London Economics (Aust) Pty Ltd v Frontier Economics Pty Ltd

REASONS FOR JUDGMENT 1 London Economics (Aust) Pty Ltd is an economic consulting company. It provides advice in areas of economic activity such as the energy industry, restrictive trade practices and industrial economics. Its clients include governments and governmental agencies and large public companies. 2 In the first two weeks of May 1999 most of the staff of London Economics tendered their resignation, although not, it seems, with immediate effect. Among those who resigned was the managing director, Mr Daniel Price, the information systems staff member, Mr Anthony Steinke, and a senior executive, Mr David Briggs. 3 Many of the former staff members were involved in establishing Frontier Economics and now are employed by it, being a company that operates in competition with London Economics. 4 On 11 May 1999 Mr Warren Gibbs was appointed interim manager of London Economics and since 1 June 1999 he has acted as its chief operating manager. Upon assuming office, Mr Gibbs sought to take possession of, or at least carry out an inspection of, all the company's records, including personnel files and current business documents. Specifically, he sought access to the computer system on which there should have been stored a good deal of information relating to the company's activities, as well as the work performed on behalf of many clients. He also sought to obtain access to the backup tapes, where such information should also have been located. 5 Mr Price, in particular, but other members of staff as well, took it upon themselves to deny information to Mr Gibbs. In the result Mr Gibbs was not given access to the computer system. He was not given the keys to the office. He was not provided with information about the company's affairs. He was denied access to the storeroom where confidential files relating to the company's clients were stored. He was not given copies of the backup tapes. 6 This extraordinary state of affairs did change somewhat after a period of about a week. Mr Steinke provided Mr Gibbs with a password to gain access to the computer system, but that password only permitted access to Mr Gibbs' personal computer and not to the whole system. Mr Gibbs was given some backup tapes and he was provided with some client files. However, overall he was not given all that he had requested and was entitled to receive. 7 In late May 1999 Mr Price removed some thirty boxes of documents from the company's premises, although much of what was contained in those boxes was likely to have been his personal property. 8 In June 1999 a computer expert was called in. He has discovered that many of the files on the computer system were deleted on 17 and 18 May 1999. One reasonable inference that might be open is that this was done by one or more of the returning members of staff in breach of their obligations to their employer. 9 Documents that have been discovered amongst the company's records show that three backup tapes were purchased in September 1998 and two further backup tapes were purchased on 15 April 1999, shortly before the time that the staff of London Economics tendered their resignations. According to Mr S Lovek, the present managing director of London Economics, the usual practice of the company was to keep at least two backup tapes. One set was kept on the premises and the other was stored elsewhere. It seems that there is at least one missing set of backup tapes which may well contain the company's records or at least most of them. 10 Not only were the backup tapes missing, but most of the hard copies of documents relating to the work that had been performed by the company, as well as work that was in progress, have also been removed from the company's premises. Who removed them is not known. The whereabouts of the documents is not known. 11 It seems sufficiently arguable on the evidence before me (albeit evidence which may one day be shown to be incorrect) that some person or persons have gone to a good deal of trouble to remove the property of London Economics and to make it as difficult as possible for that company to continue to carry on its business. Another reasonable inference open to me is that this "sabotage" of the company's business was the work of former staff members. I note that through his solicitors, Mr Price has said that many documents were destroyed and computer information deleted to protect client confidentiality and that this is what normally occurs. However, the removal of documents and the deletion of computer information seems to have occurred around 17 and 18 May 1999, and this rather suggests that what has occurred may not have been in the ordinary course of business. 12 Although London Economics has not said this directly, it suspects that Mr Price is the person who is principally involved in what appears to be quite serious wrongdoing. His obstruction of Mr Gibbs' efforts to acquire knowledge of the activities of the company, prima facie at least, stands as good evidence for this view. No doubt there is also suspicion that Mr Steinke was responsible for the corruption of the computer system. He may also have been involved in the removal of the backup tapes. 13 However, suspicion is not proof. Moreover, suspicion is not sufficient to support the commencement of proceedings by London Economics to obtain recompense for the losses that it has suffered and those that will continue to be sustained. 14 London Economics wishes to improve its position. It seeks a remedy under the rules, rules that have been introduced to assist persons in the position of London Economics. More particularly, London Economics calls in aid O 15A, r 3 and r 6 which provide: "3. (1)Where an applicant, having made reasonable inquiries, is unable to ascertain the description of a person sufficiently for the purpose of commencing a proceeding in the Court against that person (in this rule called "the person concerned") and it appears that some person has or is likely to have knowledge of facts, or has or is likely to have or has had or is likely to have had possession of any document or thing, tending to assist in such ascertainment, the Court may make an order under subrule (2). (2)The Court may order that the person, and in the case of a corporation, the corporation by an appropriate officer, shall: (a) attend before the Court to be examined in relation to the description of the person concerned; (b) make discovery to the applicant of all documents which are or have been in the person's or its possession relating to the description of the person concerned. (3)Where the Court makes an order under paragraph (2)(a), it may: (a) order that the person or corporation against whom or which the order is made shall produce to the Court on the examination any document or thing in the person's or its possession relating to the description of the person concerned; (b) direct that the examination be held before a Registrar. 6. Where: (a) there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description has been ascertained; (b) after making all reasonable inquiries, the applicant has not sufficient information to enable a decision to be made whether to commence a proceeding in the Court to obtain that relief; and (c) there is reasonable cause to believe that that person has or is likely to have or has had or is likely to have had possession of any document relating to the question whether the applicant has theright to obtain the relief and that inspection of the document by the applicant would assist in making the decision; the Court may order that that person shall make discovery to the applicant of any document of the kind described in paragraph (c)." 15 London Economics asks for orders under those rules that the respondents, Frontier Economics, Mr Price, Mr Gibbs and Mr Steinke be examined (O 15A, r 3). Also that they make discovery of certain documents, being the documents described in the schedule to its application, with certain amendments that have been proposed during the course of the hearing (O 15A, r 6). 16 Before dealing with the merits of this application, there is a preliminary matter that I must deal with. 17 The respondents take a position that the application under O 15A is an application for final relief in respect of which hearsay evidence is not admissible. They point to the fact that London Economics relies on a good deal of hearsay evidence in support of its application. 18 In regard to this point, the respondents rely on Levis v McDonald (1997) 75 FCR 36, a decision of Lindgren J. In that case his Honour held that an application under O 15A is not an interlocutory application and therefore hearsay evidence is not admissible evidence in support of the application. 19 With respect I cannot agree with this view. There are a number of decisions of intermediate appellate courts which have held that applications under rules of court equivalent to Order 15A are interlocutory in nature: see eg Schmidt v Won [1998] 3 VR 435; The Herald and Weekly Times Ltd v The Guide Dog Owners' & Friends' Association [1990] VR 451; Mercantile Mutual Insurance (Aust) Ltd v Household Financial Services Ltd (unreported, Court of Appeal, 22 May 1997). Not all of these cases were decided when Lindgren J handed down his decision in Levis, but those that had were not cited to his Honour during the course of argument. 20 In my view the nature of an application under O 15A is well described by Marks J in Herald and Weekly Times Ltd (supra at 461-462) where his Honour said: "In the present case, however, I think the order was clearly interlocutory, not necessarily because there may technically be power to entertain an application to vary or vacate it, but because the rights of the respondents to the discovery sought have not yet been fully exercised. The order merely set in motion an investigation by examination of documents and persons whether certain information exists and if so, what it is. The rights of the respondents given by r 32.03 [the Victorian equivalent of O 15A] were not merely to obtain the order but to obtain the information if it existed. The order was merely the first step. It did not preclude further orders limiting or extending the scope of the investigation which the rule permits." See also the views of O'Bryan J at 455. 21 In my view had Lindgren J been referred to those decisions which I have mentioned that had been handed down before Levis was decided, then his Honour would have arrived at a different conclusion. 22 In all events, where various jurisdictions have adopted similar rules it is important as well as in the interest of justice that courts adopt a uniform approach to their effect and interpretation. Accordingly, I regard it is appropriate to follow the views of these appellate courts, although not binding on me, in preference to those of a single judge whose decision also does not bind me, when those views are in conflict. 23 It is clear enough, in my opinion, that London Economics appears to have a good cause of action against certain of its former employees. For reasons which are no doubt apparent, those actions may lie against Mr Price and Mr Steinke as well as the company Frontier Economics. The possible causes of action would include a claim for breach of copyright if the allegedly stolen material has been reproduced. In this regard it is reasonable to infer that much of the material that "has gone missing" is the subject of copyright and that the ownership of that copyright is with London Economics. The potential claims also include actions in detinue and breach of fiduciary duty against former employees. 24 There are presently two difficulties in the path of bringing those claims. In the first place it is by no means clear against whom such actions are to be commenced. It may be, for the reasons I have stated, that an action could be commenced against Mr Price and perhaps Mr Steinke. However, if an action is commenced it would be speculative in the sense that London Economics is not presently able to identify which of them is the party to any wrongdoing. In a sense, the same is true of the potential claim against Frontier Economics. London Economics does have reasonable cause to believe that it has a cause of action against Frontier Economics, perhaps because it is in possession of allegedly stolen material and perhaps also because it has reproduced copyright material. However, in my view, and this is the second difficulty, London Economics does not have sufficient information to enable it to decide whether such a proceeding should be commenced. 25 Is it appropriate in these circumstances that an order for an examination should be made against the respondents under O 15A, r 3? In relation to this I can leave Frontier Economics and Mr Briggs out of the account. It is unlikely that the company will have any information that is not in the possession of either Mr Price or Mr Steinke. With regard to Mr Briggs, no evidence has been put forward that suggests that he would have any knowledge of matters that would tend to assist London Economics in ascertaining the identity of the persons against whom it should bring proceedings. 26 I think that an order should be made for the examination of Mr Price and Mr Steinke. In my view there is a very real possibility that persons other than those presently suspected of wrongdoing, that is Mr Price and Mr Steinke, were involved in the events which I have described. It is a legitimate use of O 15A r 3 for London Economics to be permitted to conduct an examination to seek to identify those persons. At all relevant times, the company employed approximately fifteen people. Almost all of them have resigned and many of them have taken up employment with Frontier Economics. If there has been wrongdoing, it is to be reasonably inferred that persons other than Mr Price and Mr Steinke were involved. It is likely that Mr Price and Mr Steinke have in their possession information that would assist London Economics in ascertaining the involvement, if any, of other former staff members. 27 However, I do not think that it is a legitimate use of O 15A, r 3 for Mr Price and Mr Steinke to be examined about their own involvement. In G Breschi & Son Pty Ltd v AFT Ltd [1988] VR 109 at 113, Gobbo J said in relation to r 32.03 of the Victorian Supreme Court Rules (which is the counterpart of O 15A, r 3) that therule should not be interpreted so widely as to permit an examination to occur in order to resolve which of two "identified potential defendants" is the correct defendant. He said that if an applicant believes that he has a remedy against one of a number of "identified persons", but is unable to decide which is the wrongdoer, r 32.03 cannot be used to make preliminary inquiries to assist in that regard. But his Honour did accept, in my view correctly, that the rule can be used in a case where there are many prospective defendants, none of whom have been sufficiently identified as potential defendants, to ascertain who might be the proper defendant: see also Taylor v Osborne [1973] 1 NSWLR 52 at 56. 28 In relation to the application under O 15A r 6, it seems to me that the respondents Mr Price and Mr Steinke, as well as Frontier Economics, are likely to have documents that will assist London Economics in making a decision as to whether there are sufficient merits in its proposed claims to warrant the commencement of proceedings. I say this notwithstanding the correspondence through Mr Price's solicitors that asserts no such documents exist. An application such as the present one is not to be defeated by an allegation made by solicitors on instruction from their client that there has been no wrongdoing. Very often such assertions turn out to have no foundation when the facts are fully investigated. 29 The only other matter that London Economics must establish to obtain orders under both r 3 and r 6 of O 15A is that it has made reasonable inquiries to elicit the relevant information and those inquiries have been unsuccessful. In connection to this, London Economics points to the exchange of correspondence to which I have already made passing reference. In my view, on the facts of this case, taking those steps is sufficient to constitute reasonable inquiries for the purposes of O 15A. 30 I do not know what further action could reasonably have been taken in a case such as this, before an order under O 15A should be made. Questioning all of the staff who have left the business and taken up employment with Frontier Economics was a possible avenue of inquiry, but is not necessary in my opinion. More particularly when Mr Price, through his solicitors, has denied that documents have been taken from London Economics and he has alleged that the deletion of the information from the computer records was in the ordinary course of business. 31 The applicant should bring in short minutes of orders to give effect to these reasons. The orders should recite the limitation on the examination of Mr Price and Mr Steinke. As those orders will only go against three of the named respondents, the application against Mr Briggs will be dismissed. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.

Solicitor for the Respondent: Blake Dawson Waldron