Singtel Optus Pty Limited & Ors v Almad Pty Limited & Ors

Judgment 1On 29 April 2011 the plaintiffs (Singtel Optus Pty Limited (Singtel) (the 1 st plaintiff), Optus Networks Pty Limited (Optus) (the 2 nd plaintiff) and Optus Administration Pty Limited (Admin) (the 3 rd plaintiff)) commenced proceedings against the defendants (Almad Pty Ltd (Almad) (the 1 st defendant), Sumo Distribution & Storage Pty Ltd (Sumo) (the 2 nd defendant), Leon Mark Curtis (Mr Curtis) (the 3 rd defendant), Craig Hasler (Mr Hasler) (the 4 th defendant), and PJC333 Pty Ltd (PJC) (the 5 th defendant)) for damages for breach of contract (against Almad), damages for breaches of the Trade Practices Act 1974 (Cth) (against Almad, Sumo, Curtis and Hasler), damages for conversion and bailment of Optus' stock and goods (against Sumo and PJC) and equitable damages and/or an account of profits for breach of fiduciary duties (against Sumo, Curtis and PJC). 2Almad provided transport and logistics management services to Singtel and transported and stored equipment and stock belonging to Optus. Sumo operated the warehouse in which the Optus equipment and stock was stored. Messrs Curtis and Hasler are former employees of Admin. Mr Curtis was employed from 1998 to 2008 and at the time he left Admin he was the General Manager Logistics. Mr Hasler was employed from 2001 to 2005 and at the time he left Admin he was the Outbound Operations Manager. They are directors and shareholders of Sumo and Curtis is a director of PJC that trades as "Electrosales". 3The plaintiffs contend that in the period 8 May 2005 to 29 October 2010 Almad overcharged Singtel and Optus $3,508,304. These claims are in contract and also under the Trade Practices Act . It is also contended that Sumo failed to return equipment and goods to Optus and that it, Mr Curtis and Mr Hasler, caused damage to the plaintiffs by converting the plaintiffs' goods and equipment. It is contended that PJC entered into contracts with third parties by which it sold the goods and equipment belonging to Optus. There are claims of accessorial liability against Mr Curtis, Mr Hasler and Sumo. 4On 23 May 2011 Mr Curtis and PJC made application to set aside ex parte search orders that were granted by Hammerschlag J on 29 April 2011. Mr Aldridge SC leading Mr JT Johnson, appeared for Mr Curtis and PJC and Mr J Stoljar SC, leading Mr D Mackay, appeared for the plaintiffs. Background 5On 29 November 2010 the plaintiffs' "auditors" attended the warehouse operated by Sumo and reviewed its contents. It is apparent that at about this time the plaintiffs advised Almad/Sumo that they wished to remove the Optus cabling from the warehouse. 6On 9 December 2010 the plaintiffs wrote to Almad seeking clarification in respect of the number of recent invoices received by Optus from Almad and requesting copies of any agreements between Optus and Almad and Almad and Sumo together with supporting documents in relation to the invoices. On 10 December 2010 the plaintiffs asked Almad to produce the documents by close of business that day. Philip Davey of Almad responded that same afternoon indicating that he was able to provide the information to Optus but that he needed the weekend to gather the materials together. 7On the following Monday, 13 December 2010, Mr Davey produced numerous documents and agreements to the plaintiffs, including what appeared to be a Warehousing Agreement (unsigned) between Almad and Sumo for the period 1 May 2005 to 30 April 2007. Mr Davey advised the plaintiffs that Almad had always operated under the premise that an accepted quote constituted an agreement. By this stage Almad was clearly concerned that the invoices directed to Optus would not be paid. However on 17 December 2010 Optus wrote to Almad stating that "Optus will honour its' obligation to Almad to pay all moneys properly due and payable for services provided to date". On 19 and 20 December 2010 Mr Davey wrote to Optus seeking clarification of the expression "properly due and payable" in Optus' letter. 8On 20 December 2010 the plaintiffs wrote to Mr Davey advising that Optus no longer wished to use Almad's services; that there needed to be some settlement of the way in which a credit of $26,000 to Optus was brought to account; that Optus intended to do a stock take of goods as they were relocated from Sumo's warehouse; and that Optus had a plan to remove its stock from the warehouse and wished to do so by 24 December 2010. It was alleged that Mr Davey had unlawfully prevented Optus from removing its goods and warned that Almad would be held accountable for wasted costs. This email also included the claim that if there were to be any disagreement about how the credit was to be brought to account or any discrepancies in the stock take then Optus would be in "dispute" with Almad. 9Mr Davey responded on the evening of 20 December 2010 observing that the plaintiffs' email was the first notification that Optus no longer wished to use Almad's services. He advised that he plaintiffs had informed him on the previous Friday, 17 December 2010, that the Optus business was going to tender and that Almad would be invited to respond. Mr Davey also advised that he was happy to accommodate the verification of the goods at the warehouse so that "all can be satisfied with the outcome". "Wthout prejudice" correspondence 10There was "without prejudice save as to costs" correspondence between the solicitors for the plaintiff (Minter Ellison) and the solicitors for Sumo (Baker Ryrie Rickards Titmarsh (BRRT)) between 21 December 2010 and the end of January 2011 in which there was negotiation of terms and arrangements for the removal of the plaintiffs' goods and equipment from the warehouse; the stock take of the goods and equipment; the resources to be provided by Sumo to assist that process; Sumo's entitlement to claim a lien over the goods and equipment in relation to Sumo's unpaid invoices rendered to Almad (Almad having rendered its own invoices to Optus); the amount that the plaintiff would pay into Court or a controlled monies account in exchange for the release of the goods and equipment; and issues as to whether a binding agreement had been reached in this latter regard. 11In late December 2010, the parties reached an agreement that Optus, with some assistance from Sumo's staff (paid for by Optus), would remove its goods and equipment from the warehouse during late December 2010 early January 2011 except for some satellite equipment to the approximate value of $500,000 that would remain in the warehouse whilst the parties conducted further negotiations in relation to Sumo's unpaid invoices and Sumo's lien claim. 12A without prejudice letter from BRRT to Minter Ellison dated 10 January 2011 included the following: 17. We note that during our telephone discussions, you have indicated that your client believes it has already paid (to Almad) more for our client's services than the total of our client's outstanding invoices. We understand from our discussions that it is on this basis that your client refuses to pay for our client's outstanding invoices. Clearly, our client is not in a position to know what amounts your client has paid to Almad. Neither is our client in a position to know what arrangements exist between Almad and your client and what amounts may or may not have been validly charged over and above the amounts of our client's invoices. Our client only knows that its invoices have not been paid. 18. Our client is in a position to prove each and every part of its claim in relation to the costs rendered in its invoices and there can be, with respect, no possible dispute that the services have been provided, either at your client's specific request (via its agent) or at least with your client's acquiescence and, in either case, to your client's benefit. 19. Accordingly, regardless of any claim that our client has against Almad and regardless of any payments in relation to same, our client has a valid quantum meruit claim against your client. ... 22. As previously noted, our client has been willing since at least 20 December, 2010 and remains willing now and for the next three (3) weeks until the loading of the Goods is complete, to participate in a dispute resolution process with your client and Almad, to address the issues and hopefully resolve the situation. Our client has not been paid for its services and is entitled to payment. If there is a dispute between your client and Almad (and our client currently does not have any formal notification of that fact, nor any detail of the nature of such dispute) then our client is entitled to be informed of the nature of that dispute and whether there is anything our client can do to assist in its resolution. 13On 4 February 2011 Minter Ellison wrote to BRRT (again without prejudice save as to costs) enclosing an open letter of the same date to Almad's solicitors (Grech Partners). The enclosed open letter to Grech Partners confirmed that: (1) since early 2005 there had been a continuing business relationship between Almad and Optus that had not been documented and that no "formal agreement" existed; and (2) Almad had "sub-contracted the storage services to Sumo". The letter included a claim that the arrangements were not entered into pursuant to the internal protocols or processes of Optus and that it appeared that Optus employees had exceeded their authority limits and/or had acted outside their position. It was noted that there were invoices totalling $430,711.95 that remained outstanding of the total claim for 2010 of $3,377,315.74.There was a further claim that there was a "significant discrepancy" between the storage area required and the storage area for which Optus had been invoiced and that Optus was investigating causes of action against Almad and its directors for: overpayments of invoices; damages based on misleading and deceptive conduct; fraudulent misrepresentation; restitution (either on the basis of fraud or a mistake by Optus); damages for breach of contract; and/or damages for conversion. The letter also requested copies of documents showing the movement of stock and demanded the delivery up to Optus of any remaining stock held by Almad. 14The "without prejudice save as to costs" letter from Minter Ellison to BRRT of 4 February 2011 referred to an enclosed company search that recorded Mr Curtis and Mr Hasler as directors and shareholders of Sumo. It was noted that Mrs Curtis and Mrs Hasler had been directors and shareholders of Sumo since its incorporation in 2004. It also included the following: Optus is investigating whether the arrangements between Almad and/or Sumo on the one part, and Optus on the other, were entered into by an employee, or ex-employee, of Optus in breach of their obligations pursuant to the Corporations Act (particularly sections 182, 183 and/or 184). In light of the contents of the letter to the solicitors acting for Almad raising significant concerns as to the legitimacy of the amounts claimed to remain outstanding and the matters raised above, please advise the basis on which your client continues to assert the lien over our client's stock. Optus demands that your client agree to release the stock it retains to our client forthwith and that your client will confirm arrangements for our client to collect the remaining stock being held by your client. Do you have instructions to accept service of proceedings on behalf of your client and/or on behalf of any and all of Mr & Mrs Curtis and Mr & Mrs Hasler? 15BRRT responded to Minter Ellison's letter of 4 February 2011 by letter dated 10 February 2011 also "without prejudice except as to costs". It was suggested that the plaintiffs apparently misunderstood the charging methods that had been employed by Sumo and the previous offers that had been made to attend a meeting to explain these methods was reiterated. After noting that the plaintiffs had claimed they were investigating matters pertaining to the Corporations Act , the letter continued: With respect, s.184 relates to criminal conduct and is properly a matter for ASIC to investigate. It is surprising that your client appears to be making threats of possible criminal sanctions in the context of without prejudice correspondence regarding a commercial dispute. Even if your client's "significant concerns" regarding the legitimacy of the amounts outstanding are valid, which is not admitted and even if the matters your client raises with respect to alleged breaches of the Corporations Act by officers of our client company are valid, which is not admitted, we would respectfully suggest that your client will not be able to prove, as our against our client (or its directors), that such alleged breaches have caused your client any damage. Further, any complaint about over charging is a complaint that your client has against Almad. As previously noted, our client can prove each and every charge rendered on each and every one of its outstanding invoices and stands by its claim for payment of those outstanding invoices, together with additional amounts incurred but not yet invoiced (including in relation to the loading of your client's Goods, at the rates specifically agreed between us in previous correspondence). We note that you have requested our advice as to whether we are instructed to accept service on behalf of Sumo Distribution and Storage Pty Ltd ("Sumo") and/or its directors ("your request"). As you are aware, we act for Sumo and we advise that we do have instructions to accept service on behalf of our client company, although any proceedings your client chose to file would be commenced in circumstances where your client has: repudiated an agreement reached to facilitate settlement discussions (in respect of which our client reserves all rights); failed to respond to our client's offers, both to meet and discuss the issues and to settle on a compromise basis. Accordingly, if your client chooses to commence proceedings our client will rely upon this and previous correspondence when the question of costs is ultimately ventilated. 16BRRT also advised that they were concerned that Minter Ellison had not provided any details of specific claims of alleged damage against Sumo or its directors. The letter continued: We are therefore currently at a loss to know whether there will be any issues of potential conflict if we accept instructions from the directors of our client company and we are therefore not presently able to seek instructions to accept service. We invite you to specify the nature of the proposed claims against our client and/or its directors. An open letter to Mr Curtis 17On 7 February 2011 Singtel wrote an open letter directly to Mr Curtis referring to a number of matters including: that it was aware that he, his wife and Mr Hasler's wife were directors of Sumo; that this had not been disclosed to Optus; that Optus had entered into a contractual relationship with Almad and Sumo and that such contract was not in accordance with Optus' procedures or protocols; that there was a dispute in relation to the exact terms of the agreement and the proper amount payable by Optus to either Almad or Sumo; and that there was a prospect of compensation claims for what Optus claimed was "systematic and significant over-charging and failure to account for Optus' end of life stock delivered to the warehouse". Mr Curtis was advised that this "matter" was in the hands of Optus' lawyers. The letter included the following: Optus is extremely concerned that its procurement procedures and protocols were not followed in relation to these significant supplier relationships. It is even more concerning that this was so in circumstances involving an apparent conflict of interest. Optus can find no record of disclosure of the conflict of interest or of any waiver of the procurement procedures for the ongoing engagement of Almad. If it is the case that the commencement of the arrangements between Optus and Almad and/or Sumo, or the continuation of the arrangements, were done by any Optus employee, or ex-employee, in breach of their obligations to Optus, including any obligations imposed by the Corporations Act , Optus will take steps to prosecute those breaches and, as appropriate, report any matters to the relevant authorities including the Australian Securities & Investment Commission. In light of these concerns I request that you contact Optus immediately to provide your account of this conduct. 18On 17 February 2011 Mr Curtis responded to Singtel by letter of that date advising that he was obtaining legal advice and that he or his legal representative would "respond in due course". Further correspondence 19Minter Ellison responded to BRRT's letter of 10 February 2011 by without prejudice letter of 17 February 2011 in terms that included the following: As we understand the present position, your client maintains a lien pursuant to the Warehouseman's Lien Act over approximately $500,000 worth of satellite equipment which is the property of Optus and which remains in your client's warehouse at Smithfield. That lien is being asserted in relation to invoices your client says are outstanding and payable to your client in relation to storage. Optus and your client, agreed, following an assertion by your client that it was entitled to assert the lien over all Optus' stock in your client's warehouse, that your client would release Optus' stock other than the stock over which it would exercise a lien. Optus understood your client took that position as it would have been unreasonable to seek to assert a lien over $4 million worth of stock to secure an amount of approximately $300,000. Following that agreement, and the removal of all but the stock over which the lien is asserted, Optus enquired as to whether your client would release the remaining stock upon payment of the disputed amount into an interest bearing account. While your client agreed to that proposal, Optus was unable to finalise that arrangement. Accordingly there was no concluded agreement and your client remains in possession of the Optus stock. 20Minter Ellison then demanded that Sumo allow Optus access to collect the remaining stock because Sumo had abandoned the lien previously asserted. 21On 28 February 2011 BRRT advised Minter Ellison that Sumo had "previously collated and had available for collection" by the plaintiffs "all relevant documentation relating to the destruction of EOL stock" but that "no-one from your client company ever collected the documentation". BRRT also advised that the documentation remained available and copies of emails were enclosed with the letter relating to EOL stock. The letter also referred to the significant effort that Sumo had made and the inconvenience that it had suffered to ensure that the plaintiffs stock was loaded and removed in December and January when its accounts remained unpaid. The letter continued: To suggest that " there was no concluded agreement " because your client was " unable to finalise that arrangement " is erroneous and absurd, given that your client suggested the arrangement and unconditional agreement to that arrangement was reached in writing. It is simply the case that your client reneged upon a written agreement. As previously noted, our client remains willing and able to comply with that agreement and awaits the deposit of the funds into the controlled monies account as agreed and previously directed. 22On 10 March 2011 Minter Ellison wrote an open letter to BRRT referring to BRRT's recent claim that Sumo had undertaken the necessary steps to dispose of the EOL stock. The letter included the following: Optus is entitled to a full accounting of the EOL Stock. The spreadsheet attached to an e-mail apparently sent from your client to employees of Optus (as they then were) in September 2010 (and referred to in your recent correspondence) begins that process. Nonetheless, Optus is entitled to a full accounting of the EOL Stock, what has become of it and any amounts which are payable to Optus as a result of the scrapping of that stock. 23Minter Ellison also referred to the lien claimed by Sumo and demanded the delivery of the balance of the goods held in the warehouse. There was also a reference to the letter to Grech Partners of 4 February 2011 that had been copied to BRRT on that date and a claim Optus had been overcharged $14,754 per week for the storage of its goods and equipment. 24On 15 March 2011 Minter Ellison noted in its open letter to BRRT that Sumo was arranging for the delivery of the EOL stock records and requested copies of all correspondence between Sumo and Optus. The letter also included the following: On what date did your client begin to perform scrapping of the EOL Stock on behalf of Optus? What occurred with the EOL Stock in your client's warehouse prior to that date? 25On 16 March 2011 in a without prejudice letter to Minter Ellison, BRRT enclosed what was described as "copies of weight notes relating to EOL stock". The letter noted that the material consisted of two sections the first of which had already been supplied but for abundant caution was supplied again. BRRT advised that if Optus had lost or not retained any particular correspondence between it and Sumo as requested, then Minter Ellison should so specify and BRRT would do their "best to oblige". 26On 21 March 2011 in an open letter to BRRT Minter Ellison referred to the Weighbridge Weight Notes that had been produced by BRRT under cover of its letter of 16 March 2011 and noted that they "do not appear to be all of the documents referred to in your letter of 28 February 2011, particularly 'all relevant documentation relating to the destruction of EOL Stock". Minter Ellison requested the "balance of the documentation" and noted that BRRT had not addressed the questions asked of BRRT in Minter Ellison's letter of 15 March 2011 in relation to the scrapping of the EOL Stock. 27On 24 March 2011 BRRT wrote a without prejudice letter to Minter Ellison in response to its letter of 21 March 2011 that included the following: We are sending by separate email today the documentation relating to the destruction of EOL stock which you requested in your letter under reply. We are instructed that all such documentation, save for one email, is already in your client's possession. We are further instructed to enclose herewith a collection of Assets Sheets being authorisation by Optus for the disposal of fixed assets such as test equipment. Due to the way Optus conducted business with our client, using various communication methods including verbal instructions on-site, our client has a good representation of those various instructions in a written form (i.e: enclosed herewith), but does not claim that they are in any way to be construed as the entirety of such instructions. In respect of your two specific questions, they were not previously answered because our client is tiring of continually providing your client with information it should really have, in circumstances where our client has neither obligation no incentive to do so. Our client is not the record-keeper for your client's business activities. We are instructed to note, however, that SUMO took over management of the scrapping process from the end of June 2009, which is in fact evident from the documentation supplied. As noted in our recent telephone discussion, this matter appears to be going around in circles. Your client has consistently failed to engage with our client as to the gravamen of the dispute and/or as to any possible resolution. Our client has given your client ample time to honour its agreement in respect of the establishment of the controlled monies account and has continued to store your client's remaining stock pending implementation of that agreement. It now appears that your client has no intention of implementing the agreement. Accordingly, in furtherance of its duty to mitigate any loss, our client has now arranged a new tenant for the space currently occupied by your client's stock and will therefore release all of your client's remaining stock. Loading can commence at 8 a.m. on Monday at 11 April 2011. Our client will allow one agreed Optus employee on site to supervise loading for Optus and will make available a forklift and driver on the same terms as previously. This release of your client's stock is strictly without prejudice to our client's rights and is not to be construed as constituting any admission, concession, release or waiver. Please ask your client to contact our client directly to make the necessary arrangements for loading of the stock. 28It is apparent that between January 2011 and mid-March 2011 the plaintiffs became aware of emails that showed that Mr Curtis and Mr Hasler had been involved with Sumo and Electrosales whilst they were still employees of Admin. The Telecycling transaction 29In mid-March 2011 the plaintiffs became aware of a transaction in mid 2008 between Electrosales and an American company, Telecycling LLC (Telecycling), in which Electrosales received US$100,000 in respect of the sale of certain stock or equipment. The principal of Telecycling, Mr Krejci, advised the plaintiffs that Telecycling had dealt previously with both Optus and Electrosales and provided a series of emails to the plaintiffs from Mr Curtis at his Optus email address to Telecycling in which he requested payment to Electrosales for 42 containers of goods. 30The first e-mail dated 15 April 2008 from Mr Krejci to Mr Curtis referred to Mr Krejci's visit to Mr Curtis' office that day. The email is rather uninformative but Mr Krejci thanks Mr Curtis for "everything" and says that he was pleased that the arrangement (whatever it was) was "mutually beneficial". On the same evening Mr Curtis responded to Mr Krejci in an equally uninformative email that recorded that Mr Curtis would have a "pallett number" that day "so that we can hunt for them". There is also an e-mail dated 21 April 2008 from a person by the name of Stewart Attewell to an employee of Optus with a copy to Mr Curtis referring to a meeting with Ms Mr Curtis that afternoon. There is reference to an attachment in relation to certain equipment with a list price/unit. It is not clear to what this email refers. However there is an email from Mr Curtis to Mr Krejci on 21 April 2008 in the following terms: Attached is a bit of Wimax kit form (sic) a pilot program that will be released in approximately 6 weeks. Most of the CPE is new and all of the equipment is about 3-6 months old. Let me know if you have any interest. I have included the list prices in AUD of the items to give you an idea. Still looking for the pallett numbers provided by Brett. 31There is a further e-mail of 23 April 2008 from Mr Aragon a director of a company in Guatemala to Mr Curtis which records that: Mr Aragon's company is considering engaging Telecycling "to properly dispose of our obsolete network equipment"; Mr Krejci had offered Mr Curtis' name as a business reference for their business of recycling telecommunications equipment; and Mr Aragon's request as to whether it was possible for Mr Curtis to provide some comments about the quality of the service that Telecycling performed for Optus in particular the quality and compliance with environmental policies and final disposition processes. 32Mr Curtis responded to Mr Aragon by e-mail dated 23 April 2008 recommending Telecycling as "a quality vendor for both resale and recycling of materials". It was a glowing reference referring to "swiftness at closing a deal", "commitment and quality of follow-through" with the statement that "these guys 'do what they say they will do' which is rare in today's environment". There was also reference to the fact that the SingTel group of companies had verified Telecycling's main recycling centre in Hong Kong to be certified in accordance with local laws and governance. The e-mail concluded by recording that a great deal of trust had been built up in a moderate period of time and the Telecycling would remain "our principle (sic) end service provider for resale and recyclable telecom materials for some time". Mr Curtis sent a copy of this e-mail to Mr Krejci. 33On 30 May 2008 Mr Curtis (once again from his Optus email address) wrote to Mr Krejci in terms that included the following: I thought I would drop you a quick note to let you know that we are well past the halfway mark with the supply of the goods (26+ containers and quickly heading towards 30). When you find time would you please make a payment to Electrosales to bring the % ship more in line with the % paid. My guesstimate of the total containers at the moment is about 42 and includes the materials in the aisle AA/BB we spoke about. More materials are scheduled for disposal in June and will constitute about 6-9 40' containers. WE will provide lists of the usable equipment prior to the availability so that you can quote. We have set aside about 3-4 pallets of good gear that Craig H will compile a list of. 34Mr Curtis wrote again to Mr Krejci on 4 June 2008 asking, "Any update?". On 22 June 2008 Mr Curtis wrote again asking whether Mr Krejci could provide him with an: ETA on the next payment so that I can manage the expectation of accountants etc, my original projection had of the money in June and the remainder in July. It would help a lot if you could make some firm predictions to base my update on. 35The last e-mail provided to the plaintiffs by Mr Krejci was dated 25 August 2008 to Telecycling with a copy to Sumo in which Mr Curtis wrote: Happily, Craig tells me he is nearing the end of the stuffing of the boxes. It appears that your guess was better than my original one, from memory I said 32 and when you saw it you said 40. The guys doing the work had said that the equipment left will go most of the way to finishing 39 containers, I have redirected some other material to EOL to ensure that container 39 is sent for, and so there may be a delay of a few days to a week on the last box. I am working on the finance boffins for a $ figure for the scrap that will be released shortly and will follow this e-mail with 2 lists of sale equipment and a minimum price expectation. Ex Parte Application - 29 April 2011 36When the plaintiffs commenced these proceedings on 29 April 2011, they made an ex parte application for search orders before Hammerschlag J. Affidavit evidence in support of the plaintiffs' application was that of Lynette Jane Rieper (the corporate counsel for Singtel and an employee of Admin) sworn on 28 April 2011, Raeymond McGuinness sworn on 28 April 2011 and Mark Garnett sworn on 28 April 2011. 37Ms Rieper's affidavit included evidence that during the period that Mr Curtis and Mr Hasler were employed by Admin the plaintiffs were unaware that Mr Curtis and Mr Hasler and their wives were shareholders and directors of Sumo, or that Mr Curtis' wife and son were directors of PJC, or that the registered office of PJC was the Curtis home. It also included evidence in relation to Optus EOL stock including that: a significant quantity of the EOL stock that had been sent to the Sumo warehouse remained unaccounted for and could not be located; Optus was charged for an area of 2,500 square metres to store a cable cutting machine that allegedly only required 200 square metres; the area to store the equipment and stock was significantly less than the space for which Optus had been invoiced; and that there were significant discrepancies between the invoices provided by Almad/Sumo and the records of Optus. 38Ms Rieper's affidavit also included evidence that the value of new stock that had been consigned to the Sumo warehouse and remained unaccounted for was in excess of $10 million. 39There was also evidence that Mr Krejci had attended the warehouse and inspected Optus second-hand stock to be transported to the USA for sale by that company. Ms Rieper claimed that Telecycling paid PJC US$100,000 for 42 shipping containers of the Optus second-hand electronic equipment that it transported for sale in the USA. 40Ms Rieper exhibited a document entitled "Authorisation as an Optus 2nd Hand Dealer" which authorised PJC (Electrosales Australia) as a dealer. An employee of Optus (later identified as Jonathan Wilkie) signed that document on 15 September 2006. Ms Rieper claimed that when a search was conducted of Mr Wilkie's "electronic email account" the authorisation was not located. Ms Rieper expressed serious concerns about the legitimacy of the authorisation including: that she had spoken to Mr Wilkie and he did not recall appointing Electrosales as a second-hand dealer; that Optus was spelt incorrectly on one section of the authorisation; and that she could not find the authorisation on the Optus register. Ms Rieper accessed an old webpage of Electrosales including a stock list of items offered for sale. On a comparison of that stock list with a list of allegedly unaccounted for Optus EOL stock Ms Rieper concluded that 37% of the items on the Electrosales list also appeared on the Optus list. 41Ms Rieper's affidavit also included evidence of communications between Mr Curtis and a company, Hagemeyer Australia, to which Optus had agreed to sell equipment in 2003. That communication referred to certain invoices in respect of which Optus could not find any records or receipt of funds for the sale of the equipment. 42Ms Reiper's affidavit included the following: 28. I am informed by Michael Charlton, a solicitor in the employ of Minter Ellison, and verily believe, that he had a telephone conversation with Bron Chora of Grech Solicitors acting for Almad. The content of the conversation were predominantly without prejudice and I am not able to repeat them. 29. At Tab 17 of LJR-1 is a copy of the letter I caused Minter Ellison to send to Sumo on 22 to December 2010. I am informed by Mr Charlton, that he received a telephone call from Brad Watts of Baker Ryrie Rickards Titmarsh Solicitors acting for the Sumo. The content of the conversation were predominantly without prejudice and I am not able to repeat them. 30. The correspondence passing between Baker Ryrie Rickards Titmarsh Solicitors for Sumo and Minter Ellison have been marked ' without prejudice except as to costs '. Accordingly, I have not exhibited them to this affidavit. Further, at Tab 18 of LJR-1 is a copy of a chain of e-mails between Michael Charlton, Minter Ellison and Brad Watts of Baker Ryrie Rickards Titmarsh; I have exhibited these e-mails to my affidavit as Mr Watts acknowledged they were not "without prejudice". ... 59. On 9 December 2010 I attended the monthly Optus Group Fraud Committee meeting. Following that meeting I had concerns that there may be some irregularities in the relationship between Almad and Optus Networks. At that stage the concerns related to the invoices sent by Almad and the services rendered and the process for entering into a contract with Almad. 60. Following that meeting Optus Networks made arrangements to remove the stock from the Warehouse. At that time Sumo asserted a lien under the Warehouseman's Lien Act over the stock in the Warehouse. Following the assertion of the lien, and negotiation it was agreed that some stock would remain in the Warehouse and that Optus Networks would remove the balance of the stock. This was done during the weeks commencing 29 December 2010 and over the New Year break. The stock which remained was satellite equipment, as agreed with Sumo. 61. Subsequent to removing stock from the Warehouse, a stock take was conducted of the stock removed and the EOL Stock. I am advised by Mr Natale that there were significant disparities between the EOL Stock sent to the Warehouse by Optus Networks and the EOL Stock collected from the Warehouse in December 2010 and January 2011. ... 65. The remaining items left at the Warehouse under the lien asserted by Sumo, were removed, by invitation of Sumo, in the week commencing 11 April 2011. The last of the stock was removed on 14 April 2011. ... 68. I have concerns that the only records available, upon which Optus will rely for showing the amount of EOL Stock which has been dealt with by Electrosales to each of Telecycling or Hagemeyer, and the proceeds received for the sale of that Stock, will be in the possession of Curtis and Electrosales and not Optus. 43Ms Rieper expressed concerns that if the search orders were not made to secure the records they would be destroyed. That concern was said to be based on number of factors including that during his employment with Admin, Mr Curtis failed to disclose: that he had other business and commercial interests in conflict with his duties to Admin and the Optus Group; that the arrangements with Almad continued over an extended period; his wife's involvement as a director of either Electrosales or Sumo; his son's involvement in Electrosales as a director; and that Electrosales had received proceeds of sale of Optus stock. Ms Repier also gave evidence that Mr Curtis had referred to Electrosales in correspondence and other dealings with Optus employees without indicating that he was involved in, or related to people involved in Electrosales. Ms Rieper also referred to the fact that there was no longer a list of inventory on the Electrosales website and expressed the fear that if the documents, the subject of the application, were destroyed Optus would not be able to ascertain what, if any, EOL stock was disposed of by Electrosales or the amounts received by Electrosales for that stock. 44The other affidavits relied upon by the plaintiffs in the application before Hammerschlag J were those of the independent solicitor, Mr McGuinness and the Independent computer expert, Mr Garnett, and are not relevant to the issues in the present application. 45The plaintiffs' submissions before Hammerschlag J were in writing and recorded that the plaintiffs sought "two forms of alternative relief". The search orders were described as the "extremity" of the Court's powers and a passage in Cokinos v Walker [2007] NSWSC 1040 at [7] was referred to citing Lord Denning's statement in Anton Pillar KG v Manufacturing Processes Ltd & Ors [1976] 1 Ch 55 at 61 that such orders "should only be made where it is essential that the plaintiff should have inspection so that justice can be done between the parties: and when, if the defendant were forewarned, there is a grave danger that vital evidence will be destroyed". Those written submissions also included a recognition that it was necessary to prove that there was a "real possibility" that the documents might be destroyed. Those submissions also included the following: 32. Optus accepts for the purposes of this application that there is no direct evidence of the destruction of documents, nor of a threat of such destruction having been made. 33. However Optus's evidence includes the following (Ms Rieper's affidavit at [69]): I am concerned that if orders are not made to secure the records, including any electronic storage of those records, they will be destroyed. My reasons for this are that Curtis failed to disclose to Senior Optus Management that: i. he had other business and commercial interests in conflict to his duties to Optus Administration and the Optus Group; ii. the temporary arrangements with Almad for the provision of some services were continuing over an extended period; iii. his wife's involvement as a director in either Electrosales or Sumo; iv. his son was involved in Electrosales as a director until 5 April 2006; v. Electrosales received proceeds of sale of Optus Network's stock. In addition: vi. Curtis referred to Electrosales in correspondence and other dealings with Optus Group employees without indicating that he was involved in, or related to people involved in, that company; and vii the Electrosales' website no longer has on it a list of inventory available as it did previously. 34. Optus submits that conduct of this kind would be sufficient in the circumstances of this case to permit a limited search order of the kind contemplated (see Yousif v Salama [1980] 1 WLR 1540). Ex Parte Search Orders - 29 April 2011 46On 29 April 2011 Hammerschlag J made ex parte search orders (the Search Orders) in respect of premises at Illawong (the residential address of Curtis and his wife and the registered office of Electrosales) and Revesby (the principal place of business of Electrosales) (the Premises). The Search Orders authorised the Search Party to search for and inspect the "Listed Things" in the Search Orders and authorised the independent solicitor, Mr McGuinness, to remove the Listed Things. The independent computer expert (Mr Garnett) was authorised to search computers, make digital copies of documents and remove computer hard drives. 47The "Listed Things" in the Orders were: (1) All records (including electronically held records) of stock or inventory held by Electrosales in the period 1 April 2003 to 31 March 2011 (the Period); (2) All records (including electronically held records) of sales by Electrosales in the Period; and (3) all records of amounts received by Electrosales from Telecycling and/or Hagemeyer Australia, or any related entity of Telecycling and/or Hagemeyer Australia, in the Period. Search - 2 May 2011 48The search was conducted and completed on 2 May 2011 when documents and hard drives were provided to the independent solicitor, Mr McGuinness who has produced two reports to the Court dated 2 May 2011 and 17 May 2011, the latter of which includes a report from the independent computer expert Mr Garnett. Competing Motions 49By Notice of Motion dated 6 May 2011 (filed in Court on 23 May 201) Mr Curtis and PJC (the applicants) seek an order setting aside the Search Orders and referring the proceedings to an Associate Justice for an assessment of the damages suffered by Mr Curtis and PJC. 50By Notice of Motion dated 5 May 2011 (filed 6 May 2011) the plaintiffs seek an order that the independent solicitor deliver to the Court the "Listed Things" removed from the Premises. Application to set aside Search Orders 51There is no suggestion that Hammerschlag J should not have made the Search Orders on the evidence presented in the ex parte application. Rather the application is to set aside the Search Orders because there were material non-disclosures of relevant evidence that, if disclosed, would have changed the position presented to the Court such that the Search Orders would probably not have been made. 52The applicants rely upon the affidavit of Leon Mark Curtis sworn on 10 May 2011. The plaintiffs rely upon the affidavits of Ms Rieper sworn on 28 April 2011 and 17 May 2011 and Jonathan Mark Wilkie sworn on 17 May 2011. 53The applicants accept that it is incumbent upon them to demonstrate reasons for the setting aside of the Search Orders: Austress Freyssinet Pty Ltd v Joseph [2006] NSWSC 77 at [25]; Brags Electric Pty Ltd trading as Inscope Building Technologies v Gregory [2010] NSWSC 1205 at [11]-[18]; Principal Financial Group Pty Ltd v Vella [2011] NSWSC 327 at [14]-[17]. Non-disclosure 54The pivotal proposition put forward by the plaintiffs in the ex parte application before Hammerschlag J was the likelihood that Mr Curtis, as a director of PJC/Electrosales, would destroy documents. In those circumstances it was important that his Honour was informed about conduct touching upon that likelihood. That would include any instances of Mr Curtis either not producing documents when requested to do so by the plaintiffs and any instances of Mr Curtis producing documents when requested to do so by the plaintiffs. It would also include any evidence as to whether Mr Curtis had been "forewarned" and if so his conduct thereafter. 55The evidence before Hammerschlag J made no mention of the fact that Sumo provided numerous documents when requested to do so by the plaintiffs. The plaintiffs submitted that they were impeded from disclosing to Hammerschlag J certain aspects of the relationship between the parties because of the without prejudice correspondence between the parties. In support of this submission Mr Stoljar referred to the decision in Frigo v Culhaci [1998] NSWCA 88. This was a case in which the Court of Appeal criticised the use without prejudice admissions. 56Obviously if there are admissions made in without prejudice correspondence by a party against whom an ex parte order is sought, such admissions cannot be relied upon. However in this case the content of the without prejudice communications did not contain any admissions adverse to Mr Curtis in relation to his propensity to destroy relevant documents. The content of the without prejudice communications combined with some of the content of the open communications contained material that would support the proposition, on one view of the evidence, that it was unlikely that Mr Curtis would destroy documents. 57The plaintiffs chose to disclose some of the arrangements that were referred to in the without prejudice communications, for instance, that agreement had been reached with Sumo in relation to the removal of the goods from the warehouse in December 2010 and January 2011 and that Sumo had "invited" the plaintiffs to remove the balance of the goods in April 2011. This disclosure was obviously in general terms but it appears that the plaintiffs took the view that it was necessary to put this material before Hammerschlag J so that his Honour was aware of the background of the matter. However the plaintiffs did not disclose any conduct by Mr Curtis in relation to production or non-production of documents. Rather the plaintiffs relied upon the fact that Mr Curtis had failed to tell his employers about his apparent unauthorised employment and involvement with PJC/Electrosales in support of a claim that there was a real likelihood that Mr Curtis would destroy documents. 58The without prejudice correspondence (admitted into evidence on the application to set aside the Search Orders) combined with some of the open correspondence, establishes a course of cooperative conduct by Mr Curtis in producing documents as requested by the plaintiffs notwithstanding that some of them had been produced earlier. It is true that these documents were produced by Sumo but it is obvious that it was on the instructions of its director, Mr Curtis. 59Although these arrangements were reached in the context of without prejudice letters, there was no impediment to informing Hammerschlag J that there was co-operation in the provision of documents and in the delivery up of the goods from the warehouse. It is not appropriate in an ex parte application for orders of this kind or for injunctive relief to merely refer to without prejudice correspondence and claim that further information cannot be provided by reason of that restriction and leave the evidence in a state that portrays an inaccurate or incomplete position. In this regard it is pertinent to note the following passage of Allsop J's (as the President then was) judgment in Walter Rau Neusser Oel Und Fett AG v Cross Pacific Trading Ltd [2005] FCA 955: [38] In an ex parte hearing, it is the obligation of the party seeking orders, through its representatives, to take the place of the absent party to the extent of bringing forward all the material facts which that party would have brought forward in defence of the application: Thomas A Edison Ltd v Bullock (1912) 15 CLR 678 at 681-82 per Isaacs J. That does not mean stating matters obliquely, including documents in voluminous exhibits, and merely not mis-stating the position. It means squarely putting the other side's case, if there is one, by coherently expressing the known facts in a way such that the Court can understand, in the urgent context in which the application is brought forward, what might be said against the making of the orders. It is not for the Court to search out, organise and bring together what can be said on the respondents' behalf. That is the responsibility of the applicant, through its representatives. 60The open letter of 7 February 2011 from Singtel to Mr Curtis was not disclosed to Hammerschlag J. That letter made very serious allegations against Mr Curtis personally and put Mr Curtis on notice (or to use Lord Denning's expression, "forewarned" Mr Curtis) that Optus was conducting a detailed investigation into his conduct. Mr Curtis' conduct after that letter, including his response to Singtel which was also not disclosed to his Honour, could reasonably be described as co-operative. Sumo continued to provide documents to the plaintiffs in a cooperative way after this letter was received. 61When Minter Ellison asked BRRT whether they had instructions to accept service for Mr Curtis, BRRT understandably requested some details of the allegations that were to be made against Mr Curtis personally so that they could work out whether they might have a conflict in acting for Sumo and Mr Curtis at the same time. Minter Ellison did not address this request in any detail in the period prior to the ex parte application before Hammerschlag J apart from outlining allegations of overcharging by Sumo and an association between Mr Curtis and his family with Sumo. Although there was mention of investigation in respect of possible breaches of the Corporations Act , Minter Ellison did not advise BRRT of the allegations that it makes in the Commercial List Statement so as to enable BRRT to consider its position as to whether it could act for Mr Curtis and whether to advise him in relation to the acceptance of service of process. 62There are two aspects to the non-disclosure of the letter of 7 February 2011 and Mr Curtis' response. The first is that if, after the receipt of the letter, Mr Curtis had failed to continue to assist in a co-operative way with Sumo providing documents as requested, some fear may have been engendered that he would not provide documents in his possession relevant to discovery in the claims outlined against him and PLC/Electrosales in the Commercial List Statement filed on 29 April 2011. 63The second aspect to the letter of 7 February 2011 is that Mr Curtis would have been left in no doubt that there were serious allegations made against him in relation to his conduct whilst employed at Optus, including his conduct by reason of his (and his family's) association with Sumo. It is true as Mr Stoljar pointed out, that the letter makes no reference to Electrosales (apparently because the plaintiffs at that time had not spoken with Mr Krejci) but if Mr Curtis were minded to destroy documents to ensure that the extent of his conduct and dealings in relation to Electrosales was not uncovered, this letter would have been a trigger to take such action. 64These documents are material because any judge hearing an ex parte application for a search order gives consideration to other alternatives before exercising the extreme power. In exercising the discretion to grant such an intrusive order the Court takes into account the prospect of the possible presence of vulnerable individuals, including very young children, at the premises to be searched. The prospect of such presence imposes on applicants for such intrusive orders a duty to review all aspects of the available evidence with intense scrutiny. 65That would include taking into account circumstances where a person has been made aware of serious allegations against him about allegedly inappropriate conduct whilst employed with a corporation and whose solicitor subsequently corresponds with the solicitors for the corporation in an obviously cooperative fashion, providing documents as they are requested. 66The applicants also submitted that the plaintiffs failed to disclose a materiel fact in relation to the agreement that had been reached for Optus to remove its goods from the warehouse. In Ms Reiper's affidavit there was no mention of the fact that Optus had proposed paying monies into an interest-bearing account in exchange for the release of the balance of goods and equipment in the warehouse. The applicants claim that it was incumbent upon the plaintiffs to inform Hammerschlag J that it was the defendants firm claim that there was an agreement in relation to the lien claim and that the plaintiffs reneged on that agreement, rather than simply saying that Sumo had "invited" the plaintiffs to remove the balance of the items. It could be claimed that the use of the expression "invited" may have suggested some cooperation by Sumo. However when read in the context of the whole of Ms Reiper's affidavit I am satisfied that it did not present an accurate picture as to why the delay had occurred in the plaintiffs being able to obtain the balance of their goods and equipment from the warehouse. The far more accurate picture would have been to explain that the parties had been in negotiation for some months in relation to the balance of the goods that were held in the warehouse and that each party was propounding their view as to whether an agreement had been reached in relation to the conditions on which the goods were to be released. That would have given a far more accurate explanation for the delay that occurred between January and mid April 2011 in the production of the balance of the goods and would have neutralised any adverse view against Sumo and/or Mr Curtis for such delay. 67I am satisfied that the non-disclosure of the letter of 7 February 2011 and Mr Curtis' response were material non-disclosures. I am also satisfied that the plaintiffs' failure to disclose the extent of the co-operation of Sumo (and thus Mr Curtis) was also a material non-disclosure. 68It does not follow automatically that where there are material non-disclosures a search order must be set aside. In this case the applicants had the opportunity to make an application to set aside the Search Orders. They had the benefit of the presence of a solicitor and decided to allow the search to take place. Those steps are not to be taken as any impediment to this application. 69Irrespective of the non-disclosures that I have found occurred there are some real curiosities to the communications between Mr Curtis and Mr Krejci. No doubt that they will be explored at trial. One of the significant matters relied upon by Ms Rieper in relation to her alleged fears that documents would be destroyed was a claim that Electrosales had sold goods that belonged to Optus and had received US$100,000 and failed to account to Optus. Mr Curtis gave evidence about this in his affidavit and exhibited an agreement between Megatron Electronic Industries Pty Limited and Optus (unsigned) but which Mr Curtis claimed was entered into by those parties. The evidence is that Megatron went into liquidation and that the business was sold to a company known as AIM Pty Limited or AIP Pty Limited. That company later went into liquidation and Mr Curtis was contacted by the liquidators, Korda Mentha for instructions as to what to do with the stock because it had been noted in the accounting system as consignment stock. 70Mr Curtis gave evidence that he then had a conversation with the Procurement Director of Optus, Alasdair Fuller and Bill Kinnaird, the Procurement Executive of Optus. From that presently unchallenged conversation it would appear that Optus had no interest in recovering the stock. Mr Curtis claimed that he contacted the liquidator Korda Mentha and said that he would be prepared to take it from them free of charge if they did not want it. Mr Curtis gave evidence that he then requested his wife to have the stock collected through Electrosales and advertised it for sale. It was listed on Electrosales' website for three or four years without any interest from any potential purchaser until May 2008 when representatives of Telecycling offered to purchase it. These will no doubt be issues for trial but I have not found this evidence of any real relevance on this application. 71By 29 April 2011 the plaintiffs had already commenced proceedings and filed a Commercial List Statement in which they had made claims and contentions including claims in conversion or bailment against Sumo or Electrosales in relation to the Telecycling transaction [C40-45]. No doubt some of the "Listed Things" will be relevant to these issues and will be discoverable. 72In most applications of this kind the judge who made the ex parte orders is the judge to whom the application to set it aside is made. In this instance the process is a little more complex because it was a different judge who granted the ex parte order. However I am satisfied that had the non-disclosures not occurred and had the real circumstances of Mr Curtis' and Sumo's cooperation with the intensive involvement of Sumo's and Mr Curtis' solicitor in the process between January 2011 and 29 April 2011 been disclosed, the ex parte orders would not have been made. It may have been that consideration may have been given to restraining the defendant, Mr Curtis, and/or PJC from destroying documents falling within the category of the "Listed Things", however I am comfortably satisfied that the matter would not have proceeded ex parte . 73I am satisfied that the ex parte Search Orders should be set aside on the condition that the documents and things produced as a result of the search and held by the independent solicitor be produced to the solicitors for PJC/Mr Curtis. 74I make the order in paragraph 1 of the Motion filed by the applicants. 75The Motion brought by the plaintiffs for the production of the "Listed Things" in the possession of the independent solicitor to the Court must fail. 76The Motion filed by the plaintiffs is dismissed. 77I order that the independent solicitor produce the Listed Things the subject of his reports to the Court to the solicitors for PJC/Mr Curtis within 7 days. 78I will hear the parties in respect of costs and any other matters the subject of the applicant's Motion.