C21 Pty Ltd (Trustee) v Hou
[2022] FedCFamC2G 527
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
C21 Pty Ltd (Trustee) v Hou [2022] FedCFamC2G 527
File number(s): SYG 2055 of 2021 Judgment of: JUDGE MANOUSARIDIS Date of judgment: 29 June 2022 Catchwords: PRACTICE AND PROCEDURE – Intellectual Property – application for discovery by categories of documents – whether documents relevant to any issue – whether appropriate to order discovery given the time at which application made – application for discovery dismissed. Legislation: Copyright Act 1968 (Cth) s 32
Corporations Act 2001 (Cth) ss 182, 183
Federal Circuit and Family Court of Australia Act 2021 (Cth) ss 176(1), 176(2)
Federal Circuit Court of Australia Act 1999 (Cth) s 45
Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) rr 14.02, 14.03 Federal Circuit Court Rules 2001 (Cth) rr 14.02, 14.03
Cases cited: Australian Building & Construction Commissioner v CFMEU & Ors (No.5) [2018] FCCA 1100
Hartnett Legal Services Pty Ltd v Ballantyne [2016] FCA 1116
Robson v Reb Engineering Pty Ltd [1997] 2 Qd R 102
Wong v Sklavos [2014] FCAFC 120
Division: General Number of paragraphs: 24 Date of hearing: 28 June 2022 Place: Sydney Counsel for the Applicant: Mr C McMeniman Solicitor for the Applicant: Gilbert + Tobin Solicitor for the Respondents: Mr M Szary of MGA Lawyers, by telephone ORDERS
SYG 2055 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: C21 PTY LTD ATF THE RAMADAN FAMILY TRUST
Applicant
AND: KATE HOU
First Respondent
HIBI DESIGN PTY LTD
Second Respondent
ORDER MADE BY:
JUDGE MANOUSARIDIS
DATE OF ORDER:
29 JUNE 2022
THE COURT ORDERS THAT:
1.The application for the disclosure or production of the documents identified in the applicant’s proposed form of orders handed up in Court at 4:15 pm on 28 June 2022 is dismissed.
2.The proceeding be adjourned for a directions hearing at a time and date to be arranged with the associate to Judge Manousaridis.
3.The parties otherwise have liberty to apply on such notice as the circumstances warrant.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
INTRODUCTION
At 4:15 pm on 29 June 2022 I pronounced the following orders:
(a)the application for the disclosure or production of the documents identified in the applicant’s proposed form of orders handed up in Court at 4:15 pm on 28 June 2022 is dismissed;
(b)the proceeding be adjourned for a directions hearing at a time and date to be arranged with my associate; and
(c)the parties otherwise have liberty to apply on such notice as the circumstances warrant,
noting that I would publish my reasons later. These are my reasons.
THE PROCEEDING
This proceeding was commenced on 5 November 2021 when the applicant (RAMA) applied ex parte for orders to restrain the first respondent, Ms Hou, and the second respondent (HIBI) from using or disclosing or from destroying information RAMA identified as confidential to it.
After a number of interlocutory steps had been completed, RAMA filed a statement of claim on 22 April 2022, and, on 24 June 2022, RAMA filed an amended statement of claim which is almost identical with the statement of claim it filed on 22 April 2022. In its statement of claim RAMA alleges as follows:
(a)RAMA carries on the business of designing and creating mechanical keyboards, computer peripherals such as “keycaps”, and other designer items.
(b)Ms Hou was employed by RAMA from 23 March 2020 to 27 September 2021 as Senior Product Designer.
(c)In its day-to-day business RAMA uses design templates for a number of different keycap profiles, and design templates for a keyboard. RAMA also uses “bespoke three dimensional renders and production files for keycaps . . . for collaborations between RAMA Works and artists who create motifs to appear on the face of keycaps (Keycap Collaborations)”.
(d)Each of the documents in (c) (RAMA Works) is an artistic work and an original work in which copyright subsists within the meaning of s 32 of the Copyright Act 1968 (Cth) of which RAMA is the owner; and are confidential to RAMA’s business.
(e)In addition to the RAMA Works, RAMA holds the following information that is confidential to its business (RAMA Confidential Information):
(i)documents RAMA keeps on its shared Google drive that include, among other things, documents relating to RAMA’s existing collaborations; employment contracts; contracts with collaborators, vendors, and manufacturers; RAMA’s sales; and RAMA’s banking details; and
(ii)a contact list for artists, vendors, and manufacturers that are accessible only to RAMA’s employees as Google Contacts in their employee Gmail account.
(f)On each of 22 and 24 August 2021 Ms Hou copied all of the RAMA Works and the RAMA Confidential Information onto her computer using Google Takeout; and on 14 September 2021 Ms Hou copied some of the RAMA Works and the RAMA Confidential Information onto her computer.
(g)On about 1 September 2021 Ms Hou caused to register the business name “Hibi Design”, having on about 27 August 2021 registered a website located at the URL
(h)On 24 September 2021 Ms Hou gave RAMA notice of her intention to resign from her employment, and she ceased her employment with RAMA on 27 September 2021.
(i)On 18 October 2021 Ms Hou caused HIBI to be incorporated, and now operates a business which offers keycaps for sale or pre-order under the name of “Hibi” (Hibi Keycaps) in competition with RAMA.
(j)Ms Hou and HIBI created each of the Hibi Keycaps using RAMA Works and RAMA Confidential Information.
The statement of claim then pleads the following causes of actions:
(a)Causes of action based on Ms Hou’ breach of her contract of employment, fiduciary duties she owed RAMA as an employee, and s 182 and s 183 of the Corporations Act 2001 (Cth). These causes of action are in part based on alleged conduct occurring before Ms Hou ceased her employment with RAMA. They are also based, in part, on Ms Hou’s conduct after her employment, and in particular by creating or causing HIBI to create Hibi Keycaps by using RAMA Works and RAMA Confidential Information, and operating a business which offers the Hibi Keycaps for sale or pre-order in competition with RAMA.
(b)Causes of action based on infringement of RAMA’s copyright in the RAMA Works, the alleged infringing conduct being the following:
(i)Ms Hou and HIBI created each of the Hibi Keycaps using the RAMA Works;
(ii)Each of the Hibi Keycaps reproduces the whole or a substantial part of the RAMA Works.
(iii)Because of (i) and (ii) HIBI had reproduced or communicated to the public in Australia the whole or a substantial part of the RAMA Works, and it did so without RAMA’s licence, and is continuing to engage in such conduct.
(iv)Ms Hou authorised the conduct in (iii).
(c)Causes of action for breach of confidence based on the matters in paragraphs 3(c), (f), (i), and (j) above.
The statement of claim also alleges that Ms Hou has retained assets that are the property of RAMA which she has wrongfully detained.
In their defence filed 13 May 2022, the respondents:
(a)deny RAMA used the RAMA Works in its business, or that any copyright subsisted in the RAMA Works;
(b)deny that in the course of carrying out its business activities RAMA possessed and created the RAMA Confidential Information;
(c)admit Ms Hou commenced her employment with RAMA on 23 March 2020, but in the position of Designer;
(d)admit Ms Hou’s responsibilities as an employee of RAMA included corresponding with artists regarding their proposed motifs for Keycap Collaborations, providing technical assistance and information to artists for Keycap Collaborations, and designing and rendering Keycap Collaboration templates;
(e)admit that during her employment with RAMA Ms Hou worked on approximately 100 Keycap Collaborations;
(f)deny that during her employment Ms Hou had access to the RAMA Works or the RAMA Confidential Information;
(g)deny that on 22 or 24 August 2021 Ms Hou copied the RAMA Works and the RAMA Confidential Information, or that on 14 September 2021 Ms Hou copied some of the RAMA Works and the RAMA Confidential Information;
(h)admit the respondents created each of the Hibi Keycaps, but deny they did so using any RAMA Works or RAMA Confidential Information copied by Ms Hou; and
(i)admit that HIBI operates a business under Ms Hou’s control which offers the HIBI Keycaps for sale or pre-order in competition with RAMA.
THE APPLICATION FOR PRODUCTION OF DOCUMENTS
According to a letter dated 26 June 2022 from RAMA’s lawyers (G&T) to the respondents’ lawyers (MGA), by letter dated 23 June 2022 to MGA, G&T requested “informal discovery” of categories of documents G&T had identified to MGA in a letter dated 21 June 2022. G&T noted that that was a request for discovery that arises separately from the “IT Protocol” that “arose out of a preliminary interlocutory order, whereas discovery is a substantive phase of the subsequently pleaded case”. The “IT Protocol” is a reference to the protocol the parties, by an order made by Judge Baird on 3 December 2021, agreed to implement. The IT Protocol deals with the identification and extraction of documents from electronic devices of the respondents.
At the directions hearing on 23 June 2022 the legal representatives of the parties informed me that RAMA had requested the respondents give informal discovery of particular categories of documents, and there was a potential dispute about the request. I listed the matter at 4:15 pm on 28 June 2022 for the hearing of any outstanding dispute about discovery.
At the hearing on 28 June 2022 counsel for RAMA applied that I make the following orders (Proposed Orders):
1.By 4pm on 11 July 2022, the Respondents produce to the solicitors for the Applicants copies of all documents responsive to the following categories of documents, for the period between 1 July 2021 and 20 April 2022:
a)Emails, Discord and Instagram messages between accounts owned or operated by the Respondents, including but not limited to:
i. Email addresses [email protected] and [email protected];
ii. Discord accounts owned by Kate Hou and Andrew Green;
iii. Instagram accounts @hibi.mix and @katewho_o,
and the collaborators, vendors and/or manufacturers listed in Annexure A to these orders.
b)Electronic communications, including but not limited to emails, Discord messages, and Instagram messages between Kate Hou and Andrew Green, referring to any collaborations, collaborators, vendors and/or manufacturers listed in Annexure A to these orders.
2.Until further order, access to the documents produced in accordance with Order 1 above be limited to the Applicant’s external legal representatives.
3.The parties have liberty to apply on such notice as the circumstances warrant.
4. Costs reserved.
Annexure “A” to the Proposed Orders listed 14 “Collaborators”, two “Manufacturers”, and 26 “Vendors”.
RAMA’s submissions
Counsel for RAMA submitted as follows:
(a)The essence of RAMA’s claims against the respondents is that Ms Hou, while an employee of RAMA, downloaded the entirety of RAMA’s server which contained information that was both subject to copyright and confidential to RAMA.
(b)Ms Hou does not dispute she created products called “keycaps” which compete with RAMA’s products; Ms Hou’s response to RAMA’s claims is that she did not use any of RAMA’s material that is the subject of copyright, and she did not use any information that is confidential to RAMA.
(c)Ms Hou details this response in an affidavit she made on 19 November 2021 by setting out what she there describes as collaborations with artists who create the keycaps with the respondents. Ms Hou “sets out in that affidavit the communications that she says she had with collaborators, manufacturers, and vendors during and after ceasing her employment with [RAMA]”; and that “[w]e seek to test that by seeking all of the communications that [Ms Hou] has had with various collaborators, manufacturers and vendors, which is the nub of what she sets out in her affidavit”.
There was also admitted into evidence G&T’s letter dated 26 June 2022 (G&T Letter) to which I have already referred. In that letter G&T made the following statements about the relevance of the documents RAMA seeks the respondents produce (Documents in Question):
Relevance
Annexure A contains a finite list of the collaborators, vendors and manufacturers in respect of which we seek communications.
The collaborators, vendors and manufacturers in Annexure A are all directly referable to the Applicant's Amended Statement of Claim, as they form part of the RAMA Confidential Information as pleaded. Each of the collaborations identified in Annexure A is referred to in the Amended Statement of Claim, and communications with the collaborators as well as the manufacturers and vendors are directly relevant to the matters in issue.
The Respondents' communications with the parties in Annexure A are of central relevance to the proceeding. The Amended Statement of Claim alleges:
•the RAMA Confidential Information was used to establish Ms Hou's new business – paragraph 16
•that Ms Hou delayed Keycap Collaborations (a defined term referable to the collaborators in Annexure A) during her employment with the Applicant - paragraph 21
•that Ms Hou's use of the RAMA Confidential Information constituted a breach of her employment obligations, in which Hibi was involved - paragraphs 26-29; and
•that Ms Hou's use of the RAMA Confidential information constituted a breach of confidence, in which Hibi was involved - paragraphs 42-43
We note that the Affidavit of Kate Hou sworn 19 November 2022 [sic] and its exhibits (Ms Hou's affidavit) indicates that the way in which Ms Hou communicates with the contacts forming part of the RAMA Confidential Information (including those parties listed in Annexure A) is through communications on email, Discord and Instagram (see paragraphs 80 to 126 and the corresponding exhibits of Ms Hou’s Affidavit). For example:
•page 167 of Exhibit KH-18 shows email communications between [email protected] and [email protected] referring to a keycap collaboration (item 7 of Annexure A);
•page 309 of Exhibit KH-25 shows Discord communications between Kate Hou and Tom Arovaara referring to a keycap collaboration (item 11 of Annexure A); and
•page 186 of Exhibit KH-19 shows Instagram communications between Kate Hou and @sxm_designs referring to a keycap collaboration (item 8 of Annexure A).
It is clear from Ms Hou's affidavit that email, Discord and Instagram are primary modes of communication used by Ms Hou in operating HIBI Designs.
We note that Mr Green is an employee of the Second Respondent, and as such his communications with the identified parties are directly relevant to the case as pleaded against the Second Respondent.
Respondents’ submissions
The respondents oppose producing the Documents in Question. They submit:
(a)RAMA’s application for “informal discovery” is made “excessively late” having regard to the stage the proceeding has reached, which includes:
(i)the establishment and execution of the IT Protocol which, by 3 March 2022, resulted in the extraction of information from the respondents’ electronic devices;
(ii)the matter having been set down for hearing for 5 days to commence on 15 August 2022; and
(iii)RAMA being required to file its evidence by 1 July 2022, and the respondents by 29 July 2022.
(b)The scope of the Documents in Question is too broad by reference to the pleaded issues in dispute.
(c)Requiring the respondents to produce the Documents in Question would be oppressive, particularly having regard to HIBI being a company of which Ms Hou is the sole employee, and that compliance with an order for production would require Ms Hou to review, collate and produce to RAMA documents RAMA ought to have identified as relevant earlier in the proceeding, all in the context of her being required to prepare her evidence.
PRINCIPLES
Beyond characterising its application for the production of the Documents in Question as an application for “informal discovery”, RAMA has not identified the source of the power on which it relies for the Court to make the Proposed Orders. In Australian Building & Construction Commissioner v CFMEU & Ors (No.5) (CFMEU Case) I considered the nature of “discovery” this Court (which was then known as the Federal Circuit Court of Australia) has power to order, and the circumstances in which it may order discovery.[1] I will assume that RAMA’s application for the production of documents is in fact an application for discovery under the provisions that govern discovery in this Court; and I will proceed on the basis that the principles I considered in the CFMEU Case apply to RAMA’s application for the Proposed Orders. I will also assume in the alternative, however, that the Proposed Orders are in effect a notice to produce the Documents in Question, and what is before me is an application by the respondents to set aside a notice to produce the Documents in Question.
[1] Australian Building & Construction Commissioner v CFMEU & Ors (No.5) [2018] FCCA 1100, at [3]-[40]. The provisions and rules I considered in that case are reproduced in the Federal Circuit and Family Court of Australia Act 2021 (Cth) and rules that govern the powers and procedure of this Court. Thus, s 45 of the Federal Circuit Court of Australia Act 1999 (Cth) is substantially reproduced in s 176(2) of the Federal Circuit and Family Court of Australia Act 2021 (Cth) and r 14.02 and r 14.03 of the Federal Circuit Court Rules 2001 (Cth) are substantially reproduced in r 14.02 and r 14.03 of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
Discovery
This Court has power under s 176(1) of the Federal Circuit and Family Court of Australia Act 2021 (Cth) to allow discovery; but s 176(2) of that Act provides the Court may not do so unless “the Court or a Judge declares that it is appropriate, in the interests of the administration of justice, to allow the interrogatories or discovery”. Before the Court may make any such declaration it must at the very least be satisfied that the documents in relation to which discovery is sought are “directly relevant to the issues raised by the pleadings or in the affidavits”,[2] in the sense that the documents sought to be discovered will tend “to prove or disprove the allegation[s] in issue”.[3]
[2] Hartnett Legal Services Pty Ltd v Ballantyne [2016] FCA 1116, at [34] (See Australian Building & Construction Commissioner v CFMEU & Ors (No.5) [2018] FCCA 1100, at [17])
[3] Robson v Reb Engineering Pty Ltd [1997] 2 Qd R 102, at page 105 (See Australian Building & Construction Commissioner v CFMEU & Ors (No.5) [2018] FCCA 1100, at [23])
Setting aside notice to produce
The principles that apply to when a party seeks to set aside a notice to produce are the same as the principles that apply to the setting aside of a subpoena:[4]
The party issuing a subpoena bears the onus of demonstrating that the subpoena has a legitimate forensic purpose in relation to the issues in the proceedings. A subpoena may be set aside if it requires the production of documents which do not have apparent relevance to the issues arising on the pleadings. Other cases have used different terminology, but with essentially the same effect, for example, by requiring that, viewed realistically, the documents sought have a bearing on an issue which is not unreal, fanciful or speculative, or that the material sought is reasonably likely to add in some way to the relevant evidence in the case, or that it be “on the cards” that the documents sought will materially assist the party at whose request the subpoena has been issued.
[4] Wong v Sklavos [2014] FCAFC 120, at [12] (references omitted)
SHOULD A DISCLOSURE ORDER BE MADE?
I will assume that the form of the Proposed Orders, if made, would answer the description of a “disclosure order” under r 14.02 and r 14.03 of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth). The first question, then, is whether the Documents in Question can be said to be “directly relevant” to the issues raised by the pleadings, in the sense that the documents will tend to prove or disprove the allegations in question.
I first turn to what G&T in the G&T Letter, contended was the relevance of the Documents in Question. G&T contended they are relevant to the issues that arise by the respondents having traversed paragraphs 16, 21, 26-29, and 42-43 of the statement of claim (Relevant Allegations). Quite apart from G&T mischaracterising paragraph 16 of the statement of claim,[5] G&T do not articulate how it is said the Documents in Question may tend to prove, directly or indirectly, the Relevant Allegations, or how the Documents in Question are otherwise relevant or potentially relevant to the Relevant Allegations. Further, given the Documents in Question are not defined by reference to the issues arising on the pleadings, or by reference to a subject matter that is referrable to an issue that arises on the pleadings, there is a high likelihood that the Documents in Question would include documents that are not relevant to the Relevant Allegations. The G&T Letter, therefore, discloses no submissions on the basis of which I would be satisfied that it would be appropriate, in the interests of the administration of justice, to make orders in terms of the Proposed Orders.
[5] G&T state that paragraph 16 of the statement of claim alleges the RAMA Confidential Information was used to establish Ms Hou’s new business. Paragraph 16 of the statement of claim, however, only alleges that Ms Hou intended to use RAMA Confidential Information in her own business.
I next turn to the oral submissions counsel for RAMA made. Although counsel referred to the G&T Letter, he did not specifically submit that the documents described in the Proposed Orders were relevant to the Relevant Allegations. Counsel’s submissions were directed to what he characterised as the respondents’ answer to RAMA’s claims as stated in Ms Hou’s affidavit of 19 November 2021. This invites three observations.
(a)Ms Hou made her affidavit on 19 November 2021, some five months before RAMA filed its statement of claim, and, therefore, before the respondents filed their defence. The respondents’ answer to RAMA’s claims, therefore, are to be found in the defence they filed. Counsel for RAMA did not submit that the answer he submitted Ms Hou made in her affidavit is alleged in the respondents’ defence. At most, what Ms Hou deposes in her affidavit may be relevant to a fact in issue arising on the pleadings. No authority has been identified, however, that suggests that discovery may be ordered in relation to evidence that may be relevant to a fact in issue, as opposed to discovery being ordered in relation to a pleaded allegation that is in issue.
(b)Even if it be assumed the defence alleges matters to the effect of the answer Ms Hou is said to have made in her affidavit, counsel for RAMA did not articulate how the Documents in Question, if produced, will aid RAMA to test Ms Hou’s answer.
(c)In any event, given the Documents in Question are not defined by reference to Ms Hou’s answer said to be conveyed in her affidavit of 19 November 2021, or by reference to any subject matter that may be referrable to such answer, there is a high likelihood that the Documents in Question would include documents that are not relevant to testing Ms Hou’s answer.
The oral submissions counsel for RAMA made, therefore, do not satisfy me that it would be appropriate, in the interests of the administration of justice, to make orders in terms of the Proposed Orders.
Even if, however, I were satisfied that all of the Documents in Question were relevant for the reasons RAMA submits they are relevant, I would not make an order in terms of the Proposed Orders. RAMA has had Ms Hou’s affidavit since around 19 November 2021; and since that time the IT Protocol has been implemented. RAMA has not submitted that it intended or expected that the implementation of the IT Protocol would produce the documents identified in the Proposed Orders. Nor has RAMA submitted that its decision to seek informal discovery arose from information that became available to it on the production of documents pursuant to the implementation of the IT Protocol.
It may be accepted, as counsel for RAMA submitted, that the IT Protocol turned up a large volume of documents, and this took RAMA and its lawyers time to consider; but, given RAMA does not suggest it expected the IT Protocol to lead to the production of the Documents in Question, or that its decision to seek their production arose from information that became available to it on the production of documents pursuant to the implementation of the IT Protocol, RAMA’s having to consider a large volume of documents does not explain RAMA’s not having requested informal discovery until the time it did.
Finally, although there was no evidence about this, my impression is that complying with orders in terms of the Proposed Orders would require a significant volume of work which is likely to disrupt the tasks the respondents will be undertaking in the proceeding in the time by which they are required to complete those tasks. Those tasks include the respondents reviewing the evidence RAMA was due to file on 1 July 2022, preparing their evidence, participating in a mediation that is scheduled to occur on 18 July 2022, and, if the matter is not resolved at mediation, preparing for the hearing that has been set down for 5 days to commence on 15 August 2022. In those circumstances, even if the Documents in Question are relevant, they would be insufficiently relevant to warrant, at this point of the proceeding, my making orders in terms of the Proposed Orders.
ASSESSMENT AS IF A NOTICE TO PRODUCE
If I were to treat the Proposed Orders as a notice to produce the Documents in Question, and the respondents’ opposition to their production as an application to set aside the notice to produce the Documents in Question, I would set aside the notice to produce and not require the respondents to produce the Documents in Question. That would be because I have concluded RAMA has been unable to identify how the Documents in Question could be relevant to any issue arising on the pleadings, and I have further concluded that requiring the respondents to produce the Documents in Question would likely require the respondents to produce documents that will not be relevant to any such issue. Given those findings, I would not be satisfied that RAMA would have shown a legitimate forensic purpose for its calling for the production of the Documents in Question.
I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Manousaridis. Associate:
Dated: 4 July 2022
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