Brett Paul Hawksford v Michael Jeffrey Hawksford; Michael Jeffrey Hawksford v Brett Paul Hawksford

[2007] NSWSC 661

CITATION:	Brett Paul Hawksford & Anor v Michael Jeffrey Hawksford & Ors;Michael Jeffrey Hawksford & Ors v Brett Paul Hawksford & Ors [2007] NSWSC 661
HEARING DATE(S):	30/05/07
JUDGMENT DATE :	1 June 2007
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	White J
EX TEMPORE JUDGMENT DATE:	1 June 2007
DECISION:	See paragraphs 42-45 of judgment.
CATCHWORDS:	PROCEDURE – Discovery – Categories for discovery – Discovery by reference to relevance of documents to pleaded issues – Order that discovery be given confined to documents on which party giving discovery may rely, or documents which adversely affect case of any party, or documents which support case of parties seeking discovery – Inspection – Confidentiality – Departure from general principle that confidentiality of documents not sufficient reason to deny inspection – Exceptional case – Where reason to apprehend that party seeking discovery prepared to disclose confidential information to trade rival of party giving discovery – Order that discovery be given subject to confidentiality undertakings by solicitors, counsel and experts instructed by parties seeking discovery.
LEGISLATION CITED:	Civil Procedure Rules UK
CASES CITED:	Mobil Oil Australia Ltd v Guina Developments Pty Limited (1996) 2 VR 34
PARTIES:	Brett Paul Hawksford & Anor v Michael Jeffrey Hawksford & Ors; and Michael Jeffrey Hawksford & Ors v Brett Paul Hawksford & Ors
FILE NUMBER(S):	SC 4348/04; 3487/05
COUNSEL:	4348/04 Plaintiffs: C Bevan, A Tsekouras Defendants: G K J Rich
SOLICITORS:	4348/04 Plaintiffs: Evangelos Patakas & Associates Defendants: Clayton Utz

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

WHITE J

Friday, 1 June 2007

4348/04 Brett Paul Hawksford & Anor v Michael Jeffrey Hawksford & Ors
3487/05 Michael Jeffrey Hawksford & Ors v Brett Paul Hawksford & Ors

JUDGMENT

1 HIS HONOUR: This judgment concerns notices of motion filed by the Michael Hawksford parties in both the 2004 and 2005 proceedings concerning aspects of discovery. The notices of motion filed on 2 March 2007 concern the terms on which the plaintiffs in the 2004 proceedings, that is the Brett Hawksford parties, should be required to give discovery of documents relevant to three allegations in the amended statement of claim in those proceedings and relevant to certain allegations in those parties’ cross-claim in the 2005 proceedings. I will call this the “categories of documents” issue.

2 The notices of motion filed on 20 April 2007 are concerned with whether documents to be produced by the Michael Hawksford parties which disclose the identity of customers or suppliers to Bremick Pty Ltd, or the prices at which stock has been purchased or sold by Bremick, should be kept confidential to the solicitors, counsel and professional advisers to Brett Hawksford and not be disclosed to him without further order of the court. This I will call the confidentiality issue.

3 Dealing first with the categories of documents issue, the orders sought by Michael Hawksford in the notices of motion filed on 2 March 2007 are that the Brett Hawksford parties give discovery of eight categories of documents in the 2004 and 2005 proceedings. Four of those categories are disputed. The disputed categories are:

“ 1. All documents which are relevant to the question whether, as alleged in paragraph 3 of the Amended Statement of Claim dated 1 October 2004 (the ‘ Amended Statement of Claim ’), the First Defendant (‘ Michael ’) and Brett conducted business together as an incorporated partnership through Bremick Pty Limited (‘ Bremick ’).
2. All documents which are relevant to the question whether, as alleged in paragraph 14(c) of the Amended Statement of Claim, the First Defendant ‘ procured or caused ’ Bremick to lose Coventry Group Limited (‘ Coventry ’) as its major customer in September 2003, including documents that record communications between Brett and/or BHM and Coventry during the period from 1 January 2001 to 23 January 2007 concerning Coventry’s business dealings or relationship with Bremick.
3. All documents which are relevant to the question whether, as alleged in paragraph 6 of the Amended Statement of Claim, Michael and Brett entered into the Shareholders Agreement dated 30 October 1991 between Bremick, Michael and Brett (the ‘ Shareholders Agreement ’) on behalf of BMB Investments Pty Limited (‘ BMB ’).
...
5. All documents which are relevant to the facts alleged in paragraphs 11(g), 12, 13, 15 and 16 of the Cross-Claim. ”

4 The Brett Hawksford parties object to being required to give discovery of all documents relevant to the pleaded issues. The issues in relation to this are as follows.

5 In relation to category 1, whether Michael and Brett Hawksford conducted business together as an “incorporated partnership” through Bremick Pty Ltd. I understood from counsel for the Brett Hawksford parties that the allegation is that Michael and Brett Hawksford were partners, rather than shareholders, and that Bremick’s business was or is carried on by Bremick as agent for them as partners.

6 In relation to category 2, the issue is whether Michael Hawksford procured or caused Bremick to lose Coventry Group Pty Ltd as its major customer in September 2003.

7 In relation to category 3, the issue is whether Michael and Brett Hawksford entered into the shareholders’ agreement on behalf of BMB Investments Pty Ltd.

8 In relation to category 5, the issues are what were the intentions of Brett and Michael Hawksford in entering into the shareholders’ agreement; what were the purposes of that agreement; what were the purpose or purposes of the 1995 re-structuring of shareholdings in Bremick; and whether the assertion by Michael Hawksford and, on his instigation, the assertion of Bremick and BMB, that BMB, Calm and Heads and Threads are not parties to, and are not bound to act in accordance with, the shareholders’ agreement, is a breach of that agreement, and is contrary to the basis upon which the 1995 re-structuring took place.

9 The Brett Hawksford parties submitted that deciding whether a document was relevant to such matters involved judgment on matters of law. They submitted that defining categories of discovery by their relevance to pleaded issues left uncertain what should be produced. Questions of whether the parties’ relationship could be characterised as a partnership, or whether Michael and Brett Hawksford entered into the shareholders’ agreement on behalf of BMB, were questions of the legal characterisation of facts, and not themselves facts in issue. They said that for them to be required to make a judgment as to what documents might relate to the allegations was too onerous.

10 They submitted that it was also too onerous to require them to make a judgment as to what facts could be relevant to the parties’ purposes in entering into the shareholders’ agreement. They proposed giving discovery of certain classes of documents which, by their description, were likely to be relevant to the issues but without being required to give discovery of any documents falling outside such classes. For example, in relation to category 1, they proposed giving discovery of “documents evidencing the management of Bremick’s business by Brett and Michael as partners in the incorporated partnership since the death of their father”. I am not sure what this means, but on its face it would not include such obviously relevant documents as Brett Hawksford’s tax returns which could be expected to show whether he had conducted business as a partner.

11 I see no difficulty in requiring the giving of discovery by reference to the relevance of the documents to the pleaded issues, but the exercise should not get out of hand. During argument, I proposed that the Brett Hawksford parties give discovery of the documents in each of the four disputed categories, but that the relevant documents to be discovered be confined to documents on which the Brett Hawksford parties may rely, or documents which adversely affected the case of any party, or documents which supported the case of any of the Michael Hawksford parties (see UK Civil Procedure Rules, Pt 31.6(a) and (b)). Doubtless that requires a judgment to be made. Such a judgment should err on the side of producing, rather than withholding, documents. However, solicitors have long been accustomed to making such decisions. I understood counsel for both parties to be content with that proposal.

12 Accordingly, in proceedings 4348/04, I order that, subject to any contrary agreement in writing between the parties, the first and second plaintiffs give discovery to the defendants of the documents within the classes specified in the first defendant's request for discovery, which is annexure A to the notice of motion filed for the first defendant on 2 March 2007, provided that in relation to categories 1, 2 and 3, the documents relevant to the matters there specified be confined to documents on which the plaintiffs may rely, or documents which adversely affect the case of any party, or documents which may support the case of any of the defendants.

13 In proceedings 3487/05 I order that, subject to any contrary agreement in writing between the parties, the defendants/cross-claimants give discovery to the plaintiffs/cross-defendants of all documents within the classes specified in the first plaintiff's request for discovery, which is annexure A to the notice of motion filed for the first plaintiff on 2 March 2007, provided that, in relation to category 5, the documents relevant to the facts alleged in the specified paragraphs of the cross-claim be confined to documents on which the defendants/cross-claimants may rely, or documents which adversely affect the case of any party, or documents which may support a case of any of the plaintiffs/cross defendants.

14 I turn then to the confidentiality issue. By notices of motion dated 20 April 2007 in the 2004 proceedings, Michael Hawksford seeks an order:

“ 1. That the documents discovered by the First Defendant, Michael Jeffrey Hawksford, on his own behalf or on behalf of the Second Defendant, Bremick Pty Limited ACN 000 496 131, which contain information regarding:
(a) the identity of the suppliers of the Second Defendant;
(b) the identity of the customers of the Second Defendant; or
(c) the prices at which the Second Defendant buys and sells stock,
be made available for inspection only by solicitors, counsel and experts instructed by the First Plaintiff and/or Second Plaintiff in these proceedings who have signed a written undertaking containing the following terms:
(d) to keep the information in those documents confidential;
(e) not to disclose the information in those documents or those documents to the First Plaintiff Brett Paul Hawksford or to any person who has not signed a confidentiality undertaking in accordance with this paragraph 1; and
(f) not to use the information in those documents for any purpose other than the conduct of proceedings numbers 4348 of 2004 and 3487 of 2005 in the Supreme Court of New South Wales, Equity Division. ”

15 An order is sought in the same terms in the 2005 proceedings, save for the alteration of the description of the parties as plaintiffs and defendants to reflect their different positions on the record in the 2005 proceedings.

16 Mr McCourt, the Chief Financial Officer of Bremick, deposed that the identity of all Bremick’s customers and suppliers, and the prices at which Bremick buys and sells stock, is confidential information which could be of value to a competitor. Bremick supplies products which are hard to differentiate from those of its competitors. The industry in which it competes is highly price sensitive. He deposed that Bremick has developed long-term relationships with offshore suppliers and that to disclose the identity of suppliers, as well as prices, could be harmful because a competitor could attempt to source products from Bremick's suppliers and gain the advantage of Bremick’s large production runs, its suppliers’ lower prices and the time and effort Bremick had spent in improving the quality of its suppliers’ products. He deposed that the identity of suppliers, as well as the prices at which product is sold, is confidential because a number of such customers are located offshore. A competitor could attempt to poach the customers, particularly if it had knowledge of Bremick's pricing.

17 Bremick's major competitors include Exofast Pty Ltd, Hobson Engineering Pty Ltd and Eclipse Marketing Pty Ltd. None of this is disputed.

18 It has emerged from documents produced by Brett Hawksford on discovery that on 22 February 2005, he entered into an agreement with Fabtek Pty Ltd to borrow $50,000. Fabtek is described as the ultimate owner of Exofast. It was a term of the loan agreement that Brett Hawksford would use his best endeavours to bring about a change in the management of Bremick.

19 Prior to entering into the loan agreement, Brett Hawksford entered into a deed with Fabtek called a Deed Confidential Discovery Agreement. I will call it the confidentiality agreement. It recited:

“ A. Brett Hawksford is the owner of shares in and a director of Bremick Pty Ltd (‘Bremick’) and has information and data relating to Bremick and to his personal financial circumstances (‘the Information’)
B. Brett Hawksford desires to borrow moneys and the Recipient(s) desire to receive the Information for the specific purpose of the Recipient(s) considering and to allow Brett Hawksford and the Recipient to negotiate and enter into commercial relations in respect of the loan to Brett Hawksford of moneys, namely, by the Recipient(s) or their nominee. (‘the Purpose’).
C. The Recipient(s) wishes to receive the Information and Brett Hawksford is willing to disclose the Information to the Recipient(s) solely for the Purpose subject to the Recipient’s acceptance of the terms in this Deed. ”

20 The term "Information" was defined broadly. It included all trading and accounting information of Bremick. Clause 2 provided that Fabtek should treat all Information from Brett Hawksford as confidential and not use the Information for any purpose whatsoever (including to gain any commercial benefit or compete with Brett Hawksford or Bremick) other than for the Purpose. The "Purpose" was not defined as being the purpose of deciding whether to lend money to Brett Hawksford, but of allowing Fabtek and Brett Hawksford to negotiate and enter into commercial relations "in respect of the loan" to Brett Hawksford. It is unclear what this might encompass.

21 It appears that Brett Hawksford borrowed a further $133,649 from Fabtek pursuant to an agreement dated 24 February 2007. He has discovered documents suggesting that he has borrowed $137,007 from Eclipse. On 2 December 2005, he entered into an agreement to borrow $20,000 from Hobson. It was a term of the loan agreement that he use his best endeavours to bring about the appointment of a liquidator to, or sale of, Bremick by 30 June 2006.

22 Brett Hawksford’s solicitor says on information and belief that Brett Hawksford has not disclosed any confidential information concerning Bremick to Fabtek, Eclipse or Hobson. He deposes that that is what he has been told by Brett Hawksford.

23 The loans were apparently obtained to pay tax debts. Through his counsel, Brett Hawksford says that he had to borrow from Bremick's competitors because he had been starved of money by Michael Hawksford owing to the latter's refusal to agree to the declaration of dividends. He says that he caused the confidentiality agreement to be drawn up to enable him to discuss with Fabtek his claims in the 2004 proceedings and the relief he is seeking in the 2004 proceedings. Those matters are relevant to the term in each of the Fabtek loan agreements that he use his best endeavours to bring about a change in Bremick's management.

24 The Michael Hawksford parties submitted that there is substantial ground to apprehend that the confidential information may be misused by Brett Hawksford if disclosed to him. The fact that documents to be discovered are confidential is not usually a sufficient reason for denying inspection by the opposite party. The party is under an implied obligation, enforceable by contempt proceedings, only to use the documents produced on discovery for the purposes of the litigation. However, exceptional cases arise from time to time, particularly in the case of trade rivals (Mobil Oil Australia Ltd v Guina Developments Pty Limited (1996) 2 VR 34).

25 The general principle is a necessary one. It is a strong thing to deny a party personal access to materials produced by the other side for the conduct of the proceedings. The solicitors may well be hampered in taking instructions, in giving advice and in giving instructions to expert witnesses if they cannot disclose the contents of discovered documents to their client. Solicitors and counsel can be placed in an impossible position in providing advice as to the settlement of proceedings, and the client can be in an impossible position in understanding and weighing the advice, if the lawyers are unable to refer to the contents of material documents which influence such advice. Likewise, in preparing for the litigation, the client may have a greater appreciation than do the lawyers or accountants retained on the client's behalf as to the significance of information in relevant documents. It can thus be unfair to withhold relevant documents from the client for fear of misuse of confidential information in them.

26 However, by the same token the misuse of discovered documents can be difficult to detect. In the case of a trade rival, it may be impossible for an opposite party to put out of his or her mind the information which can give him or her a competitive advantage.

27 This is not a case of disclosure to a trade rival, but Brett Hawksford has apparent commercial links to trade rivals of Bremick. He has contracted with Fabtek on the basis that he may be required to disclose Bremick’s confidential information to them. There is reason to apprehend from the terms of the confidentiality agreement that, to obtain funding from Fabtek, he was prepared to disclose information which his duties as a director of Bremick required him to keep confidential.

28 Whether he did so or not, as Hayne J said in Mobil Oil, “discovery is but a tool in the pursuit of justice". The right to discovery and inspection is not without limits. Whether there should be a restraint on disclosure of such confidential information to Brett Hawksford requires balancing the risk of misuse of the information disclosed against the need for him to have access to such information properly to prepare his case and understand its strengths or weaknesses. That necessarily entails asking why the details of the identity of suppliers and customers, and why pricing information, is relevant to any of the pleaded issues.

29 In correspondence, Clayton Utz, who act for the Michael Hawksford parties, contended that documents relating to Bremick's pricing and sales were not relevant to any question in the proceedings and that to the extent documents were sought concerning Bremick's stock and inventory, summary information should suffice.

30 In submissions, the relevant pleading was identified as paragraph 14 of the amended statement of claim in the 2004 proceedings. There, the Brett Hawksford parties plead in paragraph 13 that it was a term of the shareholders' agreement that Bremick’s business activities and affairs be managed and conducted so as to minimise inventory, improve the efficiency of stock turnover and reduce indebtedness. In paragraph 14, those parties allege that Michael Hawksford breached that term in ways which include:

“(a) procuring or causing Bremick to purchase stock with the effect of thereby increasing Bremick's inventory levels at relevant times so that:
(i) Bremick’s inventory has not been minimised; and
(ii) Bremick’s indebtedness has not been reduced.’”

31 They allege that Michael Hawksford:

“ procured or caused Bremick to incur expenditure including, but not limited to, expenditure for:
(i) the purchase of unnecessary or excessive stock ... ”

32 They allege that Michael Hawksford:

" caused or procured the Bremick Business to be managed and conducted generally in such a manner that it has not improved the efficiency of its stock turnover at all since June 2002. "

33 This conduct is alleged to have led to increases of expenditure on inventory, increases in inventory, increases in indebtedness, and the reduction of cash available to pay dividends. It is alleged that stock turnover deteriorated over the period from early 2002 to mid 2004 from about 2.3 to 1.7 stock turns per annum in circumstances where an appropriate industry stock turnover rate is 4 to 5 stock turns per annum.

34 Prima facie, these allegations would not require the discovery of documents relating to sales to customers, let alone particular sales to customers, or documents which disclose the identity of customers, or pricing of sales. Nor, prima facie, does it appear from these allegations that documents identifying the identity of suppliers or the prices at which stocks were purchased would be relevant.

35 Brett Hawksford’s solicitor, Mr Evangelos Patakas, asserted in correspondence that the documents were highly relevant on the following grounds:

“ You will be aware that our client makes allegations, inter alia, that:
(a) Michael has excluded Brett from management of Bremick as the person in control of the sales and marketing department and instead together with Tim Daley taken over this role (which included the determination of pricing) (see pars 18 to 24 of the ASC);
(b) the conduct of the business under Michael’s direction, including the breach of the Management Terms obligations has caused Bremick and Brett loss and damage;
(c) Michael has breached the stock turnover and inventory provisions of the Shareholders Agreement which in turn rely upon an analysis of all factors that effect those issues including sales and pricing.
(d) furthermore a review of pricing and sales is relevant to the issue of Michael having breached clause 9(a)(iii) of the Shareholders Agreement which will be an additional breach to be pleaded in the further Amended Statement of Claim, namely that Michael has conducted the debtors accounts in an inefficient manner, namely he has allowed aged debtors to deteriorate significantly. ”

36 I do not understand why that is so. The alleged cause of action of Brett Hawksford, or his role as a sales and marketing director, cannot make all sales and marketing documents relevant. The fact that Brett Hawksford alleges Bremick and he have suffered loss and damage under Michael’s management does not make all purchase and sales documents relevant, in the absence of allegations that particular purchases or sales of stocks were improvident. There is no allegation, for example, that stock was bought too dear or sold too cheap. The allegations of excessive inventory and debt, and of slow stock turnover, make relevant documents showing the amount of inventory held, the times at which inventory was purchased, the amount spent on inventory, the period for which inventory was held, and the volume, timing and value of sales. But without more I do not consider that the identity of individual suppliers or customers, or the prices of individual items of stock purchased or sold, would be relevant to those allegations.

37 An allegation that Michael Hawksford allowed aged debtors to deteriorate would not make relevant documents as to the identity of suppliers and customers, or the prices for the purchase or sale of individual items of stock. There may be a qualification to this. The identity of debtors whose debts were not collected might be relevant, and presumably these would comprise or include customers. But until the allegation is formulated, it is futile to speculate what documents might be relevant to it.

38 Paragraph 21 of the amended statement of claim alleges that Michael Hawksford breached the shareholders' agreement by causing Coventry Ltd to terminate its relationship with Bremick in September 2003. Particular (ab) of that allegation is that Michael Hawksford "implemented pricing practices for the Bremick Business in Victoria that diminish the established relationship with Coventry by undercutting Coventry’s purchasing pricing from Bremick as compared with Bremick’s less significant customers."

39 It may or may not be the case that documents regarding Bremick's pricing in Victoria in and prior to September 2003 are still confidential. I do not know what the position is in relation to the discovery of documents which may be relevant to the issues raised by that particular. It was not submitted for the Brett Hawksford parties that the identity of particular suppliers or customers, or details of pricing, are required in relation to this particular allegation. It was not mentioned in the course of submissions and accordingly, I put it aside in dealing with the present application.

40 Brett Hawksford has not shown that the contentious information is relevant. The Michael Hawksford parties are prepared to give discovery of the documents on terms as to confidentiality, although as I understand the correspondence, they did not concede the relevance of the documents.

41 Where a party is entitled to discovery from the opposite party but the documents are confidential, I am generally reluctant to order solicitors and counsel to provide a written undertaking to do what they are, in any event, obliged to do. Demands for such undertakings may rightly be seen as offensive. However, the position is different if a party is willing to provide confidential information which it is not obliged to discover. In such a case, it is entitled to withhold documents until its demands for confidentiality undertakings are met. Given the confidential nature of the information, and the fact that the information has no demonstrated relevance to any pleaded allegation, it is appropriate to make the following direction.

42 I direct that Michael Jeffrey Hawksford, on his own behalf and on behalf of Bremick Pty Limited, is not required to make available for inspection documents or parts of documents containing information identifying:

(a) the identity of suppliers to Bremick Pty Ltd;
(b) the identity of customers of Bremick Pty Ltd; or
(c) the prices at which Bremick Pty Limited buys and sells stock

except on the provision by solicitors, counsel and experts instructed by Brett Paul Hawksford or Brett Hawksford Management Pty Limited of written undertakings that they will:

(d) keep such information confidential;
(e) not disclose such information to Brett Paul Hawksford or to any person who has not signed confidentiality undertakings in these terms; and
(f) not use such information for any purpose other than the conduct of proceedings No 4348/04 and 3487/05 in the Supreme Court of New South Wales, Equity Division.

43 I make that direction.

44 If it appears to Brett Hawksford’s legal advisers that documents they obtain covered by the undertaking contain information which is relevant to the pleaded issues, they can apply on notice for leave to disclose such information to Brett Hawksford. Any such application can then be considered on its merits when it is made, by reference to the particular documents sought to be disclosed.

45 The costs of each of the notices of motion with which I have dealt will be the applicants’ costs in the proceedings.

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