Guardian v Kwong & Crockett
[2020] VCC 1391
•7 September 2020
| IN THE COUNTY COURT OF VICTORIA AT Melbourne COMMERCIAL DIVISION | Revised (Not) Restricted Suitable for Publication |
Case No. CI-20-03124
| GUARDIAN NATIONAL MORTGAGE PTY LTD | Applicant | ||
| v | |||
| ARBON KWONG AND | First Respondent | ||
| GRAHAM CROCKETT | Second Respondent | ||
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JUDGE: | HER HONOUR JUDGE MARKS | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 24, 31 July 2020 | |
DATE OF JUDGMENT: | 7 September 2020 | |
CASE MAY BE CITED AS: | Guardian v Kwong & Crockett | |
MEDIUM NEUTRAL CITATION: | [2020] VCC 1391 | |
REASONS FOR RULING
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PRACTICE AND PROCEDURE – PRELIMINARY DISCOVERY – R. 32.05 County Court Civil Procedure Rules 2018 (Vic) – pre-requisites in Rule 32.05(a) and (b) for making a preliminary discovery order not made out – application dismissed
PRACTICE AND PROCEDURE – PRELIMINARY INSPECTION – R. 37.02 County Court Civil Procedure Rules 2018 (Vic) – application to have second respondent produce computers he regularly uses for business so that image of hard drive can be taken by independent forensic expert – National Hearing Centres Pty Ltd vVic O Tech Pty Ltd & Ors [2012] VSC 630 – K R Peters Real Estate Pty Ltd v Hickey [2020] VSC 531 – basis for this order not made out – application dismissed
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APPEARANCES: | Counsel | Solicitors |
| For the applicant | Ms A Batrouney | Hall & Wilcox |
| For the first respondent For the second respondent | Mr A Sykes (24 July) Mr G Crockett in person | Cooper Mills Lawyers (24 July) |
Contents
Introduction
Preliminary discovery application
Order sought
The evidence
Law
Analysis
Computer inspection application
Order sought
Rule 37.02
Conclusion
HER HONOUR:
Introduction
The applicant, Guardian National Mortgage Pty Ltd, issued an originating motion seeking both preliminary discovery, and an order that a forensic expert inspect and take a copy of their computers, from Arbon Kwong (the first respondent) and Graham Crockett (the second respondent).
For the reasons given below, I am not satisfied that any such order should be made on the basis of the evidence relied on by the applicant. I will dismiss the application.
The applicant relies on two affidavits of Jacob Paul Uljans (solicitor for the applicant). Uljans’ first affidavit was affirmed on 13 July 2020 and his second on 23 July 2020. The applicant filed two sets of written submissions.
Kwong filed an affidavit sworn 23 July 2020, and submissions. Crockett (who is self-represented) filed submissions.
The matter was first heard by a Zoom hearing on 24 July 2020. The matter was reached in mid-afternoon, and Counsel for the applicant, and Counsel for Kwong, made oral submissions.
By the end of the hearing on 24 July, the applicant and Kwong had agreed to orders relating to Kwong. Counsel for Kwong made it clear that Kwong agreed to the orders as a pragmatic decision, in order to avoid further legal costs, whilst maintaining strongly that the applicant was not entitled to the agreed orders on the basis of the evidence.
Although oral submissions had been made on behalf of the applicant and Kwong, there was no time that day for Crockett to make his oral submissions. The matter was then adjourned over to 31 July 2020, as against Crockett only.
At the 31 July hearing, further oral submissions were made by Counsel for the applicant. By that stage, the applicant had revised what it sought in terms of orders against Crockett, to seek something similar to the orders that Kwong had agreed to.
Crockett then made his oral submissions, opposing any orders being made. The applicant responded, and I reserved my ruling.
In reaching this decision, I have considered the evidence contained in the affidavits, and the parties’ submissions. (Although the matter has resolved against Kwong, I take into account the matters he swore to in his affidavit, which were replied to in Uljans’ second affidavit). Kwong’s affidavit was filed as part of the one application the applicant brought against the two respondents.
I have not taken into account any of the factual matters that Crockett dealt with in his submissions, unless they were in evidence as a result of the affidavits filed for the applicant or Kwong. Crockett is self-represented, and did not appreciate the difference between submissions and evidence. The applicant objected to a decision being made on the basis of factual matters raised by Crockett in his submissions, without him providing an affidavit (and the applicant having the chance to respond).
I have found that the applicant is not entitled to the orders it seeks on the basis of the evidence it filed. So I have not needed to consider the factual allegations Crockett raised. Had that become relevant – for example, on the issue of whether particular documents which the applicant claims were confidential in fact had the required quality of confidentiality in the circumstances – I would have adjourned over the application so that he could file an affidavit as to why he said they did not, and the applicant could have had the chance to respond.
Preliminary discovery application
Order sought
The applicant seeks:
1. Within 14 days of these Orders, the Second Respondent make discovery of all documents which are or have been in his possession, custody or control which fall within the categories described in “Annexure A” to these orders.
Annexure A sets out three categories of documents:
1. Documents containing Alleged Confidential Information, including but not limited to any copies of the Dropbox Account or any Documents contained in the Dropbox Account.
2. Documents evidencing, recording or referring to the communication of Alleged Confidential Information by the Second Respondent to a third party.
3. Documents evidencing, recording or referring to any meeting or interaction during the Relevant Period between the Second Respondent and any client in whose name there was a folder in the Dropbox Account for the purposes of procuring instructions from the client to obtain services from the Second Respondent or a Related Party (whether or not those instructions were ultimately provided), including but not limited to:
(a) written correspondence (including but not limited to emails);
(b) meeting agendas;
(c) calendar invites;
(d) loan applications (whether settled or unsettled);
(e) file notes.
For the purposes of these categories the following terms have the following meaning:
| “Alleged Confidential Information” | As defined in the affidavit of Jacob Paul Uljans affirmed in this proceeding on 13 July 2020 as “Confidential Information” |
| “Document” | As defined in Section 3(1) of the Evidence Act 2008 (Vic) and includes any copy |
| “Dropbox Account” | As defined in the affidavit of Jacob Paul Uljans affirmed in this proceeding on 13 July 2020 |
| “Related Party” | Any current or former employee or employer of the Second Respondent; or Any entity of which the Second Respondent is or was a director or officer; or Any person or entity with whom the Second Respondent has entered into an agreement, arrangement or understanding |
| “Relevant Period” | The period from 14 May 2019 to the date of the order (inclusive) |
To understand what is encompassed by ‘Confidential information’ and ‘Dropbox Account’ it is then necessary to go to the definitions contained in paragraph 14 of Uljans’ first affidavit. Uljans there states:
14 I am instructed, and believe, as follows:
(a)In the course of providing the Broking Services to clients of Guardian, both Mr Kwong and Mr Crockett had access to, and used, a secure Dropbox account, managed and maintained by Guardian (Dropbox Account).
(b)The Dropbox Account is a private ‘cloud-based’ electronic database that is accessible only to Guardian employees and contractors who are identified by Guardian as part of its ‘business team’. Being a member of the Guardian business team enables shared access to the Dropbox Account. Authorised Guardian employees and contractors are able to open, add to, delete and otherwise edit the documents and folders in the Dropbox Account.
(c)The Dropbox Account and its contents are the property of Guardian.
(d)The files in the Dropbox Account are arranged in a series of folders and subfolders, relevantly including a folder titled ‘Clients’, which contains alphabetised subfolders (labelled ‘A’, ‘B’, ‘C’ and so forth) which in turn contain further subfolders identifying clients to whom Guardian has provided mortgage broking services by name (using the naming convention ‘SURNAME Firstname’) (Client List). Each such client subfolder comprising the Client List generally contains one or more further subfolders relating to loan applications by, and loans procured for, that client by Guardian. Those further subfolders contain documents provided by each client to Guardian as part of their loan application process, including the client’s payslips, superannuation details, property valuations, bank transaction records and credit card statements. The Dropbox Account also contains scanned copies of loan application forms submitted by Guardian clients, which include details of the client’s taxable income, employer details, employment status, marital status, number of dependants, and contact details (including physical address, phone number and email address), as well as executed finance documentation and details of other finance. The client documents and information referred to in this sub-paragraph (d) are referred to collectively as the ‘Confidential Information’.
(e)The Dropbox Account, including the Client List, is critical to Guardian’s mortgage broking business as, amongst other things, it forms the basis of Guardian’s client relationship management system, which allows it to effectively communicate with, and market its business to, existing Guardian clients, and to comply with its statutory obligations. The Confidential Information is used by Guardian to identify its clients, advise its clients about loan products or related services, consider client eligibility for loans, process applications for finance, administer existing client loans, make product recommendations and advise clients of other relevant products or services offered by Guardian that may be of interest to them, and to allow Guardian to run its business efficiently.
(f)The Confidential Information, including the Client List, is not publicly available and is highly commercially sensitive to Guardian. It is not information that could be readily acquired or collated properly from other sources outside of Guardian’s business. The Confidential Information has been collected and collated by Guardian in the ordinary course of its business over a period of more than 6 years. The Confidential Information, if made available to a competitor, could be used to harm Guardian’s commercial interests as, for example, it would allow that competitor to identify Guardian clients, assess the financial and loan history of those clients, tailor communications to those clients using that information (including existing loan details) and the client contact details stored in the Dropbox Account, and potentially persuade those clients to refinance existing loans or otherwise choose to enter into new finance arrangements through the competitor, rather than Guardian.
(g)The Confidential Information includes private and personal information relating to Guardian’s clients in documents which were provided to Guardian to be collected and retained subject to Guardian’s Privacy Policy and in accordance with the Privacy Act 1988 (Cth). A copy of Guardian’s Privacy Policy issued March 2014 and accessed on its website on 7 July 2020 is at pages 34 to 49 of Exhibit JPU-1.
(h)The Dropbox Account presently contains Confidential Information relating to approximately 2,000 Guardian clients and comprises approximately 175 gigabytes of data.
(i)At all times while Mr Kwong and Mr Crockett were engaged as mortgage brokers by Guardian, the Dropbox Account contained Guardian’s Client List and other Confidential Information relating to Guardian’s clients.
(j)While access to the Dropbox Account is restricted to current employees and contractors of Guardian, it is (and was while Mr Kwong and Mr Crockett were engaged by Guardian) possible for a Guardian employee or contractor to make an unauthorised copy of the Dropbox Account, or individual documents or folders contained in the Dropbox Account, without there being a record of such a copy being made.
The evidence
The basis on which the applicant says it has a belief it may be entitled to relief against Crockett is set out in Uljans’ affidavits. He is a partner of Hall & Wilcox, the solicitor for the applicant, and he makes his affidavits in large part on the basis of instructions provided to him by Philip Sealy, a director of the applicant.
Since 12 September 2013 the applicant has carried on a mortgage broking and management business. Its broking services include advising clients as to suitable loans, and arranging and managing loans from third party lenders to those clients. Its primary source of revenue, according to Uljans, is ‘commissions paid by lenders, via aggregators, for each loan Guardian arranges with each lender’. This includes an upfront commission payment, and a trail commission paid monthly for as long as the loan continues, representing a percentage of the ongoing loan balance per year. When such a loan is refinanced with another lender the applicant no longer receives trail commission, and the lender may be entitled to claw back commission previously paid to the applicant by the lender where the loan is repaid or refinanced with a different lender within 2 years of settlement.
The applicant says it engaged Crockett as a consultant mortgage broker between January 2016 and May 2019, and that Crockett was paid a retainer to see clients generated through the applicant’s contacts. During that time, he had access to the Dropbox Account described in paragraph 14 of Uljans’ affidavit (set out above). Some time around June 2019 he was engaged in some capacity by a different company, Acceptance Finance, as a credit advisor.
The applicant says it engaged Kwong as a mortgage broker between October 2015 and May 2019. He too had access to the Dropbox Account, and went on to work in some capacity with Acceptance Finance some time after 15 May 2019.
The applicant says that Crockett was obliged to keep confidential any information he acquired during the course of his engagement with the applicant. (It says the same of course regarding Kwong).
The applicant submits that it has reasonable cause to believe it may have a right to bring claims for damages, or an equitable claim against Crockett for breach of confidence relating to the disclosure and misuse of Guardian’s Confidential Information. This claim may entitle Guardian to, amongst other things, equitable relief in the nature of an account of profits, equitable damages or a declaration of a remedial constructive trust’.
Uljans says in his first affidavit:
[24] The potential financial harm suffered by Guardian as a result of Mr Crockett’s conduct in respect of either claim described in paragraph 23 above includes the loss of Trail Commissions for any loans refinanced via Mr Crockett or third parties through the disclosure and misuse of the Confidential Information, as well as any obligation to repay to a lender commission already received where a loan has been refinanced within 2 years of settlement. In addition, Guardian may suffer loss of opportunity arising from the loss of its commercial advantage to use the Confidential Information exclusively to market to the clients in its Client List in respect of their ongoing credit needs, including for new mortgages, restructuring of existing debt, personal loans and so forth.
[25] I am instructed, and believe, that Guardian is presently unaware of how many of its clients have been contacted by Mr Crockett using Guardian’s Confidential Information, or the amount of its financial losses as a result of loans of Guardian clients being refinanced through Acceptance Finance as a consequence of the disclosure and misuse of Guardian’s Confidential Information by Mr Crockett.
…
[33]I am instructed, and believe, that the issues of whether Mr Kwong or Mr Crockett disclosed and/or used Guardian’s Confidential Information following the end of their respective engagements by Guardian, and the extent of any use of the Confidential Information to contact Guardian clients, are critical to the decision of Guardian as to whether to commence a proceeding against Mr Kwong and Mr Crockett in this Honourable Court to obtain the Proposed Relief.
[34]Having regard to the key factual issues described in paragraph 33 above, there is reasonable cause to believe that Mr Kwong and Mr Crockett are likely to have, or have had, documents in their possession relating to the question of whether Guardian has the right to obtain the Potential Relief, the inspection of which would assist Guardian to decide whether to commence a proceeding in this Honourable Court.
Kwong swore an affidavit disagreeing with aspects of Uljans’ first affidavit. He says that he was an Australian Credit Representative (ACR) for the applicant from September 2015, in order to provide broking services for clients of Pillar Financial Group, later Pillar Financial and Auswide Financial Planning (Pillar). He details his complex commercial arrangement with the applicant, in which he says he used it as a sub-aggregator to process loan applications that he submitted. He would invoice the applicant for an agreed split of upfront commissions. He says that during the time he consulted as an ACR of the applicant, most of the work he did was referred to him by his own network, by Pillar, and by ‘BFG Wealth Management/Austral Financial’ (Austral). He says that Sealy’s assistant installed the Dropbox application on his laptop computer when he became an ACR of the applicant. It was provided, he said, to each ACR. He said that he saved information such as credit applications and customer information there, and that much of it was required to be retained by the applicant – and by Kwong – to process loans and for compliance purposes. Importantly, Kwong swears that he used the Dropbox Account to save his confidential client data such as his client lists, and he says he understands that ‘all ACR who had access to the Dropbox account utilised by Guardian also saved their customer information into it’.
Uljans’ second affidavit responded to Kwong’s affidavit. He did this partly on the basis of information he was given in a telephone conversation with Sam Rutecki, a director of Austral and former director of Pillar, and partly from further discussions with Sealy.
Relevantly, Uljans set out his instructions about how client referrals were made to the applicant by Pillar or Austral:
[8] I am informed by Mr Rutecki, and believe, that:
(a)He disagrees with Mr Kwong’s assertion that client referrals were made by either Pillar or Austral to Mr Kwong while Mr Kwong was working for Guardian.
(b) Pillar’s, and subsequently Austral’s, referral relationship was at all times with Guardian, not with Mr Kwong.
(c)In general terms, the manner in which client referrals were made to Guardian by Pillar or Austral was that:
(i)where Pillar (or Austral) had a client or potential client that was interested in acquiring property, it would provide Guardian with details of that client’s assets and liabilities for the purpose of Guardian assessing the client’s borrowing capacity for a loan;
(ii)relevantly, where a client was assessed by Guardian as qualifying for a loan, Pillar, or Austral, would arrange an appointment with that client at its offices in Melbourne and would circulate a calendar invitation for that appointment by email to an email distribution group, which included representatives of Guardian;
(iii)Mr Sealy would then allocate a Guardian consultant (such as Mr Kwong, or Mr Crockett) to attend towards the end of the meeting with that client to discuss finance arrangements to be facilitated through Guardian.
…
[10]I am instructed, and believe, that:
…
(b)When Mr Sealy allocated a Guardian consultant, such as Mr Kwong or Mr Crockett, to attend a particular client meeting that had been arranged by Pillar (or Austral), the decision of who would attend that meeting on behalf of Guardian was a matter for Mr Sealy, taking into account each consultant’s working days and availability, and he would typically inform the consultant allocated to attend each client meeting of their allocation verbally.
(c)Neither Mr Kwong nor Mr Crockett was solely remunerated by Guardian based on commissions, and both were also paid a retainer (through their nominated companies) by Guardian for their services.
(d)Mr Sealy is unaware of any clients of Guardian, whose details are contained in the Dropbox Account, that were referred by Mr Kwong himself.
Law
Rule 32.05 provides:
Where—
(a)there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description the applicant has ascertained;
(b)after making all reasonable inquiries, the applicant has not sufficient information to enable the applicant to decide whether to commence a proceeding in the Court to obtain that relief; and
(c)there is reasonable cause to believe that that person has or is likely to have or has had or is likely to have had in that person's possession any document relating to the question whether the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist the applicant to make the decision—
the Court may order that that person shall make discovery to the applicant of any document of the kind described in paragraph (c).
As the applicant submits:
[6] Rule 32.05 of the Rules requires Guardian to establish that:
(a) there is reasonable cause to believe it has or may have the right to obtain relief in the Court against Mr Kwong and/or Mr Crockett;
(b) after making all reasonable inquiries, it has not sufficient information to enable it to decide whether to commence a proceeding in the Court against Mr Kwong and/or Mr Crockett to obtain that relief; and
(c)there is reasonable cause to believe that Mr Kwong and/or Mr Crockett has or is likely to have or has had or is likely to have had in their possession any document relating to the question whether Guardian has the right to obtain the relief and that inspection of the document by Guardian would assist it to make the decision.
[7]It is well established that the rule should be construed benevolently. Where each element of the rule is satisfied, the Court will ordinarily exercise its discretion in favour of the applicant.
[8]The authorities and principles were recently considered and summarised by Derham AsJ in Victorian Taxi Families Inc & Anor v Taxi Services Commission.
[9]In relation to the first element to be made out, his Honour said, inter alia, that:
a.the applicant merely needs to show the facts are such that it may reasonably be believed that it may have a right to obtain relief;
b. the test for determining whether the applicant has “reasonable cause to believe” is objective;
c.the applicant’s belief does not have to amount to a firm view that there is a right to relief; and
d. delving extensively into the merits of the existence of a possible cause of action will usually not be appropriate.
[10] The jurisdictional threshold under r 32.05 is low.
[11]In relation to the second element to be made out, Derham AsJ said, inter alia, that:
a.it requires an objective assessment of whether an applicant has reasonably exhausted alternative sources of information and having done so demonstrates that they have insufficient information to enable a decision to be made to commence a proceeding;
b. the fact that an applicant already has enough evidence to establish a prima facie case against the respondent does not mean that the applicant has sufficient information to enable it to decide whether to commence a proceeding. An applicant in that position may nevertheless “need information to know whether the cost and risk of litigation is worthwhile”; and
c. courts have approved litigants taking a “cautious, conservative or prudent approach” by applying for preliminary discovery, which is consistent with the policy underlying the rule and the Civil Procedure Act 2010 (Vic).
[12]In relation to the third element to be made out, his Honour said, inter alia, that:
a. it requires the identification of documents that relate to the question whether the applicant has the right to obtain relief; and
b. consideration of what the applicant lacks and what is reasonably necessary for it to make a decision regarding whether to institute proceedings.
[citations omitted]
In Grocon Constructors (Vic) Pty Ltd v Biosciences Research Centre Pty Ltd [2014] VSC 204 at [42]-[43], Vickery J explained the test as follows:
42 In Beston Parks Management Pty Ltd v Sexton & Anor, in a passage which has since been cited with approval by this Court, Hollingworth J said in relation to the application of Rule 32.05:
The following general principles are not controversial. The rule should be construed benevolently, because it is intended to assist an applicant who does not have sufficient, precise information to commence a proceeding, and to prevent the bringing of speculative suits. It must be given the fullest scope its language will reasonably allow.
It is not necessary to show precisely what cause of action the applicant may have, merely that the facts are such from which it may reasonably be believed that the applicant may have a right to obtain relief. The word ‘may’ indicates that the putative belief does not have to amount to a firm view that there is a right to relief. Although some ‘fishing’ enquiry is permitted, a ‘flimsy foundation’ or ‘mere hunch’ will not be sufficient to constitute reasonable cause. An applicant does not have to prove that there will be, only that there may be, a real benefit from making the order. The benefit may be the drawing of an appropriate pleading with proper particulars and the avoidance of substantial amendment after discovery, or, alternatively, the possible avoidance of unnecessary and fruitless litigation. (citations omitted)
43 In United Energy Limited v Energy Risk Management Pty Ltd in a decision that has also been since cited with approval, Gillard J discussed the purpose of the Rule. His Honour’s observations are particularly relevant in light of the reasons expressed by BRC for resisting production of the documents, and it is appropriate to set out His Honour’s observations at some length:
[29] Often in the past a proceeding was instituted in the expectation that the plaintiff had a good cause of action postponing a final decision as to the merits until all the discovery and inspection steps were completed.
[30] If it turned out upon a proper consideration of all relevant documents that the plaintiff did not have a cause of action, it causes, inter alia, much anguish, soul searching and results in wasted legal costs and time. It does nothing for the administration of justice that the party has to go down that path to determine whether he has a good cause of action.
[31] The object of the rule is to avoid that undesirable situation occurring and to enable a prospective plaintiff to see the relevant documents which the prospective defendant has or has had in his possession in order to make an informed decision as to whether he has a good cause of action.
[32] It is clear from the wording of the rule that the applicant does not have to show that he does have a good cause of action before he can obtain his order, and indeed to require him to do so would defeat the very object of the rule.
[33] On the other hand, an applicant would have to show more than a mere hunch, a hope or a suspicion that he may have a good cause of action. The fact that the end result of a successful application is a fishing expedition for evidence is not a ground for refusing relief. See Dunning v United Liverpool Hospitals (1973) 1 WLR 586, 591 per Stamp LJ and Clarkson v DPP [1990] VicRp 65; (1990) VR 745 at 758 per Murphy J.
[35] The prime object of the rule is to enable access to documents to enable an informed decision to be made. The fact that in the process the applicant gathers evidence also, is not a ground for refusing relief; it is an inevitable by product of the procedure.
[36] The rule sets out what matters have to be considered and established on an application and places the onus on the applicant to establish the bases for an order. However, in my opinion the power should be exercised to give effect to the clear purpose of the provision which is to advance the administration of justice, namely, that a prospective plaintiff should be able to make an informed decision whether to proceed or not upon proper material before issuing his proceeding.
[37] By providing this facility to assist the decision making process, speculative or baseless claims can be avoided with a consequential saving in cost and time.
[38] These conclusions lead to a conclusion that the rule should be liberally applied.
…
[43] The rule is to enable a prospective plaintiff to make an informed decision. If an order is not made the only course open to the prospective plaintiff is to issue the proceeding and then put in operation procedures available to gain access to the other party's documents. This may involve an application for an interlocutory injunction in which a subpoena is issued to produce the documents at court on the application. Another course is the discovery process during the interlocutory steps. The practical result will be inspection later rather than sooner and the incurring of legal costs. If a decision is then made to discontinue, costs will have been unnecessarily incurred and time wasted, factors which reflect upon the administration of justice.
The pragmatic approach supports a sooner rather than a later decision and an approach by the court to readily facilitate the making of an informed decision by a prospective plaintiff on proper materials at an early stage.
[citations omitted]
Analysis
I am not satisfied that the evidence relied on by the applicant in support of its application for preliminary discovery amounts to more than a ‘mere hunch, a hope or a suspicion’ that it may have a good cause of action (see United Energy, per Gillard J at [33] as extracted above). Nor am I satisfied that it has made all reasonable enquiries to find out if it has a good cause of action, before bringing this application.
Simply describing information as confidential does not, of course, make it so. The elements that make information confidential, as a matter of law, need to be established.
I am not satisfied on the evidence filed that everything in the Dropbox Account was confidential. Uljans says information has been collated over years, but he does not state his instructions as to how many people have had access to this Dropbox Account or to information contained in it at different times over the years (or that they were all subject to confidentiality requirements). Nor does he explain how information in the Dropbox Account was added to over time, or which of the many people with access added what, when. Kwong swore he put some of his own information in the Dropbox Account. Information a particular consultant put in there (as opposed to receiving it from accessing the Dropbox Account) might not have the necessary quality of confidence vis-à-vis that consultant. It would all depend.
But for the purposes of this application, I accept that the applicant has grounds for a belief that at least some of the information the applicant provided to Crockett via the Dropbox Account was confidential. (I note that Crockett disputes that, and Kwong’s affidavit raises some questions about at least some of the documents’ confidentiality).
The applicant relies on a consultancy agreement which either or both of Crockett and Orlando Café Pty Ltd – a company of which he was director – entered into with the applicant.
In written submissions the applicant argued that the agreement was with Crockett. At the hearing, Counsel for the applicant submitted that it was entered with both Crockett and his company, Orlando Café Pty Ltd, or just with Orlando but Crockett owed an equitable duty of confidence in the circumstances.
The consultancy agreement is somewhat confusing as to who is a party. In the header to the agreement it says the agreement is with ‘Graham Laurence Crockett (sole director of Orlando Café Pty Ltd) on behalf of Orlando Café Pty Ltd ABN 93 168 860 900’ In its title on the first page, it describes the Consultant as ‘Graham Laurence Crockett + Orlando Café Pty Ltd ABN 93 168 860 900’. It is signed ‘by for and on behalf of Graham Crockett’.
Clause 7 states:
The Company and the Consultant shall keep secret and confidential the terms and conditions of this agreement and all information in relation to the Business and the Company and the Consultant acquired in the course of carrying out their obligations under this agreement except where required by law or information which is in the public domain (other than as a consequence of the Company or the Consultant's breach) and shall not divulge or make known to any person any of that information. If the Consultant is a body corporate, it shall procure its directors at the date of this document and any additional director appointed subsequently to execute and deliver to the Company a Deed of Confidentiality in a form prepared by the Company in the terms of this clause
At this stage, it does not matter much whether Crockett personally was party to the agreement, as he may in any event have owed an equitable duty of confidence to the applicant because of the way he acquired the relevant information.
In Coco v AN Clark (Engineers) Ltd [1969] RPC 41 at [47], Megarry J sets out the three elements that must be established for there to be a breach of confidence:
·The information must be confidential;
·The information must have been imparted in circumstances which give rise to an obligation of confidence; and
·There must be unauthorised use of the information to the detriment of the party communicating it.
As indicated, for present purposes I accept that at least some of the information in the Dropbox Account may have been confidential. Regardless of that, I am not satisfied that the orders sought should be made. The material relied on by the applicant is based on speculation, and is tenuous in any event.
Uljans’ first affidavit sets out the basis on which it suspects Crockett of certain behaviour:
[21]I am instructed, and believe, that on the basis of Mr Crockett’s access to the Confidential Information in the course of his engagement by Guardian (including via the Dropbox Account), his subsequent engagement by Acceptance Finance, the correspondence referred to in paragraph 15 above, and subsequent correspondence received from Mr Crockett as referred to at paragraph 32 below (and exhibited at page 73 of Exhibit JPU-1), Guardian suspects that Mr Crockett:
(a)has improperly made or retained a copy of the Dropbox Account (or parts thereof) and/or disclosed Guardian’s Confidential Information to third parties, which may include Acceptance Finance; and/or
(b)has misused the Confidential Information to facilitate direct communications with Guardian’s clients for the purposes of obtaining a commercial advantage for himself and/or Acceptance Finance.
But what is the basis for these suspicions?
Uljans’ first affidavit exhibits an email sent on 13 February 2020 by Maria Rudling, in which she forwarded to Philip Sealy an email sent ‘on behalf of Graham Crockett’ from an Acceptance Finance email address. The subject was ‘First home buyer news and much more!’. Rudling wrote that she had been contacted by Graham Crockett as one of his ‘clients’ and is now getting ‘the same emails as Guardian’s from Acceptance Finance’. She wrote that she was not happy that Graham Crockett ‘has taken & is using my details for his new job/company’.
There is nothing from this email to indicate that there are reasonable grounds for a belief that Crockett has accessed the Dropbox Account information in order to obtain Rudling’s email details.
The applicant also relies on an email Crockett sent to two people on 28 March 2020 using his Acceptance Finance email address:
Hi Chris and Angela
I hope this note finds you both well.
You may recall meeting with me at the offices of Pillar Financial in November 2017, where I assisted you with your finance application for the purchase of an investment property.
You may also recall the commitment I made at that time to contact you in due course to review your loans in order to;
§ensure you were still enjoying maximum benefit from the existing loan structure.
§or if this was not the case, examine what options may be available to improve your cash flow.
Due to recent interest rate reductions by a number of lenders, there are a range of attractive opportunities now available to investors.
For this reason I would be delighted to conduct a review of your current loan structure to determine what financial benefits may be available.
I will call in a few days to discuss this with you.
Kind Regards
Graham Crockett
Credit Adviser
Chris responded in an email on 24 May 2020, saying he would like his current loans reviewed and providing other information. He later forwarded the emails to Sealy on 3 June 2020.
This is the high point of the material relied on by the applicant to show a basis for a reasonable belief that Crockett has accessed information which had the required confidentiality. There is nothing to establish that the information referred to in this email, about those clients, was in fact confidential, or that it was even provided to Crockett in the Dropbox Account. There is not even any evidence that Chris and Angela were first introduced to Crockett by the applicant, as opposed to Crockett introducing them to the applicant, for example. In any event, the fact that Crockett still had contact details for clients he personally had advised, and knew the date he had advised them, does not lead to a reasonable presumption he accessed the Dropbox Account or information he had obtained from it, after stopping work as a consultant with the applicant, in order to obtain those details. I note too that the consultancy agreement provides that the applicant accepts that Crockett (and/or Orlando Café Pty Ltd) will continue to have a relationship with clients they personally introduced to the applicant:
19.5The Company acknowledges any clients you have personally introduced and accept that you will likely have a relationship post this agreement being terminated
Beyond those emails, the applicant relies on very general matters which are not persuasive. At paragraph 15 of Uljans’ first affidavit he states:
Client complaints and feedback
15 I am instructed, and believe, that since Mr Kwong and Mr Crockett ceased working for Guardian and commenced working for Acceptance Finance
(a)Guardian has received, and has otherwise been informed that an associated business through which Guardian generates client referrals (Austral Financial) has received, telephone calls from a number of clients during which the clients said words to the effect that they had been contacted by Acceptance Finance in relation to potential refinancing of existing loans arranged by Guardian, and asked why they have been contacted by representatives of Acceptance Finance and how Acceptance Finance has obtained their contact details and other information.
(b) Guardian has also received, or been provided with copies of, email correspondence, which indicates that several of its clients have been contacted by representatives of Acceptance Finance, including Mr Kwong and Mr Crockett. In some of these communications the client has asked why they have been contacted by Acceptance Finance and how Acceptance Finance has obtained their contact details and other information. In some instances, the correspondence also indicates that Guardian clients have stated that they are worried or unhappy about this having occurred.
None of those calls or emails name Crockett as the person who made contact. No identification is made of what confidential information must have been disclosed. One email refers to Kwong contacting ‘Mike’ and offering him a loan review (not Crockett). Others do not say who contacted them.
I am also not satisfied that the pre-requisite in Rule 32.05(b) has been made out. There is nothing to suggest the applicant has reasonably exhausted alternative sources of information in seeking to enable a decision to be made to commence a proceeding. It has not, for example, put in evidence of contacting those who emailed Acceptance Finance to ask for more information, in order to see if there is a reasonable basis for its suspicions about Crockett.
Even if I had been satisfied as to all three of the pre-requisites set out in Rule 32.05, I would not have exercised my discretion to make the orders sought, because they are difficult to understand, and drafted too widely. Even trying to find out what documents are sought is a difficult exercise. It requires reading not only the text of the draft Orders and its annexure, but also the incorporated definitions in the annexure, which includes reference to definitions in (the lengthy) paragraph 14 of Uljans’ first affidavit (see [13]-[15] above). It then becomes apparent that an herculean exercise in reviewing documents is being required of Crockett.
For example, Category 1 seeks:
Documents containing Alleged Confidential Information, including but not limited to any copies of the Dropbox Account or any Documents contained in the Dropbox Account.
For Crockett to swear an affidavit as to which of the documents in the Dropbox Account he held separate copies of anywhere else, Crockett would first need to review everything that was ever in the Dropbox Account. This first assumes he still has a copy of the Dropbox Account somewhere. He would then need to see if he had any of those documents in his possession somewhere else on his computers or in hard copy. According to paragraph 14(h) of Uljans’ first affidavit, the Dropbox Account 'presently contains information relating to approximately 2000 of the applicant’s clients and contains 175 gigabytes of data’. The subfolders for the thousands of clients apparently includes many different types of documents: see paragraph 14(d) of Uljans’ first affidavit. No evidence is given of how many clients’ details were in there when information was last uploaded to Crockett’s computer (or how many documents) but assuming that it was at about those levels, then it is a massive amount to look through in order to seek to comply with the proposed order. And it is made still more difficult by the fact that the contents of the Dropbox Account changed over time as different information was loaded into it.
Category 2 seeks:
Documents evidencing, recording or referring to the communication of Alleged Confidential Information by the Second Respondent to a third party.
The same difficulty with the breadth of what is covered by Alleged Confidential Information arises as occurs re Category 1.
Category 3 seeks:
Documents evidencing, recording or referring to any meeting or interaction during the Relevant Period between the Second Respondent and any client in whose name there was a folder in the Dropbox Account for the purposes of procuring instructions from the client to obtain services from the Second Respondent or a Related Party (whether or not those instructions were ultimately provided), including but not limited to:
(a) written correspondence (including but not limited to emails);
(b) meeting agendas;
(c) calendar invites;
(d) loan applications (whether settled or unsettled);
(e) file notes.
To respond to this, Crockett would need to look at all the file names on the Dropbox Account – assuming he still has access to it somewhere – and then disclose any interaction or meeting with any of the clients for the purposes set out, and any loan applications or file notes. The basis for such a wide order is simply not made out.
Computer inspection application
Order sought
The applicant seeks the following:
2 Within 14 days of these Orders, the Second Respondent produce to the Applicant’s solicitor (Hall & Wilcox) any computer that he regularly uses for conducting business, including but not limited to the hard drive referred to in email correspondence sent by the Second Respondent to the Applicant’s solicitors on 8 July 2020 produced on page 73 of Exhibit JPU-1 to the affidavit of Jacob Paul Uljans affirmed in this proceeding on 13 July 2020.
3 Within 14 days of these Orders, an independent forensic expert jointly engaged on behalf of the Applicant and the Second Respondent is to take a single image of the hard drive of each device referred to in paragraph 2 at the sole cost of the Applicant (Device Image), following which the device is to be returned to the Second Respondent.
4 Any Device Image referred to in paragraph 3 is to be provided to the Hall & Wilcox to be held in accordance with these Orders.
5 Hall & Wilcox are to maintain possession of any Device Image and not access, copy, alter or dispose of such image until the earlier of:
(a)12 months for the date of these orders, after which time Hall & Wilcox must dispose of the Device Image without accessing it in the absence of any further order of the Court; or
(b) further Order of the Court.
Rule 37.02
Rule 37.02 provides, relevantly:
Inspection from prospective defendant
(1) This Rule applies to any property not being a document.
(2) In this Rule "applicant" means an applicant for an order under the
Rule.(3) Where—
(a) there is reasonable cause to believe that the applicant has or
may have the right to obtain relief in the Court from an
identified person;(b) after making all reasonable enquiries, the applicant has not
sufficient information to enable the applicant to decide whether
to commence a proceeding in the Court to obtain that relief;
and(c) there is reasonable cause to believe that that person has or is
likely to have in that person's possession, custody or power any
property relating to the question whether the applicant has the
right to obtain the relief and that inspection of the property by
the applicant would assist the applicant to make the decision—the Court may make an order for the inspection, detention, custody or preservation of the property.
I consider the order sought draconian given the tenuous evidence relied on in relation to the suspicions that there has been a breach of confidentiality (as discussed above).
The applicant wants Crockett to deliver up every computer he ‘regularly uses for conducting business’ including the one to which he referred to in his 8 July 2020 correspondence. This is to enable an independent forensic expert to take a single image of the hard drive.
At the first hearing of this application, I asked the applicant for authority in relation to the making of such an order. The applicant relied an order which it handed up, made by Dixon J in the matter of Stuart Johnston v Wayne Murray (S CI 2015 03551, 14 August 2015). However, that is an order that is much narrower, expressly not permitting inspection of the whole computer or a copy to be taken of everything on the computer, just allowing for an inspection and copy to be made of certain emails:
3.The defendant shall produce to his solicitor the computer that he regularly uses to access his email account [email address] on 28 August 2015. On that date, Mr Andrew McLeish, on behalf of the plaintiff may inspect the computer in order to examine it in respect of the emails identified in Exhibits VJK12 and VJK19 of the affidavits of Victoria Jayne Keller filed in this proceeding. This order does not authorise Mr McLeish to inspect any other information, data or program on the computer. Mr McLeish may take an electronic copy of any information that he is permitted by this order to inspect.
The applicant then filed further submissions before the second hearing, stating:
2.In support of the application for an order pursuant to r 37.02 (i.e. concerning the production and imaging of the Second Respondent’s computer), the decision in National Hearing Centres Pty Ltd vVico Tech Pty Ltd [2012] VSC 630 is relied on.
3.In that case, the plaintiff (which provided hearing tests and supplied audiology devices) was concerned that the second defendant (a former employee) may have copied or transferred the plaintiff’s confidential information prior to ceasing employment with the plaintiff. The confidential information included computer source code, information entered by the plaintiff’s staff into the customer data base and reports of business statistics.
4.Justice Vickery made orders under r 37.02 for the defendants to make their computers, external hard drives and other external storage devices available to the plaintiff’s solicitors for examination, by the plaintiff’s computer expert and to take any necessary copies of information derived from the computers, etc. relevant to the issues in the proceeding.
5.Justice Vickery found that circumstantial evidence was sufficient to establish the relevant belief for the purpose of making orders under rr 37.02 and 35.02.
[citations omitted]
However, this case is distinguishable from the circumstances in National Hearing Centres Pty Ltd vVic O Tech Pty Ltd & Ors [2012] VSC 630. The circumstantial evidence there was significantly stronger. The respondent had been working on a major software project for the applicant at its head office. In the two days before she left the applicant’s employ, she downloaded a software application known as TeamViewer, and left that application open for those two days. There was evidence that there was no reason for her to do so. TeamViewer works as a program for the purpose of connecting one computer with a second computer, including an external computer: see National Hearing at paragraphs [8] and [16]-[18]. This clearly raised a question as to why she had done it, and led to the inference she might have copied information. There is no similar inexplicable behaviour here. It seems to me that the highest the applicant’s case about this at the moment goes is that Crockett had information on his computer when he stopped working with the applicant, in the form of the information in the Dropbox Account, that the applicant uploaded onto it, and they have a ‘concern’ he may have copied it or given it to someone else.
National Hearing was referred to in GroconConstructors (Vic) Pty Ltd v Biosciences Research Centre Pty Ltd [2014] VSC 204. I was not referred to other authority for ordering a copy of the entirety of someone’s computer to be taken.
In a decision just handed down, Associate Justice Ierodiaconou was asked to make a similar order and refused. In K R Peters Real Estate Pty Ltd v Hickey [2020] VSC 531, at paragraphs [118] and [119] Her Honour stated:
118I find that, at this stage, the balance of convenience weighs against granting the orders for delivery up of electronic devices that are not owned by the plaintiff. For that reason, I decline to make the orders sought by the plaintiff in paragraph 2 of its amended summons. They require delivery up to the plaintiff’s forensic IT expert of “all electronic devices in her possession that store electronic data”, including the defendant’s personal mobile phone and the laptop computer provided by her new employer. The plaintiff concedes this is in effect a preservation order as a mirror image of all the data is sought to be taken. The orders would be draconian, requiring delivery up of the defendant’s personal mobile phone and the laptop. There is no evidence that “there is a real possibility that the respondent might destroy such material or cause it to be unavailable for use in evidence”.
119It is an indictable offence to destroy a document or other thing that is reasonably likely to be required in evidence in a legal proceeding pursuant to s 254 of the Crimes Act 1958. Each party is represented by experienced legal practitioners. It is common ground that disclosure of relevant material will be part of the discovery process. I anticipate that the legal practitioners have informed the parties of their respective and continuing obligations in relation to the preservation of evidence. I expect that the parties will confer, consistently with their Civil Procedure Act 2010 obligations, to discuss a confidentiality regime in respect of discovery and inspection of the defendant’s electronic devices. This will provide for the exchange of relevant documents and of course, non-inspection of documents subject to legal professional privilege.
[Citations omitted]
I do not accept that on the minimal evidence presently relied on by the applicant, Crockett should be ordered to hand over his computers, and have a copy of everything on them taken. Considerably more must be shown before an order of this nature should be made.
Conclusion
I will dismiss the application.
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Certificate
I certify that these 27 pages are a true copy of the reasons for judgment of Her Honour Judge Marks, delivered on 7 September 2020, revised 15 September 2020.
Dated: 15 September 2020
Lauren Miller
15 September 2020
Associate to Her Honour Judge Marks
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