Pandapak Pty Ltd v Way

Judgment - ex tempore (revised) 1This is an application under Uniform Civil Procedure Rules r 25.19 for a search order. 2The plaintiff is a leading Australian producer of corrugated cardboard box and carton products. It specialises in the manufacture of custom made cardboard packaging and has been in operation since around 1994. One part of the plaintiff's business involves the design, manufacture and printing of promotional point of sale displays and other displays which are temporary or semi-permanent promotional boxes or stands often seen in large supermarkets and department stores. 3The plaintiff employs 46 employees who perform functions as designers and in the sales, marketing and manufacturing areas. For the past three years the plaintiff has had a turnover in excess of $12 million per annum. In 2012 and 2013 the plaintiff did work for some 340 clients including Lindt, Big W, Telstra, Pacific Magazines and Target. 4The first defendant was employed by the plaintiff between 25 February 2008 and 6 December 2013 as Logistics Manager. On 17 October 2013, the first defendant told Mr Pellizzari, the owner and managing director of the plaintiff, that he proposed to resign in the near future. He tendered his resignation on 8 November 2013. His final day of employment was 6 December 2013. 5The second defendant commenced employment with the plaintiff on 18 June 2012 initially as a Head Designer and later as Design Manager. On 14 November 2013 he told Mr Pellizzari that he would be leaving "within three months". In fact he resigned on 6 January 2014, effective 24 January 2014. 6The third defendant was incorporated on 23 January 2014 (that is the day before the second defendant left the employment of the plaintiff). The first defendant is a director and a 25 per cent shareholder of the third defendant. The second defendant is an employee of the third defendant. The remaining shares of the third defendant are owned by Ms Kelly Peoples or an entity associated with her. 7Both the first and second defendant had written contracts of employment with the plaintiff. Those contracts contained express terms imposing duties of fidelity to the plaintiff, duties to maintain the integrity of the plaintiff's confidential information and covenants not to solicit or canvass or approach the plaintiff's clients for 12 months following cessation of employment. 8Mr Harris SC, who appears for the plaintiff, also submitted that the first and second defendants both owed fiduciary duties to the plaintiff. 9The evidence before me establishes a prima facie case that, prior to ceasing employment with the plaintiff, the first defendant engaged in the following conduct. 10First he researched, including in consultation with Ms Peoples, the possibility of establishing a business, evidently intended to compete with the plaintiff. 11Second, without Mr Pellizzari's permission, and without the creation of any resultant product for the plaintiff's benefit, he obtained evidently for his own use copies of the plaintiff's supplier files, sales order process reports and profit and loss reports. 12Third, on 2 December 2013, four days before he left the plaintiff's employment, he accessed the plaintiff's computer and used an external hard drive. Mr Harris told me that the plaintiff has not yet been able to ascertain what documents the first defendant accessed. Mr Pellizzari's evidence was that there was no legitimate business reason why the first defendant would access the plaintiff's system that way, let alone so proximately to his departure. 13Fourth, he solicited customers of the plaintiff, including some (Big W and Pacific Magazines) that, since the first defendant's departure from the plaintiff, have placed no, or no significant, further orders with the plaintiff. 14For example, as at December 2013, Pacific Magazines was responsible for some 40 per cent of the plaintiff's turnover. On 3 December 2013 (days before the first defendant left the plaintiff) an officer of that company sent an email to the first defendant: "Give me a shout when on the other side. Will you have the same mobile number?". 15This evidence is strongly suggestive of the first defendant engaging in conduct in breach of his duty to the plaintiff. 16So far as concerns the second defendant, there is prima facie evidence that whilst he was employed by the plaintiff, he conducted research suggestive of an intention by him to participate, in the near future, in an enterprise carrying on the same kind of business as the plaintiff. 17Further on 25 November 2013, shortly after he told Mr Pellizzari that he proposed to leave the plaintiff, the second defendant accessed the plaintiff's hard drive. That drive contains images of the plaintiff's display jobs. Mr Pellizzari gave evidence that that kind of material was not pertinent to the second defendant's daily work activities. On the 29 November 2013, the second defendant also accessed certain Microsoft email material. According to Mr Pellizzari, the second defendant had no legitimate business reason to access that material; it did not relate in any way to his everyday functions. 18Since the first and second defendant have left the plaintiff, the third defendant's website lists, as its customers, former customers of the plaintiff and shows pictures of jobs produced by the third defendant for those customers. 19There is, necessarily, a limit to the plaintiff's knowledge of the activities of the defendants. It does seem clear, at least on the face of things, that the third defendant is seeking to compete with the plaintiff and, indeed, has secured significant work from the plaintiff's customers or former customers. 20It is less clear what role the first and second defendants have played in the third defendant's activities. However, their conduct prior to leaving the plaintiff's employment, the temporal coincidence of the third defendant's incorporation with their departure from the plaintiff's employment, the interest that the first defendant has in the third defendant and the positions now occupied by the first and second defendants in the third defendant, together, has led me to conclude that there is prima facie case that the first and second defendants are using information they obtained whilst working for the plaintiff to further the interests of the third defendant. 21In the Statement of Claim filed in court this morning the plaintiff claims that the first and second defendants have acted in breach of their contractual and fiduciary duties to the plaintiff and that the third defendant was a knowing participant in that conduct or recipient of the fruits of that conduct. In those circumstances I am satisfied that there is a "strong prima facie case of an accrued cause of action" for the purposes of UCPR r 25.20. 22In one of his affidavits of 13 August 2014 Mr Pellizzari said: "A significant amount of the evidence, upon which the plaintiff wishes to rely at the hearing, will be documents in the possession of the defendants and digital information contained on the computers, telephones, and data storage devices and facilities which are owned and/or used by, and within the control of, the defendants. I am concerned that, unless the search orders and other orders sought in the Notice of Motion are made, the defendants will discard, delete, destroy or eliminate the documents and digital information referred to." 23I am satisfied that, in the circumstances, a reasonable basis exists for Mr Pellizzari to have that apprehension. I am satisfied that if a search order is not made and proceedings commenced simply by service on the defendants of the Statement of Claim, there is a reasonable possibility that the defendants might destroy or cause to be made unavailable material of relevance, perhaps of critical relevance to the plaintiff's claim. 24For that reason I am also satisfied the plaintiff may suffer loss if an order is not made. 25As to the timing of the application, Mr Pellizzari accepts in his evidence that the plaintiff has had (since January 2014) a very significant amount of information that I have outlined above concerning the activities of the first and second defendants whilst they were employed by the plaintiff. The information that the plaintiff then had was from a forensic analysis of the plaintiff's computer records prepared by PPB Advisory. There is a more recent report from PPB Advisory dated 17 July 2013 but Mr Harris accepted that that report was in effect a summary of material earlier provided. 26Mr Pellizzari said, by way of explanation for the delay, that it had been necessary for him to go through the material on the imaged hard drives retrieved by PPB Advisory to determine what information was relevant to any proposed proceedings and then, in a number of cases, to carry out investigations through the plaintiff's other records to understand the ramifications of what was revealed. Mr Pellizzari also said that the departure of the defendants, who he said were two key employees, within a month of each other had significantly increased the day-to-day work he had to do to manage the normal business affairs of the plaintiff. Mr Pellizzari also said that, for the first few months of 2014, he did not realise the extent to which the plaintiff's business has evidently been diverted and was not able to properly assess what had been diverted. 27I do not find this evidence as being a wholly convincing reason for the delay in commencing these proceedings. The remedy sought is highly intrusive. There can be no doubt that once the orders are made, much material which will turn out to be personal and irrelevant, will be seized and the defendants will be put to considerable trouble and expense. Ordinarily, in those circumstances, applications like this should be made in a timely manner. I think this application could have been made earlier. However, to adopt words used by McDougall J in a similar circumstance in Global Medical Solutions Australia v Axiom Molecular [2012] NSWSC 1262 at [27]: "It is open to infer that the defendants have acted privily and in concert to set up a business in competition with the plaintiff's business, and to divert to that new business information and business opportunities of the plaintiff's. To the extent that this case can be made good, one could conclude that the defendants are in large extent the authors of the inconvenience they will suffer". 28I take into account the limitations which, very sensibly, the plaintiff is proposing on the orders made. In the usual way each search is to be conducted in the presence of an independent solicitor and computer expert. Further, the plaintiff does not suggest that it should have any access to any material recovered without the court's leave. 29Overall I am satisfied I should make the orders that are sought subject to the amendments which were discussed in argument earlier today with Mr Harris; which have now been incorporated into the form of orders to be made. 30I make the following orders: (1)Note the undertakings given to the Court by Mr Harris on behalf of the plaintiff, the plaintiff's solicitor, the independent solicitor and the independent computer exhibit noted in annexure B to the Search Order document. (2)Orders made in accordance with the Search Order document, initialled by me, dated today and placed with the papers. (3)Appoint 20 August 2014 at 10am before the Equity Duty Judge for the further hearing of this matter. (4)Direct the plaintiff, by its solicitors, to notify the defendants of that hearing date. (5)Adjourn the notice of motion filed in court this morning to that date. (6)Order that these orders be taken out forthwith.