Tyco (Australia) Pty Ltd T/AS ADT Security v Signature Security Group Pty Ltd

BETWEEN: TYCO (AUSTRALIA) PTY LTD T/AS ADT SECURITY

REASONS FOR JUDGMENT 1 On the 6 April 2010, the applicant filed a notice of motion seeking leave to file a further amended application and a further amended statement of claim and for further discovery. By judgment delivered on 9 April 2010 (see Tyco (Australia) Pty Ltd T/AS ADT Security v Signature Security Group Pty Ltd (No 2) [2010] FCA 395), I granted the applicant leave to file a notice of motion seeking leave to file a further amended application and a further amended statement of claim consistent with my reasons. On that day I also reserved the issue as to costs arising from the amendment application. The applicant has subsequently filed such a notice of motion (dated 15 April 2010) consistent with my reasons. By consent I grant leave to the applicant to file the further amended application and further amended statement of claim attached as annexures "A" and "B" to that notice of motion. In relation to costs, I order the applicant to bear the respondents' costs thrown away by reason of the amendment, such as they are. 2 By reason of my judgment delivered on 9 April 2010, prayer 2 of the notice of motion filed on 6 April 2010 was stood over until this morning. It sought an order that the first respondent give discovery in accordance with a notice for further discovery annexed to that motion. Since that time, there has been a narrowing of the terms of the notice for further discovery and the associated objections thereto. This morning there was a large degree of agreement between the parties, however some matters remain in dispute. The proposed categories are set out in a document entitled notice for further discovery. The first 10 categories are agreed as was category 11.2. There is some disagreement about categories 11.1 and 11.3, which were as follow: 11 From 1 September 2004 to date, all board papers, board presentations and board minutes, memoranda and management reports, in relation to: 11.1 implications of the New Zealand proceedings for the conduct of Signature Security, its dealers and its dealer networks; … 11.3 any settlement of the New Zealand proceedings. 3 The objection to paragraph 11.1 is that it is too broad. However, the words "for the conduct of Signature Security, its dealers and its dealer network" bear some comparison with paragraph 7B.3 and 7B.4 of the further amended statement of claim, leave for the filing of which was granted by consent this morning. They are in these terms: 7B By reason of: … 7B.3 conduct, by itself or its dealers, of the kind alleged in the New Zealand proceedings was likely to contravene the Trade Practices Act 1974 (Cth), and be conduct for which Signature Security was liable under that Act; and 7B.4 the misuse of confidential information, in particular, lists of ADT Security's customers, was an unlawful method which may be used by Signature Security's dealers to acquire customers for Signature Security. 4 The proposed category 11.1 is relevant to that issue. Objection is also taken to category 11.3 on the basis that it is too broad. It is tolerably clear that the category would catch a number of things which are broader than that which is comprehended in paragraphs 7B.3 and 7B.4. For example, it might catch extraneous materials such as discussion about legal costs and so on. In those circumstances the objection that it is too broad is one that is well-founded. Ms Rees, who appeared for the applicant, invited me to read the category down by some criteria which would bring it back within 7B.3 and 7B.4. That may be able to be done, but that task is not mine. 5 Objection was then taken to proposed category 14 which is in the following terms: Signature Security's residential customer database (to be accessed only by ADT Security's legal representatives and experts who have given Confidentiality Undertakings). 6 The first respondent objects to discovery in that form. Paragraph 8D of the further amended statement of claim is in the following terms: 8D From mid 2006, Signature Security 8D.1 endeavoured to increase its customers by recruiting former ADT dealers and other dealers to target ADT customers with a view to transferring their custom to Signature Security, and 8D.2 referred to this strategy as its "churn strategy". 7 Paragraph 8E is in the following terms: 8E By reason of the matters described in paragraphs 7.1, 7.2, 7A, 7B, 8B and 8C: 8E.1 from at least mid 2006, Signature Security knew that there was a real and substantial risk that its dealers who were former ADT dealers were generating sales for Signature Security by breaching obligations of confidence owed by the former ADT dealer to ADT Security; and 8E.2 Signature Security referred to this as "Privacy issues". 8 Compendiously, these two paragraphs allege, as against the first respondent, the existence of a churn strategy designed to recruit former dealers and to target ADT customers, as well as an allegation that the first respondent was reckless in its dealings with its dealers and to the possibility of them breaching their obligations of confidence owed to the applicant. 9 Order 15 rule 1 of Federal Court Rules provides for a party to require another party to give discovery by the filing of a notice but only with the leave of the court. The obligation imposed upon a recipient party by rule 1 is explicated by rule 2, of which sub-rule 3 specifically provides: Without limiting rule 3 or 7, the documents required to be disclosed are any of the following documents of which the party giving discovery is, after a reasonable search, aware at the time discovery is given: (a) documents on which the party relies; and (b) documents that adversely affect the party's own case; and (c) documents that adversely affect another party's case; and (d) documents that support another party's case 10 For present purposes, what is significant in rule 2(3) is the obligation to give discovery of documents that adversely affect a party's own case or documents that support another party's case. The introduction of rule 2, as has been often enough remarked, has generally been thought to have narrowed the former test for discovery in Compagnie Financiere Du Pacifique v Peruvian Guano Co (1882) 11 QBD 55. 11 The allegations contained in paragraph 8D and 8E, on their face, would appear to mean that the documents sought in category 14 would assist the applicant's case or perhaps harm the first respondent's case. Accordingly they would, at least on their face, appear to fall within rule 2(3). However, the first respondent argued that, effectively, the matters sought in the category did not really go to an issue in the proceeding. Since the further amended statement of claim contains paragraph 8D and 8E, it is necessary to expand upon that argument somewhat. The pleading, as it presently stands, alleges, as against the first respondent, responsibility for the actions of a number of its identified dealers. For example, paragraph 22 identifies the dealer Pinpoint and other dealers are identified too. 12 At an earlier time, an application was made by the applicant to amend the pleadings so as to include an allegation that the first respondent was liable for the actions of unidentified dealers. I refused that application to amend. As the case is presently structured, the only claim made against the first respondent is for its vicarious liability (put in various ways) of those identified individuals or companies. That aspect of the pleading formed the cornerstone of Mr Gleeson's SC submission that although paragraphs 8D and 8E were couched in terms which, on their face, might be thought sufficiently general to capture documents dealing with unidentified dealers, the fact was that when one looked at the balance of the pleading, the machinery provisions of it did not seek to do more than to render liable the first respondent for the actions of identified dealers. 13 It followed that insofar as paragraphs 8D and 8E appeared to generate an issue on the pleadings going beyond the identified dealers, it was to be seen, in effect, as a piece of window dressing. So viewed, it could not, therefore, provide a proper basis for requiring discovery of documents relevant to the non-identified dealers. There is some force in that argument; however, it is necessary to see precisely how the pleading works. Paragraphs 8D and 8E have three relevancies under the further amended statement of claim. The first is that they form part of the materials said to give rise to an agency between the first respondent and the identified dealers. So much is apparent from paragraph 17D of the pleading which is in the following terms: 17D In engaging in the conduct described in paragraphs 17A to 17C of the Further Amended Statement of Claim, Mr Salazar, Mr Thomas, the Califano companies, Pinpoint and Rasool acted: (a) in their individual capacity, (b) in their capacity as directors of their respective companies, (c) in concert with one another, (ca) as agents of Signature Security, for whom Signature Security is vicariously liable; and (d) well knowing that ADT Security's Customer List was the property of ADT Security. 14 The argument appears to be that by reason of the first respondent's churn strategy and by reason of its knowledge of a real and substantial risk that dealers who were former ADT dealers were generating sales for the first respondent by breaching obligations of confidence owed by the former dealers to ADT Security, it should more readily be inferred that the first respondent was the principal of each of the identified dealers as agent. 15 The second way the allegations in paragraph 8D and 8E have relevance under the pleading emerges from paragraph 19(c)(ii). Paragraph 19 involves a series of allegations about the first respondent's knowledge and paragraph 19(a) deals with different types of knowledge. In particular, paragraphs (a)(ii), (a)(iii) and (a)(iv) of the particulars to paragraph 19 recite a number of different types of knowledge of the kind associated with the rule in Barnes v Addy (1874) LR 9 Ch App 244. That is, in paragraph (a)(ii), one sees an allegation of wilful shutting of one's eyes to the obvious in the face of particular matters (cf. Baden Delvaux v Societe Generale SA [1993] 1 WLR 509). So too paragraphs 19(a)(iii) and (iv) read: (iii) … wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make in the face of the matters particularised below; or (iv) knowledge of circumstances particularised below which would indicate the facts to an honest and reasonable person. 16 Paragraph 19(c)(ii) then identifies the first respondent's churn strategy, as described in paragraph 8D, as being one of the matters from which, at least in part, those aspects of knowledge are to be deduced. 17 The third relevance of the matters alleged in paragraph 8D and 8E emerges from paragraphs 30 to 33, which deal with the tort of inducing a breach of contract. In paragraph 33.1, paragraphs 8D and 8E are specifically picked up: 33.1 by reason of the matters pleaded in paragraphs 7.1, 7.2, 7B.4, 8C to 8E, Signature Security knew there was a real and substantial risk that its dealers, particularly those who were former ADT dealers, may use an ADT customer list to generate sales for Signature Security. 18 Put another way, the matters in paragraphs 8D and 8E are put forward to provide both the mental element of the tort of inducing breach of contract (that is, that it was done with a particular purpose) and also with the aim of demonstrating the vicarious liability of the first respondent for the actions of the identified dealers. 19 These, then, are the three different ways in which the pleading seeks to use paragraphs 8D and 8E. I put to one side, for the moment, the allegations concerning Barnes v Addy. The first category of relevance, that is, the agency allegations, and the third category of relevance, that is, the allegations concerning inducing a breach of contract, may be treated together. This is so because they involve the suggestion that the first respondent is to have attributed to it a particular mental state. That mental state is said to be more readily attributable by reason of the existence of the churn strategy and by reason of the knowledge of the real and substantial risk of the use of the list. 20 It was put against this style of argument that the material in 8D and 8E had no direct relevance to the proceedings, but was only relevant so far as it showed a propensity or tendency on the part of the first respondent or as some species of similar fact evidence. It was said that no issue as to the other dealers arose on the pleadings. I have found this a rather difficult question to resolve, but in the end two observations provide assistance. The first is that the test to be applied is the one set out in Order 15 r 2(3), and that requires close attendance to whether the documents identified in the category adversely affect the first respondent's case or whether they are supportive of the applicant's case. 21 Assuming, for the moment, that the material would be admissible as similar fact evidence, it seems to me to follow that the material would be capable of passing the test in Order 15 r 2(3). That gives rise to an interesting phenomenon which would be that material which is relevant as similar fact evidence may become discoverable, notwithstanding that it strictly does not relate directly to an issue in the proceedings. That interesting question need not presently be explored further, because, in this case, the allegations do appear in paragraphs 8D and 8E: cf Racing NSW v Betfair [2009] FCAFC 119 at [26]-[28] per Buchanan, Jagot and Foster JJ. 22 Even if it be accepted that the allegations contained in other parts of the statement of claim are allegations about individual dealers and their relationship with the first respondent, it does not follow, as the first respondent submitted, that paragraphs 8D and 8E are to be seen merely as window dressing. The second point to be made is that it has always been accepted that there are certain matters which are relevant in an evidentiary sense which are not discoverable. Thus, for example, under the old Peruvian Guano test, discovery of materials going only to credit was not permitted. 23 The short question which may arise is whether materials going only to similar fact evidence are inherently non-discoverable as credit materials. I can detect in Order 15 r 2(3) no indication that material which adversely affects another party's case - or possibly supports an applicant's case - because it is evidence of a similar fact nature is inherently non-discoverable. I see no reason in principle why it should be so. In any event, as I have said, paragraphs 8D and 8E take the matter somewhat further than merely similar fact evidence. 24 However, independently of that conclusion, the second use to which the pleading puts the allegations in paragraphs 8D and 8E is the establishment of different gradations of knowledge for the purposes of the rule in Barnes v Addy. Here, again, the first respondent submitted that that evidence was either similar fact evidence, or, was being used surreptitiously to make out an unpleaded allegation of dishonest design. In either case, so it was submitted, the consequence was that discovery should not be permitted. 25 I do not accept this argument. In terms of Order 15 r 2(3) there is no particular difficulty in accepting that the applicant's case on dishonest design may well be assisted by knowing the nature of the first respondent's dealings with its dealers. 26 In any event, much of the criticism which was focused upon paragraph 14 was the argument that what was being embarked upon was a fishing expedition. The fishing expedition is a metaphor illustrative of situations where "a person who has no evidence that fish of a particular kind are in a pool desires to be at liberty to drag it for the purpose of finding out whether there are any there or not": Associated Dominions Assurance Society Pty Ltd v John Fairfax & Sons Pty Ltd (1955) 72 WN (NSW) 250 at 254 per Owen J. 27 Even apart from the conclusions I have reached, I would not accept the suggestion that what was being undertaken here was a fishing expedition. The pleader has set forth in other parts of the statement of claim the suggestion that the first respondent was involved in much the same kind of situation in New Zealand as it presently finds itself accused of in this country. Further, there are allegations against the particular identified dealers of a similar character. In those circumstances, it would be inaccurate to describe the applicant's position as a fishing expedition for there is considerable material suggesting that there are fish in the pond. 28 Accordingly, I allow category 14. Objection was then taken to category 15 which is as follows: 15 For the financial years ended, 15.1 30 June 2006, summary financial information of the sales performance of Signature's dealers, not restricted to the Dealers or the Dealer Principals; 15.2 30 June 2007, 30 June 2008, 30 June 2009 and subsequent months all internal communications including memorandum, emails, graphs and charts in relation to the sales performance of Signature's dealers, not restricted to the Dealers or the Dealer Principals. 29 Part of that objection was on the same basis as category 14, and it is to be determined the same way. Complaint was made about paragraph 15.2 on the basis that the materials in that paragraph had already been previously discovered in a summary form. That does not seem to me to be an answer to the tests in Order 15 r 2(3), and I order the production of the materials. I grant leave for category 15. 30 Objection next was taken to category 16 which is as follows: 16 For the period from 30 June 2005 to 30 June 2009; 16.1 Details of Signature's bureauing arrangements with the dealer respondents, including a copy of any bureauing agreement(s); 16.2 All contractual documents recording or relating to the acquisition of monitored lines by Signature from the dealer respondents; 16.3 Identification of the customers acquires by Signatures as part of the acquisitions from the dealer respondents, in electronic excel format, containing the following details: 16.3.1 Each customer's name, address and telephone number(s); 16.3.2 The dealer who negotiated the customer; 16.3.3 The date on which the Security Services Agreement or other contract was entered into; 16.3.4 The term of the Security Services Agreement or other contract; and 16.3.5 The monthly recurring revenue or other payment made by the customer. 31 During argument it was agreed that the words "details of" in paragraph 16.1 should be removed, and that the word "identification" in 16.3 should be replaced with "records". These amendments removed part of the objection; the remaining balance of the objection was that the materials sought have already been discovered in paragraphs 19 and 27. 32 Looking at what 19 and 27 provide for, they are merely summary forms. The fact that summary forms have been previously provided does not provide a basis now for not requiring production of the underlying documents. 33 The next objection was to paragraph 31. There was some discussion at the bar table which resulted in an amended version of paragraph 31, which was in the following terms: 31 From 1 January 2007 to date, all board papers, board presentations and board minutes, management reports, memoranda and email in relation to the implications of Signature Security's actions, or the actions of its dealers in relation to: 31.1 building a dealer network; 31.2 recruiting former ADT dealers; 31.3 Signature Security's "churn strategy"; 31.4 the activities of Signature Security's dealers, including targeting ADT Security customers and using an ADT customer list; on ADT security. 34 That agreed version removes some but not all of the debates between the parties. The first respondent's argument was that the word "building" in 31.1 was too broad. I do not agree. It is difficult to see how in the circumstances, where what is really being discussed is how a network grew, it would be sought in another way. I allow paragraph 31. 35 Objection was then taken to paragraph 32, which is in the following terms: 32 Diary of Michael Calculli for 2006, 2007, 2008 and 2009. 36 The argument was that not everything which appears in this gentleman's diary would be relevant. I reject the argument. Obviously there are matters within the diaries which will be relevant; there will be some which are not. In the present circumstances, I do not propose to permit a winnowing of Mr Calculli's diary and I grant the categories sought without the possibility of masking for grounds of relevance. 37 Objection was also taken to paragraph 33 which is in the following terms: 33 All records of communication between Michael Calculli and: 33.1 Michael Califano or the Califano companies; 33.2 Michael Salazar or Simecorp; 33.3 Greg Thomas or Glen Pearson or Australian Security & Fire; 33.4 Pinpoint Pty Ltd; or 33.5 Asif Rasool from 1 January 2007 to date. 38 Objection was taken to this paragraph on the basis that the matters in points one, two and three had already, in a sense, been discovered. In relation to points four and five, it was said that they could be discovered on the same basis as they had been discovered in points one, two and three. The basis upon which they had been discovered in points one, two and three was on the basis of category 11 in a former notice for discovery. Category 11 was in somewhat narrower terms than proposed category 33, however, in the circumstances, I do not see that a limitation needs to be imposed of the kind which was imposed on paragraph 11. The communications passing between all of the people identified in paragraph 33 are ones which are likely to contain matters which are relevant. In saying that, I accept that that may not necessarily be the case with every record of every one of them but I am sufficiently satisfied of the relevance of these persons and their communications that I propose to permit category 33. 39 That leaves the question of costs which I order to be costs in the cause. 40 I order the first respondent to give discovery in accordance with these reasons for judgment by 21 May 2010. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.