Toll Transport Pty Ltd v Fleiter

1. The parties are to confer and provide short minutes of orders and if in disagreement, short written submissions with proposed reasons by 4:00pm on 6 April 2017. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

LOGAN J 1 Toll Transport Pty Ltd (Toll Transport), is a member of a group of companies known as the Toll Group. The holding company for the Toll Group is Toll Holdings Limited. Another company within the Toll Group is Toll NQX. Toll NQX provides freight forwarding and transport services in Australia. 2 Mr Stephen Fleiter, commenced employment within the Toll Group in 1981. He ceased employment within that group on 12 August 2016 upon his resignation. At that time, he was employed by Toll Transport. Toll Transport is the primary employer entity within the Toll Group. From July 2008 until his resignation in August 2016, Mr Fleiter held the position of National Sales Manager for Toll NQX. That was a senior position within the Toll Group. 3 In that capacity, Mr Fleiter had particular and primary responsibility for setting rates to be charged to customers of the Toll Group and terms of trade, managing key client relationships and generating new business. For all of those reasons, he had access, in his capacity as National Sales Manager of Toll NQX, to commercially sensitive information. This included Toll NQX's pricing information, its profit margins for particular customers and what are known as "break-even points", or "walk-away prices", which are minimum prices for profitability for Toll NQX, as well as information about the financial circumstances of clients of Toll NQX. 4 For the purposes of his employment, Mr Fleiter was issued by Toll Transport with a laptop computer. Via that laptop computer, he was able to and, on the evidence, regularly did access information stored on databases within the Toll Group. On 12 August 2016, he was advised by Toll Transport that it did not require him to serve out his period of notice. Thereupon, he returned the laptop which had been issued to him. 5 On 10 October 2016, Mr Fleiter commenced employment with a competitor of the Toll Group, namely, Followmont Transport Pty Ltd (Followmont). He took up the position of Business Development Executive with Followmont. He remains so employed. 6 Toll Transport has applied, pursuant to r 7.23 of the Federal Court Rules 2011 (Cth) (Federal Court Rules), for preliminary discovery from Mr Fleiter of USB devices, more particularly described in the Schedule to its originating application. 7 Toll Transport has conducted, via Mr Graeme Conn of Deloittes, as well as via its in-house IT staff, a forensic examination of the laptop formerly issued to Mr Fleiter. This discloses that that particular USB devices, as described in the Schedule to the originating application, were inserted into the laptop between 8 March 2016 at 8:37 am and 11 August 2016 at 2:31 pm. On 11 August 2016, three separate USBs were inserted into the laptop. One, as mentioned, at 2:31 pm, the second at 9:06 am that day, and the third at 9:08 am that day. 8 Toll Transport then has the status at present of a prospective applicant, while Mr Fleiter has the status of a prospective respondent for the purposes of the application under r 7.23. That rule provides: 7.23 Discovery from prospective respondent (1) A prospective applicant may apply to the Court for an order under subrule (2) if the prospective applicant: (a) reasonably believes that the prospective applicant may have the right to obtain relief in the Court from a prospective respondent whose description has been ascertained; and (b) after making reasonable inquiries, does not have sufficient information to decide whether to start a proceeding in the Court to obtain that relief; and (c) reasonably believes that: (i) the prospective respondent has or is likely to have or has had or is likely to have had in the prospective respondent's control documents directly relevant to the question whether the prospective applicant has a right to obtain the relief; and (ii) inspection of the documents by the prospective applicant would assist in making the decision. (2) If the Court is satisfied about matters mentioned in subrule (1), the Court may order the prospective respondent to give discovery to the prospective applicant of the documents of the kind mentioned in subparagraph (1)(c)(i). 9 The construction of r 7.23 is no new subject; it and its predecessor have been the subject of judicial consideration on a number of occasions with the root authority having become St George Bank Limited v Rabo Australia Limited (2004) 211 ALR 147 (St George v Rabo). In that case, and in respect of the materially indistinguishable predecessor rule, O 15A r 6, in the then Federal Court Rules, Hely J, by reference to earlier authority, collated, at [26], the relevant principles: (a) the rule is to be beneficially construed, given the fullest scope that its language will reasonably allow, with the proper brake on any excesses lying in the discretion of the court, exercised in the particular circumstances of each case: Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728 at 733; 20 IPR 79 at 85; Minister for Health and Aged Care v Harrington Associates Ltd 1999] FCA 549; BC9902167 at [27]; (b) each of the elements prescribed in subparas (a), (b) and (c) of the rule must be established: Hooper v Kirella Pty Ltd (1999) 96 FCR 1 at 11 [38]; 167 ALR 385 at 367; 47 IPR 21 at 30. Preliminary discovery cannot itself be used to remedy deficiencies in the satisfaction of the conditions themselves: Airservices Australia v Transfield Pty Ltd (1999) 92 FCR 200 at 202-3 [5]; 164 ALR 330 at 332; (c) the test for determining whether the applicant has "reasonable cause to believe", as required by subpara (a), is an objective one: Hooper at FCR 11-12 [39]; ALR 367; IPR 30; Malouf v Malouf [1999] FCA 710; BC9902833 at [16]; Quanta Software International Pty Ltd v Computer Management Services Pty Ltd (2000) 175 ALR 536 at 541-2 [24]; 49 IPR 25 at 31; Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd [1996] FCA 391; BC9602085 at 23. Further, the words "or may have" cannot be ignored. The applicant does not have to make out a prima facie case: Quanta Software at ALR 541-2 [24]; IPR 31; Paxus Services at ALR 733; IPR 85; (d) belief requires more than mere assertion and more than suspicion or conjecture. Belief is an inclination of the mind towards assenting to, rather than rejecting a proposition. Thus it is not sufficient to point to a mere possibility. The evidence must incline the mind towards the matter or fact in question. If there is no reasonable cause to believe that one of the necessary elements of a potential cause of action exists, that would dispose of the application insofar as it is based on that cause of action: John Holland Services Pty Ltd v Terranora Group Management Pty Ltd [2004] FCA 679; BC200403021 at [13], [14], [17] and [73]; (e) while uncertainty as to only one element of a cause of action might be compatible with the "reasonable cause to believe" required by subpara (a), uncertainty as to a number of such elements may be sufficient to undermine the reasonableness of the cause to believe: Glowatzky v Insultech Group Pty Ltd (1997) 39 IPR 215; (f) the question posed by subpara (b) of the rule is not whether the applicant has sufficient information to decide if a cause of action is available against the prospective respondent. The question is whether the applicant has sufficient information to make a decision whether to commence proceedings in the court: Quanta Software at ALR 543 [33]-[34]; IPR 32-3, Alphapharm at 24-6. Accordingly, an applicant for preliminary discovery may be entitled to discovery in order to determine what defences are available to the respondent and the possible strength of those defences, or to determine the extent of the respondent's breach and the likely quantum of any damages award: CGU Insurance Ltd v Malaysia International Shipping Corp Berhad (2001) 187 ALR 279 at 285 [21]; Quanta Software at ALR 543 [33]-[34]; IPR 32-3, Alphapharm at 24-6, Airservices Australia at FCR 202-3 [5]; ALR 332 (g) whether an applicant has "sufficient information" for the purposes of subpara (b) also requires an objective assessment to be made: Minister for Health at [44]; Alphapharm at 23-4, Hooper at FCR 12 [40]; ALR 367; IPR 31. The subparagraph contemplates that the applicant is lacking a piece (or pieces) of information reasonably necessary to decide whether to commence proceedings; (h) it is no answer to an application under the rule to say that the proceeding is in the nature of a "fishing expedition": Paxus Services at ALR 733; IPR 85. Indeed O 15A r 6 "expressly contemplates" what once might have been castigated as "fishing": Bailey v Beagle Management Pty Ltd (2001) 105 FCR 136 at 143 [27]; 182 ALR 264 at 270-1; 20 IPR 79 at 85. As Burchett J commented in Paxus Services, the rule is (at ALR 733; IPR 85): ... designed to enable an applicant, in a situation where his proof can rise no higher than the level the rule describes, to ascertain whether he has a case against the prospective respondent ... 10 It is common ground, as between Toll Transport and Mr Fleiter, that these remain the relevant principles. 11 The inspiration for item (d) of the principles collated by Hely J in St George v Rabo is, having regard to correspondence of language undoubtedly George v Rockett (1990) 170 CLR 104 at 116 (George v Rockett). In that case, in an unanimous joint judgment, a Full Court of the High Court made the following observation in respect of the concept of reasonable belief: The objective circumstances sufficient to show a reason to believe something need to point more clearly to the subject matter of the belief, but that is not to say that the objective circumstances must establish on the balance of probabilities that the subject matter in fact occurred or exists: the assent of belief is given on more slender evidence than proof. Belief is an inclination of the mind towards assenting to, rather than rejecting, a proposition and the grounds which can reasonably induce that inclination of the mind may, depending on the circumstances, leave something to surmise or conjecture. 12 That observation was made by way of contrasting the concept of reasonable belief with the lower threshold concept of reasonable suspicion, as described by Kitto J in Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 303. 13 If only tutored by the hindsight of the experience of determining the present application, it may, with respect, be unfortunate that in formulating his collation at item (d), Hely J did not draw attention to the recognition in George v Rockett, in the passage quoted, that it is possible for a reasonable belief to exist, even though something is left to surmise or conjecture. 14 For an order to be made under r 7.23, the Court must be satisfied with respect to each of the three elements set out in subsections (a), (b) and (c) of r 7.23(1). Each of these elements posits an objective test. So much flows from the use of the adverb "reasonably" in subrules (a) and (c) and the adjective "reasonable" in subrule (b). 15 Another feature to be noted of the elements is that the prospective applicant here, Toll Transport, is not required to show that it has a right to obtain relief in the court from a prospective respondent, only that it reasonably believes that it may have the right to obtain relief from a prospective respondent. Further, as to subrule (c), it is only necessary to demonstrate that the prospective applicant reasonably believes that the prospective respondent has, or is likely to have, or has had, or is likely to have had in the respective respondent's control, documents directly relevant. 16 "Likely" is a word capable of shades of meaning, as is apparent from Tillmann's Butcheries Pty Ltd v Australasian Meat Industry Employees' Union (1979) 42 FLR 33. Patently, it does not connote, on the face of the rule itself, actual control or even present control but rather a likelihood, and that likelihood in my view does not mean more probable than not. 17 On what basis, then, does Toll Transport contend that it is entitled to an order in respect of the USBs? 18 The evidence discloses, at least in a way that is admissible on an interlocutory basis, that, since March or April 2016, Mr Fleiter had in contemplation ceasing his employment with Toll Transport. At the time of his resignation on 12 August 2016, he stated that he was "taking a break for a while". His own evidence is that he was "not sure" as to what he would do post-resignation. In particular, he was not sure, as at the time of a trip to Darwin between 28 July and 2 August 2016, so he says, that he would be "moving to Followmont". 19 The forensic examination of the Toll NQX email account conducted by or on behalf of Toll Transport has disclosed that a start date of 10 October 2016 with Followmont and a role description of Business Development Executive were included in a Draft Employment Agreement located on the Toll NQX email account of Mr Fleiter. Also recovered from his email account with Toll NQX are emails the effect of which is that, between 27 July and the time of his resignation, he was in the final phase of negotiating terms of his prospective employment with Followmont. 20 If it matters, and I am not at all sure that it does, Mr Longmire, the General Manager of Toll NQX Road and Rail Operations has some reason to believe that Mr Fleiter met with Mr Mark Tobin, the Chief Executive Officer of Followmont, some six weeks prior to his resignation. As it is, the forensic examination of the Toll NQX email account is eloquent in terms of a prior interest on the part of Mr Fleiter, much advanced in terms of its development in taking up an appointment on 10 October with Followmont. 21 The evidence also discloses that Mr Fleiter had an interest in his cessation of employment with Toll Transport being treated as a redundancy. That interest was not one shared by Toll Transport. In the result, on 19 August 2016, that is, following his resignation, Mr Fleiter was informed by Toll Transport that his cessation of employment would not be treated as a redundancy. That meant that he did not have the benefit of particular benign income tax consequences. Mr Fleiter forwarded that particular email to Mr Andrew Nottingham of Toll NQX with a covering statement in which, apart from profanities apparently directed generally at the Toll Group, he stated, "Game on now". As it happened, at the time when that email was forwarded, Mr Nottingham had left Toll Transport's employment and was employed by Followmont. 22 The forensic examination of the laptop also discloses certain link or shortcut files, which indicate access to documents on the USBs link files titled, "Copy of Manbulloo Mango rates LNK and Copy of Big Post X Gold Coast - Final LNK", were accessed on a removable storage device on 11 August 2016 at 9:33 am and 4:43 pm respectively. Manbulloo Mangoes and Big Post were clients of the Toll Group at that time. The link files correspond to attachments to emails Mr Fleiter received on 10 and 11 August 2016. 23 Mr Longmire has reviewed a sample of the files on Mr Fleiter's former laptop. Those files are more particularly described in a map which forms part of the forensic report furnished to Toll Transport by Mr Conn of Deloittes. Mr Longmire's review of a sample of those files has disclosed that many of the documents contain sensitive pricing and other client information. 24 For his part, Mr Fleiter has given evidence that it was frequently necessary for him to use a USB, because of the size of particular files, in the ordinary course of his employment with Toll Transport in the Toll NQX business. Mr Tierney, who is Mr Fleiter's successor in the role of National Sales Manager and who used to report to him, has given evidence of seeing Mr Fleiter frequently save onto his laptop files received by email, so that he could access these. 25 Toll Transport points to two prospective causes of action, in respect of which it asserts that it has a reasonable belief that it might have the right to obtain relief in the court from Mr Fleiter. These are an action for damages in addition to or in lieu of injunctive relief for breach of s 183 of the Corporations Act 2001 (Cth) (Corporations Act) and for breach of a duty of confidentiality owed to it by Mr Fleiter, arising from his employment. It is not necessary for Toll Transport to demonstrate even a prima facie case in respect of each or either of these causes of action in order for it to obtain the relief that it presently seeks under r 7.23. 26 Section 183 of the Corporations Act provides: Use of information--civil obligations Use of information--directors, other officers and employees (1) A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation. Note 1: This duty continues after the person stops being an officer or employee of the corporation. Note 2: This subsection is a civil penalty provision (see section 1317E). (2) A person who is involved in a contravention of subsection (1) contravenes this subsection. Note 1: Section 79 defines involved. Note 2: This subsection is a civil penalty provision (see section 1317E). As is apparent from the text of s 183, the obligation it creates continues to apply after termination of employment. It posits an objective standard of behaviour. Its obligation exists in addition to those which fall on an employee in any event by implication in respect of a contract of employment or in equity as to confidential information and know-how. 27 The court has a jurisdiction to entertain a proceeding under s 183 of the Corporations Act. A claim based either in equity or in respect of an implied term in a contract of employment would be an associated matter in respect of the matter under s 183 of the Corporations Act. There is, therefore, no question as to the court's ability to grant relief, insofar as that is an element of r 7.23(1)(a). 28 Whilst a claim in respect of a breach of s 183 could be grounded on an improper use of information to cause detriment to, in this case, Toll Transport, such a claim may equally be grounded on an improper use of information to gain an advantage for, in this case, Mr Fleiter or someone else, in this case, Followmont. So far as contractual or equitable rights are concerned, proof of an identifiable detriment is not necessary. What is protected is the disclosure of information in breach of the implied term or the duty of confidence. As to these causes of action, all that would be necessary is to show a risk of disclosure which is real, rather than fanciful or theoretical. Further, it would be sufficient to show a threatened misuse of the information, although an actual misuse would also be an alternative. 29 The evidence discloses that there were some 30,000 documents contained on Mr Fleiter's former laptop. It is tolerably clear, based on Mr Longmire's sample, that many of the files on that laptop contain sensitive pricing and client information. Quite apart from Mr Longmire's sample, the very title of particular files bespeaks such a likelihood. Both Mr Longmire's and also Mr Tierney's evidence satisfies me that there were well-established procedures within the Toll Group to protect the confidentiality of information to which Mr Longmire refers in his account of his review, but particularly and unsurprisingly, pricing information. It is also established that Mr Fleiter, whilst employed within the Toll Group, had particular instruction in relation to confidentiality obligations. 30 As I have mentioned, Mr Fleiter has expressly denied the use of the USBs to obtain any confidential information. It was put on his behalf that this denial carried, or should carry, particular weight as he was not required to attend the cross-examination. That particular submission has the difficulty of failing to appreciate that Mr Fleiter's affidavit was responsive to a case extensively put to him by affidavits filed and served on him by Toll Transport. In other words, it is a denial in respect of a case fully put, not a denial in respect of a case never put. Whilst not irrelevant, the denial is hardly determinative of the fate of the present application. 31 It was also put on behalf of Mr Fleiter that there was an absence of particularity as to documents, in other words, that it was necessary to demonstrate by reference to r 7.23(1)(c), documents directly relevant to the question whether the prospective applicant has a right to obtain the relief. The difficulty about this is that a USB which contains metadata which, on the evidence, would demonstrate one way or the other particular access to particular documents is itself a document for the purposes of the rule. In other words, it is not fatal, in my view, to Toll Transport's application that the extent of its forensic examination has taken it to the point where it cannot identify that particular files or documents on files were copied to a USB. 32 What the forensic evidence does show is that the USBs are inherently likely, as a matter of information technology, to have metadata on them with respect to particular access. And, as I have already observed, it is the USBs themselves with such data which are documents. 33 Looking at the circumstances as a whole the following, in my view, emerges. Mr Fleiter was in the period between March or April 2016 and August 2016 increasingly diffident about the continuance of his employment with Toll Transport in the Toll NQX business. Inferentially, reflecting that diffidence, he was engaged in negotiations with a competitor in respect of his taking up the very position which, on 10 October 2016, he came to take up. His use of the term "game on" was not made prior to resignation, but it does give, in conjunction with the whole of the circumstances, a basis for believing that the "game" to which he is referring is competition with his former employer. That Mr Fleiter had access to confidential information is patent. That he deployed a means by which such information could be removed is also patent. 34 The USBs were inserted into his very work computer. It seems inherently unlikely that the three inserts on 11 August, the very day before his resignation, were each work-related. It of course possible that they were, but this application is one where surmise and conjecture is permissible. 35 There is also some evidence that Followmont has taken up work, which one might otherwise have expected, would have remained with Toll NQX. I refer, in particular, to work being undertaken for Glencore, an important client of Toll NQX. A conversation in January 2017 related by Mr Longmire is relevant in this regard. The approach by Followmont to Glencore on the evidence entailed an undercutting of the price offered by Toll NQX for the transport of copper anode. 36 I am, therefore, satisfied that there is, objectively, a basis for a reasonable belief on the part of Toll Transport that it may, not definitely does, but that it may have the right to obtain relief in this Court against Mr Fleiter under either or each of s 183 of the Corporations Act and causes of action at contract or in equity. Subrule (a) of r 7.23 is, in my view, satisfied. 37 Toll Transport has conducted extensive inquiries both in-house and via the use of a forensic consultant, Deloittes. These, in my view, are reasonable inquiries. They have not yielded, in my view, sufficient information to enable Toll Transport to decide whether to start a proceeding in this Court to obtain the relief described. Subrule (b) is therefore satisfied. 38 As to subrule (c), I am satisfied that Mr Fleiter is at least likely to have had in his possession the USBs concerned and that they would be directly relevant to whether Toll Transport has a right to obtain the relief. The phraseology of subrule 7.23(1)(c)(i) is important: "directly relevant to the question whether the prospective applicant has a right to obtain the relief". They do not need to show an entitlement to that relief, but that the USBs are directly relevant to the question of whether Toll Transport has a right to obtain the relief. If they contain nothing or no indication, via the examination of the metadata, of particular access, then that will be determinative, one might think, of whether there is a right to obtain the relief, but they are directly relevant to whether there is such a right. I am well satisfied that inspection of the USBs by Toll Transport would assist it in making that decision. That being so, subrule (c) is satisfied. 39 That each of the elements set out in r 7.23 is satisfied does not create an entitlement on the part of Toll Transport to the order which it seeks. The presence of the word "may" in r 7.23(2) is indicative of a discretion. 40 As to the exercise of that discretion, Mr Fleiter has pointed to delay on the part of Toll Transport. He has been on notice since November last year that Toll Transport was at least considering the making of the present application. He points to no particular prejudice, in respect of the period between his resignation and then or, for that matter, until now. 41 Toll Transport came to file its material during what is termed the "summer non-sitting period". The case was not one requiring disposal by a duty judge in that period. The impact of the summer non-sitting period and the priority which must be given in February and early March to appellate jurisdiction work, together with other original jurisdiction and other judicial commitments, meant that it was not possible for the prospective applicant to be heard in the ordinary course until today. 42 Looking back over the period since Mr Fleiter's resignation, I see no undue delay at all on the part of Toll Transport, only the initiation of meticulous and responsible internal and external inquiries, as well as, it must be said, a quite proper invitation to Mr Fleiter to provide the USBs voluntarily. 43 None of that is to deny that, in the circumstances of a particular case, delay may well be fatal to an application under r 7.23, even if the elements in r 7.23(1) were satisfied. In particular, if the application was made so late that a prospective respondent might reasonably be expected to have destroyed documents following the lapse of retention times imposed under revenue law, it would be difficult to show that delay was other than fatal. That is far from this case. 44 It only comes to this. Looking at the matter objectively, I am satisfied as to each of the elements set out in r 7.23(1) and that it is appropriate, as a matter of discretion, to make the orders sought. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan.