Global Medical Solutions Australia Pty Ltd v Axiom Molecular Pty Ltd

Supreme Court of NSW|2013-05-23|Before: Stevenson J, McDougall J

Introduction 1This is an application for leave to disclose 15 documents obtained pursuant to the search order made in these proceedings on 21 September 2012 for the purpose of proceedings pending in the United States of America District Court (District of California) between Global Medical Solutions Limited ("GMSL") (the parent company of the plaintiff in these proceedings ("GMSA")) and Mr Jay Simon ("the California Proceedings"). 2The background to these proceedings has been set forth in a number of judgments of the Court: Global Medical Solutions Australia Pty Ltd v Axiom Molecular Pty Ltd [2012] NSWSC 1262 per McDougall J, and my judgments in Global Medical Solutions Australia Pty Ltd v Axiom Molecular Pty Ltd [2012] NSWSC 1517 and Global Medical Solutions Australia Pty Ltd v Axiom Molecular Pty Ltd [2013] NSWSC 86. 3GMSA engages in what it describes as a "specialised medical supplies and operations business". The first defendant was incorporated in December 2011 and was then known as Zuellig Molecular Australia Pty Ltd. 4GMSA alleges that the first defendant is a start-up medical supplies and operations business that competes with GMSA and was established with that object. 5The five personal defendants were employees of GMSA. The second defendant, Mr Farag, was GMSA's Managing Director. Mr Farag resigned from GMSA on 9 November 2011. The third to sixth defendants were GMSA's Sales Director, Service Manager, Nuclear Operations Manager and Brisbane Head of Operations, respectively. They resigned from GMSA on 16 April, 6 April, 2 August and 27 July 2012, respectively. 6The personal defendants are now employed by the first defendant as part of its senior management. 7Mr Simon was a director of GMSA. He resigned from GMSA on 2 November 2011. Mr Simon is not a defendant in these proceedings. 8GMSA claims that the five personal defendants have diverted to their new employer, the first defendant, business opportunities that they were bound to exploit for GMSA's benefit. 9One of those business opportunities was associated with the proposed use by GMSA of a cyclotron owned by the University of Queensland (the alleged "UQ Business Opportunity"). 10These proceedings started on 21 September 2012 when McDougall J made the search order. His Honour found that GMSA had a strong prima facie case that the personal defendants had breached their fiduciary, contractual and, in some cases, statutory duties to GMSA by diverting aspects of GMSA's business to the first defendant, to the detriment of GMSA, to the direct benefit of the first defendant and to the indirect benefit of themselves. 11On 29 May 2012 (several months before the commencement of these proceedings), GMSL commenced the California Proceedings against Mr Simon. Originally, GMSL was the only plaintiff in the California Proceedings. The ultimate holding company of both GMSL and GMSA, HSB Holdings, is now also a plaintiff in the California Proceedings. 12In the application now before me, GMSA seeks leave to disclose to GMSL and HSB Holdings, as well as their legal representatives in California (McCabe & Hogan, P.C. and Law Office of Greg Ozekim), copies of the 15 documents set forth in Schedule A to these reasons. 13The application is opposed by the five personal defendants and by the ultimate holding company of the first defendant, The Zuellig Group Incorporated ("ZGI"). The first defendant is now in liquidation and played no role in this application.

Decision 14I propose to grant GMSA the leave it seeks.

Background 15At the time GMSA obtained the search order on 21 September 2012 it gave the Court an undertaking to "not, without the leave of the Court, use any information, document or thing obtained as a result of the execution of this order for the purpose of any civil or criminal proceeding, either within or outside Australia, other than this proceeding". 16GMSA's solicitor, Mr Hoser, gave an undertaking in the same terms. 17In addition to those express undertakings, GMSA, its solicitor and any third parties to whom documents or information have been disclosed are bound by an implied obligation to the same effect: Harman v Secretary of State for Home Department [1983] 1 AC 280. 18The obligation is imposed as a matter of law arising from the circumstances in which the material was generated and received: Hearne v Street (2008) 235 CLR 125 at [3] per Gleeson CJ and at [102] per Hayne, Heydon and Crennan JJ. 19This "use and disclosure restriction" applies equally to documents produced by a party to litigation on discovery (see Harman), to documents seized under a search order (see Crest Homes plc v Marks [1987] AC 829) and documents produced by a non-party in answer to a subpoena (see Hearne v Street, and also Eltran Pty Ltd v Westpac Banking Corporation (1990) 25 FCR 322 and Plate Glass Holdings Pty Ltd v Fraser Gordon Investments Pty Ltd [2012] FCA 1487). Indeed, the use and disclosure restriction applies in any circumstance where documents are produced under any coercive power in the course of legal proceedings (see Hearne v Street at [96]). 20The use and disclosure restriction can be released or modified by the Court but only in "special circumstances" (Hearne v Street at [107] citing Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 at 37 per Brennan J). 21For "special circumstances" to exist, what must be shown is that there is a special feature of the case, not usually present, that affords a good reason for modifying or releasing the relevant party from its obligation to use the documents only for the purpose of the proceedings. All factors must be considered but, "perhaps most important of all, [is] the likely contribution of the document to achieving justice in the second proceeding": Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FRC 217 at 225 per Wilcox J; applied in Liberty Funding Pty Ltd v Phoenix Capital Ltd [2005] FCAFC 3; (2005) 218 ALR 283 at [31] per Branson, Sundberg and Allsop JJ.

The documents sought to be disclosed 22All of the documents sought to be disclosed were obtained by GMSA pursuant to the search order. 23Fourteen of the 15 documents come from "Disk 1" referred to in my judgment of 12 February 2013 (Global Medical Solutions Australia Pty Ltd v Axiom Molecular Pty Ltd [2013] NSWSC 86). The documents on Disk 1 were obtained from a laptop and computer located at the first defendant's premises in George Street, Sydney. The laptop was used by Mr Peter Williams, a senior group executive in the Zuellig group.

The California Proceedings 24No party to the present proceedings is a party to the California Proceedings. Thus, GMSA is seeking dispensation from its undertaking and obligations so it can deploy the documents and other information in other proceedings so that a different litigant (albeit its parent) can deploy their material. Further, the material is to be deployed against an individual who is not a party to these proceedings. 25There is, however, a significant overlap between the issues in these proceedings and those in the California Proceedings. 26Mr Simon, the defendant in the California Proceedings, was a director of GMSA, and was the President and the Chief Operating Officer of GMSL. 27Amongst the allegations made in these proceedings are that the individual defendants, particularly the first defendant, Mr Farag: - (a)failed to disclose to GMSA that the University of Queensland was willing to discuss entering into an agreement with GMSA concerning the use of its cyclotron, that discussions for such an agreement were taking place between Mr Farag and the University of Queensland and that the University of Queensland had made a formal proposal for an agreement; (b)diverted the UQ Business Opportunity to the first defendant; and (c)misused confidential information owned by GMSA. 28Similar allegations are made by GMSL against Mr Simon in the California Proceedings. 29Amongst those allegations are that: - (a)at a time when the University of Queensland had expressed interest in coming to an arrangement with the Global Medical group concerning the use of the cyclotron, Mr Simon had told Mr Bagerdjian (in effect the owner of the Global Medical group), that the UQ Business Opportunity option was not feasible; (b)Mr Simon failed to disclose to Mr Bagerdjian the status of Mr Farag's negotiations with the University of Queensland; and (c)while still employed by GMSL, Mr Simon failed to disclose his agreements with Mr Farag to resign from GMSL and participate in a venture which ultimately resulted in the incorporation of the first defendant. 30There is thus a close connection between these proceedings and those in California, despite the fact that the parties in these proceedings are different.

The relevance of the documents 31In the California Proceedings, Mr Simon made a declaration ("the Declaration") in support of a motion (which was denied) to dismiss the California Proceedings on forum non conveniens grounds. Mr Simon also made a response to interrogatories administered to him by GMSL. 32In his affidavit in support of this application, the solicitor for GMSA, Mr Philip Hoser, submitted that: - "[s]everal of the documents [sought to be disclosed] may throw light on the veracity of some of the statements made by Mr Simon in his sworn declaration in the [California Proceedings] or his responses to GMSL's interrogatories and document requests." 33In submissions, Mr Durack SC, who appeared with Mr Keizer for GMSA, went further and submitted that many of the documents go directly to Mr Simon's credit, particularly in relation to the central issue of his role in the alleged diversion of the UQ Business Opportunity. 34In his response to interrogatories in the California Proceedings, Mr Simon said that in September 2011 he had had communications with Mr Farag and with Mr Bagerdjian in relation to a potential joint venture with the University of Queensland and that Mr Farag had told him that that joint venture "involved research regarding PET radiopharmaceuticals unrelated to the PET cyclotron" (emphasis added). 35Further, in the Declaration, Mr Simon said that in September 2011, the University of Queensland had enquired as to whether GMSA would agree to a potential collaboration in connection with the University of Queensland's "application for a grant from the Queensland Government for non-cyclotron PET isotope research" (emphasis added). 36One of the documents that GMSA seeks leave to use in the California Proceedings is an email dated 29 September 2011 from Mr John Diener (a senior executive within the Zuellig group) to a human resources manager within the Zuellig group, as follows: - "I spoke to both Jay and Matt at length today and the situation is a little different than before hence the urgency. Through Matt's network he has uncovered an opportunity to get exclusive access to an 18Mev cyclotron in Brisbane... one of the target short term opportunities. This is ideal for us as this cyclotron will be operational in March 2012 and therefore could be certified GMP by next year in September in which case we save 18 months of time to get up and running in that market". (redacted portion omitted) 37Mr Durack submitted, and I accept, that it is to be inferred that the "Jay" and "Matt" referred to in this email are Mr Simon and Mr Farag respectively. The email suggests that, contrary to Mr Simon's statements in his Declaration and answer to interrogatories in the California Proceedings, he was aware of discussions taking place between GMSA and the University of Queensland which discussions were related to the University's cyclotron. 38Later in the Declaration, Mr Simon stated that: - (a)by early September 2011 he had become "increasingly frustrated" with Mr Bagerdjian and that on 15 September 2011 he applied for a position with "an Australian-based start-up branch of Zuellig Healthcare Holdings Australia Pty Ltd" (ultimately the first defendant) through an online job search website; (b)he became disenchanted with statements allegedly made by Mr Bagerdjian during a "road show" in November 2011; (c)on 18 November 2011, he received an offer letter from "Zuellig Healthcare"; (d)he did not discuss with Mr Farag, or with the third defendant (Ms Cornelius) or the fourth defendant (Mr Quinn) or any other employee of GMSA his intention to apply for a position with "Zuellig Healthcare"; and (e)he did not solicit any of those individuals to join the first defendant. Mr Simon said that "[u]nbeknownst to me at the time, Farag applied for the same role as me". 39Thus Mr Simon suggested in the Declaration that he only applied for a position with "Zuellig Healthcare" in September 2011, that he had no communications with, amongst others, Mr Farag about that matter and that he did not know that Mr Farag had also applied for a position within the Zuellig group . 40Many of the documents sought to be disclosed tend to contradict those assertions. 41For example, in an email sent by Mr Diener to various officers of the Zuellig group on 10 March 2011 (six months before the time at which Mr Simon said that he applied for a position with "Zuellig Healthcare") Mr Diener said: - "[I]f we can't do a deal with GMS in the end, I know we can hire Jay, he's said he would do that and bring over some of their key people". 42Mr Diener's reference to the possibility of not doing a "deal with GMS" was a reference to discussions then occurring between members of the Zuellig group and members of the Global Medical group concerning a possible merger of their businesses. 43A further document is an email from Mr Diener to Zuellig executives dated 12 May 2011 saying that he had spoken to "Jay" that morning and that: - "'Out of loyalty to [Mr Bagerdjian]', Jay feels he should give [Mr Bagerdjian] another 4-6 weeks to respond with a counteroffer, but not longer than that. Jay is ready to join Zuellig, move to Hong Kong and build up a nuclear medicine operation with us and has spoken to his family that this is imminent". 44On 20 June 2011, Mr Diener wrote to a number of his Zuellig executives, including Mr Williams, stating that he had spoken to "Jay" that morning and that: - "Jay gave me official notice of interest that he would like to join Zuellig... Jay needs another 4-6 weeks to resolve his long term incentive compensation with [Mr Bagerdjian]. Therefore, he said a reasonable start date would be September 1... Meanwhile, if he was able to hire Matt and the Taiwan GM, both of them can actively pursue the other cyclotron opportunities in East Asia. Jay is gathering more information about market opportunities and we agreed to jointly develop a business plan laying out the opportunities, timeline, CAPEX, and financial projections. This will be completed in July and August so that when we joins us full time, the mandate will be clearly defined." 45Mr Williams replied on 23 June 2011: - "I just want to have a final sign off from the family before we entice Jay over". 46It is common ground that Mr Williams' reference to "the family" is a reference to the Zuellig family, the owners of the Zuellig group. 47On the same day, Mr Diener wrote to Mr Williams about the likely cost of hiring "Jay and his deputies". This correspondence strongly suggests that, contrary to what Mr Simon stated in the Declaration, he was communicating with "Matt" (who I infer to be Mr Farag) about the possibility of joining "Zuellig Healthcare". 48On 29 August 2011, Zuellig group's human recourses manager wrote to Mr Diener: - "Did you have a chance to review the advert for [the online job search website]? Also wondering if you have been able to extract Jay's compensation details so that we can start the Australian/US tax calculations. I am waiting to run the... advert before pressing the button on the Australian Visa application so the sooner we can run the advert, the sooner we can secure a visa. I am happy to talk to Jay about his compensation if this is easier for you." 49Mr Durack submitted that this email shows that there was by then a "done deal" that Mr Simon would be engaged by the Zuellig group and that the advertisement on the online job website (which Mr Simon stated, in his Declaration, he answered in order to apply for a position at Zuellig Healthcare) was to be published later. The email points to the possibility that the advertisement on the online website was designed to disguise or conceal earlier negotiations between Mr Simon and the Zuellig group. 50On 4 October 2011, Mr Simon wrote to the Zuellig group human resources manager in an email headed "Matthew Farag - Compensation Proposal". In the email Mr Simon said: - "I believe Matt will be fine with the offer. He asked about long-term incentive... plans and I told him it was hard to do as the business was starting off... Of course the offer does need to come from John [Diener] and not from me at this time as I am not a Zuellig representative, at least not yet. As to [long-term incentives]... I had the same question asked of me from others that I have confidentially spoken to". 51As Mr Durack submitted, the latter document makes clear that, contrary to what is stated in the Declaration, Mr Simon had spoken to Mr Farag about Mr Farag moving to the Zuellig group. As Mr Durack submitted, it seems most likely that Mr Simon also mentioned that he was proposing to do the same.

Conclusion as to disclosure 52The documents set out above cast grave doubt on the accuracy of statements made by Mr Simon in the Declaration and in his answers in interrogatories in the California Proceedings. 53The documents clearly go to Mr Simon's credit, and in relation to issues central to the complaint made by GMSL against Mr Simon in the California Proceedings; namely his role in inducing senior employees of GMSA to migrate to the Zuellig group and his role in relation to the alleged diversion from GMSA to the first defendant of the UQ Business Opportunity. 54For that reason in my opinion, the documents are likely to contribute to the achievement of justice in the California Proceedings (see [21] above) and that, for that reason, GMSA has shown "special circumstances" such as to justify the Court granting it the leave it seeks. 55I am mindful of the fact that the documents are from ZGI's records, were seized pursuant to the execution of the search order and were, as it were, swept up with the documents seized from the defendants. I am also mindful of ZGI's interest in ensuring, as far as is practicable, that the documents are not used otherwise than for the purpose of these, and now, the California Proceedings. 56In my opinion this interest can be met by requiring, as a condition of the granting of the leave sought by GMSA, that those to whom the documents are to be disclosed give this Court the same undertaking given by GSMA and Mr Hoser (see [15] and [16] above). 57I will hear submissions as to whether the leave should be subject to any further undertakings or conditions. 58During argument, it was agreed that, in the first instance, I should publish these reasons only to the parties so that the parties could have an opportunity to make submissions as to whether any redactions should be made to these reasons before they are published more widely. 59I will hear argument about that matter and the orders to be made to give effect to these reasons.

Schedule A DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 May 2013

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