HC Foods Pty Ltd v Carmichael

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FEDERAL COURT OF AUSTRALIA

HC Foods Pty Ltd v Carmichael [2016] FCA 1214

File number: WAD 129 of 2016
Judge: GILMOUR  J
Date of judgment: 11 October 2016
Catchwords: PRACTICE AND PROCEDURE – pre-action discovery application – whether the applicant reasonably believes it may have a right to obtain relief in accordance with r 7.23 of the Federal Court Rules 2011 (Cth)
Legislation:

Corporations Act 2001 (Cth) s 183(1)

Federal Court Rules 1979 O 15A r 6

Federal Court Rules 2011 rr 6, 7.23, 7.23(1), 7.23(1)(a), 7.23(1)(b), 7.25, 20.17

Cases cited:

Bonham v Iluka Resources Limited [2015] FCA 713

Construction, Forestry, Mining and Energy Union v Orica Australia Pty Ltd [2014] FCA 592

Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (2008) 169 FCR 435

Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728

Pet Tech Pty Ltd v Batson [2013] NSWSC 1954

Sandhurst Trustees Limited v Clarke [2015] FCAFC 21

St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147

Date of hearing: Heard on the papers
Registry: Western Australia
Division: General Division
National Practice Area: Employment & Industrial Relations
Category: Catchwords
Number of paragraphs: 49
Solicitor for the Prospective Applicant: Ms K O’Meehan of Kott Gunning Lawyers
Solicitor for the Prospective Respondent: Mr J Kitto of Kitto & Kitto

ORDERS

WAD 129 of 2016
BETWEEN:

HC FOODS PTY LTD (ACN 141 276 753)

Prospect Applicant
AND:

KERRY CARMICHAEL

Prospective Respondent

JUDGE:

GILMOUR  J

DATE OF ORDER:

11 October 2016

THE COURT ORDERS THAT:

1.Within 21 days of this order the prospective respondent give discovery to the prospective applicant of the following documents supported by an affidavit disclosing amongst other things, where, when and how the prospective respondent shredded or caused to be shredded the documents which are referred to in the letter from Kitto and Kitto to Kott Gunning dated 9 June 2016 and which is annexure “KC3” to the affidavit of the prospective respondent sworn on 20 June 2016.

Documents

1.Correspondence and/or communications between the prospective respondent and Simon Reynolds, Brandon Reynolds or any other officer, employee or other representative of The Yoghurt Shop (including handwritten notes of any conversations) from, and including, 1 April 2015 to 15 July 2015 and, in particular, relating to:

(a)the events that took place on 18 May 2015 and plans made prior to, but for the purposes of that day;

(b)the events that occurred between 18 May 2015 and the date of the prospective respondent entering into business arrangements (including a verbal supply agreement) with Simon Reynolds, Brandon Reynolds or any other officer, employee or other representative of The Yoghurt Shop;

(c)the prospective applicant’s prices and volume of sales;

(d)the identity of the prospective applicant’s customers;

(e)comments and/or representations about the prospective applicant’s financial circumstances including, but not limited to, words or representations to the effect that the prospective applicant was struggling financially or going broke;

(f)the business (and former business) of the prospective applicant;

(g)the creation and/or proposed creation and establishment of a company…

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Details
Case
[2016] FCA 1214
Decision Date

CaseChat Overview and Summary

In HC Foods Pty Ltd v Carmichael, the applicant sought a pre-action discovery order under Rule 7.23 of the Federal Court Rules 2011 (Cth). HC Foods applied to the court for an order compelling the respondent to provide certain documents that were in his possession. The court had to decide whether HC Foods reasonably believed it might have a right to obtain relief and whether inspection of the documents would assist in making a decision about whether to commence proceedings against the respondent.

The court found that HC Foods had reasonably believed it might have a right to obtain relief as the respondent had used his position at HC Foods to form business relationships with HC Foods' customers. The court also found that inspection of the documents would assist in making a decision about whether to commence proceedings. The documents sought included communications between the respondent and The Yoghurt Shop and other entities, as well as documents containing information about HC Foods' customers and pricing structures.

The court exercised its discretion to make the orders sought by HC Foods and ordered the respondent to provide the documents listed in the proposed orders. The court also ordered that HC Foods bear its own costs of the application.

In summary, the court found that HC Foods had reasonably believed it might have a right to obtain relief and that inspection of the documents would assist in making a decision about whether to commence proceedings. The court exercised its discretion to make the orders sought by HC Foods, ordering the respondent to provide the documents listed in the proposed orders.

Orders

Orders of the court

1. Within 21 days of this order the prospective respondent give discovery to the prospective applicant of the following documents supported by an affidavit disclosing amongst other things, where, when and how the prospective respondent shredded or caused to be shredded the documents which are referred to in the letter from Kitto and Kitto to Kott Gunning dated 9 June 2016 and which is annexure “KC3” to the affidavit of the prospective respondent sworn on 20 June 2016.

Documents

1. Correspondence and/or communications between the prospective respondent and Simon Reynolds, Brandon Reynolds or any other officer, employee or other representative of The Yoghurt Shop (including handwritten notes of any conversations) from, and including, 1 April 2015 to 15 July 2015 and, in particular, relating to:

(a) the events that took place on 18 May 2015 and plans made prior to, but for the purposes of that day;

(b) the events that occurred between 18 May 2015 and the date of the prospective respondent entering into business arrangements (including a verbal supply agreement) with Simon Reynolds, Brandon Reynolds or any other officer, employee or other representative of The Yoghurt Shop;

(c) the prospective applicant’s prices and volume of sales;

(d) the identity of the prospective applicant’s customers;

(e) comments and/or representations about the prospective applicant’s financial circumstances including, but not limited to, words or representations to the effect that the prospective applicant was struggling financially or going broke;

(f) the business (and former business) of the prospective applicant;

(g) the creation and/or proposed creation and establishment of a company called Carmichael Distributors Pty Ltd trading as “Gourmet Foods”; and

(h) negotiations, proposals and agreements with Simon Reynolds, Brandon Reynolds or any other officer, employee or other representative of The Yoghurt Shop.

2. Correspondence and/or communications between the prospective respondent and any officer, employee or other representative of any of the companies, businesses or entities listed in the attached Schedule A (including handwritten notes of any conversations) from, and including, 1 April 2015 to 15 July 2015 and, in particular, relating to:

(a) attempts, by the prospective respondent, to commence to do business with any companies, businesses or entities listed in Schedule A annexed to these orders;

(b) negotiations, proposals and agreements relating to proposed or actual business dealings between the prospective respondent and the companies, businesses or entities listed in the attached Schedule A;

(c) the events that took place on 18 May 2015 and plans made prior to, but for the purpose of that day;

(d) the Yoghurt Shop generally and particularly to the fact that The Yoghurt Shop was supplier of bulk yoghurt to prospective applicant;

(e) comments and/or representations about the prospective applicant’s financial circumstances including, but not limited to, words or representations to the effect that the prospective applicant was struggling financially or going broke;

(f) the business (and former business) of the prospective applicant;

(g) The prospective respondent’s business relationship (or former business relationship) with The Yoghurt Shop; and

(h) The creation and/or proposed creation and establishment of a company called Carmichael Distributors Pty Ltd trading as “Gourmet Foods”.

3. Documents or electronic documents containing any of the following information:

(a) the identity and contact details of any HC Foods customers who purchased berry products and yoghurt products;

(b) the types of products (berries and yoghurt) that customers bought from HC Foods and the amount of product bought;

(c) the types of berry products bought by HC Foods from its supplier/s;

(d) the types of yoghurt products bought by HC Foods from The Yoghurt Shop;

(e) HC Foods’ pricing structures related to the price that it could and did purchase yoghurt from its suppliers (including The Yoghurt Shop); and

(f) the price at which berry and yoghurt products were sold to each of HC Foods’ customers and the amount of each product sold;

which are or were:

(g) in the possession, power or custody of the prospective respondent as at 5pm on 1 May 2015;

(h) stored, as at 5pm on 1 May 2015, in any electronic device in the control of the prospective respondent (including any mobile telephone device or laptop computer in the control of the prospective respondent); or

(i) sent or received, between 1 April 2015 and 15 July 2015, to or from any e-mail address or addresses, or mobile telephone or telephones, over which the prospective respondent had control, or access to, between 1 April and 15 July 2015.

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

Background

Background to the litigation

The prospective respondent (Carmichael) relied upon his affidavit sworn on 20 June 2016.Background HC Foods has, since 1997, been a distributor of frozen fruit products to restaurants, cafes and retail stores. Since 2002-03 it has expanded its business to include “pick and mix” berries in freezers supplied to retail outlets and later also supplying frozen berries in bags. Since 2009 it has also been distributing yoghurt to retailers. An important strategy employed by it in its business was not to disclose to its customers the identity of its berry and yoghurt suppliers. Carmichael was employed by HC Foods between September 2013 and May 2015. Legal Principles The relevant principles are not contentious. Rule 7.23 of the Rules provides as follows:(1)A prospective applicant may apply to the Court for an order under sub rule (2) if the prospective applicant:(a)reasonably believes that the prospective applicant may have the right to obtain relief in the Court from a prospective respondent whose description has been ascertained; and(b)after making reasonable enquiries, does not have sufficient information to decide whether to start a proceeding in the Court to obtain that relief; and(c)reasonably believes that:(i)the prospective respondent has or is likely to have or has or is likely to have had in the prospective respondent’s control documents directly relevant to the question whether the prospective applicant has a right to obtain the relief; and(ii)inspection of the documents by the prospective applicant would assist in making the decision.(2)If the Court is satisfied about matters mentioned in sub rule (1), the Court may order the prospective respondent to give discovery to the prospective applicant of the documents of the kind mentioned in subparagraph (1)(c)(i). The general principles were summarised by Hely J in St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 at 153 – 154 and adopted with approval by the Full Court: Bonham v Iluka Resources Limited [2015] FCA 713 at [65] and [67]. The rule is to be beneficially construed, given the fullest scope that its language will reasonably allow, with the proper brake on any excesses lying in the discretion of the Court, exercised in the particular circumstances of each case: Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728 at 733. A prospective applicant does not have to make out a prima facie case. Nor does an applicant have to establish every element of the cause of action: Sandhurst Trustees Limited v Clarke [2015] FCAFC 21 at [24].That said, it remains necessary to examine the various elements of the potential cause of action that is sought to be relied on to determine whether there is a reasonable cause to believe that each of the necessary elements exist: Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (2008) 169 FCR 435 at [48], where the Court was dealing with 0 15A r 6 of the Federal Court Rules 1979, the predecessor to r 7.23(1) of the Rules. An applicant for preliminary discovery may be entitled to discovery in order to determine what defences are available to the respondent and the possible strength of those defences, or to determine the extent of the respondent’s breach and the likely quantum of any damages award: Bonham at [26], [65] and [67].

Evidence

Evidence Before The Court

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Decision

Reasons for decision

Furthermore, there is unchallenged evidence that Carmichael had a blue diary that he used to record information about his work for HC Foods. He does not assert that this has been destroyed or that it was not used to record information relevant to HC Foods case between 1 April and 15 July 2015.Reasonable belief that inspection of the documents will assist in making a decision HC Foods has limited the scope of the discovery sought by consent orders made on 17 June 2016. Discovery of the documents listed in Orders 1 and 2 of HC Foods’ proposed orders will, I am satisfied, likely reveal whether or not Carmichael used HC Foods’ confidential information or otherwise breached his obligations to it in forming his business relationships with The Yoghurt Shop and with the businesses or entities listed in Schedule A to the original application. Conversely, should discovery show that Carmichael did not utilise HC Foods’ confidential information in this way, then HC Foods may decide it does not have a basis to commence substantive proceedings against Carmichael. In either case the administration of justice will be advanced. Discovery of the documents listed in Order 3 of the proposed orders will reveal what confidential information Carmichael had at his disposal during the period in which he was developing his new business. HC Foods subjectively holds its beliefs as disclosed by Griffiths’ affidavits and its beliefs are, I find, reasonably held. I would in the exercise of my discretion make the orders sought by the prospective applicant.Costs In a letter dated 9 June 2016, Kitto and Kitto advised HC Foods' solicitors that Carmichael did not have any of the documents sought in its amended application and offered not to oppose the orders sought on the basis set out on page 2 of the letter. Carmichael, on this basis, submits that HC Foods has in any event elected to proceed with a nugatory application, in circumstances where the outcome of the application could not assist it in deciding whether to commence proceedings against him. Carmichael submits that in these circumstances, even if the Court were to make the orders sought in the amended application, HC Foods should pay his costs of the application. However his offer not to oppose the Orders, as amended, was, relevantly, on the basis that HC Foods agreed that there be no order as to costs. HC Foods did not agree, quite reasonably. First, the application had already been filed before the solicitor’s letter of 9 June 2016 was sent. Costs had already been incurred by HC Foods. Second, Carmichael put on an affidavit, in effect, opposing the application. This was done pursuant to orders made on 17 May by consent, relevantly that Carmichael file and serve any affidavits in opposition to the discovery application. The orders also required the parties to file and serve written submissions. Other procedural orders were made by consent on 7 June extending time for compliance with the previous orders. Thereafter HC Foods, on 23 June 2016, was granted leave by consent to amend its application. Consequently the application was thereby amended.

Ratio Decidendi

Legal Principle Established

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