Forty Two International Pty Ltd v Barnes
[2010] FCA 397
FEDERAL COURT OF AUSTRALIA
Forty Two International Pty Limited v Barnes [2010] FCA 397
Citation: Forty Two International Pty Limited v Barnes [2010] FCA 397 Parties: FORTY TWO INTERNATIONAL PTY LIMITED ACN 095 622 889 and BLUEFREEWAY LIMITED ACN 122 262 819 v KIM BARNES and LEE HAWKSLEY File number: NSD 2018 of 2008 Judge: YATES J Date of judgment: 30 APRIL 2010 Catchwords: PRACTICE AND PROCEDURE – application to stay or dismiss the proceeding as an abuse of process – whether the proceeding was commenced on the basis of documents produced by the respondents in answer to subpoenas issued in a separate proceeding in the court and on information derived from the production by them of those documents – whether the use of the documents and information in the present proceeding was in breach of an obligation to the court, imposed by law, to use the documents and information only in and for the purposes of the other proceeding – relevant principles discussed – whether the applicants are relieved from such obligation by operation of O 15 r 18 FCR – whether the contents of the documents were disclosed within the meaning of O 15 r 18 FCR – whether O 15 r 18 FCR has an ambulatory operation – whether leave can be granted retrospectively to use the documents and information in and for the purposes of this proceeding – whether leave should be granted
HELD: Leave should be granted nunc pro tunc to use the documents and information in and for the purposes of this proceeding
PRACTICE AND PROCEDURE – application to stay or dismiss the proceeding as an abuse of process – whether the proceeding commenced for the collateral and improper purpose of intimidating or harassing the respondents as potential witnesses in another proceeding in the court and assisting the applicants as party respondents in that other proceeding
HELD: Relief refused – the proceeding was not commenced solely or substantially for the collateral and improper purpose alleged
PRACTICE AND PROCEDURE – whether the statement of claim should be struck out pursuant to O 11 r 16 FCR
HELD: The statement of claim should be struck out in part
PRACTICE AND PROCEDURE – whether leave should be granted to file an amended application and an amended statement of claim substantially in the form proposed by the applicants.
HELD: Leave refused
Legislation: Copyright Act 1968 (Cth), ss 36(1), 43(1), 43(2), 104, 115(3), 116(2)(a) and 116(2)(b)
Corporations Act 2001 (Cth) ss 181, 182 and 183Civil Procedure Rules 1998 (United Kingdom), r 31.22(1)
Federal Court Rules, O 11 r 16, O 15 r 18, O 20 r 5Cases cited: Ainsworth v Hanrahan (1991) 25 NSWLR 155
Alister v The Queen (1984) 154 CLR 404
Alterskye v Scott [1948] 1 All ER 469
Arnold Mann v Medical Defence Union Ltd [1997] FCA 45
Australian Rugby Union Ltd v Hospitality Group Pty Ltd [1999] FCA 1136
Campaign Master (UK) Limited v Forty Two International Pty Ltd (No 4) [2010] FCA 398
Central Queensland Cement Pty Ltd v Hardy [1989] 2 Qd R 509
Chapmans Ltd v Australian Stock Exchange Ltd (unreported, Tamberlin J, 25 August 1995)
Complete Technology Pty Ltd v Toshiba (Australia) Pty Ltd (1994) 53 FCR 125
Crest Homes Plc v Marks [1987] 1 AC 829
Distillers Co (Biochemicals) Ltd v Times Newspapers Ltd [1975] QB 613
Eckert v National Australia Bank Ltd (unreported, Supreme Court of South Australia, Doyle CJ, 17 April 1997)
Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10
Fina Research SA v Halliburton Energy Services Inc [2002] FCA 1281
Grocon Ltd v Alucraft Pty Ltd (in liq) (1992) 10 ACLC 1127
Hamersley Iron Pty Ltd v Lovell (1998) 19 WAR 316
Harman v Secretary of State for the Home Department [1983] 1 AC 280
Hearne v Street (2008) 235 CLR 125
Holpitt Pty Ltd v Varimu Pty Ltd (1991) 29 FCR 576
Hopkinson v Lord Burghley (1867) LR 2 Ch App 447
K & S Corporation Ltd v Number 1 Betting Shop Ltd (2005) 240 LSJS 398; [2005] SASC 228
Kimberley Mineral Holdings Ltd (In Liq) v McEwan [1980] 1 NSWLR 210
King v AG Australia Holdings Ltd (2002) 121 FCR 480
Liberty Funding Pty Ltd v Phoenix Capital Ltd (2005) 218 ALR 283; [2005] FCAFC 3
Miller v Scorey [1996] 1 WLR 1122
Prudential Assurance Co Ltd v Fountain Page Ltd [1991] 1 WLR 756
Registrar of theSupreme Court, Equity Division v McPherson [1980] 1 NSWLR 688
Richardson v Hastings (1844) 7 Beav 354
Riddick v Thames Board Mills Ltd [1977] QB 881
Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217
Sweetman v Australian Thoroughbred Finance Pty Ltd (unreported, Lockhart J, 23 July 1992)
Welfare v Birdon Sands Pty Ltd (1997) 79 FCR 220Dates of hearing: 17 December 2009, 5, 18 February 2010 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 138 Counsel for the Applicants: Mr J M Ireland QC and Mr J S Cooke Solicitor for the Applicants: Argyle Lawyers Counsel for the Respondents: Mr R Dubler SC and Ms R C A Higgins Solicitor for the Respondents: Herbert Geer
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 2018 of 2008
BETWEEN: FORTY TWO INTERNATIONAL PTY LIMITED
ACN 095 622 889
First ApplicantBLUEFREEWAY LIMITED ACN 122 262 819
Second ApplicantAND: KIM BARNES
First RespondentLEE HAWKSLEY
Second Respondent
JUDGE:
YATES J
DATE OF ORDER:
30 APRIL 2010
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.Within seven days the parties are to endeavour to agree on the form of orders giving effect to these reasons. If agreement cannot be reached within that time, the parties are to re-list the proceeding at the earliest possible time by arrangement with my Associate.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 2018 of 2008
BETWEEN: FORTY TWO INTERNATIONAL PTY LIMITED
ACN 095 622 889
First ApplicantBLUEFREEWAY LIMITED ACN 122 262 819
Second ApplicantAND: KIM BARNES
First RespondentLEE HAWKSLEY
Second Respondent
JUDGE:
YATES J
DATE:
30 APRIL 2010
PLACE:
SYDNEY
REASONS FOR JUDGMENT
INTRODUCTION
There are presently two motions in this proceeding that are before the court for determination.
By notice of motion filed on 19 November 2009 (the applicants’ motion) the applicants seek leave to join an additional applicant as well as leave to file an amended application and an amended statement of claim substantially in the form of the annexures to the notice of motion. Substantially, those amendments seek to introduce new claims for relief based on new causes of action to be pleaded against the respondents.
By notice of motion filed on 4 December 2009 (the respondents’ motion) the respondents seek orders pursuant to O 20 r 5 that the proceeding be stayed or dismissed as an abuse of process. They also seek orders pursuant to O 11 r 16 that the statement of claim be struck out on the basis that it discloses no reasonable cause of action, has a tendency to cause prejudice, embarrassment or delay, and is otherwise an abuse of the process of the court.
The respondents have advanced two grounds for the relief that they seek pursuant to O 20 r 5.
First, they contend that the proceeding was commenced on the basis of information used in breach of an implied obligation to the court. Specifically they contend that the foundation for the causes of action, as presently pleaded, is information obtained from documents produced by the respondents in answer to subpoenas in identical terms addressed to them respectively (the CM(UK) subpoena) that were issued on 22 October 2008 in proceeding number NSD 651 of 2008 (the 651 proceeding) at the request of the applicant in that proceeding, Campaign Master (UK) Limited (CM(UK)). The applicants in the present proceeding are respondents in the 651 proceeding. The respondents in this proceeding contend that the applicants (as respondents in the 651 proceeding) were under an implied obligation not to use those documents for any purpose other than in and for the purposes of the 651 proceeding.
Secondly, the respondents contend that this proceeding was commenced solely or substantially for the collateral and improper purpose of intimidating or harassing the respondents and assisting the applicants, as respondents in the 651 proceeding, in the prosecution of their defence in that proceeding.
As to the relief sought pursuant to O 11 r 16, the respondents contend that the pleading of the statement of claim is deficient in a number of respects, which I will identify later in these reasons.
The applicants and respondents are also parties to a motion filed in the 651 proceeding in which the respondents (although not parties in the 651 proceeding itself) seek an order setting aside a subpoena issued in that proceeding (the NAB subpoena) and an order setting aside an order made on 23 September 2009 in that proceeding granting leave to the applicants to use the documents produced in answer to the NAB subpoena in this proceeding. Those documents provide information that has been used to formulate the new claims against the respondents that are, substantially, the subject of the amendments referred to in the applicants’ motion.
On 5 February 2010 I made an order that the three motions be heard together and that evidence read or otherwise received in one motion be evidence taken to be read or otherwise received in the other motions.
I have delivered judgment in respect of the motion filed in the 651 proceeding (Campaign Master (UK) Limited v Forty Two International Pty Ltd (No 4) [2010] FCA 398) at the same time as delivering judgment in respect of the two motions filed in this proceeding.
In relation to the respondents’ motion, I have come to the view that the applicants have used the documents produced in answer to the CM(UK) subpoena and information derived from that production in breach of an implied obligation not to use the documents and information other than in and for the purposes of the 651 proceeding. However, I am of the view that leave should be granted to the applicants nunc pro tunc to use the documents and information for the purposes of this proceeding. In this connection, I am not satisfied that this proceeding was commenced solely or substantially for the collateral and improper purpose of intimidating or harassing the respondents or assisting the applicants, as respondents in the 651 proceeding, in the prosecution of their defence in that proceeding.
I am also of the view that the relief sought pursuant to O 11 r 16 should be granted to a limited extent, but that the applicants should also be given the opportunity to propose amendments to the statement of claim in conformity with these reasons, should the applicants wish to adopt that course.
In relation to the applicants’ motion, I am of the view that leave should not be granted to the applicants to file an amended application and amended statement of claim in the terms of the documents annexed to the applicants’ motion. The proposed statement of claim contains a number of pleading deficiencies, which I discuss later in these reasons. Nevertheless, the applicants should be given the opportunity to propose further amendments in conformity with these reasons to reflect the new causes of action they seek to raise. That opportunity will carry with it leave to join the proposed third applicant.
BACKGROUND
In order to understand the setting for the respondents’ motion in this proceeding it is necessary to refer to and record certain events that occurred in relation to the conduct of the 651 proceeding.
In the 651 proceeding CM(UK) seeks damages and other relief against the present applicants based on representations alleged to have been made by them in contravention of s 52 of the Trade Practices Act 1974 (Cth). The alleged representations relate to (amongst other things) the development and marketing of software known as “Campaign Master”. CM(UK) alleges that, in reliance on these representations, it entered into certain written contracts with the first applicant, namely, a licence agreement and a maintenance and support agreement, both dated 21 May 2007. It alleges a number of breaches of contract, some by the first applicant, others by both the applicants. It also alleges that it has suffered loss or damage arising from these matters. As pleaded, the loss includes the payment of the licence fee under the licence agreement, although this aspect of its claim is no longer pressed by CM(UK).
Each of the respondents was a director of and shareholder in the first applicant. They participated in negotiations with CM(UK) leading to the making of the licence agreement and the maintenance and support agreement.
Under a share purchase agreement dated 24 October 2006 the second applicant purchased the shares held by each of the respondents in the first applicant. The share purchase was completed in December 2006. Under contractual arrangements subsequently associated with the share purchase, the respondents remained directors of the first applicant until 8 November 2007. They ceased their association with the applicants pursuant to the terms of an exit agreement made in October 2007, to which the applicants and respondents (amongst other persons) were parties.
The 651 proceeding was commenced on 9 May 2008.
On 22 October 2008 the CM(UK) subpoena was issued. It was served on each of the respondents. It sought production of the following categories of documents:
1.All documents containing, evidencing or recording meetings, including but not limited to meeting minutes in relation to the negotiation and execution of the Licence Agreement dated 21 May 2007 (“Licence Agreement”) and the Maintenance and Support Agreement dated 21 May 2007 (“Maintenance Agreement”) between the Applicant and the First Respondent in the period from 1 January 2007 to 21 May 2007;
2.All documents containing, evidencing or recording meetings, including but not limited to meeting minutes in relation to the development of the Campaign Master software (“the Software”) from 21 May 2007;
3.All documents containing, evidencing or recording meetings, including but not limited to meeting minutes in relation to the maintenance of the Software from 21 May 2007;
4.All documents containing, evidencing or recording the Respondents expenditure on continuing development of the Software, including development of software enhancements from 21 May 2007;
5.All documents containing, evidencing or recording the development work undertaken on the Software by the Respondents from 21 May 2007, including but not limited to release notes, developer logs, developer time sheets, test plans and schedules;
6.All documents containing, evidencing or recording the Respondents expenditure of the maintenance fees paid by the Applicant to the Respondents as defined in the Maintenance Agreement from 21 May 2007;
7.All documents relating to any reports or assessments prepared by the Respondents which relate to the bugs, issues and defects in the Software and the future development of the Software;
8.All documents relating to the cessation of your employment with the First Respondent;
9.All documents containing, evidencing or recording any bugs or issues with the Software notified to the Respondents by the Applicant and the work undertaken by the Respondents to rectify those bugs or issues;
10.All documents relating to any marketing or cross selling undertaken by the Respondents to assist the Applicant in marketing the Software in the UK and Ireland (“the Territory”);
11.All documents containing, evidencing or recording requests by the Applicant for access to the source code for the Software and the Respondents consideration of those requests;
12.All documents containing, evidencing or recording the Respondents development and marketing of Traction and the “Blu Platform” in the Territory or otherwise.
On 30 October 2008 and 3 November 2008, documents were produced in answer to the CM(UK) subpoena by the first and second respondents respectively. The production of documents included a compact disc embodying a number of electronic reproductions of documents and sound recordings.
Application was made by the applicants’ solicitors on 5 November 2008 that they be granted first access to inspect the documents. The application was acceded to and orders were made to the effect that the applicants be granted first access until close of business on 12 November 2008 to inspect the documents produced by the respondents.
There was correspondence between the applicants’ solicitors and CM(UK)’s solicitors about the contents of the documents that had been produced. By agreement, the time in which the applicants had first access to the documents was extended.
The question of inspection came back before a Registrar of the court on 19 November 2008 at which time orders were made restricting access to documents claimed to be privileged to the applicants and their legal advisers. Directions were also made for the filing and service of a notice of motion to enable the applicants’ claims for privilege to be heard and determined. The applicants and CM(UK) were each represented by counsel instructed by the solicitors for the parties.
The course of the hearing on that day has assumed importance because the applicants contend that the documents produced in answer to the CM(UK) subpoena were referred to in open court in terms that released them from any obligation they owed to the court not to use the documents for any purpose other than the 651 proceeding. Unfortunately there is no transcript of the hearing on that day.
Mr Ng, a solicitor employed by CM(UK)’s solicitors, has made an affidavit deposing to his recollection of the events on that day. The substance of his evidence is that he cannot recall what was said in open court. His recollection is that the hearing was brief and that orders and directions were made as sought in short minutes of order that were handed up.
Mr White, counsel for CM(UK) who appeared on that day, has made an affidavit deposing to his recollection. The substance of his evidence is that he can recall short minutes of order being handed up and the court being informed that the making of those orders was “by consent”. He could not recall whether anything further was said about the orders that were being sought. His recollection is that the hearing was brief and did not include either counsel speaking at length, although he does recall asking the court to direct the applicants to serve an affidavit specifically identifying the documents in respect of which privilege was claimed.
Mr Yamine, a solicitor employed by the former solicitors for the applicants, has made an affidavit deposing to his recollection of the events on that day. He recalled the applicants’ counsel, Mr Cooke, making a number of statements in open court. He gave the following evidence in that regard:
8.There were a number of statements made in open court on 19 November 2008 before the Registrar concerning the documents produced by Messrs Barnes and Hawksley in answer to the subpoenas issued at the request of Campaign Master stating the parties’ respective positions in respect of access to those documents including words to the following effect:
Mr Cooke said: “Mr Barnes and Hawksley were former directors of the respondents. They have produced certain hard-copy documents and telephone recordings contained on compact disks in answer to the subpoenas.
First access to these documents was granted to the respondents. The respondents have inspected those documents. The documents include privileged documents, unlawful recordings and non-privileged documents.
The privileged documents are communications that contain or record legal advice given while Messrs Barnes and Hawksley were directors of Forty Two. The unlawful recordings were recordings of telephone conversations between one or both of Messrs Barnes and Hawksley while there were directors of Forty Two. We are instructed that the recordings were made without the participants’ knowledge or consent.
Elias Yamine, a solicitor in the employ of my instructing solicitor, attended the Registry on 18 November 2008 to separate the privileged documents and recordings into 2 separate envelopes.
The respondents object to the applicant being given access to the privileged documents and unlawful recordings but do not object to the applicant having access to the remainder of the documents.
Various correspondence has been exchanged between the parties to attempt to agree upon appropriate orders for access to these documents. This correspondence is referred to and attached to the letter dated 18 November 2008 sent by the respondents’ solicitors to the Registrar which was copied to the applicant’s solicitor”.
Mr White said: “The applicant is not in a position to indicate whether the respondents’ claim for privilege will be contested. We will want access to the non-privileged documents. We would ask that the respondents provide an affidavit specifically identifying the privileged documents to enable us to assess whether we will contest the claim for privilege.”
Registrar said: “I won’t make that order”.
Mr Yamine annexed to his affidavit a copy of a handwritten note he had made while attending court on that day. The note stands as his record of the hearing, or at least some part of it. The note does not record the substance of the words which Mr Yamine has attributed to Mr Cooke, as set out above. It does record the substance of the words attributed to Mr White and thus confirms that those words were spoken. This fact is also confirmed by Mr White’s evidence.
Mr Yamine was cross-examined on the evidence he gave in this regard, particularly on the absence in his handwritten note of the words he attributed to Mr Cooke. Mr Yamine disagreed with the suggestion that the absence of some record of these words in his note indicated that it was unlikely that all of the dialogue to which he deposed had taken place in court as opposed to, perhaps, on another occasion or another place. Mr Yamine said that he did recall that there were some brief submissions made either before or after the short minutes of order had been handed up. He also said, however, that, because the event was so long ago, he had refreshed his recollection, for the purpose of making his affidavit, by looking at the solicitors’ file which contained correspondence between the parties on the question of inspection and the letter addressed to the Registrar (referred to in the dialogue quoted above). He said that he was able to recollect in general terms what was said by Mr Cooke. He said that he did not seek to record what Mr Cooke had said in open court because he had been heavily involved in the matter and that these matters (that is, the events leading up to the hearing) “were in my mind”.
The correspondence to which Mr Yamine referred is in evidence. That correspondence records the chronology of the access regime in respect of the documents commencing from the orders made on 5 November 2008. It also identifies the existence of categories of documents that were discussed between the parties as being privileged, as being unlawful recordings of telephone conversations, and other documents (in respect of which there was a claim for confidentiality which was, in the course of the correspondence, withdrawn). The letter to the Registrar is illuminating because it records, in one document, the chronology of the access regime from 5 November 2008 to 18 November 2008, the fact that the parties to the proceeding had been unable to resolve the dispute between them as to access, and the fact that the applicants objected to CM(UK) being given access to the allegedly privileged documents and the allegedly unlawful recordings, but not to other documents which fell outside those two categories. The letter also records the fact that the documents were in both electronic and hard copy format.
The following exchange took place in the course of Mr Yamine’s cross-examination:
‑ ‑ ‑ is it fair to say that before you looked at the file, you didn’t have any recollection, or a good recollection, or what would you say before you looked at the file of what happened?‑‑‑Well, no, I had a recollection. It wasn’t a great recollection as to specifically all the matters that were raised at the time, but I had a good recollection because there [sic] was a matter that myself and Mr Petrucco were working on at the time.
Could it be that what you have given as an account of Mr Cook’s submissions to the court was largely coloured by what you have read in the letters, rather than an actual recollection?‑‑‑I would disagree with that.
I accept that details of the events leading up to the hearing on 19 November 2008 were in Mr Yamine’s mind at the time of that hearing. I accept that, more likely than not, his note is not a complete record of all that was said in court on that day because of the details in his mind and that it is likely that something was said by Mr Cooke of a prefatory nature in relation to the short minutes of order that were handed up. However, I cannot be satisfied on the evidence that Mr Cooke said, in substance or effect, the words attributed to him in Mr Yamine’s affidavit. In making this finding I wish to make it clear that I make no criticism of Mr Yamine or the way in which he gave his evidence. I accept that he gave his evidence honestly and to the best of his ability. However, the short hearing on 19 November 2008 – an event which he volunteered was “so long ago” – was a routine appearance and not an event of any particular significance in the life of a practising litigation solicitor. Although he rejected the possibility, it seems to me that, more likely than not, his recollection is not an actual recollection but one affected by his cumulative knowledge of the litigation and by the detail of the correspondence to which he found it necessary to refer before making his affidavit, in particular the letter to the Registrar which effectively brought together the very matters which Mr Yamine attributed as having been said by Mr Cooke. It is certainly possible that the words he attributed to Mr Cooke or similar words, or some part of them, could have been said, but I am not satisfied, on the balance of probabilities, that they were said by Mr Cooke or anyone else in open court on that day.
The matter came before the court again on 21 November, 17 December 2008, and 23 February 2009. The course of the hearing on the last-mentioned day has also assumed importance because, once again, the applicants contend that the documents produced in answer to the CM(UK) subpoena were referred to in open court in terms that released them from any obligation they owed to the court not to use the documents or any information derived from them for any purpose other than the 651 proceeding. In this connection the applicants place particular reliance on the affidavits of Mark Petrucco sworn on 26 November 2008 and 20 February 2009 which had been prepared on behalf of the applicants to be used as evidence in the hearing of the motion (in respect of which directions had been given on 19 November 2008) relating to the continuing dispute between the applicants and CM(UK) about access to the documents produced by the respondents in answer to the CM(UK) subpoena.
In his affidavit sworn on 26 November 2008, Mr Petrucco referred to the fact that the documents produced in answer to the CM(UK) subpoena addressed to the second respondent “were in the form of hard copies of documents and electronic documents contained on a compact disc”. He referred to the fact that the documents produced in answer to the CM(UK) subpoena addressed to the first respondent “were in the form of electronic documents contained on a compact disc”. Mr Petrucco also listed the documents in respect of which a claim for privilege was made. The list included a brief description of the document given in a form that was not intended, by that description, to waive the privilege that was claimed. The description revealed the nature or character of the document and its general subject matter, but not the actual contents of the document. Similarly, Mr Petrucco listed the sound recordings in respect of which a claim for privilege was made or in respect of which access was otherwise sought to be restricted. The description identified the recordings by labels appearing on them. In some cases the description on the labels is cryptic; in other cases the description is more in the form of a brief narrative, which may or may not reveal some part of the content of the recording. I express the matter in this way because neither the documents nor the recordings are in evidence.
In his affidavit sworn 20 February 2009, Mr Petrucco again referred to the documents produced by each of the respondents in answer to the CM(UK) subpoena. Mr Petrucco referred to documents having been segregated and placed in envelopes marked “Privileged”. He referred to “the balance of the documents” (which he designated as “the Non Privileged Documents”). No more explicit description was given of the documents, other than that they were “hard copy documents” or “electronic copies of documents in Microsoft Word or Excel format and sound recordings”.
Significantly, the transcript of the 651 proceeding on 23 February 2009 shows that neither the affidavit of 26 November 2008 nor the affidavit of 20 February 2009 was read in open court. The transcript records the presiding judge mentioning that he had seen a reference in the affidavit of 20 February 2009 to this proceeding having been commenced. This demonstrates no more than the fact that his Honour had looked at that affidavit for the purpose of preparing for the hearing of the motion that had been listed before him. As things turned out the parties (the applicants and CM(UK)) were able to resolve the dispute about access without his Honour having to hear the motion. In the discussions that took place in open court casual and occasional references were made to the two affidavits, but not in any way that could possibly be said to have disclosed the content of the documents or of the sound recordings to which the affidavits related. I should add that neither the documents nor the recordings were exhibited to Mr Petrucco’s affidavits or tendered on that day.
On 23 February 2009 orders were made by consent requiring (amongst other things) copies of certain sound recordings to be made available to certain of CM(UK)’s legal advisers and, in turn, refusing inspection by CM(UK) or its legal advisers of certain other documents and sound recordings.
In the meantime, correspondence had passed between the applicants’ solicitors and each of the respondents. The main items of correspondence that are relevant for present purposes are described in the following paragraphs.
On 19 November 2008 the applicants’ solicitors wrote separately to each of the respondents advising that they had objected to CM(UK) having access to certain documents that had been produced in answer to the CM(UK) subpoena. Two grounds were advanced: first, that some of the documents represented privileged communications because they contained or referred to legal advice given to the applicants; secondly, certain of the documents were unlawful recordings of telephone conversations. The letters also stated that the applicants’ solicitors had been informed by CM(UK)’s counsel that CM(UK)’s solicitors had been in contact with the respondents to discuss the contents of the documents that had been produced. Each letter contained the following:
… We request that you immediately refrain from conducting or participating in any communications with [CM(UK)], [CM(UK)’s] legal representatives or any other person in relation to the contents of the documents produced by you in answer to the subpoena dated 22 October 2008.
Our clients are entitled to inspect, and when necessary protect, all documents which are property of the [applicants]. The documents produced are in your possession as a former director of [the first applicant].
In the event that you fail to comply with this reasonable request, your actions will have significant consequences on our clients including the loss of legal privilege to which they are entitled to rely upon. Further, we are instructed to remind you that as a former director of our client your duties continue notwithstanding the cessation of your directorship with our client, particularly your duty not to improperly use company information to cause it detriment.
Our clients will hold you personally liable for any damage suffered as a result of your conduct.
Prior to sending those letters, the applicants’ solicitors had attended the New South Wales Registry of the court and conducted a review of the documents. That review was sufficient to enable them to identify and separate the documents in respect of which the applicants sought to make claims of privilege.
Each respondent responded in writing. The second respondent’s letter included a denial that he had been contacted by CM(UK)’s solicitors. The first respondent’s letter included a denial that he had discussed the contents of the documents with CM(UK)’s solicitors.
On 25 November 2008 the applicants’ solicitors wrote to the second respondent. Their letter included the following:
Following our inspection of the documents produced by you in answer to the [CM(UK) subpoena], you appear to have been in possession of our client’s company records. We are instructed as follows:
1.Please make immediate arrangements to return any other documents that are in your possession that belong to [the first applicant].
2.In relation to our client’s documents, you are not permitted to disclose to any person besides our client or by order of the Court the documents or the contents of the documents that you produced in answer to the subpoena (and any other company documents that are in your possession) as they confidential [sic] and/or are privileged.
On the same day the second respondent replied in writing. His letter included the following:
Also, I am happy to comply with your additional request to return documents that you believe to be the property of your client that I am not entitled to possess copies of. Perhaps you’d be kind enough to provide me with a list of documents, or at least the criteria upon which the documents should be tested to ascertain whether they need to be returned.
On 12 December 2008 the applicants’ solicitors wrote separately to each of the respondents. Each letter included the following:
We have now completed a detailed review of the documents produced in answer to the subpoena issued to you by [CM(UK)] and it is clear that the documents contain material that our clients are entitled to claim legal professional privilege and which are confidential to our clients.
As a previous director of [the first applicant], you continue to owe obligations of fidelity and confidentiality to [the first applicant].
The documents produced in answer to the subpoena issued to you by [CM(UK)] are patently privileged and confidential. Accordingly, we are instructed to request that by 6:00pm today (Friday 12 December 2008) you:
1.return all copies (electronic or otherwise) of the records of [the first applicant] that are in your possession; and
2.provide to us your written undertaking that you will immediately refrain from disclosing or discussing the documents or the contents thereof to any person.
In the event that you fail to comply with this reasonable request, we are instructed to file an application against you at the Federal Court of Australia on Monday 15 December 2008 seeking orders for the delivery up of the records of [the first applicant] that are in your possession and restraining you from disclosing the records or discussing the contents of the records to any person.
The second respondent replied in writing on 12 December 2008. His letter included the following:
During the course of next week I will send you a disk containing all of the copies of documents relating to [the first applicant] that I have. If you can highlight which documents you have a problem with and explain why I should not be in possession of them I will gladly review your comments with appropriate legal advice.
I should point out that none of the documents in my possession are originals, none of them are of commercial value and there is nothing in any agreement between myself and your client forbidding my possession of them.
The first respondent replied in writing on 13 December 2008. His letter included the following:
Your letter indicates that you have reviewed the documents I supplied to the court in answer to the subpoena issued to me. These are all the documents relating to [the first applicant] that I have in my possession. I do not understand from your letter which of these documents you believe infringe your clients’ rights.
Whilst not admitting any document breaches your clients’ rights it is equally clear that there can be no argument that not all of the documents either breach your clients’ legal professional privilege or are confidential. If you can detail by file name which documents you believe infringe your client’s rights and explain why I should not be in possession of them I will consider each on its merits.
I would also make the point that none of the documents in my possession are originals, none of them are of commercial value and the agreement between myself and your clients does not preclude my possession of them.
Thereafter, on 24 December 2008, the present proceeding was commenced by application and statement of claim.
In their statement of claim the applicants allege that on or prior to 8 November 2007 the respondents made copies of documents and sound recordings of telephone conversations between the respondents and third parties, including lawyers. The applicants allege that the respondents made these copies from the computer server maintained by the first applicant for the purposes of its business. The applicants allege that these documents and recordings contain information that is confidential to the first applicant. They allege that the copying of the documents and recordings constituted an infringement of the copyright subsisting therein that is owned by the first applicant, a breach of certain duties owed by each of the respondents to the first applicant (namely, a duty pursuant to s 181 of the Corporations Act 2001 (Cth) to exercise their powers and discharge their duties in good faith and in the best interests of the first applicant and for proper purpose; a duty pursuant to s 182 of the Corporations Act not to improperly use their position to gain an advantage for themselves or someone else or to cause detriment to the first applicant; and a duty pursuant to s 183 of the Corporations Act not to improperly use information obtained as a director, officer or employee of the first applicant to gain an advantage for themselves or someone else or to cause detriment to the first applicant) and a breach of a duty under general law to protect the business confidences of the first applicant. The applicants also allege that the making of the copies constituted a breach of an express warranty in the share purchase agreement that neither of the respondents would use or disclose to any third party any trade secret, product information or confidential information of the first applicant not generally known or available in the marketplace or which would not be generally known or available in the marketplace but for a breach of that term.
The application and statement of claim were served on the respondents on 6 January 2009.
The first directions hearing in this proceeding was held on 16 February 2009. Directions were made for the filing and service of any notice of motion for interlocutory relief to be sought by the applicants and any motion for security for costs to be sought by the respondents, as well as ancillary directions.
By letter dated 18 February 2009 the respondents’ solicitors proposed a settlement whereby the proceeding would be dismissed upon the giving of certain undertakings to the court which included separate undertakings being given by the respondents relating to the delivery to the applicants’ solicitors of certain original and copy documents and sound recordings; the permanent deletion of electronic copies of documents and sound recordings held by the respondents; the giving of notice to the applicants’ solicitors of the identity and addresses of persons to whom the documents and sound recordings had been disclosed by the respondents, including details of the disclosure; and, subject to certain exceptions, the non-disclosure of the contents of the documents and sound recordings without the consent of the applicants.
This proposal was apparently rejected. By letter dated 25 February 2009 the applicants’ solicitors proposed an interim regime in relation to the delivery and non-disclosure of documents and sound recordings by the respondents, to obviate the need for the applicants to pursue their foreshadowed application for interlocutory relief. This proposal was rejected by the respondents’ solicitors in a letter dated 27 February 2009.
Nothing further happened in relation to the applicants’ foreshadowed claim for interlocutory relief. In cross-examination, Mr Petrucco was questioned about why no such application was pursued. He said that this proceeding “went into abeyance” pending the outcome of the 651 proceeding which he said, by that date, had received a listing for final hearing. He also said that, in the 651 proceeding, a regime had by then been agreed with respect to documents produced under the CM(UK) subpoena. I assume this to have been a reference to the orders made on 23 February 2009 in the 651 proceeding. Mr Petrucco accepted that nothing in this explanation involved any restraint on the respondents’ use of the documents.
It was also put to Mr Petrucco in the course of this part of his cross-examination that this proceeding had been commenced to “put pressure on the respondents” and that the application for interlocutory relief had been foreshadowed to deter them from being witnesses in the 651 proceeding. He denied both suggestions and said that his instructions had been to protect the applicants’ confidential documents. I accept this evidence.
The next relevant step occurred when the court, on its own motion, re-listed this proceeding for directions on 7 August 2009. On that day orders were made in relation to funds that had been deposited with the court by the applicants as security for costs. Directions were also made for the filing of any defence or reply.
On 28 September 2009 the respondents filed a detailed defence that had been settled by counsel. By that defence they put in issue the ownership and subsistence of the copyrights that had been alleged. The respondents also pleaded specific defences or exceptions to copyright infringement, including in relation to the applicants’ claim for damages and relief for conversion. The respondents admitted the existence of the duties that had been pleaded but denied any breach of those duties. They also denied any breach by them of the share purchase agreement.
On 7 October 2009 the respondents’ solicitors wrote to the applicants’ solicitors seeking particulars of the statement of claim. No answer has been made to that request for particulars.
On 15 October 2009 the applicants’ solicitors wrote to the respondents’ solicitors informing them that they had received instructions to amend the statement of claim to add further claims, including “the taking of an account in respect of the $16 million paid to your clients pursuant to the exit agreement executed in October 2007”. This letter was a presage of the applicants’ motion.
Further correspondence passed between the solicitors for the parties on the question of amendment and other matters.
By letter dated 19 November 2009 (but apparently sent by electronic transmission on 18 November 2009) the respondents’ solicitors raised with the applicants’ solicitors the apparent use of documents provided under the NAB subpoena and the CM(UK) subpoena, for the purpose of this proceeding. This was the first time that these matters had been raised.
In relation to the CM(UK) subpoena, the letter said:
In answer to a subpoena filed 22 October 2008 and served on our clients in proceeding NSD 651 of 2008, our clients produced certain documents to the Court (“the Documents”). Your clients’ access to the Documents would, we assume, have been subject to the implied undertaking. It is obvious that the Documents have been used in order to form the basis of the allegations in the original statement of claim in the Proceedings.
The letter then sought written confirmation that leave of court had been obtained to use the documents in this fashion. This letter was a presage of the respondents’ motion.
The applicants’ solicitors responded in a letter dated 19 November 2009. In relation to the documents produced by the respondents in answer to the CM(UK) subpoena, the letter stated:
Our clients have not made use of the content of the documents produced by your clients in this proceeding but merely the fact that your clients retained those documents once they ceased to be officers of the second applicant.
Our clients’ conduct does not contravene any implied undertaking concerning the production of documents in answer to the subpoena served on your clients by [CM(UK)] in proceedings NSD 651 of 2008. Moreover, your clients have been aware of this for over a year.
It is convenient to deal firstly with the respondents’ motion and then with the applicants’ motion.
THE RESPONDENTS’ MOTION
As I have indicated, the respondents’ motion falls into two parts. The first part deals with the claim that the proceeding be stayed or dismissed as an abuse of process in that it is predicated on the use of documents produced in answer to the CM(UK) subpoena without leave of the court in the 651 proceeding. It also alleges that the proceeding was commenced for an improper purpose. The second part deals essentially with matters concerning the pleading of the applicants’ claims in the statement of claim in its present form.
Abuse of process
It is not in dispute that a document produced pursuant to the compulsory processes of the court is entitled to special protection, such that it may not be used for any purposes other than those related to the litigation in the course and for the purposes of which the document is produced. This obligation is qualified to the extent that it must yield to inconsistent statutory provisions and to the requirements of curial processes in other litigation: Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 at 32-33.
This principle is one of general application. Examples of the application of the principle include: where the document is produced on discovery (Riddick v Thames Board Mills Ltd [1977] QB 881; Distillers Co (Biochemicals) Ltd v Times Newspapers Ltd [1975] QB 613; Harman v Secretary of State for the Home Department [1983] 1 AC 280; Crest Homes Plc v Marks [1987] 1 AC 829; Kimberley Mineral Holdings Ltd (In Liq) v McEwan [1980] 1 NSWLR 210; Arnold Mann v Medical Defence Union Ltd [1997] FCA 45; K & S Corporation Ltd v Number 1 Betting Shop Ltd (2005) 240 LSJS 398; [2005] SASC 228; Hamersley Iron Pty Ltd v Lovell (1998) 19 WAR 316) including where the document is made available in an arbitration as on discovery (Esso); where the document is produced on subpoena (Registrar of theSupreme Court, Equity Division v McPherson [1980] 1 NSWLR 688; Welfare v Birdon Sands Pty Ltd (1997) 79 FCR 220); where answers are provided to interrogatories (Ainsworth v Hanrahan (1991) 25 NSWLR 155); and in respect of witness statements (Central Queensland Cement Pty Ltd v Hardy [1989] 2 Qd R 509; Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217; Complete Technology Pty Ltd v Toshiba (Australia) Pty Ltd (1994) 53 FCR 125 at 132-133).
The principle has been expressed in terms of an implied “undertaking” given to the court. However, as explained in Hearne v Street (2008) 235 CLR 125 in [105]-[108], this characterisation of the obligation is a conceptual artefact having its origins in the historical requirement that the use of documents generated by litigious processes depended on the giving of an express undertaking: Richardson v Hastings (1844) 7 Beav 354; Hopkinson v Lord Burghley (1867) LR 2 Ch App 447. Since at least the decision in Alterskye v Scott [1948] 1 All ER 469, the principle has also been described in terms of an implied “obligation”. The plurality in Hearne characterised the principle as an obligation of substantive law, quoting with approval (in [108]) the observations of Hobhouse J in Prudential Assurance Co Ltd v Fountain Page Ltd [1991] 1 WLR 756 at 764:
The expression of the obligation as an implied undertaking given to the court derives from the historical origin of the principle. It is now in reality a legal obligation which arises by operation of law by virtue of the circumstances under which the relevant person obtained the documents or information.
As the above quote makes clear, the obligation is to be understood as applying to documents and information. In Crest at 854, Lord Oliver said:
It has recently been held by Scott J. in Sybron Corporation v. Barclays Bank Plc. [1985] Ch. 299 – and this must, in my judgment, clearly be right – that the implied undertaking applies not merely to the documents discovered themselves but also to information derived from those documents whether it be embodied in a copy or stored in the mind. But the implied undertaking is one which is given to the court ordering discovery and it is clear and is not disputed by the appellants that it can, in appropriate circumstances, be released or modified by the court.
What lies at the root of the principle involved is the fact that information has been disclosed compulsorily by use of the court’s process. This is, after all, the rationale for the imposition of the obligation with respect to answers to interrogatories and witness statements: Central Queensland Cement at 510-511; Ainsworth at 165. Ainsworth was a proceeding for contempt arising from the use of answers to interrogatories administered in one proceeding in another proceeding for the purpose of cross-examining a witness who had verified the answers to the interrogatories. Handley JA at 169-170 said:
Prior to the Common Law Procedure Act 1854 (Eng) a party to proceedings at law could only obtain general discovery by filing a bill for discovery in the auxiliary jurisdiction of the Court of Chancery. This was a proceeding “for the discovery of facts resting in the knowledge of the defendant, or of deeds, or writings, or other things in his custody, possession, or power, but seeking no relief in consequence of the discovery”: see Story on Equity Jurisprudence, 2nd ed (1839) vol 2 at 1. Accordingly there is no basis either in history or in principle for distinguishing, for the purposes of the law of contempt, between disclosure to third parties of answers to interrogatories and the disclosure of documents obtained on discovery.
In my view, in the case of documents produced in answer to a subpoena, the protection of the obligation extends beyond the documents themselves to information derived from the fact of production, including the fact that the documents are or were in the possession of the person who produced them and the fact that, at least prima facie, the documents are of a description that answers the call of the subpoena.
The obligation restricts not only the disclosure of the documents or information, but also more general instances of use of the documents or information outside the purposes of the proceeding in and for which the documents or information were disclosed. In Springfield application was made to use in one proceeding a witness statement prepared but not used in another proceeding. Wilcox J at 220 observed:
… Counsel for Hongkong Bank mentioned the possibility of calling Mr Preston, using the statement as his evidence in chief. Whether that course will eventually commend itself, I do not know. But, even if Mr Preston is not called by either party, it is possible that the statement will prove useful in opening up avenues of inquiry. Without wishing to predict the most likely form of use, I think it probable that the statement will assist Hongkong Bank in relation to the Aetna claim. No doubt that is why Aetna opposes the order now sought.
Plainly the obligation to the court can be released or modified by leave granted by that court. The scope of the leave may be general or limited, and leave may be granted on terms.
In Crest, Lord Oliver at 860 stated that a court will not release or modify this obligation except in special circumstances. In Liberty Funding Pty Ltd v Phoenix Capital Ltd (2005) 218 ALR 283; [2005] FCAFC 3, a Full Court of this court, following the approach in Springfield, which approved Holpitt Pty Ltd v Varimu Pty Ltd (1991) 29 FCR 576 and Sweetman v Australian Thoroughbred Finance Pty Ltd (unreported, Lockhart J, 23 July 1992), said in [31]:
… It is unnecessary to examine the authorities in this area in any detail. The parties were not in disagreement as to the legal principles. The notion of “special circumstances” does not require that some extraordinary factors must bear on the question before the discretion will be exercised. It is sufficient to say that, in all the circumstances, good reason must be shown why, contrary to the usual position, documents produced or information obtained in one piece of litigation should be used for the advantage of a party in another piece of litigation or for other non-litigious purposes. The discretion is a broad one and all the circumstances of the case must be examined. …
In Springfield at 225, Wilcox J said:
… For “special circumstances” to exist it is enough that there is a special feature of the case which affords a reason for modifying or releasing the undertaking and is not usually present. The matter then becomes one of the proper exercise of the court’s discretion, many factors being relevant. It is neither possible nor desirable to propound an exhaustive list of those factors. But plainly they include the nature of the document, the circumstances under which it came into existence, the attitude of the author of the document and any prejudice the author may sustain, whether the document pre-existed litigation or was created for that purpose and therefore expected to enter the public domain, the nature of the information in the document (in particular whether it contains personal data or commercially sensitive information), the circumstances in which the document came into the hands of the applicant for leave and, perhaps most important of all, the likely contribution of the document to achieving justice in the second proceeding.
In the present case the applicants did not seek the leave of the court to use in this proceeding the documents or information derived from the documents produced in answer to the CM(UK) subpoena. They submit that it was not necessary for them to seek that leave because:
(a)The information obtained by them from the documents produced in answer to the CM(UK) subpoena was their “property”, and therefore their use of it was never restricted in law;
(b)The documents produced in answer to the CM(UK) subpoena were not in any event “used” in a manner which offends the relevant principle or restriction. It was the fact that those documents were retained by the respondents after they ceased their employment with the applicants that was used; and
(c) The implied obligation in relation to the documents produced in answer to the CM(UK) subpoena ceased as a result of the documents being referred to in open court in a manner which disclosed their nature and content pursuant to O 15 r 18.
I reject the submissions in paragraphs (a) and (b).
It is plain from the correspondence between the applicants’ solicitors and the respondents in the period 19 November 2008 to 12 December 2008 that the applicants’ solicitors had given consideration to the documents that had been produced by the respondents in answer to the CM(UK) subpoena. As the cross-examinations of Mr Petrucco and Mr Yamine made clear, that consideration included inspecting the documents and listening to parts of the recordings to an extent that enabled a view to be formed about which documents contained confidential material and which documents contained privileged communications, and about whether the recordings included unlawfully made recordings. That consideration, coupled with the information that the documents had been produced in answer to the CMUK subpoena by the respondents, must have revealed the very information that enabled the applicants, through their legal advisers, to make the claims and demands in their correspondence with each of the respondents and, eventually, to plead the statement of claim. The information included the fact that each of the respondents had possessed documents in the terms described in the CM(UK) subpoena; that those documents were retained by each of the respondents after they ceased holding office with the first respondent; that, on or prior to 8 November 2007, each of the respondents made copies of documents and sound recordings of telephone conversations between the respondents and third parties, including lawyers; that these copies had been made from a computer server maintained by the first applicant for the purpose of its business; that the documents and sound recordings contained information that was confidential to the first applicant; and that the documents and sound recordings were copyright works or other subject matter, in which the first applicant owned the copyright. It was this body of information, and perhaps other information derived from the documents that had been produced, that was deployed by the applicants’ solicitors to direct their correspondence to the respondents and ultimately to file the application and statement of claim commencing the present proceeding against the respondents, who were strangers to the 651 proceeding. This was clearly a use of the documents and of information that had been derived from their production by the respondents under the compulsion of court process (the CM(UK) subpoena) in the 651 proceeding. The dichotomy raised by the applicants in paragraph (b) is a false one and does not provide a reason why leave was not necessary.
In oral argument it was submitted that, independently of the fact that inspection had taken place of the documents produced in answer to the CM(UK) subpoena, the applicants’ solicitors had other information the use of which was not subject to any obligation to the court. In this connection the applicants sought to rely on the correspondence to which I have referred that emanated from the respondents themselves in response to the correspondence from the applicants’ solicitors. It is clear on the evidence, however, that the claims which the applicants’ solicitors commenced to articulate against the respondents from at least 25 November 2008, which subsequently translated into the allegations pleaded in the statement of claim, were based substantially on their inspection of the documents that had been produced and the fact that the respondents had produced them. Moreover, the terms of the CM(UK) subpoena and the fact that documents had been produced by the respondents in answer to that subpoena, was not information that was based on anything the respondents had said in correspondence.
Furthermore, the contention that the information was the “property” of the applicants (a proposition that the applicants did not seek to sustain, in any event, on the hearing of the motions by evidence or elaboration of legal principle), seems to me to miss the point. What lies at the heart of the applicants’ claims as pleaded in the statement of claim is not what the content of the documents reveals about the respondents but the fact that the respondents were or had been in possession of documents having that content (based on the applicants’ solicitors inspection of those documents). It has not been shown by any evidence that, if the CM(UK) subpoena had never been issued, the information which the applicants allege was their “property” would ground the claims now pleaded against the respondents in the statement of claim.
Unless the applicants can point to a circumstance by which they have been released from the obligation imposed upon them relating to the production of documents in answer to the CM(UK) subpoena, their use of the documents and information, as described, will have been in breach of their obligation to the court not to use the documents or information for any purpose other than the 651 proceeding.
The submission in paragraph (c) requires consideration of the terms of O 15 r 18. The rule provides:
Any order or undertaking, whether express or implied, not to use a document for any purpose other than those of the proceedings in which it is disclosed shall cease to apply to such a document after it has been read to or by the Court or referred to, in open Court, in such terms as to disclose its contents unless the Court otherwise orders on the application of a party, or of a person to whom the document belongs.
I will allow the parties an opportunity to be heard on the question of costs in relation to the two motions dealt with in these reasons and the motion dealt with in Campaign Master (UK) Limited v Forty Two International Pty Ltd (No 4) [2010] FCA 398, also published today. That should be done by short written submissions of no more than three pages in length. The respondents should serve their submissions, and provide a copy to my Associate, within 14 days. The applicants should serve their submissions, and provide a copy to my Associate, within 21 days.
The parties should endeavour to agree on the form of orders giving effect to these reasons. If agreement cannot be reached within seven days, the parties are to re-list the matter at the earliest possible time by arrangement with my Associate.
I certify that the preceding one hundred and thirty-eight (138) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates. Associate:
Dated: 30 APRIL 2010
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