BJ Bearings Pty Ltd v Whitehead
[2016] VSC 44
•11 February 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2015 00487
| B J BEARINGS PTY LTD (ACN 154 303 152) | Applicant |
| v | |
| WILLIAM ROBERT WHITEHEAD & ORS (in accordance with the attached Schedule) | Respondents |
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JUDGE: | HARGRAVE J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 28 January 2016 |
DATE OF JUDGMENT: | 11 February 2016 |
CASE MAY BE CITED AS: | B J Bearings Pty Ltd v Whitehead |
MEDIUM NEUTRAL CITATION: | [2016] VSC 44 |
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PRACTICE & PROCEDURE – Preliminary discovery – Whether applicant had made reasonable inquiries – Whether sufficient information available to applicant – Order made for preliminary discovery subject to confidentiality regime – Supreme Court (General Civil Procedure Rules) 2015, r 32.05
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr D B Clough | M & K Lawyers |
| For the First Respondent | Mr R T Wodak | McKenzie Allen Lawyers |
| For the Second and Third Respondents | Mr A M J Meagher | Duffy & Simon Lawyers |
TABLE OF CONTENTS
Relevant principles concerning r 32.05.......................................................................................... 7
Has the applicant made reasonable inquiries?............................................................................. 9
Does the applicant already have sufficient information?......................................................... 12
Has the applicant already decided to commence a proceeding?............................................. 13
Should a preliminary discovery order be made?....................................................................... 13
What form of preliminary discovery should be made?............................................................ 14
What form of confidentiality regime is appropriate?................................................................ 16
Conclusion and orders.................................................................................................................... 17
HIS HONOUR:
For about 30 years prior to 1 February 2012 (the ‘sale date’), companies controlled by the first respondent, William (Bill) Whitehead and his wife, Brenda Whitehead, conducted retail and wholesale businesses in the sale of industrial products including bearings, industrial consumables and power transmission products in Gippsland, Victoria, from premises at various places including 13 Endeavour Street, Warragul (the ‘BJB businesses’). The BJB businesses were also conducted in metropolitan and southern Melbourne, but nothing turns on that for the purposes of the present application.
On the sale date, the Whitehead companies sold the BJB businesses to the applicant, B J Bearings Pty Ltd (previously New B J Bearings Pty Ltd), for a total price of about $6.4 million.
There were terms of the sale agreements whereby Mr and Mrs Whitehead were each employed by the applicant for a period of three years. Mr Whitehead was employed as managing director and his wife was employed as administration manager. Their employment contracts included non-competition clauses and made express reference to further restraints in Deed Polls executed by Mr and Mrs Whitehead, to operate for a period ending three years after their employment ceased.
The restraints in the Deed Polls prevented Mr and Mrs Whitehead from, amongst other things, directly or indirectly:
(1) being involved in any business in competition with the applicant or any related entity (as defined in the Corporations Act 2001 (Cth)) or the BJB businesses;
(2) canvassing, soliciting or enticing away clients or customers of the BJB businesses, or attempting to do so;
(3) employing, soliciting or enticing away any employee of the applicant, its related entities or the BJB businesses, or attempting to do so; or
(4) counselling, causing, or otherwise assisting any other person to perform any such act.
The Deed Polls were subject to an express exception allowing Mr Whitehead to continue acting as a director or employee of BJ Bearings (Dandenong) Pty Ltd (‘BJB Dandenong’), a company engaged in the same or similar businesses as the BJB businesses within the municipality of Greater Dandenong. However, the restraints applied to Mr Whitehead in his capacity as a director of BJB Dandenong. Mr Whitehead resigned as a director of that company on 1 July 2012. BJB Dandenong is now owned and controlled by Christopher Nugara.
Mr and Mrs Whitehead ceased employment with the applicant on or about 31 January 2015, and the restraints in their Deed Polls then became effective until 1 February 2018, subject to any argument that the restraints may be unreasonable.
The third respondent, Douglas Reid, was employed in the BJB businesses for about 25 years prior to the sale date, and about 28 years prior to him resigning as its General Manager on 5 June 2015. Through his company, Ace Industrial Pty Ltd, the second respondent, Mr Reid commenced a business in direct competition with the BJB businesses in about July 2015. Ace conducts its business from premises at 10 Endeavour Street, Warragul, which is about 200 metres from the applicant’s premises at 13 Endeavour Street.
The commencement of Ace’s business also coincided with the settlement by the applicant of a large claim against it by Mr Whitehead claiming $818,000 plus interest for alleged entitlement to payment for consignment stock.
Grant Gray, a manager employed by the applicant’s ultimate shareholder, Inenco Group Pty Ltd, has deposed (among other things) that:
(1) He has been informed by several of the applicant’s employees, and believes, that Mr Whitehead and Mr Reid have a long-standing close personal relationship.
(2) He has heard, by double-hearsay, that an unidentified person stated at a social occasion in August 2015 that Ace was half-owned by Mr Whitehead’s daughter, Bronwyn Whitehead.
(3) ASIC records indicate that Mr Reid owns all of the issued shares in Ace, but only half of them beneficially. The identity of the beneficial owner of the other half is not disclosed and is unknown to the applicant.
(4) From his observations, he estimates that Ace has spent about $1.5 million to commence its operations, and would likely require an overdraft facility of more than $100,000 to conduct its business ‘as it ramps up’. In his opinion, as a person experienced in the relevant industry, he believes that Ace has massively over-invested in the establishment of its business to an extent ‘far more than would be required for a start-up enterprise in this industry’.
(5) Mr Whitehead has a significant reputation in the industry, particularly in the Gippsland region. By analogy, he is the ‘Dick Smith’ of the industry in Gippsland.
(6) Mr Whitehead:
[h]as intimate knowledge of the applicant’s customers, prices and discounts, margins, supply channels and staff. The [BJB] business relies heavily on goodwill. A competitor with the assistance of Whitehead’s knowledge and reputation would be capable of harming the applicant’s reputation and market share very significantly.
(7) Mr and Mrs Whitehead or companies associated with them are the landlords of the premises from which the BJB businesses are conducted, and have terminated those leases effective on 10 January 2016 unless extended by agreement. They are also the lessors of the premises nearby from which Ace conducts its business in competition with the BJB businesses.
(8) He has been informed by employees of the BJB businesses that Mr Whitehead has sought to entice them away from their current employment.
(9) Since Mr Reid resigned from his employment with the applicant, several of the applicant’s key employees have resigned and obtained employment with Ace.
(10) He has been informed that Mr Whitehead has been involved in requests that the applicant supply products to BJB Dandenong for the purpose of on-supply to Ace, and that Mr Nugara has admitted that this is the case.
(11) He has been informed and believes that Mr Whitehead has been approaching a supplier to the BJB businesses, seeking to have that supplier supply Ace.
(12) He has seen Mr Whitehead attending Ace’s premises on numerous occasions, but acknowledges that, in addition to being Ace’s landlord, Mr Whitehead also maintains his own offices in or adjacent to those premises.
(13) Based upon forensic surveillance of Mr Whitehead commissioned by the applicant, he believes that Mr Whitehead has visited many suppliers in the industry in which the BJB businesses operate over the period of that surveillance.
(14) He believes Ace’s business has, notwithstanding its recent commencement, already had a significant adverse effect on the applicant’s profitability and, because many of the applicant’s key staff now work for Ace, its goodwill and reputation has already been irrevocably damaged. Mr Gray deposes that, although the damage is ‘mainly in Warragul thus far’, he expects further damage may follow to the BJB businesses in Leongatha.
(15) Based on the above matters, and other matters referred to in his affidavit, Mr Gray believes that:
(a) Mr Whitehead has assisted and continues to assist Ace in starting up its business, including being involved in soliciting employees of the applicant and building relationships between Ace and customers of and suppliers to the applicant;
(b) Mr Whitehead is funding the establishment of Ace’s business; and
(c) Ace and Mr Reid are well aware of the restraints on Mr Whitehead in the Deed Poll and are assisting him to breach those restraints.
In these circumstances, the applicant is considering commencing proceedings in this Court against the respondents for injunctions and damages arising from breaches of the restraints on Mr Whitehead in the Deed Poll and the assistance given by Ace and Mr Reid to assist those breaches. In these circumstances, the applicant has commenced a proceeding under r 32.05 of the Supreme Court (General Civil Procedure) Rules 2015 seeking preliminary discovery from the respondents in connection with the applicant’s proposed claims. Rule 32.05 is in the following terms:
32.05 Discovery from prospective defendant
Where—
(a)there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description the applicant has ascertained;
(b)after making all reasonable inquiries, the applicant has not sufficient information to enable the applicant to decide whether to commence a proceeding in the Court to obtain that relief; and
(c)there is reasonable cause to believe that that person has or is likely to have or has had or is likely to have had in that person's possession any document relating to the question whether the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist the applicant to make the decision—
the Court may order that that person shall make discovery to the applicant of any document of the kind described in paragraph (c).
The applicant has also applied for an order for preliminary discovery under r 32.03(2)(b). Rule 32.03 relevantly provides:
32.03 Discovery to identify a defendant
(1) The Court may make an order under paragraph (2) where—
(a)an applicant, having made reasonable inquiries, is unable to ascertain the description of a person sufficiently for the purpose of commencing a proceeding in the Court against that person (in this Rule called the person concerned); and
(b)it appears that some person has or is likely to have knowledge of facts, or has, or is likely to have or has had or is likely to have had in that person’s possession any document or thing, tending to assist in such ascertainment.
(2) The Court may order that the person … shall—
(a)…
(b)make discovery to the applicant of all documents which are or have been in his, her or its possession relating to the description of the person concerned.
On the hearing of the application the parties’ arguments focussed on the r 32.05 application, as the applicant’s counsel acknowledged that, if preliminary discovery was ordered in respect of the identity of the beneficial owner of the 50 per cent parcel of Ace’s shares which are not owned by Mr Reid beneficially, that may identify a prospective defendant and would in any event be sufficient for its purposes.
The applicant did not make an application under r 32.03(2)(a) that Mr Reid, in his capacity as ‘an appropriate officer’ of Ace, attend Court to be orally examined in relation to the identity of the beneficial owner of the shares in Ace not held by him beneficially. Such an application would, if successful, have avoided the need for an order for preliminary discovery on that issue.
The respondents oppose the applications on different grounds. Mr Whitehead opposes any preliminary discovery order or, if an order is to be made, opposes the scope of the orders sought on general grounds. Ace and Mr Reid do not oppose the making of preliminary discovery orders, but oppose the broad scope of the orders sought and seek confidentiality orders to prevent the applicant, as a trade rival, from inspecting documents containing confidential information about Ace’s business. The parties agree that, if a preliminary discovery order is made, the applicant must pay the respondents’ reasonable costs of complying with the order.
Mr Whitehead opposes the making of a preliminary discovery order against him on three principal grounds:
(1) The applicant has failed to make ‘all reasonable inquiries’ as required by r 32.05(b). This is fatal to the application, because the Court’s discretion to make a preliminary discovery order under r 32.05 is only enlivened where each of paragraphs (a), (b) and (c) are established on the evidence.[1]
(2) The evidence establishes that the applicant has sufficient information to enable it to decide whether to commence a proceeding against Mr Whitehead.[2]
(3) The applicant has already decided to commence a proceeding against (at least) Mr Whitehead.
[1]Reliance was placed upon Lehoud v Hooper [2015] NSWSC 1026 [63]–[65]. See also Rinehart v Rinehart (2015) 108 ACSR 415, 438 [90].
[2]Reliance was placed upon United Voice v Accolade Wines Australia Ltd [2013] FCA 285 [29].
Before considering the specific issues raised by the respondents, it is appropriate to set out the general principles governing the exercise of the Court’s discretion to make a preliminary discovery order under r 32.05 or its equivalents in other Australian jurisdictions.
Relevant principles concerning r 32.05
There have been a number of cases summarising the relevant principles to be applied in exercising the Court’s discretion as to whether to make a preliminary discovery order.[3]
[3]For example, Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd [1996] FCA 1500 [41]; United Energy Ltd v Energy Risk Management Pty Ltd [1998] VSC 133 [29]–[44]; St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147, 153–4 [26]; Hatfield v TCN Channel Nine Pty Ltd (2010) 77 NSWLR 506, 520–1 [47]–[52]; Glezer v Deals.com.au & Ors [2014] VSC 202 [16]–[26]; Orora Ltd v Asahi Holdings (Australia) Pty Ltd [2015] VSC 749 [31].
In this case, the information available to the applicant, which is summarised above, establishes that there is reasonable cause to believe that the applicant has or may have a right to obtain relief in the Court from, at least, the respondents. There is no question that the respondents have or are likely to have had in their possession documents relating to the claims which the applicant is considering advancing by a proceeding in this Court.
The remaining issues concern whether the applicant has made ‘all reasonable inquiries’, whether the applicant already has sufficient information to enable it to decide ‘whether to commence a proceeding’ and whether the applicant has already decided to commence a proceeding against Mr Whitehead, irrespective of the outcome of this application. The principles which are relevant to the exercise of the Court’s discretion in this particular case may be summarised as follows:
(1) Rule 32.05 should be given a liberal or benevolent construction. Its object is to avoid the commencement of ‘speculative suits’[4] and, instead, ‘to advance the administration of justice [by enabling] a prospective plaintiff … to make an informed decision whether to proceed or not upon proper material before issuing his proceeding.’[5]
[4]Beston Parks Management Pty Ltd v Sexton [2008] VSC 392 [52].
[5]United Energy Ltd v Energy Risk Management Pty Ltd [1998] VSC 133 [36].
(2) The fact that an applicant for preliminary discovery already has enough evidence to establish a prima facie case against a proposed defendant does not mean that the applicant has sufficient information to enable it to decide whether to commence a proceeding. An applicant in that position may nevertheless ‘need information to know whether the cost and risk of litigation is worthwhile.’[6] For example, an applicant with sufficient information to plead a prima facie case may prudently wish to obtain preliminary discovery about ‘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’.[7]
[6]Optiver Australia Pty Ltd v Tibra Trading Pty Ltd & Ors (2008) 169 FCR 435, 443.
[7]St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147, 154 [26(f)] (citations omitted).
(3) An applicant for preliminary discovery is entitled to be cautious before making a decision to embark upon costly litigation.[8] This approach is consistent with the policy underlying the rule.[9] It is also, of course, consistent with the policy underlying the Civil Procedure Act 2010 generally, and the ‘proper basis certification’ requirements in s 42 of that Act in particular.
[8]For example, United Energy Ltd v Energy Risk Management Pty Ltd [1998] VSC 133 [103].
[9]Australian Football League v Stadium Operations Ltd [2009] VSC 264 [61].
(4) In determining whether an applicant has in fact already decided to commence a proceeding, irrespective of the outcome of the application, the Court should not give too much weight to posturing in correspondence prior to the making of the application, particularly correspondence alleging the existence of a strong case but nevertheless seeking preliminary discovery by letter prior to making a formal application to the Court.[10]
(5) ‘What constitutes “reasonable inquiries” is a question of fact, to be considered in all the circumstances of the particular case.’[11]
Has the applicant made reasonable inquiries?
[10]Ibid [59]–[62].
[11]Hatfield v TCN Channel Nine Pty Ltd (2010) 77 NSWLR 506, 528 [86].
Mr Whitehead contends that the applicant has not made ‘all reasonable inquiries’ to find sufficient information to enable it to decide whether to commence a proceeding against him. He contends that the correspondence from the applicant’s solicitors prior to commencement of this application did not specifically request the kind of documents which are now sought by way of preliminary discovery. This submission requires the Court to consider the relevant correspondence.
By letter dated 4 December 2015 from the applicant’s solicitors to Mr Whitehead, the solicitors referred to the restraints contained in the Deed Poll signed by Mr Whitehead, the context in which those restraints were agreed to by him, the applicant’s beliefs as to his involvement in the Ace business and the damage that involvement was causing the applicant. The solicitors characterised Mr Whitehead’s conduct as exhibiting ‘flagrant disregard’ for the restraints on him and sought detailed undertakings from him — to the effect that he would cease involvement in the Ace business until 1 February 2018, take all steps necessary to have Ace repay any funding provided to Ace by him or on his behalf and to irrevocably renounce any beneficial interest in any Ace shares. In the event that the undertakings were not provided by 4:00 pm on 11 December 2015, the solicitors reserved the applicant’s rights to commence proceedings in this Court on the basis of a ‘proposed’ statement of claim, enclosed with the letter, and to seek interlocutory injunctive relief. A similar letter was written to Mr Reid, in his personal capacity and as an Ace director and shareholder, but adapted to meet the proposed claims against him and Ace.
Mr Whitehead’s solicitors responded by letter dated 11 December 2015. On Mr Whitehead’s instructions, the solicitors denied that:
(1) he or his daughter had any beneficial interest in the issued shares of Ace;
(2) either his wife or any company or trust in which he or his wife is interested (collectively ‘the related entities’) had any interest in the issued shares of Ace;
(3) any of the related entities had loaned moneys to Ace;
(4) any of the related entities had given any guarantee or like instrument to assist Ace to procure funding; and
(5) he, his family or the related entities had any financial involvement with Ace, except that a company of which Mr Whitehead is a director is the owner of the property at 10 Endeavour Street, Warragul, part of which is leased to Ace on commercial terms and the remainder of which is used by Mr Whitehead to manage his business interests.
The letter refused to give the undertakings sought from Mr Whitehead, put forward reasons why the restraints in Mr Whitehead’s Deed Poll were unenforceable restraints of trade and proffered, in lieu of the undertakings sought by the applicant, undertakings by Mr Whitehead to support the denials set out in sub-paragraphs (1) to (5) above and, further, that:
(1) from 1 March 2016 to 30 June 2016, Mr Whitehead would not attend Ace’s premises, other than to conduct inspections in his capacity as landlord — noting that Mr Whitehead required access to the premises for his own business interests until 1 March 2016; and
(2) until 1 July 2016, Mr Whitehead would not communicate with:
(a) any person who was a customer of the BJB businesses between 1 February 2014 and 31 January 2015; and
(b) any person who is a supplier, potential supplier, client or potential client, employee or potential employee of Ace ‘for the purpose of benefitting Ace’; and
(c) he would not advise, provide any loans to or obtain any beneficial interest in Ace and would procure that none of the related entities did so.
The offer of undertakings expiring on 1 July 2016 involved reducing the maximum period of the restraints by 19 months.
The undertakings were proffered on condition that equivalent undertakings were given by Ace and Mr Reid, Mr and Mrs Whitehead being released from the restraints in their respective Deed Polls and Mr Whitehead and the related entities being released from all allegations contained in the proposed statement of claim enclosed with the letter from the applicant’s solicitors.
Also on 11 December 2015, the solicitors for Ace and Mr Reid replied to the applicant’s solicitors. They simply refused to give the undertakings sought, contended that they were unreasonable and noted that the proposed statement of claim ‘contains significant errors’.
By letter dated 14 December 2015, the applicant’s solicitors responded to the solicitors for Ace and Mr Reid. In that letter, the applicant’s solicitors requested ‘explanation of and relevant documents concerning’ the beneficial ownership of the 50 per cent shareholding in Ace which Mr Reid does not own beneficially, all of Ace’s sources of funding from the time of its incorporation to date, and Ace’s lease of the premises at 10 Endeavour Street, Warragul.
The solicitors for Ace and Mr Reid replied by letter dated 16 December 2015. They refused to provide the explanations and documents sought, referred to the letter from Mr Whitehead’s solicitors which refuted the applicant’s allegations and offered certain undertakings which, like those proffered by Mr Whitehead, expired on 1 July 2016.
The applicant’s solicitors did not reply to the letter from Mr Whitehead’s solicitors. Instead, they commenced this application for preliminary discovery.
In these circumstances, Mr Whitehead contends that the applicant has failed to make all reasonable inquiries because, unlike the request made of Ace and Mr Reid to their solicitors, the applicant did not seek production of information (explanations) or documents from Mr Whitehead in the face of his denials and proffered undertakings. I do not accept that submission. By Mr Whitehead’s express denials and proffered undertakings, he made it plain that his position was that he had not breached the restraints in his Deed Poll in the specific ways alleged by the applicant in correspondence and in the proposed statement of claim. In those circumstances, it would have been futile to ask Mr Whitehead to produce documents which would directly contradict his specific denials and proffered undertakings.
Counsel for Mr Whitehead relied on Lahoud v Hooper,[12] in which Adamson J stated that reasonable inquiries included ‘optimistic’ inquiries that, ‘while they might not be likely to bear fruit, it is possible that they may do so’.[13] In my opinion, that statement should not be taken as intended to be of general application, but is one limited to the facts of that particular case or like cases, of which this is not one. Earlier in his reasons, Adamson J had noted the obvious — that an applicant for preliminary discovery is ‘not required to make inquiries which are bound to be futile’.[14]
[12][2015] NSWSC 1026.
[13]Ibid [63].
[14]Ibid [58].
I find that the applicant has made reasonable inquiries to inform itself of relevant matters as to whether it should commence a proceeding against the respondents or one or more of them.
Does the applicant already have sufficient information?
As noted above, the rule is not concerned with whether or not an applicant for preliminary discovery already has sufficient information to establish, if proved, a prima facie case against a proposed defendant. The relevant focus of the rule is on whether the applicant has sufficient information to enable it to decide whether to commence a proceeding. In this case, the information available to the applicant is hearsay, double-hearsay, inference from suspicious circumstances and knowledge that half of the issued shares in Ace are beneficially owned by someone other than Mr Reid. In these circumstances, a bold plaintiff may choose to commence proceedings and seek discovery. But, the applicant has been met with firm denials by Mr Whitehead and proffered undertakings which propose a diminution in its rights under the Deed Polls to restrain Mr Whitehead from involvement in Ace’s business. Moreover, Mr Whitehead appears to have a legitimate reason to be attending at Ace’s premises, because he presently has his own offices at the same address. In these circumstances, the applicant is adopting a cautious approach before making a decision to embark upon costly litigation, and should not be criticised for that.
It was submitted on behalf of Mr Whitehead that the applicant in this case has enough information to enable it to decide whether to commence a proceeding, and is being ‘unduly cautious’ in seeking preliminary discovery. I reject that submission. In the circumstances I have summarised, I accept Mr Gray’s evidence that the applicant requires preliminary discovery in order to determine whether to institute a proceeding against Mr Whitehead and, if so, against Ace and Mr Reid also.
Has the applicant already decided to commence a proceeding?
It follows from what I have said above, that I accept Mr Gray’s evidence that the applicant has not already decided to commence a proceeding.
Should a preliminary discovery order be made?
The fact that the applicant has satisfied the necessary pre-conditions to the making of a preliminary discovery order does not mean that an order must be made. In St George Bank Ltd v Rabo Australia Ltd,[15] Hely J stated:
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.[16]
[15](2004) 211 ALR 147.
[16]Ibid 153 [26(a)] (emphasis added).
It was contended on behalf of Mr Whitehead that the Court should exercise its discretion to refuse any form of preliminary discovery order in circumstances where the information contained in the documents sought is likely to be of a confidential and commercially sensitive nature and relates to dealings in a rural community. Reliance was also placed on the statement by Lindgren J in Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd,[17] that:
the questions posed by [the rule] and referred to above are to be answered in the context of an adversary system of forensic contest in which a proposed respondent is ordinarily entitled to withhold its evidence, certainly prior to the commencement of the proceedings.[18]
[17](1996) FCA 1500.
[18]Ibid [41(6)].
I do not accept that the discretionary factors pointed to by counsel for Mr Whitehead should cause the Court to refuse an order for preliminary discovery. Issues of confidentiality and commercial sensitivity can be dealt with by appropriate orders — either limiting the scope of the preliminary discovery which is sought or by imposing confidentiality restraints appropriate to the circumstances. I do not accept that the statement of Lindgren J in Alphapharm, if correct, has any relevance in this case. I turn to consider the breadth of the orders sought.
What form of preliminary discovery should be made?
It is convenient to take each of the categories of preliminary discovery which are sought and deal with the arguments raised against them. The applicant seeks preliminary discovery of the following categories of documents:
(a) Documents referring to a beneficial interest in the tranche of 100 shares in Ace described in Ace’s company extract as being held but not beneficially owned by Mr Reid. This category should be provided. There was no real opposition to it. The applicant clearly needs to know who the beneficial owner is.
(b) Documents referring to any loan, funds, financial facility or other form of finance to Ace from the date of its registration (that is, 28 May 2015) to the date of the order. Ace and Mr Reid oppose the breadth of this category. They submit that the applicant and Ace are direct competitors and the Court should not allow the applicant to have a complete insight into Ace’s debt structure. I do not accept that submission. In my opinion, subject to the confidentiality regime I propose below, the applicant needs to know how Ace was able to finance the substantial business it has commenced in such a short period of time. Further, as discussed in argument, the question of whether Mr Whitehead or the related entities have provided security or guarantees for finance obtained by Ace from third party lenders is a relevant matter for the applicant to know. Accordingly, I propose to expand this category to include ‘any other form of financial assistance’ in lieu of the words ‘other form of finance’.
(c) Lease by Ace of the premises at 10 Endeavour Street, Warragul in the State of Victoria (‘Lease’). Ace objects to this category, and also to category (d) below, on the basis that the Lease and amount of rent are irrelevant to the proposed case. I disagree. The terms of the Lease, in particular the amount of rental paid and whether it is commercial, are directly relevant to whether Mr Whitehead has been assisting Ace to establish its business.
(d) Documents referring to payments of rent under the Lease. See above.
(e) Documents referring to Mr Whitehead’s use of or attendance at 10 Endeavour Street, Warragul. Ace and Mr Reid do not oppose this category, and Mr Whitehead directed no specific submissions to it. I will allow preliminary discovery of this category.
(f) Documents referring to any contract, arrangement or understanding between any of the Respondents concerning services provided by (or to be provided by) Mr Whitehead to either or both of Ace and/or Mr Reid. Ace and Mr Reid do not oppose this category either, and Mr Whitehead directed no specific submissions to it. I will allow preliminary discovery of this category.
(g) Documents containing any advice or referring to any services provided by (or to be provided by) Mr Whitehead to either or both of Ace and/or Mr Reid concerning the business of Ace. Again, Ace and Mr Reid do not oppose this category, and Mr Whitehead directed no specific submissions to it. I will allow preliminary discovery of this category.
(h) Communications from any of the Respondents to any current employee of Ace or the applicant and referring to Mr Whitehead. Ace opposed this category on the grounds that it may reveal confidential information and would be an onerous task. Confidentiality can be dealt with by the regime proposed below. Although the task is possibly onerous, it is clear that the applicant will have to pay the reasonable costs of the respondents in providing preliminary discovery, and the limitation that the communications must refer to Mr Whitehead makes searches of email servers, portable computer devices and mobile phones a straightforward task. It is likely that most of the communications, if they exist, will be electronic. I will order preliminary discovery of this category.
(i) Communications from any of the Respondents to any supplier or customer in the bearings, industrial consumables and power transmission products industry and referring to Mr Whitehead. Ace opposed this category on the same grounds as it opposed category (b). Ace added that disclosure of commercially confidential material such as pricing information may be involved. That can be protected by an appropriate confidentiality regime. For the same reasons, I will order preliminary discovery of this category.
What form of confidentiality regime is appropriate?
There is no issue that a confidentiality regime is appropriate, to guard against the possibility that the applicant will learn information of a confidential and, perhaps, commercially sensitive kind. In the first instance, this risk can be met by limiting inspection of the discovered documents to nominated legal representatives of the applicant, on terms that they will not, until further order, show any discovered document or disclose any information derived from a discovered document to the applicant.
It may be that, once the applicant’s legal representatives have inspected the documents, they simply advise the applicant that the foreshadowed proceedings should not be issued. If not, then the parties should engage in sensible discussions with a view to agreeing what documents can be shown to officers of the applicant to enable it to decide whether to commence a proceeding against the respondents or other persons. Those discussions should be conducted in light of the overarching obligations, and could include issues such as agreed redactions of, for example, pricing information or other commercially sensitive material. If agreement cannot be reached, application can be made to the Court pursuant to liberty to apply.
Conclusion and orders
For the above reasons, I will order preliminary discovery in the form sought, as slightly amended, subject to the confidentiality regime which I propose. I will hear the parties as to the precise form of the orders to be made, and as to the costs of the application. I note that the applicant agrees it must pay the respondents’ reasonable costs of making preliminary discovery.
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SCHEDULE OF PARTIES
| S ECI 2015 00487 | |
| BETWEEN: | |
| B J BEARINGS PTY LTD (ACN 154 303 152) | Applicant |
| - and - | |
| WILLIAM ROBERT WHITEHEAD | Firstnamed Respondent |
| ACE INDUSTRIAL PTY LTD (ACN 606 102 970) | Secondnamed Respondent |
| DOUGLAS WILLIAM REID | Thirdnamed Respondent |
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