City Finance (WA) Pty Ltd v Murphy - [2008] WASC 227

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: CITY FINANCE (WA) PTY LTD -v- MURPHY [2008] WASC 227

CORAM: MASTER SANDERSON

HEARD: 4 SEPTEMBER 2008

DELIVERED : 21 OCTOBER 2008

FILE NO/S: CIV 1704 of 2008

BETWEEN: CITY FINANCE (WA) PTY LTD (ACN 077 607 339)
Plaintiff
AND
ROBYN GRACE MURPHY
First Defendant
BENJAMIN JOHN WHYTE
Second Defendant
HARBOUR FINANCE PTY LTD (ACN 113 206 367)
Third Defendant

Catchwords:

Preaction discovery application - Turns on own facts

Legislation:

Nil

Result:

Discovery ordered

Category: B

Representation:

Counsel:

Plaintiff:     Mr M D Howard
First Defendant              :     Mr R A Zilkens
Second Defendant         :     Mr R A Zilkens
Third Defendant            :     Mr R A Zilkens

Solicitors:

Plaintiff:     DLA Phillips Fox
First Defendant              :     Zilkens & Co
Second Defendant         :     Zilkens & Co
Third Defendant            :     Zilkens & Co

Case(s) referred to in judgment(s):

Nil

MASTER SANDERSON: By originating summons filed 20 June 2008, the plaintiff sought the following orders:
1.Within 7 days of the date of this order each of the defendants provide discovery verified by affidavit of documents (whether stored electronically or in any other medium) in their possession, custody or power which relate to loans, mortgages or other financial services provided by the first or second defendant (other than on behalf of the plaintiff) to any client in the period 7 August 2006 to 24 October 2007, including, but not limited to:
1.1emails;
1.2financial documents showing commissions or fees earned and received; and
1.3client files.
The application was supported by an affidavit of Iain Melotte sworn 17 June 2008. Mr Melotte is a director of the plaintiff. The plaintiff runs a finance broking business which has a wide range of clients who request finance and mortgage broking services predominantly with respect to residential property. As part of the provision of these services, the plaintiff has developed a number of confidential documents which include client lists, certificates of appointment and business plans. Mr Melotte is also a director of Veracity Corporation Pty Ltd which runs a business called OPESSmart. This business provides economic strategy and life planning services for clients. The plaintiff and Veracity Corporation are separate companies operating separate businesses, but employees of the two companies will often carry out roles within both businesses.
In July 2006, the plaintiff employed the first defendant in the position of operations manager. The parties entered into a written employment agreement which appears as annexure IE3 to Mr Melotte's affidavit. The first defendant also entered into a non‑disclosure agreement. That document was signed by the first defendant on 14 August 2006 and appears as annexure IE5 to Mr Melotte's affidavit.
The first defendant's primary role was to operate and manage the loan processing section of the Perth office of the plaintiff. She also facilitated the delivery of finance broking services to clients of the plaintiff. To this end, she was involved with preparing and implementing a national rollout of the plaintiff's business. Not surprisingly, the first defendant had access to all the confidential information held by the plaintiff. This included both the computer network and physical files.
On 24 October 2007, the first defendant's employment with the plaintiff came to an end. It would appear that the employment was terminated by mutual consent. The first defendant was to remain with the plaintiff for a period of four weeks as specified in her contract. Following the termination of the first defendant's employment, Mr Melotte instructed an employee of the plaintiff, Ms Joslyn Lewin, to utilise the first defendant's email profile until the proper replacement was established with appropriate links. The first defendant's profile was then to be deleted from the plaintiff's computer network.
In late October 2007, Ms Lewin advised Mr Melotte that when she had accessed the computer used by the first defendant during the first defendant's employment with the plaintiff, she had identified a number of documents relating to a business called Harbour Finance Pty Ltd. Prior to his conversation with Ms Lewin, Mr Melotte had not been aware that the first defendant was involved with Harbour Finance.
Mr Melotte then investigated Harbour Finance. He found that the first defendant was a director of that company and that she was licensed as a finance broker. He also accessed a number of emails which indicated that the first defendant was working for, and writing loans for, Harbour Finance while she was employed by the plaintiff. A number of examples are given. Based upon his investigation and these examples, Mr Melotte believes that the first defendant, during the course of her employment with the plaintiff, directed business away from the plaintiff to Harbour Finance.
The second defendant was employed by the plaintiff as a broker in 2003. A copy of his undated employment agreement appears as annexure IE15 to Mr Melotte's affidavit. In or about the middle of October 2007, Mr Melotte met with the second defendant. The result of this meeting was that the second defendant and Mr Melotte agreed that the second defendant should take a break from work. While the second defendant was absent from work, a settlement agent approached one of the plaintiff's staff about a loan. There was no evidence that the plaintiff had arranged this loan. It became clear that the second defendant had arranged the loan but it had not been put through the books of the plaintiff. When confronted with these facts, the second defendant admitted he had not complied with the terms of his employment agreement, apologised and resigned his employment with the plaintiff.
The plaintiff now says that it has suspicions that the first and second defendants, through the agency of the third defendant, have directed business away from the plaintiff. It says it does not know the full extent of the business that may have passed out of the plaintiff's control. It is for that purpose that it seeks discovery.
In opposition to the application, the first defendant has filed an affidavit sworn 24 August 2008 in which she states she is a director of the third defendant and is authorised to swear the affidavit on its behalf. Essentially, what the first defendant does in her affidavit is set out all of the loans arranged by the third defendant during the time she was employed by the plaintiff. She does this by reference to an organisation known as Australian Financial Group (AFG). The first defendant says AFG is an aggregator - that is to say, an intermediary between finance brokers and banks, the use of which allows brokers to negotiate better deals for their clients and better rates of commission for themselves. She says that a broker can only be contracted to one aggregator at a time. AFG has at all times been the third defendant's only aggregator. Based upon this, she says that the plaintiff has all the information it needs to take any action it may think appropriate and the orders sought are unnecessary.
This application is brought under the provisions of O 26A r 4. That rule is in the following terms:
4.Discovery from a potential party
(1)This Rule applies if a person who may have a cause of action against a person whose description has been ascertained (the potential party) wants -
(a)to commence proceedings against the potential party; or
(b)to take proceedings against the potential party in the course of an action to which the person is a party,
but the person, after reasonable enquiries, has not been able to obtain sufficient information to enable a decision to be made as to whether to commence or take the proceedings.
(2)If there are reasonable grounds for believing that the potential party had, has, or is likely to have had or to have, possession of documents that may assist in making the decision, the person may apply for an order under this Rule.
(3)The application shall be supported by an affidavit and a copy of both shall be served on the potential party.
(4)On the application the Court may order the potential party to give discovery of all documents that are or have been in the potential party's possession and that may assist the applicant in making the decision.
As I understand the defendants' submissions, they have four grounds upon which it is said the order sought ought be refused. First, it is said that the plaintiff knows enough about the case without pre‑action discovery being necessary. In answer to this, the plaintiff points to par 38 of Mr Melotte's affidavit. In that paragraph, Mr Melotte says he does not have sufficient information. He says that he is aware that the first and second defendants diverted some clients 'but it was not clear how many clients or the financial value of the work'.
In answer to that, the defendants rely upon the affidavit of the first defendant. They say that this affidavit amounts to a full and frank disclosure of all loans arranged by the third defendant during the time the first and second defendants were employed by the plaintiff. They emphasise that there is only one aggregator for the third defendant and the details of the loans arranged have been disclosed.
In my view, the plaintiff's submissions on this point are to be accepted. It is of significance that Mr Melotte swears on affidavit that he is not satisfied the plaintiff has sufficient material to allow it to determine whether or not it should take action. There is sufficient evidence in Mr Melotte's affidavit to justify him holding that view. It may be that he is wrong - it may be that the first defendant has disclosed everything that is relevant and nothing further will be thrown up by the discovery. That is not to the point. The plaintiff has satisfied the requirements of the order and there is no basis for it being refused.
Second, it is said that there is nothing in the evidence which is put against the second defendant. I am not satisfied that this is the case. The second defendant has not disputed that he acted on at least one occasion in a way that ran counter to his employment with the plaintiff. It is not unreasonable for the plaintiff to wish to investigate that issue further. If there was only one occasion when the second defendant was at fault, then it is unlikely that the plaintiff will take action. But the plaintiff should be entitled to investigate this issue by way of discovery.
Third, it is said that the plaintiff has not made reasonable enquiries. In my view, the plaintiff has made reasonable enquiries. The affidavit of Mr Melotte makes that plain. He and others have systematically investigated the actions of the first and second defendants. Their investigations have been fruitful. It is difficult to see what more they could do. Furthermore, correspondence has passed between the plaintiff and the defendants' solicitors. That correspondence appears as annexures to Mr Melotte's affidavit. It is difficult to see what more the plaintiff could have done. I am satisfied that all reasonable enquiries have been made.
Finally, it is said that there is no utility in making this order. It was submitted that the affidavit of the first defendant disclosed all the information that was available and put the plaintiff in the position it would be in if discovery was ordered.
There are two things to be said about that submission. First, there is nothing in the rule which prevents an order being made where there is a prospect that all relevant information is, in any event, in the hands of the applicant. Doubtless there is a discretion to refuse an order, but that would only be in the clearest of cases. This matter is not that clear.
Further, in my view, it is by no means clear that the affidavit of the first defendant discloses everything that is relevant. That may be the upshot of the first defendant's affidavit, but the position is not entirely clear. Any doubt can be eliminated by the defendants giving the discovery sought by the plaintiff.
I am satisfied that the order sought by the plaintiff ought be made. I will hear the parties as to the precise form of orders and as to costs.