PROCEDURE - DISCOVERY AND INTERROGATORIES - Scope of Discovery - whether order for further discovery should be made - test to be applied - whether documents in possession of third parties are within power of party and hence discoverable documents - order for further discovery not made

Court Procedures Rules 2006 (ACT)

Uniform Civil Procedure Rules 2005 (NSW) r 21.3(2)

Bova v Avati [2009] NSWSC 921

Hooker Corp v Commonwealth (1985) 61 ACTR 37

Mulley v Manifold [1959] HCA 23; (1959) 103 CLR 341

Taylor v Santos (1998) 71 SASR 434

Clickfort Pty Ltd as Trustee for the Alan Griffin Family Trust (Second Defendant)

J S O'Connor, Harris & Co Barristers & Solicitors (Defendants)

1. The defendants in these proceedings have applied by application in proceedings dated 9 December 2016 for an order pursuant to r 606(1)(c) of the Court Procedures Rules 2006 (ACT) that the plaintiffs provide further disclosure of documents in accordance with the defendants' request for disclosure of 29 July 2016.

2. The application was adjourned on a number of occasions so that further communications could take place between the parties as to the scope of the disclosure that had been provided.

3. The application in proceedings also sought an order under r 606(6) permitting an affidavit to be used in support of the application. I will refer to this provision further below. However both parties read affidavits on the application and it is appropriate to make an order, nunc pro tunc, permitting them to do so.

4. This application was heard at the same time as an application for summary judgment by the third, fourth, fifth and sixth defendants. During the course of argument on that application the plaintiffs made an oral application for those parties to be removed from the proceedings. That course was not opposed by the defendants. Rule 230 provided a power to do so. I therefore made an order of removing the third, fourth, fifth and sixth defendants from the proceedings whilst reserving the question of costs of the application for summary judgment and the costs of the proceedings against those parties.

5. The plaintiffs in these proceedings seek the payment of $500,000 which is alleged to be owing pursuant to a deed. The deed was one designed to see the plaintiffs exit from a partnership which was known as the Rovera Scaffolding Partnership. A deed described as a "Deed of Dissolution, Compromise and Release" was entered into on 16 September 2014 (the Deed). Relevantly the deed required payment of $1,200,000 to the first plaintiff by the first and second defendants. The timetable for the making of payments was set out in the deed. The first and second defendants made payments totalling $700,000 but failed to pay the balance. They did so because they asserted that the second plaintiff had breached other terms of the deed by becoming involved in competing scaffolding businesses.

6. They assert that the second plaintiff's conduct is in breach of cl 9 of the Deed. That clause provides that neither the first nor the second plaintiff may, "without prior written consent of Rovera Scaffolding be directly or indirectly engaged or concerned in any scaffolding business anywhere in the Australian Capital Territory" or within specified distances of the Territory for specified periods of time. Those distances and times cascade from 100 km for four years down to 20 km for six months in an attempt to protect the operation of the Deed in the event that the wider and longer restrictions are found to be unenforceable.

7. The first and second defendants' counterclaim alleges that following the entry into the Deed the second plaintiff, without the prior consent of the first and second defendants:

(a) was and remained a director of Alliance Building Group (ACT) Pty Ltd (Alliance);

(b) was and remained a director of Multi Deck Australia Pty Ltd (Multi Deck);

(c) provided services for and on behalf of Alliance and Multi Deck;

(d) provided services to other scaffolding and related businesses operating in the ACT;

(e) became an employee of Alto Scaffolding ACT (Alto Scaffolding); and

(f) diverted business away from the Rovera Scaffolding partnership.

8. These matters are alleged to amount to a breach by the second plaintiff of cls 8 and 9 of the Deed and involve the misuse of confidential information. There are also allegations of breach of the original partnership deed arising from conduct prior to the deed but unknown to the first and second defendants at the time of the deed.

9. The answer to the counter claim admits that the second plaintiff remained a director of Alliance and Multi Deck but says that it was with the knowledge and consent of the defendants. It also denies that he engaged in a scaffolding business in those roles. It admits that he was employed by "Alto Scaffolding Canberra" in the position of a "yardman" on an annual salary of $42,640. Any breach of cls 8 and 9 of the Deed and any breach of the duty not to disclose confidential information is denied. The answer does not explain the basis for denying that his involvement with Alto Scaffolding constitutes a breach of cl 9 of the Deed. It is possible that the only basis for denying a breach of that clause in relation to employment by Alto Scaffolding is that it is pleaded that it has not, at any time, been reasonable to impose a restraint on the activities of the plaintiff or that any such restraint did not survive the termination of the Deed by the plaintiffs following the non-payment by the first and second defendants (paragraph 18).

10. As the application was argued it appears that one of the principal issues between the parties is the extent of the involvement of the second defendant in the activities of the business referred to as Alto Scaffolding. Because the actual entity or entities involved in this business are not identified in the evidence I will refer to it simply as Alto Scaffolding. It is apparent that the defendants do not accept that the second plaintiff is a mere "yardman" and consider that he has either formally or informally a greater role in that business. That concern is articulated in a letter of 3 November 2016 which indicates that the defendants "strongly suspect" that the second plaintiff is not just an employee of but an investor in Alto Scaffolding. The letter identifies the information and circumstances relied upon by the defendants in forming their view there as including:

1. Known associations prior to and since the dissolution between Mr Da Silva, Mr Rao and certain key people within large customers such as Geocon and Bloc.
2. Consequential trends in Rovera's business.

1. The extent of similarity between Rovera's and Alto's methods and operations.

1. Observations of Mr Da Silva's whereabouts and information from labourers and labour provider companies within the industry.
2. The incredulousness [sic] of Mr Da Silva working as a yardman for Alto for $42,640.
3. Aspects of discussions that only Mr Milicevic, Mr Griffin and Mr Da Silva where [sic] privy to in relation to the potential value and sale of the [sic] Rovera.
4. Alto's knowledge of potential employee situations when that information had been provided only to Mr Da Silva.
5. Our clients' knowledge that the materials required to perform the contracts that Alto were winning is in the order of $2-3 million and the labour requirement in the order of 40-60 people. Our client's fervent belief that any person without industry experience cannot start a scaffolding business from scratch and reach the level of business that Alto did so quickly unless they have assistance from an industry experienced and knowledgeable person.
6. Even then, for a brand new scaffolding company to hit the market with its own equipment and employed labour is extraordinary and could only be rationalised by having virtually guaranteed work.

11. In his affidavit of 8 June 2017 Mr Da Silva states:

I have not paid any amount to Alto Scaffolding Pty Ltd (ACN 607 427 243) or people associated with that business. I do not have any direct or indirect interest in shares of that company.

12. Notwithstanding the imprecision with which the Alto Scaffolding business is referred to in the correspondence there is no evidence that there are other entities apart from the specific company identified in the above paragraph related to the business which might be the destination of any investment. While the statement does not address his role in the business and whether it extends beyond that which a "yardman" would perform and does not address whether any agreement or understanding exists between him and those involved in the management of the company, it is a clear statement of the second plaintiff's lack of direct or indirect interest in the shares of the company.

13. The parties were substantially in agreement as to the approach to be adopted in relation to an application for further discovery. In Mulley v Manifold [1959] HCA 23; (1959) 103 CLR 341 at 343-344, Menzies J addressed an application for further discovery in the context of the Rules of the High Court which permitted such applications generally or in relation to particular documents or classes of documents. His Honour identified that under the rules relating to general applications for further discovery it was not permissible to show, by a contentious affidavit, that the discovery made was insufficient. However the insufficiency might appear not only from the pleadings, the affidavit of documents itself or the documents therein but also from any other source that constituted an admission of the existence of a discoverable document. Further, it was not necessary to infer the existence of a particular document but would be sufficient if it appeared that a party had excluded documents under a misconception about the case. His Honour also referred to an additional rule which permitted an application for further discovery based upon the filing of an affidavit showing that there have been particular undiscovered documents in the possession of the other party which relate to a matter in question in the proceeding.

14. The decision in Mulley v Manifold was discussed and elaborated upon in the context of the then Rules of the Supreme Court of the Australian Capital Territory 1937 (ACT) by Kelly J in Hooker Corp v Commonwealth (1985) 61 ACTR 37 at 44-46.

15. The present Court Procedures Rules 2006 state in general terms the power of the court to make "Orders about disclosure" in rule 606. Rule 606(1)(c) provides that the Court may make "if the court considers that a party has not, or may not have, adequately disclosed discoverable documents - an order for a party to make further disclosure". Probably reflecting the desirability of limiting the use of contentious affidavits upon applications relating to discovery referred to in the earlier cases, sub rule (6) (which I have referred to at [3] above) provides that an affidavit must not be used for an application for an order under the rules unless the Court otherwise orders.

Scope of discovery and documents sought on present application

16. The original direction in relation to discovery was made on 22 July 2016. The parties were directed to request discovery on or before 29 July 2016.

17. The letter from the solicitors for the plaintiff to the solicitors for the defendant dated 29 July 2016 provided:

Pursuant to the orders of 22 July 2016, and by way of service, this is a notice requiring the plaintiff and the second plaintiff to disclose all discoverable documents that are, or have at any time been, in the possession of the plaintiff or the second plaintiff, including but not limited to...

18. Some 14 categories of documents were then set out.

19. In their terms neither the order directing when requests for discovery be made nor the terms of the letter confined the request for discovery to those categories of documents. It was therefore a request for general discovery with some additional information provided by the solicitors for the defendants as to matters to which particular attention should be paid. The terms of the present application in proceedings and some of the correspondence appear to have treated the request for discovery as limited to categories. However, that limitation is not apparent from the order of the Court or the letter requesting discovery.

20. An affidavit of documents was filed by the plaintiffs on 9 September 2016. There were communications between the parties and the present application in proceedings was filed on 9 December 2016. An amended list of documents was filed on 6 April 2017. After this date there was further correspondence between the parties as to the scope of discovery which failed to avoid the need for the application to be heard and determined.

21. In the present case the defendants say that the existence of additional discoverable documents is demonstrated by admissions made in the second plaintiff's affidavit of 8 June 2017 which, the defendants contend, discloses the following:

(a) the bank records for the plaintiffs have only been disclosed through to 8 August 2016 without any explanation;

(b) material supplied to Tribe Accountants (the accountants for the plaintiffs and related companies) which would form the 2016 financial statements and returns which have been prepared have not been disclosed, nor have any provisional reports or draft statements;

(c) emails that were sent and received by the second plaintiff on behalf of Alliance are not listed in either list;

(d) emails that were sent and received by the second plaintiff on behalf of Multi Deck are not listed on either list; and

(e) the second plaintiff does have work emails relevant to his employment with Alto Scaffolding but says he does not have permission to copy or remove those emails.

22. The defendants point to other material that has been disclosed during the course of discovery which demonstrates that the second plaintiff is accustomed to deal with complex business matters in writing. They submit that the Court should infer that it is more probable than not that there are discoverable documents which have not been disclosed.

23. What is a discoverable document is set out in rule 605. The rule extends the concept of discoverable documents to documents that have "at any time" been in the possession of a party. This is in contrast to the New South Wales rules which limit the obligation to documents which have been in the possession of the party within six months prior to commencement of the proceedings: Uniform Civil Procedure Rules 2005 (NSW) r 21.3(2). Rule 605 (1) applies to documents that are or have been "in the possession of a party". The concept of "possession" is expanded by the definition of that term in the Dictionary to include "custody and power".

24. The concept of "power" for the purposes of discovery has been the subject of considerable discussion. The authorities are usefully summarised by Ward J in Bova v Avati [2009] NSWSC 921 at [359]- [365]. It extends to capture those documents where there is a presently enforceable legal right to examine the document. A person will not have that right if the person is able to inspect the document only if a third person who has control of the document agrees to permit inspection or agrees to refrain from so exercising the person's control so as to prevent inspection: Taylor v Santos (1998) 71 SASR 434 at 438.

25. In relation to the bank records, such records would clearly be relevant to the extent that they disclosed or led to a chain of enquiry as to investment of moneys in scaffolding businesses or were otherwise related to the involvement of the first or second plaintiff directly or indirectly in such businesses. Clearly the principal business upon which attention has been focused is Alto Scaffolding. The principal line of enquiry related to the manner in which the proceeds of funds paid under the Deed have been dealt with and whether or not there was any association between those monies and the current role of the second defendant in the Alto Scaffolding business. Whether or not bank records are discoverable will depend on the content rather than any general proposition arising from the nature as bank records. On the evidence before me I cannot conclude on the balance of probabilities that they were required to be discovered. That, however, does not detract from the obligation upon the plaintiffs to make further discovery pursuant to r 611.

26. The material provided to, and documents generated by, Tribe Accountants would certainly be relevant in so far as it disclosed any financial involvement with the Alto Scaffolding business or disclosed in some other way the nature of the relationship between the plaintiffs and Alto Scaffolding. There appear to be two categories of documents which the defendants say ought to have been disclosed. First are documents provided to the accountants by the plaintiffs for the purposes of preparing any relevant accounts or returns. Although the argument in relation to this category of documents was not significantly developed by the parties I consider that such documents would be within the "power" of the providing party in the relevant sense because having provided them to the accountants they are more likely than not to have a legally enforceable entitlement to, at the very least, inspect them. In any event they would have been documents which were, in the past, in the providing party's possession and hence be required to be disclosed. Second, are those documents which have been generated by the accountants for the purposes of preparing accounts or returns, including drafts of those accounts or returns. Once again, the argument on this aspect was not significantly developed. However, those documents, so long as they remained in the possession of the accountants and had not been provided to the plaintiff's, do not appear to me to be documents in relation to which the plaintiffs have and enforceable legal right to inspect. Rather they are internal working documents prepared pursuant to a retainer which, if requested, the accountants may well provide for inspection but in relation to which there was no enforceable legal right to such inspection.

27. As a consequence I do not consider that it is appropriate to make any order in relation to this category of documents. Once again that should not in any way be taken to detract from the obligation upon the plaintiffs under r 611.

28. In relation to Multi Deck, Alliance and Alto Scaffolding, documents demonstrating the activities of the second defendant when performing functions as a director or employee of the company would be relevant in the Peruvian Guano sense to the facts in issue. They would be relevant to determining whether there had been any misuse of confidential information, whether the activities undertaken were with the defendant's knowledge and consent, whether the obligations in clause 8 and 9 of the Deed were breached and the extent of damages that might flow from that.

29. However the evidence of the second plaintiff in relation to the email accounts in relation to each of these businesses was:

(a) While at Multi Deck he used an email address which he no longer has access to and does not know whether it still exists. He stated that he did not have any documents sent to or from that address that have not been disclosed.

(b) While a director of Alliance he used an email address but does not have access to email address since about October 2015 and does not know whether it still exists.

(c) He has an email address that Alto Scaffolding which he said he rarely uses but stated that he did not have permission to copy and remove those emails from the workplace.

30. In relation to the Multi Deck and Alliance email addresses I do not need to consider whether, because he was a director of the company he previously had the possession of or power over the email accounts. That is because the most that could have been required of him in a list of documents was to identify the emails which demonstrated his role in those entities. It is unlikely in the circumstances that he would at the time of swearing the affidavit verifying the list be able to do that other than in a general way. Having identified the existence of those accounts in his affidavit relating to the present application the defendants have been put in the position that they would have been had the existence of those email accounts been disclosed in an earlier list of documents. In other words they would have been alerted in a general way to their existence but required to use other court processes to obtain them. In those circumstances I decline as a matter of discretion to order further disclosure in relation to those categories of document.

31. In relation to the Alto Scaffolding emails the evidence in the affidavit of the second plaintiff appears to express a legal conclusion as to his entitlement to access the document. However the evidence was admitted without objection. In those circumstances I do not consider that the documents stored in relation to that email account are documents within the second plaintiff's power. That is because any entitlement that he would have to those documents only exists if his employer agrees to refrain from exercising its control so as to prevent inspection. They are therefore not discoverable documents.

32. The end result is that the defendants have failed to establish that an order under s 606(1)(c) should be made.

33. Finally I observe that, having regard to the nature and extent of the matters in issue in this case, the obligation upon the plaintiffs to provide discovery is an onerous one. It necessarily involves a proper analysis of the case alleged by the defendants and disclosure of documents relevant to that case. That imposes significant obligations on the plaintiffs and the lawyers advising them. As I have made clear on a number of occasions earlier in these reasons, nothing I have said should be taken as detracting from the obligation upon the plaintiffs to make further disclosure of discoverable documents in the circumstances referred to in r 611(1)(a)-(b).

1. The parties have leave to rely upon the affidavits read at the hearing of the application.
2. The application in proceedings dated 9 December 2016 is otherwise dismissed.
3. Any question of costs is reserved.

I certify that the preceding thirty-four [34] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Mossop.