Civic Video Pty Ltd v Paterson

[2012] WASC 325

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   CIVIC VIDEO PTY LTD -v- PATERSON [2012] WASC 325

CORAM:   MASTER SANDERSON

HEARD:   30 AUGUST 2012

DELIVERED          :   13 SEPTEMBER 2012

FILE NO/S:   CIV 2144 of 2008

BETWEEN:   CIVIC VIDEO PTY LTD

Plaintiff

AND

ROBERT HENRY PATERSON
First Defendant

MALCOLM THOMPSON
Second Defendant

BARBARA THOMPSON
Third Defendant

STEPHEN SMITH
First Third Party

Catchwords:

Appeal from decision of registrar - Party seeking to restrict access to documents - Turns on own facts

Legislation:

Nil

Result:

Appeal against decision of registrar dismissed
Inspection of documents ordered

Category:    B

Representation:

Counsel:

Plaintiff:     Mr J D MacLaurin

First Defendant             :     Mr A Metaxas

Second Defendant         :     No appearance

Third Defendant           :     No appearance

First Third Party           :     No appearance

Solicitors:

Plaintiff:     Marque Lawyers

First Defendant             :     Metaxas & Hager

Second Defendant         :     No appearance

Third Defendant           :     No appearance

First Third Party           :     No appearance

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

Minetec Pty Ltd v Frost [2011] WASC 145

Mobil Oil Australia Ltd v Guina Developments Pty Ltd [1996] 2 VR 34

1. MASTER SANDERSON:  On 11 June 2012, the first defendant appealed against an order of Registrar Whitbread, refusing to strike out certain paragraphs of an affidavit of Rod Laycock, sworn 16 May 2012.  It became apparent during the hearing of the appeal that the application to strike out the paragraphs of Mr Laycock's affidavit were something of a stalking horse.  The wider question was whether the first defendant personally should be entitled to inspect certain documents discovered by the plaintiff.  Resolving the question posed by the appeal would not determine whether the order for inspection might be made.  On that basis, I suggested to the parties the appeal should be heard together with an application by the first defendant for leave to inspect the discovered documents.  Both parties agreed and that is the way the matter proceeded.

2. It is unnecessary to detail the facts of the case.  It is sufficient if I say the plaintiff operates a business allowing franchisees to run video stores.  It alleges the first defendant interfered with the contractual relationship between the plaintiff and two of its franchisees.  As a consequence, the plaintiff says it has suffered loss and damage.  To prove its damage, the plaintiff has produced an expert's report.  That report, in turn, relied upon certain financial information provided to the expert by the plaintiff.  The first defendant maintained the financial information used in the expert report should be discovered.  The plaintiff agreed, and filed an affidavit discovering the three documents in question.  However, the plaintiff objected to the first defendant inspecting these documents.  The first defendant applied to the case management registrar for an order inspection be permitted.  In opposition to the application, the plaintiff filed the affidavit of Rod Laycock to which I have referred above.  The first defendant applied to strike out pars 26, 27 and 28 of Mr Laycock's affidavit.  The registrar refused to strike out those paragraphs.  It was from that decision the first defendant appealed.

3. Adopting the numbering and description of documents found in the first schedule part 1 to the affidavit of Rod Laycock verifying further supplementary list of documents sworn 14 March 2012, the documents in question are:

   112copy of spreadsheet showing total advertising received and spent in respect of WA franchisees from January 2006 to June 2011

   113copy of Civic Video Pty Ltd's profit and loss statements for the period June 2006 to June 2011

   114copy of summary of total annual revenue figures of all Civic Video stores in Western Australia, including stores that are now closed, from 2006 to 2011

4. Turning then to Mr Laycock affidavit, the paragraphs in question appear under the heading 'Nature of discovered documents'.  The paragraphs read as follows:

   Document 112

   26.This document discloses the advertising fees paid by Civic Video franchisees in the WA regional market to Civic Video and the amount of those fees spent by Civic Video and to whom.  This information reveals the amount of money spent by Civic Video in its advertising and marketing campaigns and to which types of marketing and advertising that money is spent.  It is an internal Civic Video record which is commercially sensitive and confidential in nature.  It discloses information which would provide a competitor of Civic Video with a competitive advantage if the document was disclosed to the competitor.

   Document 113

   27.This document discloses the profit and loss statements of Civic Video Pty Ltd.  Civic Video is a private company and is not required to publicly disclose its internal financial reports and information.  These documents are prepared for Civic Video's internal records and for accounting purposes and accordingly are commercially sensitive and confidential in nature.  They disclose information which would provide a competitor of Civic Video with a competitive advantage if the documents were disclosed to the competitor.

   Document 114

   28.This document discloses the annual revenue figures for each Civic Video franchise in Western Australia for the period 2006 to 2011.  These figures are reported by Civic Video franchisees to Civic Video as a requirement of the franchise agreement for the calculation of franchise fees and for Civic Video to assist franchisees by monitoring and assisting with the performance of their stores.  It is obviously very commercially sensitive information as it reveals the financial performance of each particular store.  Accordingly, this document is commercially sensitive and confidential in nature.  The document discloses information which would provide a competitor of Civic Video with a competitive advantage if the document was disclosed to the competitor. 

5. It is convenient first to deal with the question of whether any one or all of these paragraphs ought be struck out.  The first defendant complains each paragraph concludes with a self‑serving assertion that a particular document 'discloses information which would provide a competitor of Civic Video with a competitive advantage if the documents were disclosed to the competitor'.  It was submitted that this was argumentative and a conclusion.  On that basis, it was said they could not stand.

6. To comply with the Rules of the Supreme Court Rules 1971 (WA), an affidavit which refers to a document should annex to the affidavit a copy of that document.  To that extent, each of the three paragraphs is defective.  However, the plaintiff had no objection to producing the documents to the first defendant's solicitor.  What it objected to was inspection of these documents by the first defendant.  It is convenient then - although not strictly in accordance with the rules - to look at the paragraphs in question and, at the same time, refer to the discovered documents.

7. Once that is done, it is clear there is nothing offensive in these paragraphs.  Mr Laycock is the general manager of the plaintiff and he has been since 2000.  He has 30 years' experience in the franchise industry.  He is in a position to offer the opinion that he does in each of the three paragraphs.  The weight to be given to that opinion is another question.  Moreover, the documents speak for themselves.  But to my mind there is nothing offensive about the three paragraphs complained of and they should be permitted to stand.

8. Accordingly, I would dismiss the appeal against the registrar's decision.

9. That leaves the question of whether or not inspection of these documents ought be ordered. Before dealing with that issue, it is appropriate to set out the positions of each of the parties.  The plaintiff is prepared to allow the solicitors for the first defendant, and any expert instructed by the defendant, access to these documents.  It objects to the first defendant personally having access to the documents.  As Mr Laycock makes clear in his affidavit, the plaintiff believes the documents are commercially sensitive.  It says the first defendant is a trade rival.  It says if the first defendant had access to the documents, it would provide the first defendant with a competitive advantage.  It says this is not a situation where reliance can be placed on the implied undertaking as to confidentiality in the discovery process.  It makes the point once the first defendant has seen this material it will not be possible for him to 'unlearn' what it contains.  The plaintiff would have no way of knowing what, if any, use might be made of the material at some time in the future.

10. On behalf of the first defendant, the point was made the first defendant personally is involved in this litigation.  It is he who gives instructions to his solicitors.  It was submitted he could not do that effectively unless he saw the documents.  It is no answer to say an expert could prepare a report without the involvement of the first defendant.  The first defendant is experienced in the video franchise business and he would be at least as well placed as anyone else to assess the expert evidence.  Moreover, as counsel for the first defendant forcefully explained, the plaintiff wants damages from the first defendant - it is the first defendant's funds which are at risk.  If he bears that risk, he should be entitled to defend the claim with every possible resource.

11. The principles to be applied in a case such as this were not in dispute.  They were set out in the decision in Mobil Oil Australia Ltd v Guina Developments Pty Ltd [1996] 2 VR 34. Counsel for the plaintiff correctly, in my view, drew three principles from this case. They are:

    1.The discovered documents sought contain information which is confidential and whose use by a trade rival would be seriously prejudicial to the plaintiff's commercial interests and competitiveness.

    2.The prejudice arises from the very fact of disclosure to the trade rival party (as opposed to the trade rival's lawyers, or experts) as confidentiality is thereby destroyed once and for all.  Compliance with the implied undertaking by the party obtaining inspection would be a practical impossibility for that party and impossible to enforce.  That is, the nature of the information is such that, once put into the minds of the defendant and their officers and employees, in cannot be forgotten - which is the mischief.

    3.Any information provided to the first defendant, if he has access to the confidential documents, may place him in a situation where his undertaking to the court would conflict with his obligations to his business, as such an undertaking would be inimical to his obligations to act in his business's best interests. 

12. The first question then is whether the documents sought contain confidential information.  No matter how the word 'confidential' is defined, it is clear that they do.  In normal circumstances, there is no way this information would be disclosed to the public.  That is particularly the case as the plaintiff is a private company.  But even if it were a public company, this is not the sort of material which would be included in the company's accounts.  In normal circumstances, no‑one would have the right to access the material.  So it is clearly confidential.

13. The second question is whether its use by a trade rival would be seriously prejudicial to the plaintiff's commercial interests and competitiveness  That is not an easy question to answer.  Looking at each of the documents in turn, document 112 comprises seven pages.  It sets out an amount received for 'Total Advertising Fees' for each month between July 2005 and January 2012.  It is said to be details of the advertising fund for the plaintiff's WA country stores.  It then gives a break‑up of how the money is spent each month.  It gives no details as to how the money was spent - that is to say, television or radio promotions, or newspaper advertising and the like.  Rather, it nominates to whom the payments were made.

14. It is difficult to see how disclosure of this information could seriously prejudice the plaintiff's commercial interests.  Each player in a marketplace must, to a greater or lesser degree, monitor the promotional activities of a competitor.  It is a natural concomitant of that player's own marketing.  So, in broad terms, the first defendant would have a good idea of what the plaintiff spent on advertising and the reverse.  They would also have a reasonable idea of how the advertising budget was spent.  So although the first defendant would have access to commercially sensitive material, it does not seem to me it is likely to adversely affect the plaintiff's commercial competitiveness.

15. Moreover, most of the information is of historical interest only.  It cuts out in January 2012.  The document does not disclose what is being spent now or how it is being spent.  The fees received in July of 2005 and the expenditure for that month really can be of no commercial interest to the first defendant.  I would accept, as the records move forward from 2005 to 2012, the material becomes progressively more sensitive and perhaps potentially more useful to the first defendant.  But in the overall, I am not satisfied refusing inspection of this document would be justified.

16. Document 113 contains the profit and loss statements between June 2006 and June 2011.  Clearly it is sensitive information, but it is difficult to see how disclosure of this material could offer to the first defendant a commercial advantage.  What the document shows is the total income for each of the years in question.  It shows the total cost of sales and the gross margin.  It does not offer a store by store breakdown - in fact, it shows no detail of how the total income was acquired and how the total cost of sales was calculated.  The expenses are stated in only the most general terms.  If the first defendant sees these figures, he may despair; or have a feeling of quiet satisfaction.  But it is difficult to see how access to these figures will either provide him with a commercial advantage or in some way undermine the plaintiff's business.  While again the significance of the figures increases as the information provided moves closer to the present, it does not seem to me disclosure of this document will adversely affect the plaintiff.

17. Finally, there is document 114, being the turnover for the WA stores between July 2005 and June 2011.  This document shows the turnover for each of the subject stores.  Some stores which were trading in 2005 ‑ 2006 obviously ceased trading for the rest of the period.  Some stores only started in the last period covered.  Most stores traded for the whole period.  The figures show what they earned.  It does not show the costs associated with each store.  Nor does it show the profitability of each store.  What is on offer is the gross income for each of the stores in Western Australia.

18. It is not difficult to imagine the use which might be made of this information by a competitor.  By looking at what is earned by a particular store, the competitor can ascertain what areas provide heavy turnover.  That may attract a business rival to set up in that area. Doubtless any business setting up in a particular area would assess what income might be earned as part of its business plan.  It is not difficult to see how the commercial position of the plaintiff could be undermined.

19. In the end, determination of the matters in issue in this case requires an assessment of what is in the interests of justice.  As Corboy J has pointed out in Minetec Pty Ltd v Frost [2011] WASC 145, to talk of one party having the onus of establishing either the right to inspect documents or the right to keep them confidential is unhelpful. It is a balancing exercise. In this case, particularly with respect to document 114, the position is finely balance.

20. In the end, I am satisfied it is in the interests of justice that the first defendant have access to these documents.  The first defendant, having extensive experience in the video business, should be in a position to ensure any expert report upon which he intends to rely conforms with his opinions.  The position might be different if the documents were to go to an expert in a field where the party had no expertise.  In that event it would be necessary to rely upon the opinion of the expert, with there being little or no need for the input of laypersons.  But that is not the case here, and the first defendant should be entitled to run his case in the way he sees fit.

21. Further, while I accept each of the three documents is commercially sensitive, I am not satisfied the potential is there for the first defendant, on seeing the documents, to undermine the plaintiff's commercial position..  Even with respect to document 114, I am not satisfied the risks are so great as to warrant refusing the first defendant leave to inspect the documents.

22. During the course of his submissions, counsel for the plaintiff did suggest any order denying the first defendant the right to inspect the discovered documents could be reviewed later in the proceedings.  I have considered that as a possibility.  It seems to me, in all the circumstances, to be impractical. This case has reached the point where an exchange of expert evidence ought take place.  The first defendant will need to instruct an expert or to decide, based upon the first defendant's personal view of the expert report, not to present any expert evidence.  A decision now on the first defendant's right to inspect the documents is required.  It cannot be delayed.

23. On balance then, I am satisfied the first defendant should be permitted an unrestricted right to inspect the three documents in question.  Of course, the implied undertaking as to confidentiality remains, and doubtless the implications of that undertaking will be carefully explained to the first defendant by his solicitors.

24. The costs of this application should be reserved to the trial judge.