Accordingly, Mr Caligaris gave a personal undertaking in that form. It is appropriate to note at this point that, in one of his affidavits filed in relation to this matter, Mr Brown stated that: It had been made very clear to those [McInnes Wilson] staff involved in execution of the order and who were otherwise involved in the matter by Mr Caligaris immediately prior to the execution of the Anton Piller orders on 4 November 2009 that he had given [this] Undertaking and that it must be strictly adhered to, with serious consequences in the event of it being breached. 6 In early November 2009, after hearing C.T. Sheet Metal's ex parte application, I made the search order it sought. Shortly thereafter the search order was executed at commercial premises at Capalaba, in Brisbane and at the Hutchinsons' residence at Labrador on the Gold Coast. A large quantity of documents was seized, together with a number of computer hard drives and other information technology items. 7 The documents that were seized included a string of emails passing between Mr Hutchinson and a Ms Rachel Wang. Ms Wang had previously been employed by C.T. Sheet Metal as their contact person in China, liaising with manufactures and suppliers of electrical hardware in that country. Ms Wang had remained an employee of C.T. Sheet Metal after Mr Hutchinson's resignation. At the time, Mr and Mrs Whitehouse, the principals of C.T. Sheet Metal, suspected that Mr Hutchinson had maintained contact with Ms Wang after he left C.T. Sheet Metal and had attempted to use her experience and skills to pursue his new business venture in competition with C.T. Sheet Metal. Moreover, Mr and Mrs Whitehouse were aware that Ms Wang was in possession of a substantial amount of confidential information about C.T. Sheet Metal's business operations and they were concerned about the damage that could be caused to C.T. Sheet Metal if that information were to be diverted to, and employed by, Mr Hutchinson in his new business. 8 Mr Brown first became aware of the existence of this string of emails in mid-March 2010, during a discussion he had with Mr Gregory Rodgers. Mr Rodgers was one of the two independent solicitors appointed to supervise the execution of the search order and the management of the documents obtained therefrom. The appointment of an independent solicitor or solicitors is another requirement of the Court's Practice Note relating to the issue of a search order of this kind. Following Mr Brown's conversation with Mr Rodgers, Mr Brown was able to read some of the emails concerned. He recalls that one of the emails from Mr Hutchinson to Ms Wang informed her that he (Mr Hutchinson) was leaving C.T. Sheet Metal and stated that he hoped to continue to maintain the close working relationship he had had with Ms Wang in his new business. Mr Brown also recalled from the email exchange that Mr Hutchinson informed Ms Wang that: "It was critical that he could rely on her confidence in never disclosing any of the arrangements that [we] had in place over time for supply and pricing of manufactured items from China to [C.T. Sheet Metal] in Brisbane." Mr Brown read the response from Ms Wang which he recalls expressed a concern that: "the inflated prices at which stock manufactured in China had been supplied to [C.T. Sheet Metal] by [her] and would be disclosed to [C.T. Sheet Metal] in Hutchinson's absence". Ms Wang asked Mr Hutchinson what she should do about that. In Mr Hutchinson's reply to that question, which Mr Brown also recalls reading, he set out a strategy whereby Ms Wang would gradually lower the prices for the stock over a period of time and offer the explanation [to C.T. Sheet Metal] that this more competitive pricing resulted from the manufacturers becoming more competitive in their pricing. 9 As a result of reading these emails, Mr Brown formed the view that they were: "compelling evidence that Hutchinson and Ms Wang had previously and were continuing to conspire to defraud [C.T. Sheet Metal]". 10 Mr Brown did not actually obtain a copy of the string of emails. However, within a few weeks of reading them, he disclosed their existence, and the effect of them, to Mr and Mrs Whitehouse. This occurred at a meeting he had with the Whitehouses in McInnes Wilson's offices in Brisbane. At that meeting Mr Brown also expressed his view to Mr and Mrs Whitehouse that the information contained in the string of emails may be of such significance as to require the intervention of the police. 11 Mr Caligaris first became aware that Mr Brown had had this conversation with the Whitehouses some six months later when he received an email from Mrs Whitehouse in November 2010 asking what use could be made of the information that had been obtained as a result of the search order. Among other things, Mrs Whitehouse's email stated: If it is not the case that we can use any of the information we have received through disclosure to bring pressure on the parties then what has been the point of all this? And while I am on this topic - Derek and I are very very concerned about the motives of McInnes Wilson in providing some of the other material to us which we are unable to use, but which was quite influential in getting us to press on with this matter to the point of disclosure. This information has not become available through disclosure, and it appears that we are unable to use our knowledge of its existence to demonstrate that disclosure has not been fully complied with. Therefore, our question - why provide it to us in the first place when McInnes Wilson must have known that there would never be any real likelihood that the information could ever be used in these proceedings? 12 Not surprisingly, Mr Caligaris immediately spoke to Mr Brown and asked him what Mrs Whitehouse was referring to. In one of his affidavits filed in relation to this matter, Mr Caligaris stated that: "Mr Brown said to me for the first time words to the effect that he had informed Jennifer and Derek Whitehouse … about emails obtained from Mr Hutchinson and shown to him by Mr Rodgers. Mr Brown was vague as to the date on which he disclosed the emails and the extent of the disclosure." Upon learning this, Mr Caligaris reprimanded Mr Brown for disclosing to Mr and Mrs Whitehouse the existence of the emails. In response, Mr Brown told Mr Caligaris that: "He did not disclose the contents of the emails he had seen but had merely informed [Mr and Mrs Whitehouse] that there was 'red hot' correspondence involving Hutchinson which he had seen which would come out in discovery." It was at about this time that Mr Caligaris first reviewed the orders of the Court made in relation to the search orders. Having done so, he concluded that those orders had not been breached. He did not, at that time, turn his mind to the undertaking he had given. 13 In December 2010, C.T. Sheet Metal terminated their instructions to McInnes Wilson and appointed other solicitors. In early 2011, during the process of transferring the files to the new solicitors, Mrs Whitehouse forwarded a further email to McInnes Wilson in which she again raised the motivation for the disclosures about the emails and alleged that a conflict of interest had arisen on McInnes Wilson's part. She also raised some queries in relation to the costs that had been claimed in the final invoices rendered by McInnes Wilson. As a consequence, Mr Caligaris sought a further explanation from Mr Brown. From this further explanation, Mr Caligaris became aware that Mr Brown's disclosures about the string of emails had been much more extensive than Mr Brown had previously informed him. It was at about this time that Mr Caligaris concluded, among other things, that there may have been a serious breach of the undertaking he had given to the Court in November 2009. 14 As a result, Mr Caligaris contacted Mr de Korte, the solicitor acting for Mr and Mrs Hutchinson in the proceedings. Mr Caligaris informed Mr de Korte that there had been a possible disclosure of information contrary to the undertaking he had given to the Court in obtaining the search orders. He asked him to take his clients' instructions as to whether they considered they may have suffered any prejudice as a consequence of that potential disclosure. Coincidentally, a mediation was being conducted in relation to the substantive proceedings. As a result, at Mr de Korte's request, Mr Caligaris agreed to postpone further consideration of this issue until the mediation was concluded. In the end result, the mediation resulted in a settlement of the substantive proceedings. Mr de Korte subsequently advised Mr Caligaris that his clients did not consider they had suffered any prejudice as a result of the possible disclosure and they did not wish to take any action in relation to the matter. 15 In the meantime, Mr Caligaris also contacted the new solicitors for C.T. Sheet Metal and advised them that it was his intention to raise the question of the possible breach of the undertaking with the Court at the next directions hearing in the proceedings. At that directions hearing on 12 April 2011, orders were made to give effect to the settlement of the substantive proceedings. As a part of the settlement, the parties proposed to the Court that the various persons who had given undertakings to the Court during the course of the proceedings should be released from those undertakings. However, when Mr Caligaris disclosed the potential breach of his undertaking, I decided not to release him from his undertaking until the question of any possible breach of it had been finally determined. Accordingly, these proceedings remained on foot in so far as that matter was concerned. 16 When Mr Caligaris disclosed the potential breach of the undertaking, there was initially some suggestion that C.T. Sheet Metal and Mr and Mrs Whitehouse may wish to take steps to pursue the matter. However, they informed the Court at a subsequent directions hearing that they did not wish to do so. Similarly, all of the respondents, including (as mentioned above) Mr and Mrs Hutchinson, indicated that they did not wish to either. 17 Mr Caligaris and Mr Brown have filed a number of affidavits in which they have explained, in some detail, the history of this matter. Mr Derrington SC subsequently made detailed submissions on their behalf.

Consideration 31 It is appropriate to begin any consideration as to whether there has been a breach of Mr Caligaris' undertaking by identifying the context in which the undertaking was given. A search order, or Anton Piller order, of the kind involved here is, as the current Practice Note on the issue of such orders aptly states: "An extraordinary remedy in that it is intrusive, potentially disruptive, and made without notice and prior to judgment": see Practice Note CM11 at cl 4. Practice Note CM11 goes on to say the terms of such an order: "contains provisions which are aimed at achieving permissible objects of a search order, while minimising the potential for disruption or damage to the respondent and for abuse of the Court's process". 32 The permissible objects of a search order of this kind were identified by Flick J in Metso Minerals (Australia) Ltd v Kalra (No 3) [2008] FCA 1201 ("Metso Minerals"). That case involved a search order under O 25B of the former Federal Court Rules. In the course of his decision, his Honour pointed out that a search order of this kind is directed to searching for, and preserving evidence, that is relevant to proceedings not to obtaining evidence to assist a party to conduct its proceedings. It follows, as his Honour correctly (with respect) observed, that such a search order is not to be used as "an investigatory tool" or a preliminary step that later facilitates an investigation. His Honour said (at [49]): The power conferred by O 25B is expressed to be "for the purpose of securing or preserving evidence". The purpose, not surprisingly, is not confined to securing only that material which may thereafter be discoverable. But, to enable a party to obtain an order pursuant to O 25B and thereafter permit that party to "rummage through" the materials seized, in order to make an assessment as to those documents which that party considers would be or should be discoverable, would defeat the perimeters within which discovery is to be made by a party, especially the more confined and restricted extent of discovery which this Court now permits. It would also endorse a course which courts have properly shunned, namely a course of improperly permitting the relief authorised by O 25B to become an "investigatory tool" (Microsoft Corp v Goodview Electronics Pty Ltd [1999] FCA 754 at [26], 46 IPR 159 at 164 per Branson J; Bugaj v Bates [2004] FCA 1260 at [13] per Stone J) or a preliminary step that later facilitates such an investigation. (Emphasis in original) 33 Moreover, of particular relevance in this matter, his Honour rejected any notion that the materials seized in executing the search order could be used to second guess the opposite party's compliance with its discovery obligations. His Honour said (at [50]) that: The onerous nature of the requirements prescribed by O 25B r 3 before an order can be made is no reason to permit materials and documents seized pursuant to an order when made to be used for any purpose other than that identified in r 2, namely "the purpose of securing or preserving evidence". The onerous nature of the requirements imposed is but a recognition of the exceptional nature of an order made under O 25B. If those requirements have been satisfied, there is thereafter conferred upon those who seize the documents no licence to use them for the collateral purpose of assisting in the discovery to be provided by an opponent. (Emphasis in original) 34 Next, it is germane to record that the actual wording of the undertaking that Mr Caligaris gave to the Court in this matter came from the Court's Practice Note in relation to such search orders. Paragraph 18 of the current Practice Note CM11 (which is in almost identical terms to the former Practice Note 24) provides as follows: Appropriate undertakings to the Court will be required of the applicant, the applicant's lawyer and the independent lawyer, as conditions of the making of the search order. The undertakings required of the applicant will normally include the Court's usual undertaking as to damages. The applicant's lawyer's undertaking includes an undertaking not to disclose to the applicant any information that the lawyer has acquired during or as a result of execution of the search order, without the leave of the Court. Release from this undertaking in whole or in part may be sought on the return date. (Emphasis added) 35 Mr Derrington submitted that this undertaking is expressed in very loose terms. I reject that submission. Instead, I consider the undertaking was deliberately expressed in very broad terms. It was drafted in that way to ensure that no information whatsoever obtained as a result of the execution of a search order was to be disclosed unless and until the Court approved that disclosure. This allowed the Court to maintain complete control over the whole process and, in particular, of the use of the information obtained as a result of the search process. To the same end, Practice Note CM11 provides elsewhere that: "Ordinarily, the search party should not include the applicant or the applicant's directors, … or any other person associated with the applicant." And further, that: "Ordinarily, the applicant is not permitted, without the leave of the Court, to inspect things removed from the premises or copies of them, or to be given any information about them by members of the search party." 36 It follows from all this, that the expression "any information" contained in the undertaking cannot be construed narrowly in the way Mr Derrington submits. Instead, it was deliberately drawn in broad terms to ensure that a search order is not used for any purpose other than the limited and specific purpose of securing and preserving evidence mentioned above (see at [32]) without the prior leave of the Court. 37 Applying these principles in this matter, it was quite wrong for Mr Brown to disclose anything about the emails to Mr and Mrs Whitehouse. That extends to their existence, the effect of them and, most obviously, their contents. While Mr Brown denies disclosure of the latter, there can be no doubt he disclosed the former, viz the existence and effect of the string of emails. Indeed, one of his stated purposes was to allow the Whitehouses to consider involving the police. This disclosure in these circumstances was the antithesis of the strict confidentiality that applied to a search order of this kind, as dictated by the authorities, the relevant Court Rules and the Court Practice Note. I therefore consider it is clear that Mr Brown breached the undertaking given by Mr Caligaris by disclosing the information that he did about the emails to Mr and Mrs Whitehouse. 38 Before leaving this matter, I would add two further observations. The first is in response to Mr Derrington's submissions about the inappropriate restrictions imposed by the undertaking. The remedy for a solicitor wishing to use any of the information obtained as a result of a search order under O 25B (now contained in Rules 7.41-7.47) is, as the undertaking itself provides, to seek the leave of the Court to do so. It follows from this that, if Mr Brown was concerned that Mr and Mrs Hutchinson had not discovered the existence of the emails between Mr Hutchinson and Ms Wang during the discovery process in the substantive proceedings, the appropriate, and indeed only course available, was for Mr Brown to bring that matter to the attention of Mr Caligaris. It was then open to Mr Caligaris to apply to the Court for leave to be relieved of his undertaking to the extent necessary to allow his client to use the information obtained to force Mr and Mrs Hutchinson to make proper discovery. The Court would then have to decide whether this was one of those exceptional cases where collateral use could be made of the information obtained in the search. However, as the authorities referred to by Flick J in Metso Minerals demonstrate, that leave will not be readily given. This underscores the point that it was not for Mr Brown, or any one else, to take it upon himself or herself to make that decision. 39 The second observation is that it might be thought to be somewhat draconian to visit the misconduct of Mr Brown on Mr Caligaris in this way. However, as I am confident those principal solicitors who are regularly involved in litigation of this kind are well aware, this is an adjunct of their high responsibilities to the Court to ensure that any litigation before the Court is conducted properly and within permissible bounds. Thus, as solicitor on the record, Mr Caligaris was the person upon whom the Court relied to ensure the litigation was so conducted. Without the solicitor on the record being responsible to the Court in this way, the Court's ability to maintain proper control over the litigation before it would be significantly eroded. As I have recently observed, this requirement extends to the solicitor on the record being responsible for his conduct personally and for the conduct of any solicitor, or any other employee, who is involved in the litigation: see QGC Pty Ltd v Bygrave (2010) 186 FCR 376; [2010] FCA 659 at [53]-[55]. 40 For these reasons, I consider there has been a breach of the undertaking Mr Caligaris gave to the Court in support of the application for the search order in these proceedings. The next question is, having found there has been such a breach of the undertaking, whether I should order the Registrar to file an application to have Mr Caligaris and/or Mr Brown dealt with for contempt of court. As I have already observed above (at [29]), this is a discretionary decision. 41 Having carefully considered the matter, the following factors have persuaded me that I should not exercise my discretion to order the Registrar to proceed to make that application. 42 First, I consider that these reasons will serve to constitute a sufficient condemnation of Mr Brown's conduct in disclosing the information he did about the emails to Mr and Mrs Whitehouse. 43 Secondly, I also consider that these reasons will impress upon principal solicitors in a position similar to Mr Caligaris the importance of giving clear and detailed instructions to their employees about the extraordinary nature of search orders of this kind, their very limited and specific purpose and the process that should be followed by them if they consider it is necessary to seek the leave of the Court to make any collateral use of any information obtained in executing such an order. 44 Thirdly, I consider these reasons will serve to reinforce to the profession at large the importance of complying strictly with the terms of any undertaking given to the Court and, if a solicitor who has given such an undertaking to the Court has any concerns about his or her obligations thereunder, to take those concerns to the Court first, rather than acting on his or her own initiative. 45 Fourthly, I have regard to the fact that, in his various affidavits filed in this Court, Mr Brown has apologised to the Court and stated that he is remorseful for his conduct. I also have regard to the fact that Mr Caligaris has offered a similar apology for his role in the events outlined above. I accept both of them. 46 Fifthly, I take into account the fact that Mr Caligaris voluntarily came forward and disclosed the possible breach of his undertaking and the possible contempt of court that flowed therefrom. Without that voluntary disclosure it is possible, perhaps likely in the circumstances of this matter, that the breach of the undertaking would not have seen the light of day. Furthermore, I take into account that Mr Caligaris and his firm have incurred considerable expense in submitting detailed affidavits explaining the circumstances of this matter to the Court and in briefing senior counsel to appear and make submissions in relation to it.

C.T. Sheet Metal Works Pty Ltd v Hutchinson

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