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[2010] FCA 377
mixed. Orders granting the applicants' solicitors leave to provide their clients with specified documents subject to redactions: (1) contract of sale pages released but redaction of pages 2737/34 and 2737/35...
Tracey J applied the trade-rival confidentiality balancing test and inspected the four disputed documents. She ordered disclosure to Holyoake of the contract of sale monetary headings (price, deposit, residue, stock) and totals of accrued leave figures (but not individual employee details), ordered the Lanteri due diligence report and the settlement statement to be produced in full, and ordered the Lanteri tax invoice to be produced with all monetary figures redacted. The court emphasised relevance, age of the information and present commercial sensitivity in reaching these outcomes (see [11]-[21]).
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Holyoake alleged that three of its then-employees (the Second, Third and Fourth Respondents) pursued and purchased a business conducted by Kelvin Payne Pty Ltd while they remained employed by Holyoake, and that their conduct constituted breaches of fiduciary duty and contraventions of the Corporations Act (see [1]-[4]). Holyoake obtained a search order which, on execution, produced many thousands of documents (see [5]). The applicants' solicitors were given access to those materials but an earlier court order prevented disclosure to clients of documents the respondents claimed were commercially confidential. Parties resolved most disputes by agreement but four documents remained contested (see [5]).
The four disputed documents were:
The applicants sought leave for their solicitors to provide copies of these documents to their clients. The respondents conceded disclosure of much of each document but resisted disclosure of specific monetary figures and the employee-by-employee leave details on grounds of commercial confidentiality (see [5]-[10]). Tracey J heard the matter and issued the orders set out at the beginning of the reasons (Orders 1–4), granting disclosure subject to specified redactions (Orders and [17]-[21]).
Tracey J treated the application as sufficiently analogous to a discovery/inspection dispute to apply the established legal principles governing discovery between trade rivals (see [11]). She relied on the summary of principles in Gordon J’s Cadbury v Amcor (No 2) decision, which encapsulates that:
Tracey J accepted that the Mobil Oil v Guina Developments reasoning applies: once principals of a trade rival inspect documents, confidentiality may be effectively destroyed as respect to that rival because enforcement of implied undertakings is impractical (see [12]-[13], quoting Hayne JA at 38). For that reason, the court must weigh the applicant’s need for the documents against the producing party’s legitimate interest in secrecy, and assess, by inspecting the documents, whether any additional protection beyond the implied undertaking is necessary (see [11], [14]).
Applying these principles, Tracey J focused on a number of pragmatic and case-specific factors:
On that basis Tracey J concluded:
These conclusions led to the orders permitting disclosure subject to redactions specified in Orders 1–4.
Before this judgment, Australian courts had developed a line of authority recognising that ordinary discovery rules must be modified when trade rivals are involved. Mobil Oil v Guina (Victorian Court of Appeal) established the practical problem that disclosure to principals of a trade rival risks irrevocable loss of confidentiality. Cadbury v Amcor (FCA) restated those principles and emphasised the need for a fact-specific balancing exercise and, where necessary, inspection by the court (see [11]-[12]).
Tracey J applied those principles in a routine interlocutory access dispute arising from a search order. Her decision does not create a new legal test. It reinforces the existing approach:
After this decision, practitioners have an explicitly applied example of the principles applied to a set of documents including purchase contracts, due diligence reports, settlement statements and invoices. The judgment illustrates how courts distinguish between transaction figures (which may be relevant and discloseable, see [17]) and irrelevant professional fee breakdowns (which may be withheld, see [21]).
Paragraph [11] (quotation of discovery principles from Cadbury): The court restates that normally each side can see discoverable documents, except for privilege and subject to the rule you cannot use the documents except in the lawsuit. When the parties are business rivals, extra protection may be needed and the court must balance the need to litigate against the rival’s wish to keep secrets. Translation: Discovery is the default, but trade rivalry triggers a special balancing test; the court may have to look at documents itself to decide what to release.
Paragraph [13] (quoting Hayne JA in Mobil Oil): "Once the documents are inspected by the principals of the trade rival, the information... cannot be forgotten." Translation: If the real decision-makers in the competing business see the documents, confidentiality is effectively lost vis-à-vis that rival, so courts must be cautious before allowing inspection by such people.
Paragraph [15]-[16]: The court emphasises the importance of the documents’ age and the speculative nature of evidence on potential harm. Translation: Old financial figures are less likely to harm present commercial interests; parties should provide evidence about how disclosure now would cause real competitive harm.
Paragraph [17]: The court declines to protect the price, deposit, residue and stock figures in the contract and allows disclosure of totals of leave but not individual employee details. Translation: Transaction-level sums that fix what was paid and the adjustment totals are relevant and can be disclosed; unnecessary individual personnel pay details should be withheld.
Paragraph [19]: The court orders the Lanteri due diligence report disclosed in full because it deals with historical performance and is potentially relevant. Translation: A due diligence report prepared and considered by the respondents when deciding whether to buy is directly relevant to the claim that they diverted an opportunity, and much of its content is historical, so it should be available to the applicant.
Paragraph [21]: The court refuses to disclose Lanteri’s hourly rates and total fees because those figures are irrelevant to the litigation. Translation: Professional fee schedules are collateral to the issues and can be redacted.
This judgment is engaged where:
In such scenarios courts will inspect the documents and apply a balancing test that weighs present relevance and potential for present commercial harm, taking account of the age of the material and the identity of proposed inspectors (see [11], [15]-[19]).
This judgment applies and illustrates principles earlier stated in Mobil and Cadbury and applies them to a specific set of transactional and advisory documents (see [11]-[13], [17]-[21]). The reasons explicitly follow Cadbury (applied at [11]) and Mobil (applied at [12]-[13]). The decision is an applied example rather than a novel statement of law. The Reasons do not record subsequent appellate consideration or later cases treating this decision; the judgment itself should be treated as one interlocutory application exhibiting how courts exercise discretion in the discovery/confidentiality interface between trade rivals. To determine subsequent judicial treatment of Holyoake would require searching post-2010 authorities; this judgment alone does not supply such follow-up (the Reasons contain no material referring to later treatment).
Evidence of present misuse: Tracey J noted the absence of detailed evidence showing how historical figures might be used to V-Flow’s present detriment and accepted that some degree of speculation is inevitable (see [15]-[16]). Question: In future cases how much evidentiary particularity will courts require to withhold information on grounds of present commercial harm? The judgment suggests an evidentiary gap will be significant but does not prescribe a precise standard.
Granularity of personnel data: The court ordered totals of accrued annual and long service leave released while withholding individual employee details (see [17]). Open question: Where allegations directly concern particular employees, or where individual entitlements bear on valuation disputes, will courts be more ready to permit disclosure of individual figures? This judgment indicates relevance is decisive.
Temporal scope of sensitivity: Tracey J relied on the fact the Lanteri report covered periods ending in 2008 and that the documents were over a year old (see [15], [19]). The threshold at which age dissipates sensitivity is left undefined. Different industries and competitive dynamics may alter how courts assess "age."
Use of court inspection in large-scale searches: The judgment accepts inspection by the court as necessary to resolve trade-rival disputes (see [11]-[14]). Practical questions remain about resourcing, standard procedures and transparency when documents are voluminous. This decision provides guidance but not procedural rules.
Interaction with implied undertaking enforcement: Mobil and this decision emphasise the practical limits of enforcing implied undertakings against principals of a trade rival (see [13]). How courts will manage remedies or sanctions where misuse is alleged after disclosure is a question not addressed in depth here.
Concluding note: Holyoake provides a clear example of the balancing exercise mandated where trade rivals seek access to commercially sensitive material. Practitioners should focus their evidence on present relevance and specific, non-speculative demonstrations of likely competitive harm when resisting disclosure, and litigants seeking documents should tailor requests to show necessity to the pleaded issues and avoid excessive intrusions into personnel or irrelevant fee detail.
REASONS FOR JUDGMENT 1 The Second, Third and Fourth Respondents were employees of the first applicant ("Holyoake"). They resigned their employment with Holyoake and became directors of the first respondent ("V-Flow"). Holyoake alleges that the Second, Third and Fourth Respondents breached their fiduciary obligations to it in a number of ways and also contravened various sections of the Corporations Act 2001 (Cth) ("the Corporations Act"). 2 One of the breaches alleged against the Second, Third and Fourth Respondents relates to the purchase of V-Flow. In the Amended Statement of Claim in paragraphs 21 and 21A, the allegations are developed. The Applicants allege that, whilst they were still employees of Holyoake, the Second, Third and Fourth Respondents, in or about late 2008 identified the opportunity to acquire the business conducted by Kelvin Payne Pty Ltd ("Payne"), and, instead of referring the opportunity to Holyoake, wrongfully engaged in conduct which involved the respondents in making their own inquiries, commissioning a due diligence report and engaging in various other activities which led in time to them purchasing the business without notice to Holyoake. It is further alleged that the Second, Third and Fourth Respondents incorporated V-Flow and became directors of that company. 3 It is further alleged that Holyoake and V-Flow thereafter became competitors and that, in pursuit of its business interests V-Flow, acting through one or more of the other Respondents sought to solicit work from customers of Holyoake. It is alleged that V-Flow's business was a corporate opportunity that was within the scope of Holyoake's business, could have been taken up by Holyoake and should have been referred to it by its then employees, the Second, Third and Fourth respondents. 4 As I have already noted, it is the contention of the Applicants that, in so conducting themselves, the Second, Third and Fourth Respondents were in breach of their fiduciary obligations to Holyoake and also contravened various provisions of the Corporations Act. 5 When the Applicants became aware of the conduct of the Respondents, they obtained a search order. When executed it yielded many thousands of documents. The Applicants' legal advisors have had access to these documents but have been prevented by order of the Court from disclosing to their clients the contents of any documents which the Respondents claim are commercially confidential. Disputes relating to such claims have been resolved by agreement between the parties save in four cases. The Applicants wish to have access to the four documents in their entirety. The Respondents concede that that entitlement exists in respect of parts of the documents but they resist disclosure of certain information contained in them on the ground of commercial confidentiality. 6 The first document is the contract of sale of the business from the Payne interests to V-Flow. The contract does not bear a date, but I am told that it was executed in the early part of 2009. The bulk of the contract does not give rise to any dispute. However, in the special conditions, there is an annexed Particulars of Sale, which includes figures adjacent to four items namely, price, deposit, residue and stock. The Respondents contend that each of the monetary figures in the document adjacent to those heads is commercially confidential and should not be released. 7 In addition, there is an attachment to the contract which lists the accrued annual leave entitlements of all then employees of the business being conducted by the Payne interests. The table lists each employee, the hourly rate of pay of those employees, their accrued leave entitlements as at 6 April 2009 and a monetary value of that accrued entitlement. There is, at the bottom of the list, a total of the moneys that are owed to the employees in respect of their annual leave entitlements. There is a further table which lists the employees and their long service leave accrued entitlements as at 31 March 2009. Again, each of the employees is listed and adjacent to each employee is their hourly rate of pay, the number of years service rendered and the monetary value of their accrued entitlements to long service leave and there is, at the bottom of that table, a total figure of money owing as at 31 March 2009 in respect of those entitlements. 8 The second document is a due diligence report which had been commissioned by the Second, Third and Fourth Respondents whilst they were employees of Holyoake. It is dated 28 January 2009 and it was prepared by a company, which is identified as the Lanteri Partners Group ("Lanteri Partners"). That document contains a number of figures, either by way of monetary sums or percentages covering a range of matters including operating profits, labour costs, a summary of material costs as a percentage of income and a combination of the labour costs and materials as a percentage of income. Those figures cover the period between 2006 and the end of 2008. The document also includes the purchase price that was ultimately paid for the business. The Respondents resist the disclosure of the document with those figures appearing in it but otherwise accept that the document can be released. 9 The third document is a one-page document that, although not so titled, would appear to be a settlement statement. It starts with the purchase price and makes various adjustments. There is then a final sum identified which was to be paid by V-Flow for the business previously operated by the Payne interests. The Respondents have no difficulty with the release of some of the figures, particularly adjustments for matters such as cost of Yellow Pages advertisements, which I assume relates to entries in commercial telephone directories concerning the business. But there is objection taken to publication of the purchase price, the deposit, stock on hand and adjustments for leave entitlements of employees. 10 The fourth document is a tax invoice raised by Lanteri Partners and addressed to the directors of the First Respondent in which the company identifies its charges for conducting the due diligence exercise to which I have earlier referred. The Respondents do not object to the bulk of this document being made available to the Applicants. It is only the monetary figures to which objection is taken. Those monetary figures identify the charge out rate per hour of each of the four employees of Lanteri Partners who were involved in the due diligence exercise and the total sum attributable their various contributions. 11 Although, strictly speaking, this is not a discovery exercise, but rather an application by some of the parties to have access to material that was seized pursuant to a search order, in my view the process is sufficiently analogous to a discovery exercise as to warrant the application of the same legal principles that would apply in the course of an application for discovery and inspection. The principles are conveniently set out in the judgment of Gordon J in Cadbury Proprietary Limited v Amcor Ltd (No. 2) [2009] FCA 663 at [6] and [7]. Her Honour there said: "6 Before turning to consider each category, it is appropriate to restate the legal principles to be applied in resolving this dispute. They may be summarised as follows (see e.g. Mobil Oil Australia Ltd v Guina Developments Pty Ltd [1996] 2 VR 34 at 38-40): 1. A party is ordinarily entitled to discovery and inspection of all discoverable documents in the possession or control of the opposite party, subject to a number of important limits including: (a) valid claims for privilege from production; and (b) the principle that a party may not use discovered documents except for the purpose of the action in which the discovery was made ("the implied undertaking"); 2. If the discoverable documents in the possession or control of a party are confidential, that fact will not ordinarily be a sufficient reason to deny inspection by the opposite party. The limit identified in 1(b) usually will provide sufficient protection to the party producing the documents; 3. However, if the relevant parties are trade rivals whose secrets would be revealed by discovery and inspection, other considerations apply: (a) a fair balance must be struck between the needs of the party wishing to litigate (here, Cadbury) and the legitimate concern of a trade rival to retain the secrecy of its commercially sensitive information (here, Amcor). That balance may need to be reviewed as the matter progresses to trial or at the trial itself; (b) as each case falls for determination according to its own facts, it is only upon consideration, by inspection of the nature and content, of the documents that a decision can be made about what orders should be granted for inspection by or on behalf of a party (here, Cadbury). 7 For the Court to perform the evaluation as outlined in [6(3)], the party seeking an order that limits the inspection of discoverable documents must establish that the character of each document is such that it should attract protection additional to that granted by the implied undertaking: see Mobil [1996] 2 VR 34 at 38-40; Mackay Sugar Co-Operative Association Ltd v CSR Ltd (1996) 63 FCR 408 at 415; BT Australia Pty Ltd v New South Wales (No 6) [1998] FCA 293 at 7-11; Index Group of Companies Pty Ltd v Nolan [2002] FCA 608 at [8]; ACCC v Baxter Healthcare Pty Ltd [2003] FCA 994 at [24]. As was accepted by the parties, in assessing whether any document should attract the additional protection, there are a number of matters which may be relevant including, without limitation, the age of the information, the identity of the persons who will inspect the documents and the reason or reasons why the inspection of particular documents is necessary. As I have said earlier, the circumstances may change as preparation for trial progresses." 12 Her Honour drew on a decision of the Court of Appeal of the Supreme Court of Victoria in Mobil Oil Australia, Limited v. Guina Developments, Proprietary Limited, which is reported at [1996] 2 VR 34. The principal judgment in that case was delivered by Hayne JA, and agreed in by the other two members of the Court, Winneke P and Phillips JA. That case involved a defendant resisting inspection, on the grounds of commercial confidentiality. The judgment of Hayne JA acknowledges that a departure from the ordinary rules, referred to by Gordon J in paragraphs one and two of her summary (at [6]), have to be refined in their application to circumstances in which the opposing parties are trade rivals. 13 It was argued, in that case, that the usual protections provided by the implied undertaking recognised in Home Office v Harman [1983] 1 AC 280, and subsequent cases, were not easily applied in the case of trade rivals. Hayne JA said at 38 that: "Once the documents are inspected by the principals of the trade rival, the information which is revealed is known to the trade rival and cannot be forgotten. Confidentiality is destroyed once and for all, at least so far as the particular trade rival is concerned. To say that the trade rival is bound not to use the documents, except for the purposes of the action concerned is, in a case such as this, to impose upon that trade rival an obligation that is impossible of performance by him and impossible of enforcement by the party whose secrets have been revealed." 14 His Honour also noted that it was appropriate, in cases such as the present, for the court to examine the documents, and thereby gain assistance in understanding the arguments mounted for and against disclosure, and undertaking the balancing of the competing commercial interests of the parties and the general interest in full and proper disclosure of all relevant documents in the course of a discovery exercise. I am prepared to accept, for the purpose of resolving the issues in dispute between the parties in the present proceeding that, the considerations relevant to trade rivals apply as between Holyoake and V-Flow. 15 Other matters must also be brought into account. The first is the age of the documents concerned. Each is now over a year old, or almost so, and the question of the commercial sensitivity of the parts to which objection is taken must be understood and assessed in the light of that time lapse. I am also required to have regard to the degree of commercial sensitivity involved in this material, and especially to the question of how the information to which objection is taken, might at this distance be deployed by the Applicants to the detriment of V-Flow. This matter was not dealt with in any depth in either evidence or submissions. I am not critical of counsel in that regard, because, inevitably, there must be a degree of speculation involved. 16 To take the example of the purchase price paid by V-Flow for the business which it now operates: one can understand, perhaps, at the time of the purchase, that a trade rival would be interested in that figure because of its effect on the balance-sheet of the purchaser. On the other hand, when one looks at the purchase as a matter of history, it is a price that was paid almost a year ago, and may or may not have any bearing on the current financial circumstances of V-Flow's business. There is simply no evidence before me to enable me to form a judgment one way or another on that point today. 17 Bearing in mind the principles that have been expounded in the authorities to which I have referred, I turn now to the particular documents. As to the first document, I do not consider that a case for secrecy and commercial sensitivity has been made out in respect of the price, deposit, residue or value of stock appearing in the particulars of sale. In respect of the accrued annual leave table, I do not consider that the individual details of each of the employees and their accrued entitlements is of any relevance, or potential relevance, to the issues joined by the parties in the proceeding. Accordingly, the only part of the accrued annual leave table to which I consider that access should be given to the Applicants is the total figure, which appears at the bottom of the table. The same reasoning leads me to conclude that the only part of the long service leave accrued entitlement table that should be released is the total figure, appearing at the bottom of the table. 18 Document two is the report of Lanteri Partners on its due diligence exercise in respect of the Payne business. The objection to it being released, with the figures constituting the monetary sums or the percentages, was advanced on both grounds of secrecy and grounds of relevance. As to relevance, I consider that the material is potentially relevant to the issue of the strength of the opportunity denied to Holyoake to purchase the business. The denial, as alleged in the statement of claim, arose as a result of the Second, Third and Fourth Respondents, employees of Holyoake at relevant times, becoming aware of the opportunity and following it up by commissioning their own due diligence exercise, without advising Holyoake of the opportunity, or of their activities in relation to assessing the viability of the company and the attractiveness of the company as a potential purchase by Holyoake. It is also to be noted that the document was commissioned and considered by the Second, Third and Fourth Respondents when determining whether they, acting through their corporate vehicle, would purchase the business of the Payne interests. 19 There is nothing in this document, in my opinion, that may properly be characterised as commercially secret at the present time and it is probable that much of it wasn't commercially sensitive even at the time at which the document was prepared. The fact is that it covers a period that concludes at the end of 2008, well over a year ago, and assesses the business at a time when it was being undertaken in the hands of former management. It doesn't speak as at the present day and I can see no reason why that document should not be made available to the Applicants in its entirety. 20 Document 3 is the settlement statement and the material contained in it, to which objection is taken, is material which I have already ruled, in dealing with the first document, should be released. Accordingly, in my view, the Applicants should have access to an unedited version of the third document. 21 The fourth document is the tax invoice forwarded by Lanteri Partners to the directors of the V-Flow in respect of the due diligence exercise undertaken by Lanteri Partners. I consider that the Respondents' objections to the provision of the relevant figures, including the hourly rate of the various partners and employees of Lanteri Partners and the total amount charged for their participation in the exercise, are soundly based. These figures are not relevant to any issue in dispute. I therefore uphold the objection of the Respondents in respect of the disclosure of those monetary amounts. The document can be released subject to the redaction of each of the monetary figures appearing in it. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tracey.
Holyoake Industries (Vic) Pty Ltd
V-Flow Pty Ltd
Orders granting the applicants' solicitors leave to provide their clients with specified documents subject to redactions: (1) contract of sale pages released but redaction of pages 2737/34 and 2737/35 except headings and total monetary amounts; (2) Lanteri Partners due diligence report (document 3144) released to Second, Third and Fourth Respondents; (3) settlement statement (document 3612) released; (4) tax invoice (document 4812) released subject to redaction of all monetary amounts (see Orders).