PHOENIX EAGLE COMPANY PTY LTD -v- TOM McARTHUR PTY LTD [No 5] [2021] WASC 377 (2 November 2021)

5 Second, while relevance is not the only factor the court must consider in the exercise of its discretion, it remains the descriptive criterion in O 26 of what documents should be discovered. To determine whether a class of documents may be relevant, the court should consider the pleadings, together with the conduct and admissions of the parties and the nature of the action.[2]

6 The defendants sought further and better discovery of the documents incorporating Janette McArthur Pty Ltd (JMPL) and the engagement and other correspondence with Piper Alderman to create that company.

7 The defendants also seek additional discovery of six categories of documents relating, primarily, to JMPL and Health Focus Products Australia (HFPA).

8 In their submissions on this application, the defendants describe the documents they seek as broadly covering two topics:

(1) documents relating to the incorporation of JMPL and the Plaintiff's efforts and role in JMPL;

9 The reference to 'broad' categories just adds a layer of confusion to an already tangled issue. It appears that the defendants still seek documents within the more precisely stated categories, that is:

1. all documents passing between Tom McArthur, Janette McArthur, Susan Henderson (or any of them) and the plaintiff or its officers from January 2012 to April 2014 relating to:

1.1 Today Tonight;

1.2. Channel 7;

1.3. Janette McArthur Pty Ltd;

1.4. Janette McArthur Face & Body Care; and

1.5. The First Defendant;

2. all documents relating to the plaintiff or its officers' involvement in the creation of Janette McArthur Face & Body Care;

3. all documents relating to the plaintiff or any of its officers' involvement in the incorporation and shareholding of Janette McArthur Pty Ltd;

4. all television broadcasts and promotional or marketing materials concerning Janette McArthur Face & Body Care or Janette McArthur Pty Ltd;

5. all correspondence passing between the plaintiff, its officers and Health Focus Products Australia (HFPA) concerning the extract and processes utilised by HFPA; and

6. all documents passing between the plaintiff, its officers and HFPA relating to HFPA's capacity to manufacture its products.

10 On 17 November 2017, I ordered the parties to give discovery of documents 'directly relevant to the issues raised by reason of paragraphs 90 and 94 of the Counterclaim and paragraph 27 of the Defence to Counterclaim'.[3]

11 On 11 September 2020, I ordered the plaintiff to give discovery of categories of documents, 'insofar as they are directly relevant' and have not already been provided by way of discovery, as attachments to witness statements or affidavits, or in response to notices to produce:

(a) any agreements, deeds, releases or other documents outlining any arrangements with Tom or Janette McArthur and the failure to bring proceedings against them;

(b) all documents passing between Janette McArthur Pty Ltd and its officers and the plaintiff and its officers relating to the extract used or proposed to be used in Janette McArthur Face & Body Care products and an extract called OPAL X;

(c) all documents relating to or evidencing the transfer and any consideration paid for shares in the plaintiff to or from Tom McArthur;

(d) all documents relating to formulation and methods used by the first defendant to produce its products;

(e) the financial statements of the plaintiff from 2012 to 31 May 2017;

(f) all documents recording or evidencing financial information provided by HFPA to the plaintiff;

(g) all licences and sub-licences or other agreements for the use of intellectual property of the plaintiff including but not limited to any licences or sub-licences or other agreements with Janette McArthur Pty Ltd up to 31 May 2017;

(h) all other documents:

(i) on which the plaintiff seeks to rely;

(ii) that adversely affect the plaintiff's case;

(iii) that support another party's case; and

(iv) that adversely affect another party's case.

12 On 1 October 2021, I further ordered that the plaintiff give discovery of the following categories of documents, insofar as they are directly relevant and have not already been provided by way of discovery, as attachments to witness statements or affidavits, or in response to notices to produce:

(a) any minutes of meetings, notes taken, calendar entries, travel arrangements and communications organising meetings between Janette McArthur and Mark Richardson and/or the Plaintiff in March 2013;

(b) the evidence asserted to exist in the 27 June 2013 letter from Piper Alderman, and how that evidence came to be obtained by Piper Alderman; and

(c) correspondence regarding the provision of the affidavit sworn by Tom McArthur on 9 May 2012 to the Plaintiff and/or the Plaintiffs solicitors.

13 There can be no misunderstanding that the discovery orders already made are limited to documents that are directly relevant. The use of categories of discovery in describing documents to be discovered does not override that limitation.[4] Paragraph (h) of the orders made on 11 September 2020 is not confined by categories and is expressed in terms of the criteria prescribed in r 20.14 of the Federal Court Rules 2011 (Cth) for assessing direct relevance.

14 In summary, there are existing discovery orders for all documents directly relevant to issues raised in two identified paragraphs of the counterclaim and the corresponding paragraph in the reply; for documents directly relevant to 10 categories; and, more generally, for all directly relevant documents.

15 The defendants submit that the documents relating to JMPL are directly relevant to the matters pleaded in [90] and [94] of the Defence and Counterclaim, in which the first defendant (the plaintiff by counterclaim) pleads (by way of counterclaim):

[90] The method of producing the paw paw extract invented by Lynda McArthur and used by the first defendant in its products was at all material times information which was highly confidential to the first defendant and which constituted a trade secret.[5]

[94] Commencing in or about March 2013 and by no later than 27 June 2013, the plaintiff obtained the first defendant's confidential information from [Thomas] McArthur further and alternatively Janette McArthur.

Particulars

The matters pleaded are to be inferred from the following:

(a) the matters pleaded in paragraph 93 above;[6]

(b) Janette McArthur is the daughter of [Thomas] McArthur;

(c) Janette McArthur met with Mark Richardson of the plaintiff on a date unknown to the defendants in March 2013, purportedly to discuss correspondence said to have been sent by Roe Legal as solicitors for the first defendant at about that time to which Piper Alderman, as solicitors for the plaintiff, were alleged to have responded;

(d) Janette McArthur did not inform the first defendant of the meeting referred to in subparagraph (c) above at any time;

(e) by email dated 30 May 2013 Janette McArthur informed the chief executive officer of the first defendant that she had a meeting with the plaintiff to find out to what extent the plaintiff owned [Thomas] McArthur's and her intellectual property;

(f) the plaintiff had first retained solicitors Piper Alderman in Sydney to act on its behalf in relation to its claims that the first defendant was infringing the plaintiff's intellectual property in or about December 2011;

(g) [Thomas] McArthur and Janette McArthur were both in Sydney on 30 May 2013;

(h) by email dated 11 June 2013, Janette McArthur, then a director of the first defendant, falsely stated to Peter Bates of Tripak Pharmaceuticals Pty Ltd, a supplier to the first defendant, that the paw paw filtrate produced by the first defendant infringed the plaintiff's Australian patent;

(i) by letter dated 27 June 2013 Piper Alderman, the then solicitors for the plaintiff, asserted to the first defendant that firm now had evidence that:

(i) immediately after the airing of the Today Tonight programs on 4 and 5 October 2010, [Thomas] McArthur, the second defendant and Peter Proud had conspired to take for themselves the commercial opportunity to exploit the plaintiff's intellectual property in the Australian market;

(ii) in November 2010 Proud had travelled to Hervey Bay, Queensland to work with [Thomas] McArthur to manipulate recipes and processes in an attempt to avoid infringing the plaintiff's patent;

(iii) [Thomas] McArthur continued to work on a revised recipe over the period November 2010 and January 2011;

(iv) [Thomas] McArthur settled a revised recipe and process on 23 January 2011;

(v) the recipes and processes used by the first defendant in its products were inventions of [Thomas] McArthur;

(j) the second defendant did not provide any such evidence to Piper Alderman and Peter Proud had died on or about 26 November 2012;

(k) Piper Alderman, and thereby the plaintiff, knew of the issues being contested between [Thomas] McArthur, Janette McArthur and the first to third defendants in the Supreme Court of Western Australia by no later than 27 June 2013;

(l) on a date unknown to the first defendant but prior to 1 February 2014 McArthur further and alternatively Janette McArthur provided to the plaintiff or its solicitors Piper Alderman a copy of an affidavit sworn by [Thomas] McArthur on 9 May 2012 the contents of which were confidential to the first defendant and which had not been filed or served upon any person;

(m) on 12 August 2013 [Thomas] McArthur transferred 18 shares in the plaintiff to Mark Richardson, a director of the plaintiff;

(n) on 1 November 2013 Piper Alderman prepared the documents required for the incorporation of Janette McArthur Pty Ltd;

(o) Janette McArthur Pty Ltd was incorporated on 4 November 2013;

(p) the directors of Janette McArthur Pty Ltd upon its incorporation were Mark Richardson and Paul Wright, both directors of the plaintiff as at that date, and Janette McArthur;

(q) the shareholders of Janette McArthur Pty Ltd upon its incorporation were HFPA, the plaintiff and Janette McArthur;

(r) Janette McArthur subsequently announced to the public, in effect, that [Thomas] McArthur had authorised Janette McArthur or Janette McArthur Pty Ltd to use his patent to produce paw paw products, when McArthur had never held any patent;

(s) the plaintiff has taken no action against [Thomas] McArthur or Janette McArthur.

16 The first defendant further pleads in its Defence and Counterclaim at [95] that its confidential information was disclosed by Thomas McArthur or Janette McArthur to damage its business interests and to secure an advantage for themselves. Neither of those individuals are parties, and the first defendant does not allege that the plaintiff knew of that purpose. The first defendant has abandoned its claim that the plaintiff aided and abetted or was party to the conduct of Tom McArthur or Janette McArthur in breach of the Corporations Act 2001 (Cth) and no longer pursues a claim for damages.

17 In [A] of the Prayer for Relief on the Counterclaim, the first defendant claims a declaration that the method by which the first defendant prepared the paw paw extract used by the first defendant in the course of its manufacture of the goods marketed for sale by the first defendant is its confidential information; and in [B] and [C] it seeks an injunction restraining the plaintiff from disclosing or using information obtained from Thomas McArthur or Janette McArthur (being the first defendant's confidential information) and an order for the plaintiff to deliver documents and records relating to the first defendant's method of manufacture to the first defendant.

18 In the Reply and Defence to Counterclaim, the plaintiff pleads, as to [90], that;

(a) There was no method of producing pawpaw extract invented by Mrs Lynda McArthur.

(b) The method of producing pawpaw extract used by the First Defendant in its products was arrived at as pleaded in paragraph 11 [of the Reply].

(c) The information was confidential information of Phoenix Eagle which had been improperly used by the First Defendant at the instigation of [Thomas] McArthur and Trevor Brickhill, as pleaded in the Statement of Claim.

19 In response to [94] of the Counterclaim, the plaintiff pleads in [27] of the Reply and Defence to Counterclaim:

(b) admits that over the period from March 2013 to 11 February 2014, the plaintiff obtained the information ultimately contained in [Thomas] McArthur's statutory declaration dated 11 February 2014;

(c) admits that the information obtained included information as to the method used by the First Defendant to produce the pawpaw extract contained in its products;

(ca) admits that it also received [from Cathy Adams at the request of Janette McArthur] in or about June 2013 documents prepared by and belonging to Peter Proud, who at that time had recently died, and admits that those documents contained information as to the method used by the First Defendant to produce the pawpaw extract contained in its products;

(d) says that the information as to the method used by the First Defendant to produce the pawpaw extract contained in its products was not confidential information of the First Defendant, but was (or was derived from) confidential information of Phoenix Eagle which had been misappropriated by the First Defendant at the instigation of [Thomas] McArthur and Trevor Brickhill.

20 In particulars, the plaintiff says that the statutory declaration by Thomas McArthur was provided to its then solicitors, Piper Alderman, on or about 11 February 2014, and some of the information and the statutory declaration was also provided directly to Mr Richardson of the plaintiff by Janette McArthur between March 2013 and February 2014.

21 The defendants seek further discovery of documents incorporating JMPL and the engagement and other correspondence with Piper Alderman to create that company.

22 Among the categories of additional discovery, the defendants seek all documents relating to the plaintiff or its officers involvement in the creation of Janette McArthur Face & Body Care; all documents relating to the plaintiff or any of its officers' involvement in the incorporation and shareholding of Janette McArthur Pty Ltd; and all television broadcasts and promotional or marketing materials concerning Janette McArthur Face & Body Care or Janette McArthur Pty Ltd.

23 It is not necessary to resolve whether that material might have been relevant while the first defendant sought damages, and while it alleged that the plaintiff aided and abetted or was party to conduct of Tom McArthur or Janette McArthur.

24 On the case now pleaded, [94] and particulars (n) to (r), are the defendants' only reference to Janette McArthur Pty Ltd.[7] That is, the defendants allege that matters relating to the incorporation of that company in November 2013, and an announcement subsequently made by Janette McArthur, are matters from which it may be inferred that the plaintiff obtained the first defendant's confidential information from Thomas or Janette McArthur between about March 2013 and no later than 27 June 2013.

25 Those allegations are solely relevant to whether the court should give the relief pleaded in paragraphs A, B, and C of the counterclaim.

26 The defendants submit that the documents sought are relevant to the allegation in [95] of the Counterclaim that the provision of the first defendant's confidential information to the plaintiff was done in order to damage the first defendant's business interests and to attempt to secure an advantage for themselves. That allegation is not admitted.

27 Paragraph 95 contains no allegation against the plaintiff. The allegation is against two individuals - Thomas and Janette McArthur. Further, it now stands alone. The first defendant has abandoned the only other reference to the allegations in that paragraph by deleting the damages plea in [97] and [98], and the allegation that the plaintiff aided and abetted or was party to conduct of Thomas and Janette McArthur. Even before the amendment to delete [97] and [98], the first defendant had not alleged that it suffered loss or damage.

28 The argument that the remedies now sought by the first defendant are discretionary does not advance matters further. The relief sought against the plaintiff is based on the allegations that they obtained the first defendant's confidential information, and knew it to be confidential when they received it. The documents relating to JMPL have not been shown to have sufficient (if any) relevance to that relief.

29 The plaintiff put an additional submission that '[an] important aspect of the ultimate trial of these proceedings will be dealing with the overarching questions of the dealing between the parties and Tom and Janette McArthur who at various points in time owed duties (as a fiduciary, or equitable duties of confidence) to either the Plaintiff or First Defendant'.[8] The submission is at a level of generality which cannot properly be addressed. Discovery addressed to overarching questions which neither go to establishing the material facts relevant to the causes of action nor any relief sought in the proceedings is not justified in the circumstances of this case, where there has been such extensive discovery orders made including, as noted above, a general order for discovery of directly relevant documents.

30 The plaintiff has not demonstrated any basis on which an order for further discovery, or an order for additional discovery of documents relating to JMPL should be made.

31 The defendants seek the following categories of documents relating to HFPA:

all correspondence passing between the plaintiff, its officers and Health Focus Products Australia (HFPA) concerning the extract and processes utilised by HFPA; and

all documents passing between the plaintiff, its officers and HFPA relating to HFPA's capacity to manufacture its products.

32 The pleaded case regarding HFPA is more extensive, but the pleading relevant to the discovery issue is quite limited.

33 The plaintiff pleads that, between 2006 and 2008, a dispute arose between Thomas McArthur and the other directors of the plaintiff over various matters including a proposal to enter into a license agreement with HFPA.[9]

34 On 26 June 2008, the plaintiff executed a license agreement with HFPA pursuant to which HFPA commenced producing and marketing cosmetic products based on the plaintiff's intellectual property.[10]

35 In about August 2010, officers of HFPA met with Mr Noonan of the current affairs television program, Today Tonight, leading to the agreement to produce the first Today Tonight story on HFPA products.[11]

36 The plaintiff alleges that the second defendant, Mr Brickhill, convinced Thomas McArthur to take advantage of the opportunity offered by the Today Tonight story by starting his own company, separate from the plaintiff and HFPA.[12]

37 The plaintiff alleges, in substance, that Thomas McArthur and Mr Brickhill deprived the plaintiff of the right to earn additional royalties on HFPA products which the Today Tonight story (and a second story) were intended to promote, and deprived the plaintiff of the opportunity to use the commercial success of HFPA in otherwise exploiting markets.[13]

38 The plaintiff claims an account of profits, alternatively an order for compensation under s 1317H of the Corporations Act.[14] The claim for compensation, however, is for the amount determined by an account of profits made by any person resulting from the defendants' contraventions of the Corporations Act. The plaintiff does not seek to quantify the royalties it would have earned from HFPA or other commercial opportunities but bases its relief on the profits earned by those who profited from the breaches.

39 The defendants plead that the terms of the Licence Agreement between the plaintiff and HFPA were limited in that:

(1) the plaintiff granted to HFPA an exclusive licence in relation to any copyright, design, trade mark, patent or patent application, innovation, invention or know how relating to cosmetic, therapeutic, medicinal and other products invented by [Thomas] McArthur in existence at the date of execution of the Agreement; and

(2) there were no products invented by Thomas McArthur in existence as at the date of execution of the Agreement.[15]

40 The defendants further pleaded that the plaintiff did not intend to manufacture or market products based on Thomas McArthur's inventions, in Australia or elsewhere.[16] The point is not controversial. The plaintiff has consistently put its case on the basis that its business model was to profit from licensing its products to others.

41 The defendants submit the documents it seeks in relation to HFPA are relevant to the extent of any damage suffered by the plaintiff as a result of the first defendant's conduct, because they are relevant to the extent HFPA had capacity to manufacture the plaintiff's products at the time of the first Today Tonight story, or at all.

42 The defendants further refer to the plea, in the Defence and Counterclaim at [38], that HFPA authorised or ratified the use of information which may have belonged to the plaintiff in the first Today Tonight story.

43 The plaintiff submits, in my opinion correctly, that the documents relating to HFPA cannot bear on the issue of construction raised by the defendants in [36.1] and [36.3] of the Defence and Counterclaim.

44 I also accept the submission of the plaintiff that the extract and processes utilised by HFPA are not material to any issue that has been raised between the parties. In particular, there is no issue between the parties whether the extract and processes used by HFPA fell outside the plaintiff's Australian patent. There is no issue that the plaintiff ever intended to manufacture or market products based on Thomas McArthur's inventions. That is not the plaintiff's case, either on its pleading or the witness statements that have been filed.

45 The plaintiff submits that the documents relating to the capacity of HFPA are not required as the royalty information already discovered is the best indicator of the capacity of HFPA to manufacture products under the licence from the plaintiff. I would not accept that submission were the plaintiff claiming damages for lost opportunity. Discovery is not necessarily limited to the 'best' documents. But the plaintiff's formulation of its claim for relief, including the claim for compensation under s 1317H of the Corporations Act, is based upon the profits made by the first defendant or others, alternatively a claim that the first defendant holds its assets under a constructive trust for the plaintiff. For the determination of those claims, the capacity of HFPA to manufacture products under licence is not sufficiently relevant to support the order the defendants seek.

46 With regard to the matters pleaded in the Defence at [38], the plaintiff correctly submits that the categories of documents the defendants seek, concerning the extract and processes used by HFPA and its capacity to manufacture products, have no apparent relevance to questions of authorisation or ratification.

47 I would dismiss the application for further discovery, and the application for additional discovery of the identified categories of documents.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

[1] Roe v The State of Western Australia [2013] WASC 130 [10] - [13] (Martin CJ); see also Singh v Friedman [2013] WASC 78 [3] - [4] to which his Honour referred.

[2] Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2005] WASC 60 [5].

[4] See transcript of 10 October 2019, 184.

[5] The particulars to [90] relate to matters between the first defendant and Thomas and Janette McArthur and would not expand the range of relevant documents.

[6] In [93] the first defendant pleads a dispute between the defendants and Thomas and Janette McArthur.

[7] There is no specific reference in the pleadings to Janette McArthur Face & Body Care.

[8] Written submissions of first defendant [22].

[10] Statement of claim [69] - [73].

[16] Defence and counterclaim [36.3.4].