John Lovegrove & CO. PTY. Ltd. (ACN 009 248 524) & A.J Lovegrove & M.H Lovegrove Trading As Lovegrove Electrical v Lumley
[2024] WASC 59
•7 MARCH 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: JOHN LOVEGROVE & CO. PTY. LTD. (ACN 009 248 524) & A.J LOVEGROVE & M.H LOVEGROVE TRADING AS LOVEGROVE ELECTRICAL -v- LUMLEY [2024] WASC 59
CORAM: MASTER RUSSELL
HEARD: 6 FEBRUARY 2024
DELIVERED : 7 MARCH 2024
FILE NO/S: CIV 2038 of 2023
BETWEEN: JOHN LOVEGROVE & CO. PTY. LTD. (ACN 009 248 524) & A.J LOVEGROVE & M.H LOVEGROVE TRADING AS LOVEGROVE ELECTRICAL
Plaintiff
AND
STEPHEN LUMLEY
Defendant
Catchwords:
Practice and procedure - Pre-action discovery against a potential party - Costs - Costs of application for and compliance with orders for pre-action discovery - Turns on own facts
Legislation:
Rules of the Supreme Court 1971 (WA) O 26A r 4
Result:
Orders made by consent for defendant to provide pre-action discovery to plaintiff
Plaintiff to pay defendant's costs of the application and costs of compliance with orders for pre-action discovery
Category: B
Representation:
Counsel:
| Plaintiff | : | D Branford & K Noseda |
| Defendant | : | L Davies |
Solicitors:
| Plaintiff | : | Pragma Lawyers |
| Defendant | : | Cornerstone Legal |
Case(s) referred to in decision(s):
BWS v ARV [No 2] [2021] WASCA 62
Downer Utilities Australia Pty Ltd v Alinta Energy Transmission (Chichester) Pty Ltd [No 2] [2023] WASC 1
Hughes v St Barbara Ltd [2011] WASCA 234 (S)
Kelbush Pty Ltd v Australia and New Zealand Banking Group Ltd [2016] WASCA 14 (S)
Kelbush Pty Ltd v Australia and New Zealand Banking Group Ltd [2016] WASCA 14; (2016) 49 WAR 374
Northern Territory v Sangare [2019] HCA 25; (2019) 265 CLR 164
Oshlack v Richmond River Council (1998) 193 CLR 72
Scanlan v 2-4 McCabe Pty Ltd [2023] WASCA 135
Stanley v Layne Christensen Company [2006] WASCA 56
Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96
MASTER RUSSELL:
Overview
By originating summons filed on 12 September 2023, the plaintiff applies for orders for pre‑action discovery against the defendant pursuant to O 26A r 4 of the Rules of the Supreme Court 1971 (WA) (RSC).
Between about June 2019 and October 2022, the defendant, Stephen Lumley, was employed by the plaintiff, who I will refer to as Lovegrove. He was initially employed as a car wash technician and was promoted to Team Lead, Technical Support under the terms of an employment agreement dated 24 February 2021.
Lovegrove is concerned that, since ceasing employment with Lovegrove, Mr Lumley has set up a competing business in breach of a restraint provision in his employment agreement. It is also concerned that, in breach of his contractual and other obligations owed as an employee of Lovegrove, Mr Lumley has retained, copied or stored confidential financial and operational information relating to its car wash business,[1] which he has used or is using in his new business.
[1] Defined in the affidavit of Michael Hugh Lovegrove sworn on 8 September 2023, par 22 as Company Confidential Information.
The documents Lovegrove believes are in Mr Lumley's possession or control are set out in Schedule A to the application, and include the following documents relating to Lovegrove's car wash business:
(1)client lists containing information of former, current and prospective clients;
(2)information relating to suppliers;
(3)quoting and pricing information related to margins and pricing for the provision, installation, maintenance and servicing of car wash units and the distribution of related products to its clients; and
(4)system alerts in relation to faults on carwash systems installed by Lovegrove during and after Mr Lumley's employment.
In support of its application, Lovegrove relies on written submissions filed on 17 January 2024 and affidavits sworn by:
(1)Michael Hugh Lovegrove on 8 September 2023 and 14 December 2023;
(2)Anthony John Lovegrove on 8 September 2023; and
(3)Robbie John Raftis sworn on 12 September 2023.
Mr Lumley relies on an affidavit sworn by him on 28 November 2023 and written submissions filed on 2 February 2024.
Lovegrove seeks pre‑action discovery of the documents the subject of its application[2] on the basis it says it may have a cause of action against Mr Lumley and wants to commence proceedings against him but, after reasonable enquiries, has not been able to obtain sufficient information to make a decision as to whether to commence proceedings.
[2] As set out in Schedule A to the Originating Summons filed on 12 September 2023.
In his affidavit sworn on 28 November 2023, Mr Lumley stated he did not oppose providing discovery of the documents sought in the application provided his reasonable costs were met by Lovegrove. He also stated that he opposed paying Lovegrove's costs of the application.
The written submissions filed on behalf of Mr Lumley reflected that position, though appeared to raise an issue as to whether Lovegrove already had sufficient information to make a decision to issue proceedings, such that pre‑action discovery was not necessary.
At the outset of the hearing of Lovegrove's application, I sought to clarify whether and, if so, to what extent Lovegrove's application was opposed.
Counsel for Mr Lumley informed the court, in effect, that Mr Lumley did not press the issue as to whether Lovegrove had sufficient information, and did not oppose orders being made that he give pre‑action discovery. However, he did oppose doing so on the basis sought by Lovegrove. That is, that Mr Lumley pay Lovegrove's costs of the application and of providing the discovery. It was submitted on Mr Lumley's behalf that there was no reason to depart from the usual course and that in the circumstances, where Lovegrove is seeking an indulgence, it should pay the costs of the application and Mr Lumley's costs of providing the pre‑action discovery.
Following the hearing of the application, the parties filed a memorandum of consent orders[3] in relation to the pre‑action discovery to be given by Mr Lumley to Lovegrove.
[3] Memorandum of consent orders filed 9 February 2024.
That leaves only the issue of costs to be determined.
For the reasons that follow, I am not satisfied there is any reason to justify departing from the usual course that the costs of the application for and of providing pre‑action discovery should be paid by the plaintiff, Lovegrove.
Relevant legal principles
There was no dispute between the parties as to the principles relating to an application for pre-action discovery under RSC O 26A r 4. They are well established and were recently summarised by the Court of Appeal in Scanlan v 2-4 McCabe Pty Ltd.[4]
[4] Scanlan v 2-4 McCabe Pty Ltd [2023] WASCA 135 [46] ‑ [51] (Beech & Hall JJA & Lundberg J). See also Downer Utilities Australia Pty Ltd v Alinta Energy Transmission (Chichester) Pty Ltd [No 2] [2023] WASC 1 [18] ‑ [20], [23] ‑ [27] and [29] ‑ [32] (Archer J); BWS v ARV [No 2] [2021] WASCA 62 [27] ‑ [37] (Murphy, Mitchell & Vaughan JJA); Kelbush Pty Ltd v Australia and New Zealand Banking Group Ltd [2016] WASCA 14; (2016) 49 WAR 374 [120] ‑ [124] (Mitchell J, Martin CJ & Buss JJA agreeing).
It was also uncontroversial that in an application for pre‑action discovery, the usual rule is that the party seeking discovery should pay the costs of the application and the discovering party's reasonable costs and expenses of complying with any order made.
In Kelbush Pty Ltd v Australia and New Zealand Banking Group Ltd,[5] Martin CJ said:
2… the proper course in proceedings of this nature is to order, in the absence of any reason to the contrary, that the applicant for the indulgence of pre-trial discovery pay both the respondent's costs of the application and the respondent's reasonable costs of complying with any order for discovery made. Further, it is my view that the obligation to pay costs should not be deferred indefinitely merely because proceedings are subsequently commenced by the applicant against the respondent.
3However, as a matter of principle, there should be a mechanism by which such an applicant can recoup not only the costs that it is ordered to pay to such a respondent, but also its own costs of the pre-trial discovery application if it commences proceedings against the respondent and it appears to the court responsible for those proceedings that such costs should be ordered to be paid to the applicant. In the present case, the best way of achieving this is to order that, subject to an order enabling recoupment of those costs, the current appellant pay the respondent's reasonable costs of compliance with the order for discovery and also the respondent's costs of the application before the master.
4The mechanism by which those costs can be recouped would be by way of an order empowering the current appellant to make an application in the course of any subsequent proceedings for orders with respect to not only the costs that it is ordered to pay the respondent today, but also with respect to its own costs of the application before the master.
[5] Kelbush Pty Ltd v Australia and New Zealand Banking Group Ltd [2016] WASCA 14 (S) (Kelbush Costs Decision) [2] ‑ [4] (Martin CJ), [8] –[9] (Buss JA and Mitchell J agreeing).
Submissions as to costs
I do not repeat all of the submissions made on behalf of the plaintiff and defendant in relation to costs. What follows is a summary of their respective submissions.
Plaintiff's submissions
Lovegrove maintained the position in its written submissions that the costs of the application and of providing the pre‑action discovery should be paid by Mr Lumley. It says, in effect:
(1)Lovegrove first raised its concerns with Mr Lumley about breaches of his obligations relating to the Company Confidential Information and non-solicitation of its clients in a letter to him dated 31 March 2023 from its then lawyers, Clayton Utz.[6]
[6] Affidavit of Michael Hugh Lovegrove sworn on 8 September 2023, attachment MHL 7, pages 57 ‑ 63.
(2)That letter, amongst other things under the heading 'Next Steps', set out legal remedies available to Lovegrove, including the delivery up to Lovegrove of any documents or other information that include or are derived from any of Lovegrove's confidential information that Mr Lumley may have in his possession.
(3)In a response from his then lawyers, MP Commercial Lawyers, dated 6 April 2023, Mr Lumley simply denied Lovegrove's concerns about his use of confidential information and solicitation of clients and stated 'Denied' in response to the paragraph referring to delivery up of documents.
(4)At no stage until after the application for pre-action discovery was made did Mr Lumley make any offer to produce or discover any confidential documents in his possession.
(5)Mr Lumley initially denied taking any confidential information. Later, in his affidavit sworn in response to the application on 28 November 2023, Mr Lumley says he took backups of emails and other information on his work laptop, which Lovegrove submits included Company Confidential Information.
(6)Mr Lumley's work laptop was returned to Lovegrove on about 21 October 2022 after he resigned. On 7 November 2022, the laptop was inspected by Anthony Lovegrove, and then by Robbie Raftis, a cybersecurity analyst of Essential Business IT employed by Lovegrove, and found to have had its contents erased, and which could not be retrieved.[7]
(7)On 7 November 2022, Anthony Lovegrove sent an email to Mr Lumley asking him to provide a copy of the 'Lovegrove Data & emails that were deleted from the laptop'. Mr Lumley responded by email on 7 November 2022 attaching a link to an email backup.[8]
(8)On 28 April 2023, Mr Raftis was asked by Michael Lovegrove to investigate if Mr Lumley had sent emails from his Lovegrove email address to his personal email address. Mr Raftis performed an email search and identified that emails had been sent from Mr Lumley's Lovegrove email to his personal email.[9]
(9)Mr Lumley has not answered this in his affidavit. Lovegrove believes that the emails Mr Lumley sent to his personal email address from his Lovegrove address contained Company Confidential Information, though cannot be certain without discovery of them.
(10)It was necessary to obtain orders for pre-action discovery because of an absence of trust. Lovegrove could not rely on Mr Lumley to provide the documents sought voluntarily.
(11)The circumstances are such that there is a deviation from the normal rule in relation to costs, and Lovegrove seeks orders that Mr Lumley pay the costs of the application and his own costs of providing the discovery.
(12)If Lovegrove is to pay the costs associated with the pre‑action discovery, it invites the court to consider making an order of the kind discussed in the Kelbush Costs Decision,[10] to enable it to make an application in relation to such costs in any subsequent proceedings.
Defendant's submissions
[7] See affidavit of Anthony John Lovegrove sworn 8 September 2023, pars 10 - 12; affidavit of Robbie John Raftis sworn on 12 September 2023, pars 16 - 18.
[8] Affidavit of Anthony John Lovegrove sworn 8 September 2023, pars 12 ‑ 14, attachments AJL-1 to AJL-3. See also affidavit of Stephen Lumley sworn 28 November 2023, pars 43 ‑ 46.
[9] As referred to in the affidavit of Robbie John Raftis sworn on 12 September 2023, pars 24 ‑ 25 and attachment RJR-5.
[10] Kelbush Costs Decision [3] - [4] (Martin CJ).
As has been noted, Mr Lumley has agreed to give pre‑action discovery of any documents in his possession that fall within the description of documents in Schedule A to the orders set out in the memorandum of consent orders filed on 9 February 2024.
His position is that Lovegrove, the party seeking the pre‑action discovery, should pay the costs of the application and of him providing the discovery sought. He says, in effect:
(1)As to the submission made on behalf of Lovegrove that Mr Lumley did not make any offer to provide the discovery until after the application was made, Mr Lumley is under no obligation to make any such offer. He has, however, stated that he will provide the documents sought on the usual terms as to costs.
(2)The initial request by Lovegrove's former lawyers, Clayton Utz, referred in general terms to remedies that may apply, including delivery up of any documents containing confidential information. Mr Lumley was not given a list of the documents sought by way of pre‑action discovery until the application was filed.
(3)From the outset, Lovegrove's position has been that Mr Lumley pay the costs of the application and of providing the discovery sought, which is contrary to the usual rule that the party seeking pre‑action discovery should bear the costs.
(4)There is nothing in the circumstances of the case or the way Mr Lumley has conducted himself that takes this case outside the usual rule.
(5)Mr Lumley returned the laptop to Lovegrove following his resignation and has provided a backup of his emails that he had kept in case it was required.
(6)Mr Lumley stated in his affidavit sworn on 28 November 2023 that he did not oppose giving discovery of any documents in his possession, but opposed paying the costs of doing so and the costs of the application. He has consented to orders being made to provide pre‑action discovery of any of the documents described that are or have been in his possession, but resists doing so at his expense.
Disposition
Costs are in the discretion of the court. The court's discretion to award costs must be exercised judicially but is otherwise not confined.[11]
[11] Oshlack v Richmond River Council (1998) 193 CLR 72 [21] ‑ [22]; Northern Territory v Sangare [2019] HCA 25; (2019) 265 CLR 164 [24] ‑ [25]; Hughes v St Barbara Ltd [2011] WASCA 234 (S) [5]; Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96 [48] ‑ [50].
Though costs will usually follow the event so that the court will, ordinarily, order that the successful party recover their costs, that will not generally be the case where a party seeks an indulgence of the court. As a general rule, where a party seeks an indulgence, that party should pay the costs of the application, as explained by Wheeler JA in Stanley v Layne Christensen Company.[12]
[12] Stanley v Layne Christensen Company [2006] WASCA 56 [52].
As observed by Martin CJ in the Kelbush Costs Decision, the proper course in proceedings of this nature is to order, in the absence of any reason to the contrary, that the applicant for the indulgence of pre‑trial discovery pay both the respondent's costs of the application and the respondent's reasonable costs of complying with any order for discovery made.
I am not satisfied there is any reason in this case to justify any change from the usual course or why the applicant for pre‑action discovery, Lovegrove, should not pay the costs of the application and Mr Lumley's reasonable costs and expenses of giving the discovery.
Mr Lumley was under no obligation to make any offer to discover the documents. There is no entitlement to pre-action discovery. It is for the applicant in an application for pre‑action discovery to satisfy the court that the requirements of RSC O 26A r 4 have been met, and that the order sought is reasonably necessary to achieve the proper administration of justice.[13]
[13] BWS v ARV [No 2] [2021] WASCA 62 [35].
There is no evidence before me of any specific request for pre‑action discovery having been made of Mr Lumley before the application was filed and served. Nor is there any evidence of Lovegrove having offered to pay Mr Lumley’s costs and expenses of providing discovery of the documents sought in the application, at any stage.
In his affidavit of 28 November 2023, Mr Lumley said, in effect, that he would give discovery of documents the subject of the application on the usual terms as to costs.[14]
[14] Affidavit of Stephen Lumley sworn 28 November 2023, pars 52 ‑ 53.
I am not satisfied the matters highlighted on behalf of Lovegrove relating to Mr Lumley deleting the contents of the laptop and taking backups are such as to push this case outside the usual rule in relation to costs.
There are differences between the accounts of Mr Lumley and Michael Lovegrove as to when Mr Lumley purchased the laptop he used whilst employed by Lovegrove. However, they each state that Mr Lumley purchased the laptop and Lovegrove reimbursed him for the cost of the laptop, which he was to use for work.[15]
[15] Affidavit of Stephen Lumley sworn 28 November 2023, pars 24 ‑ 26; Affidavit of Michael Hugh Lovegrove sorn 14 December 2023, pars 11 ‑ 12.
In his affidavit, Mr Lumley deposes to having used the laptop for both work and his personal use. He says that Lovegrove agreed to reimburse him for the cost of the laptop to use as a work computer and that he was to return it to Lovegrove in 'like new' condition if he ceased his employment.[16]
[16] Affidavit of Stephen Lumley sworn 28 November 2023, pars 24 ‑ 26.
Mr Lumley states that he used the laptop for his personal email and banking and had his passwords stored on it. When he resigned from his employment with Lovegrove, he cleared his personal accounts and information from the laptop and reset it using the 'Reset this PC' function before returning it to Lovegrove.[17] He says he kept a backup of his Lovegrove email account for a few weeks after his resignation in case Lovegrove needed any information from him for handover. He provided a copy of the backup to Anthony Lovegrove and a few weeks later deleted the original backup from his computer.[18]
[17] Affidavit of Stephen Lumley sworn 28 November 2023, pars 27 – 30.
[18] Affidavit of Stephen Lumley sworn 28 November 2023, pars 45 ‑ 47.
These are not matters that, in my view, suggest any unreasonable conduct that would justify any change from the usual course in relation to costs.
The usual orders should apply. Lovegrove should pay Mr Lumley's costs of the application and his reasonable costs, including legal costs, and expenses of giving the pre‑action discovery.
As referred to in earlier in these reasons, Martin CJ expressed the view in the Kelbush Costs Decision that, as a matter of principle, there should be a mechanism by which an applicant may recoup costs associated with pre‑action discovery if it commences proceedings against the respondent and it appears to the court responsible for that proceeding that such costs should be ordered to be paid to the applicant.
It is too early to say whether any subsequent proceedings will be issued by Lovegrove against Mr Lumley and what course any such proceedings may take. However, it is my view, that it is appropriate to make an order that provides Lovegrove with a mechanism to make an application in relation to the costs associated with pre‑action discovery, in any subsequent proceeding between the parties to this application concerning the matters for which the pre-action discovery is sought. Of course, whether it is entitled to such an order will be a matter to be determined by the court responsible for that proceeding.
Conclusion and orders
The parties have proposed orders by consent as to the terms of the orders to be made in relation to pre‑action discovery to be given by the defendant to the plaintiff. The terms of those orders are reproduced in the Schedule to these reasons. I note the orders refer to the plaintiff interchangeably as 'the plaintiff' and 'the Company'. That should be addressed in the final orders.
The proposed consent orders do not provide for the time by which the pre‑action discovery is to be given. Subject to hearing from the parties, I propose to order that the defendant provide discovery pursuant to RSC O 26A r 4, by way of a list of documents verified by affidavit, within 21 days of the date of the order to be made.
For the reasons outlined, the plaintiff is to pay the defendant's costs of the application and the defendant's reasonable costs, including legal costs, and expenses of giving the pre‑action discovery.
An order will also be made that the defendant may apply, in any subsequent proceedings commenced by it against the plaintiff in relation to the matters the subject of the application, for its costs associated with the pre‑action discovery.
The parties should confer as to the final form of orders, including as to costs, and file a memorandum of consent orders or, if they are unable to agree, minutes of proposed orders by 14 March 2024.
SCHEDULE
Orders for pre-action discovery recorded in memorandum of consent orders filed 7 February 2024
1.The defendant, for the period 23 February 2021 to the date of these orders, give discovery of all documents, or class of documents, whether in written form or on computer disc, or any other machine-readable form, and howsoever and wheresoever stored, that are or have been in the defendant's possession, custody or power, or in the possession, custody or power of any business controlled or operated by the defendant, described in Schedule A to these orders.
2.The defendant, for the period 23 February 2021 to the date of these orders, discloses to the plaintiff's solicitors the whereabouts of all computers, computer disks, electronic information storage devices or systems, that are or have been in the defendant's possession, custody or control, or in the possession, custody or power of any business controlled or operated by the defendant, on or by which any of the documents or class of documents described in Schedule A to these orders, may be, or may have been stored, located or recorded.
Schedule A
1.All client lists of the plaintiff's Car Wash division, the Car Wash division being defined as the Car Wash installation, maintenance & servicing business of the plaintiff known as 'Lovegrove', including information of former, current or prospective clients of the plaintiff.
2.All supplier information of the plaintiff's Car Wash division, including the contact details of the suppliers. Suppliers being defined as including:
(a)PDQ Manufacturing Inc;
(b)OPW Vehicle Wash Solutions;
(c)LaserWash automatic car wash systems;
(d)DuBois Chemical Australia Pty Ltd trading as Prowash Australia; and
(e)Nayax AU Pty Ltd.
3.All quoting and pricing information related to the margins and pricing associated with the plaintiff's Car Wash division, including as to the provision of carwash units, their installation, maintenance, and service, and the distribution of related products such as soaps distributed to the plaintiff's clients.
4.All system alerts in relation to faults on carwash systems installed and maintained by the plaintiffs Car Wash division, which are or have been delivered to the defendant, whether through the defendant's personal or business email address or addresses, or defendant’s personal or mobile contact number or numbers.
5.Plaintiff's Confidential Information not captured by the documents described in paragraphs 1 to 4 above, with Company Confidential Information defined as:
(a)the Company's customer relationship management system;
(b)the Company's clients of the Car Wash division, including confidential client lists, sales commissions data, purchase quantities, and confidential reports;
(c)information of the suppliers of the Car Wash division, including supplier contact details;
(d)commercially sensitive information related to the margins, costs and pricing associated with the Car Wash division, for the purposes of quoting to prospective Company clients; and
(e)all Car Wash division information relating to alerts sent to the defendant's company email address which he accessed through the issued Company mobile phone and Company laptop.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AP
Associate to Master Russell
7 MARCH 2024
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