NAK Australia Pty Ltd v Starkey Consulting Pty Ltd

Supreme Court of NSW|2008-08-08|Before: Brereton J, McLelland CJ

CITATION : NAK Australia Pty Ltd v Starkey Consulting Pty Ltd [2008] NSWSC 1136

HEARING DATE(S) : 8 August 2008 JURISDICTION : Equity Division Expedition List

DECISION : Defendants to provide further and better discovery in respect of the third defendant's existing and potential customers; defendants may mask prices in respect of certain products. Defendants excused from producing certain confidential documents. Discovery of documents relevant only to quantum not required pending determination of liability.

CATCHWORDS : PROCEDURE - DISCOVERY - CONFIDENTIAL COMMERCIAL INFORMATION - where defendants have masked certain parts of discovered documents and object to producing other documents - claim of commercial confidentiality does not prevail against an order for discovery - whether a party giving discovery can mask documents discovered - protective measures employed by courts to protect confidential commercial information - public policy considerations - where plaintiff claims injunctive relief and an account of profits - whether defendant needs to discover documents relevant only to an account of profits before liability is established - whether a reconstructed list of customers complies with discovery obligation - whether defendants can mask information relevant to pricing of products sold by the plaintiff - whether plaintiff should be granted leave to expand classes of discovery - whether defendants should be directed to depose as to the circumstances in which Schedule 2 documents were discarded before discovery was ordered - PROCEDURE - DISCOVERY - PRIVILEGE - third party communications - PROCEDURE - SUBPOENAS - whether granting plaintiff access to documents produced by telephone service provider amounts to giving the plaintiff access to confidential client list

LEGISLATION CITED : (NSW) Uniform Civil Procedure Rules, Part 21

Aktiebolaget Hassle v Pacific Pharmaceuticals Ltd [1991] 3 NZLR 186 Carver v Pinto Leite (1871) LR 7 Ch App 90 Fort Dodge Australia Pty Ltd v Nature Vet Pty Ltd [2002] FCA 501 GE Capital Corporate Finance Group Ltd v Bankers' Trust Co [1995] 1 WLR 172 GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2000] FCA 593 Gray v Associated Book Publishers (Australia) Pty Ltd (in liq) [2002] FCA 1045 Great Western Colliery Co v Tucker (1874) LR 9 Ch App 376 Grofam Pty Ltd v Australian & New Zealand Banking Group Ltd (1993) 43 FCR 408 CASES CITED : Harman v Secretary of State Home Department [1983] 1 AC 280 Hearne v Street [2008] HCA 36 Mackay Sugar Co-operative Associated Ltd v CSR Ltd (1996) 63 FCR 408 Moore v Craven (1870) LR 7 Ch App 94 Optus Communications Pty Ltd v Telstra Corporation Ltd [1995] FCA 254 Portal Software International Pty Ltd v Bodsworth [2005] NSWSC 1115 Roussel Uclaf v Imperial Chemical Industries [1990] FSR 25 Science Research Council v Nasse [1980] AC 1028 Telstra Corporation v Australis Media Holdings (NSWSC, McLelland CJ in Eq, 10 February 1997 unreported)

TEXTS CITED : Matthews & Malek, Discovery, (1992) Sweet & Maxwell

NAK Australia Pty Ltd (plaintiff) PARTIES : Starkey Consulting Pty Ltd (first defendant) Geoffrey Brook Starkey (second defendant) Oil Seal Supplies Pty Ltd (third defendant)

COUNSEL : Ms M Painter (plaintiff) Mr E White (defendants)

SOLICITORS : Truman Hoyle Lawyers (plaintiff) Robilliard & Robilliard (defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EXPEDITION LIST

6032/07 NAK Australia Pty Ltd v Starkey Consulting Pty Ltd & ors JUDGMENT (ex tempore) 1 HIS HONOUR: The plaintiff NAK Australia Pty Ltd ("NAK") is the retailer of oil seals to participants in the energy, engineering, automotive, industrial technology, mining and industrial markets in Australia. On 3 November 2003, it retained the first defendant Starkey Consulting Pty Ltd ("Starkey Consulting") to provide marketing, consulting and sales services. Starkey Consulting provided those services through what was described in the contract as a key person, namely its principal, the second defendant Geoffrey Brook Starkey, who continued to provide those services under the contract until on or about 30 June 2007, when the contract was terminated. In these proceedings, NAK alleges that Starkey Consulting and Mr Starkey have, in contravention of contractual restraints and equitable obligations of confidentiality, misused its confidential information to establish a competing business operated by the third defendant Oil Seal Supplies Pty Ltd ("OSS"), of which Mr Starkey is the principal. 2 The present application concerns the discovery so far given by the defendants. The scope of discovery was the subject of discussion and correspondence between the parties. By letter of 20 March 2008, Truman Hoyle, the solicitors for NAK, sought discovery of 29 enumerated categories of documents. Some discovery, in respect of those categories which were not disputed, was provided by an initial list of documents on 5 May 2008. Further correspondence resulted in an apparent agreement on or about 5 June 2008 as to the extent of the discovery that would be required and provided; in due course a second list of documents was provided on 4 August 2008. 3 However, between 2 June and 4 August 2008, disputation arose in a number of respects, to which the present motion relates. The defendants have sought to mask some details on some of the documents in one of the categories, and declined to produce for inspection two other documents, on the basis of what they described initially as a claim for privilege, but is plainly enough on the basis of commercial confidentiality. The plaintiff, as well as seeking to hold the defendants to the original agreed categories unmasked, seeks in some respects to expand the discovery required. 4 Before turning to the particular matters in dispute, it is convenient to summarise a number of the principles that I will apply. First, as Lord Wilberforce pointed out in Science Research Council v Nasse [1980] AC 1028, 1065, in a passage cited by Spender J in Mackay Sugar Co-operative Associated Ltd v CSR Ltd (1996) 63 FCR 408, 412, and again by Branson J in Gray v Associated Book Publishers (Australia) Pty Ltd (in liq) [2002] FCA 1045, [13], there is no principle in our law by which documents are protected from discovery by reason of confidentiality alone. Nonetheless, it is recognised that discovery constitutes a serious invasion of the privacy and confidentiality of a litigant's affairs and, while the process forms part of civil procedure because of the public interest in ensuring that justice is done between the parties, it ought not be allowed to place upon the litigant any harsher or more oppressive burden than is required to permit justice to be done [Harman v Secretary of State Home Department [1983] 1 AC 280, 308 (Lord Keith of Kinkel); see also Gray v Associated Book Publishers, [12]]. 5 Secondly, in the context of invasion of confidentiality by discovery, it is important to bear in mind that a party obtaining documents by compulsory process remains under an implied obligation imposed by law to use the information derived from that process solely for the purpose of the litigation in which the documents are produced, as recently recognised by the High Court in Hearne v Street [2008] HCA 36. 6 Thirdly, nonetheless, a practice has become established whereby inspection is provided of discovered documents with parts of those documents masked [Grofam Pty Ltd v Australian & New Zealand Banking Group Ltd (1993) 43 FCR 408; Optus Communications Pty Ltd v Telstra Corporation Ltd [1995] FCA 254; GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2000] FCA 593; Fort Dodge Australia Pty Ltd v Nature Vet Pty Ltd [2002] FCA 501; GE Capital Corporate Finance Group Ltd v Bankers' Trust Co [1995] 1 WLR 172; Telstra Corporation v Australis Media Holdings (NSWSC, McLelland CJ in Eq, 10 February 1997 unreported); Gray v Associated Book Publishers, [14]]. In Telstra v Australis Media Holdings and in Gray v Associated Book Publishers, McLelland CJ in Eq and Branson J respectively recognised that where masking was undertaken pursuant to a valid claim for privilege in respect of the relevant portion of the document, it is based on a positive right to withhold from inspection a part of the document; but that there is no such positive right in respect of documents sought to be withheld on grounds of confidentiality or irrelevance, as distinct from those of privilege. In Telstra v Australis Media Holdings, McLelland CJ in Eq, in a passage with which Branson J concurred in Gray v Associated Book Publishers, explained the obligation of a party giving discovery in the following terms: Under the new discovery rules, Pt 23 of the Supreme Court Rules [See Uniform Civil Procedure Rules , Pt 21] ... classes of documents required to be discovered may be, and were in the present case, specified not by reference to relevance to a fact or facts in issue, but by description of the nature of the documents, rendering it unnecessary to consider questions of relevance to an issue as such. If in such cases the party giving discovery desires to withhold, by masking or otherwise, production of part of a discoverable document on the ground that that part does not contribute to the satisfaction of any of the criteria by reference to which the class of documents is described, then it may be that a case can be made for giving effect to that desire, but in my view, unless there is some relevant qualification in the order for discovery, the order requires that the whole document be produced unless there is an agreement to the contrary by the party to which discovery has been made, or unless relief from the requirement, for example, by masking certain portions, is obtained from the Court.

7 Both in Telstra v Australis Media Holdings and in Gray v Associated Book Publishers, the party giving discovery did not obtain the agreement of the other party, nor leave from the Court, prior to masking documents and producing them for inspection in a masked form, but in both of those cases the Court nonetheless permitted the masking to stand after the question was argued before it. 8 Fourthly, as I sought to explain in Portal Software International Pty Ltd v Bodsworth [2005] NSWSC 1115, it has long been the practice that restrictions be imposed on the access of a party to documents produced on discovery, or on subpoena, particularly in cases concerning patents and trade secrets. Although that is less so when documents are sought from parties to litigation than from third parties, and particularly where it is a plaintiff who asserts confidentiality against a defendant (because, the plaintiff having invoked the jurisdiction of the Court, a still stronger case is required to deny a defendant access to relevant confidential documents), the position of a defendant brought to a court by a plaintiff is in an intermediate position. Protective limitations are sometimes introduced at the time of the production or inspection - such as orders for inspection by an independent solicitor or expert, or limiting access (for example) to the plaintiff's expert but not the plaintiff, or inspection by the plaintiff's solicitor but not by the plaintiff. 9 In more recent times it has become rarer that a person is excluded from knowledge, because courts take the view that decisions such as whether to continue or abandon litigation should be made by the party personally on advice, rather than by the advisors. Imposing restrictions on the ability of lawyers to speak to their clients and disclose to their clients information produced to them is undesirable. It places those lawyers in a position of difficulty vis-a-vis their client and even in the conduct of the litigation. But, despite these difficulties, courts do nonetheless still make such orders as the best compromise that can be achieved between preserving the interests of the defendant's confidentiality, and allowing the plaintiff reasonably to conduct its case. Aldous J described the Court's approach in Roussel Uclaf v Imperial Chemical Industries [1990] FSR 25, 29-30, as follows: Each case has to be decided on its own facts and the broad principle must be that the Court has the task of deciding how justice can be achieved taking into account the rights and needs of the parties. The object to be achieved is that the applicant should have as full a degree of disclosure as would be consistent with adequate protection of the secret. In so doing, the Court will be careful not to expose a party to any unnecessary risk of its trade secrets leaking to or being used by competitors. What is necessary or unnecessary will depend upon the nature of the secret, the position of the parties and the extent of the disclosure ordered. However, it would be exceptional to prevent a party from access to information which would play a substantial part in the case, as such would mean that the party would be unable to hear a substantial part of the case, would be unable to understand the reasons for the advice given to him, and in some cases the reasons for the judgment. Thus what disclosure is necessary entails not only practical matters arising in the conduct of a case but also the general position that a party should know the case he has to meet, should hear matters given in evidence and understand the reasons for the judgment. 10 Ultimately, the fact that giving discovery would involve the loss of a party's own trade secrets or confidences is of itself no objection to discovery, but courts more closely scrutinise the discovery sought to ensure that it truly is material and not oppressive in such a case [Great Western Colliery Co v Tucker (1874) LR 9 Ch App 376; Moore v Craven (1870) LR 7 Ch App 94; Carver v Pinto Leite (1871) LR 7 Ch App 90; Aktiebolaget Hassle v Pacific Pharmaceuticals Ltd [1991] 3 NZLR 186; Matthews & Malek, Discovery, (1992) Sweet & Maxwell, [6.23]]. 11 Finally, before turning to the specific matters in issue in these proceedings, it is relevant to note that the plaintiff claims injunctive relief and an inquiry as to damages and/or an account of profits. It follows that any question of the quantum of any damages or the quantum of any profits will be determined at a subsequent hearing upon inquiry, rather than at the initial hearing on liability. Part of the genius of traditional equitable procedure in this field is that it enables decisions to be made as to liability before the scope of discovery on questions relating only to quantum has to be determined. That affords some measure of protection to a defendant, because while the Court, once it has found liability, will, in the balancing exercise to which I have referred, be inclined to give much less weight to the defendant's confidentiality (once it has been established that there has been a relevant breach by the defendant of the plaintiff's confidence), until that position is reached, deferring the question of damages permits sensitive financial information to be protected until the inquiry stage. 12 For that reason I have approached the questions that arise here, insofar as issues of relevance are concerned, by setting to one side questions of their relevance to issues of quantum of damages or profit. Whatever decision I reach on this application will not affect the ability of the plaintiff to seek further discovery in connection with any such inquiry on matters relating only to questions of quantum. At this stage, more will be required in terms of relevance to justify discovery, to the extent that it may expose the defendant's confidential information, than merely that the documents may be relevant to questions of quantum. 13 It is now convenient to approach the eight particular matters that the plaintiff raises, by reference to its Notice of Motion filed on 5 August 2008. 14 Under claim 1, the plaintiff seeks further and better discovery of categories 26(a) and (b) of the categories of discovery, and in particular of an unmasked copy of each document so far produced but masked. 15 Category 26 in the plaintiff's request for discovery was in the following terms: 26. In relation to the customers of the third defendant: (a) any list of customers of the third defendant; (b) any list of potential customers of the third defendant compiled by any of the defendants or any servant, agent or contractor of the defendants; ...

16 That category of discovery was one of those that was disputed as to its relevance and width. In the initial list of documents, because it was a category in dispute, no documents were produced in respect of it. Then, in a letter of 5 June 2008, Robilliard & Robilliard, the solicitors for the defendants, wrote: "By way of compromise, our clients are prepared to provide discovery to date which relate to any client of NAK as identified on the file CUST2.CSV." The reference to discovery "to date" reflected a dispute as to whether discovery should be required in respect of documents brought into existence after the institution of proceedings, with which I need not now be troubled. The file "CUST2.CSV" was a file of NAK which identified its customers. Accordingly, what the defendants agreed to do was to provide discovery, up to date, of the documents described in category 26, which related to any NAK client on the CUST2 file. 17 By letter of 6 June 2008, Truman Hoyle, on behalf of NAK, accepted the proposed compromise position, and by email of 10 June 2008, Robilliard & Robilliard confirmed that the defendants were happy to give discovery within that category as so refined. Thus, what was agreed as a result of that exercise was that there would be discovery of any list of customers of the third defendant, and any list of potential customers of the third defendant compiled by any of the defendants or any servant, agent or contractor of the defendants, limited to customers who appeared on the plaintiff's CUST2 list. 18 Ultimately, what the defendants discovered in their second list of documents in category 26 was described as "Oil Seal Supplies customer list (58 entries) undated". Inspection of that document makes clear that it was not a document that existed at the time of the order for discovery, let alone at the time when proceedings were commenced, but a document brought into existence for the specific purpose of giving discovery - because it is a serially numbered list showing only those customers of OSS which correspond with the plaintiff's CUST2 list. It is not, as I would understand the agreed category to have required, a redacted version of a previously existing customer list, let alone of all such lists, but a new document retrospectively brought into existence for the purpose of giving discovery. In my view, that does not comply with what was the defendants' obligation to discover as agreed classes, and I will order that the defendants give discovery and produce for inspection all lists of customers of the third defendant, and all lists of potential customers of the third defendant compiled by any of the defendants and any servant, agent or contractor of the defendants, provided that upon production for inspection of such documents the defendants may mask the names of customers who do not appear on the CUST2 list. 19 Claim 2 in the Notice of Motion is for an order that the defendants give discovery of unmasked copies of documents identified in their second list of documents as "Invoices on which prices have been masked". 20 Category 24 in the request of 20 March 2008 was in the following terms: 24. Complete financial records of the third defendant from 1 July 2007, including: (a) Tax invoices issued for the supply of products; (b) Records of receipts from customers; (c) Tax invoices received from suppliers of the goods for resale.

This was, again, one of the disputed categories, but again, in Robilliard & Robilliard's letter of 5 June 2008, it was proposed by way of compromise that "our clients are prepared to provide discovery to date of any financial records of the Third Defendant which relate to any client of NAK as identified in the file CUST2.CSV; … " 21 In the second list of documents, under categories 24 and 26, the defendants discovered invoices from the third defendant to a number of parties. Some of those invoices - said to number 58 in all out of what appear to be a couple of hundred - were masked. What was masked on these invoices was the price of the goods supplied; the description of the goods and identity of the customer was not masked. 22 The intention to mask these documents had not been foreshadowed until 13 June 2008, when Robilliard & Robilliard wrote to Truman Hoyle asserting that it had come to their clients' attention on or about 11 June 2008 that officers of NAK had contacted OSS's national distributor of truck hub seals with a view to NAK entering the market with respect to truck hub seals. The defendants' concern is that the documents which it has masked - which it says relate to truck hub seals - if disclosed to the plaintiff, would reveal the third defendant's price structure, in a market in which the plaintiff has not until recently been active, and thus enable the plaintiff to undercut its prices in that market with those customers. The plaintiff, on the other hand, says that it needs access to all documents in this category, because an examination of the prices at which the third defendant is selling products to customers will enable a comparison with the plaintiff's prices in order to show, so it is said, that the third defendant's prices slightly undercut those of the plaintiff - which is said to found an inference that the defendants are continuing to misuse confidential information taken from the plaintiff as to the plaintiff's pricing structure. 23 There is no suggestion that in the relevant industry the prices at which the respective retailers deal with customers is widely known. It is clear from the plaintiff's application in the proceedings that it regards the prices which it offers its customers as confidential, and it is equally clear from the defendants' attitude to discovery that it does so as well. Accordingly, it is not as if the prices with which retailers deal with their respective customers are widely known from a price list and I infer, at least for the purposes of the present application, that they may well be dealing with different customers at different prices. 24 There is a body of affidavit evidence before me, which has not been challenged on the present application, that supports the view that in about June of this year the plaintiff decided to enter the truck hub seal market, at least in a manner and to an extent to which it had not previously been engaged. I do not overlook that, at a time when Mr Starkey was working for the plaintiff, in about 2003, it made some attempt to enter that market; but a single email four years ago is a very slight basis on which to dispute the presently unchallenged evidence of three deponents in the defendants' case. Nor do I overlook that, in the plaintiff's product catalogue, there is a single reference to a truck hub seal. However, for the purposes of the present application, the balance of the evidence is firmly tilted in favour of the probability that the plaintiff has but recently decided to enter in a large way into the truck hub market. The significance of that is that it follows that, at the time when Mr Starkey ceased to work for the plaintiff in about mid 2007, and at the time when proceedings were commenced in late 2007, it is improbable that the plaintiff had a significant market in the truck hub seal market. 25 It should be observed that the defendants did not seek the leave of the Court, and have not obtained the agreement of the plaintiff, to masking the subject invoices when they were produced. However, the plaintiff has not established that the prices at which products other than those which the plaintiff was selling at about the time of Mr Starkey's departure or shortly before then could be relevant to the circumstantial exercise which it wishes to undertake. Nor does it seem to me that inability to undertake that exercise in respect of 58 invoices out of at least a couple of hundred would seriously affect the plaintiff's ability to compare the prices at which it offered products for sale to customers and those which the third defendant offered the same products to the same customers. The exercise which the plaintiff wishes to undertake would be irrelevant if not based on sales of the same product to the same customers and, insofar as products not sold by the plaintiff are concerned, would not found any such inference as the plaintiff suggests might be drawn. 26 In those circumstances, bearing in mind the additional scrutiny which the Court may bring to questions of relevance when the defendants' confidentiality is in issue, I am not satisfied that invoices to customers on the CUST2 list in respect of products other than those marketed by the plaintiff are relevant, at least as to the price at which that product is sold, at this stage of proceedings (though it may be different when it comes - if it comes - to any question of damages or profits). I will therefore permit the defendants to comply with their obligations to produce discovered documents for inspection in respect of the invoices discovered under the heading "Invoices of which pricing has been masked", by masking prices for products not marketed by the plaintiff, and conditional upon the defendants' undertaking - which has been proffered - to unmask any invoice in respect of any item on any invoice in respect of which it is shown that the plaintiff does market the same product. 27 Claim 3 in the Notice of Motion was expressed as a claim for further and better discovery by particularising the author and recipient of documents in respect of which a claim for privilege was made in the second list of documents, being a number of emails and diary entries recorded under the heading "Documents Where Privilege is Claimed". In a third list of documents dated 7 August 2008, the defendants provided the identity of the author and recipient of the relevant documents or entries. Essentially, this claim now takes the form of one for production of those documents for inspection notwithstanding the claim for privilege, although it was put on the basis of an application for the Court itself to inspect the documents and form its own view as to whether they were privileged. 28 On such an application, where privilege is invoked to resist inspection of admittedly discoverable documents, the onus is borne by the party giving discovery of making out a claim for privilege. On the present application, the relevant material may be summarised as the affidavit of discovery itself, which asserts a claim for privilege and its grounds, listing the emails and entries and their date, and asserting that they are diary entries of third party communications and documents prepared for the dominant purpose of legal proceedings. Although it was said that I should inspect the documents, neither party attempted to put them before me on the voir dire. The assertions in the verified list of documents were not challenged by cross-examination. The evidence in respect of the claim for privilege is limited, but I can have regard to the date of the relevant communications; the circumstance that the persons between whom they took place were Mr Starkey and persons who had been named in an affidavit sworn by Mr Tesoriero on behalf of NAK, in connection with an application pursuant to which an Anton Piller order was made ex parte at the time of institution of proceedings; the circumstance that at least two of the persons with whom that contact had taken place did subsequently swear affidavits, which have been served by the defendants; and the circumstance that the claim in the list of documents, though not descending to much particularisation, has not been the subject of challenge by cross-examination. On balance, on the evidence before me, the claim for privilege has been made out, and I uphold the claim for privilege in respect of those documents. 29 Claim 4 in the motion is for production of unmasked copies of two documents in respect of which the defendants have purportedly claimed privilege, being documents referred to in paragraphs 341 and 346 of Mr Starkey's affidavit of 4 March 2008. It is true that those documents have been referred to in an affidavit sworn by Mr Starkey and that prima facie that of itself would be sufficient to require their production. However, on examination of Mr Starkey's affidavit, it is plain that they were referred to in order to explain and identify what were certain documents on a computer drive which had been inspected on behalf of the plaintiff by an expert, and that those documents - let alone their substance - were not forensically deployed by Mr Starkey in the relevant sense. 30 On the other hand, it is also plain that the documents are not entitled to privilege properly so-called, and if they are entitled to any sort of protection, it is to that discretionary protection which the Court might afford to sensitive commercial confidential documents. 31 The first document referred to, in paragraph 346 of Mr Starkey's affidavit, is described as the third defendant's "special price list on Scott Seals for Motion Industries". It is the property of OSS, not NAK. The document is plainly a potentially very sensitive commercial document of the third defendant, being its special price list in respect of a particular class of product for a particular customer. It was asserted - though there is no evidence before me of it - and I will assume, for present purposes, that Motion Industries is also a customer of NAK; but the evidence does not establish to my satisfaction that NAK was at the relevant time in the market for Scott seals. I note that in the 2003 email, to which I have already referred, reference is made to NAK endeavouring to enter the market at that time for a product that would compete with Scott seals, but it does not appear from that that NAK was in fact itself marketing Scott seals. Given the findings I have made for present purposes about NAK's recent decision to enter the truck hub seal market, of which Scott seals are apparently an aspect, I am not satisfied that this document is sufficiently relevant to justify the jeopardy which its disclosure to the plaintiff would involve to the third defendant's confidentiality. 32 The other relevant document is referred to at paragraph 341 of Mr Starkey's affidavit as "My Seagull Automotive Oil Seal catalogue". This is a catalogue of oil seals manufactured by Seagull. As I understand the evidence, NAK does not distribute Seagull Seals. In any event, counsel for NAK was unable to articulate on what basis Mr Starkey's Seagull Automotive Oil Seals Catalogue may be relevant, other than it was referred to in his affidavit. In those circumstances, again, I am not satisfied that its relevance has been established, at least to an extent that would justify overriding the defendants' commercial confidence. 33 I will therefore, until further order, excuse the defendants from producing for inspection those two documents. 34 The fifth claim is for further and better discovery of documents in category 24, including the third defendant's profit and loss statement for the financial year ending 2008 and its total sale figures by customer for the financial year ending 2008. 35 I have already set out the original form of category 24 of the request for discovery. In a letter dated 3 June 2008, Truman Hoyle wrote in respect of this category: … our client is prepared to narrow the category to remove the reference to 'complete' financial records as expressed in the Letter. Accordingly, our client seeks only production of the financial records specified in paragraphs 24(a) - (c) of the Letter.

In Robilliard & Robilliard's reply of 5 June, it was observed: We fail to see how the category is amended or narrowed by the removal of the word 'complete'. By way of compromise, our clients are prepared to provide discovery to date of any financial records of the Third Defendant which relate to any client of NAK as identified in the file 'CUST2.CSV'; …

That compromise position was ultimately accepted. Thus, the agreed compromise position as at early June 2008 was that the defendants would give discovery of tax invoices issued for the supply of products, records of receipts from customers, and tax invoices received from suppliers of goods for resale, which related to any client of NAK identified in the CUST2 file. 36 The plaintiff's submissions asserted that the discovery was manifestly inadequate because it did not include, for example, a profit and loss statement for the financial year ended 2008. I am quite unable to accept that submission, since because of the agreement the parties had reached, the agreed categories of discovery did not require discovery of any such profit and loss statement. The plaintiff ultimately appeared to accept this, and what the plaintiff was really seeking to do was to enlarge the classes of the documents required for discovery. I accept that that may in some cases be appropriate and it is much better dealt with now than on some subsequent application. I accept also that the plaintiff's inclination to enlarge the classes of discovery was triggered, to some extent at least, by the defendants' apparent resiling from the earlier agreement by masking certain of the discoverable documents as already described. 37 In order to show that some additional category of documents should be added to those of which discovery is required, some reason for doing so should be established. The plaintiff contends that disclosure of the third defendant's profit and loss statements and total sale figures by customers for the year ending June 2008 may tend to show that in its first year of trading the third defendant has been spectacularly successful, to such an extent that it might be inferred that its success could only have been gained by an improper springboard derived from the use of the plaintiff's confidential information. However, it seems to me that the possible explanations for financial success - assuming the profit and loss statements and total sale figures will demonstrate it - are manifold, and would require so much more evidence, including expert evidence, on what is really a collateral issue, that their relevance to the question of liability is tenuous in the extreme. I can readily see why total sales figures by customers may be entirely relevant to the question of damages or profits, but their relevance to the issues on liability, if there is any connection at all, is very remote. I see no sufficient reason, given the agreement which the parties reached as to the scope of discovery, to enlarge the agreed classes at this stage to include profit and loss statements and total sales figures. The position may well be different, come any inquiry as to damages or profits. 38 Claim 6 is for an order that the defendants make an affidavit in relation to a number of documents listed in Part 2 of its list of documents, stating, in respect of each such document, who discarded it, when it was discarded and the manner in which it was discarded. The relevant documents - which were referred to in various paragraphs of Mr Starkey's affidavit - are listed in Part 2 of the defendants' second list, in respect of which it is said, "This document is not in the possession of the Defendants having been discarded prior to the commencement of proceedings." In the formal part of the second list of documents the defendants' solicitors certify: I am not aware of any documents within the classes specified in the order (other than excluded documents) that are, or that within the last 6 months before the commencement of the proceeding have been, in the possession of the First, Second and Third Defendants (other than those referred to in part 1 or 2 of the list of the documents).

In the affidavit verifying the list of the documents sworn by Mr Starkey, he deposes, in the form required by the rules, that he has made reasonable inquiries as to the existence and location of the documents referred to in the order and "as to documents in part 2 of the list in respect of which no person is specified, I have no belief as to whose possession the document is in". 39 In those passages, the defendants have complied with what the rules and prescribed form requires of them so far as documents that were, within six months before the institution of the proceedings, but are no longer, in the possession, custody or power of a party giving discovery. At least in this State, the rules no longer require that a party in those circumstances depose to when and where the document was last in the possession of that party and in what circumstances it ceased to be in their possession. 40 Notwithstanding that, discovery is a process intended to obtain relevant documents and their disclosure to another party, and if it were suggested that an order requiring such further details in respect of a lost document might lead to a relevant train of inquiry to find the document and achieve its production, I am content to accept that the Court could and probably would make such a direction. But it is clear that what is sought in this case is not the elucidation of a train of inquiry which might lead to production of the relevant documents - which in this case is a computer USB drive - but in effect to pin down the defendants' position as to the precise circumstances of its loss, in order to found submissions and inferences in respect of the defendants' motive and credit. That is not the purpose of the discovery process. It may well be permissible by other procedures and other means, but discovery is intended to procure the production of relevant documents for inspection from a party to proceedings, or their location in the hand of some third party, and not to found the basis for attacks on credit and submissions as to motive. In those circumstances, I am disinclined to make the order sought. 41 Claim 7 is an order that the defendants make and serve an affidavit stating whether there is any document meeting the description "Communication between the defendants and Tyton" in their possession custody or power. In the original request for discovery, category 7 was "All records of communications between any of the defendants and Tyton Conveyors Pty Limited in the period 1 March 2007 to date." In the first list of documents, it was said in respect of this category that "the defendants do not possess any other documents other than those produced in answer to the Notice to Produce dated 20 December 2007." In a letter of 3 July 2008, Truman Hoyle inquired "… are your clients seriously suggesting they have had no communications with Tyton in the period 20 December 2008 to date other than that indicated in Mr Starkey's diary?" Robilliard & Robilliard replied, on 7 July 2008 (original emphasis): Aside from the matters you refer to as listed in the diary, and some privileged communication with regard to obtaining affidavits from Owen Giggens and Michael Graham ... you are correct in stating that our clients are seriously suggesting that they have not communicated with Tyton during that time. 42 That appears to involve some concession there had indeed been some such communication with Tyton, albeit the subject of a claim for privilege. When the defendants served their third list of documents on 7 August 2008, they listed a number of such communications with persons at Tyton, under cover of a claim for privilege in Part 2 of Schedule 1. Those communications are within the class that I have already ruled upon in dealing with claim 3 in the plaintiff's Notice of Motion, and for the same reasons I uphold the claim of privilege in that respect. 43 The final substantive claim in the Notice of Motion is in respect of a subpoena issued by the plaintiff on 7 July 2008 to Telstra, and seeks unrestricted access to all documents produced by Telstra in answer to that subpoena. The subpoena in question sought production of all telephone utility bills from a fixed line from the period 1 July 2007 to 30 June 2008 for the entity known as Oil Seal Supplies Pty Ltd, the entity known as Starkey Consulting Pty Ltd, or Mr Geoffrey Starkey. Telstra has produced documents in answer to that subpoena. Although there has been some disputation about the circumstances in which that happened, they are ultimately irrelevant to the decision which I now have to make. The plaintiff submits that the telephone records will, or at least may tend to, show attempts made by Mr Starkey following his departure from the plaintiff to contact customers of the plaintiff. It is admitted by Mr Starkey that following his departure from the plaintiff he sent faxes seeking business to a large number of potential customers, and he has produced by way of discovery a copy of the fax circular and a list of those to whom he says he sent it. Nonetheless, the fact that discovery from one source has been given on that topic does not mean that the plaintiff is not entitled to seek the same information from an alternative source, which has the potential to verify or disprove Mr Starkey's contentions in that respect. The circumstance that Mr Starkey has himself given some discovery on this topic does not disentitle the plaintiff from seeking relevant information on the same topic from Telstra. 44 The defendants submit that providing the plaintiff access to its telephone records is substantially no different to providing access to its customer list. Although it can be expected that the telephone records will cover substantially more than customers, it is correct that a careful analysis of the telephone records may well reveal customers or potential customers of the defendant. It will not, of course, reveal the prices at which the defendants have sold to those customers. The plaintiff does not seriously press for access to the telephone records after December 2007. Although it was argued, with some force, that it is difficult to see how confidentiality could attach to telephone bills, it is possible to see in this case that the telephone numbers may equip a competitor to identify customers of the defendant. In those circumstances, I propose that the plaintiff should have access to the telephone records up until the end of December 2007, but that until further order that access will be restricted to the plaintiff's lawyers. 45 Accordingly, I make the following orders: (1) Order that by way of further and better discovery the defendants make and serve a further list of documents in compliance with Uniform Civil Procedure Rules , rr 21.3 and 21.4, of: (a) any list of customers of the third defendant, and

(b) any list of potential customers of the third defendant compiled by any of the defendants, or any servant, agent or contractor of the defendants;

provided that upon production of such documents for inspection the defendants have leave to mask the names of those customers who do not appear on the CUST.2 list.

(2) Grant leave to the defendants, upon producing for inspection those documents listed in their list of documents of 4 August 2008 under the heading "Invoices of which pricing has been masked", to mask the prices in respect of those products which were not during the 12 months prior to 31 December 2007 products also marketed by the plaintiff, such leave being conditional upon the defendants' undertaking to the Court that they will unmask the price in respect of any item in respect of which it is shown that that was marketed by the plaintiff in the 12 months prior to 31 December 2007.

(3) Order that until further order the defendants be excused from producing for inspection the documents listed in category 28, in respect of which confidentiality is claimed, being those referred to in paragraphs 341 and 346 of the affidavit of Mr Geoffrey Starkey sworn 4 March 2008.

(4) Order that by 13 August 2008, the defendants' solicitor segregate the documents produced by Telstra pursuant to the subpoena served on it into two packages, one such package to comprise all such documents which contain entries in respect of telephone communications up to and including 31 December 2007, and the other containing such documents as do not fall within that category (which will be in substance those post-dating 1 January 2008), and make and serve on the plaintiff's solicitor an affidavit that he has segregated the documents in accordance with this order and placed them in packages accordingly, masking the first, "Pre-2008 documents", and the second, "Post-2008 documents".

(5) Grant access to the plaintiff to the documents so designated as "Pre-2008 Documents" from Thursday, 14 August 2008.

(7) Adjourn proceedings to Wednesday, 27 August 2008 at 2:00pm before me for mention.

(8) Reserve liberty to both parties to apply by arrangement with my Associate in the meantime on two days notice, any such notice to specify the directions to be sought upon the matter being re-listed. **********

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At a glance

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Judgment (27 paragraphs)

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Cases Cited (8)

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