Panasonic Australia Pty Ltd v Ngage Pty Ltd

CATCHWORDS : PROCEDURE [83]- Application for preliminary discovery- Possible claim for breach of confidence or under Trade Practices Act- How far court needs to be satisfied of strength of plaintiff's claim- How far approach of Federal Court on similar rules should be followed- Whether condition of payment of expenses should be imposed.

LEGISLATION CITED : Trade Practices Act 1974 (Cth), s 52 Uniform Civil Procedure Rules 2005, r 5.3

Aitken v Neville Jeffress Pidler Pty Ltd (1991) 33 FCR 418 CASES CITED : Cairns v Unicomb [2005] NSWSC 1279 Hooper v Kirella Pty Ltd (1999) 96 FCR 1 Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728

PARTIES : Panasonic Australia Pty Limited (P) Ngage Pty Limited (D)

COUNSEL : A S McGrath and K E Day (P) No appearance for defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4825/05 - PANASONIC AUSTRALIA PTY LTD v NGAGE PTY LTD JUDGMENT 1 HIS HONOUR: This is an application for preliminary discovery under Uniform Civil Procedure Rules 2005, rule 5.3. That rule provides as follows: "5.3(1) If it appears to the court that: (a) the applicant may be entitled to make a claim for relief from the court against a person (the prospective defendant) but, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant, and (b) the prospective defendant may have or have had possession of a document or thing that can assist in determining whether or not the applicant is entitled to make such a claim for relief, and (c) inspection of such a document would assist the applicant to make the decision concerned, the court may order that the prospective defendant must give discovery to the applicant of all documents that are or have been in the person's possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief." 2 The plaintiff entered into a confidentiality deed with the defendant on 15 November 2004. The subject matter of the deed was an arrangement between the parties whereby Westfield shopping malls would be supplied with equipment called "plasma screens" on which it could display advertising and those screens would be installed and maintained. 3 The plaintiff says that pursuant to that deed it provided technical and functional specifications and pricing for its video streaming software known as "NM Stage" to the defendant for the purpose of the contract. 4 On 4 February 2005, the parties entered into a memorandum of understanding (MOU). The plaintiff says that by this memorandum the defendant represented its intention to purchase 704 plasma screens and associated video streaming software, licences and players over a three year period on an exclusive basis from the plaintiff for installation in Westfield shopping centres. The memorandum also dealt with how the purchase was to be financed and the pricing. It was a term of the agreement that its existence and terms were confidential and that disclosure was subject to prior written consent of the parties. It was a further term that the parties would maintain open and honest communications. 5 I will return to the memorandum of understanding in due course. 6 The plaintiff has reason to believe that at the time that the parties entered into the memorandum the defendant was also involved in discussions with LG Electronic Australia Pty Ltd (LG) with a view to the defendant purchasing plasma screens from it. The plaintiff says that prior to and on 4 February 2005, Mr Lewis of the defendant, stated that the defendant had chosen to purchase the plasma screens and software from the plaintiff and therefore implicitly represented that it would not be purchasing them from LG. 7 On about 7 February 2005, compact disks containing updated software were delivered by the plaintiff to the defendant and about the same time the plaintiff established what it calls "a project team" dealing with various issues which it expected to arise on the project and appointed a project manager. In February and March liaison between the parties led to the plaintiff arranging for an engineer to fly out from Japan to assist in setting up the software. 8 On 21 February 2005, the defendant informed the plaintiff by email that its first firm order would be for 20 fifty inch plasma screens and 20 players. The plaintiff placed an order with its Japanese head office for delivery in April 2005. 9 On about 3 March 2005, a representative of a company known as Total Concept Projects Pty Ltd (TCP), contacted the plaintiff indicating that it had been approached by the defendant regarding the supply of TCP's video streaming technology to Westfield. The plaintiff became concerned about the confidentiality deed. During March 2005 there were further indications of close relations between the parties. This continued up to May 2005. 10 I have taken these details from the plaintiff's submissions, but the footnotes truly show where the material appears in the evidence. 11 The problem emerges in May 2005 when it appeared that Westfield was now asking the defendant for a $2 million guarantee where it had previously asked for only $1 million. The defendant could not provide that guarantee, but LG was willing to assist. The plaintiff was asked to assist but refused to do so. 12 During May rumours were circulating in the industry that the defendant had signed a contract with LG to supply the plasma screens for the Westfield malls. These rumours were denied by the defendant but the defendant did say that it was still trying to meet Westfield's requirement for a guarantee and that LG was continuing to make increasingly attractive offers. The defendant was given a final agreement to sign on 15 June but it declined to do so until the issues over the Westfield guarantee had been resolved, though Mr Lewis for the defendant said it was still their preference to do business with the plaintiff. 13 In June/July/August, the Westfield screens were being installed using LG and TCP equipment. 14 The defendant did not appear on the present application so that the only facts that I have have been taken from the plaintiff's evidentiary material. Mr A S McGrath and Ms K E Day appeared for the plaintiff and supplied written submissions. They put that the material demonstrated that the plaintiff has or may have an arguable case against the defendant within the jurisdiction of this Court, namely:

(a) damages for breach of clause 2 of the confidentiality deed and the confidentiality clause in the memorandum of understanding;

(b) claims for breach of the equitable duty of confidence;

(c) claims for damages for breach of the exclusivity provision in clause 1.2 of the memorandum of understanding;

(d) claims for damages for breaches of the good faith clause of the memorandum of understanding;

(e) claims for damages or other relief for breaches of the Trade Practices Act 1974 (Cth) for misleading and deceptive conduct;

(g) claims for deceit. 15 I said I would come back to the memorandum of understanding and I will now do so. The document is page 33 in the bundle, PX01. The document is six pages long and contains eight headings. It contains various internal inconsistencies. 16 Heading 1 is "Scope" and notes that the parties intend to enter into an agreement whereby the defendant will purchase 704 plasmas with associated software licences etc. Heading 2 is " The MOU hereunder shall be based on the following conditions" and sets out the principles upon which the future purchase agreement will be structured. Heading 3 is "Confidentiality and Publicity". It states the existence and terms and conditions of this MOU are of a confidential nature and there must be prior written consent before disclosure. Heading 4 is "General" and contains the following: "4.1 Either party may terminate the MOU with 30 days prior written notice signed by a duly authorised representative. 4.2 No rights or obligations shall be created by the MOU with respect to the parties. 4.3 Panasonic and NGAGE will maintain open and honest communications. 4.4 This MOU constitutes the entire understanding and agreement between the parties with respect to the subject matter hereof, and supersedes and cancels all prior or contemporaneous understandings, communications, or agreements, written, oral or otherwise, regarding the subject matter hereof." 17 Other provisions under Heading 4 note that the MOU is not to be modified except in writing, state that the contra proferentem rule is not to apply. Heading 5 makes it clear that the MOU is governed and construed in accordance with NSW law. Heading 6 deals with dispute resolution. Headings 7 and 8 have no relevance to the present problem. 18 Counsel for the plaintiff acknowledge that the MOU is, to use their words, "a curious document" in that it expressly states that it does not create any rights or obligations with respect to the parties (clause 4.2), but it contains a number of provisions which are inconsistent with that provision. 19 Thus at some stage, if there is litigation between the parties, some judge may have to decide whether, despite clause 4.2, the memorandum creates rights and obligations. 20 However, as counsel submit, for the purposes of the present proceedings, all that the plaintiff need show is that the contemplated proceedings are likely to rest on some recognised legal ground and does not necessarily have to show a prima facie or pleadable case so long as there is reasonable cause to believe that the applicant may have a right to obtain relief in the court, its mere assertion that there is such a case being insufficient. The authority for that proposition is Hooper v Kirella Pty Ltd (1999) 96 FCR 1 at 11-12, a decision on comparable rules in the Federal Court. 21 The rule that I am considering was only introduced into NSW law last year. Prior to then, the furtherest that preliminary discovery went was to enable the Court to permit discovery of identity. There was equitable jurisdiction to do much the same and some authority to suggest that the equitable jurisdiction went further. It is not necessary to consider the conflicting authority in view of the new rule. 22 The current rule is, as the heading to it shows, taken from Federal Court Rules Order 15A rule 6. The rules are, however, not identical. The Federal Court rule commences with the words "Where: (a) there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court" whereas, as I have set out, the Supreme Court rule says "If it appears to the court that: (a) the applicant may be entitled to make a claim for relief from the court". The Supreme Court rule would appear to be in wider terms than the Federal Court rule. It would seem that the rule-making authority has deliberately intended to incorporate into NSW court procedure at the very least the power of the Federal Court and that despite any conservative philosophy a judge might hold about the extent of the law of discovery, courts must proceed on the basis that there has been a deliberate policy decision made to extend the rights of potential plaintiffs against potential defendants and to extend them in the way that the Federal Court set out in cases like Hooper v Kirella. 23 I will proceed on that basis. 24 The evidence which I have to date is, of course, only from one side and is untested. However, one would think that a tribunal of fact may very well reach the conclusion that the effective reason why the plaintiff did not obtain the Westfield contract was simply that Westfield being a "big player" was able to demand a $2 million guarantee of performance for anyone who wanted its business. The defendant was unable to satisfy that demand without assistance, it offered the plaintiff the opportunity to provide that assistance as the plaintiff was its preferred supplier, the plaintiff declined, one of the plaintiff's competitors, however, accepted, as a result of which the competitor and the defendant got the contract. On that analysis the tribunal of fact would probably come to the conclusion that the plaintiff was not entitled to any substantial damages for loss of the contract. 25 However, the hypothetical tribunal might also consider that there was quite a bit of suspicion as to whether, before matters came to a head with Westfield's demand for the $2 million guarantee, the defendant had shared confidential information with TCP outside the scope of the proposed contract with the plaintiff. However, it may be that at the time the information was shared it was shared within the permit of the confidentiality agreement, but later that information was used against the plaintiff in TCP and LG obtaining the contract. 26 I must ask myself whether these findings by the hypothetical tribunal would be sufficient to justify an order being made under the rule? 27 Although there is some suggestion in the judgment of Palmer J in Cairns v Unicomb [2005] NSWSC 1279 that a prima facie case has to be shown, it seems to me that the general flow of decision in the Federal Court, see Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728 and Aitken v Neville Jeffress Pidler Pty Ltd (1991) 33 FCR 418, is that what one looks for is to see if there is reasonable cause to believe that the applicant may have a right of action against the respondent. 28 There is also authority in the Federal Court that one should construe the present provision liberally. 29 There are passages in the Federal Court decisions which suggest that the rule is remedial legislation designed to amplify the court's power to penetrate obscurities and uncertainties and ought to be beneficially construed: the Paxus case at 733. I should note that there must be a number of lawyers, myself included, who, with the European lawyers, consider that even traditional discovery may be questionable and it is most questionable whether this "advance" in the rules does what Burchett J said in the Paxus case, but rather alters the whole playing field of litigation. However, whatever a judge's personal feelings are about the matter or his or her philosophy or jurisprudence, this is a collegiate court, the rules are clearly written and I must "go with the flow". 30 Applying the test of "reasonable cause to believe that an applicant may have a right of action", it seems to me that with respect to the confidentiality cause of action there is sufficient here to justify an order. 31 I am less sure about the misleading conduct under the Trade Practices Act allegation. Again, there are suspicious circumstances that the defendant may well have been involved in some tricky conduct before May. That tricky conduct would not, it would seem to me on the material before me (assuming it occurred), lead to damages for loss of bargain, but a small amount of damages might flow from it. 32 Accordingly, when I look at rule 5.3(a) I rule that the plaintiff is a person who may be entitled to make a claim for relief from the court. 33 The next question is whether the plaintiff has made reasonable enquiries, but despite these, it has been unable to obtain sufficient information. The evidence shows that the information has been requested and refused. The next matter is whether the prospective defendant may have possession of documents or things which can assist the determination as to whether the plaintiff is entitled to make a claim for relief. In my view, that is satisfied on the material before me and finally, I am satisfied that inspection of any such documents would assist the plaintiff in making the relevant decision. 34 Accordingly, I should make some order for preliminary discovery. 35 I might add that it would seem to me that the section not only covers information as to the evidence required to prove a cause of action, but also covers material as to the possible worth of the prospective defendant. This is because most sensible people when considering whether to commence action do not usually sue if, even despite assurance by their lawyers of 100% chance of success, the probabilities will be that they will pay out money for legal costs yet make a nil recovery. 36 Counsel have set out in their written submissions reasons why each of the documents in the schedule over which they seek discovery is relevant to breach of confidence or the Trade Practices claim. At this nebulous stage of the litigation their assertions would appear to have justification. 37 I then need to turn to three matters:

(a) whether I should exercise my discretion to make an order;

(b) whether I should make it subject to conditions; and

(c) what order, if any, should I make for the costs of this application. 38 (a) It seems to me that the rule sets out a series of circumstances where as a matter of policy the plaintiff is given some right to obtain information. It may be in certain cases that the prospective defendant can put forward material such as commercial sensitivity which would make the court exercise its discretion against making the order the plaintiff seeks. However, in a case where the defendant does not appear to contest the order and puts forward no such material then it would seem to me to be seldom that the court would refuse in its discretion to make an order where the plaintiff has demonstrated a need. Such is the present case. 39 (b) In primitive times, discovery appears to have been given in equity as a boon to litigants in common law, but usually on terms that the applicant for discovery gave security for the cost of the opponent providing the discovery; see Bray, Law of Discovery and Digest (1885) pp 592 and following. The present application requires the defendant to list documents, a matter which might be extremely time consuming because the schedule contains a large number of specifications as to what documents should be produced. The rules provide for security to be given under 5.6 and under 5.8 for an applicant to provide for the conduct money and expenses of the defendant. 40 Ideally what should happen is that the defendant should indicate a sum of money which it reasonably requires for preparing the list of documents and for supervising inspection and if there is any dispute, that could be settled by a Registrar. However, as the defendant has not appeared to date and in order not to slow the process down, it seems to me that I should make a condition of the order that the plaintiff provide security in the sum of $50,000 for the defendant's costs and expenses in complying with this order in a form to be settled by the Registrar. 41 (c) As to the costs of the application, the plaintiff seeks costs. It would seem to me as a general rule that if there is a contested application then costs follow the event. However, where a party seeks a special order from a judge and the other side does not appear to contest, there is a lot to be said for making the plaintiff bear its own costs. The present case is a borderline case, the plaintiff receiving an advantage. In my view the proper order for costs is that the costs of this application be the plaintiff's costs in any proceedings that are commenced as a result of the discovery. However, for formal reasons, I think that all I can do is to say that the costs are reserved.

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