Pizzeys Patent and Trade Mark Attorneys Pty Limited v Bennett

1. The parties confer and within 7 days file agreed or competing proposed orders in accordance with these reasons for judgment including as to costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

JAGOT J: 1 These reasons for judgment concern an application for preliminary discovery under r 7.23 of the Federal Court Rules 2011 (Cth). 2 I have decided that the prospective applicant should obtain preliminary discovery as proposed in its amended schedules of documents which are annexed. My reasons follow. 3 Rule 7.23 provides as follows: (1) A prospective applicant may apply to the Court for an order under subrule (2) if the prospective applicant: (a) reasonably believes that the prospective applicant may have the right to obtain relief in the Court from a prospective respondent whose description has been ascertained; and (b) after making reasonable inquiries, does not have sufficient information to decide whether to start a proceeding in the Court to obtain that relief; and (c) reasonably believes that: (i) the prospective respondent has or is likely to have or has had or is likely to have had in the prospective respondent's control documents directly relevant to the question whether the prospective applicant has a right to obtain the relief; and (ii) inspection of the documents by the prospective applicant would assist in making the decision. (2) If the Court is satisfied about matters mentioned in subrule (1), the Court may order the prospective respondent to give discovery to the prospective applicant of the documents of the kind mentioned in subparagraph (1)(c)(i). 4 The context within which the application is brought is not in dispute. The prospective applicant is a specialist intellectual property firm practising in the fields of patents, trademarks and designs. The first and second prospective respondents worked for the prospective applicant as registered patent attorneys. Both were principals of the prospective applicant and Mr Bennett was also the managing principal and a director of the prospective applicant. Both were employed under contracts of employment which included confidentiality and post-employment non-competition, non-solicitation and non-dealing provisions. On 19 March 2018 and 1 April 2018 respectively, Mr Bennett and Mr Richardson resigned from their employment with the prospective applicant. 5 In around 23 April 2019 Mr John Woodhams, the Chief Executive Officer of the prospective applicant, became aware that Mr Bennett and Mr Richardson had established a patent attorney firm, being the third prospective respondent (RnB). RnB provides patent attorney services in competition with the prospective applicant. Mr Bennett and Mr Richardson are directors of and shareholders in RnB. RnB was registered on 8 March 2019. 6 Since 23 April 2019, the prospective applicant began receiving patent file transfer requests from existing clients to transfer files to RnB. Mr Bennett and Mr Richardson had provided patent attorney services to these clients in the two year period before they ceased employment with the prospective applicant. In around May and June 2019 the prospective applicant became aware of new patent filings with IP Australia by RnB in relation to patent applicants and attorney firms that are clients of the prospective applicant with whom Mr Bennett and Mr Richardson had dealings in the period 18 September 2017 to 18 September 2018. 7 As the prospective applicant explained in its written submissions: The Employment Contracts relevantly contain post-employment restraints which, in summary, preclude each of Bennett and Richardson from: (a) carrying on or otherwise being concerned with or interested in any entity which is in competition with, or that carries on a business that is similar to the business carried on by, Pizzeys or any member of the IPH Group (the non-compete restraint); (b) performing work or providing services of the kind performed or provided by Pizzeys to actual or prospective customers or clients of Pizzeys or the IPH Group with whom Bennett or Richardson respectively had dealings in the period two years preceding the termination of employment (the non-dealing restraint); and (c) soliciting or interfering with clients or customers of Pizzeys or the IPH Group (non-solicitation restraint). The non-compete restraint applies for a maximum period of 12 months from the end of the employment - i.e. expires on 30 September 2019. The non-dealing and non-solicitation restraints apply for a maximum period of 24 months from the end of the employment - i.e. expires on 30 September 2020. Bennett and Richardson also have obligations under the Employment Contracts and in equity not to use or disclose any confidential information of Pizzeys or the IPH Group for as long as the information is not in the public domain (other than by their breach). Bennett and Richardson also had during their employment, and continue to have postemployment, obligations under section 183(1) of the Corporations Act 2001 (Cth)… 8 The prospective applicant sought information from the prospective respondents before applying for preliminary discovery but no information was provided until after the filing of the originating application. 9 As the prospective applicant identified in its submissions: Mr Woodhams, as Chief Executive Officer of Pizzeys, has deposed an affidavit as to his belief that Pizzeys may have a right to obtain relief against Bennett, Richardson and RnB in relation to the following claims: (a) Post-employment contractual breaches of the non-compete restraint, the non-solicitation restraint and/or the non-dealing restraint by Bennett and Richardson; (b) Breach of obligations by Bennett and Richardson relating to use of confidential information either during or post-employment under the contract or in equity; (c) Breach of obligations by Bennett and Richardson under section 183(1) of the Corporations Act 2001 (Cth) (Corporations Act) regarding improper use of information obtained by Bennett and/or Richardson because they are, or have been, a director, officer or employee of Pizzeys to gain an advantage for themselves or someone else or cause detriment to Pizzeys; (d) Breach of contractual and equitable obligations by Bennett and Richardson which occurred during their employment; (e) An unlawful conspiracy between Bennett, Richardson and RnB to engage in the breaches described above; and (f) Other claims against RnB for inducing a breach of contract and/or knowingly being involved in contraventions of the Corporations Act by Bennett and Richardson. 10 According to the prospective applicant its "…application relates to all of the above, other than in relation to a breach of contract claim against Bennett and Richardson for a breach of the non-compete restraint of which Pizzeys acknowledges it already has sufficient information to determine whether it would have a reasonable basis to commence proceedings". 11 The prospective respondents defended the application on a confined basis which was the focus of their written and oral submissions. 12 According to the prospective respondents, for categories 1 and 5 in Schedules 1 and 2 and categories 1 and 8 in Schedule 3, the prospective applicant had not demonstrated that it had a reasonable belief that it may have a right to obtain relief from the prospective respondents in relation to the alleged causes of action, being the misuse of confidential information (in contract or in equity), the contravention of s 183 of the Corporations Act, conspiracy, and breach of contractual and fiduciary obligations during employment. 13 The prospective respondents submitted that the only objective evidence which the prospective applicant had adduced to support the reasonableness of Mr Woodhams' beliefs was that Mr Bennett and Mr Richardson had access to certain documents while employed by the prospective applicant, those documents may have contained information relevant to establishing a competing business, and Mr Bennett and Mr Richardson did in fact establish a competing business. According to the prospective respondents, these facts are insufficient to establish the reasonableness of Mr Woodhams' beliefs. The facts do not incline the mind to the existence of any state of affairs involving the putative causes of action and involve nothing more than a mere possibility: Pfizer Ireland Pharmaceuticals v Samsung Bioepis AU Pty Ltd [2017] FCAFC 193; (2017) 351 ALR 103 at [176] and [177]. 14 The prospective respondents also noted: (1) the absence of evidence suggesting that Mr Bennett or Mr Richardson copied or took any documents; and (2) the evidence adduced for the prospective respondents, by their solicitor on information and belief, that Mr Bennett and Mr Richardson used a combination of their memories and public databases to identify clients who may be interested in RnB's services. 15 The prospective applicant submitted that there was sufficient evidence to support the reasonableness of the belief. In addition to the matters to which the prospective respondents referred, Mr Bennett and Mr Richardson resigned at around the same time with the inferred intention of establishing a competing business which they did in fact establish. Subsequently, there were a number of file request transfers and patents filings by former customers of the prospective applicant. While employed by the prospective applicant, Mr Bennett and Mr Richardson had access to confidential information of the prospective applicant both written and unwritten including customer lists and specific pricing arrangements. In these circumstances it is not difficult to infer that in setting up their competing business Mr Bennett and Mr Richardson may have used this confidential information. The very fact that a competitive business has been established which is providing services to the prospective applicant's customers is sufficient to make Mr Woodhams' subjective belief reasonable in the circumstances. Further, the evidence adduced by the prospective respondents, which is on information and belief only, does not specifically deny possession of confidential information of the prospective applicant. All of this, said the prospective applicant, is not conjecture or suspicion giving rise to a mere possibility of possession and misuse of confidential information. These are objective facts which establish the objective reasonableness of Mr Woodhams' beliefs that the prospective applicant may have a right to relief. 16 I accept the prospective applicant's submissions. I consider that there is sufficient material to support the objective reasonableness of the beliefs that the prospective applicant may have the right to obtain relief in the Court from the prospective respondents on the bases identified. The evidence adduced by the prospective respondents does not undermine the reasonableness of that belief for the reasons which the prospective applicant has identified. There is enough in the circumstances to incline the mind to the positive view that the prospective applicant may have a right to relief based on the posited causes of action supporting categories 1 and 5 in Schedules 1 and 2, and categories 1 and 8 in Schedule 3. 17 I do not accept the prospective respondents' contrary submissions. Those submissions do not give sufficient weight to the objective circumstances and the availability of inferences from them which, while they might ultimately prove unfounded, are nevertheless sufficient to found the reasonableness of Mr Woodhams' beliefs that the prospective applicant may have the right to obtain relief in respect of the identified causes of action. Further, I do not accept that Mr Woodhams has expressed his beliefs at too high a level of abstraction to be meaningful. Understood in the context of his evidence as a whole Mr Woodhams' beliefs are clear and the evidence which supports them, whilst circumstantial in nature, is sufficient to make them objectively reasonable in all of the circumstances. 18 In response to categories 3, 6, 7 and 8 of Schedules 1 and 2, and categories 4, 6, 9, 10 and 11 of Schedule 3, the prospective respondents contended that the prospective applicant has sufficient information to decide whether to start a proceeding in the Court to obtain relief against the prospective respondents for the alleged causes of action so that the requirements of r 7.23(1)(b) of the Federal Court Rules are not met. The prospective respondents also contended that, alternatively, the Court should refuse to make discovery orders for these categories in the exercise of its discretion as the categories as framed are unduly broad and will capture material that is highly confidential to, and protected by, privilege belonging to third parties. 19 According to the prospective respondents the prospective applicant has always had sufficient material to decide whether or not to commence proceedings for breach of the non-dealing and non-solicitation restraints. The prospective respondents noted, in support of this contention, that the prospective applicant had asserted in its letters of demand dated 26 April 2019 that Mr Bennett and Mr Richardson had "…solicited and interfered with customers or clients of Pizzeys". The prospective respondents also noted that they had filed evidence which disclosed the following: a. the Prospective Respondents have confirmed that they approached "Clients" (as defined in the O.A.), with none of those approaches occurring before 1 April 2019; b. as at 23 September 2019, Mr Bennett has contacted or approached, by email and/or in person, at least 120 identified entities (being potential clients or law or patent attorney firms) for the purpose of those entities being provided professional services by RnB. Further, the dates on which those entities were first contacted or approached has been disclosed; c. as at 23 September 2019, Mr Richardson has contacted or approached, by email and/or in person, at least 59 identified entities for the same purpose. The dates on which those entities were first contacted or approached has also been disclosed; d. Messrs Bennett and Richardson have each confirmed that many of the entities which they have approached or contacted are ones that they dealt with during the last two years of their employment at Pizzeys (and so fall within the definition of 'Clients' in the O.A.); e. as at 23 September 2019, RnB has received a total of 206 matters from 37 identified entities and billed to all (except one) of those entities specified amounts of professional fees totalling $233,610; and f. examples of the emails sent by each of Messrs Bennett and Richardson in approaching some of the above entities are also in evidence. 20 In response to the prospective applicant's submissions the prospective respondents contended that the claim that there was insufficient information for the prospective applicant's lawyer to certify a pleading relating to all relevant breaches should be rejected as a matter of fact. So too the suggestion that the prospective applicant was not in a position to determine all relevant breaches should not be accepted on the evidence. Similarly, the prospective applicant's contention that it did not have sufficient evidence to ascertain whether there was a causal link between the conduct and loss should not be accepted. Objectively there is nothing more that the prospective applicant reasonably needs from the prospective respondents to determine the existence of a causal link and if the prospective applicant had suffered loss that information would be in its possession. 21 The prospective respondents also submitted that if r 7.23(1) is satisfied then, in any event, the Court should refuse to order discovery in the exercise of its discretion. The scope of discovery sought is very wide and will involve disclosure of substantially the entirety of RnB's files and records which include confidential information of its clients. 22 The evidence adduced by the prospective respondents primarily consists of a table prepared by their solicitor on information and belief which identifies the potential clients contacted by Mr Bennett and Mr Richardson, the number of matters RnB has received from the client, and all professional fees RnB has billed. The evidence does not include any of the underlying documents which enabled the table to be prepared. Otherwise, examples of communications representing the first approach to various entities have been provided. After reviewing this material, Mr Woodhams provided a further affidavit in which he said that the evidence the prospective respondents had adduced strengthened his belief that the prospective applicant may have a right to relief for breaches of the non-solicitation and non-dealing restraints, and for contravention of s 183(1) of the Corporations Act. Further, he remained of the view that the prospective applicant had insufficient information to know the full extent of the conduct of the prospective respondents in respect of which it may have a right to relief and that the prospective respondents would hold documents which would assist the prospective applicant in determining whether the prospective applicant would have a reasonable basis for commencing proceedings. 23 The submissions for the prospective applicant stressed that the test is not whether it has sufficient information to know that a cause of action has accrued but whether there is sufficient information to decide whether to commence a proceeding which includes information relevant to the extent and seriousness of the relevant conduct, the likely quantum of any damages and any relief. The full extent of the prospective respondents' conduct has not been disclosed in the evidence it has adduced. The prospective applicant submitted further that the rule operated to enable it to obtain, at the least, access to the documents which had been used to prepare the table in the prospective respondents' evidence. The prospective applicant was not bound to take the table at face value and accept it as sufficient information in substitution for the underlying documents. The prospective applicant also amended its proposed discovery categories in response to the prospective respondent's submissions as to discretion. 24 I accept the prospective applicant's submissions. The prospective respondents' evidence, on information and belief and in summary form, is relevant to the reasonableness of the prospective applicant's belief that it may have a right to obtain relief and to the reasonableness of the prospective applicant's belief that the prospective respondents have or are likely to have documents directly relevant to the question whether the prospective applicant has a right to obtain the relief. The prospective respondents' evidence in fact supports the objective reasonableness of the prospective applicant's beliefs as to both of these requirements. It is also apparent from the prospective respondents' evidence that inspection of the documents sought, including but not limited to those documents which underlie the prospective respondents' evidence, would assist the prospective applicant in making the decision whether or not to commence proceedings. As the prospective applicant submitted, the prospective respondents' evidence does not of itself constitute sufficient information to enable the prospective applicant to decide whether or not to commence proceedings. It does enable the prospective applicant to satisfy itself about the totality of the conduct of the prospective respondents which may entitle the prospective applicant to relief. 25 I also do not accept the discretionary arguments for the prospective respondents. The requirements of r 7.23(1) are met. I accept that r 7.23(2) involves the exercise of a discretion. Having regard to the amendments to the schedules which the prospective applicant made I do not consider that the discovery sought is more than reasonably necessary to assist the prospective applicant in deciding whether or not to start a proceeding in the Court to obtain the relief it has identified. 26 In Schedules 1 and 2, category 1 relates to the prospective applicant's allegedly confidential information which is in the possession or control of Mr Bennett or Mr Richardson. Category 3 is confined to documents about contacts which had the purpose of the client instructing or using the services of RnB or having that result. Category 5 is confined to communications between Mr Bennett and Mr Richardson about establishing their competing business. Category 6, like category 3, is confined to documents evidencing contacts or plans to contact clients for the purpose of the client instructing or using the services of RnB. Category 7 is confined to responses to category 6. Category 8 is limited to timesheets, WIP reports and invoices for the period 1 October 2018 to date. In Schedule 3, category 1 is to the same effect as category 1 in Schedules 1 and 2. Categories 4 and 6 are to the same effect as category 3 in Schedules 1 and 2. Category 8 is to the same effect as category 5 in Schedules 1 and 2. Categories 9 and 10 are to the same effect as categories 6 and 7 in Schedules 1 and 2. 27 I do not accept that the preliminary discovery sought, in its amended version, is unreasonably wide in scope. I do not accept that such discovery will involve, in effect, the production of all of the files of the prospective respondents. I am not persuaded that the scope of the discovery sought is more than that which is reasonably necessary to enable the prospective applicant to decide whether or not to start a proceeding to obtain the relief which has been identified. Further, if issues of confidentiality arise then I do not doubt that an appropriate regime to protect confidential information can be agreed between the parties. 28 For these reasons, I consider the prospective applicant is entitled to the orders for preliminary discovery which it seeks. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.