Legent Corporation& anor v Fundi Software Services Pty Ltd

[1992] FCA 502

502 G2

JUDGMENT No. ..,..... ..... ...J -.......

AND PROCEDURE - purpose of "pre-action" discovery under

Order 15A Rule 6 - appropriate costs order - relevance of type

of prospective action in determining whether the applicant had

made "all reasonable enquiries".

Federal Court Rules - Order 15A Rule 6

LEGENT CORPORATION & ANQB v m	R
No. G134 of 1992
LOCKHART J. SYDNEY 13 JULY 1992
COURT OF A U S T U )
m SOUTH	D I S W T REGISTRY ) No. G134 of 1992
-	1

BETWEEN:  LEGENT CORPORATION

First Applicant

A U S T W I A PTY LTD

Second Applicant

AND :

First Respondent

FXECUTIVE COMPUTING PTY LTD

Second Respondent

STATE GOVERNMENT INSURANCE

-CORPORATION

Third Respondent

JUDGE MAKING ORDER:	LOCKHART J.
WHERE ORDER MADE:	SYDNEY
DATE ORDER MADE:	10 JULY 1992

MINUTE OF ORDER

COURT ORDERS THAT: 

(1) The application of the applicants be dismissed.

, rS

( 8 ,

('2) ' The appl'icants pay the costs of each respondent of this proceeding on a party to party basis pnlesa within 28 days th6 applicants commence substantive proceedings substantially as described in the draft outline statement

of claim (exhibit 2) :-

(a) against the first respondent in which case the

costs of this proceeding between the applicants and the first respondent be reserved and determined by a Judge of the Court in such new proceeding; or

(b) against the second respondent in which case the

costs of this proceeding between the applicants and the second respondent be reserved and determined by a Judge of the Court in such new proceeding; or

(c) against the third respondent in which case the

costs of this proceeding between the applicants and the third respondent be reserved and determined by a Judge of the Court in such new proceeding.

(3) Liberty to restore be reserved to any party on two days'

notice.

m:	Settlement and entry of orders is dealt with in Order
36 of the Federal Court Rules.
g	A

SOUTH W= DISTRICT REGISTBX ) No. G134 o f 1 9 9 2

- )

BETWEEN :  LEGENT CORPORATION

First Applicant

LEGENT AUSTRAtIA PTY LTD

Second Applicant

AND :	F U N D 1	SOFTWARE	SERVICES	PTY
m

First Respondent

B - D

Second Respondent

Third Respondent

This i s a proceeding for orders pursuant t o Order 15A Rule

6 o f the Court's Rules which provides as follows:

"6	Where -
( a )	there i s reasonable cause t o believe that the applicant has or may have the right t o obtain r e l i e f i n the Court been ascertained; from a person whose description has
(b)	a f t e r making a l l reasonable inquiries,
the applicant has not su f f i c ien t
information t o enable a decision t o be made whether t o commence a proceeding i n the Court t o obtain that r e l i e f ; 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 possession of 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 in making the decision -

the Court may order that that person shall make discovery to the applicant of any document of the kind described in paragraph I1

(C) -

The proceeding was commenced on 13 March 1992. It was listed for its first directions hearing on 23 March when various orders were made by the Court for the filing of affidavits, return of subpoenas, giving of notices to produce and other procedural matters. On that day the Court ordered also that the applicants provide to the respondents by 30 March a list and copies of all documents supplied by each of them to the third respondent and which are relevant to the application for preliminary discovery. Orders imposing confidentiality with respect to those documents were made by the Court.

When the matter was called on for final hearing on Wednesday of last week, 8 July, counsel for the parties informed the Court that the matter had been resolved, save as to the question of costs. The applicants submit that the proper order for costs of the proceeding is that they pay the costs of each of the respondents of the proceeding unless within 28 days, or such further time as the Court allows, the applicants commence substantive proceedings against the respondents in respect of the subject matter of this proceeding, in which event the costs of the proceedings between the applicants and the respondents should be reserved and determined by a Judge of the Court in such new proceedings.

The third respondent agrees in principle with this order, although it seeks to confine the period within which the proceedings may be commenced by the applicant to 28 days, and seeks an order that its costs should be ordered on a solicitor and client, not a party and party basis.

The first and second respondents oppose the making of a two stage order for costs. They submit that the costs should be determined now and that the applicants should pay the costs of the first and second respondents on a solicitor and client basis.

The parties filed written submissions in which many issues

are traversed by them on this question of costs and I have found

them most helpful. The sole issue before the Court is the form	of the order for costs and whether the applicants should pay them
on a solicitor and client basis or a party and party basis.
I do not propose to traverse all the submissions made by counsel for the parties, I have taken them all into account. I
propose to make my findings.
In my opinion it is appropriate that there be a two stage order for costs. If the applicants do not institute substantive proceedings then it is right that they pay the costs of each respondent, but I leave aside for the moment the question as to the proper basis on which those costs should be assessed.
If substantive proceedings are commenced by the applicants, then in my view they should be costs in the later proceedings. The present proceeding is for the purpose of obtaining pre-trial discovery at the behest of the applicants. If proceedings are subsequently instituted by them, following the giving of such discovery, then the present proceeding is linked closely with the subsequent proceedings and should abide the order for costs of the Judge who hears those proceedings.
The key question in the case is whether the applicants should have written to the respondents a letter before bringing this present proceeding. It is submitted that this proceeding would have obtained by consent what the applicants are seeking
to obtain in the proceeding. Further, the respondents argue that
the failure to send such a letter in the circumstances of this case does not constitute the making of "all reasonable enquiries" as required by Rule 6(b), that the applicants would necessarily have failed in the proceeding, and in the light of all the circumstances the costs order should be one on the basis of solicitor and client. The respondents also rely upon the absence of a letter before action in the circumstances of the case to enliven the Court's discretion to order the payment of costs on a solicitor and client basis.
The nature of the foreshadowed substantive proceeding which the applicants may bring is stated in a draft Statement of Claim. The applicants claim that they have intellectual property rights with respect to Endevor Software which have been infringed by the development and marketing of Proteus Software by the respondents. They allege copyright in certain literary works, being Endevor Guides and Manuals. They assert that the first applicant is the owner of copyright in each of the works and that between October and December 1988 the second applicant provided to the third respondent copies of each of the works for the purpose of the third respondent's evaluation of the Endevor Charge Control System. During the period October 1988 to about August 1989 the third respondent is alleged, without the licence of either of the applicants, to have made copies of one or more of the works or a substantial part of them and thereby infringed the first applicant's copyright in the works. It is also alleged that
without the licence of the applicants, supplied the copies which between October 1988 and August 1989 the third respondent,
it had made, to the first applicant, and permitted the first respondent to have access to the works. The first and second respondents are also alleged to have infringed the first applicant's copyright.
The applicants have foreshadowed that they will also sue for breach of confidence. Each of the relevant works in which copyright is said to subsist, contain what is asserted to be valuable information which the applicants at all times kept confidential and that they disclosed the information to the respondents in circumstances where they were under obligations to the applicants not to use it, otherwise than with the permission of the applicants. It is alleged that they breached this obligation and relief is sought against them.
In my opinion the fact that the applicant did not seek from the respondents before commencing this proceeding, whether by letter or otherwise, what in essence it seeks to obtain in the proceeding does not constitute a failure to make all reasonable enquiries within Rule 6(b) for the following reasons:
1. It seems plain to me from the evidence that each of the respondents contested the entitlement of the applicants to access to most of the relevant documents until, in the case of the first and second respondents, the 30th June, and in

July. In their case, a letter before action would have	the case of the third respondent, Tuesday of last week, 7
been, notwithstanding some evidence that points to the contrary, an exercise in futility. It is clear from the evidence that the issues in this case were strongly contested until very shortly before the commencement of the hearing. Notice to the respondents would have been merely a formal exercise which would have resulted in no appreciable benefit to the applicants.

1. The nature of the foreshadowed proceeding, being for breach of confidence and infringement of copyright, where the applicants have foreshadowed that they will assert improper use of their proprietary rights by the respondents, is also a relevant factor to take into account in deciding whether reasonable enquiries were made by the applicants and on questions of discretion. I take this into account also as a factor which, on balance, weighs in favour of the applicants in this proceeding.

2. The purpose of Order 15A Rule 6 is to allow a party in an appropriate case to obtain discovery from other persons of documents relating to the question whether the applicant has the right to obtain relief in a subsequent substantive proceeding. In a case such as the present, where the foreshadowed cause of action is breach of confidence and of intellectual property rights, a letter before action would not have obtained information of the kind and width for

which the processes of discovery make provision. An order pursuant to Rule 6 requires the party to whom it is

addressed to give discovery of documents of which he has, or is likely to have, or has had, or is likely to have had, possession, relating to the question whether the applicant has the right to obtain the relief and these would involve documents many of which would be peculiarly within the knowledge of the party against whom the proceeding was commenced.

Originally three days were set aside for the hearing of this proceeding because that was the length of time the parties estimated it would take, and at least one of the parties was in the process of making arrangements to have a witness or witnesses flown over from Western Australia on the basis, presumably, that they would be cross-examined. At a directions hearing very soon before the commencement of the hearing, I made it clear to the parties that they could not necessarily assume they would have a right to cross-examine any witness in a proceeding of this kind. I mention this point only for the purpose of indicating that this was very hard fought litigation until the eleventh hour and it is due to the good sense of the legal advisers of the parties that cooperation produced a resolution of the matter, save on this question of costs. But an argument that the applicants were so seriously remiss in not writing a letter before action as to disentitle them to relief or to the exercise of any discretion of the Court in their favour, has a hollow ring when the whole history of this proceeding is taken into account.

The writing of a letter before action is a wise precaution in many cases and in some cases it may be essential for a party to do so to make out a case under Rule 6. I was referred to a number of authorities on this question which are based on the English Rules of the Supreme Court ("the English Rule") Order 24 Rule 7(a) and Victorian Supreme Court Rule ("the Victorian Rule")

32.05. However, the English Rule applies only in cases involving

claims for personal injuries which are substantially different from a case such as that which is foreshadowed by the applicant in this proceeding. The Victorian Rule is in substance the same as this Court's Rule and it has been the subject of judicial comment: see for example G Breschi & Son Pty Ltd v AFT Limited

(1988) VR 109 per Gobbo J at 111 and 114. There are also decisions of single judges of this Court with respect to Order 15A Rule 6: see for example Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728; W.P. Pateman Pty Ltd v Walker Corporation (1990) ATPR 41-106; CCA Beverages (Adelaide) Ltd v Simon John

Hansford & Simon's Natural Fruits Pty Ltd (unreported, O'Loughlin

J, 15 November 1991).

I should add that to fully explore the question of the reasonableness of the applicants' conduct in not writing a letter before action to the persons against whom they may be asserting a breach of confidence and infringement of copyright, would involve an analysis of the substantive case that may be made by the applicants in the foreshadowed proceeding. The appropriate

based on these causes of action is commenced and after it has	time to make such an assessment is when a subsequent proceeding
been heard. It is almost impossible to do that in this present proceeding. However, I have taken into account certain of the evidence that has been filed including the nature of the case as suggested in the draft outline Statement of Claim. I have, of course, no idea whatever of what the ultimate fate would be of the applicants substantive case if indeed it is instituted in the
future .
Part of the reason for what appears to be considerable antipathy between the parties at the time of the commencement of this proceeding on 13 March, relates to assertions made some months earlier by at least one of the respondents that the second applicant was making statements through its employees to persons who deal with clients of at least the second respondent to the effect that the second applicants' intellectual property rights in the Endevor software were infringed by the developers of the Proteus product, and these statements were said to be false and constitute misleading conduct under the Trade Practices Act 19 74 and the equivalent State legislation. There plainly is or was a dispute between the parties with respect to this matter. I have taken it into account in determining the appropriate order for costs to be made against in this case.
I reject the submission that the institution of this proceeding was an abuse of the Court's process. I see no foundation for this submission. It seems to me that this case
was instituted by the applicants to see whether or not the discovery process which is afforded by Order 15A Rule 6 will
justify the applicants in commencing a substantive proceeding based on breach of confidence and infringement of copyright.
The principles upon which orders for costs based on a solicitor and client basis are well known and need no restatement by me.
The proper order for casts in this case is a two stage order with the costs being determined on a party and party basis.

The Court orders that:

(1) The application of the applicants be dismissed.

(2) The applicants pay the costs of each respondent of this proceeding on a party to party basis ~ 1 e s e within 28 days the applicants commence substantive proceedings substantially as described in the draft outline statement of claim where:-

(a) against the first respondent in which case the

costs of this proceeding between the applicants and the first respondent be reserved and determined by a Judge of the Court in such new proceeding; or

(b) against the second respondent in which case the

costs of this proceeding between the applicants and the second respondent be reserved and determined by a Judge of the Court in such new proceeding; or

(c) against the third respondent in which case the

costs of this proceeding between the applicants and the third' respondent be reserved and determined by a Judge of the Court in such new proceeding.

(3) Liberty to restore be reserved to any party on two days'

notice.

I certify that this and the

preceding eleven (11) pages are a true copy of the reasons for judgment herein of the Honourable

Mr. Justice Lockhart.

Dated:  13 July 199iI

Counsel for the Applicants : D.K. Catterns

Solicitors for the Applicants :	Baker & McKenzie
Counsel for the First	J.J. Garnsey Q.C.
Respondent

:  and R.J.L. McCormack

Solicitors for the First	:	Parker & Parker
Respondent
Solicitor for the Second	:	Taylor Szekely Kelso
Respondent
Counsel for the Third	Dr P.F. Esler
Respondent
Solicitor for the Third	:	Corrs Chamber Westgarth
Respondent
Date of Hearing	10 July 1992
Date of Judgment	:	13 July 1992