Certified Building Specialists Pty Ltd v Drenovac

Introduction 1 These reasons for judgment deal with two competing interlocutory applications concerning compulsory processes of discovery. The applicant applied for "further and better" discovery and the respondents applied to set aside two notices to produce both dated 5 February 2019 issued by the applicant. One of the notices to produce was directed to the first respondent and the other was directed to the second respondent. 2 A few days prior to the hearing of the competing applications, the applicant filed an amended interlocutory application. The relief that was sought, with the amendments reflected in strikethrough and underline, was in the following terms: 1. The Respondents provide further and better discovery of documents in the following categories: a. all documents recording or containing any communications between any of the Respondents (or any officer, agent or employee of the Respondents) and any person listed in the Confidential Schedule (or any officer, agent or employee of any person listed in the Confidential Schedule) in the period from 1 December 2017 to 30 March 2018 date; b. all documents recording any work done by any of the Respondents for or on behalf of or at the request of any person listed in the Confidential Schedule in the period from 1 December 2017 to date; c. telephone records of any of the Respondents that record or identify any telephone calls with, or text messages with, any person listed in the Confidential Schedule (or any officer, agent or employee of any person listed in the Confidential Schedule) in the period from 1 December 2017 to 30 March 2018 date; d. all documents used in the business of the Applicant that were obtained by either the First and Second Respondent during their employment by the Applicant, and which have been retained by any of the Respondents after 16 December 2017; and e. all pro forma and precedent documents used by any of the Respondents in the business of any of the Respondents; f. all documents: i. recording or containing any communications between any of the Respondents (or any officer, agent or employee of the Respondents) and Sentia Australia Pty Ltd, or any other information technology consultant or provider retained by any of the Respondents, (or any officer, agent or employee of Sentia Australia Pty Ltd or such other information technology consultant or provider); and ii. provided to Sentia Australia (or any other information technology consultant or provider) by any of the Respondents, in relation to the development, implementation and operation of web and mobile software, applications, technologies and techniques for use in the business of the Third Defendant; and g. all documents or other files downloaded or copied by any of the Respondents onto any USB hard drive from any computer owned by the Applicant and operated by either the First Respondent or the Second Respondent in the period from 1 October 2017 to 30 December 2017. 2. The Applicant be granted leave to file an amended statement of claim in the form annexed to this interlocutory application and marked "A". 3. The Applicant be granted leave to issue a subpoena addressed to Sentia Australia Pty Ltd in the form annexed to this interlocutory application and marked "B". 2.4. Costs. 3.5. Such further or other orders as the Court thinks fit. 3 The notice to produce directed at the first respondent sought, in its first three paragraphs, production of three identified USB devices which, it was said, had been inserted into a computer owned by the applicant and operated by the first respondent. In its fourth paragraph, it sought the first respondent's telephone records for the period from November 2017 to date. 4 The notice to produce directed to the second respondent sought, in its first two paragraphs, two USB devices also said to have been inserted into a computer owned by the applicant, but in this instance operated by the second respondent. In its third paragraph, the notice to produce sought the second respondent's telephone records from November 2017 to date.

Background 5 The applicant's statement of claim alleges that the first and second respondents had been senior employees of it and were subject to various contractual restraints pursuant to their employment contracts. These restraints included that they would not use certain information of the applicant's during or after the termination of their employment or disclose that information to any third party without the applicant's consent, that upon termination of their employment they would not approach directly or indirectly any customer of the applicant to influence it to cease to carry on business with the applicant or otherwise entice it away from the applicant, solicit, canvas or in any way seek the custom of or act for directly or indirectly, any of the customers or clients of the applicant. The applicant also alleges an implied duty of fidelity and good faith owed by the first and second respondents to it. 6 The applicant alleges that the first and second respondents at some point in time prior to ending their employment with the applicant, which occurred in late December 2017, decided to establish a business to operate in competition with the applicant. Pursuant to that decision, they caused the third respondent to be incorporated. It is alleged that the third respondent was incorporated as the corporate vehicle through which the first and second respondents intended to conduct their new business in competition with the applicant. 7 The applicant alleges that the first and second respondents sent text messages and emails to customers of the applicant soliciting business from them, and that the first and second respondents used the applicant's information, referred to above, for the purpose of the establishment of the new business and of seeking work for the new business. It is alleged that the first and second respondents solicited work from the applicant's clients and customers. 8 It is further alleged by the applicant that the first and second respondents engaged in the aforesaid conduct pursuant to a dishonest and fraudulent design. 9 On the basis of the above, the applicant asserts claims for injunctive relief against the respondents, as well as contractual breaches, equitable claims, statutory claims and trust claims, entitling it to, amongst other things, damages. 10 The parties were ordered to make standard discovery and have done so, the respondents having filed their discovery list on 11 September 2018. The notices to produce and the applicant's application for particular discovery arise from what the applicant perceives to be inadequate discovery by the respondents.

Application to amend the interlocutory application 11 On moving for the amendments to the interlocutory application, counsel for the applicant advised that the applicant no longer required the amended paragraph 3 relief, being leave to issue a subpoena. That amendment was therefore not granted. 12 Counsel for the respondents objected to having to deal with the relief sought in paragraphs 1(f) and (g) and 2 of the amended interlocutory application on the basis that very short notice had been given for those amendments. Counsel for the applicant accepted that objection and therefore moved for the amendment but accepted that the relief sought by those amendments could only be dealt with separately and at a later time. On that basis, counsel for the respondents did not object to the amendments to the interlocutory application. 13 In the circumstances, I allowed the amendments that had been sought, save for paragraph 3 as I have explained, and the amended paragraphs 4 and 5 were consequently renumbered 3 and 4 respectively. I also stood over the relief sought in paragraphs 1(f) and (g) and 2 for later determination.

Further and better discovery 14 Counsel for the applicant accepted that the relief that the applicant sought was properly characterised as "particular discovery" as provided for in r 20.21 of the Federal Court Rules 2011. I accordingly deal with the application as being an application under that rule. 15 The applicant submitted that the following principles apply to the application. First, an application for particular discovery may be made following standard discovery, seeking documents that are relevant, either directly or indirectly: Dennis v Chambers Investment Planners Pty Ltd [2012] FCA 63; 201 FCR 321 at [39] per Barker J. 16 Secondly, there must be a basis to consider that the documents sought are likely to exist; mere speculation is not enough: Independent Cement & Lime Pty Ltd v Australian Cement Ltd [1988] FCA 749 at 14 per Gray J. 17 Thirdly, the test to be applied is whether the documents sought are "reasonably likely to add, in the end, in some way or other, to the relevant evidence in the case": Seven Network Ltd v News Ltd (No 5) [2005] FCA 510; 216 ALR 147 at [10] per Sackville J. 18 The respondents did not contest that those are the applicable principles. I accordingly accept them and apply them.

Particular Discovery: Category 1(a) 19 Counsel for the applicant pointed to evidence tending to show that discovery by the respondents is incomplete. On affidavit, the applicant's solicitor identified over 100 jobs which the respondents had performed for clients of the applicant as is apparent from the respondents' discovery. However, based on material produced on subpoena by third parties, a further approximately 80 jobs which the respondents had performed for clients of the applicant were identified in respect of which nothing appears to have been disclosed in the respondents' discovery. 20 Further, with reference to documents produced on subpoena by third parties, the applicant showed that there were communications between the respondents and clients or former clients of the applicant by way of text messages from time to time. Also, references in text messages and emails such as to "our chat yesterday", "I rang and spoke to Terry" and "as discussed" strongly suggest that there were telephone communications between the respondents and clients or former clients of the applicant. However, the respondents' discovery included no text messages or telephone records. 21 I am accordingly satisfied that the documents sought in this category and in category 1(c) dealt with further below are likely to exist.

Relevance 22 With regard to relevance or potential relevance, the respondents submitted that the factual controversy in the case is very narrow with the result that the breadth of the discovery that is sought is disproportionate to the facts in issue. In support of that submission, counsel for the respondents argued that the only relevant strictly factual allegations made against the respondents in the statement of claim are that the first respondent sent two emails and one text message, and that those allegations are not in dispute. Counsel argued that in the absence of other specific factual averments with regard to communications between the respondents and former clients of the applicant, the discovery of such communications is beyond the pleadings and irrelevant. 23 In my view an analysis of the pleadings does not support that submission. The statement of claim makes ample allegations against the respondents which if proved in due course will establish significant wrongdoing by them in breach of duties that they owed to the applicant. Those allegations include that the first and second respondents decided to establish a business to operate in competition with the applicant; that the first respondent obtained confidential information of the applicant for purposes unrelated to the applicant's business; that the first and second respondents obtained the applicant's confidential information for the purpose of the establishment of their new business to be conducted through the third respondent; that the first and second respondents cleared information from mobile telephones used by them but owned by the applicant for the purpose of concealing from the applicant steps that they had taken to obtain and use information that is confidential to the applicant and to solicit the applicant's clients for the new business; and that the respondents solicited work from the applicant's clients and customers and performed work for the applicant's clients and customers in breach of their obligations. 24 Various particulars are given by the applicant in respect of many of the allegations identified above followed by it being stated that "further particulars may be provided following the completion of interlocutory steps, including discovery and the issuing of subpoenas". It is to be expected in a case of this nature that the applicant will not be aware in advance of all the transgressions by its former employees that may have taken place. If the applicant is correct that the first and second respondents conspired to start a new business and unlawfully compete with it by using confidential information and soliciting clients in breach of applicable restraints, then it is also to be expected that the respondents would seek to limit the discovery of the extent of their breaches.

Oppression 25 The respondents also argued that it would be highly oppressive for them to be required to discover communications with all the applicant's clients and former clients listed in the confidential schedule referred to in subparagraphs (a) and (c) to paragraph 1 of the amended interlocutory application. In that regard, they said that the schedule lists more than 5000 entities and/or individuals and that it is in certain respects unclear or obscure. 26 In relation to the complaint of the schedule being unclear or obscure, I invited counsel for the respondents to tender the schedule so that I could have regard to it - I did not otherwise have access to it. Counsel however declined to tender the schedule. In the circumstances, I was not able to assess whether his complaints about the schedule, aside from its length, were made out. In any event, as pointed out by counsel for the applicant, the respondents refer in their discovery schedules to categories of documents discovered with reference to the confidential schedule. They apparently did not have problems with the schedule in preparing their discovery and should accordingly have no similar problems with regard to further discovery. 27 I am not satisfied that the further discovery sought will be unduly oppressive with reference to the number of clients and former clients listed in the confidential schedule. That is principally because the period in respect of which further discovery is now sought is narrow, being only four months, and only two email and telephone accounts have been identified as being caught by the further discovery that is sought. In the absence of evidence to the contrary, such as how many communications are at issue and how long it would take to sort them, it appears to me that it would be a relatively simple matter to go through the relevant accounts in full for the relevant period and extract all communications unrelated to the applicant's clients and former clients, and thereby fulfil the requirements of the further discovery that is sought. 28 In the circumstances, I am satisfied that the documents that are sought in category 1(a) are likely to exist, are relevant to the issues in dispute in the proceeding and that it will not be unduly oppressive on the respondents to require their discovery, and that they must accordingly be discovered.

Particular Discovery: Category 1(b) 29 The respondents accepted that they have an ongoing obligation to discover all documents recording any work done by any of the respondents for or on behalf of, or at the request of, any of the applicant's clients or former clients. However, they submitted that such further and ongoing discovery should not be done in a piecemeal basis, but that it should rather be done once at a fixed time. The applicant accepted this and proposed that such discovery should be done for the period up until 31 May 2019 and that it should be provided by mid-June 2019. The respondents did not contest this proposal. 30 In the circumstances, I am satisfied that category 1(b) should be ordered to be discovered to cover the period 1 December 2017 to 31 May 2019, and that that discovery should be provided by 14 June 2019.

Particular Discovery: Category 1(c) 31 For the same reasons given in relation to category 1(a), I am satisfied that there are telephone records that have not been discovered that should have been discovered because they are relevant to the issues in dispute in the proceeding and that it would not be unduly oppressive to require their discovery. I am accordingly satisfied as to category 1(c).

Particular Discovery: Category 1(d) 32 The applicant accepted that on the present evidence it cannot show that the respondents' discovery is insufficient in respect of documents used in the business of the applicant that were obtained by either the first or second respondent during his employment by the applicant and which have been retained by any of the respondents after 16 December 2017. I am therefore not in a position to conclude that the documents sought in this category are likely to exist. 33 In the circumstances, counsel for the applicant asked that this paragraph be stood over for later determination with the other paragraphs of the amended interlocutory application that are stood over. That was on the basis that the further discovery to be provided may support this category, and that category 1(g), which is still to be determined, may cover some of the same ground. This course was not opposed by the respondents. I accordingly propose to stand this category over for later determination.

Particular Discovery: Category 1(e) 34 The respondents did not oppose this category, save to submit that any discovery should be subject to the limitation that access to the documents produced should be restricted to the applicant's lawyers. This was on the basis that the documents are confidential and commercially valuable. 35 The applicant accepted that the proposed restriction was justified provided that an application could be made to lift or modify it, particularly in respect of specific documents, in due course once the applicant's lawyers have had the opportunity to study any documents produced under this category. I am satisfied that such an order would be justified.

The notices to produce 36 As indicated above, the notices to produce require the production of identified USB devices and telephone records. 37 Insofar as the telephone records are concerned, counsel for the applicant accepted that there is an overlap between that category in each of the notices to produce and category 1(c) dealt with above. Counsel accepted that if I was to order production of that category, as I have now resolved to do, then the categories sought in the notices to produce are not necessary. Equally, counsel accepted that if I resolved not to order production of category 1(c) then there would be no justification for the telephone records to be sought under the notices to produce. In the circumstances, counsel accepted that the paragraphs in the notices to produce that seek telephone records are superfluous, although he explained that that had come about because of the passage of time - the notices to produce were prepared and served some time prior to the application for particular discovery being prepared which was based on documents produced under subpoena by third parties. 38 Insofar as the USB devices are concerned, counsel for the respondents accepted that the devices were clearly identified and that the applicant had adduced evidence showing that the identified devices existed and had been inserted into the relevant computers owned by the applicant and operated by the first and second respondents. 39 The respondents' opposition to the USB paragraphs of the notices to produce, and consequently the basis for their application to set aside those paragraphs of the notices, was ultimately restricted to the submission that the respondents had no such USB devices to produce under the notices. Counsel for the respondents accepted that that was not a basis to set the notices to produce aside, but was rather a proper answer to the notices to produce in due course. 40 In the circumstances, I am satisfied that paragraph 4 of the notice produce on the first respondent and paragraph 3 of the notice to produce on the second respondent are superfluous and should be set aside, and that the application to set aside the notices to produce should otherwise be dismissed.

Conclusion 42 In the circumstances, I make the following orders:

1. The respondents are to provide particular discovery of documents pursuant to r 20.21 of the Federal Court Rules 2011 in the following categories: (a) all documents recording or containing any communications between any of the respondents (or any officer, agent or employee of the respondents) and any person listed in the Confidential Schedule (or any officer, agent or employee of any person listed in the Confidential Schedule) in the period from 1 December 2017 to 30 March 2018; (b) all documents recording any work done by any of the respondents for or on behalf of or at the request of any person listed in the Confidential Schedule in the period from 1 December 2017 to 31 May 2018; (c) telephone records of any of the respondents that record or identify any telephone calls with, or text messages with, any person listed in the Confidential Schedule (or any officer, agent or employee of any person listed in the Confidential Schedule) in the period from 1 December 2017 to 30 March 2018; and (d) all pro forma and precedent documents used by any of the respondents in the business of any of the respondents.
2. The discovery ordered in order 1 is to be given by 17 May 2019, save for that in order 1(b) which is to be given by 14 June 2019.
3. Subject to agreement between the parties or further order, the documents produced in category 1(d) shall be provided to and accessed by the applicant's lawyers only and shall not be provided to, accessed by or otherwise disclosed to the applicant or its employees or officers.
4. The relief sought in paragraph 1(d) of the applicant's amended interlocutory application dated 17 April 2019 is stood over for later determination.
5. Paragraph 4 of the applicant's notice to produce dated 5 February 2019 directed to the first respondent and paragraph 3 of the applicant's notice to produce dated 5 February 2019 directed to the second respondent are set aside.
6. The respondents' interlocutory application dated 14 March 2019 is otherwise dismissed.
7. Costs reserved. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stewart.