Knowledge Partners Pty Ltd v Kapish Pty Ltd
[2009] VSC 664
•8 May 2009
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL & EQUITY DIVISION
COMMERCIAL COURT
No. 7732 of 2008
| KNOWLEDGE PARTNERS PTY LTD (ACN 089 593 108) | Plaintiff |
| v | |
| Kapish Pty Ltd (ACN 116 017 728) & Ors | Defendants |
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JUDGE: | Gardiner AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 6 February 2009 | |
DATE OF JUDGMENT: | 8 May 2009 | |
CASE MAY BE CITED AS: | Knowledge Partners Pty Ltd v Kapish Pty Ltd & ors | |
MEDIUM NEUTRAL CITATION: | [2009] VSC 664 | |
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Application for further discovery pursuant to rule 32.05 of Chapter 1 of the Supreme Court (General Civil Procedure) Rules 2005 – whether plaintiff has established that it “has not sufficient information to enable [it] to decide whether or not to commence a proceeding in the Court” – application granted in respect of documents going to the quantum of the possible claim.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms R. Sweet | GSM Lawyers |
| For the Defendant | Mr A.R. McNab | Madgwicks Lawyers |
HIS HONOUR:
By originating motion filed 8 August 2008, the Plaintiff seeks preliminary discovery pursuant to rule 32.05 of the Supreme Court Rules of documents which are said to relate to software allegedly written and developed by the Defendants and other related information.
Rule 32.05 of the Supreme Court Rules 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 the 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 that person to make the decision–
the Court may order that that person [that is, the person referred to in subclause (c) of the law] shall make discovery to the applicant of any document of the kind described in paragraph (c).”
The proceeding was commenced by originating motion on 8 August 2008. The Plaintiff relies on several affidavits sworn by Carl Lindemann on the following dates in support of its application:
(i)4 August 2008;
(ii)20 August 2008;
(iii)11 September 2008
(iv)2 October 2008
(v)3 February 2009.
The Defendants oppose the application and rely on the following affidavits:
(i)Simon John Driscoll filed 20 August 2008 and 18 September 2008;
(ii)Jon-Paul Michael Williams sworn 18 September 2008;
(iii)Laura Therese Jane Simmons sworn 25 November 2008.
Factual background
The Plaintiff (“Knowledge Partners”) designs, sells and installs software which assists organisations to electronically manage documents. It also provides technical assistance and training for that software. The second Defendant, Mr Williams, and the third Defendant, Mr Driscoll, are former employees of Knowledge Partners and directors of the first Defendant (“Kapish”). Kapish also designs, sells and installs software for the electronic management of documents and provides maintenance services for that software. Knowledge Partners sells a software program called TRIM Context pursuant to a contract with the manufacturer of that software, Tower Software Engineering Pty Ltd. This is described by Mr Lindemann in paragraph 7 of his affidavit filed 4 August 2008 as a “non exclusive commercial supply relationship.” Knowledge Partners also installs TRIM Context onto clients’ computers systems using installation methods it has developed.
In addition to installing TRIM Context, Knowledge Partners has developed products which modify the operation of that software. These products, known as “add ons”, have been developed to be used in conjunction with TRIM Context and are compatible with it in the sense that they attach to it by “talking” to the source code of TRIM Context. In order to develop or engineer add ons to TRIM Context it is necessary to have a complete understanding of the software and its programming mechanics.
Mr Driscoll was employed by Knowledge Partners as a Trim Context technical consultant from 3 October 2002 to 30 June 2005. Mr Williams was employed by Knowledge Partners from 26 October 2004 to 9 April 2007. Mr Lindemann states in his affidavit of 11 September 2008 that Mr Williams’ expertise was in the marketing, testing and implementation of software as distinct from the writing of code. He alleges that both of them had entered into a standard form contract governing their terms and conditions of employment, which included provisions in respect of treatment of confidential information, ownership of copyright and restraint from approaching clients of Knowledge Partners. Mr Williams disputes the position in this regard in his affidavit of 18 September 2008 where he states that his employment contract expired on 27 April 2005.
Knowledge Partners states that the employment contracts entered into by Mr Driscoll and Mr Williams provided that the copyright in any software developed by an employee during Mr Driscoll’s and Mr Williams’ employment was the property of Knowledge Partners. In addition, it contends that the restraint provisions provided that each of them were subject to a six month post employment restraint prohibiting them from approaching clients of Knowledge Partners with whom they had had dealings within the last twelve months of their employment.
Kapish was incorporated on 30 August 2005 and Mr Williams and Mr Driscoll were appointed as directors on the following day. By this time, Mr Driscoll had resigned his employment with Knowledge Partners. While he was employed at Knowledge Partners from 31 August 2005 to 9 April 2007, Mr Williams was a director of Kapish. The Plaintiff alleges that Mr Williams’ directorship of Knowledge Partners was not disclosed to the Plaintiff during his employment.
The Plaintiff contends that the Defendants have developed TRIM Context add ons called “TRIM Explorer & URL Handler”. Knowledge Partners believes that these software programmes are compatible with TRIM Context because they are able to “talk to” the TRIM Context programming interface. In Mr Lindemann’s affidavit sworn 4 August 2008 he alleges that Mr Williams negotiated the sale of a copy of URL Handler in his capacity as a director of Kapish to GWM Water, which was a client of Knowledge Partners. Knowledge Partners alleges that Mr Williams did not disclose to it that he was selling TRIM Context add on products to clients of Knowledge Partners during the period of his employment nor that in his capacity as a director of Kapish, Mr Williams engaged in the same or similar business as Knowledge Partners. Knowledge Partners believes that URL Handler was developed jointly by Mr Driscoll and Mr Williams during their employment with Knowledge Partners. The Plaintiff also observes that Mr Williams was employed by Knowledge Partners until 9 April 2007 and that Mr Driscoll deposes in his affidavit sworn 18 September 2008 that he developed TRIM Explorer in April 2007. The Plaintiff instructed an employee, Mr Kris Fagan, to examine a laptop computer used by Mr Williams during his employment between November 2005 and July 2007. Mr Fagan was only able to recover data up to September 2006 from the laptop (which was said to be less than 5 per cent of the total data on the machine). The Plaintiff states Mr Fagan’s investigations revealed that, during his employment with Knowledge Partners, Mr Williams spent time furthering the interests of Kapish by, among other things, marketing and selling URL Handler to clients of Knowledge Partners in conjunction with Mr Driscoll. The Plaintiff contends that for the period in which the data on the laptop was able to be analysed, Mr Williams spent over 34 hours during his employment with Knowledge Partners engaged in these activities at an estimated loss to Knowledge Partners of $7,200. In Mr Lindemann’s affidavit sworn 3 February 2009 he says that consideration was given to recovering data from Mr Driscoll’s laptop however this was not practicable as the laptop had been reformatted and subsequently used by another employee.
The Plaintiff contends that it has or may have a right to obtain relief against the Defendants in respect of:
(i)infringement of copyright under the Copyright Act 1968 (Cth);
(ii)breach of the employment contracts including provisions relating to
(a)ownership of copyright; and
(b)restraint of trade;
(iii)breach of employees’ duty of fidelity owed to their employer; and
(iv)the tort of interference with contractual relations.
The Plaintiff’s written submissions develop in considerable detail those alleged heads of claim. The particulars and the details of the investigations that the Plaintiff has conducted in regard to the alleged activities of the prospective Defendants in the several affidavits and exhibits filed on behalf of the Plaintiff reveal a relatively comprehensive knowledge and analysis of the Defendants’ alleged activities.
In his affidavits sworn 4 August 2008 and 3 February 2009 Mr Lindemann details the enquiries the Plaintiff has conducted in relation to this matter. It has written to the Defendants requesting access to certain documentation (detailed in paragraph 64 of the 4 August 2008 affidavit), namely data recovered from the laptop used by Mr Williams during his employment, as well as the attempted data recovery from Mr Driscoll’s laptop. Knowledge Partners has also approached a number of its clients in relation to their dealings with the first named Defendant.
The Plaintiff contends that it still does not have “sufficient information” to enable it to decide whether to commence Court proceedings. In its oral and written submissions the Plaintiff contends that, on the basis of the data recovered from Mr Williams’ laptop, Mr Williams was in breach of his employment contract and common law duty of fidelity to his employer. It claims that there may be a number of other potential causes of action available to Knowledge Partners, including breach of copyright for the development of software during their employment with Knowledge Partners. The Plaintiff claims that it does not have sufficient evidence to determine whether proceedings should be brought in respect of these additional causes of action. It states that Mr Lindemann’s analysis of the email data from Mr Williams’ laptop is not conclusive or necessarily reliable and that the information it presently has recovered relates mainly to breach of Mr Williams’ duty of fidelity.
The Defendants in their oral and written submissions contend that the evidence put forward by the Plaintiff in respect of its application does not establish breach of the provisions of the Copyright Act. They assert that ownership of copyright in the relevant product resides with Tower Software Engineering Pty Ltd, the manufacturer of Trim Context, as well as the other entities identified in Mr Lindemann’s affidavit of 11 August 2008. The Defendants assert that the licensing agreements, which the Plaintiff characterises as “non exclusive contractual supply relationships,” do not vest any copyright in the Trim Context software to Knowledge Partners. As such, the Defendants argue that there is no basis for contending that the Plaintiff has a “reasonable cause to believe” that it has claims against the Defendants for breach of the Copyright Act. This submission ignores the allegation that the Plaintiff may arguably have rights under the Copyright Act for creation of “add ons” composed by Mr Williams and Mr Driscoll during the period that they were employees of the Plaintiff.
The Defendants went on to submit in both oral and written argument that the Plaintiff has sufficient information to enable it to decide whether to commence proceedings in respect of the various heads it details in its written submissions and affidavit material. The Defendants described the material filed by the Plaintiff in the application as being “voluminous and comprehensive” and as material which could form the basis for the commencement of proceedings against the Defendants. The Defendants also observed that the Plaintiff has, despite its knowledge of its potential claim since May 2007, not chosen to bring an application for an injunction against the Defendants restraining them from committing the alleged conduct. The Defendants further state that the Plaintiff is not able to depose to the loss of any client as a result of the Defendants’ activities.
The Defendants also submit that Knowledge Partners is in a position to commence proceedings on the information it has to hand and that, if it considers after discovery that its claim requires refinement, it can do so. They state further that the Plaintiff been content to allow the first Defendant to trade since May 2007, the time at which it first became aware of its alleged activities, but now seeks access to documents relating to that trading without limitation.
In my view in this application the Plaintiff has established to the appropriate standard that there is a reasonable cause to believe that it has or may have the right to obtain relief from the Defendants. In the context of the present application, such an assessment is only a superficial one. It does not require a conclusion that Knowledge partners is likely to succeed. I also consider that the Plaintiff has made all reasonable enquiries to enable it to decide whether to commence proceedings. The outcome of the application will therefore be determined on a consideration of whether, under the terms of rule 32.05(b), the Plaintiff has established that it “has not sufficient information to enable [it] to decide whether or not to commence a proceeding in the court …”
The procedure under rule 32.05[1] is not intended to provide a means by which the applicant may obtain access to every document which would assist in determining whether or not to litigate, nor is it designed to enable access to all the documents that would be discoverable in a proceeding commenced against the respondents. The applicant is entitled to such information as will establish all elements of the right to relief and enable the claim to it to be pleaded with sufficient particularity.[2]
[1]See generally Discovery and Interrogatories Australia, Bailey and Evans, Butterworths at [5060].
[2](SmithKline Beecham Plc v Alphapharm Pty Ltd [2001] FCA 271).
If the applicant knows there is a right to relief and has documentary material which confirms that right, the rule cannot be used to obtain further documentary material simply to determine whether or not to exercise that right (Compass Airlines Pty Ltd v ANOP Research Services Pty Ltd (SC (Vic) Beach J unreported, BC9100688) or to be comforted in taking a decision in respect of which the plaintiff has sufficient information to enable it to make (Alphapharm v Eli Lilly Australia Pty Ltd [1996] FCA 1500). The question of “sufficient information” must be determined objectively (see AlphapharmvEli Lilley [1996] FCA 391 at [23]-[24]).
In my view, the affidavits filed in support of this application by Knowledge Partners indicates that there is already detailed information available to it on the question of liability to enable it to decide whether to commence proceedings in respect of breach of contract, misuse of confidential information and breaches on the part of Mr Williams and Mr Driscoll of their duties of fidelity and good faith, if not breach of copyright for the add ons created by them during their period of employment with the Plaintiff. The only remaining element is it entitled under rule 32.05 to more information as to the quantum of the proposed claim.
The Plaintiff contends that even if the Court considers that the preliminary discovery sought by Knowledge Partners relates only to quantum it should still be entitled to relief and relies on a passage of the judgment of Sackville J in Quanta Software International Pty Ltd v Computer Management Services Pty Ltd[3] where his Honour states:-
The question is whether the applicant has sufficient information to enable a decision to be made whether to commence a proceeding in the court to obtain relief from an ascertained person… A trivial claim may not be worth pursuing and might prove to be a waste of the time and resources not only of the applicant but of the court (emphasis in original text).
[3](2000) 175 ALR 536 at [33].
I note however that at paragraph [34] of that decision (the paragraph immediately following that extracted above), Sackville J states as follows:
None of this is intended to imply that FCR order 15A r 6 [the equivalent rule in the Federal Court to rule 32.05] is to be used as a matter of course to obtain preliminary discovery of documents relevant to the quantum of a particular claim. Each case must depend on its own circumstances. There maybe cases, however, in which an applicant, after making the reasonable enquiries, has insufficient information relating to quantum to enable it to make a decision whether to commence a proceeding in the court. In such instances the requirement of order 15A r 6(b) [ the equivalent of r 32.05(b)] may well be satisfied.”
Sackville J’s approach is perhaps to be contrasted with that of Beach J in Dorothy Dyer v Ashley Ferguson Hunter & anor[4] which was referred to by counsel for the defendants. That case involved an application under rule 32.05 where the Plaintiff was contemplating taking a proceeding against the estate of the deceased pursuant to Part IV of the Administration and Probate Act1958 (Vic). The Defendants were the executors and trustees of the will of the deceased. The Plaintiff had contended that she was unable to institute the proceeding until such time she had available to her the financial information that she sought in her application. At [7] of the judgment his Honour stated:-
The purpose of rule 32.05 is enable a person to determine whether or not he or she has a cause of action against an identified prospective defendant. If the applicant already believes that there is a cause of action, discovery is not available to enable the applicant to verify that belief or otherwise ascertain the strength of the case for the right to relief. In that regard see the decision of Gobbo, J. in Gibson v Australia and New Zealand Banking Group Ltd, unreported, 30 August 1991. Or, as was stated by the Court of Appeal in Mercantile Mutual Insurance Limited v Household Financial Services Limited, unreported 22 May 1997, the rule cannot be used to obtain material to verify a cause of action which the applicant already knows that it has. The applicant must be seeking to determine whether a right to obtain relief exists, not simply the strength of the right to obtain relief which is believed to exist; that is, to determine the likelihood of success in a proceeding to obtain the relief; see Petrolite Pty Ltd v Hong Kong Bank Ltd, unreported decision of Cummins, J., 10 February 1992.
[4][1999] VSC 531.
His Honour went on to state at [9]:-
In my view the applicant already does have sufficient information available to her to determine whether she has a cause of action against the estate of the deceased. What I consider she is now seeking by means of this application is the detail of the financial activities of the deceased over the 6 or so years prior to his death, with a view on determining how much her claim might be worth. In my opinion that has nothing to do with the question as to whether or not she may have a cause of action against the estate of the deceased. That information could relate only to the potential size of her claim
And at [10]:-
In my opinion having regard to the material that is already available to the applicant, including the inventory of the assets and liabilities of the deceased filed in the court at the time of the application for probate of his estate was lodged, and the material now appearing the affidavits filed by the two defendants to the proceeding, the applicant already would know that she has, or may have, a good cause of action, and I consider her present application to be misconceived.
The approach taken by Sackville J in the Alpha case (which dealt with a somewhat similar scenario to the one under consideration here) is in my view a more apt one for application in this instance than that taken by Beach J in Dyer v Hunter which involved a claim under Part IV of the Administration and Probate Act. The plaintiff in Dyer v Hunter already had access to the inventory of assets and liabilities of the deceased which would have informed her of the size of the estate and, in an indirect way, what the quantum of her claim against the estate might be or at least the value of assets available to meet her claim. As Sackville J observes in Alpha Pharmaceuticals, each case depends on its own circumstances.
In their submissions, the defendants state that if the plaintiff wishes to issue proceedings because it contends that it has causes of action, it can obtain production of documents in the ordinary course of discovery. Of course, one of the reasons for granting preliminary discovery is to enable a decision to be made whether to commence proceedings with the parties and the court avoiding needless expense if litigation is not indicated after such discovery. Further, the defendants say that if it is determined that an order for preliminary discovery be made, that the Magistrates’ Court is the appropriate venue to bring that application. They say that the quantum of the claim would be within the jurisdiction of the Magistrates’ Court if one has regard to the plaintiffs’ evidence about quantum which they say consists of paragraph 51 of the affidavit of Carl Lindemann sworn 4 August 2008 (referring to the GWM transaction in the sum of $2,000) and paragraph 57 which values the time which Mr. Williams allegedly devoted himself improperly to Kapish business at $7,200. I do not, however, understand that these claims represent “the quantum of the claim”, indeed Knowledge Partners’ position is that it has insufficient information as to what the quantum of its claim might be. The defendants state that the costs associated with running this application for preliminary discovery will have exceeded the costs of running proceeding in the State or Federal Magistrates’ Court.
The policy underlining the award of preliminary discovery as described by Sackville J in Quanta Software includes ascertaining of whether the claim would be a waste of time and resources of not only the plaintiffs but of the Courts. In any event, I do not consider it practicable that this application having gone this far should be refused because the appropriate venue may be the Magistrates’ Court. The parties are before the Court, the application has been heard and all the costs of it have incurred save for that of the actual giving of the discovery. It may well be if the material discovered reveals that the quantum of the plaintiffs’ claim is derisory, that the matter will proceed no further and all parties would be advantaged by that outcome.
In my view, the Plaintiffs should be given preliminary discovery however, this should be confined to those documents which will enable it to ascertain what the quantum of its claim against the defendants would be.
I will hear the parties on the question of which categories sought by Knowledge Partners in its application should be the subject of orders in the light of my view that such discovery should be confined to the issue of quantum alone. I will also hear the parties on the question of costs.
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