Structerre Consulting Engineers (NSW) Pty Limited v Townend

Substantive proceedings

1. The plaintiff submitted that the documents sought in the subpoena are relevant to the final relief sought in the summons, being: 1. Order that until 31 January 2021, the defendant be restrained from, by himself, his servant and agents: a. in any way, canvassing, soliciting or endeavouring to entice away from the plaintiff any clients or customers of the plaintiff; b. in any way, attempting to persuade any client of the plaintiff to cease dealing with or to reduce the dealings which that client has customarily had or contemplated having with the plaintiff; and c. counselling, procuring or otherwise assisting any person to do any act referred to in paragraphs (a) and (b) above. 2. Order that the defendant be restrained from, by himself, his servants and agents, directly or indirectly, disclosing to any other person the plaintiff's confidential information as follows, except as may be required by law: a. any information concerning the clients of the plaintiff, including the clients' names, the names of the clients' principals or other key personnel, the contact details of the clients' principals or other key personnel, and the clients' preferences in relation to engineering services; and b. any of the plaintiff's internal cost and pricing rates for any of its products and services.
2. The plaintiff thereby seeks to enforce confidentiality and restraint clauses in the defendant's contract of employment, which provided in respect of confidentiality: Confidentiality In the course of your employment you may become privy to confidential information of the Company or that or that of the Company's clients, whether in written, computerised or oral form. You will, both during your employment and for so long as the confidential information remains confidential after the termination of your employment (unless it ceases to be confidential due to your breach of this clause): • not at any time, either directly or indirectly, disclose or communicate to any person any confidential information that may come to your knowledge during or in the course of the employment, unless expressly authorized by the Company or required by law or court order, ...
3. In addition, the contract of employment included a restraint clause, which provided that the defendant would not engage in various activities "by any means whatsoever directly or indirectly".

Submissions

1. The plaintiff contends that, from shortly before leaving his employment with the plaintiff in January 2020, the defendant took steps, directly and indirectly, to persuade a sleuth of the plaintiff's clients to transfer their business to the subpoenaed party and thus reduce their business with the plaintiff, in which endeavour the defendant was successful. The plaintiff contended that the defendant heavily used information, advice and content which he obtained from Mr Donovan and Mr Donovan's reputation as a means of luring the plaintiff's customers to his new employer. The documents sought by the subpoena are said to go, in particular, to whether the defendant breached his contractual obligations "indirectly" by making use of confidential information obtained by Mr Donovan from the plaintiff. I was taken to emails sent by the subpoenaed party to its staff, copied to Mr Townend and in some cases also to Mr Donovan, concerning the use of a client user interface which was then being presented by the subpoenaed party to potential clients. In particular, the plaintiff points to an email of 6 April 2020 from the defendant to Mr Clarke saying, "I am not sure others understand how well Kevin [Donavan]'s web ordering site has been received by the likes of [various clients] and many more builders being serviced by [the plaintiff]". The plaintiff points to this email as indicating that the defendant was leveraging Mr Donovan's use of a client user interface, noting that Mr Donovan developed just such a system while working for the plaintiff. The plaintiff submitted that the subpoena was issued to uncover the extent, depth, means and manner of these and other attempts by the defendant to lure the plaintiff's clients.
2. The plaintiff further contended that the defendant and the subpoenaed party used Mr Donovan's knowledge of the plaintiff's clients to tailor their sales pitches. The plaintiff pointed to two emails sent by Mr Clarke to potential clients on 19 May 2020 and 10 June 2020 advising that the defendant and Mr Donovan now worked for the subpoenaed party and providing information about the subpoenaed party's business offerings. The plaintiff's counsel pointed to the fact that the emails were tailored to the individual clients and submitted that this suggested that the tailored information reflected the historical services which had been delivered by the plaintiff to these clients, being information which either the defendant and/or Mr Donovan had access to during the course of their employment with the plaintiff and thus confidential information.
3. The plaintiff submitted that the documents produced by the defendant show that he, together with the subpoenaed party, implemented a roundabout system for persuading the plaintiff's clients, basically because they misunderstood the operation of the restraint, thinking that the defendant would breach his restraints only if he initiated contact. The plaintiff tendered a series of emails from Mr Clarke to a client of the plaintiff seeking to solicit their business which, from 19 May 2020 on, were copied to the defendant. The client enquired, "When is Greg officially allowed back to deal with us?" Mr Clarke replied that the defendant was allowed to deal with the client, "It is just important that the original point of contact and approach ... came from me". The defendant also joined in this email exchange agreeing that, with Mr Clarke looking after the initial contact, the defendant could start working for the client as soon as they liked. Thus, it was said that the subpoenaed party contrived to contact clients first - using contact details obtained from the defendant - and then handed them over to the defendant to convert. It was submitted that Mr Donovan appeared central to the initial approach and also the later handling of clients by the defendant. The plaintiff contended that the defendant and Mr Donovan provided the means and, directly or indirectly, supported the manner in which the defendant attempted to poach the plaintiff's clients.
4. In addition, the plaintiff relied upon the evidence of Mr Swarts which described the importance of the relationships between the plaintiff and its clients, the time and effort put into developing and maintaining these relationships, and the storage of client lists and data including archived work. Mr Swarts described the client lists as rarely publicly available and not widely circulated within the plaintiff company, being usually accessible to senior managers only. To Mr Swarts' knowledge, the client lists were only maintained on two computers - one being that of the defendant - and both were password protected. Mr Swarts expressed concern that Mr Donovan and Mr Townend were exchanging confidential information and other client details to be passed on to their new employer, the subpoenaed party.
5. The subpoenaed party submitted that there was no relevant issue on the pleadings which provided a proper basis for the issue of the subpoena. There was said to be no evidence that Mr Donovan had breached his contract of employment, nor was that an issue in the proceedings nor was he a party to the proceedings. It was not asserted that Mr Donovan was directly involved in any breach by the defendant. It was submitted the manner or means by which the defendant breached his contract of employment was not in issue but simply whether he breached the contract. The plaintiff only asserted that Mr Donovan was involved in preparatory steps to the actions of the defendant said to have been in breach of his contract of employment. As the Court would not, at a final hearing, infer from such preparatory steps that the contract was breached, then documents evidencing the preparatory steps were said to be irrelevant. The documents sought by the subpoena were only relevant if they sought to establish that the contract of employment had been breached; not whether preparatory steps had been taken in that regard.
6. Further, the subpoenaed party submitted that, having regard to the affidavit of Mr Swarts, the only confidential information the subject of the proceedings was a client list and, according to Mr Swarts' affidavit, Mr Donovan did not have access to the list. There was said to be no evidence that Mr Donovan had been communicating with the defendant about the client list. There was said to be no evidence that the defendant used information provided by Mr Donovan to attempt to contact the plaintiff's customers. It was submitted that the Court could not infer from the emails relied upon by the plaintiff, described at [9], that the emails to prospective clients were prepared using confidential information. There was said to be no evidence suggesting that the client user interface referred to in the email described at [1] was the system developed by Mr Donovan whilst working for the plaintiff, nor that the client user interface contained confidential information in circumstances where, it was submitted, the only confidential information asserted by the plaintiff was its client list. It was submitted that the email did not establish that Mr Donovan was providing confidential information to the defendant for the purpose of soliciting the plaintiff's clients, nor were there said to be any documents evidencing communications between Mr Donovan and the plaintiff's clients.
7. In respect of paragraph 1 of the subpoena, the subpoenaed party submitted that the plaintiff had not established a chain of reasoning between the documents sought and establishing, at a final hearing, that the defendant had breached his employment contract. It was said that the plaintiff either proved that there was a breach or not, but preparatory steps, or what happened behind the scenes, could not shed light and was not probative of this issue. The concern expressed by Mr Swarts in his affidavit - that confidential information was being exchanged between Mr Donovan and the defendant - was said to not provide a sufficient basis for the issue of the subpoena. There was said to be no evidence that such communications existed and no legitimate forensic purpose was served by seeking the production of any such communications. In respect of paragraph 2 of the subpoena, it was said that this submission applied with greater force. There was said to be no evidence that such documents existed, nor any evidence from which the existence of such documents could be inferred. Paragraph 2 was said to fall squarely within the prohibition on 'fishing'.

Principles

1. In Portal Software v Bodsworth [2005] NSWSC 1115, Brereton J noted that the test of relevance in this context will be satisfied if the material has apparent relevance, that is, the documents called for "could possibly throw light on the issues in the main case", where "possibly" is not used in any speculative sense; a subpoena may be set aside if the issuing party cannot, on reasonable grounds, show that there is a reasonable possibility that the documents sought will assist in resolving a matter in dispute in the proceedings: at [24], citing Trade Practices Commissioner v Arnotts Limited (1981) 21 FCR 306. His Honour observed that the issues in the proceedings would appear from the pleadings (where there were pleadings), the affidavits and the legal principles which govern the claims for relief in the substantive proceedings: at [25].
2. Portal Software v Bodsworth was followed by Ward J, as her Honour then was, in In the matter of One.Tel Ltd (in liq) - SingTel Optus Pty Ltd v Weston [2010] NSWSC 1491, where her Honour canvassed the authorities at [21]-[31]. Ultimately, Ward J applied the formulation of Nicholas J in ICAP Pty Limited v Moebes [2009] NSWSC 306, upheld by the Court of Appeal in ICAP Australia Pty Limited v BGC Partners (Australia) Pty Ltd [2009] NSWCA 307. In One.Tel at [31]: Applying in this case the test in civil proceedings, as stated by Nicholas J in ICAP (namely that "it must be shown that it is likely the documentation will materially assist on an identified issue, or there is a reasonable basis beyond speculation that it is likely that the documentation will", at [30]) and noting that it must be reasonable to infer that the documents so sought exist, a careful consideration is required of the issues in the proceedings to which the subpoenaed documents are or may be of relevance in order to assess whether there is a legitimate forensic purpose served by the subpoena. …
3. A subpoena may not be used by a party to litigation for the purpose of endeavouring, not to obtain evidence to support the party's case, but to discover whether they have a case at all: The Commissioner for Railways v Small (1938) 38 SR (NSW) at 564. A subpoena is "fishing" when issued in the hope of finding something to supply evidence necessary to support one's case, there being no evidence that the subpoenaed party has such material but wishing to find out whether there is any material or not. However, if there is material before the Court pointing to the probability that the subpoenaed party has in their possession such documents, a call for the documents cannot properly be described as a fishing expedition: Associated Dominions Assurance Society Pty Limited v John Fairfax & Sons Pty Limited (1952) 72 WN (NSW) 250 at 254. A subpoena is less likely to be set aside if the information which it seeks is exclusive to the subpoenaed party: ICAP v Moebes [2001] NSWSC 306 at [25] citing Travel Compensation Fund v Blair [2002] NSWSC 1128.

Conclusion

1. The subpoenaed party's approach to the issue of relevance is too narrowly confined. The distinctions sought to be drawn between an act of breach, the manner and means by which a contract is breached, and acts preparatory to such a breach were, with respect, too finely drawn. On one view of it, steps taken to prepare to breach a contract are themselves a breach of the contract. The same can be said for documents evidencing the manner and means by which a contract is breached.
2. It is not necessary for the plaintiff to establish, by reference to the documents already available to it, that the plaintiff's case at trial will be established with the documents sought by the subpoena. Nor is it necessary to definitely prove that the documents sought by the subpoena exist, including by reference to documents already in the plaintiff's possession. The plaintiff need only establish that it is reasonable to infer that the documents exist, such an inference more likely to be drawn where such documents are exclusive to the subpoenaed party.
3. By the summons, the plaintiff seeks to enforce the terms of the employment contract, which prohibit the defendant from disclosing "confidential information of the Company or that of the Company's clients, whether in written, computerised or oral form". The defendant is restrained from doing so, "either directly or indirectly". The restraint is framed in similar language. The documents sought by the subpoena appear to be relevant to an issue in the proceedings in that the documents could possibly throw light on the issues in the case and there is a reasonable possibility that the documents will assist in resolving a matter in dispute. The issues in the proceedings have been raised squarely by the affidavit of Mr Swarts and are corroborated, to some extent, by the documents already produced by the defendant in these proceedings and tendered on this application. Whilst Mr Swarts' affidavit refers specifically to client lists, that is not all that he says and nor, at this stage of the proceedings, is the plaintiff precluded from seeking the production of documents which may indicate a wider misuse of the plaintiff's confidential information, particularly in circumstances where the documents relied upon by the plaintiff on this application suggest that the subpoenaed party may have such documents in their possession.
4. It appears to me to be likely that that the documentation sought will materially assist in determination of the issues whether the defendant, either directly or indirectly, disclosed or communicated the plaintiff's confidential information, in particular, the identity of the plaintiff's clients and the services which those clients had historically received from the plaintiff. As Brereton J observed in Portal Software the issues in proceedings where there are not pleadings can be divined from the affidavits and the legal principles which govern the claims for relief. The legal principles governing a claim for breach of an obligation of confidence, together with the fact that, by their nature, any documents falling within the subpoena are likely to be exclusive to the subpoenaed party, support a conclusion that the subpoena does not offend the principles I have sought to describe. It also follows that the subpoena cannot be described as "fishing".

Costs

1. Whilst I am minded to order that the subpoenaed party pay the costs of this motion, the subpoenaed party seeks an order that each party bear their own costs of the motion on the basis that some of the material relied upon by the plaintiff at the hearing today was only provided recently. The plaintiff advised that a lot of the material relied upon at the hearing had been provided to the subpoenaed party's solicitor, who initially acted for the defendant, a couple of months ago. Mr Mullavey was then served with the affidavit of Mr Swarts. A few days ago, a shorter affidavit of Mr Slasberg was served, which exhibited correspondence between the parties and could not be said to be something of which the subpoenaed party was unaware. Notwithstanding service of this material, the subpoenaed party's position did not change. The subpoenaed party's counsel maintained that the bulk of the material was only served yesterday.
2. I am not in a position to ascertain whether the material was served as described by the subpoenaed party or the plaintiff. Given the intensity with which the subpoenaed party has prosecuted its motion, I am not convinced that it would have made any difference to the subpoenaed party's attitude if the material had been served earlier. The documents sought appear on the face of the subpoena to be relevant to an issue in these proceedings. The fact that the plaintiff has supplemented - perhaps late - what, with respect, was obvious from the subpoena by serving further affidavits and documentary material does not seem to me to warrant any departure from the costs order I had in mind.
3. For these reasons, I make the following orders and directions: 1. Dismiss the notice of motion filed by Intrax Consulting Group Pty Limited on 27 July 2020. 2. Order Intrax Consulting Group Pty Limited to pay the plaintiff's costs of the motion.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 October 2020