Central Innovation Pty Ltd v Garner
[2017] FCA 5
•3 January 2017
FEDERAL COURT OF AUSTRALIA
Central Innovation Pty Ltd v Garner [2017] FCA 5
File number: NSD 2221 of 2016 Judge: MARKOVIC J Date of judgment: 3 January 2017 Date of publication of reasons: 12 January 2017 Catchwords: PRACTICE AND PROCEDURE – urgent application in relation to compliance with preservation orders – whether the court may order a party to request access to electronic devices in the possession of a third party Legislation: Federal Court Rules 2011 (Cth) r 7.01 Cases cited: Saber Corporation Pty Ltd v Russ Kalvin’s Haircare Company & Ors (1993) 46 FCR 428 Date of hearing: 3 January 2017 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 27 Counsel for the Prospective Applicant: Mr G Boyce Solicitor for the Prospective Applicant: FD Commercial Lawyers Counsel for the Prospective Respondent: Mr A Sandbach Solicitor for the Prospective Respondent: AJH Lawyers ORDERS
NSD 2221 of 2016 BETWEEN: CENTRAL INNOVATION PTY LTD
Prospective Applicant
AND: GARY GARNER
Prospective Respondent
JUDGE:
MARKOVIC J
DATE OF ORDER:
3 JANUARY 2017
THE COURT ORDERS THAT:
1.Pursuant to Rule 39.05(h) of the Federal Court Rules 2011 (Cth) (the Rules) the Orders made by the Court on 23 December 2016 be varied by including the following by way of endorsement at the end of the Orders as set out in r 41.06 of the Rules:
“The consequences of failing to comply with the above orders may be committal, sequestration or punishment for contempt if the prospective respondent neglects or refuses to do the act or thing within the specified time in the order or disobeys the order”.
2.The prospective respondent be required by 5.00 pm on 5 January 2017 to request NC Cadcam Systems Pty Ltd (NC Cadcam) to provide him with any desktop computer, laptop computer or removable storage device used directly by him in connection with his employment with NC Cadcam (the Devices) for the purpose of taking an electronic image of the Devices which image or images will then be subject to the Orders made in this proceeding on 23 December 2016 and in particular Order 5 thereof.
3.Any application to vary or set aside the Orders made on 23 December 2016, as varied by Order 1 above, to be filed and served by the prospective respondent by 5.00 pm on 5 January 2017.
4.Any evidence in support of the application referred to in Order 3 above be filed and served by 2.00 pm on 6 January 2017.
5.Costs of today’s application be reserved.
6.The parties have leave to appear by video conference facility at the hearing on 10 January 2017.
THE COURT NOTES:
7.The undertaking of the prospective applicant not to access in any way any image obtained as a result of Order 2 above.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
MARKOVIC J:
On 23 December 2016 Central Innovation Pty Ltd (Central Innovation), the prospective applicant, commenced a proceeding by way of the filing of an urgent application before start of a proceeding. Its application, which came before the duty judge on that day, sought orders on an ex parte basis which, in effect, sought to restrain Gary Garner, the prospective respondent, from destroying or tampering with any computer or other electronic device used in connection with or relating to his current employment and requiring Mr Garner to provide access to his computer or any other electronic device used in connection with his employment to Central Innovation’s computer expert and to deliver up any confidential information in his possession.
Her Honour Justice Katzmann made a number of orders on 23 December 2016 (the December Orders) including relevantly that:
4. On or before 28 December 2016 the prospective respondent give access to the prospective applicant’s Computer Expert to any computer (including laptop computer) or other electronic device, including any electronic storage device as described above, to take an electronic image of, used in or in connection with or which relates to in any way whatsoever with his employment with NCCS.
5. The prospective applicant’s Computer Expert not access, tamper with, interrogate, part with possession of or otherwise use any electronic image or images obtained from the prospective respondent until further order of the Court.
6. On or before 29 December 2016 the prospective respondent deliver up to the prospective applicant’s Lawyer any of the prospective applicant’s Confidential Information in his custody, control or possession.
The December Orders also include an undertaking by Central Innovation that it will start a proceeding in relation to the subject matter of the application within 14 days after the application had been determined.
On 3 January 2017, on the application of Central Innovation, the proceeding came before me as duty judge. Central Innovation was concerned that Mr Garner had failed to comply with orders 4 and 6 of the December Orders. As a result, among others, it sought an order that Mr Garner be required to request his current employer, NC Cadcam Systems Pty Ltd (NCCS), to provide it with the electronic devices used by him in connection with or relating to his employment so that Mr Garner could comply, in particular, with order 4 of the December Orders. After hearing from the parties I made an order in those terms. These are my reasons for making that order.
BACKGROUND FACTS
Central Innovation sources, builds and advises on design process solutions to the manufacturing and construction industries. Its wholly owned subsidiary, Intercad Pty Ltd (Intercad), is a reseller of computer aided design (CAD) and drafting software and a distributor of SolidWorks software which provides 3D CAD design software tools, related software products and data management systems. Mr Garner is a former employee of Central Innovation. On 22 August 2016 the position Mr Garner then held with Central Innovation, Team Leader, Victoria, was made redundant and Mr Garner left Central Innovation on that day.
Mr Garner is currently employed by NCCS. NCCS is also a reseller of SolidWorks software and, according to John Atkinson, the general manager of Central Innovation, a direct competitor of Intercad in Victoria and Tasmania.
In support of Central Innovation’s ex parte application made on 23 December 2016, Mr Atkinson gave evidence of receipt of an email from a customer of Intercad, Mark Ryan, in which Mr Ryan enquired whether there was any reason why his contact details may have been passed on to a third party without his consent. The third party referred to by Mr Ryan was Mr Garner who had sent him an email on 23 November 2016. Mr Ryan’s employer’s licence for the SolidWorks software supplied to it by Intercad was due for renewal in December 2016.
Mr Atkinson’s evidence was that upon receipt of Mr Ryan’s email Central Innovation commenced an internal investigation including a review of Mr Garner’s work laptop and that it discovered that customer data had been downloaded onto it from the database maintained by SolidWorks. As a result, Mr Garner’s work laptop was provided to forensic computer experts for further examination. A report prepared by those experts was in evidence on Central Innovation’s ex parte application.
Following the making of the December Orders and their service on Mr Garner, correspondence was exchanged between the solicitors for Central Innovation and Mr Garner and subsequently the solicitors retained by Mr Garner. That correspondence concerned the December Orders and, in particular, orders 4 and 6. On 28 December 2016 the solicitors for Mr Garner, AJH Lawyers, wrote to Central Innovation’s lawyers, FD Commercial Lawyers, relevantly stating:
We are instructed that our client does not have any computer or other electronic device including any electronic storage device, used in or in connection with or which relates to in any way whatsoever with his employment with NCCS referred to in paragraph 4 of the orders.
In response, on 29 December 2016, FD Commercial Lawyers wrote to AJH Lawyers including, among other things, the following:
1.Your client is in breach of paragraph 4 of the Court's Orders made on 23 December 2016 (Orders). As this is the case, we put you and your client on notice that in accordance with paragraph 10 of the Orders, our client will relist this matter on Tuesday, 3 January 2017 at 10.00am before the Duty Judge. An order for indemnity costs will be sought from the Court.
…
3.Further to our comments at paragraph 1 above, as you will see from Tab 9 of Exhibit JGA-1 (page 81), your client used a computer on 23 November 2016 at 2.09pm to send an email to Mr Mark Ryan. This computer falls within paragraph 4 of the Orders.
4.Your client's instructions to you that:
“We are instructed that our client does not have any computer or other electronic device including any electronic storage device, used in or in connection with or which relates to in any way whatsoever with his employment with NCCS referred to in paragraph 4 of the orders "
is a blatant lie.
5.Further to our comments at paragraph 1 above, on 10 June 2016 your client used a USB device (Kingston Data Traveler)(similar to the attached picture) to download the file described as output (27).csv. This USB device falls within paragraph 4 of the Orders.
6.Further to our comments at paragraph 1 above, on 8 August 2016 your client used a USB device (Kingston Data Traveler 64GB)(similar to the attached picture). This USB device falls within paragraph 4 of the Orders.
…
On 29 December 2016 AJH Lawyers responded to FD Commercial Lawyers relevantly stating:
In response to the matters you raised concerning paragraph 4 of the orders made ex parte on 23 December 2016, we are instructed that our client:
(a)is not in possession, custody or control of the USB device referred to in paragraphs 5 and 6 of your letter of 29 December 2016.
(b)does not have the computer used to send the email of 23 November 2016 referred to in paragraph 3 of your letter of 29 December 2016.
As to paragraph 6 of the orders, our client instructs that he does not have any Confidential Information of the prospective applicant (Central Innovations Pty Limited (ACN 123 240 362), as defined in the orders.
In an affidavit affirmed by Mr Garner on 2 January 2017, Mr Garner relevantly gives the following evidence:
(1)that order 4 of the December Orders requires delivering up of “property of my current employer” by 28 December 2016 in circumstances where NCCS is closed for Christmas and New Year and will resume trading on 16 January 2017 and that he is currently on holidays;
(2)that he does “not have any computer or other electronic device, including any electronic storage device, used in or in connection with or which related to in any way whatsoever with his employment with NC Cadcam Systems Pty Ltd referred to paragraph 4 (sic) of the orders”;
(3)he does “not have the USB device referred to in paragraphs 5 and 6 of the prospective applicant’s letter of 29 December 2016”;
(4)he does “not have the computer used to send the email to Mark Ryan on 23 November 2016”;
(5)he does “not have ‘Confidential Information’ as defined in the orders of the prospective applicant, Central Innovation Pty Ltd”;
(6)that he “previously carried out work for Intercad Pty Ltd until August 2016 not Central Innovation Pty Ltd, the prospective applicant”;
(7)that he is “not a director, shareholder or executive manager of N C Cadcam Systems Pty Ltd and I have no authority to affect the legal rights and interest of NC Cadcam System Pty concerning its property, including in relation to its confidential information, intellectual property or trade secrets which could occur by reason of the ex parte interim orders. I believe that N C Cadcam Systems Pty Ltd should be a party and privy to these orders as it affects its legal rights and interest and it should be afforded the opportunity to be heard before the court. I believe that N C Cadcam Systems Pty Ltd will want to ensure that its legal rights and interests are protected in relation to any confidential information, intellectual property rights and trade secrets, especially where N C Cadcam Systems Pty Ltd is a direct business competitor of Intercad Pty Ltd, being a subsidiary of the prospective applicant company”; and
(8)that he is “very concerned and do not want my employment terminated or legal action taken against me because I have taken unauthorised action that affects the legal rights and interests of my employer, N C Cadcam Systems Pty Ltd, concerning its confidential information, intellectual property or trade secrets”.
CONSIDERATION
Central Innovation’s ex parte application was made pursuant to r 7.01 of the Federal Court Rules 2011 (Cth) which entitles a person who intends to start a proceeding to apply to the Court without notice for an order granting an injunction where a matter is urgent.
The December Orders are in the nature of preservation orders. They are intended to preserve the evidence of the alleged breaches by the prospective respondent. The subsequent order sought by Central Innovation was once again in the nature of a preservation order.
Mr Garner’s response to orders 4 and 6 and, in particular, order 4 of the December Orders was that he does not have any computer or other electronic device used in or related to his employment with NCCS. He also gave evidence that order 4 requires delivering up of the property of NCCS and that NCCS was closed over the holiday period. Mr Garner’s solicitor, Ms Bethany Clark, stated that as far as she was aware NCCS had not been notified of the December Orders. It is relevant to note that Mr Garner proposes to make an application to set aside the December Orders.
While Mr Garner says that he does not have a computer or other electronic device used in connection with or related to his employment with NCCS, he does not state where such a computer or other electronic device is located other than the evidence he gives that compliance with order 4 requires delivering up of property of NCCS. I would infer that Mr Garner uses a computer in connection with his employment, indeed, he sent an email to Mr Ryan on 23 November 2016, and that computer is located at his place of employment.
Mr Garner also gives evidence that he does not have the USB devices referred to by Central Innovation on which it is alleged he downloaded certain customer information. Again, he does not say what became of those devices.
In Sabre Corporation Pty Ltd v Russ Kalvin’s Hair Care Company & Ors (1993) 46 FCR 428 (Sabre Corporation) Lockhart J considered an application in relation to a notice to produce in which the respondents, who had served the notice to produce, sought an order that the applicant, the recipient of the notice to produce, be required to request a third party, Joico, to provide the applicant with the documents sought in the notice to produce. The applicant had the sole and exclusive right to sell, promote and distribute Joico products in Australia.
At 430 Lockhart J noted that the respondents argued that the order sought was an alternative basis for obtaining access to documents in that the applicant should be required to request Joico to make the documents available to the Court so that the documents could then, under the guidance of the Court, be made available to the respondents for their inspection with any confidentiality being protected by a suitable order. At 431-432 his Honour said:
In my opinion the court has power to direct a party to take steps to obtain access to and discover documents which are in the possession, power or control of a third party where there is a real likelihood that the party to the proceeding would be given access to the documents upon request. Section 23 of the Federal Court of Australia Act1976 (Cth) confers ample power upon the court to make orders of the kind sought in par (2) of the notice of motion, namely, an order that the applicant be required to request Joico to take steps to obtain access to and discover documents in the possession, power or control of Joico (the third basis relied on by the respondents and mentioned earlier). Section 23 provides:
The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate.
This power may be exercised where there is a real likelihood that the party to the proceeding against whom the order is made would be given access to the documents by the third party upon request. Foster J made an order of this kind on the basis of s 23 in Burgundy Royale v Westpac Banking Corporation (unreported, Federal Court, 21 February 1990). See also Palmdale Insurance Ltd (in liq) v L Grollo & Co Pty Ltd [1987] VR 113 per Marks J especially at 115; Aetna Pacific Securities Ltd v Hong Kong Bank of Australia Ltd (unreported, Supreme Court, NSW, 29 April 1993) per Giles J; cf Arhill Pty Ltd v General Terminal Co Pty Ltd [1991] 23 NSWLR 545 per Rogers CJ Comm D.
This is a case where there is a real likelihood that the applicant will be provided access to the relevant documents by Joico should it request it. …
The application before me does not concern the obtaining of documents for the purposes of production pursuant to a notice to produce. However, the order sought is analogous to that sought by the respondent in Sabre Corporation. As I have already observed, the purpose of the December Orders was to preserve the evidence which is likely, in any event, to be discoverable in the proposed proceeding which Central Innovation has undertaken to commence against Mr Garner. The making of an order of the nature sought by Central Innovation provides an alternative basis to assist compliance with order 4 of the December Orders.
Mr Garner submitted that the Court would not make an order in the nature sought because there was no real likelihood that he would be given access to the electronic devices by his employer, NCCS, upon request. He submitted that given that Central Innovation is a direct and significant competitor of NCCS it would not be in its interest to provide the material and thus the Court would not conclude that he would be given access.
Contrary to the submission made by Mr Garner, I am satisfied that there is a real likelihood that he would be given access to the electronic devices by his employer. The December Orders and the proposed proceeding concern the alleged use by Mr Garner of certain information directly related to his current employment. It seems to me that in those circumstances, and in light of the relationship between employer and employee, Mr Garner’s employer would assist him to comply with orders of the Court and to defend any proceeding. In any event, as submitted by Central Innovation, once the proposed proceedings are commenced, NCCS would be amenable to a subpoena for the relevant records.
Insofar as confidentiality is concerned, the December Orders require Mr Garner to provide the electronic devices so that an image can be taken of those devices by Central Innovation’s computer expert nominated in the December Orders. Pursuant to order 5 of the December Orders the computer expert is not to access, tamper with, interrogate, part with possession of or otherwise use any of the images so obtained until further order of this Court. Any issue arising about the confidentiality of any of the material included in the images can then be properly accommodated by a suitable order. The image or images are to be taken by the computer expert, who is restrained from then accessing or interrogating them. There is thus no issue about Central Innovation accessing any images that are taken. Further, Central Innovation has provided an undertaking that it will not take any steps to access any such images.
In opposing the order Mr Garner also submitted that given that the application was in any event listed before the Court on 10 January 2017, at which time Mr Garner will apply to have the December Orders set aside, the Court would not make such an order. It further submitted that there were only 4 working days in the intervening period, which would not give NCCS sufficient time to consider its position and seek legal advice, if necessary, and NCCS was shut down for the holidays and not scheduled to reopen until 16 January 2017 such that any devices or material on its premises would not be at risk.
The outcome of any application to be made on 10 January 2017 is unknown. In the meantime, the order sought is to assist compliance with the December Orders. The fact that there is only a short intervening period before the matter is next before the Court is not a sufficient reason not to make the order.
Finally, Mr Garner submitted that notification of this matter to NCCS may put his employment at risk. It seems that Mr Garner would prefer that his employer not be aware of the December Orders and, presumably, the proposed proceeding. Assuming he was successful in his application to set aside the December Orders, NCCS would never need to know of them. However, on the basis that the proposed proceeding will be commenced it is difficult to see how NCCS would not become aware, at least, of that proceeding. As I have noted, given what is proposed in terms of the proceeding against Mr Garner it is, in my opinion, extremely unlikely that NCCS would not become aware of the existence of that proceeding, even if Mr Garner is successful in setting aside the December Orders.
In all of the circumstances, it is appropriate that I make an order in the nature of that sought by the prospective applicant to assist compliance with the December Orders and, in particular, order 4 of those orders, in circumstances where the prospective respondent has not provided a sufficiently fulsome explanation of his attempts to comply with those orders and where it appears from the evidence relied on by Mr Garner that the relevant electronic devices are more likely than not to be at his place of employment.
I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic. Associate:
Dated: 12 January 2017
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