Forty Two International Pty Limited v Barnes

background 14 In order to understand the setting for the respondents' motion in this proceeding it is necessary to refer to and record certain events that occurred in relation to the conduct of the 651 proceeding. 15 In the 651 proceeding CM(UK) seeks damages and other relief against the present applicants based on representations alleged to have been made by them in contravention of s 52 of the Trade Practices Act 1974 (Cth). The alleged representations relate to (amongst other things) the development and marketing of software known as "Campaign Master". CM(UK) alleges that, in reliance on these representations, it entered into certain written contracts with the first applicant, namely, a licence agreement and a maintenance and support agreement, both dated 21 May 2007. It alleges a number of breaches of contract, some by the first applicant, others by both the applicants. It also alleges that it has suffered loss or damage arising from these matters. As pleaded, the loss includes the payment of the licence fee under the licence agreement, although this aspect of its claim is no longer pressed by CM(UK). 16 Each of the respondents was a director of and shareholder in the first applicant. They participated in negotiations with CM(UK) leading to the making of the licence agreement and the maintenance and support agreement. 17 Under a share purchase agreement dated 24 October 2006 the second applicant purchased the shares held by each of the respondents in the first applicant. The share purchase was completed in December 2006. Under contractual arrangements subsequently associated with the share purchase, the respondents remained directors of the first applicant until 8 November 2007. They ceased their association with the applicants pursuant to the terms of an exit agreement made in October 2007, to which the applicants and respondents (amongst other persons) were parties. 18 The 651 proceeding was commenced on 9 May 2008. 19 On 22 October 2008 the CM(UK) subpoena was issued. It was served on each of the respondents. It sought production of the following categories of documents: 1. All documents containing, evidencing or recording meetings, including but not limited to meeting minutes in relation to the negotiation and execution of the Licence Agreement dated 21 May 2007 ("Licence Agreement") and the Maintenance and Support Agreement dated 21 May 2007 ("Maintenance Agreement") between the Applicant and the First Respondent in the period from 1 January 2007 to 21 May 2007; 2. All documents containing, evidencing or recording meetings, including but not limited to meeting minutes in relation to the development of the Campaign Master software ("the Software") from 21 May 2007; 3. All documents containing, evidencing or recording meetings, including but not limited to meeting minutes in relation to the maintenance of the Software from 21 May 2007; 4. All documents containing, evidencing or recording the Respondents expenditure on continuing development of the Software, including development of software enhancements from 21 May 2007; 5. All documents containing, evidencing or recording the development work undertaken on the Software by the Respondents from 21 May 2007, including but not limited to release notes, developer logs, developer time sheets, test plans and schedules; 6. All documents containing, evidencing or recording the Respondents expenditure of the maintenance fees paid by the Applicant to the Respondents as defined in the Maintenance Agreement from 21 May 2007; 7. All documents relating to any reports or assessments prepared by the Respondents which relate to the bugs, issues and defects in the Software and the future development of the Software; 8. All documents relating to the cessation of your employment with the First Respondent; 9. All documents containing, evidencing or recording any bugs or issues with the Software notified to the Respondents by the Applicant and the work undertaken by the Respondents to rectify those bugs or issues; 10. All documents relating to any marketing or cross selling undertaken by the Respondents to assist the Applicant in marketing the Software in the UK and Ireland ("the Territory"); 11. All documents containing, evidencing or recording requests by the Applicant for access to the source code for the Software and the Respondents consideration of those requests; 12. All documents containing, evidencing or recording the Respondents development and marketing of Traction and the "Blu Platform" in the Territory or otherwise. 20 On 30 October 2008 and 3 November 2008, documents were produced in answer to the CM(UK) subpoena by the first and second respondents respectively. The production of documents included a compact disc embodying a number of electronic reproductions of documents and sound recordings. 21 Application was made by the applicants' solicitors on 5 November 2008 that they be granted first access to inspect the documents. The application was acceded to and orders were made to the effect that the applicants be granted first access until close of business on 12 November 2008 to inspect the documents produced by the respondents. 22 There was correspondence between the applicants' solicitors and CM(UK)'s solicitors about the contents of the documents that had been produced. By agreement, the time in which the applicants had first access to the documents was extended. 23 The question of inspection came back before a Registrar of the court on 19 November 2008 at which time orders were made restricting access to documents claimed to be privileged to the applicants and their legal advisers. Directions were also made for the filing and service of a notice of motion to enable the applicants' claims for privilege to be heard and determined. The applicants and CM(UK) were each represented by counsel instructed by the solicitors for the parties. 24 The course of the hearing on that day has assumed importance because the applicants contend that the documents produced in answer to the CM(UK) subpoena were referred to in open court in terms that released them from any obligation they owed to the court not to use the documents for any purpose other than the 651 proceeding. Unfortunately there is no transcript of the hearing on that day. 25 Mr Ng, a solicitor employed by CM(UK)'s solicitors, has made an affidavit deposing to his recollection of the events on that day. The substance of his evidence is that he cannot recall what was said in open court. His recollection is that the hearing was brief and that orders and directions were made as sought in short minutes of order that were handed up. 26 Mr White, counsel for CM(UK) who appeared on that day, has made an affidavit deposing to his recollection. The substance of his evidence is that he can recall short minutes of order being handed up and the court being informed that the making of those orders was "by consent". He could not recall whether anything further was said about the orders that were being sought. His recollection is that the hearing was brief and did not include either counsel speaking at length, although he does recall asking the court to direct the applicants to serve an affidavit specifically identifying the documents in respect of which privilege was claimed. 27 Mr Yamine, a solicitor employed by the former solicitors for the applicants, has made an affidavit deposing to his recollection of the events on that day. He recalled the applicants' counsel, Mr Cooke, making a number of statements in open court. He gave the following evidence in that regard: 8. There were a number of statements made in open court on 19 November 2008 before the Registrar concerning the documents produced by Messrs Barnes and Hawksley in answer to the subpoenas issued at the request of Campaign Master stating the parties' respective positions in respect of access to those documents including words to the following effect: Mr Cooke said: "Mr Barnes and Hawksley were former directors of the respondents. They have produced certain hard-copy documents and telephone recordings contained on compact disks in answer to the subpoenas. First access to these documents was granted to the respondents. The respondents have inspected those documents. The documents include privileged documents, unlawful recordings and non-privileged documents. The privileged documents are communications that contain or record legal advice given while Messrs Barnes and Hawksley were directors of Forty Two. The unlawful recordings were recordings of telephone conversations between one or both of Messrs Barnes and Hawksley while there were directors of Forty Two. We are instructed that the recordings were made without the participants' knowledge or consent. Elias Yamine, a solicitor in the employ of my instructing solicitor, attended the Registry on 18 November 2008 to separate the privileged documents and recordings into 2 separate envelopes. The respondents object to the applicant being given access to the privileged documents and unlawful recordings but do not object to the applicant having access to the remainder of the documents. Various correspondence has been exchanged between the parties to attempt to agree upon appropriate orders for access to these documents. This correspondence is referred to and attached to the letter dated 18 November 2008 sent by the respondents' solicitors to the Registrar which was copied to the applicant's solicitor". Mr White said: "The applicant is not in a position to indicate whether the respondents' claim for privilege will be contested. We will want access to the non-privileged documents. We would ask that the respondents provide an affidavit specifically identifying the privileged documents to enable us to assess whether we will contest the claim for privilege." Registrar said: "I won't make that order". 28 Mr Yamine annexed to his affidavit a copy of a handwritten note he had made while attending court on that day. The note stands as his record of the hearing, or at least some part of it. The note does not record the substance of the words which Mr Yamine has attributed to Mr Cooke, as set out above. It does record the substance of the words attributed to Mr White and thus confirms that those words were spoken. This fact is also confirmed by Mr White's evidence. 29 Mr Yamine was cross-examined on the evidence he gave in this regard, particularly on the absence in his handwritten note of the words he attributed to Mr Cooke. Mr Yamine disagreed with the suggestion that the absence of some record of these words in his note indicated that it was unlikely that all of the dialogue to which he deposed had taken place in court as opposed to, perhaps, on another occasion or another place. Mr Yamine said that he did recall that there were some brief submissions made either before or after the short minutes of order had been handed up. He also said, however, that, because the event was so long ago, he had refreshed his recollection, for the purpose of making his affidavit, by looking at the solicitors' file which contained correspondence between the parties on the question of inspection and the letter addressed to the Registrar (referred to in the dialogue quoted above). He said that he was able to recollect in general terms what was said by Mr Cooke. He said that he did not seek to record what Mr Cooke had said in open court because he had been heavily involved in the matter and that these matters (that is, the events leading up to the hearing) "were in my mind". 30 The correspondence to which Mr Yamine referred is in evidence. That correspondence records the chronology of the access regime in respect of the documents commencing from the orders made on 5 November 2008. It also identifies the existence of categories of documents that were discussed between the parties as being privileged, as being unlawful recordings of telephone conversations, and other documents (in respect of which there was a claim for confidentiality which was, in the course of the correspondence, withdrawn). The letter to the Registrar is illuminating because it records, in one document, the chronology of the access regime from 5 November 2008 to 18 November 2008, the fact that the parties to the proceeding had been unable to resolve the dispute between them as to access, and the fact that the applicants objected to CM(UK) being given access to the allegedly privileged documents and the allegedly unlawful recordings, but not to other documents which fell outside those two categories. The letter also records the fact that the documents were in both electronic and hard copy format. 31 The following exchange took place in the course of Mr Yamine's cross-examination: ‑ ‑ ‑ is it fair to say that before you looked at the file, you didn't have any recollection, or a good recollection, or what would you say before you looked at the file of what happened?‑‑‑Well, no, I had a recollection. It wasn't a great recollection as to specifically all the matters that were raised at the time, but I had a good recollection because there [sic] was a matter that myself and Mr Petrucco were working on at the time. Could it be that what you have given as an account of Mr Cook's submissions to the court was largely coloured by what you have read in the letters, rather than an actual recollection?‑‑‑I would disagree with that. 32 I accept that details of the events leading up to the hearing on 19 November 2008 were in Mr Yamine's mind at the time of that hearing. I accept that, more likely than not, his note is not a complete record of all that was said in court on that day because of the details in his mind and that it is likely that something was said by Mr Cooke of a prefatory nature in relation to the short minutes of order that were handed up. However, I cannot be satisfied on the evidence that Mr Cooke said, in substance or effect, the words attributed to him in Mr Yamine's affidavit. In making this finding I wish to make it clear that I make no criticism of Mr Yamine or the way in which he gave his evidence. I accept that he gave his evidence honestly and to the best of his ability. However, the short hearing on 19 November 2008 - an event which he volunteered was "so long ago" - was a routine appearance and not an event of any particular significance in the life of a practising litigation solicitor. Although he rejected the possibility, it seems to me that, more likely than not, his recollection is not an actual recollection but one affected by his cumulative knowledge of the litigation and by the detail of the correspondence to which he found it necessary to refer before making his affidavit, in particular the letter to the Registrar which effectively brought together the very matters which Mr Yamine attributed as having been said by Mr Cooke. It is certainly possible that the words he attributed to Mr Cooke or similar words, or some part of them, could have been said, but I am not satisfied, on the balance of probabilities, that they were said by Mr Cooke or anyone else in open court on that day. 33 The matter came before the court again on 21 November, 17 December 2008, and 23 February 2009. The course of the hearing on the last-mentioned day has also assumed importance because, once again, the applicants contend that the documents produced in answer to the CM(UK) subpoena were referred to in open court in terms that released them from any obligation they owed to the court not to use the documents or any information derived from them for any purpose other than the 651 proceeding. In this connection the applicants place particular reliance on the affidavits of Mark Petrucco sworn on 26 November 2008 and 20 February 2009 which had been prepared on behalf of the applicants to be used as evidence in the hearing of the motion (in respect of which directions had been given on 19 November 2008) relating to the continuing dispute between the applicants and CM(UK) about access to the documents produced by the respondents in answer to the CM(UK) subpoena. 34 In his affidavit sworn on 26 November 2008, Mr Petrucco referred to the fact that the documents produced in answer to the CM(UK) subpoena addressed to the second respondent "were in the form of hard copies of documents and electronic documents contained on a compact disc". He referred to the fact that the documents produced in answer to the CM(UK) subpoena addressed to the first respondent "were in the form of electronic documents contained on a compact disc". Mr Petrucco also listed the documents in respect of which a claim for privilege was made. The list included a brief description of the document given in a form that was not intended, by that description, to waive the privilege that was claimed. The description revealed the nature or character of the document and its general subject matter, but not the actual contents of the document. Similarly, Mr Petrucco listed the sound recordings in respect of which a claim for privilege was made or in respect of which access was otherwise sought to be restricted. The description identified the recordings by labels appearing on them. In some cases the description on the labels is cryptic; in other cases the description is more in the form of a brief narrative, which may or may not reveal some part of the content of the recording. I express the matter in this way because neither the documents nor the recordings are in evidence. 35 In his affidavit sworn 20 February 2009, Mr Petrucco again referred to the documents produced by each of the respondents in answer to the CM(UK) subpoena. Mr Petrucco referred to documents having been segregated and placed in envelopes marked "Privileged". He referred to "the balance of the documents" (which he designated as "the Non Privileged Documents"). No more explicit description was given of the documents, other than that they were "hard copy documents" or "electronic copies of documents in Microsoft Word or Excel format and sound recordings". 36 Significantly, the transcript of the 651 proceeding on 23 February 2009 shows that neither the affidavit of 26 November 2008 nor the affidavit of 20 February 2009 was read in open court. The transcript records the presiding judge mentioning that he had seen a reference in the affidavit of 20 February 2009 to this proceeding having been commenced. This demonstrates no more than the fact that his Honour had looked at that affidavit for the purpose of preparing for the hearing of the motion that had been listed before him. As things turned out the parties (the applicants and CM(UK)) were able to resolve the dispute about access without his Honour having to hear the motion. In the discussions that took place in open court casual and occasional references were made to the two affidavits, but not in any way that could possibly be said to have disclosed the content of the documents or of the sound recordings to which the affidavits related. I should add that neither the documents nor the recordings were exhibited to Mr Petrucco's affidavits or tendered on that day. 37 On 23 February 2009 orders were made by consent requiring (amongst other things) copies of certain sound recordings to be made available to certain of CM(UK)'s legal advisers and, in turn, refusing inspection by CM(UK) or its legal advisers of certain other documents and sound recordings. 38 In the meantime, correspondence had passed between the applicants' solicitors and each of the respondents. The main items of correspondence that are relevant for present purposes are described in the following paragraphs. 39 On 19 November 2008 the applicants' solicitors wrote separately to each of the respondents advising that they had objected to CM(UK) having access to certain documents that had been produced in answer to the CM(UK) subpoena. Two grounds were advanced: first, that some of the documents represented privileged communications because they contained or referred to legal advice given to the applicants; secondly, certain of the documents were unlawful recordings of telephone conversations. The letters also stated that the applicants' solicitors had been informed by CM(UK)'s counsel that CM(UK)'s solicitors had been in contact with the respondents to discuss the contents of the documents that had been produced. Each letter contained the following: … We request that you immediately refrain from conducting or participating in any communications with [CM(UK)], [CM(UK)'s] legal representatives or any other person in relation to the contents of the documents produced by you in answer to the subpoena dated 22 October 2008. Our clients are entitled to inspect, and when necessary protect, all documents which are property of the [applicants]. The documents produced are in your possession as a former director of [the first applicant]. In the event that you fail to comply with this reasonable request, your actions will have significant consequences on our clients including the loss of legal privilege to which they are entitled to rely upon. Further, we are instructed to remind you that as a former director of our client your duties continue notwithstanding the cessation of your directorship with our client, particularly your duty not to improperly use company information to cause it detriment. Our clients will hold you personally liable for any damage suffered as a result of your conduct. 40 Prior to sending those letters, the applicants' solicitors had attended the New South Wales Registry of the court and conducted a review of the documents. That review was sufficient to enable them to identify and separate the documents in respect of which the applicants sought to make claims of privilege. 41 Each respondent responded in writing. The second respondent's letter included a denial that he had been contacted by CM(UK)'s solicitors. The first respondent's letter included a denial that he had discussed the contents of the documents with CM(UK)'s solicitors. 42 On 25 November 2008 the applicants' solicitors wrote to the second respondent. Their letter included the following: Following our inspection of the documents produced by you in answer to the [CM(UK) subpoena], you appear to have been in possession of our client's company records. We are instructed as follows: 1. Please make immediate arrangements to return any other documents that are in your possession that belong to [the first applicant]. 2. In relation to our client's documents, you are not permitted to disclose to any person besides our client or by order of the Court the documents or the contents of the documents that you produced in answer to the subpoena (and any other company documents that are in your possession) as they confidential [sic] and/or are privileged. 43 On the same day the second respondent replied in writing. His letter included the following: Also, I am happy to comply with your additional request to return documents that you believe to be the property of your client that I am not entitled to possess copies of. Perhaps you'd be kind enough to provide me with a list of documents, or at least the criteria upon which the documents should be tested to ascertain whether they need to be returned. 44 On 12 December 2008 the applicants' solicitors wrote separately to each of the respondents. Each letter included the following: We have now completed a detailed review of the documents produced in answer to the subpoena issued to you by [CM(UK)] and it is clear that the documents contain material that our clients are entitled to claim legal professional privilege and which are confidential to our clients. As a previous director of [the first applicant], you continue to owe obligations of fidelity and confidentiality to [the first applicant]. The documents produced in answer to the subpoena issued to you by [CM(UK)] are patently privileged and confidential. Accordingly, we are instructed to request that by 6:00pm today (Friday 12 December 2008) you: 1. return all copies (electronic or otherwise) of the records of [the first applicant] that are in your possession; and 2. provide to us your written undertaking that you will immediately refrain from disclosing or discussing the documents or the contents thereof to any person. In the event that you fail to comply with this reasonable request, we are instructed to file an application against you at the Federal Court of Australia on Monday 15 December 2008 seeking orders for the delivery up of the records of [the first applicant] that are in your possession and restraining you from disclosing the records or discussing the contents of the records to any person. 45 The second respondent replied in writing on 12 December 2008. His letter included the following: During the course of next week I will send you a disk containing all of the copies of documents relating to [the first applicant] that I have. If you can highlight which documents you have a problem with and explain why I should not be in possession of them I will gladly review your comments with appropriate legal advice. I should point out that none of the documents in my possession are originals, none of them are of commercial value and there is nothing in any agreement between myself and your client forbidding my possession of them. 46 The first respondent replied in writing on 13 December 2008. His letter included the following: Your letter indicates that you have reviewed the documents I supplied to the court in answer to the subpoena issued to me. These are all the documents relating to [the first applicant] that I have in my possession. I do not understand from your letter which of these documents you believe infringe your clients' rights. Whilst not admitting any document breaches your clients' rights it is equally clear that there can be no argument that not all of the documents either breach your clients' legal professional privilege or are confidential. If you can detail by file name which documents you believe infringe your client's rights and explain why I should not be in possession of them I will consider each on its merits. I would also make the point that none of the documents in my possession are originals, none of them are of commercial value and the agreement between myself and your clients does not preclude my possession of them. 47 Thereafter, on 24 December 2008, the present proceeding was commenced by application and statement of claim. 48 In their statement of claim the applicants allege that on or prior to 8 November 2007 the respondents made copies of documents and sound recordings of telephone conversations between the respondents and third parties, including lawyers. The applicants allege that the respondents made these copies from the computer server maintained by the first applicant for the purposes of its business. The applicants allege that these documents and recordings contain information that is confidential to the first applicant. They allege that the copying of the documents and recordings constituted an infringement of the copyright subsisting therein that is owned by the first applicant, a breach of certain duties owed by each of the respondents to the first applicant (namely, a duty pursuant to s 181 of the Corporations Act 2001 (Cth) to exercise their powers and discharge their duties in good faith and in the best interests of the first applicant and for proper purpose; a duty pursuant to s 182 of the Corporations Act not to improperly use their position to gain an advantage for themselves or someone else or to cause detriment to the first applicant; and a duty pursuant to s 183 of the Corporations Act not to improperly use information obtained as a director, officer or employee of the first applicant to gain an advantage for themselves or someone else or to cause detriment to the first applicant) and a breach of a duty under general law to protect the business confidences of the first applicant. The applicants also allege that the making of the copies constituted a breach of an express warranty in the share purchase agreement that neither of the respondents would use or disclose to any third party any trade secret, product information or confidential information of the first applicant not generally known or available in the marketplace or which would not be generally known or available in the marketplace but for a breach of that term. 49 The application and statement of claim were served on the respondents on 6 January 2009. 50 The first directions hearing in this proceeding was held on 16 February 2009. Directions were made for the filing and service of any notice of motion for interlocutory relief to be sought by the applicants and any motion for security for costs to be sought by the respondents, as well as ancillary directions. 51 By letter dated 18 February 2009 the respondents' solicitors proposed a settlement whereby the proceeding would be dismissed upon the giving of certain undertakings to the court which included separate undertakings being given by the respondents relating to the delivery to the applicants' solicitors of certain original and copy documents and sound recordings; the permanent deletion of electronic copies of documents and sound recordings held by the respondents; the giving of notice to the applicants' solicitors of the identity and addresses of persons to whom the documents and sound recordings had been disclosed by the respondents, including details of the disclosure; and, subject to certain exceptions, the non-disclosure of the contents of the documents and sound recordings without the consent of the applicants. 52 This proposal was apparently rejected. By letter dated 25 February 2009 the applicants' solicitors proposed an interim regime in relation to the delivery and non-disclosure of documents and sound recordings by the respondents, to obviate the need for the applicants to pursue their foreshadowed application for interlocutory relief. This proposal was rejected by the respondents' solicitors in a letter dated 27 February 2009. 53 Nothing further happened in relation to the applicants' foreshadowed claim for interlocutory relief. In cross-examination, Mr Petrucco was questioned about why no such application was pursued. He said that this proceeding "went into abeyance" pending the outcome of the 651 proceeding which he said, by that date, had received a listing for final hearing. He also said that, in the 651 proceeding, a regime had by then been agreed with respect to documents produced under the CM(UK) subpoena. I assume this to have been a reference to the orders made on 23 February 2009 in the 651 proceeding. Mr Petrucco accepted that nothing in this explanation involved any restraint on the respondents' use of the documents. 54 It was also put to Mr Petrucco in the course of this part of his cross-examination that this proceeding had been commenced to "put pressure on the respondents" and that the application for interlocutory relief had been foreshadowed to deter them from being witnesses in the 651 proceeding. He denied both suggestions and said that his instructions had been to protect the applicants' confidential documents. I accept this evidence. 55 The next relevant step occurred when the court, on its own motion, re-listed this proceeding for directions on 7 August 2009. On that day orders were made in relation to funds that had been deposited with the court by the applicants as security for costs. Directions were also made for the filing of any defence or reply. 56 On 28 September 2009 the respondents filed a detailed defence that had been settled by counsel. By that defence they put in issue the ownership and subsistence of the copyrights that had been alleged. The respondents also pleaded specific defences or exceptions to copyright infringement, including in relation to the applicants' claim for damages and relief for conversion. The respondents admitted the existence of the duties that had been pleaded but denied any breach of those duties. They also denied any breach by them of the share purchase agreement. 57 On 7 October 2009 the respondents' solicitors wrote to the applicants' solicitors seeking particulars of the statement of claim. No answer has been made to that request for particulars. 58 On 15 October 2009 the applicants' solicitors wrote to the respondents' solicitors informing them that they had received instructions to amend the statement of claim to add further claims, including "the taking of an account in respect of the $16 million paid to your clients pursuant to the exit agreement executed in October 2007". This letter was a presage of the applicants' motion. 59 Further correspondence passed between the solicitors for the parties on the question of amendment and other matters. 60 By letter dated 19 November 2009 (but apparently sent by electronic transmission on 18 November 2009) the respondents' solicitors raised with the applicants' solicitors the apparent use of documents provided under the NAB subpoena and the CM(UK) subpoena, for the purpose of this proceeding. This was the first time that these matters had been raised. 61 In relation to the CM(UK) subpoena, the letter said: In answer to a subpoena filed 22 October 2008 and served on our clients in proceeding NSD 651 of 2008, our clients produced certain documents to the Court ("the Documents"). Your clients' access to the Documents would, we assume, have been subject to the implied undertaking. It is obvious that the Documents have been used in order to form the basis of the allegations in the original statement of claim in the Proceedings. 62 The letter then sought written confirmation that leave of court had been obtained to use the documents in this fashion. This letter was a presage of the respondents' motion. 63 The applicants' solicitors responded in a letter dated 19 November 2009. In relation to the documents produced by the respondents in answer to the CM(UK) subpoena, the letter stated: Our clients have not made use of the content of the documents produced by your clients in this proceeding but merely the fact that your clients retained those documents once they ceased to be officers of the second applicant. Our clients' conduct does not contravene any implied undertaking concerning the production of documents in answer to the subpoena served on your clients by [CM(UK)] in proceedings NSD 651 of 2008. Moreover, your clients have been aware of this for over a year. 64 It is convenient to deal firstly with the respondents' motion and then with the applicants' motion.

the respondents' motion 65 As I have indicated, the respondents' motion falls into two parts. The first part deals with the claim that the proceeding be stayed or dismissed as an abuse of process in that it is predicated on the use of documents produced in answer to the CM(UK) subpoena without leave of the court in the 651 proceeding. It also alleges that the proceeding was commenced for an improper purpose. The second part deals essentially with matters concerning the pleading of the applicants' claims in the statement of claim in its present form.

Abuse of process 66 It is not in dispute that a document produced pursuant to the compulsory processes of the court is entitled to special protection, such that it may not be used for any purposes other than those related to the litigation in the course and for the purposes of which the document is produced. This obligation is qualified to the extent that it must yield to inconsistent statutory provisions and to the requirements of curial processes in other litigation: Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 at 32-33. 67 This principle is one of general application. Examples of the application of the principle include: where the document is produced on discovery (Riddick v Thames Board Mills Ltd [1977] QB 881; Distillers Co (Biochemicals) Ltd v Times Newspapers Ltd [1975] QB 613; Harman v Secretary of State for the Home Department [1983] 1 AC 280; Crest Homes Plc v Marks [1987] 1 AC 829; Kimberley Mineral Holdings Ltd (In Liq) v McEwan [1980] 1 NSWLR 210; Arnold Mann v Medical Defence Union Ltd [1997] FCA 45; K & S Corporation Ltd v Number 1 Betting Shop Ltd (2005) 240 LSJS 398; [2005] SASC 228; Hamersley Iron Pty Ltd v Lovell (1998) 19 WAR 316) including where the document is made available in an arbitration as on discovery (Esso); where the document is produced on subpoena (Registrar of the Supreme Court, Equity Division v McPherson [1980] 1 NSWLR 688; Welfare v Birdon Sands Pty Ltd (1997) 79 FCR 220); where answers are provided to interrogatories (Ainsworth v Hanrahan (1991) 25 NSWLR 155); and in respect of witness statements (Central Queensland Cement Pty Ltd v Hardy [1989] 2 Qd R 509; Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217; Complete Technology Pty Ltd v Toshiba (Australia) Pty Ltd (1994) 53 FCR 125 at 132-133). 68 The principle has been expressed in terms of an implied "undertaking" given to the court. However, as explained in Hearne v Street (2008) 235 CLR 125 in [105]-[108], this characterisation of the obligation is a conceptual artefact having its origins in the historical requirement that the use of documents generated by litigious processes depended on the giving of an express undertaking: Richardson v Hastings (1844) 7 Beav 354; Hopkinson v Lord Burghley (1867) LR 2 Ch App 447. Since at least the decision in Alterskye v Scott [1948] 1 All ER 469, the principle has also been described in terms of an implied "obligation". The plurality in Hearne characterised the principle as an obligation of substantive law, quoting with approval (in [108]) the observations of Hobhouse J in Prudential Assurance Co Ltd v Fountain Page Ltd [1991] 1 WLR 756 at 764: The expression of the obligation as an implied undertaking given to the court derives from the historical origin of the principle. It is now in reality a legal obligation which arises by operation of law by virtue of the circumstances under which the relevant person obtained the documents or information. 69 As the above quote makes clear, the obligation is to be understood as applying to documents and information. In Crest at 854, Lord Oliver said: It has recently been held by Scott J. in Sybron Corporation v. Barclays Bank Plc. [1985] Ch. 299 - and this must, in my judgment, clearly be right - that the implied undertaking applies not merely to the documents discovered themselves but also to information derived from those documents whether it be embodied in a copy or stored in the mind. But the implied undertaking is one which is given to the court ordering discovery and it is clear and is not disputed by the appellants that it can, in appropriate circumstances, be released or modified by the court. 70 What lies at the root of the principle involved is the fact that information has been disclosed compulsorily by use of the court's process. This is, after all, the rationale for the imposition of the obligation with respect to answers to interrogatories and witness statements: Central Queensland Cement at 510-511; Ainsworth at 165. Ainsworth was a proceeding for contempt arising from the use of answers to interrogatories administered in one proceeding in another proceeding for the purpose of cross-examining a witness who had verified the answers to the interrogatories. Handley JA at 169-170 said: Prior to the Common Law Procedure Act 1854 (Eng) a party to proceedings at law could only obtain general discovery by filing a bill for discovery in the auxiliary jurisdiction of the Court of Chancery. This was a proceeding "for the discovery of facts resting in the knowledge of the defendant, or of deeds, or writings, or other things in his custody, possession, or power, but seeking no relief in consequence of the discovery": see Story on Equity Jurisprudence, 2nd ed (1839) vol 2 at 1. Accordingly there is no basis either in history or in principle for distinguishing, for the purposes of the law of contempt, between disclosure to third parties of answers to interrogatories and the disclosure of documents obtained on discovery. 71 In my view, in the case of documents produced in answer to a subpoena, the protection of the obligation extends beyond the documents themselves to information derived from the fact of production, including the fact that the documents are or were in the possession of the person who produced them and the fact that, at least prima facie, the documents are of a description that answers the call of the subpoena. 72 The obligation restricts not only the disclosure of the documents or information, but also more general instances of use of the documents or information outside the purposes of the proceeding in and for which the documents or information were disclosed. In Springfield application was made to use in one proceeding a witness statement prepared but not used in another proceeding. Wilcox J at 220 observed: … Counsel for Hongkong Bank mentioned the possibility of calling Mr Preston, using the statement as his evidence in chief. Whether that course will eventually commend itself, I do not know. But, even if Mr Preston is not called by either party, it is possible that the statement will prove useful in opening up avenues of inquiry. Without wishing to predict the most likely form of use, I think it probable that the statement will assist Hongkong Bank in relation to the Aetna claim. No doubt that is why Aetna opposes the order now sought. 73 Plainly the obligation to the court can be released or modified by leave granted by that court. The scope of the leave may be general or limited, and leave may be granted on terms. 74 In Crest, Lord Oliver at 860 stated that a court will not release or modify this obligation except in special circumstances. In Liberty Funding Pty Ltd v Phoenix Capital Ltd (2005) 218 ALR 283; [2005] FCAFC 3, a Full Court of this court, following the approach in Springfield, which approved Holpitt Pty Ltd v Varimu Pty Ltd (1991) 29 FCR 576 and Sweetman v Australian Thoroughbred Finance Pty Ltd (unreported, Lockhart J, 23 July 1992), said in [31]: … It is unnecessary to examine the authorities in this area in any detail. The parties were not in disagreement as to the legal principles. The notion of "special circumstances" does not require that some extraordinary factors must bear on the question before the discretion will be exercised. It is sufficient to say that, in all the circumstances, good reason must be shown why, contrary to the usual position, documents produced or information obtained in one piece of litigation should be used for the advantage of a party in another piece of litigation or for other non-litigious purposes. The discretion is a broad one and all the circumstances of the case must be examined. … 75 In Springfield at 225, Wilcox J said: … For "special circumstances" to exist it is enough that there is a special feature of the case which affords a reason for modifying or releasing the undertaking and is not usually present. The matter then becomes one of the proper exercise of the court's discretion, many factors being relevant. It is neither possible nor desirable to propound an exhaustive list of those factors. But plainly they include the nature of the document, the circumstances under which it came into existence, the attitude of the author of the document and any prejudice the author may sustain, whether the document pre-existed litigation or was created for that purpose and therefore expected to enter the public domain, the nature of the information in the document (in particular whether it contains personal data or commercially sensitive information), the circumstances in which the document came into the hands of the applicant for leave and, perhaps most important of all, the likely contribution of the document to achieving justice in the second proceeding. 76 In the present case the applicants did not seek the leave of the court to use in this proceeding the documents or information derived from the documents produced in answer to the CM(UK) subpoena. They submit that it was not necessary for them to seek that leave because: (a) The information obtained by them from the documents produced in answer to the CM(UK) subpoena was their "property", and therefore their use of it was never restricted in law; (b) The documents produced in answer to the CM(UK) subpoena were not in any event "used" in a manner which offends the relevant principle or restriction. It was the fact that those documents were retained by the respondents after they ceased their employment with the applicants that was used; and (c) The implied obligation in relation to the documents produced in answer to the CM(UK) subpoena ceased as a result of the documents being referred to in open court in a manner which disclosed their nature and content pursuant to O 15 r 18. 77 I reject the submissions in paragraphs (a) and (b). 78 It is plain from the correspondence between the applicants' solicitors and the respondents in the period 19 November 2008 to 12 December 2008 that the applicants' solicitors had given consideration to the documents that had been produced by the respondents in answer to the CM(UK) subpoena. As the cross-examinations of Mr Petrucco and Mr Yamine made clear, that consideration included inspecting the documents and listening to parts of the recordings to an extent that enabled a view to be formed about which documents contained confidential material and which documents contained privileged communications, and about whether the recordings included unlawfully made recordings. That consideration, coupled with the information that the documents had been produced in answer to the CMUK subpoena by the respondents, must have revealed the very information that enabled the applicants, through their legal advisers, to make the claims and demands in their correspondence with each of the respondents and, eventually, to plead the statement of claim. The information included the fact that each of the respondents had possessed documents in the terms described in the CM(UK) subpoena; that those documents were retained by each of the respondents after they ceased holding office with the first respondent; that, on or prior to 8 November 2007, each of the respondents made copies of documents and sound recordings of telephone conversations between the respondents and third parties, including lawyers; that these copies had been made from a computer server maintained by the first applicant for the purpose of its business; that the documents and sound recordings contained information that was confidential to the first applicant; and that the documents and sound recordings were copyright works or other subject matter, in which the first applicant owned the copyright. It was this body of information, and perhaps other information derived from the documents that had been produced, that was deployed by the applicants' solicitors to direct their correspondence to the respondents and ultimately to file the application and statement of claim commencing the present proceeding against the respondents, who were strangers to the 651 proceeding. This was clearly a use of the documents and of information that had been derived from their production by the respondents under the compulsion of court process (the CM(UK) subpoena) in the 651 proceeding. The dichotomy raised by the applicants in paragraph (b) is a false one and does not provide a reason why leave was not necessary. 79 In oral argument it was submitted that, independently of the fact that inspection had taken place of the documents produced in answer to the CM(UK) subpoena, the applicants' solicitors had other information the use of which was not subject to any obligation to the court. In this connection the applicants sought to rely on the correspondence to which I have referred that emanated from the respondents themselves in response to the correspondence from the applicants' solicitors. It is clear on the evidence, however, that the claims which the applicants' solicitors commenced to articulate against the respondents from at least 25 November 2008, which subsequently translated into the allegations pleaded in the statement of claim, were based substantially on their inspection of the documents that had been produced and the fact that the respondents had produced them. Moreover, the terms of the CM(UK) subpoena and the fact that documents had been produced by the respondents in answer to that subpoena, was not information that was based on anything the respondents had said in correspondence. 80 Furthermore, the contention that the information was the "property" of the applicants (a proposition that the applicants did not seek to sustain, in any event, on the hearing of the motions by evidence or elaboration of legal principle), seems to me to miss the point. What lies at the heart of the applicants' claims as pleaded in the statement of claim is not what the content of the documents reveals about the respondents but the fact that the respondents were or had been in possession of documents having that content (based on the applicants' solicitors inspection of those documents). It has not been shown by any evidence that, if the CM(UK) subpoena had never been issued, the information which the applicants allege was their "property" would ground the claims now pleaded against the respondents in the statement of claim. 81 Unless the applicants can point to a circumstance by which they have been released from the obligation imposed upon them relating to the production of documents in answer to the CM(UK) subpoena, their use of the documents and information, as described, will have been in breach of their obligation to the court not to use the documents or information for any purpose other than the 651 proceeding. 82 The submission in paragraph (c) requires consideration of the terms of O 15 r 18. The rule provides: Any order or undertaking, whether express or implied, not to use a document for any purpose other than those of the proceedings in which it is disclosed shall cease to apply to such a document after it has been read to or by the Court or referred to, in open Court, in such terms as to disclose its contents unless the Court otherwise orders on the application of a party, or of a person to whom the document belongs. 83 This rule finds its context in that part of the Federal Court Rules dealing with documents produced as part of the process of discovery between parties to a proceeding. Here the documents were produced not by way of discovery between parties but by subpoena issued to strangers to the proceeding in which the subpoena was issued. 84 Although the context may suggest that O 15 r 18 should be confined to documents produced on discovery, the rule has been construed as applying to all documents and information in respect of which the implied obligation arises, the rationale being that O 15 r 18 was inserted to abrogate the Harman principle which is not limited to documents produced on discovery: Chapmans Ltd v Australian Stock Exchange Ltd (unreported, Tamberlin J, 25 August 1995); Australian Rugby Union Ltd v Hospitality Group Pty Ltd [1999] FCA 1136; King v AG Australia Holdings Ltd (2002) 121 FCR 480. Instructed by the approach adopted in these decisions, I will proceed on the basis that the applicants can call in aid O 15 r 18 in the circumstances of the present case. 85 It is to be observed that, under O 15 r 18, the obligation only ceases when a document is read or referred to, in open court, in such terms as to disclose its contents. This stands in contrast to rule 31.22(1) of the Civil Procedure Rules 1998 (United Kingdom), which provides: (1) A party to whom a document has been disclosed may use the document only for the purpose of the proceedings in which it is disclosed, except where - (a) the document has been read to or by the court, or referred to, at a hearing which has been held in public; (b) the court gives permission; or (c) the party who disclosed the document and the person to whom the document belongs agree. 86 In respect of the obligation owed to this court, the disclosure must be of the contents of the document. In my view, a mere reference to the nature of the document or its general subject matter will not suffice for this purpose. What is required, as a minimum, is a disclosure of the substance of what is stated in the document. Unless this is done it cannot be said in any real sense that the contents of the document have been disclosed. Support for this view is to be found in King in [78] and Fina Research SA v Halliburton Energy Services Inc [2002] FCA 1281 in [18]-[21]. 87 The applicants contended that O 15 r 18 has an ambulatory operation, such that a partial disclosure will result in a cessation of the obligation to the extent of the disclosure. In my view that it not what O 15 r 18 says. Order 15 r 18 speaks in terms of an obligation with respect to a document and the cessation of that obligation with respect to that document, not the cessation of the obligation with respect to some part of it. The obligation with respect to the document as a whole ceases once its contents have been disclosed in one of the ways identified in the rule. In my view, absent such a disclosure, O 15 r 18 does not assist a person who seeks to use a document for any purpose outside the proper purposes of the proceeding. 88 The disclosures relied on by the applicants do not satisfy the requirements of O 15 r 18. 89 First, as to the hearing on 19 November 2008, I am not satisfied that any relevant disclosure was made. 90 Secondly, as to the hearing on 23 February 2009, neither of Mr Petrucco's affidavits was read as contemplated by the rule. Thus it is irrelevant what those affidavits said about the documents and sound recordings. In any event, as I have already noted, the most that can be put in that regard is that the descriptions in the affidavit of 26 November 2008 of the documents and sound recordings revealed their nature and character and, in some cases, general subject matter, but not their actual contents. 91 Furthermore, the casual and occasional references to the affidavits in the course of proceedings in open court on 23 February 2009 did not disclose the contents of the documents or the sound recordings to which the affidavits related. In any event, I am satisfied, for the reasons given in [78] above, that much more information than was mentioned in open court on that day was derived by the applicants' solicitors from the production of documents in answer to the CM(UK) subpoena and used by them to make the claims and demands in their correspondence with each of the respondents and, eventually, to plead the statement of claim in this proceeding. 92 I should add this as well: the instances of disclosure relied upon by the applicants relate to only some of the documents that were produced under the CM(UK) subpoena. Thus, even if, contrary to my view, there was a sufficient disclosure of the contents of some documents or recordings, it is plain that the applicants can point to no disclosure in relation to all of that which was produced in answer to the CM(UK) subpoena. It is clear on the evidence that the formulation of the claims in the applicants' solicitors' correspondence and the causes of action in the statement of claim were based upon a consideration of the totality of the material produced in answer to the subpoena. Thus reliance on O 15 r 18 in the particular circumstances of this case would not provide a complete answer to the respondents' contention that the documents they produced, and the information derived from that production, have been used in breach of the applicants' obligation owed to the court. 93 Finally, and perhaps most importantly of all, any disclosure made on 23 February 2009 occurred after the impugned use and cannot be an answer to the fact that the breach of the obligation was complete no later than the filing of the application and statement of claim on 24 December 2008. 94 The consequences of such a breach may include the exercise of a discretion by the court to strike out the proceeding or permanently stay it as an abuse of process: Riddick; K & S Corporation Ltd in [50]; Grocon Ltd v Alucraft Pty Ltd (in liq) (1992) 10 ACLC 1127 at 1128-1129. In my view the court also has the power to grant leave retrospectively: Miller v Scorey [1996] 1 WLR 1122 at 1133-1134; Eckert v National Australia Bank Ltd (unreported, Supreme Court of South Australia, Doyle CJ, 17 April 1997). The question is whether, as a matter of discretion, such leave should be granted. As Rimer J in Miller observed (at 1133): … It is one thing to release a party from an undertaking to the court so as to permit him to do in the future that which he has been prevented from doing in the past. It is another thing for the court to find, as I have, that a party has abused the process of the court by his breaches of an undertaking to it and for it then to give that party a retrospective release from the undertaking so as to wipe away the abuse of the process which he has committed. 95 In my view it is a matter of significant concern that a breach of the obligation has taken place. It is not to be excused lightly. However, the matter must be viewed in a wider context. 96 Had the applicants sought the requisite leave at the time of production in October and November 2008 then, in my view, it is likely that such leave would have been granted. By their description in the CM(UK) subpoena, the documents were all documents relating, in one way or another, to the business and affairs of the applicants, which presumably came into the respondents' hands while they were still directors of the first applicant. In the correspondence that passed between the applicants' solicitors and each of the respondents in November and December 2008, neither of the respondents suggested otherwise. Indeed, each of the respondents, at that time, was at pains to stress that none of the documents were of commercial value. Their view was that they were entitled to possess the documents they had. No contrary view was advanced on the hearing of the motions. 97 Furthermore, there is obviously a contest between the parties about whether the conduct alleged in the statement of claim amounts to the infringements and breaches that have been pleaded. But the respondents raise no issue of prejudice concerning the use of the documents and information in this proceeding. They rely purely on the fact that the applicants have acted in breach of their obligations to the court. As there is no issue of prejudice now, it is difficult to see how there could have been an issue of prejudice to the respondents in November 2008. 98 As Wilcox J observed in Springfield at 225, perhaps the most important consideration of all in considering whether leave should be granted is the likely contribution of the documents in achieving justice. Had an appropriate application been made in November 2008 I believe that it is most likely that the interests of justice would have lain in permitting the applicants the opportunity of vindicating the rights they assert in their present pleading. 99 Looking at the matter now, I also take into account the fact that, in light of the correspondence that had passed between the applicants' solicitors and the respondents in November and December 2008, it must have been apparent, or should have been apparent, to the respondents' legal advisers shortly after the application and statement of claim had been served on the respondents in January 2009, that the applicants had used the documents and information in the way about which the respondents now complain. Their first query in that regard was raised in correspondence with the applicants' solicitors by the letter dated 19 November 2009, the better part of a year after the pleadings had been served and almost two months after the respondents had filed their defence. As the respondents' solicitors made clear in that letter, it was obvious to them that the documents had been used in the formulation of the statement of claim. If that was obvious then, it must have been or should have been equally obvious in January 2009. In this connection it is no answer for the respondents to say, as they now do, that they had no way of knowing whether the documents had been used in the impugned way by the applicants until the applicants' solicitors replied to the letter of 19 November 2009. The fact is that the respondents did not seek to raise the matter in early 2009 but in late 2009. The occasion seems to have been prompted by the applicants informing the respondents that they had been instructed to amend the statement of claim to include an account in respect of the payment to the respondents of $16 million pursuant to the exit agreement. 100 In the particular circumstances of this case it seems to me that the interests of justice now lie in granting leave nunc pro tunc to use the documents produced in answer to the CM(UK) subpoena, and the information derived from those documents and their production, in and for the purpose of this proceeding. It is appropriate that the order granting that leave be made in the 651 proceeding. 101 In coming to this decision I have given consideration to the respondents' contention that this proceeding was commenced solely or substantially for the collateral and improper purpose of intimidating or harassing the respondents and assisting the applicants, as respondents in the 651 proceeding, in the prosecution of their defence in that proceeding. 102 In that connection the respondents have pointed to a number of matters from which they say I should infer that this was the purpose to be attributed to the applicants in commencing the proceeding. They submit that the Chief Executive Officer of the first applicant, Sean Newell, had suspicions that the respondents had funded the payment of the licence fee from at least August 2008. They submit that, as at 19 November 2008, the applicants were concerned that the respondents would speak to the solicitors acting for CM(UK) in the 651 proceeding and may give evidence on behalf of CM(UK). They submit that the demands placed upon the respondents by the applicants' solicitors in the correspondence to which I have referred were unreasonable, and that this proceeding was commenced precipitously without issuing a letter of demand, in circumstances in which reasonable undertakings were proffered and no urgency was evident. They submit that, once the proceeding was commenced, it was not prosecuted with diligence and that the applicants abandoned their claim to an interlocutory hearing for the return of the documents. 103 In my view the respondents' contention is not made out on the evidence, and I reject it. There is no reason to doubt, on the material before me, that the claims, advanced through the correspondence between the applicants' solicitors and the respondents in November and December 2008, were genuinely raised by the applicants to protect what they saw to be a misuse or threatened misuse of the documents in question, including allegedly privileged or otherwise confidential communications and allegedly unlawful recordings of communications. I do not accept that, objectively considered, the demands in the applicants' solicitors' letters could be said to have been unreasonable or that the proceeding was commenced precipitously. Whether the applicants' claims in this regard are valid is a matter to be determined at trial. While it is true that the proceeding has not been prosecuted with diligence, and that the applicants did not proceed with their foreshadowed application for interlocutory relief, these matter seems to me to be neutral considerations. There is some evidence (see Campaign Master (UK) Limited v Forty Two International Pty Ltd (No 4) [2010] FCA 398 at [56]-[60]) that Mr Newell, and perhaps others within the applicants, had the suspicions to which the respondents refer. However, I would not draw from this evidence, considered alone or in combination with the other matters on which the respondents rely, the inference that the proceeding was commenced solely or substantially for the collateral and improper purpose which the respondents assert.

Pleading 104 I turn now to consider the relief sought by the respondents pursuant to O 11 r 16. 105 The respondents contend that the statement of claim should be struck out because it discloses no reasonable cause of action, has a tendency to cause prejudice, embarrassment or delay, and is otherwise an abuse of the process of the court. The fact that that contention is raised now, some considerable period of time after service of the statement of claim and in circumstances where the respondents have seen fit to answer the statement of claim with a detailed defence, without first moving to strike out the statement of claim for the reasons they now advance, is telling, and would normally raise a significant obstacle to their motion succeeding in this regard. 106 The respondents submit that the applicants' claims with respect to copyright infringement are unsustainable. They say that they were officers of the applicant who had access to the applicants' records at relevant times, with authority to copy those records for the purpose of discharging their duties. They submit that it is not alleged that the respondents copied documents or records without either the express or implied authority of the applicants to do so. 107 It is not in doubt that an essential element to be proved by a party asserting copyright infringement is that the relevant act was done without the licence of the owner of the copyright. This has not been explicitly alleged in the statement of claim, although it might be argued that the allegation is implicit in paragraph 14(a) of the statement of claim where the applicants plead that the respondents have infringed the first applicant's copyright in the documents and recordings: see s 36(1) of the Copyright Act 1968 (Cth) which, relevantly, identifies the acts and circumstances necessary for infringement of copyright in a work, including the absence of a licence. In their defence the respondents deny infringement and plead specific defences based on ss 43(1) and (2) and 104 of the Copyright Act. They also plead specific defences in relation to the remedies available for copyright infringement, relying on ss 115(3) and 116(2)(a) and (b) of the Copyright Act. I have no doubt that the drawing of the defence has proceeded in the clear knowledge that the applicants' case was that the alleged copying was done without the applicants' licence and, in particular, without the first applicant's licence as the alleged copyright owner. 108 The question of whether or not the respondents had the authority which they assert to copy documents or recordings will turn on the evidence adduced at trial in relation to the circumstances in which the documents and recordings came to be copied and possessed by the respondents. It may well be that, at that time, the evidence will justify a finding that the respondents had the implied authority to copy the documents or recordings in question for the proper discharge of their duties as directors and that the documents and recordings in their possession or control at the time that the CMUK subpoena was served on them had been copied for that purpose. On the other hand, the evidence might be that the documents and recordings were copied in other circumstances or for different purposes, in which case it may be that authority to copy will not be implied. These are all issues for trial. 109 I would add that, if the position was that the respondents had express authority to copy the documents and recordings, then no doubt that express authority, as a matter known to them, could have been pleaded by way of defence. Express authority is not one of the defences pleaded by the respondents. 110 I am not persuaded that, as presently pleaded, the applicants' claim is unsustainable, as the respondents contend. I accept that it would have been better practice for the applicants to have explicitly pleaded the absence of a licence, but I do not think that, as a matter of discretion, it would be appropriate in all the circumstances to order now that this part of the statement of claim be struck out. To do so would be to succumb to an arid pleading point in circumstances where the substance of the allegation is plain and no embarrassment or prejudice will be caused by allowing this part of the pleading to remain in its present form. 111 The respondents then submit that the pleading of the breaches of duties in paragraphs 14(b) and (c) of the statement of claim is hopeless, as these claims are absent any allegation that the respondents disclosed or made any improper use of the documents or recordings that were allegedly copied. 112 Paragraph 12 of the statement of claim pleads the existence of the respective duties on which the applicants rely. In paragraph 12 of their defence the respondents admit the existence of these duties, at least in the period 17 January 2001 to 8 November 2007. In paragraphs 14(b) and (c) of the statement of claim the applicants then plead that, by making copies of the documents or recordings from the computer server maintained by the first applicant for the purpose of its business, the respondents breached these duties. These allegations are met with a bare denial in the respondents' defence: see paragraphs 14(b) and (c) thereof. 113 In my view there is substance in the respondents' complaint concerning the pleading of these claims. The statement of claim does not identify how the mere fact of copying documents and recordings results in a breach of the respondents' duty to exercise their powers and discharge their duties in good faith in the best interests of the first applicant and for a proper purpose; or of the duty not to improperly use their position to gain an advantage for themselves or someone else, or to cause detriment to the first respondent; or of the duty not to improperly use information obtained as a director, officer or employee of the first applicant to gain an advantage for themselves or someone else, or to cause detriment to the first applicant; or of the duty under the general law to protect the business confidences of the first applicant. 114 In my view it is necessary for the respondents to plead a causal connection between the alleged copying and the alleged resultant breaches of the respective duties. It is certainly not self-evident that the fact of copying as alleged results in such breaches. Given that the statement of claim is missing material allegations of fact to enliven the breaches of duty that are alleged, paragraphs 14(b) and (c) disclose no reasonable causes of action. The fact that the respondents have pleaded to these parts of the statement of claim does not mean that the relevant paragraphs should not be struck out, particularly given that a bare denial of breach is pleaded in each case. 115 Therefore, paragraphs 14(b) and (c) of the statement of claim should be struck out. I would, however, grant leave to the applicants to re-plead their claims in this regard to rectify the pleading deficiencies to which I have referred. 116 Next the respondents contend that the breach of contract claim pleaded in paragraph 15 of the statement of claim is hopeless because there is no allegation that the respondents disclosed or made any improper use of the documents or sound recordings allegedly copied by them. In light of the express term alleged to have been breached (pleaded in paragraph 6 of the statement of claim), I agree. Once again it is necessary, in my view, that the applicants plead a causal connection between the alleged copying and the resultant alleged breach of the express term. It follows, in my view, that paragraph 15 of the statement of claim should be struck out. Once again, I would grant leave to the applicants to re-plead their claim in this regard to remedy the pleading deficiency. 117 Finally the respondents contend that there is no sensibly articulated claim in respect of damage or loss. Paragraph 16 of the statement of claim certainly alleges the suffering of loss or damage as a consequence of the matters that have been pleaded. In my view, particulars should be provided, although the nature of those particulars may well vary depending on how the claims are pleaded or re-pleaded as the case may be. I will not strike out paragraph 16 of the statement of claim at the present time. It will, however, be necessary for the applicants to address the question of particulars at some stage, depending on the final form of any amended statement of claim.

THE applicants' motion 118 As I have noted, the applicants' motion seeks leave to join an additional applicant and to amend the application and statement of claim to add new and additional claims, based on the documents produced in answer to the NAB subpoena. 119 The general nature of the amendments that are sought to be made can be gleaned from the following summary of the allegations that appear in the draft statement of claim annexed to the applicants' motion: (a) The purchase price under the share purchase agreement was to be calculated by reference to certain defined sums, comprising an "initial payment", an "additional payment" and an "earn out price". (b) The "additional payment" was to be made in the event that the first applicant met certain financial targets and was based on a particular formula which related to the defined terms "Forty Two EBIT 07" and "Forty Two Forecast EBIT 07". The payment was to be in the form of fully-paid ordinary shares in the capital of the second applicant. (c) The share purchase agreement also provided for the payment by the respondents of a "clawback amount" in the event that the first applicant failed to meet certain financial targets. (d) It was an implied term and condition of the share purchase agreement that the respondents would disclose all information known to them which might become relevant to the calculation of the "Forty Two EBIT 07". (e) On 24 October 2006 the applicants, including the proposed third applicant, and respondents entered into a management deed. It was an implied term and condition of the management deed that the respondents would not in the course of operating the business of the applicants undertake any transactions that would disadvantage the second applicant. It was also an implied term and condition of the management deed that the respondents would disclose any matter of which they had knowledge relevant to the exercise of voting rights pursuant to the management deed. (f) On completion of the share purchase agreement an amount of $4.6 million was paid to the respondents by the second applicant as the "initial payment". The respondents remained directors of the first applicant and the proposed third applicant. (g) In February 2007 the respondents, purportedly on behalf of the first applicant, entered into negotiations with a view to granting the licence to CM(UK). The licence agreement was subsequently entered into. Under the licence agreement CM(UK) was to pay a licence fee of £1.7 million on or before 30 June 2007. This licence fee was received by the first applicant on 27 June 2007 in Australian dollars. (h) In or about October 2007 an exit agreement was entered into between, among other persons, the respondents and the applicants. The exit agreement brought about a change in the contractual arrangements between the parties that had hitherto existed. The parties to the exit agreement agreed that the "additional payment" was to be $16,463,538 and was to be paid by way of electronic transfer, bank cheque or cash, rather than by the issue of shares as had originally been provided for. This sum was to be paid by the second applicant on or before 1 November 2007. It was agreed that, on payment of this "additional amount", the management deed would terminate. The exit agreement also provided that, if the "additional payment" was made on 1 November 2007, the respondents would immediately resign as directors of the first applicant. (i) It was an implied term and condition of the exit agreement that the respondents had disclosed to the second applicant all information relevant to the calculation of the "Forty Two EBIT 07". (j) On or around 1 November 2007, the second applicant paid a total of $16,436,488 pursuant to the exit agreement. (k) As a consequence of the first applicant receiving the licence fee, the "additional payment" was made by the second applicant pursuant to the exit agreement. The provisions of the share purchase agreement with respect to the payment by the respondents of a "clawback amount" did not come into operation. (l) Had the first applicant not received the licence fee then there would have been no additional payment of $16,436,488 and a sum of $6,052,384 would have been repayable to the second applicant from the "initial payment" as a "clawback amount". (m) The respondents owed the following duties (in addition to those already pleaded in paragraph 12 of the statement of claim): a duty to give notice to the other directors of the first applicant of any material personal interest that the respondents had in a matter that was related to the affairs of the first applicant; a duty under the general law to act in good faith in the best interests of the first applicant and for a proper purpose; a duty under the general law to not place their personal interests in actual or potential conflict with the interests of the first applicant; a duty under the general law to disclose to the other directors of the first applicant any material personal interests the respondents had in a matter that related to the affairs of the first applicant. (n) Without the knowledge or consent of the applicants CM(UK) did not, in fact, pay the licence fee to the first applicant. (o) Without the knowledge or consent of the applicants, the respondents procured a transaction to occur in which another company, CM(UK) (Aust) Pty Limited, (CMUK(A)), paid the licence fee using a bill facility which was secured by a guarantee and indemnity as well as a term deposit provided by the respondents. (p) By engaging in that conduct, the respondents breached the duties they owed to the first applicant. (q) But for that conduct, the second applicant would not have entered into the exit agreement, made the "additional payment" or refrained from asserting the right to payment of a "clawback amount". (r) The respondents represented to the applicants that CM(UK) would pay and subsequently had paid the licence fee. (s) By making this representation the respondents engaged in conduct that was misleading or deceptive in contravention of s 42 of the Fair Trading Act 1987 (NSW) because CM(UK) did not pay the licence fee and this was known by the respondents because they effectively paid that fee in light of the transactions they procured. (t) But for that conduct, the second applicant would not have entered into the exit agreement, made the "additional payment" or refrained from asserting the right to payment of a "clawback amount". (u) By failing to disclose their involvement in the transaction referred to in (o), the respondents did not disclose all information known to them which might become relevant to the calculation of the "Forty Two EBIT 07". This was a breach of an implied term and condition of the share purchase agreement. (v) The respondents negotiated the licence agreement upon the footing that the licence fee would be funded through the transactions referred to in (o). This was a transaction undertaken by the respondents to the disadvantage of the second applicant. This was a breach of an implied term and condition of the management deed. (w) Because the respondents failed to disclose the transactions referred to in (o), they did not disclose all matters of which they had knowledge that were relevant to the exercise of voting rights pursuant to the management deed. This was a breach of an implied term and condition of the management deed. (x) Because they failed to disclose the transactions referred to in (o), the respondents did not disclose to the second applicant all information relevant to the calculation of the "Forty Two EBIT 07". This was a breach of an implied term and condition of the exit agreement. 120 The respondents oppose the amendments that are sought by the applicants on a number of grounds. All but one of these grounds fall away in light of my earlier conclusions recorded in these reason and in light of my reasons given in Campaign Master (UK) Limited v Forty Two International Pty Ltd (No 4) [2010] FCA 398. The remaining ground is that, as formulated, the proposed amendments do not disclose a reasonable cause of action and are embarrassing. There are a number of strands to the objection. 121 At the forefront of the respondents' objection in this regard is the submission that the proposed amendments do not plead, but should plead, an explicit allegation of reliance on a misrepresentation or non-disclosure. The respondents submit that such reliance is an essential element of causation between the pleaded conduct and the alleged loss arising from the alleged breaches of duty, alleged breaches of contract and alleged contravention of the Fair Trading Act. The respondents submit that what ought to be alleged is that their conduct in funding the payment of the licence fee was in some way material to, or was relied upon by, the applicants. They submit that, in their present form, the proposed amendments plead "just the barest of a sine qua non argument of causation" that is tantamount to saying: "If you had not funded the licence agreement, the licence agreement would not have happened. Therefore you would not have had the earn out". 122 In answer, the respondents submit that this misunderstands the case that they seek to plead by the proposed amendments. As I understand their submission, they seek to plead that, because of their lack of knowledge of the respondents' involvement in the funding of the licence fee - being conduct that the respondents should not have been involved in and which should have been disclosed by them - the applicants entered into an agreement (the exit agreement) on terms that they would not have agreed to had they known the true position. As a consequence, and to the applicants' detriment, the "additional payment" provided for in the exit agreement was made and the second applicant refrained from asserting a right to a "clawback amount" under the share purchase agreement. In other words, the applicants' proposed claim is not that the first applicant would not have entered into the licence agreement with CM(UK), but that they would not have entered into the exit agreement with the respondents, with the consequences that thereby ensued. 123 The case as propounded by the applicants in submissions is not the case that is pleaded in the proposed amendments. Proposed paragraph 12B sets out the transactions which the applicants allege the respondents procured with respect to the funding and payment of the licence fee. It pleads that that conduct occurred without the knowledge or consent of the applicants. Proposed paragraph 12D then pleads: 12D. But for the conduct and actions of the respondents referred to in paragraph 12B above, the second applicant would not have: (a) entered into the Exit Agreement; (b) made the Additional Payment to the Sellers pursuant to the Exit Agreement; or (c) refrained from asserting the right to a Clawback Amount from the Sellers pursuant to clause 4.1 of Schedule 3 to the SPA. 124 It is apparent that paragraph 12D is conditioned on "the conduct and actions of the respondents referred to in paragraph 12B". However, "the conduct and actions of the respondents referred to in paragraph 12B" is only part of the way that the applicants seek to put their case. Their case, as I understand it, is that, additionally, that conduct should not have been engaged in by the respondents and should have been disclosed by them. Those additional elements are missing from the pleading of proposed paragraph 12D because it is conditioned on and only on proposed paragraph 12B which itself does not plead those matters. In short, what is missing from the pleading of paragraph 12D are the elements relating to the alleged impropriety on the part of the respondents. 125 Thus I accept the respondents' submission to the extent that it rests on the proposition that proposed paragraph 12D fails to plead all the necessary causal elements leading to the applicants' entry into the exit agreement and to the consequences that then ensued. This deficiency is not made good by the allegation in proposed paragraph 12B that the respondents' conduct was without the knowledge or consent of the applicants; nor is it made good by the allegation in proposed paragraph 12C that the conduct was a breach of the duties pleaded in paragraph 12 (as also proposed to be amended), because those matters do not find expression in proposed paragraph 12B and hence do not find expression in proposed paragraph 12D. There are, in any event, other difficulties with respect to the pleading of proposed paragraph 12C, to which I will refer. It seems to me, however, that the deficiency in proposed paragraph 12D can be cured as a matter of pleading. 126 As I have noted, there are other strands to the respondents' objection. 127 First, they submit that proposed paragraph 15A pleads a bare allegation that the respondents represented to the applicants that CM(UK) would pay and subsequently had paid the licence fee to the first applicant. They submit that this is a "bald conclusion" without supporting facts having been pleaded. 128 In my view the pleading of proposed paragraph 15A is in the nature of a conclusion. It also "rolls up" a representation about a prospective matter (that CM(UK) "would pay" the licence fee) with a different representation (that CM(UK) "subsequently had paid" the licence fee). These various strands of the impugned conduct should be separated and properly pleaded by reference to the material allegations of fact giving rise to each representation, supported with all necessary particulars. It is not sufficient to plead the "bald conclusion" to which the respondents refer. 129 Secondly, the respondents submit that the allegation in proposed paragraph 12B(c) (that the licence fee was paid to the first applicant by CMUK(A) on 29 June 2007) cannot rise to the level of a material misrepresentation where the evidence shows that this fact was known to the applicants before entry into the exit agreement. 130 In my view proposed paragraph 12B must be read as a whole. When it is so read it is clear that the allegation is that, without the knowledge or consent of the applicants, the respondents procured a number of transaction to occur, one element of which was the payment by CMUK(A) of the licence fee. In short, it was the procurement by the respondents of that transaction which was the matter not known by the applicants and which was done without their consent. I reject the respondents' submission. 131 Thirdly, the respondents submit that proposed paragraph 12C is a "rolled up" allegation that fails to reveal how the pleaded conduct constitutes a breach of each of the alleged duties. 132 As I have noted, proposed paragraph 12B identifies the elements of the transactions that were said to have been procured by the respondents. Proposed paragraph 12C then pleads: By engaging in the conduct pleaded in paragraph 12B above, each of the respondents breached each of the duties owed to the first applicant referred to in paragraph 12 above. 133 In my view the respondents' objection is well-made. The applicants must plead the causal connection between the alleged transactions and the alleged consequent breach of each of the duties. 134 Finally, the respondents submit that before any amendment is allowed, the applicants should be ordered to file and serve an affidavit which proves the facts, matters and circumstances pleaded in each of the amendments, particularly with respect to reliance and damages. In my view that course is unusual and not warranted.

disposition 135 I have identified deficiencies in the statement of claim that require certain paragraphs to be struck out. I have also identified certain deficiencies in the pleading of the proposed amendments. These deficiencies are of sufficient significance that I would not grant the leave that the applicants seek with respect to the filing of an amended application and an amended statement of claim substantially in the terms of the documents annexed to the applicants' motion. The applicants should, however, be given the opportunity to bring in pleadings with amendments that conform to these reasons, and that are otherwise in proper form. This opportunity will carry with it leave to join the proposed third applicant to the proceeding. In this regard I note that the proposed third applicant is represented by the solicitor on the record for the first applicant and the second applicant, and has consented to being joined as an applicant. Amendments of the kind foreshadowed by the draft statement of claim annexed to the applicants' motion show that the proposed third applicant would be a proper party to the proceeding. I also note that the respondents do not object to the joinder. I will allow a period of 21 days within which the applicants are to serve a further draft amended application and a further draft amended statement of claim on the respondents. If no objection is made by the respondents within 14 days thereafter, leave will be granted to the applicants to file the amended application and amended statement of claim. If objection is made by the respondents and the issue that is thereby raised remains in dispute, the parties are to re-list the matter for determination by the court. The applicants should pay the respondents' costs occasioned by the amendments. 136 As I have stated above, the grant of leave nunc pro tunc with respect to use of the documents and information relating to the production of documents in answer to the CM(UK) subpoena should be made by separate order in the 651 proceeding. I will make that order. 137 I will allow the parties an opportunity to be heard on the question of costs in relation to the two motions dealt with in these reasons and the motion dealt with in Campaign Master (UK) Limited v Forty Two International Pty Ltd (No 4) [2010] FCA 398, also published today. That should be done by short written submissions of no more than three pages in length. The respondents should serve their submissions, and provide a copy to my Associate, within 14 days. The applicants should serve their submissions, and provide a copy to my Associate, within 21 days. 138 The parties should endeavour to agree on the form of orders giving effect to these reasons. If agreement cannot be reached within seven days, the parties are to re-list the matter at the earliest possible time by arrangement with my Associate.

I certify that the preceding one hundred and thirty-eight (138) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.