Genalysis Laboratory Services Pty Ltd v Wheeler - [2012] WASC 164

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: GENALYSIS LABORATORY SERVICES PTY LTD -v- WHEELER [2012] WASC 164

CORAM: MASTER SANDERSON

HEARD: 26 MARCH 2012

DELIVERED : 22 MAY 2012

FILE NO/S: CIV 3184 of 2011

BETWEEN: GENALYSIS LABORATORY SERVICES PTY LTD
Plaintiff
AND
GARY ANTHONY WHEELER
First Defendant
LEE EDWARD GOUGH
Second Defendant
MINANALYTICAL LABORATORY SERVICES AUSTRALIA PTY LTD
Third Defendant

Catchwords:

Pre-action discovery - Party seeking access to documents which may show cause of action - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA), O 26A r 4

Result:

Discovery ordered

Category: B

Representation:

Counsel:

Plaintiff:     Mr R J Price
First Defendant             :     Mr N D C Dillon
Second Defendant         :     Mr N D C Dillon
Third Defendant           :     Mr N D C Dillon

Solicitors:

Plaintiff:     Allens Arthur Robinson
First Defendant             :     Clifford Chance
Second Defendant         :     Clifford Chance
Third Defendant           :     Clifford Chance

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

Nil

MASTER SANDERSON: This was Genalysis' application for pre‑action discovery. At the commencement of the hearing, counsel for the first and second defendants indicated they would not oppose orders being made against them. The real issue was whether any orders ought be made against the third defendant. At the conclusion of the hearing, I indicated to the parties I was satisfied discovery orders ought be made. However, I was not entirely satisfied the orders proposed by Genalysis were appropriate. I indicated to the parties I would prepare reasons for my decision and in light of those reasons allow further submissions as to the scope of the discovery. These reasons deal with why, in principle, I am satisfied an order for pre‑action discovery ought be made against the third defendant.
Genalysis (Genalysis) runs a large commercial laboratory business that provides analytical testing services to the mining and exploration industries. It says it has confidential information in testing and other methodologies. The third defendant (MinAnalytical) is the owner of a new analytical services laboratory business and is marketing numerous products under a detailed schedule of services that, on Genalysis' evidence, are likely only to be available, in accordance with the 'detection limits' specified by MinAnalytical, if the services are supported by numerous customised methodologies. Genalysis claims MinAnalytical did not have sufficient time to develop such methodologies and does not have a sufficient number of its own methodologies. It suspects it is using confidential information the property of Genalysis.
The first and second defendants are former senior executives of Genalysis. The first defendant resigned from Genalysis in December 2009. His resignation took effect on 17 March 2010. He was the Group Marketing Director. He is now a director of MinAnalytical and has the position of General Manager - Business Development.
The second defendant resigned from Genalysis in March 2010. His resignation took effect on 4 June 2010. At the time of his resignation, he was the general manager of Genalysis. He is now a director of MinAnalytical and has the position of General Manager - Operations.
The application is brought under O 26A r 4 of the Rules of the Supreme Court1971 (WA). The cases reveal there are five aspects which must be considered in such an application. The rule applies if:
(a)a person may have a cause of action against a person whose description has been ascertained (the potential party);
(b)the applicant wants to commence proceedings against the potential party;
(c)the applicant has made reasonable inquiries;
(d)the applicant has not been able to obtain sufficient information to enable a decision to be made as to whether to commence proceedings; and
(e)there are reasonable grounds for believing the potential party had, has, or is likely to have had or to have, possession of documents that may assist in making a decision.
MinAnalytical did not concede Genalysis may have a cause of action against MinAnalytical. Of necessity, Genalysis provided extensive evidence on this question and devoted considerable time to the issue, particularly in written submissions. The evidence and submissions on this issue feed into the other four aspects of the application, and I will deal with the issue in some detail. What follows is largely taken from the written submissions made by Genalysis and which were unchallenged by MinAnalytical.
It is not necessary that an applicant under O 26A r 4 establish a prima facie case for relief. The jurisdictional question is whether there might be a cause of action which could be demonstrated by the provision of the documents sought. The requirement under the rule that the applicant 'may have a cause of action' which could be demonstrated by the provision of the documents sought is satisfied if there is, on the evidence, an objective foundation for that conclusion.
In the present case, the principal cause of action is for a breach of confidence. It is not in dispute that the customised parts of a commercial laboratory methodology are highly sensitive and confidential in nature. A commercial laboratory's customised testing methodologies are an integral part of their business and are a means to set its product apart from its competitors. To demonstrate this proposition, Genalysis filed extensive affidavit material annexing confidential details as to testing methodologies. It was not necessary to refer to any of this affidavit material. Nonetheless, because of its sensitive nature, and without objection from counsel for the defendants, I ordered confidential exhibits to various affidavits be sealed and only opened after an order of the court.
Methodologies developed by Genalysis describe the operating procedures that are prepared, developed and refined by a commercial laboratory and which are then implemented to generate different types of data in respect of geological samples. If methodologies are able to be obtained by another laboratory, it would enable the other laboratory to re‑create the crucial chemical and other processes.
Genalysis says the principal issue is whether it may have a claim against the defendants for possession and/or misuse of its confidential information. Correctly, Genalysis says it is unnecessary for it to demonstrate the elements of a good cause of action. It simply must show 'there might be such a cause of action'.
For their part, the defendants rely on an affidavit of Ronald Johannes Aldagonda Janssen, sworn 31 January 2012. Mr Janssen is the technical manager of MinAnalytical. He says MinAnalytical, to his knowledge, did not use any confidential information the property of Genalysis. Essentially, he says most of the techniques to be employed by MinAnalytical are generic and available in the public domain. Insofar as any technical refinement is required, Mr Janssen says this is being undertaken by MinAnalytical without reliance upon any information the property of Genalysis. Mr Janssen's evidence is direct and to the point - he says on oath Genalysis cannot have a cause of action because the third defendant is not using any of its confidential information. Of course, Mr Janssen's evidence is, to an extent, unchallenged - Genalysis is in no position to respond to what he says.
Mr Janssen's affidavit cannot be the end of the matter. It is a matter of looking at all the circumstances to determine whether there is a basis for a reasonable belief Genalysis might have a claim against MinAnalytical. In weighing up all relevant facts, the evidence must be taken into account. After all, the purpose of the rule is to enable Genalysis to consider the position after gaining access to documents. It is not the purpose of the rule to force a party such as MinAnalytical to make statements designed to provide comfort to a party such as Genalysis.
Genalysis' suspicions are aroused because when it stands back and looks at the situation, it finds circumstantial evidence which, in the aggregate, it says suggests MinAnalytical is using its confidential information. It relies on nine matters. Individually, none may be enough to suggest it may have a cause of action against MinAnalytical. Taken together, Genalysis says the position is overwhelming.
First, it is said employees of MinAnalytical, particularly the first and second defendants, had access to confidential information of Genalysis, including customised methodologies. Further, apart from the first and second defendants, there are, or have been, other former employees of Genalysis working for MinAnalytical. Genalysis also says both the first and second defendants have implicitly conceded each took Genalysis information with them when they terminated their employment - that information being the Genalysis client contact information. It was not put against MinAnalytical the failure to oppose the application by Genalysis against the first and second defendants was further evidence the first and second defendants were in possession of confidential Genalysis information. As counsel for the defendants pointed out, what was sought by way of pre‑action discovery was copies of any documents the property of Genalysis. It would have been difficult to oppose such an application.
Secondly, it was said testing limits are customarily followed, but do not precede methodologies. This requires some further explanation. The process of deriving testing methodologies is clearly a complex one which has obvious objectives. It involves, among other things, the design of apparatus, a research and development programme, development of steps and parameters, testing of many variations, the establishment of a basic protocol and the definition and carrying out of a validation protocol. Mr Janssen, in his affidavit, confirms as much. A laboratory offering a service to clients must be sure the system works and is cost‑effective. Proper results must regularly be achieved. Client confidence in the outcome is essential.
Genalysis says in order to go to the market with detection limits, it is necessary to have confidence in being able to reproduce the testing results on a commercial basis. That requires testing to ensure methodology is reproducible in particular circumstances and conditions of each laboratory. Genalysis says it is not enough to say generic methodologies are available. Some testing must have been done to ensure proper application of these methodologies.
Thirdly, MinAnalytical has been marketing its services, including detailed detection limits, since August 2011. Genalysis says MinAnalytical's schedule of services sets out highly detailed detection limits, including many elite or high limits on a range of products which MinAnalytical offers to clients. This, Genalysis says, suggests utilisation by MinAnalytical in deriving the limits of highly customised methodologies. Genalysis is concerned that MinAnalytical did not develop its own custom methodologies to justify detection limits, but used Genalysis' confidential methodologies to support or derive its limits.
There are two aspects to this concern. First, at the time when MinAnalytical's schedule was first marketed, it (MinAnalytical) had not developed any of its own testing methodologies. This was confirmed in a letter from MinAnalytical's solicitors to Genalysis' solicitors on 21 September 2011. Secondly, Mr Janssen's evidence is MinAnalytical has still not completed its own methodologies other than with respect to fire assay services. Genalysis then poses itself this question: given methodologies have not yet been developed, but quite specific services are being marketed, how can MinAnalytical deliver to clients what it promises? The answer, and the only answer Genalysis can see to the question, is by using its confidentiality information to springboard MinAnalytical's position.
Fourthly, there is an email sent by the second defendant to the first defendant on 13 January 2010. The email contains the word 'Bingo!'. The email attached a draft of Genalysis' four acid digestion method, as well as a work procedure. (The 'four acid digestion method' is a process of geological analysis which Genalysis says it has developed and which is a central aspect of its assaying techniques. It is described in detail in the affidavit material and is of mind‑numbing complexity. The details are not presently relevant.) Genalysis says there was no apparent reason why the first defendant, who had a business development role, would be provided with such confidential information. The email was sent to the first defendant in the period after he had announced his resignation from Genalysis.
In fairness to the first and second defendants, they say the email was sent to allow the first defendant to be sure that Genalysis was making progress with resolving client issues about poor quality and turnaround in relation to the four acid digestion methodology.
It was submitted on behalf of Genalysis the evidence of the first and second defendants raised a number of issues. It is not necessary to deal with these individually. Suffice it to say the sending of the email with the attachment aroused suspicion in Genalysis the first and second defendants were obtaining details of confidentiality information with the intention of making use of that information when they left the employ of Genalysis.
Fifthly, on 5 March 2010, the second defendant sent the first defendant an email without any message attaching other emails which summarised mainly foreign market opportunities for Genalysis. Genalysis says there is no reason why this email should have been sent. Again, the first and second defendants provide an explanation for the email. The fact remains the suspicions of Genalysis have been aroused.
Sixthly, there is what might be described as the 'aluminium block' issue. Genalysis has developed its own highly customised and confidential four acid digestion method using an aluminium block apparatus unique to Genalysis. Its confidential drawing of the aluminium block was sent for construction to the engineering company, Routers, on 9 March 2010. Genalysis says in or about June 2011 Routers was approached by MinAnalytical regarding the manufacture of the same 75 mm thick digest block Genalysis used. Routers refused to be involved with the request. Later, MinAnalytical sent Routers a drawing of a block that was slightly different from the Genalysis block.
In his affidavit, Mr Janssen says MinAnalytical approached Routers for an aluminium block for use in a different technique - an aqua regia digestion method as opposed to the four acid digestion method. Mr Janssen says MinAnalytical has no intention of using an aluminium block for its four acid digestion system.
Once again, Genalysis' suspicions are aroused. It says the drawings for the two blocks are identical. That cannot be coincidence. Furthermore, the email sent by Mr Janssen to Routers described the attachment as 'digest block for four A digest. PDF'. Mr Janssen, in his affidavit, does not explain this description.
Seventhly, Genalysis says there are further issues in relation to the four acid digest. MinAnalytical asserted, by its solicitor's letter of 21 September 2011, that with respect to the four acid digestion testing it proposed 'employing a commercially available automated four acid digestion system' when it commenced operation. Genalysis says that does not accord with Mr Janssen's affidavit. Mr Janssen says MinAnalytical is developing and refining assaying methodologies, processes and systems, including in relation to a four acid digest (par 20).
Eighthly, there is the MinAnalytical website. MinAnalytical's website represented, on 21 September 2011, MinAnalytical was a 'company providing a range of geochemical and precious metal analyses to the mineral exploration and mining industry'. By that website, MinAnalytical represented itself as an actual provider of extensive mineral analysis services and is currently able to carry out the services.
MinAnalytical's evidence is, as at January 2012, its laboratory was still under construction and the only services currently available were from two small instruments set up in demountables.
Essentially, this feeds into Genalysis' suspicions there has not been enough time for MinAnalytical to develop its techniques and the only way it could do so and be commercially viable is to rely on confidential information the property of Genalysis.
Finally, Genalysis refers to representations made to it by the second defendant. In or about October or November 2010, an officer of Genalysis met with the second defendant to ascertain if he would return to employment with Genalysis. At that meeting, the second defendant said he had 'something in the pipeline'. He further indicated if this venture came off, the information would he public in the next few weeks. He said it had 'nothing to do with commercial laboratories'.
The MinAnalytical business which is a joint venture entity was incorporated on 1 November 2010. Genalysis says there must have been preparatory negotiations in dealings before that. By 8 December 2010, the first and second defendants were directors of MinAnalytical. Further, the first defendant discloses he had 'firm plans to continue working in the laboratory business' as early as August or September 2010.
Taken together, I am satisfied that these matters justify a conclusion Genalysis may have a cause of action against MinAnalytical. In reaching that conclusion, I have weighed in the balance the direct evidence of Mr Janssen. I am not suggesting Genalysis has a prima facie case - it is not necessary for Genalysis to reach that standard. Taking into account all matters I have detailed, and even in the face of the evidence of Mr Janssen, I am satisfied Genalysis may have a cause of action against MinAnalytical.
Genalysis says it wants to commence proceedings against MinAnalytical for breach of confidence. This is confirmed in an affidavit of Catherine Ellen MacKenzie, sworn 7 November 2011. Ms MacKenzie is the regional support manager for the holding companies of Genalysis. Ms MacKenzie reaches this conclusion after analysing all the evidence available to her.
It is the defendants' position that Genalysis has already decided to commence proceedings. It is said this is to be inferred from the resources that Genalysis has committed to this application. Further, MinAnalytical says Genalysis already has sufficient information to enable it to decide whether it has a cause of action.
I am satisfied, based on the evidence of Ms MacKenzie, Genalysis does wish to commence proceedings against MinAnalytical. In my view, no inference can be drawn from the resources committed to this discovery application that a decision has already been made. It is difficult to see how this application could have been made without resources being committed; although a great deal of evidence has been lodged, Genalysis could not have prudently adopted any other course. It had to establish the circumstances which justified the making of the order.
Genalysis says it has made all reasonable inquiries to ascertain whether it has a cause of action. In particular, it arranged forensic analysis of its computer system in an attempt to review the email traffic passing between the first and second defendants and others. It was this analysis which uncovered the 'Bingo!' email. However, it had over 2.2 million items of available data and practical limitations meant only a small sample has been reviewed. Genalysis has requested documents from MinAnalytical, but its requests went unanswered.
On 13 December 2011, MinAnalytical's solicitors offered Genalysis' solicitors the opportunity to inspect MinAnalytical's laboratory. At that stage, the laboratory was still under construction. It is not suggested the laboratory was being used or that any inspection would have disclosed what techniques were being employed in the analysis of geological samples.

This point was taken up with some enthusiasm by counsel of MinAnalytical. He submitted if the invitation had been accepted, Genalysis could have satisfied itself of the status of MinAnalytical's preparedness to commence operation and, more particularly, whether MinAnalytical's laboratory and methodologies to be employed had been developed to a point where it was operating. Further, he submitted it would have given Genalysis the opportunity to review the status of the operation in terms of MinAnalytical staff. He suggested there may have been an opportunity for interaction between the inspectors and MinAnalytical staff.
In my view, there would have been no point in Genalysis adopting the offer of inspection. Genalysis understood MinAnalytical's laboratory was in the process of construction. That is all an inspection would have confirmed. There is nothing in the evidence to suggest if the offer had been taken up, Genalysis, through the inspectors, would have been able to watch the techniques being employed by MinAnalytical staff. Even if observation were possible, there is nothing to suggest this would have disclosed the way in which the methodologies were employed and how they had been developed.
In my view, the evidence is clear. Genalysis has made all reasonable inquiries and there is nothing else they could have done. An inspection, as offered by MinAnalytical, of premises still under construction would have served no purpose whatever.
Genalysis says it does not have sufficient knowledge to allow proceedings to be commenced. It has suspicions, and it says the circumstantial evidence is strong, but, particularly in the face of the evidence of Mr Janssen, it does not have sufficient evidence to allow it to proceed.
As I understand MinAnalytical's position, it says the amount of material filed suggests not only Genalysis has enough material proceed, but it (Genalysis) has already decided to proceed. In my view, there is no basis for that conclusion. I am satisfied Genalysis does not have sufficient knowledge of the affairs of MinAnalytical to allow it to proceed. If it obtains access to the documents sought, then a decision can be made.
MinAnalytical concedes it has the relevant documents. That is not an issue between the parties.
Having examined all of the evidence, I was satisfied it was proper to make an order for pre‑action discovery. I am satisfied Genalysis has met each of the requirements of the rule and the making of an order is proper.
Against that background as against MinAnalytical, Genalysis sought the following order:
3.Within 28 days hereof, the third defendant give discovery of all documents (as that term is defined in Order 26 rule 1 A of the Rules) that are or have been in that defendant's possession, custody or power, and being:
(a)Documents created, developed or prepared by or for the third defendant (including any of its officers, employees or related parties) which detail any testing methodology that has been developed or which is being developed by or for the third defendant, including', in respect thereof, documents which constitute, record or reproduce (in part or whole) any of the following:
(i)a testing methodology relating to four acid digestion;
(ii)a testing methodology relating to sodium peroxide fusion;
(iii)a testing methodology relating to aqua regia testing;
(iv)a testing methodology relating to any other sample dissolution process;
(v)draft working documents, and records of testing results or validation results, relating to any methodology described above;
(vi)development of any methodology described above (whether or not the development of the methodology has been completed), including internal and external communications relating to development;
(vii)superseded or archived versions of any methodology described above;
(viii)ancillary work instructions, or production manuals necessary for the performance or development of any methodology described above;
(ix)documents prepared for the purpose of or otherwise in contemplation of NATA accreditation, relating to any methodology described above.
(b)Documents which constitute, record or reproduce any design of a digestor block, being a design prepared by or for the third defendant (including any of its officers, employees or related parties), and any drafts, design drawings or other working documents used in relation to the development of such design.
(c)Documents passing between the third defendant and Routers Australia during the 12 month period prior to the date hereof, relating to the subject of digestor block or blocks including the possible manufacture or supply thereof.
(d)Documents which were or appear to have been created, developed or prepared by or for Genalysis (including any of its officers, employees or related parties) and which constitute, record, or reproduce (in part or whole) any of the following:
(i)a testing methodology relating to four acid digestion;
(ii) a testing methodology relating to sodium peroxide fusion;
(iii)a testing methodology relating to aqua regia testing;
(iv)a testing methodology relating to any other sample dissolution process;
(v)draft working papers, file notes, or records of testing results or validation results, relating to any methodology described above;
(vi)development of any methodology described above (whether or not the development of the methodology has been completed), including internal and external communications relating to development;
(vii)superseded or archived versions of any methodology described above;
(viii)ancillary work instructions, or production manuals necessary for the performance or development of any methodology described above;
(ix)documents prepared for the purpose of or otherwise in contemplation of NATA accreditation, relating to any methodology described above.
After discovery is provided, it is anticipated inspection will be subject to a confidentiality regime. That regime is, as I understand it, agreed between the parties. For the present, it is not of concern. What remains to be decided is whether or not the documents referred to in subpar (a), through to subpar (d), should properly be discovered.
Having reviewed the affidavit material, my present view is the scope of the request if appropriate. During the course of his submissions, counsel MinAnalytical made reference to par 3(a)(iv) suggesting the reference to 'any other sample dissolution process' was too wide. That submission is not without merit.
The three methodologies referred to in the preceding subparagraphs are quite definite and defined. Subparagraph (iv) is clearly something of a catchall. However, it is apparent from the material filed on behalf of Genalysis there is a wide range of techniques employed by the company. They are by no means limited to the methodologies described in the first three subparagraphs. Given the range of services MinAnalytical says it will provide, it is probably reasonable to suppose information about all testing methodologies is required to allow Genalysis to make an informed decision.
I am also reasonably satisfied an order in terms of par 3(a)(vii) is warranted. It seems to me there is a possibility confidential information obtained from Genalysis could have been used as a springboard in the development of MinAnalytical's methodology. It would therefore be relevant to have this covered in the discovery.
I am also reasonably satisfied discovery in terms of par 3(c) is warranted. It is not obvious from the material filed there are further documents related to this issue. It is clearly a matter of concern to Genalysis and it is an issue on which discovery should be provided. I do not accept all documents related to this issue are necessarily available presently to Genalysis.
In summary, then, I am reasonably satisfied discovery in terms of par 3 of the originating summons is appropriate. However, as I indicated at the commencement of these reasons, I will give the parties the opportunity to make further brief submissions as to the scope of the discovery. I will also hear the parties on the question of costs.