The Nielsen Company (Australia) Pty Limited v Paul Sinkinson & Ors

Judgment - EX TEMPORE 1These are competing applications for costs between the plaintiff and the first to third defendants in respect of proceedings before me in December 2010 and May 2011. The defendants were employees of the plaintiff and they each left the plaintiff's employment in the latter part of 2010. 2The plaintiff became aware that there might be material that belonged to it on the computers of at least two of the three defendants to whom I have referred. On 30 November 2010 the plaintiff's solicitors wrote to the defendants' solicitors requesting information about the whereabouts of the first defendant's hard drive and about the second defendant's USB device. There was no request for information about the third defendant. 3It is apparent that the first defendant informed the plaintiff that the hard drive upon which there would probably be material belonging to the plaintiff had been stolen from his car. The flavour of the correspondence suggests that the plaintiff was suspicious of that claim and the plaintiff's solicitors asked that there be provision of independent corroborative evidence of the loss of the hard drive, for example a police report or an insurance claim. There was then a request as to why the first defendant had not notified the police. That letter also asked for information about what had been deleted from the first defendant's computer and what had been "cleared" from his computer. It also referred to an event on 27 September 2010 in which the first defendant connected two USB devices to his laptop and accessed well over one thousand of the plaintiff's documents and other files. 4It was also alleged that on the morning of 28 September 2010 the first defendant connected a USB device to his laptop and a request was made for an explanation of what the first defendant was doing at that time. There was also a request for information about the first defendant's access to a number of the plaintiff's files on the evening of 28 September 2010 by connecting a USB device to his laptop. The plaintiff's solicitors also requested information about the second defendant's conduct when on the morning of 28 September 2010 he accessed several thousand of the plaintiff's documents when he connected a USB device to his laptop. 5The solicitors for the defendants responded on the same day advising that they had forwarded the plaintiff's solicitors' letter to their clients for instructions. The following day they advised that they anticipated receiving instructions that day, that is 1 December 2010, so that they could reply to the plaintiff's requests. 6On 2 December 2010 the plaintiff's solicitors asked the defendants' solicitors whether they had an "ETA" of the reply to their letter. There was an immediate response indicating that the draft of the response was with the clients, but that the reply was more likely to be the following day than on 2 December 2010. On 2 December 2010 the plaintiff's solicitors advised that they were instructed to approach this Court on 3 December 2010 to seek orders in relation to an application for preliminary discovery, including orders to the effect that the time for service of the Summons be abridged to 5pm on 3 December 2010 and be returnable the following week at a convenient time. The solicitors asked for advice as to whether or not the defendant's solicitors were instructed to accept service. 7The defendants' solicitors advised that they were surprised to receive the letter because they had informed the plaintiff's solicitors that they expected to reply to the letter of 30 November 2010 on 3 December 2010. They suggested that it was not unreasonable having regard to the detailed letter that had been written on 30 November 2010 that the defendants took a reasonable time in which to reply. They advised that their clients were not obfuscating and were doing their best to reply as soon as possible and in any event, by 3 December 2010. They also advised that any Court application was unwarranted and if it were to be made it would put the defendants to unnecessary costs which they would ask the Court to order that the plaintiff pay. The defendants' solicitors advised that if the plaintiff persisted with the application they would request that the correspondence be shown to the Court. They finally advised that they were settling a reply to the letter of 30 November 2010 and would seek instructions as to whether they could accept service. 8At 9 am on 3 December 2010 the defendants' solicitors wrote by email to the plaintiff's solicitors enclosing a response to the 30 November 2010 letter and indicating that if the plaintiff's instructions were to proceed with the application they had instructions to accept service. The enclosed letter advised that the first defendant had filed a police report in relation to the stolen computer and the report reference number was provided. It also advised that the first defendant claimed that the property belonged to him and there was no information from the plaintiff on it. There was an explanation that the first defendant did not recall what was cleared off any USB device but "suffice as to say that any Nielsen files were deleted in the 'cleaning' process". The letter also advised that the USB devices, the property of "our client", have also been physically destroyed. That particular response related to a question about the first defendant's conduct. 9The letter also included the following in relation to the first defendant: Without admitting the extent of any access, Mr Sinkinson downloaded his MBA study notes, his personal financial plans, his CV, his exercise log and old versions of his financial plans. He also ensured that all Nielsen documents/files were properly organised for the benefit of Nielsen. He did not retain and does not retain any Nielsen documents/files. 10In respect of the question about the second defendant's conduct the letter included the following: Mr Sangster at this time backed up key files in his laptop onto his Nielsen hard drive which he then later gave back to Nielsen. He did not retain and does not retain any Nielsen documents/files. 11The plaintiff commenced proceedings later that morning. Those proceedings can be conveniently summarised as an application pursuant to the Uniform Civil Procedure Rules 2005 r 5.3 which provides as follows: Discovery of documents from prospective defendant (1) If it appears to the court that: (a) the applicant may be entitled to make a claim for relief from the court against a person (the prospective defendant) but, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant, and (b) the prospective defendant may have or have had possession of a document or thing that can assist in determining whether or not the applicant is entitled to make such a claim for relief, and (c) inspection of such a document would assist the applicant to make the decision concerned, the court may order that the prospective defendant must give discovery to the applicant of all documents that are or have been in the person's possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief. (2) An order under this rule with respect to any document held by a corporation may be addressed to any officer or former officer of the corporation. (3) Unless the court orders otherwise, an application for an order under this rule: (a) must be supported by an affidavit stating the facts on which the applicant relies and specifying the kinds of documents in respect of which the order is sought, and (b) must, together with a copy of the supporting affidavit, be served personally on the person to whom it is addressed. (4) This rule applies, with any necessary modification, where the applicant, being a party to proceedings, wishes to decide whether or not to claim or cross-claim against a person who is not a party to the proceedings. 12On the first return date of the matter on 6 December 2010, Mr Fernon SC leading Mr White of counsel, indicated that it was an application for preliminary discovery and that the parties were having discussions. A request was made that the matter stand in the list. 13After some time orders were made by consent that the matter be listed on 9 December 2010 and that the defendants were to file any affidavits by 10am on 8 December 2010. It was indicated that the matter was urgent and I kept it in the Duty List. Mr Fernon indicated to the Court that the plaintiff was concerned about a large amount of confidential information on computers. Of course the focus under r 5.3 is that having made "reasonable enquiries", the plaintiff has been unable to obtain sufficient information to decide whether or not to commence proceedings. There is no doubt that the plaintiff knew the identity of the proposed defendants. The relevant issue is whether it had made reasonable enquiries and was unable to obtain sufficient information to decide whether to sue them in respect of the alleged transfer of the files and confidential information of the plaintiff to their own computers and whether they retained and/or were using the material. 14On 8 December 2010 the defendants proposed a set of short minutes that the proceedings be dismissed with no order as to costs and that certain documents be produced. 15On 9 December 2010 orders were made by consent that included an order that each of the defendants provide discovery and file and serve a verified list of documents and supporting affidavits by 21 December 2010. Costs of the proceedings were reserved. There was also an order by consent that the first to third defendants would be restrained from altering or deleting or transferring or otherwise removing any electronic versions of certain documents and/or destroying or otherwise damaging any items or things referred to in the Schedule to the Summons. 16The defendants filed and served their affidavits of discovery. There was further correspondence from the plaintiff's solicitors on 24 December 2010 referring to each of the defendants' affidavits with a request for information about the second defendant's deletion of material that was stored on certain devices. That included requests as to how the material was destroyed or deleted. 17It is apparent that pursuant to the orders made by consent on 9 December 2010 a computer expert was retained by the plaintiff who had access to the defendants' computers. CD's were produced from the computers and provided pursuant to a protocol to the defendants to check and a regime was put in place so that the defendants' private material was cocooned from the plaintiff and any of the plaintiff's material was to be provided to the plaintiff. 18On 30 March 2011 the plaintiff's solicitors wrote to the defendants' solicitors indicating that the plaintiff had concerns because the second defendant had recently disclosed that there was another external hard drive which had not been disclosed previously and a further request was made for details in relation to that other hard drive, referred to as an "EHD". There was also a further request as to what had been destroyed and how it was destroyed. 19On 31 March 2011 the defendants' solicitors responded by saying that the second defendant could not provide the details requested. The letter explained that the second defendant's wife was present when the second defendant placed the pieces of the destroyed EHD into a bag and disposed of them into the rubbish bin. The letter continued "He assumed the EHD was his own and did not check the contents of the device before destroying it". 20By this stage the situation became quite curious. The plaintiff had been advised that the second defendant had cleared things and that the second defendant did not have anything that belonged to the plaintiff. The plaintiff was later informed that there was a second EHD, and finally that the EHD was taken out on to the driveway and smashed with a hammer, but that the second defendant was not sure when he purchased that EHD. Not surprisingly the plaintiff became concerned that it was not in a position to be satisfied that it had all the information to assist it to decide whether to sue the defendants. 21On 5 April 2011 a further enquiry was made of the defendants and on 11 April 2011 the plaintiff decided to file a Motion seeking proper compliance by the second defendant with the order for preliminary discovery and for leave to cross-examine the second defendant. On the return date of the Motion, Mr Meehan of counsel indicated that the second defendant would agree to be cross-examined. I then set the matter down for that cross-examination. That occurred on 31 May 2011 and the proceedings concluded that day. 22The plaintiff seeks an order that the defendants pay the plaintiff's costs of the proceedings up to and including 9 December 2010. Mr Meehan submitted that I would be satisfied that these proceedings were not adversarial and in those circumstances, having regard to his clients' willingness to agree to the Orders on 9 December 2010, I would not accede to the plaintiff's application. 23In support of this application Mr Meehan relied upon the following passages of Barrett J's judgment in Bio Transplant Inc v Bell Potter Securities [2008] NSWSC 694: [16] The rationale for this approach was explained by Simpson J in Airways Corporation of New Zealand v Koenig [2002] NSWSC 521. Her Honour made reference to the unenviable position often occupied by a person against whom preliminary discovery is sought: "A party who is defendant to an application for preliminary discovery is, in one sense, in a difficult position. That party ordinarily has no involvement in what is intended or anticipated to be the substantive proceedings, and is, often enough, caught up in a skirmish between two other parties. One can sympathise with such a position. However, that does not, in my opinion, reflect the reality in the present case." [17] In the Airways Corporation case Simpson J did not think it appropriate to take the approach on costs indicated in the Totalise plc case. This was because the persons who there occupied the position occupied here by the defendant had "persistently refused to co-operate". As her Honour pointed out, those persons defended the discovery application on two bases that were not upheld. There was in truth an adversarial situation. 24Both parties referred to the passages of McDougall J's judgment in Steffen v Australia and New Zealand Banking Group Ltd [2009] NSWSC 883 at [17] to [33] in respect of his Honour's comments relating to adversarial proceedings. 25Mr Meehan submitted that the third defendant was not the subject of any request for information prior to the commencement of proceedings. He submitted that the letter that was written on 30 November 2010 dealt only with the first and second defendants and the third defendant was not given the opportunity to provide any information to the plaintiff. Rather the plaintiff sought to proceed against the third defendant without ascertaining whether there was any information and accordingly the plaintiff had not made reasonable enquiries of the third defendant in respect of what he had and therefore the proceedings were premature. 26Mr Meehan also submitted that the plaintiff's Summons against the first and second defendants was premature and certainly adversarial, notwithstanding that reasonable enquiries had been made. He submitted that the enquiries had been answered. It is true that the enquiries had been answered. However it seemed to the plaintiff that the answers possibly created more suspicion and having made those reasonable enquiries, it was not in possession of sufficient information to decide whether to sue the first and second defendants. 27In any event, after the filing of the Summons there was an approach that I regard as adversarial. The parties entered into a regime of putting on evidence and having the matter come back before the Duty Judge on 9 December 2010. If the proceedings had not been adversarial there would have been no need for any of that. There could have been an agreement to produce the documents immediately or to agree to an order for preliminary discovery. 28On 9 December 2010 the defendants consented to a regime for preliminary discovery. Mr Meehan submits that this was non-adversarial conduct. Mr Fernon for the plaintiff submitted that it was adversarial conduct. It was submitted that the plaintiff had to bring the defendants to Court to achieve the result that it did. The capitulation by the defendants on 9 December 2010 should be characterised as an event that the plaintiff is entitled to have the costs follow. I agree. 29I am satisfied that it is appropriate to make an order that the first and second defendants pay the plaintiff's costs of the proceedings up to and including 9 December 2010. 30I am not satisfied that reasonable enquiries were made of the third defendant prior to the commencement of the proceedings and in those circumstances I regard the third defendant to be in a different position to that of the first and second defendants. However, once the Summons was filed the third defendant, together with the first and second defendants, did become adversarial in the way that I have described. However, I am satisfied that I should reduce the costs to be awarded against the third defendant up to 9 December 2010 by 50 per cent. 31The orders I make in respect of the plaintiff's application for the costs of the proceedings up to 9 December 2010 are as follows: