Misuse of confidential information
57 The applicants also contend that they require preliminary discovery in order to determine whether to commence a proceeding against the respondents in respect of misuse of confidential information. I now deal with that contention.
58 In support of this contention, Mr Murdoch deposed that each of the second to tenth respondents had in the course of his employment with PCH been exposed to information which Mr Murdoch regarded as "confidential". There was annexed to his affidavit of 19 November 2008, as annexure "SM-1", a list of a number of categories of such information. There is also annexed to that affidavit, as annexure "SM-15", a chart stating the categories of information which, it is asserted, each of the second to tenth respondents was exposed to during his employment with PCH. Thus, for example, it was said that Mr Stephen Broughen, the third respondent, who had been the purchasing officer of PCH, had been exposed to documents containing the following categories of confidential information: Customers and Trade, Policies and Procedures, Labour Pricing and Scaftrack. Mr Anderson, the second respondent, had been exposed to documents containing a greater number of categories of information, including: Customers and Trade, Financial Details and Tenders. The evidence is stated in a conclusionary form.
59 Mr Murdoch went on to depose that he became concerned, after learning that MAS had been the successful tenderer for the Sino Iron Ore project, that "the first respondent may have used the applicants' confidential information as part of the tender for the project and that the second to tenth respondents had been the conduit of the applicants' confidential information".
60 In his affidavit of 23 January 2009, Mr White said that the tender had been derived from first principles. He referred to the cost items that constitute a tender for the provision of scaffolding and related services and said that the input costs of the tender components change frequently. Mr White went on to depose that to the best of his knowledge and belief none of the second to tenth respondents had provided the first respondent with any confidential information belonging to either the first or the second applicant.
61 Each of the second to tenth respondents relied on an affidavit. Each of these respondents deposed that when he resigned he had handed back all documents that he had in his possession during his employment with PCH, and did not have any documents containing any confidential information belonging to the applicants.
62 In his second affidavit of 26 February 2009, Mr Murdoch referred to the colour of the scaffolding which was being used by the first respondent. He said that the first respondent had painted its scaffolding in a colour which was deceptively similar to the colour used by PCH for its scaffolding. The relevance of this evidence was unclear when considered in the context of the class of documents in respect of which discovery was sought by the applicants. Further, there was no evidence from Mr Murdoch that the applicants were contemplating bringing a claim based on the colour of the scaffolding, nor that any inquiries had been made of the first respondent that may have assisted in making a decision on whether to commence such a proceeding.
63 Mr Murdoch said that the costs of component items of a scaffolding tender referred to by Mr White in his affidavit, did not change significantly between the time the second to tenth respondents resigned from PCH and August 2008.
64 Mr Murdoch also deposed that the line between winning and losing a tender was very thin and small differences, for example, charge out rates and other cost parameters as well as profit margins were likely to be critical determinants in a successful bid. He said that if a company knew the profit margins used by a competitor company in their tenders it would be possible for the company to undercut the competitor company. Mr Murdoch also deposed that none of the companies in the Modern Industries Group had previously been successful in winning a scaffolding tender such as the Sino Iron Ore project which was a major tender.
65 As to the Woodside Pluto project, Mr Murdoch deposed that he had been informed by Mr David McHutchison, the business development manager of the first applicant, that the applicants were repeatedly asked to clarify details of their tender and to provide additional information. In particular, the applicants were requested to provide company financial statements. Mr Murdoch deposed that, in his experience, this does not usually happen after successfully pre‑qualifying for a tender. The applicants were also advised on more than one occasion that their tender was not sufficiently competitive.
66 Mr Murdoch went on to depose that his concerns regarding the real risk that the applicant's confidential information may have been utilised in some unauthorised way by the first respondent through the involvement of one or more of the second to tenth respondents was the basis on which he caused the applicant's solicitors to write the various letters of demand to the respondents and each of them.
67 Mr White in his affidavit of 4 March 2009, disputed Mr Murdoch's claims about the costs of items comprising the tender. He also said that MAS had been asked by Woodside to provide the same information as Woodside had asked of the applicants.
68 I deal first with the issue of whether there is reasonable cause to believe that the applicants have, or may have, a right to obtain relief against each of the respondents.
69 Counsel for the applicants contended that the following circumstances taken in combination are sufficient to show that there is reasonable cause to believe that the applicants have, or may have, a claim for relief against each of the respondents in relation to the misuse of confidential information in relation to the Sino Iron Ore and Woodside tenders.
70 First, MAS only recently entered into the business of hiring scaffolding and providing services for scaffolding.
71 Secondly, within a relatively short period of time in early 2008, the second to tenth respondents left the services of PCH and commenced employment with MAS. Further, one of the former employees of PCH is a director of MAS. The second to tenth respondents had access to confidential information during the course of their employment with PCH.
72 Thirdly, during 2008, within a short period of the second to tenth respondents joining MAS, MAS submitted a tender for scaffolding work and services for the Sino Iron Ore and Woodside tenders.
73 The applicants also contended that the facts in this case are similar to the facts in Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728 (Paxus). In that case, a number of employees left the employment of Paxus and set up a company, People Bank Pty Ltd, which competed against Paxus. Paxus contended that the respondents in that case had appropriated, and were using its confidential information in the conduct of their competing business. The Court ordered that the respondents provide preliminary discovery under O 15A of the Rules.
74 In the case of Cape Australia Holdings Pty Ltd v Iannello [2009] FCA 709 (Iannello), I referred to the observations of Gleeson CJ (as he then was) in dissent in the case of Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 (Wright) in relation to the tension between two policy considerations, namely, permitting a former employee to compete against his former employer, on the one hand, and the protection of the confidential information of the former employer, on the other. At 329, Gleeson CJ observed:
…a case such as the present involves a tension between two competing considerations of public policy. An employer is not entitled to protect himself against mere competition by a former employee, and the corollary of that is that the employee is entitled to use skill, experience and know-how acquired in the service of the former employer in legitimate competition. It is in the public interest that this should be so: Stenhouse Australia Ltd v Phillips [1974] AC 391 at 400. At the same time the law will protect trade secrets and confidential information, and will intervene to prevent their misuse. The decision of the Court of Appeal in England in Faccenda Chicken Ltd v Fowler [1987] Ch 117 illustrates the importance, when there is a conflict between these two principles, of a close examination and accurate categorisation of the nature of the alleged trade secret or confidential information.
75 At [72] in Iannello, I observed:
It is accepted, of course, that an application for preliminary discovery permits "fishing" and does not require that the applicants for discovery adduce evidence that supports a prima facie case. Nevertheless, in my view, the considerations referred to by Gleeson CJ inform the assessment to be made of the evidence proffered by an applicant in support of satisfying the criterion of "reasonable cause to believe" in O 15A r 6(a) in cases of that nature.
76 These observations are also pertinent to the issues in this case.
77 In my view, the applicants have failed to satisfy the requirement that there is reasonable cause to believe that the applicants may have a cause of action against each of the respondents arising from the misuse by each of the respondents of the applicants' confidential information.
78 There is no evidence of any appropriation or misuse of any confidential information by the second to tenth respondents in the preparation of the tenders by MAS, nor is there evidence that gives rise to an inference that there was, or may have been, any such appropriation or misuse. On that basis, the facts in this case are distinguishable from the facts in the Paxus case. In Paxus, there was evidence which was capable of giving rise to the inference that the former employees of Paxus had appropriated computer files comprising the database of Paxus and were using that database in the conduct of their new business. The same is true in relation to the Optiver case, where there was evidence that the former employees, who had established a competing business, without authority, obtained source code used in their former employer's computer program and may have used that source code in developing a computer program which they were using in their competitive business. The circumstances relied on by the applicants and the generalised evidence of Mr Murdoch on the tendering process referred to above, does not comprise evidence of the nature that was before the Court in those two cases. Nor does the principle in the case of Jones v Dunkel (1959) 101 CLR 298 assist the applicants in this case because the respondents gave evidence and were not cross‑examined.
79 The evidence does not incline the mind to believe that such of the unspecified second to tenth respondents as were involved in the making of the MAS tenders, may have used PCH's confidential information, as opposed to using their industry "know how".
80 The applicants' case reflects no more than a suspicion on the part of Mr Murdoch that the respondents may have used the applicants' confidential information in preparing the MAS tenders. However, the holding of a suspicion is not a sufficient basis to demonstrate that there is reasonable cause to believe that an applicant under O 15A r 6 has, or may have, a right to relief in this Court.
81 In any event, I would as a matter of discretion not make any order for the preliminary discovery in relation to the proposed claim founded on the postulated misuse of confidential information. This is because of the high level of generality at which the applicants' claim has been made. This is particularly evidenced by the indiscriminate way in which the applicants have joined the second to tenth respondents to this application, without deposing to whether the respondent in question had, whilst employed by PCH, been involved in the tendering process of PCH; or the basis on which it is believed that the respondent was likely to have been involved in the tendering process undertaken by MAS. Thus, for example, Mr Murdoch deposed that the eighth respondent, Mr McKenzie was employed by PCH as the yard manager. Mr Murdoch did not depose to any circumstance which might cause him to believe that Mr McKenzie may have been involved in the preparation by MAS of the tender for the Sino Iron Ore project or the Pluto project, nor the basis on which he believed Mr McKenzie may have documents in his possession which may cast light on that process. An approach at this level of generality is at odds with the abovementioned observations of Gleeson CJ in Wright of the need for specificity when allegations are made which bring into conflict the two principles to which his Honour refers.
82 Further, there was also a failure to clearly differentiate the interests of the two applicants. Whilst there was evidence of an employment contract between each of the second to tenth respondents and PCH which included a confidentiality clause, the interest of Cape in the proceeding was not clear. In particular, as I have said, it is not clear which of the applicants made the tenders for each of the Sino Iron Ore project and the Pluto project. As I have already mentioned, the letter from MCC Mining is addressed to Cape and not PCH. Further, Mr Murdoch deposed to matters regarding the Woodside tender on the basis of information and belief derived from an officer of Cape. There is no evidence that the second to tenth respondents owed any duty of confidence to Cape and, therefore, if it was Cape that made the tenders, the basis of a potential cause of action against any of the respondents on the grounds of breach of such a duty by the second to tenth respondents, is unclear. If, on the other hand, it was PCH that made the tenders, then the presence of Cape in the proceeding would appear, without more, to be superfluous.
83 The respondents have all complained that the applicants have commenced this proceeding as a means of exerting pressure upon them because they are now in competition. Whilst I am not prepared to find positively this to be the case, the applicants' conduct referred to in the preceding two paragraphs and the applicants' lack of care in making their allegations regarding the content of the materials which were on the first respondent's website, have weighed with me in any decision to withhold relief also on discretionary grounds.
84 I note that during the course of oral submissions, counsel for the applicants also submitted that the applicants may also have a potential claim founded on misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act. As I understood counsel's submission, the misleading or deceptive conduct would comprise MAS providing to each of MCC Mining and Woodside a tender which contained confidential information belonging to the applicants, whilst impliedly representing that the tenders did not contain that information. However, there was no evidence which demonstrated that the applicants were contemplating bringing a claim of that nature. Further, even if there had been evidence of such a nature, for the reasons already given at [78], [79] and [80] above, there is no reasonable cause to believe that the applicants have, or may have, a right to obtain relief on the basis of that claim.