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[2013] VSC 277
Supreme Court of Victoria
2013-05-30
ZAMMIT AsJ
Original judgment source is linked above.
PRACTICE AND PROCEDURE - Preliminary discovery - Whether sufficient information to enable applicants to decide whether to commence proceedings - Whether reasonable grounds to believe that the applicants might have right to obtain relief against the respondent - Whether applicants already able to commence proceedings - Supreme Court (General Civil Procedure) Rules 2005 r 32.05 - Application allowed.
1 By summons on originating motion dated 10 April 2013, the plaintiffs seek preliminary discovery pursuant to r 32.05 of the Supreme Court Rules, of documents which are said to relate to confidential client information and any agency/contractor agreement between the plaintiffs and the defendant.
Where
(a) there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description the applicant has ascertained;
(b) after making all reasonable inquiries, the applicant has not sufficient information to enable the applicant to decide whether to commence a proceeding in the Court to obtain that relief; and
(c) there is reasonable cause to believe that the person has or is likely to have or has had or is likely to have had in that person's possession a document relating to the question whether the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist the applicant to make the decision -
the Court may order that the person shall make discovery to the applicant of a document of the kind described in paragraph (c).
3 The plaintiffs rely on the affidavits of Christopher Salvage dated 5 April 2013 and 6 May 2013; Stephen Allanson dated 5 April 2013 and Justine Elise Giuliani dated 14 May 2013.
4 The defendant, Mr Ardon, has not filed any affidavit in opposition.
5 The plaintiffs, D.C. Payments Pty Ltd ("DCP") and ATM Solutions Australasia Pty Ltd ("ATM Solutions") supply technology and services to retail, conveniences and hospitality venues in Australia and New Zealand.
6 DCP operates primarily through its wholly owned subsidiary ATM Solutions. The DCP business has been in operation since 2001 under various ownership arrangements and structures.
7 The history and ownership of DCP business is set out in the affidavit of Stephen Allanson at paragraphs 8 to 15. Relevantly, in 2007, ATM Solutions was acquired by Customers Limited, a Sydney based company, with an ATM fleet.
8 On 4 July 2012, DirectCash Payments Inc, a Toronto Stock Exchange listed company, acquired Customers Limited through its wholly owned Australian subsidiary DCP Holdings Australia Pty Ltd by a scheme of arrangements.
9 On 25 October 2012, Customers Limited converted to a proprietary company by the name of Customers Pty Ltd. On 1 November 2012, Customers Pty Ltd was renamed DCP.
10 The standard business model adopted by DCP is that each merchant customer enters into a Site Location and Placement Agreement ("site agreement") with ATM Solutions. The site agreement gives ATM Solutions the exclusive right to supply the merchant with an ATM for 60 months. ATM Solutions receives all of the direct charges which the customer pays to use the ATM and the clients receive a monthly rebate for each cash withdrawal transaction above an agreed minimum transaction level.
11 Mr Ardon was previously engaged by DCP or ATM Solutions as the Western Australian ("WA") State Manager. Mr Ardon is currently working for Next Payment Pty Ltd, a direct competitor of DCP / ATM Solutions.
12 One of the central issues and reasons for the current application is to determine the precise scope of Mr Ardon's relationship with DCP and or ATM Solutions. It is common ground that Mr Ardon commenced working as an agent or contractor for DCP/ATM Solutions in June 2010, initially as the WA Business Division Manager and then the WA State Manager based in Perth. It is DCP/ATM Solutions' belief that Mr Ardon was engaged pursuant to a written agency agreement.
13 Agents engaged by ATM Solutions are usually engaged pursuant to a written agency agreement. During the hearing of this application, the Court was shown a proforma agency agreement which ATM Solutions used in or about June 2010. The proforma agency agreement contained amongst other things, confidentiality obligations.
14 Searches have been undertaken to locate the agency agreement between Mr Ardon and ATM Solutions. These include, searches of ATM Solutions personnel file for Mr Ardon; human resources' records; DCP's office in Perth including the office Mr Ardon used when he worked for ATM Solutions; and direct inquiries of Mr Ardon.
15 DCP/ATM Solutions believe that Mr Ardon was most likely retained by ATM Solutions rather than DCP, however, in the absence of the agency agreement, they cannot be sure.
16 Mr Ardon's role while engaged by DCP/ATM Solutions, involved liaising with prospective and existing clients. Mr Ardon marketed and procured the placement of terminals at new and existing merchants sites in WA and the Northern Territory ('NT') exclusively on behalf of ATM Solutions' clients.
17 Mr Ardon often travelled to remote locations in WA to procure new business from existing clients. In his role of a contractor, Mr Ardon held a senior position and had regular and extensive contact with ATM Solutions' clients.
18 Mr Ardon was paid an annual retainer, together with sales commissions.
19 In September/October 2012 discussions took place about Mr Ardon becoming a full time employee. On 12 November 2012 Mr Ardon was made an offer of full time employment with ATM Solutions.
20 On 21 November 2012 Mr Ardon purported to accept the offer.
21 On 22 November 2012 Mr Ardon asked Mr Salvage (DCP's corporate account executive) for a copy of the re-sign or renewals list. This document contained information about ATM Solutions clients in WA due to renew their site agreements with ATM Solutions in the next 18 months. Mr Salvage's evidence is that the last 18 months of the site agreement are a critical negotiation period.
22 On 22 November 2012 Mr Salvage provided Mr Ardon with the re-sign or renewals list.
23 At 1:12pm on 23 November 2012 Mr Ardon forwarded the renewals list from his DCP email to his personal email. This was not known to DCP/ATM Solutions at the time it was done. The email was subsequently discovered by DCP during the internal search of the internal emails of certain employees or agents that left DCP/ATM Solutions after 5 March 2012.
24 DCP provided Mr Ardon with a laptop and remote access facilities. DCP/ATM Solutions were not aware that Mr Ardon had used his personal email address for work related matters.
25 Mr Salvage's evidence at paragraphs 30 to 32 of his affidavit dated 5 April 2013, is that the renewals list contain:
sensitive and confidential information such as:
(a) the identity of clients due to renew their contracts with ATM Solutions in the next 18 months;
(b) their location;
(c) the particular ATM model used by the client;
(d) whether the client uses a "self cashing" or "cash serviced" funding model for their ATM;
(e) the number of ATM transactions per month, for each client;
(f) steps taken by ATM Solutions to obtain the renewals; and
(g) the grade assigned by ATM Solutions to the customer to indicate the importance of their business.
26 On 2 December 2012, Mr Ardon resigned. In his resignation email Mr Ardon said:
... Some 2 and a half years ago I took on the role as agent and sub contractor for Customers ATM in Western Australia.
An agency was suitable for me, as I have always had other business interests, and was convenient for me to invoice for my services on a weekly/fortnightly basis, and pay my own tax, superannuation etc.
With the takeover by Direct payments, I saw that my days as an agent would be numbered, considering that the perceived model is to have full time staff on board, and believed a full-time role was a way to give me security in this volatile market.
The problem I have is that in the workplace agreement, it states I cannot have other business interests other than my full-time role with DC Payments.
My other businesses have in recent times started to flourish, and I have regretfully decided to cease my time with Customers ATM/DC payments to concentrate on getting these running an increase productivity. ...[1]
27 The evidence as to when Mr Ardon commenced his employment with Next Payments Pty Ltd ("Next Payments") is equivocal. An extract from Mr Ardon's Linkedin page states that he has worked as WA and NT state manager for Next Payments for five months since October 2012. In a letter from Mr Ardon's solicitors, Balfe and Webb, dated 19 March 2013, his instructors state:
In paragraph 15 of your letter, you make reference to Mr Ardon's Linkedin page which states that he has worked for Next Payments since October 2012.
We are instructed that this is not correct and that Mr Ardon commenced with Next Payments on 3 December 2012, the day after he resigned from DC.[2]
28 The Next Payments business is operated by former employees of DCP/ATM Solutions and is a direct competitor of DCP/ATM Solutions
29 During January/February 2013, ATM Solutions WA clients, Pancho's Villa Restaurant ("Panchos"), Edz Sportz Bar ("Edz"), Odin Tavern ("Odin"), Willeton Supermarket ("Willeton"), Ascot Quays Hotel, and Gibson Soak Hotel ("Gibson") sought to have their ATMs removed and/or their contract with ATM Solutions terminated.
30 Mr Salvage's evidence is that prior to January/February 2013 he typically received about one query per month from a WA client asking for an ATM to be removed or otherwise wanting to terminate their contract. During the period January/February 2013, DCP/ATM Solutions were contacted by six WA clients asking to have their ATM removed or wanting to terminate their site agreement. Of these six clients, four were on the renewals list emailed by Mr Ardon to his personal email address.
31 In or about January 2013 the DCP/ATM Solutions became aware of the existence of Next Payments and that it was competing with DCP/ATM Solutions. Accordingly, Mr Allanson directed DCP's IT department to give him access to DCP/ATM Solutions' email accounts of a number of former employees, including Mr Ardon. Mr Allanson searched the accounts and or relevant emails were found as a result of these searches. Mr Allanson also directed that a search be conducted of DCP/ATM Solutions' email accounts of all employees and contractors who had left DCP/ATM Solutions on or after 5 March 2012, including Mr Ardon.
32 On 29 January 2013, DCP retained Ferrier Hodgson to provide a portal to allow DCP to audit the email accounts of Mr Ardon and a number of other employees/contractors. Ferrior Hodgson were given access to DCP/ATM Solutions' systems so that all emails sent and received by the relevant employees during the period 5 March 2012 until late January 2013 could be recovered and uploaded to the portal. No relevant emails were found as a result of these searches other than an email sent by Mr Ardon from his DCP email address to his personal email on 23 November 2012 attaching the renewals list.
33 Searches were also conducted of computer hard drives of a number of former DCP/ATM Solutions' employees/contractors. The search of the computer hard drives did not find any relevant documents.
34 A search was conducted of Mr Ardon's company issued computer, however at the time the search was conducted the hard drive had already been erased and the lap top reassigned to another employee.
35 On 27 February 2013, Mr Salvage conducted a search of Mr Ardon's DCP office in Perth for a copy of the written agency agreement. A copy of the agreement was not found. DCP also conducted searches of Mr Ardon's personnel files and the personnel files of the former employees associated with Next Payments.
36 On 13 February 2013, DCP/ATM Solutions' solicitors, Ashurst Australia, sent a letter to Mr Ardon requesting, amongst other things, that he provide certain undertakings by midday on 14 February 2013 and advising him of his obligations under his agency agreement with ATM Solutions. On 14 February 2013, Mr Ardon's solicitors sent a letter to Ashurst Australia denying that Mr Ardon was bound by an agency agreement with ATM Solutions.
37 On 27 February 2013, Ashurst Australia sent a letter to Mr Ardon's solicitors requesting that Mr Ardon provide DCP/ATM Solutions with certain categories of documents by 6 March 2013. Mr Ardon's solicitors to date have declined to provide the requested documents.
39 The test for determining whether the applicant has reasonable cause to believe is an objective one.[5]
40 DCP/ATM Solutions submit that there is reasonable cause to believe that they have or may have the right to obtain relief against Mr Ardon. They submit that because of the principal/agent relationship that existed between Mr Ardon and DCP/ATM solutions and the senior position of trust Mr Ardon held with ATM Solutions, that Mr Ardon owed fiduciary duties to DCP/ATM Solutions, including the duty to loyally serve DCP/ATM Solutions and a duty not to profit from the fiduciary relationship including by misusing confidential information for his own benefit or the benefit of others.
41 DCP/ATM Solutions submit that an equitable obligation of confidence arises where particular information is identified with specificity and: (a) the information has a necessary quality of confidence about it; (b) the respondent received the information in circumstances importing an obligation of confidence; and (c) there is an actual threatened unauthorised use of the information.
42 DCP/ATM Solutions submit that the renewals list falls within the category of confidential information. The renewals list consisted of a list of ATM Solutions' customers. The renewals list attached to Mr Salvage's email dated 22 November 2012 to Mr Ardon consists of a list of client names, their address, the particular ATM machine in use at the client location, funding, status of client, monthly withdrawals from the ATM and total transactions. In EBOS Group Pty Ltd v Team Medical Supplies Pty Ltd (No 3)[6], Katzman J considered customer lists are inherently confidential and capable of protection in equity.
43 DCP/ATM Solutions submit that in this case the renewals list was provided to Mr Ardon for the sole purpose of assisting him as an agent of ATM Solutions to renew customer contracts. DCP/ATM Solutions submit that it is likely that there were express and/or implied terms of the written agency agreement which would require Mr Ardon to keep particular information confidential and to otherwise act in the best interests of DCP/ATM Solutions. DCP/ATM Solutions submit that in the absence of the written agency agreement they cannot be sure of the terms of the agency agreement.
44 To succeed against Mr Ardon, DCP/ATM Solutions must prove that: (a) they reasonably believe that they had the right to obtain the relief in the Court from Mr Ardon; (b) they have made reasonable enquiries; (c) despite making those enquiries they lack sufficient information to decide whether to start a proceeding in the Court to obtain relief; (d) they reasonably believe that Mr Ardon has or is likely to have had in his control, documents directly relevant to the question whether they have a right to obtain the relief; and (e) inspection of the documents would assist them in deciding whether they have that right.
45 If DCP/ATM Solutions can make out these matters, the Court retains a discretion whether to order the relief sought. Mr Ardon contends that DCP/ATM Solutions have not discharged their onus of proof in relation to any prospective cause of action.
Do DCP/ATM Solutions reasonably believe that they may have a right to obtain relief from Mr Ardon?
46 It is common ground between the parties that Mr Ardon was in an agency/contractor role with DCP/ATM Solutions. I am satisfied on the evidence that there is reasonable cause to believe that DCP/ATM Solutions have or may have the right to obtain relief against Mr Ardon. In his resignation email dated
2 December 2012, Mr Ardon describes taking on the role as agent and subcontractor two and a half years ago. While engaged as agent/contractor rather than an employee, Mr Ardon had significant contact with existing DCP/ATM Solutions' clients in WA and the NT. Mr Ardon's role involved travelling to remote locations in WA to procure new business from existing clients. In the course of attending the premises of new and existing clients, Mr Ardon would have built relationships of trust with ATM Solutions clients on its behalf. Mr Ardon commenced working as an agent in the position of WA Business Development Manager and was subsequently promoted to WA State Manager. It is not clear from the evidence when this occurred. However, he held a senior position with ATM Solutions.
47 Mr Ardon was given a copy of the renewals list by Mr Salvage for the purpose of assisting him to renew customer contracts. The renewals list was provided to Mr Ardon in circumstances where an offer for fulltime employment had been made and it was reasonable for Mr Salvage to have considered Mr Ardon in effect to be a full-time employee. There is no evidence before the Court as to why Mr Ardon would have sent the renewals list to his personal email address. Mr Ardon had a laptop supplied to him by ATM Solutions and remote access.
48 It is not clear on the evidence whether Mr Ardon had actually commenced some form of employment or engagement with Next Payments at the time he sent the renewals list to his personal email address on 22 November 2012. What is known, however, is that Mr Ardon signed an employment contract and commenced employment with Next Payments on 3 December 2012, one day after his resignation and nine days after sending the renewal list to his personal email address. DCP/ATM Solutions note that Mr Ardon's resignation email stated he was resigning to concentrate on working on his other pre-existing businesses. The only evidence before the Court is that Mr Ardon commenced employment with Next Payments the day after his resignation and there is no evidence that Mr Ardon has pursued any of the businesses he alluded to in his resignation email.
49 The information in relation to, Pancho's, Edz, Odin, Willeton, Ascot Quays Hotel and Gibson, suggests at least a pattern of Mr Ardon contacting ATM Solutions' clients. Four of the clients were on the renewals list. The timing of the communication by Mr Ardon with Pancho's, Edz and Oden is shortly after his resignation. I am satisfied that the evidence in relation to these clients provides an objectively reasonable basis for DCP/ATM Solutions' belief that Mr Ardon used the contents of the renewals list to target ATM Solutions' WA clients on behalf of Next Payments.
50 It is submitted on behalf of Mr Ardon that the failure by DCP/ATM Solutions to find any documents relating to a written agency agreement between Mr Ardon and ATM Solutions, along with the denial contained within the letter from Mr Ardon's instructing solicitors to the plaintiffs' solicitors that there was no agency agreement, suggests that there cannot be a reasonable belief that there was a written agency agreement in existence. It is submitted on behalf of Mr Ardon that if he was engaged as a contractor for ATM Solutions but not subject to the requirements of an agency agreement such as the proforma agreement shown to the Court, which would have included intellectual property obligations and confidentiality obligations, it may be that his engagement was on an entirely different basis and in a sense may have been free or unrestricted from the forms of obligation suggested by DCP/ATM Solutions. I do not accept this submission. The evidence is that there was a principal/agent relationship in existence from approximately June 2010 between Mr Ardon and DCP/ATM Solutions. ATM Solutions has a proforma agency agreement which contains confidentiality obligations. While there is the denial of the existence of a written agency agreement by Mr Ardon's solicitors, Mr Ardon has chosen not to go on affidavit and make that denial himself.
51 It is submitted on behalf of Mr Ardon that DCP/ATM Solutions' evidence in relation to the six clients referred to in Mr Salvage's affidavit at paragraphs [35] to [74] amounts to nothing more than evidence that these merchant clients were bitterly disappointed with the service that they were getting from ATM Solutions.
Mr Simpson on behalf of Mr Ardon submits that the information contained within the renewals list does not contain information that Mr Ardon or Next Payments could use to any advantage. Mr Simpson notes that the renewals list does not contain details of the termination date of the agreement. The difficulty with this submission is that of the six merchant clients, four were on the renewals list. Of these four merchant clients, Edz was definitely contacted by Mr Ardon and Ascot Quays Hotel and Gibson were contacted by a competitor, although the merchant client was not prepared to reveal the identity of the competitor. The fact that the client may have been disgruntled does not preclude Mr Ardon utilising the renewals list and using information in that list to contact ATM Solutions' client.
Have DCP/ATM Solutions made reasonable enquiries
52 I will not repeat the evidence in relation to the enquiries that have been made by DCP/ATM Solutions. I am satisfied that DCP/ATM Solutions have undertaken extensive searches and enquiries in order to confirm the existence of an agency agreement and other confidential information which may be in Mr Ardon's possession and/or control. Significantly, enquiries were made of Mr Ardon himself. Mr Ardon has not provided any documents to date.
53 Despite undertaking the enquiries and searches, I am satisfied that DCP/ATM Solutions do not have sufficient information to decide whether to commence proceedings.
54 The renewals list was emailed my Mr Ardon to his personal email address. I consider DCP/ATM Solutions have reasonable cause to believe that Mr Ardon has or is likely to have in his possession documents, including emails from his personal email address, relating to Mr Ardon forwarding, distributing or copying the renewals list for the purposes of contacting ATM Solutions' clients.
55 An inspection of such documents is critical to DCP/ATM Solutions deciding whether to commence a proceeding.
56 For the reasons already set out, I consider that DCP/ATM Solutions do have reasonable cause to believe that Mr Ardon may have a copy of a written agency agreement.
57 The schedule of documents sought by DCP/ATM Solutions is annexed to the summons in a document headed Schedule of Documents.
58 Mr Simpson submits that the categories are too broad and too wide.
59 Category 1 seeks documents relating to any agency agreement or other contractual documentation entered into between DCP or any subsidiary to DCP; or ATM Solutions or any subsidiary of ATM Solutions and Mr Ardon or any representative of Mr Ardon, including the family partnership, M.C. Ardon and P. Ardon.
60 When one looks at the history and ownership of DCP and the commercial arrangements as set out in Mr Allanson's affidavit, it is highly likely that a written agency agreement was entered into with ATM Solutions or the predecessor corporate entity, Customers Ltd.
61 Mr Smith submits that the remaining categories of documents that are too wide in each category commence with the words "all documents" and that categories are not sufficiently confined to a time period.
62 The complaint is misconceived. When one goes on to read each paragraph in full, for example, paragraph 2, the schedule refers to all documents which are the property of DCP or ATM Solutions which at any time came into the possession or control of Mr Ardon as a result of him working for DCP or ATM Solutions and any documents containing a copy or reproduction of such documents or parts of them. The category of documents is confined to property of DCP or ATM Solutions and which came into Mr Ardon's control or possession while working for DCP or ATM Solutions.
63 Mr Simpson also submitted that the categories of documents ought to be confined to the six clients referred to in Mr Allanson and Mr Salvage's affidavits. I consider that would be too narrow. The renewals list Mr Ardon sent to his personal email address had well in excess of the six clients referred to in Mr Allanson and Mr Salvage's affidavits.
64 The power to order discovery before suit is certainly intrusive. It enables a court to order that a person who is not a party to any proceeding provide documents to another person so that the second person can decide whether or not to institute a proceeding against it with no corresponding right to reveal its own documents. The authorities indicate that the power must be exercised with some care and always with these considerations in mind.[7] The evidence establishes that DCP are trade rivals with Next Payments, Mr Ardon's current employer. However, the fact that this application is made and the evidence adduced to support it does not point to any ulterior motive.
65 I am satisfied that there is reasonable cause to believe that Mr Ardon has or is likely to have in his possession documents relating to the question of whether DCP/ATM Solutions have the right to obtain relief against him, and that inspection of those documents by DCP/ATM Solutions will assist them to decide whether to commence proceedings against Mr Ardon.
66 DCP/ATM Solutions seek an order of the kind made by Finkelstein J in SmithKline Beecham PLC v Alphapharm Pty Ltd,[8] that is, if substantive proceedings are commenced within 60 days of the defendants/respondents compliance with the orders, the costs of the application should be costs in the substantive proceedings and, if not, the applicants should pay the respondent's costs. Mr Ardon did not argue against this form of order in the event that DCP/ATM Solutions were successful. I therefore propose to make such an order.
67 In addition, DCP/ATM Solutions seek costs from Mr Ardon of their costs of service or the originating process on him given Mr Ardon's lawyers, Balfe and Webb, refused to accept service on Mr Ardon's behalf and yet continued to act for him after personal service was effected.[9] This matter was raised in DCP/ATM Solutions outline of submissions and in the affidavit of Justine Elise Guiliani. Mr Ardon made no submissions in relation to this specific order for costs. DCP/ATM Solutions seek the costs of personal service on Mr Ardon of the originating process on an indemnity basis.
68 By way of observation, it may be difficult for the Court to resist DCP/ATM Solutions' application in the absence of any reason as to why Mr Ardon's solicitors did not accept service on his behalf in circumstances where they had been acting for him up to that point in time and continued to act for him after personal service was effected on him. In the absence of an agreement being reached about this costs order I will provide Mr Ardon with an opportunity to make submissions.
[1] Affidavit of Mr Christopher Salvage dated 5 April 2013, exhibit 'CS-5'.
[2] Affidavit of Mr Stephen Allanson dated 5 April 2013, exhibit 'SA-15'.
[5] Plzen Pty Ltd v P&O Wharf Management Pty Ltd [2007] VSC 318 at [17].
[6] [2012] FCA 48, at [39].
[7] Ebos Group Pty Ltd v Team Medical Supplies Pty Ltd (No 3) [2012] FCA 48 at 110.
[9] Affidavit of Justine Elise Guiliani dated 14 May 2013, at [15].
D.C. Payments Pty Ltd and Anor
Ardon [2013] VSC 277