(2003) 212 CLR 511
Palavi v Radio 2UE Sydney Pty Ltd [2011] NSWCA 264
Red Bull Australia Pty Ltd v Stacey [2011] NSWSC 1212
Source
Original judgment source is linked above.
Catchwords
(2006) 71 NSWLR 9
Clark v State of New South Wales [2006] NSWSC 673(2006) 66 NSWLR 640
Deatons Pty Ltd v Flew [1949] HCA 60(1949) 79 CLR 370
Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472(2003) 212 CLR 511
Palavi v Radio 2UE Sydney Pty Ltd [2011] NSWCA 264
Red Bull Australia Pty Ltd v Stacey [2011] NSWSC 1212
Judgment (3 paragraphs)
[1]
Solicitors:
Baker McKenzie (Plaintiff/Applicant)
Thomas Henry Bray Lawyer (First Defendant/Respondent)
Kingston Reid (Second to Fourth Defendants/Respondents)
File Number(s): 2018/170579
Publication restriction: Nil
[2]
Judgment
The Plaintiff, Smiths Detection (Australia) Pty Ltd ("SDA"), for whom Mr A. Moses SC appears with Ms R. Gall, is part of a large global group, known as Smiths Detection, that manufactures and distributes high level security and scanning equipment and systems that are used at airports and other significant installations. Until 27 April 2018, the First Defendant, to whom I shall refer as "Basham", was employed by SDA as its sales director for the Asia-Pacific region. Mr A. Hourigan of Counsel appears for Basham.
Basham's contract with SDA contained a number of clauses imposing obligations upon him, including what can be described as "contractual restraints of trade".
On 1 May 2018 Basham commenced employment with Rapiscan Systems Pte Ltd ("Rapiscan"). Rapiscan and an Australian subsidiary, called Rapiscan Australia Pty Ltd, as well as a distribution company called SX Technologies Pty Ltd, are all part of another global group involved in the manufacture and distribution of equipment and systems similar to those sold and distributed by SDA. I shall refer to these companies collectively as "Rapiscan", as nothing turns on the distinction between them for present purposes, save that Rapiscan Systems Pte Ltd was not initially a party to the proceedings. Mr J. Clarke SC with Mr Y. Shariff and Ms T. Epstein appears for Rapiscan. Although SDA and Rapiscan were competitors in various parts of the world, it was only in 2018 that Rapiscan embarked upon a more active involvement with Australia and New Zealand, and Basham's engagement by Rapiscan was part of that drive.
SDA commenced proceedings against Basham and Rapiscan on 31 May 2018, alleging that Basham had breached express and implied contractual obligations and fiduciary obligations owed by him to SDA. The allegations included allegations that Basham:
1. Commenced carrying out activities on behalf of Rapiscan even whilst he was still employed by SDA in March and April 2018.
2. Downloaded from SDA's server documents of a confidential nature.
3. Passed on those documents (or some of them) to Rapiscan whilst he was still employed by SDA.
SDA asserts that Rapiscan induced Basham to breach his obligations to SDA, and knowingly assisted in Basham's breach of fiduciary duties, both before and after he commenced working for Rapiscan on 1 May 2018.
When SDA commenced its proceedings in this Court on 31 May 2018 it obtained preservation orders against Basham and Rapiscan Australia Pty Ltd ex parte. Those orders were served on Basham and Rapiscan Australia Pty Ltd.
As a result of correspondence received from SDA's lawyers, Rapiscan questioned Basham about information that he had provided to Rapiscan and became concerned as to his responses (or lack of responses). On 1 June 2018 Rapiscan wrote to Basham advising him that he was suspended, pending investigation: CB 639. Before that date, Basham had appointed his own solicitor to act for him in the matter: see paragraphs 19 and 20 of Ms DeBoos' Affidavit of 20 December 2019. Rapiscan also sought a response to a series of questions by 5 pm on 3 June 2018, and instructed staff who had had dealings with Basham not to delete any information they had received from him: CB 643. Rapiscan's solicitors communicated the steps it had taken to SDA's solicitors: see CB 641-642. Further details concerning Rapiscan's communications with Basham are set out at [27] below.
On 1 and 2 June 2018 Rapiscan, on its evidence, searched its IT server to ascertain what files Basham had accessed during the four weeks of his employment with Rapiscan and found none that had been saved by him to the Rapiscan server. Rapiscan's solicitors requested that Basham return the laptop they had provided to him ("the Rapiscan laptop"), but he did not do so at that time.
One of the orders made by the Court in this matter on 31 May 2018 was an order that Basham set out in an affidavit what material of SDA's was in his possession and on what electronic devices, and a similar order was directed to Rapiscan Australia Pty Ltd: see CB 259 and 265.
Basham, in providing two affidavits ordered by the Court, sought a certificate from the Court pursuant to s 128 of the Evidence Act 1995 (NSW) to protect himself from self-incrimination, and that certificate was granted.
Following receipt of the affidavits provided by Basham, various steps were taken by the parties, to which I shall return, and after a long period, in December 2018, SDA filed its Statement of Claim (Exhibit B3, Tab 13) in the proceedings, and Basham and Rapiscan filed their Defences to that Statement of Claim: see Exhibit B3 at Tabs 14 and 15 respectively.
SDA asserts that it has suffered significant loss as a result of Basham's breaches, including the transfer to Rapiscan of confidential information whilst he was employed by Rapiscan, and Rapiscan's knowing participation in those breaches, including the loss of important contracts which Rapiscan won against SDA in various tenders.
When the proceedings commenced, only Rapiscan Australia Pty Ltd (from among the Rapiscan group) was included in the claims, but within a short space of time Rapiscan Systems Pte Ltd indicated that it was actually the employer of Basham, and it and SX Technologies Pty Ltd (the Rapiscan distributor in Australia) were then joined.
Orders were subsequently made in the proceedings for evidence to be served by SDA but, despite several extensions of time for that to occur, it has still not occurred. In September 2019 SDA indicated that it wanted to put on a Notice of Motion of the kind which is now before the Court, and it has resisted complying with orders previously made on the basis that it wishes to have this Motion heard first - a course opposed by the Defendants. The Defendants draw attention to the extraordinarily long period, following the filing of Defences, which it has taken SDA to bring this Motion.
SDA seeks, by paragraphs 1 to 4 of its Notice of Motion (the only portions of which are presently under consideration) to have the Defences of Basham and Rapiscan struck out or, in the alternative, specifically identified parts of those Defences struck out.
The basis of the application is that SDA claims that Basham deleted material from the PNY USB and that his conduct in deleting the documents that he held on the PNY USB amounts to an abuse of process, with significant consequences to the advancement of SDA's claims against Basham and Rapiscan, and that this justifies the striking out of his Defence. SDA also contends that the same result should apply to Rapiscan's Defences. SDA accepts that it bears the onus of establishing its case for strike out: T28.40.
In support of its application, SDA relies on the following affidavits:
1. Affidavits of Mr Olivier Georgelin dated 30 May 2018 and 2 March 2020.
2. Affidavit of Mr Linesh Maharaj dated 30 May 2018.
3. Affidavit of Ms Renee Compain-Helsloot dated 29 October 2019.
4. Affidavit of Mr Shane Bell dated 28 October 2019.
5. Affidavits of Mr Stephen Hardy dated 29 October 2019 and 4 March 2020.
6. Affidavit of Mr Lukas Knittel dated 20 November 2019.
7. Affidavit of Mr Michael Burgener of 4 March 2020.
On this application, Basham does not read any affidavits.
Rapiscan relies on the Affidavits of Ms Alice DeBoos of 19 September 2019, 20 December 2019 and 7 March 2020, which set out the procedural history of the matter and a number of matters based on information and belief from officers of Rapiscan.
The reason that Basham sought the certificate, it is agreed, is because he had, on 3 June 2018, and in defiance of the Court orders made on 31 May 2018, set about attempting to delete the contents (or some of the contents) of files stored on the PNY USB. SDA contends that Basham was successful in deleting material on the PNY USB. Basham, it appears, does not know whether he was or was not successful in deleting content off the USB and this uncertainty is reflected in his Defence (see paragraph 90, CB 785). Although Rapiscan sought to introduce Basham's Affidavit as an annexure to an affidavit of Ms DeBoos, this course was opposed by SDA and Rapiscan did not press for its reception.
There is no disagreement that Basham on 3 June 2018 attempted to permanently delete documents with knowledge and in defiance of the orders made by the Court on 31 May 2018. I shall refer to deletion of documents as meaning permanently deleted and unrecoverable from the device on which they were stored and as being equivalent to destroyed.
SDA's case for strike out is based solely on deletion of documents on the PNY USB. It does not assert that there were any documents on the Rapiscan laptop which were deleted by Basham. It does not assert, on this Motion at least, that anything deleted from the laptop Rapiscan provided to another employee of Rapiscan, Mr Creagh ("the Creagh laptop") (as to which, see below), was permanently deleted and cannot be accessed.
Mr Hourigan, whilst not suggesting that Basham's conduct was excusable and not a serious matter, did point to the fact that after Basham had revealed his actions in his Affidavit (or Affidavits) filed in compliance with the Court's orders, Basham has complied with all directions and handed over for inspection all his devices, such as his two mobile phones, and that he has also given access to SDA's experts to his personal email account. Further, Basham handed over the Rapiscan laptop on 12 June 2018. Basham's grounds for resisting SDA's Motion are largely dependent on acceptance of the arguments of Rapiscan relating to the issue of impairment that SDA claims Basham's deletion has caused to SDA's case, to which I shall return.
SDA claims that its case against Basham and Rapiscan has been significantly impaired because it cannot now establish the contents of the documents that were deleted from the PNY USB.
From the evidence tendered by SDA, the following emerges:
1. Basham had stored on his SDA laptop ("the SDA laptop") numerous files belonging to SDA.
2. During March and until 6 April 2018 he inserted into the SDA laptop the PNY USB and accessed a significant number of those files. The files he accessed in that specific period are listed in LM3 and LM5 to Mr Maharaj's Affidavit. The files in LM3 are described as "link files" and the files in LM5 are described as "jump files" (the first being a Microsoft file type used to access documents on a hard drive and the second being a graphical representation of files recently accessed), but nothing turns at present on that distinction.
3. At the start of Basham being placed on "gardening leave" after he had indicated he was leaving SDA, SDA had requested that he immediately return the SDA laptop, which he did not do until 6 April 2018. Mr Georgelin (Director of Sales and Marketing at SDA), together with another employee of SDA, Ms Ristevska, reviewed the SDA laptop on around 7 May 2018. Mr Georgelin found documents from Rapiscan on the SDA laptop, which he was able to print: see paragraph 84 of his first Affidavit. Mr Georgelin does not state that he found SDA files on the SDA laptop that he could not access.
4. On 12 June 2018, Basham handed over the PNY USB and the SanDisk Cruzer ("Cruzer USB"), which had also been used to access the SDA laptop. He also handed over the Rapiscan laptop. Mr Shane Bell, a forensic expert, took over from Ms Acharya as the Independent Computer Expert and records the steps she and he took in respect of, inter alia, the two USBs that Basham handed over, being the PNY USB and the Cruzer USB.
5. Basham's emails on the SDA server and inbox were examined and the examination revealed that Basham had (prior to his departure from SDA) deleted most of his emails. SDA could not determine what emails had been sent by Basham to a personal email account of his or to other people: see paragraph 83 of Mr Georgelin's first Affidavit.
6. Mr Georgelin reports having identified that the "link files" in LM3 "include" eight documents from the SDA system that are "highly confidential documents" (see paragraphs 89-90 of his first Affidavit), and there were another two of a similar kind to the "jump files" from LM5 (see paragraphs 91-92 of Mr Georgelin's first Affidavit). Mr Georgelin said at paragraph 93 of his first Affidavit that he was familiar with items on LM3:
"…because I recognise them from my day-to-day role. The majority of the documents listed are confidential documents belonging to SDA and/or Smiths Detection."
1. Ms Compain-Helsloot, a solicitor at Baker McKenzie (the solicitors for SDA), deposes in her Affidavit of 29 October 2019 to having undertaken a review of a database called the "Ringtail Database". That database contains 80,550 documents that were obtained from electronic devices produced to the Court by Basham pursuant to orders made by the Court on 31 May 2018 and from the USB devices produced by Basham, the Rapiscan laptop and from documents provided by Rapiscan in answer to notices to produce issued by SDA: see paragraphs 41-42 of Mr Hardy's Affidavit at CB 252. The searches that she undertook of the Ringtail Database revealed only eight documents from LM3 and LM5 (two of which were identical): see CB 81-121 and paragraph 40 of her Affidavit. It appears that the documents found are of very limited significance.
2. Using the LM3 and LM5 lists, Mr Knittel, an employee of the Smiths Detection Group in Germany, searched the SDA local server to ascertain how many of the documents from the lists could be located, and he found only five (see paragraph 21 of Mr Knittel's Affidavit).
3. There is no evidence that any documents from LM3 or LM5 have ever been located on the Rapiscan laptop.
In its Statement of Claim, SDA asserts that, as a result of the breaches of contract by Basham and his use of confidential information, SDA has been prejudiced in its dealings with its clients and potential clients. It claims that it has lost contracts that otherwise would have been obtained, and it also claims that even in respect of contracts in which it has been successful it has had to pay regard to the fact that Rapiscan may have knowledge of its pricing and other relevant factors when making its bids. Mr Michael Burgener, Regional Sales Manager of SDA, in his Affidavit of 4 March 2020 deposes to tenders in respect of which SDA and Rapiscan have both submitted bids in the last year and a half, in respect of which Rapiscan was successful in three and SDA was successful in one. Mr Burgener says that, in preparing tenders, SDA has been concerned that Basham has had access to SDA's confidential information and shared this information with members of the Rapiscan group.
Rapiscan draws attention to a number of other matters as to the course of these proceedings, upon which it relies in resisting SDA's Motion:
1. Rapiscan contends that it did not ask or encourage Basham to take any confidential information of SDA. The first occasion that Rapiscan became aware that Basham may have taken confidential information from SDA was on 1 June 2018 when Ms Shanahan (an employed solicitor of K&L Gates, the solicitors then acting for Rapiscan) had a conversation with Mr Green, who was then acting for Basham (see paragraph 20 of Ms DeBoos' Affidavit at CB 562), and on that day Rapiscan suspended Basham (see CB 639) and instructed him not to disclose any confidential information he had obtained from SDA: see CB 613.
2. On 2 June 2018, Rapiscan wrote to Basham and a number of other employees (CB 643) saying:
"Please immediately take all steps necessary to preserve all information that may be relevant to this Claim. This includes not destroying, discarding, altering, or erasing any documentation or computerized information that relates to the following:
1. USB Device(s) used by Basham, including but not limited to: USB Device - PNY USB 2.0 FD, USB Device SanDisk Cruzer Fit;
2. Electronic Storage Devices Utilized by Basham and/or containing any information regarding the Claim or Confidential Information (see attached Notice to Produce for defined terms);
3. Electronic Accounts utilized by Basham and/or containing any information regarding the Claim or Confidential Information; and
4. Mobile Phones."
Rapiscan, in its email, referred to a detailed list of instructions for Basham from its lawyers K&L Gates (which formed part of the email), which outlined Mr Basham's "legal responsibility in connection with the document production" (see CB 643-645). Rapiscan summarised the key points of the K&L Gates instructions, including the following:
"The Order is compulsory and a failure to comply may result in contempt of court.
The documents which must be produced are listed in the Order. Please review it carefully.
It is necessary that you make available all documents that could in any way be relevant to the categories in the Order, whether helpful or harmful to our case."
The K&L Gates instructions included the following:
"You must ensure that all relevant documents are included. If not, you may be held in contempt of court.
It should be understood that documents to be included are not only documents that would assist your case but also all documents which may be relevant, even if they are harmful to your position.
Under no circumstances should you cause to be destroyed, or otherwise made unavailable, any document that could be relevant to the proceedings.
[…]
If you fail to provide proper production this will affect our ability to support by evidence any allegations we make, further it is contempt of court and therefore a criminal offence.
If documents are found subsequent to searches having been completed, they must still be forwarded to us because it is a continuing obligation. Under no circumstances should documents be destroyed or not disclosed."
(Emphasis added)
1. On 6 June 2018 Rapiscan terminated Basham's employment "effective immediately" (see CB 652), so he was employed at Rapiscan for just over five weeks.
2. The first occasion that Rapiscan became aware of Basham's deletion of information (or attempted deletion) from the PNY USB was upon service of his Affidavits of 12 June 2018: see Exhibit 2D3. It is not suggested that Rapiscan asked him to take that step or encouraged him to do so.
3. Although described as "managing director" in his job description, Basham was not a director of any of the Rapiscan companies.
4. On 13 June 2018, having reviewed Basham's Affidavits, Rapiscan's solicitors immediately wrote to SDA's solicitors indicating that steps were being taken to ensure that any confidential information belonging to SDA relating to the "APAC Pipeline Document", which had been identified by SDA in its evidence, would be protected in a manner consistent with the Court's orders. Rapiscan's solicitors met with Mr Creagh and took possession of the Creagh laptop. Mr Creagh was suspended from his employment while Rapiscan made enquiries about the matters raised in Basham's Affidavits. When Creagh returned to work he was returned to a position in a division of Rapiscan that was not in competition with SDA, and he remains there now. There was on the Creagh laptop a document known as the "SANZ Forecast Document", which SDA alleges in its Statement of Claim was prepared by Basham during his gardening leave using information contained in the APAC Pipeline Document.
5. Rapiscan has produced all documents that were sought of it in accordance with notices to produce served on it by SDA.
6. Rapiscan consented to an independent computer expert conducting a forensic investigation of all devices produced by the First and Second Defendants, and also of Basham's email account on Rapiscan's server using an extensive list of search terms nominated by SDA. A list of the search terms can be seen at CB 684-688 and 707-709. The forensic examination included both the Creagh laptop and Mr Creagh's email account, and was conducted in accordance with the protocol agreed between Rapiscan and SDA, using search terms that were defined by SDA.
7. Rapiscan and Rapiscan Australia, without admissions, consented to the Court making orders substantially in the form of the final injunctive relief sought by SDA in its Summons.
8. SDA has not pleaded any case against Rapiscan that it is vicariously liable for Basham's acts.
9. Further notices to produce were served by SDA on Rapiscan and these have been answered.
10. There is no evidence that any content from the SDA laptop or Basham's PNY USB, other than the SANZ Forecast Document, was uploaded to any Rapiscan device or server. What Rapiscan did receive, it has been established, is the SANZ Forecast Document, and that was sent by email and also ended up on the Creagh laptop, where it remains. Whether that document contains SDA's confidential information is a matter in contest between the parties.
At the close of submissions, a new dispute erupted. Mr Clarke, having referred to paragraph 36 of the Statement of Claim and the case pleaded by SDA, sought to provide to the Court copies of the documents particularised in that paragraph. The folder was provisionally marked "MFI-1". Mr Moses sought time to consider whether MFI-1 in fact contained the documents particularised in paragraph 36 of the Statement of Claim. I indicated that if the folder did not accurately reflect what was referred to in the pleading, Mr Moses could say so, and if he claimed that a document needed to be added, he could say so: 2ndT168.1-30 ("2ndT" refers to the transcript of the second day on which the Motion was heard, as the page numbering between the days was not properly sequenced, resulting in some duplication). What then occurred was that SDA sought to provide an exchange of emails between Baker McKenzie and K&L Gates (29 January 2019 and 8 February 2019), constituting a request for particulars and the response, and submissions in respect thereto. To avoid any further untrammelled correspondence, I directed that the parties provide me with submissions as to whether the folder of documents could be formally received as MFI-1 and whether the two emails which SDA wanted marked as MFI-2 should be so received. I received the Rapiscan submissions on 23 March 2020 and the SDA submissions on 26 March 2020. There is, it appears, no dispute that MFI-1 collects together the documents particularised in paragraph 36 of the Statement of Claim. The two emails which SDA seeks to proffer are not documents referred to in paragraph 36. Rapiscan objected to the inclusion of these further documents. I shall, however, mark the two further letters as MFI 2 because they were provided in answer to a request for further particulars by Rapiscan's lawyers, and I shall return to this topic later.
There was no dispute as to the relevant principles to be applied in respect of SDA's strike out motion, as gleaned from Clark v State of New South Wales [2006] NSWSC 673; (2006) 66 NSWLR 640, Palavi v Radio 2UE Sydney Pty Ltd [2011] NSWCA 264 per Allsop P (with whom Macfarlan JA concurred), Moody Kiddell & Partners Pty Ltd v Arkell [2013] FCA 1066 and Mirus Australia Pty Ltd v Gage [2017] NSWSC 1046. In broad terms, as Allsop P observed in Palavi at [93]:
"The deliberate destruction of discoverable material in knowing defiance of discovery obligations [or a preservation order] that produces the real risk of impairment to the case of the other side may lead to restrictions on what points litigants can run or to the striking out of all or parts of their claims."
Although inferences can be drawn by reason of the destruction of documents, the remedies available are not confined to that outcome. As Johnson J observed in Clark at [103]:
"If the conduct of the destroying party may be characterised as an abuse of process, then the power of the court to stay or dismiss proceedings may be utilised in an appropriate case. This power is to be exercised sparingly."
In Moody Kiddell at [26], Jagot J enumerated the principles as follows:
"(1) Non-compliance with an order for discovery enlivens the power to strike out the pleadings of a party (British American Tobacco at [178]).
(2) The power to deny a person the right to rely on their pleading, in whole or part, is exceptional and to be exercised sparingly given the drastic nature of the remedy (Clark at [63] and [147]; see also Palavi at [93]-[95]).
(3) The power exists not to punish the party in default but to ensure the proper administration of justice, in particular to ensure the capacity for a fair trial to be held (British American Tobacco at [178]).
(4) The power exists whether or not the conduct of the party in default was blameworthy or delinquent (Clark at [86]), but the intention of the party in default is relevant both to a finding of abuse of process and to the drawing of inferences about the potential significance of the destroyed material to the issues in the case (Clark at [76]-[81]).
(5) A fair trial does not mean one that is ideal or perfect as trials may be fair even if documents are missing (Clark at [64]).
(6) The key consideration to the fairness of the trial in this context requires an assessment of the nature and extent of the prejudice to other parties by reason of the default (British American Tobacco at [178]).
(7) The question of prejudice involves an assessment of the significance of the destroyed material to the proceeding even allowing for the capacity to draw adverse inferences against the party in default (Clark at [104]).
(8) The remedy must be responsive and proportional to the prejudice of the non-defaulting parties (British American Tobacco at [188]). Judicial indignation at the affront to justice involved must not be given effect (Clark at [89])."
In Mirus at [196], Ward CJ in Eq adopted the summary from Moody Kiddell and summarised what, it was agreed, Mirus had to establish:
"first… that the destroyed material was relevant and in all likelihood significant (Palavi v Radio 2UE at [77]); second, that discoverable material was deliberately destroyed (Palavi v Radio 2UE at [95]); third, that the destruction was in knowing defiance of discovery obligations (Palavi v Radio 2UE at [95]; and, finally that the destruction of this material produces a real risk of impairment to the case Mirus might run (Palavi v Radio 2UE at [95])".
The parties before me accepted that SDA must establish these same points.
SDA's case against Basham for strike out has these components:
1. Basham deliberately deleted the documents on the PNY USB.
2. The documents he deleted were documents which were included in the material which, by reason of the Court's orders, Basham and Rapiscan were required to preserve, and he was aware of the Court orders when he deleted them.
3. The documents were relevant and, in all likelihood, significant to the case brought by SDA.
4. The destruction of the material on the PNY USB produces a real risk of impairment to the case that SDA, as indicated through its Statement of Claim, wishes to bring.
As against Rapiscan, SDA relies on the same matters, drawing attention to three further matters relevant to Rapiscan:
1. Basham was at the time he deleted the documents on the USB employed by Rapiscan at a senior level
2. Rapiscan had employed Basham and continued to employ him even after they had been informed that he was subject to contractual restraints: see the letter from Baker McKenzie of 14 May 2018 to Rapiscan (CB 594).
3. Whilst Rapiscan seeks to present itself in positive terms, not only did Basham delete material but Creagh also tried to do so and he was, and still is, employed by Rapiscan.
I shall deal first with SDA's application to have Rapiscan's Defence (or, alternatively, part of it) struck out. An immediately significant point of dispute between SDA and Rapiscan is that Rapiscan asserts that any deletion of material on the PNY USB by Basham ought not to be treated as conduct by it. Rapiscan points to the fact that all of the statements in the authorities speak of consequences that might be visited upon a party who destroys evidence: see, for example, Clark at [102] and [104], Moody Kiddell at 26,(4),(7) and (8) and Palavi at [93] and [95]. Rapiscan insists that it did not destroy any documents but, rather, it was Basham who did so (or attempted to do so) and that he did so in the light of the following background:
1. On or about 25 May 2018, Mr Norton of Rapiscan telephoned Basham and asked him if he had taken any document from SDA when he left and Basham said he had not. Mr Norton asked him to send him an email confirming that, which Basham did not do: see paragraphs 12-13 of Ms DeBoos' Affidavit of 20 December 2019 at CB 560-561.
2. Rapiscan sought a further response from Basham to the allegations made by SDA (see CB 611), to which Basham replied in writing on 28 May 2018 in a manner that suggested SDA's suspicions were unfounded: CB 612.
3. As at 1 June 2018, Rapiscan had suspended him from work due to Rapiscan's concerns arising from SDA's allegations that Basham had taken confidential information from SDA whilst employed at SDA: see CB 639.
4. Basham had by 31 May 2018 retained a lawyer to act for him: see paragraph 21 of Mr Hardy's Affidavit at CB 249.
5. Baker McKenzie on behalf of SDA had written to Rapiscan on 14 May 2018 asserting that Basham had performed work for Rapiscan whilst still employed by SDA and "may have used and/or disclosed Confidential Information…" (CB 597), and had written again on 18 and 25 May 2018 making more specific allegations: see CB 607-610.
6. Basham had, as at 3 June 2018, been joined as the First Defendant in these proceedings and been served with a Summons and preservation order.
7. Rapiscan Australia had, as at 3 June 2018, been joined as a defendant and also had been served with a Summons and preservation order.
8. Rapiscan on 2 June 2018 had (through its lawyers) requested the return of the Rapiscan laptop from Basham: see CB 647.
9. Rapiscan had on 28 May 2018 instructed Basham not to disseminate confidential information he had received from SDA: see CB 611.
10. Rapiscan had on 2 June 2018 specifically instructed Basham not to destroy, discard, alter or erase any document on his USB or other electronic storage devices: CB 643-645.
It might have been thought that the question here would be whether Rapiscan is to be held vicariously liable for Basham's acts or whether Basham was acting in his own interest and not in furtherance of his employer's interests nor under his employer's express or implied authority: see Deatons Pty Ltd v Flew [1949] HCA 60; (1949) 79 CLR 370 at 380-381 per Dixon J and New South Wales v Lepore [2003] HCA 4; (2003) 212 CLR 511 at [46] per Gleeson CJ, [128]-[131] per Gaudron J, [166] per McHugh J, [228] per Gummow and Hayne JJ, [320]-[322] per Kirby J and [341]-[342] per Callinan J. SDA, however, have not in the Statement of Claim pleaded that Rapiscan is vicariously liable for Basham's actions (see T102.1-5) and, although at times Mr Moses seemed to be asserting that Rapiscan was vicariously liable (T8.3-10 and T100.1-7), he did not challenge Mr Clarke's assertion that SDA was putting its case, rather, on the basis that Rapiscan had brought about the whole situation by agreeing in March 2018 to employ Basham (commencing 1 May 2018) and to continue employing him even after SDA's lawyers had told Rapiscan that Basham was the subject of contractual restraints and had taken confidential information: see T23.40, 2ndT85.40 and 2ndT86.10-12. Some of these assertions appeared to ignore the fact that Rapiscan in its Defence has not admitted or has denied much of what is asserted against it: see, for example, T9.11-18, T22.46-50, T23.15-25, T28.1-4, T29.6-7 and T80.1-4. The first positive assertion by SDA's solicitors that Basham had in fact taken SDA's confidential information is in a letter of 25 May 2018, and Rapiscan sought Basham's response on that day and again on 28 May 2018: see CB 611 and 35 above.
It is true that Basham has not said in the present hearing that he did not pass on documents to Rapiscan, but his reticence to advance an affidavit and submit himself for cross examination was recognised as reasonable: 2ndT100.27-32 and 2ndT163.6-20.
The absence in the Statement of Claim of any allegation that Rapiscan is liable for Basham's conduct is itself significant in considering this issue, but, in any event, in my view Rapiscan has, at the very least, a credible case that Basham, in endeavouring to delete material from the PNY USB (contrary to Rapiscan's instructions), was not acting in the interests of Rapiscan (for example, to undermine the ability of SDA to ascertain the information being used by Rapiscan, as Mr Moses submitted at T104) but, rather, in his own interest, not only to protect himself from claims against him by SDA arising from his having loaded SDA's documents on to his own USB whilst still employed by SDA (not Rapiscan) but also to endeavour to avoid dismissal by Rapiscan - the very thing that occurred on 6 June 2018. I do not accept that Rapiscan should be denied the right to contend that it is not to be held liable for Basham's conduct and, hence, that Basham's actions are not to be treated as Rapiscan's actions. It follows that SDA's contention that Rapiscan's Defence (or parts of it) should be struck out should be rejected.
In the light of the conclusion referred to in the previous paragraph, I do not need to consider Rapiscan's arguments relating to impairment, but because it is relevant to Basham's position as well, I shall deal with the issue of impairment next.
In considering whether such deletion of material from the PNY USB as has occurred has created a real risk of impairment to the case that SDA intends to run, there are a number of matters to which I need to refer before expressing my view on this:
1. Basham sent the SANZ Forecast Document by email to Rapiscan even before he commenced employment, and it appears to be an important document in SDA's case. It appears to be accepted that this document was created by Basham using, to some degree, the APAC Pipeline Document. Version 1 of the SANZ Forecast Document has not been located but Version 2 has been located and it is the subject of a paragraph in the Statement of Claim, to which I shall return. SDA has the APAC Pipeline Document and it has Version 2 of the SANZ Forecast Document. It contends that important information from the APAC Pipeline Document was incorporated into the SANZ Forecast Document. Whether that assertion is correct or not, the outcome of that issue is not dependant on establishing what was on the PNY USB, since the document was sent to Rapiscan long before 3 June 2018.
2. The Statement of Claim is a lengthy document. It alleges many breaches by Basham, both contractual and fiduciary, and also alleges that Rapiscan knowingly induced or assisted Basham in his breaches of duty owed to SDA. Many of the allegations made in the Statement of Claim are entirely independent of whether or not confidential documents were stored on the PNY USB. There are, for example, very detailed claims in paragraphs 42-61 based on emails, to which SDA has obtained access by reason of orders made in these proceedings, relating to work carried out by Basham for Rapiscan both before and after he commenced his employment with Rapiscan. There is nothing in paragraphs 28-61 of the Statement of Claim (apart from paragraphs 33 and 34, which relate to the APAC Pipeline and SANZ Documents) indicating that SDA has made some allegations the particulars of which it is presently unable to give.
3. The case law recognises that it can be difficult to establish what a former employee has used in their new employment, and that is the reason, at least in part, why Courts are willing to grant interim injunctions against former employees where the plaintiff has a good arguable case of breach rather than leaving the plaintiff to claim damages subsequently: see Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472; [1978] 1 All ER 1026, Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717; (2006) 71 NSWLR 9, Red Bull Australia Pty Ltd v Stacey [2011] NSWSC 1212; (2011) 214 IR 299. However, to the extent that Basham, in his senior role at SDA, became aware of confidential information of SDA and either used that information in steps taken to seek to obtain business from customers of SDA on behalf of Rapiscan or passed it on to employees of Rapiscan who used it in such a connection, that case can be made out irrespective of what was on the PNY USB.
4. Deletion of material by a defendant in contravention of a Court order strongly suggests that the deletion was of material that tended to establish some part of the plaintiff's case: see Moody Kiddell at [31]. I think that there would be a firm basis for SDA to contend that Basham deleted, or attempted to delete, documents on the PNY USB because those documents were documents that he had no right to remove from SDA, and possibly that they were confidential to SDA.
5. I accept that the fact that an inference is likely to be drawn does not preclude strike out (see Clark at [103]), but it is relevant.
6. There is a blurring of the lines in the submissions of Mr Moses at T104 and T105. At 104.20-28 Mr Moses spoke of Basham having gone:
"to work for the competitor, downloaded information and provided it to Rapiscan whilst employed by Smiths and destroyed the material after the Court made orders to preserve those matters."
A similar assertion is made at T105.3-12. The information which SDA alleges Basham downloaded and provided to Rapiscan whilst he was employed at SDA is not equivalent to the information on the USB. In respect of the former, as I have mentioned, SDA is well able to maintain its claims, unaffected by what was on the USB.
1. Given that there is no impediment to SDA maintaining that Basham knew of confidential matters concerning bids of interest to Rapiscan, and passed those on either orally or in the SANZ Forecast Document (or in the other documents referred to in paragraph 36 of the Statement of Claim), the absence of any evidence that Rapiscan received any of the missing documents or titles highlights the unfairness that would be visited on Rapiscan if it were not permitted to defend the allegations made against it. Indeed, it is not without significance that Mr Moses accepted that if Rapiscan's Defence were struck out, SDA would still have to establish what losses flowed from the breaches which are asserted by SDA (and could not be contested if Rapiscan's Defence were struck out): see T91.35 - T92.19 and 2ndT89-91 and see Mirus at [306].
2. I have referred to paragraph 36 of the Statement of Claim (see CB 750-751). Paragraphs 36-38 are in the following terms:
"Distribution by Mr Basham of SDA's Confidential Information and commercially sensitive information
36. Between 28 March 2018 and 27 April 2018, whilst Mr Basham remained employed by SDA, Mr Basham, without authorisation, sent versions of the SANZ Forecast Document and other Confidential Information and/or commercially sensitive information of SDA to Mr Vince Creagh and/or Mr Jeremy Norton, senior employees of Rapiscan Australia and/or Rapiscan Singapore.
Particulars
(A) The Confidential Information and/or commercially sensitive information comprised:
(1) template documents that were prepared by or for SDA;
(2) presentation documents related to the Clients of SDA;
(3) sales techniques and strategies implemented by SDA;
(4) information and knowledge of SDA's usual profit margin;
(5) information relating to the costing of SDA's Products;
(6) intimate knowledge regarding global opportunities of SDA and the broader Smiths Detection Group;
(7) multiple versions of the SANZ Forecast Document; and
(8) information about visiting SDA's Clients.
(B) This is inferred by reason of Mr Creagh having received the SANZ Forecast Document and then passing it on to Mr Norton and copying in Mr Basham.
(C) Email from Mr Basham to Mr Creagh dated 28 March 2018, 11:18 am.
(D) Email from Mr Basham to Mr Creagh dated 28 March 2018, 11:24 am.
(E) Email from Mr Basham to Mr Creagh dated 28 March 2018, 11:29 am.
(F) Email from Mr Basham to Mr Creagh dated 28 March 2018, 11:14 am.
(G) Email from Mr Creagh to Mr Norton dated 17 April 2018.
Dissemination of SDA's Confidential Information and/or commercially sensitive information within Rapiscan Australia and/or Rapiscan Singapore and/or to SXT
37 On or about 17 April 2018, Mr Creagh, a senior employee of Rapiscan Australia and/or Rapiscan Singapore emailed Mr Norton, a senior employee of Rapiscan Australia and/or Rapiscan Singapore, a spread sheet entitled 'Forecast SANZ FY18-19 Version 2'. This document contained key customer lists including key Clients of SDA and contract values.
Particulars
(A) Email from Mr Creagh to Mr Norton dated 17 April 2018.
38 On or about 17 April 2018, Mr Norton extracted information from the various versions of the SANZ Forecast Document he received from Mr Creagh and reformulated them to create a 'FY 19 Bookings Budget_V1.xlsx' document (Bookings Budget).
Particulars
(A) This is inferred from a comparison of SANZ Forecast Document and the Bookings Budget."
1. In its Defence, Rapiscan responded to paragraphs 36-38 as follows:
"36 In relation to paragraph 36 of the Statement of Claim, the Second, Third and Fourth Defendants admit the emails referred to at Particular (B) to paragraph 36 of the Statement of Claim and otherwise do not admit paragraph 36 of the Statement of Claim.
37 In relation to paragraph 37 of the Statement of Claim, the Second, Third and Fourth Defendants:
a. say that the First Defendant was employed by the Third Defendant from 1 May 2018;
b. admit that Mr Creagh emailed Mr Norton a spreadsheet titled "SANZ Forecast FY18-19 Version 2" on 17 April 2018;
c. say that the names of the airports contained in that spreadsheet are publicly available information and in respect of the clients listed at paragraphs 15 and 16 above are current clients of the Second, Third and Fourth Defendants, and repeat paragraphs 15 and 16 above;
d. deny that the spreadsheet contained the Plaintiff's contract values and say that the values in the spreadsheet relate to the price of products and services offered by the Second, Third and Fourth Defendants; and
e. otherwise do not admit the paragraph.
38. In relation to paragraph 38 of the Statement of Claim, the Second, Third and Fourth Defendants:
a. say that Mr Norton only received one version of the SANZ Forecast Document, "SANZ Forecast FY18-19 Version 2" (Forecast V2), from Mr Creagh;
b. say that Mr Norton inserted his own figures for the SANZ region into the Bookings Budget;
c. deny that there is any resemblance between the SANZ Forecast Document and the Bookings Budget v1; and
d. otherwise do not admit the paragraph."
1. I have referred to MFI-1, which collects the documents referred to in paragraph 36 of SDA's Statement of Claim and to MFI-2 (particulars). The particulars sought were:
"17. In relation to the allegations made in paragraph 36 of the Statement of Claim:
(a) is the purported confidential or commercially sensitive information limited to the matters specified in particular (A).
(b) if not, what is the alleged confidential or commercially sensitive information."
and the answer is as follows:
"This is not a proper request for particulars and is a matter for evidence. However, we confirm that:
(a) the confidential or commercially sensitive information referred to in paragraph 36 of the Statement of Claim is not limited to the matters specified in particular (A); and
(b) the confidential or commercially sensitive information set out in particulars (B) to (G) of paragraph 36 of the Statement of Claim is the extent of the confidential or commercially sensitive information which was known to the Plaintiff at the time of filing of the Statement of Claim, copies of which are located on the USB Device."
The reference is to information "which was known to the Plaintiff at the time of filing of the Statement of Claim" - there is no indication of the position as at 8 February 2019 and it is not clear that SDA is seeking to propound a wider case than that identified in paragraph 36 of its Statement of Claim. The particulars to paragraph 36 in the Statement of Claim positively assert that "the confidential information and/or commercially sensitive information comprised…" and then lists the eight items and identifies by reference to emails where each of them is found.
1. Mr Moses confirmed that the case which SDA asserts has been impaired by the deletion of the material on the PNY USB is the case as pleaded (see 2ndT159.46-50), and the case as pleaded is, relevantly, paragraphs 31-41 and 46-61, in which the confidential information and commercially sensitive information alleged to have been taken by Basham is identified without any indication that SDA have been unable to ascertain its nature or content. The case against Basham that he deleted confidential information taken from SDA (paragraphs 110-112 of the Statement of Claim) is in its own category.
2. Mr Moses (T100) urged upon the Court the need to preclude Rapiscan from relying on non-admissions in its Defence if Basham's Defence were struck out. Mr Moses in his submissions was critical of aspects of Rapiscan's Defence because Rapiscan had not admitted and denied aspects of SDA's claims: see for example T27.35. The basis on which SDA seeks to strike out Rapiscan's Defence (or, alternatively, parts of it) is limited to the deletion of the material on the PNY USB but, in any event, Rapiscan is perfectly entitled not to admit matters that it does not know are true, and it has not been demonstrated that Rapiscan's Defence is open to criticism. For example, as Mr Clarke points out, SDA asserts that the documents particularised in paragraph 36 of the Statement of Claim are "confidential or commercially sensitive information", yet several of those documents emanate from Unisys, and one is a Unisys manual on target account selling and the other is described as a "TAS Refresher", with nothing in either of them about SDA or its business. Rapiscan, in answer to paragraph 36, admits the emails "and otherwise [does] not admit paragraph 36 of the Statement of Claim". Nor does it follow that if Basham's Defence were struck out that Rapiscan would not be able to maintain all of its Defence.
3. Mr Moses submitted that Rapiscan had to lead evidence that it did not know about the destruction or authorise it: T28. Mr Clarke points out, correctly in my view, that in the absence of any allegation in the pleading that Rapiscan did either of those things, Rapiscan is not required to disprove anything.
There is evidence from Mr Georgelin that many of the missing files in LM3 and LM5 were confidential documents of SDA: see paragraphs 89-93. He does not say that the documents he mentioned in paragraphs 89 and 91 are the only documents which he can so identify. It would appear that he selected ones that he saw as important, which is entirely understandable. He did not say that he cannot access those documents or some form of them on SDA's server. This links to the point made by Mr Clarke that it is somewhat incongruous that, after commencement of the proceedings, a search of SDA's servers was not conducted by someone such as Mr Georgelin who had knowledge of the nature of the documents and their contents: see 2ndT142.6-16.
Deletion (or attempted deletion) of documents by Basham does not lead to any inference that those documents had, prior to deletion (or attempted deletion), been given to Rapiscan. Indeed, as matters presently stand, neither the titles of the documents claimed to have been deleted nor their contents have been located in the Ringtail Database, raising the very real prospect that Basham did not provide any of the documents that had been on the PNY USB to Rapiscan (other than a form of the APAC Pipeline Document) prior to their deletion (or attempted deletion).
When I raised the possibility of interrogatories as a tool that SDA might be able to utilise in extracting more information concerning the tender process and, in particular, Basham's involvement in it or the utilisation of confidential information provided, Mr Moses rejected the utility of that approach (see 2ndT160.41-44). He also claimed that examination of Rapiscan's tenders (successful or otherwise) would not be of any assistance: T25.4-24. I accept that when it is clear that information has been passed by an ex-employee to the new employer, a plaintiff does not have to exhaust every avenue before it can assert that its case is impaired because it cannot ascertain what was in those documents, but I am not persuaded that it has been established that Basham has passed on any of the documents on the SDA laptop to Rapiscan, other than the APAC Pipeline Document in some form or other, which SDA appears well able to assert and, presumably it believes, to prove. Nor am I satisfied that it has been established that SDA cannot ascertain what the documents on the PNY USB were. Further, if the documents that are on the SDA laptop can be identified, it may be of limited significance that the documents cannot be reproduced from the PNY USB.
I therefore am not satisfied, even if Basham did succeed in deleting documents or their contents from the PNY USB, that SDA's case has been impaired to the degree that it would be appropriate to strike out Rapiscan's Defence (even were I otherwise satisfied, which I am not, that Basham's actions are to be attributed to Rapiscan).
There is, however, a further matter of significance, not only to Rapiscan but also to Basham's position, which was touched on in Mr Clarke's submissions, namely whether SDA has established on the evidence that Basham did permanently delete documents from the PNY USB, which documents cannot be identified by SDA by some means or other.
The only forensic examination of the PNY USB after it was handed over by Basham on 12 June 2018 was that undertaken by Ms Acharya, the first Independent Computer Expert, who took a copy of its contents, and then by Mr Bell who took over from Ms Acharya. Mr Bell explains in paragraphs 19-25 of his Affidavit the process he undertook in respect of the USBs. He acknowledges that not all of the documents on the USBs were deleted (784 on the PNY USB and 942 on the Cruzer USB): see paragraph 20 of his Affidavit. He refers to the Deleted File List which he created containing 1,985 documents, but he says at paragraph 22:
"Deleted files are files that have previously existed on a device which are able to be recovered during the forensic analysis process. Such files are marked as 'Deleted' and are therefore able to be targeted for specialist forensic analysis. The Deleted File List referred to 1,985 files."
Neither Mr Bell nor anyone else says that they have examined the PNY USB and found documents the titles of which are detected but which cannot be accessed, nor has anyone said that they examined the PNY and Cruzer USBs to see if they had copies of the documents on LM3 and LM5 that could be accessed.
As I have noted earlier, there is evidence from Mr Georgelin that he recognised files listed in LM3 as highly confidential documents of SDA, and he and Ms Ristevska had examined the SDA laptop on 7 May 2018 without, it would appear, finding any documents that they could not access, which rather suggests that whatever was copied on to the PNY USB prior to 6 April 2018 (when Basham returned it to SDA) was still on the SDA laptop on 7 May 2018. Mr Georgelin did not say that he could not locate the documents he identified as highly confidential and it is not part of SDA's case that Basham removed documents other than emails from SDA's server.
Neither Mr Georgelin nor Ms Ristevska has given evidence that they have examined the SDA laptop and the SDA server and been unable to find the documents the names of which appear on the LM3 or LM5 lists. The evidence is that Ms Compain-Helsloot, a solicitor with Baker McKenzie, has embarked upon a comparison of the LM3 and LM5 lists with what is on the Ringtail Database. I accept her evidence that she found on the Ringtail Database only eight files (two of which were identical) out of the LM3 and LM5 lists, but the SDA laptop contents or SDA server are not said to be included, and she is unlikely to have the familiarity with documents of SDA that Mr Georgelin (for example) has.
Mr Knittel did search SDA's server looking for copies of documents listed in LM3 and LM5 and found only five documents: see paragraph 21 of his Affidavit. There is a possible disconnect between Mr Knittel's evidence and Mr Georgelin's evidence, because Mr Georgelin recognised from LM3 and LM5 documents of SDA (and which no one has said are missing from SDA), yet Mr Knittel did not find them on the server. Nor did Mr Knittel find the APAC Pipeline Document. One possible explanation is that Mr Knittel was instructed by Ms Compain-Helsloot (through a Mr Teck Chong Tan) to seek a match only of "the precise documents" with "100% certainty": see CB 439. Once again, Mr Georgelin, or someone familiar with the documents in use by SDA, was not engaged to conduct the search.
I turn now to the application to strike out Basham's Defence. What I have said in relation to impairment and deletion applies to Basham as well. Serious as his attempt to delete is, if he has been unsuccessful in deletion or if the documents are available elsewhere, then SDA's claims of impairment fall away, quite apart from the other matters to which I have referred. I accept that it may well be that the contents of some documents on the PNY USB were permanently deleted by Basham, but on the material presented I am not satisfied that it has been established that they were or that if they were permanently deleted from the PNY USB that they cannot be recovered or replicated from another source, such as the SDA laptop. There is evidence from Mr Georgelin, for example, that the contents of eight important documents can be identified and no evidence from him or anyone at SDA that they cannot now locate those important documents.
I therefore conclude that SDA's claim to relief sought in the first four paragraphs of its Motion should be rejected, and it would seem to follow that the appropriate order is that SDA's Motion should be dismissed, but I will allow the parties an opportunity to consider the form of orders to be made. The parties asked me to defer consideration of the question of costs until after I determined the outcome of the Motion - a time for submissions on that issue will need to be fixed. Orders for the completion of interlocutory steps to prepare the matter for hearing will also need to be made.
[3]
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Decision last updated: 07 May 2020