Fortescue Limited v Element Zero Pty Limited (No 2) - [2024] FCA 1157

FEDERAL COURT OF AUSTRALIA
Fortescue Limited v Element Zero Pty Limited (No 2) [2024] FCA 1157

File number: NSD 527 of 2024

Judgment of: MARKOVIC J

Date of judgment: 4 October 2024

Catchwords: PRACTICE AND PROCEDURE – application to set aside ex parte search orders made by the duty judge – whether the applicants overstated and misrepresented to the duty judge the strength of the applicant’s prima facie case – whether, on the evidence, there was no real risk of destruction of documents – whether there was a material non‑disclosure by the applicants in seeking the search orders – whether the Court should exercise its discretion to set aside the search orders where there has been a material non-disclosure – whether the applicants’ surveillance of the respondents prior to obtaining the search orders was excessive – whether the form and scope of the search orders was inappropriately broad and resulted in excessive capture of the relevant respondents’ information – application dismissed

Legislation: Federal Court Rules 2011 (Cth) r 7.42, r 7.43

Cases cited:
Addison Wesley Longman Australia Pty Ltd v Kopystop Pty Ltd [2004] FCA 1518

Anton Piller KG v Manufacturing Processes Limited [1976] 1 All ER 779

Aristocrat Technologies Australia Pty Ltd v Global Gaming Pty Limited [2006] FCA 862

Austress Freyssinet Pty Ltd v Joseph [2006] NSWSC 77

Brags Electrics Pty Ltd trading as Inscope Building Technologies v Gregory [2010] NSWSC 1205

Brink’s-MAT Ltd v Elcombe [1988] 3 All ER 188

Dunlop Holdings Ltd v Staravia Ltd [1982] Comm LR 3

Fine China Capital Investment Limited v Qi (No 2) [2023] FCA 1059

In the matter of Bakers Extra Pty Ltd [2017] NSWSC 1257

Indicii Salus Ltd v Chandrasekaran [2007] EWHC 406 (Ch)

Liberty Financial Pty Ltd v Scott [2002] FCA 345

Long v Specifier Publications Pty Ltd (1998) 44 NSWLR 545

Macquarie Holdings (NSW)Pty Ltd v Maharaj [2019] NSWSC 811

Naidenov, in the matter of 30 Denham Pty Ltd (in liq) [2023] FCA 134

Savcor Pty Ltd v Cathodic Protection International Aps (2005) 12 VR 639

Singtel Optus Pty Limited v Almad Pty Limited [2011] NSWSC 492

Thomas A Edison Ltd v Bullock (1912) 15 CLR 679

Tugushev v Orlov [2019] EWHC 2031

Walter Rau Neusser Oel Und Fett AG v Cross Pacific Trading Ltd [2005] FCA 955

Division: General Division

Registry: New South Wales

National Practice Area: Commercial and Corporations

Sub-area: Commercial Contracts, Banking, Finance and Insurance

Number of paragraphs: 273

Date of hearing: 19-20 August 2024

Counsel for the Applicants: Mr J S Cooke SC, Mr D B Larish, Mr W H Wu and Ms S K Yates

Solicitor for the Applicants: Davies Collison Cave Law

Counsel for the First, Second and Fourth Respondents: Mr D Studdy SC and Mr C D McMeniman

Solicitor for the First, Second and Fourth Respondents: Gilbert + Tobin

Counsel for the Third Respondent: Ms F St John

Solicitor for the Third Respondent: Minter Ellison

ORDERS

NSD 527 of 2024

BETWEEN:
FORTESCUE LIMITED ACN 002 594 872

First Applicant

FORTESCUE…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2024] FCA 1157
Decision Date: 4 October 2024

CaseChat Overview and Summary

In the matter of Fortescue Limited v Element Zero Pty Limited (No 2), the applicants sought an order to set aside ex parte search orders previously granted by the Court. The respondents argued that the search orders should be set aside due to various perceived irregularities in the application process. The primary legal issues before the Court were whether the applicants had overstated the strength of their prima facie case, whether there was a material non-disclosure, and whether the surveillance conducted by the applicants was excessive. Additionally, the Court considered whether the scope of the search orders was appropriately broad and if it had led to an excessive capture of the respondents’ information.

The Court found that Fortescue had not overstated the strength of its prima facie case, and there was no real risk of document destruction. The Court further determined that there was no material non-disclosure by Fortescue, and the surveillance was not excessive. However, the Court recognised that the form and scope of the search orders were broad, which resulted in the capture of a significant amount of information. Despite this, the Court decided to dismiss the application to set aside the search orders. The Court reasoned that it would supervise the next steps in the proceedings to ensure that the volume of material reviewed was managed effectively. The Court also agreed to discharge certain orders as they were no longer necessary and would not make any order as to costs against or in favour of Dr Winther-Jensen due to his limited involvement in the matter.

In summary, the Court dismissed the application to set aside the search orders and determined that the respondents should pay Fortescue’s costs of the interlocutory application. The Court also discharged certain orders and scheduled a case management hearing for October 2024. The reasons for judgment were to be published with any necessary redactions in accordance with existing orders.

Orders

Orders of the court

1. The interlocutory application filed by the first, second and fourth respondents on 21 June 2024 is dismissed.

2. The first, second and fourth respondents are to pay the applicants’ costs of the interlocutory application.

3. Order 22(b) and Order 23 of the Orders made on 14 May 2024 be vacated.

4. The text of the reasons for judgment published today is to be published and disclosed only to the parties and their legal advisors.

5. By midday AEDT on 9 October 2024 the parties are to confer and to inform the Associate to Markovic J of any redactions that they propose are to be made to the reasons as a result of and in accordance with orders made to date in this proceeding pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth).

6. The proceeding be listed for case management hearing on 23 October 2024 at 9.30 am AEDT.

THE COURT NOTES THAT:

7. The reasons for judgment will be published on 11 October 2024 at midday AEDT and any redactions made in the reasons are made in accordance with the orders made to date in this proceeding pursuant to s 37AF of the Act.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The EZ respondents’ concern about the potential volume of material that will need to be reviewed for relevance, privilege and confidentiality is allayed by the fact that the Court will supervise and keep a tight rein on next steps including, but not limited to, the search terms used, the volume of material returned when search terms are applied and the categories of discovery. There is no need for the EZ respondents, Dr Winther-Jensen or their respective solicitors to review a copy of all of the material seized pursuant to the search orders. Further, access to all of the material seized by Fortescue would only be granted in limited circumstances, for example if questions arise as to the adequacy of discovery: see Rauland Australia Pty Ltd v Johnson (No 2) [2019] FCA 1175 at [55]. While it is premature to consider whether such a step might be required, I note that if it was, it too would be subject to the Court’s supervision.CONCLUSION For those reasons, the Discharge Application should be dismissed. As they have been unsuccessful, the EZ respondents should pay Fortescue’s costs of the Discharge Application. Given his limited role, I will not make any order as to costs either against or in favour of Dr Winther-Jensen. In oral submissions senior counsel for Fortescue, without admission, informed the Court that Orders 22(b) and 23 made on 14 May 2024 (as part of the search orders) could be discharged. He said that they are the only remaining in futuro orders and, as the likely next step will be orders for discovery, compliance with those orders makes no practical sense. I agree and will make an order discharging those orders. The proceeding will otherwise be listed for case management hearing on 23 October 2024 at 9.30 am AEDT. I will make orders accordingly.

Ratio Decidendi

Legal Principle Established

Before proceeding further, it is convenient to set out a summary of Fortescue’s claim. In short, Fortescue alleges that the respondents engaged in misuse of confidential information, breaches of the Corporations Act 2001 (Cth), copyright infringement, breach of contract and misleading or deceptive conduct. More particularly in the SoC, which was the form of the pleading before the Court at the time the search orders were made, Fortescue alleges in summary that:(1)while employed by Fortescue as chief scientist and technology development lead respectively, Drs Kolodziejczyk and Winther-Jensen undertook confidential research and development work into a particular direct electrochemical reduction process utilising, among other things, an ionic liquid electrolyte (Ionic Liquid R&D). While undertaking this work, they created the Fortescue Process CI, also referred to as Ionic Liquid R&D Information;(2)before their employment with Fortescue ended in November 2021 and without Fortescue’s knowledge or permission, Drs Kolodziejczyk and Winther-Jensen took the Fortescue Process CI and took steps to ensure that the Fortescue Process CI was not available to Fortescue;(3)further, before leaving Fortescue and without its knowledge or permission, Drs Kolodziejczyk and Winther-Jensen took documents containing confidential information useful in the design, engineering, construction, operation and/or feasibility of a green iron pilot plant (Fortescue Plant CI);(4)the Fortescue Process CI and Fortescue Plant CI is confidential information belonging to Fortescue;(5)Element Zero was incorporated in December 2022. Its founding directors, each owning either directly or indirectly a third of Element Zero’s ordinary shares, are Dr Kolodziejczyk, who is also its chief technical officer, Dr Winther-Jensen, who was a director until January 2024, and Mr Masterman who is also its CEO. Dr Winther-Jensen reported to Mr Masterman at Fortescue for part of 2021 and Mr Masterman was a Fortescue director for part of 2022;(6)the respondents have commercialised and used an electrochemical reduction process which includes utilising an ionic liquid electrolyte (EZ Process) and designed, engineered, constructed, and operated a green iron pilot plant (EZ Plant) which implements the EZ Process; and(7)the respondents misused:(a)the Fortescue Process CI in commercialising and using the EZ Process;(b)the Fortescue Process CI and Fortescue Plant CI in designing, engineering, constructing and operating the EZ Plant; and(c)the Fortescue Process CI and Fortescue Plant CI in inventing, preparing and filing patent applications in Element Zero’s name (EZ Patent Applications). The amendments made to the SoC, and reflected in the ASoC, do not materially change Fortescue’s case as summarised above.THE DISCHARGE APPLICATION The EZ respondents contend that the orders sought in the Discharge Application should be made and the search orders set aside or varied for the following reasons:(1)Fortescue’s prima facie case was overstated and misrepresented to the duty judge who granted the search orders;(2)on the evidence, there was no real risk of destruction of documents;(3)there was material non-disclosure by Fortescue when seeking the search orders;(4)Fortescue undertook excessive and unnecessarily intrusive surveillance of the respondents, which it deployed in evidence on the ex parte application; and(5)the form and scope of the search orders was inappropriately broad and resulted in excessive capture of the EZ respondents’ information.

File number:	NSD 527 of 2024
Judgment of:	MARKOVIC J
Date of judgment:	4 October 2024
Catchwords:	PRACTICE AND PROCEDURE – application to set aside ex parte search orders made by the duty judge – whether the applicants overstated and misrepresented to the duty judge the strength of the applicant’s prima facie case – whether, on the evidence, there was no real risk of destruction of documents – whether there was a material non‑disclosure by the applicants in seeking the search orders – whether the Court should exercise its discretion to set aside the search orders where there has been a material non-disclosure – whether the applicants’ surveillance of the respondents prior to obtaining the search orders was excessive – whether the form and scope of the search orders was inappropriately broad and resulted in excessive capture of the relevant respondents’ information – application dismissed
Legislation:	Federal Court Rules 2011 (Cth) r 7.42, r 7.43
Cases cited:	Addison Wesley Longman Australia Pty Ltd v Kopystop Pty Ltd [2004] FCA 1518 Anton Piller KG v Manufacturing Processes Limited [1976] 1 All ER 779 Aristocrat Technologies Australia Pty Ltd v Global Gaming Pty Limited [2006] FCA 862 Austress Freyssinet Pty Ltd v Joseph [2006] NSWSC 77 Brags Electrics Pty Ltd trading as Inscope Building Technologies v Gregory [2010] NSWSC 1205 Brink’s-MAT Ltd v Elcombe [1988] 3 All ER 188 Dunlop Holdings Ltd v Staravia Ltd [1982] Comm LR 3 Fine China Capital Investment Limited v Qi (No 2) [2023] FCA 1059 In the matter of Bakers Extra Pty Ltd [2017] NSWSC 1257 Indicii Salus Ltd v Chandrasekaran [2007] EWHC 406 (Ch) Liberty Financial Pty Ltd v Scott [2002] FCA 345 Long v Specifier Publications Pty Ltd (1998) 44 NSWLR 545 Macquarie Holdings (NSW)Pty Ltd v Maharaj [2019] NSWSC 811 Naidenov, in the matter of 30 Denham Pty Ltd (in liq) [2023] FCA 134 Savcor Pty Ltd v Cathodic Protection International Aps (2005) 12 VR 639 Singtel Optus Pty Limited v Almad Pty Limited [2011] NSWSC 492 Thomas A Edison Ltd v Bullock (1912) 15 CLR 679 Tugushev v Orlov [2019] EWHC 2031 Walter Rau Neusser Oel Und Fett AG v Cross Pacific Trading Ltd [2005] FCA 955
Division:	General Division
Registry:	New South Wales
National Practice Area:	Commercial and Corporations
Sub-area:	Commercial Contracts, Banking, Finance and Insurance
Number of paragraphs:	273
Date of hearing:	19-20 August 2024
Counsel for the Applicants:	Mr J S Cooke SC, Mr D B Larish, Mr W H Wu and Ms S K Yates
Solicitor for the Applicants:	Davies Collison Cave Law
Counsel for the First, Second and Fourth Respondents:	Mr D Studdy SC and Mr C D McMeniman
Solicitor for the First, Second and Fourth Respondents:	Gilbert + Tobin
Counsel for the Third Respondent:	Ms F St John
Solicitor for the Third Respondent:	Minter Ellison